1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its charter)
Ohio 34-1406303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
457 Broadway, Lorain, Ohio 44052 - 1769
(Address of principal executive offices) (Zip Code)
(440) 244 - 6000
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to
such requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at October 25, 2001: 4,295,511 shares
Class of Common Stock: $1.00 par value
2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2001
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.10-01 of
Regulation S-X is included in this Form 10-Q as referenced below:
Page
Number(s)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements 9
of Cash Flows
Notes to the Condensed Consolidated Financial
Statements 11
Item 2 - Management's Discussion and Analysis 17
of Financial Condition and Results of
Operations
Item 3 - Quantitative and Qualitative Disclosures 24
About Market Risk
Part II - Other Information
Item 1 - Legal Proceedings 25
Item 2 - Changes in Securities 25
Item 3 - Defaults upon Senior Securities 25
Item 4 - Submission of matters to a Vote of 25
Security Holders
Item 5 - Other Information 25
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibit Index 27
3
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SEPTEMBER 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 2001 2000
------------- -------------
(Unaudited)
ASSETS:
Cash and due from banks $ 25,524,000 $ 22,011,000
Federal funds sold and short-term
Investments 3,119,000 3,125,000
Securities:
Available for sale, at fair value 109,889,000 79,518,000
Held to maturity, at cost (fair value
$18,331,000 and $41,819,000, respectively) 17,908,000 44,431,000
Federal Home Loan Bank and Federal Reserve
Bank Stock, at cost 3,537,000 3,152,000
------------- -------------
Total Securities 131,334,000 127,101,000
------------- -------------
Loans:
Portfolio loans 461,566,000 442,132,000
Loans available for sale 9,191,000 9,008,000
------------- -------------
Total loans 470,757,000 451,140,000
Reserve for loan losses (5,412,000) (5,250,000)
------------- -------------
Net loans 465,345,000 445,883,000
------------- -------------
Bank premises and equipment, net 10,582,000 11,251,000
Intangible assets 3,565,000 3,847,000
Accrued interest receivable 3,392,000 4,694,000
Other assets 4,750,000 4,093,000
Other foreclosed assets -0- 98,000
------------- -------------
TOTAL ASSETS $647,611,000 $622,110,000
============= =============
STATEMENT CONTINUED ON NEXT PAGE
4
STATEMENT CONTINUED FROM PREVIOUS PAGE
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand and other noninterest-bearing
deposits $ 83,711,000 $ 83,093,000
Savings and passbook accounts 240,801,000 219,618,000
Certificates of deposit 194,687,000 193,380,000
------------- -------------
Total deposits 519,199,000 496,091,000
------------- -------------
Securities sold under repurchase agreements
and other short-term borrowings 31,215,000 39,391,000
Federal Home Loan Bank advances, short-term 21,535,000 16,095,000
Federal Home Loan Bank advances, long-term 8,810,000 8,250,000
Accrued interest payable 1,511,000 1,901,000
Accrued taxes, expenses and
other liabilities 4,012,000 3,857,000
------------- -------------
Total Liabilities 586,282,000 565,585,000
------------- -------------
Shareholders' equity:
Preferred stock, no par value: Shares
authorized 1,000,000, and shares
outstanding, none
Common stock $1.00 par: Shares authorized
15,000,000, Shares issued 4,395,511 and
4,311,704, respectively and Shares
outstanding 4,295,511 and 4,211,704,
respectively 4,397,000 4,313,000
Additional capital 25,915,000 24,336,000
Retained earnings 32,078,000 30,584,000
Accumulated other comprehensive income 1,839,000 192,000
Treasury Stock at cost, 100,000 shares (2,900,000) (2,900,000)
------------- -------------
Total Shareholders' Equity 61,329,000 56,525,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $647,611,000 $622,110,000
============= =============
See notes to unaudited condensed consolidated financial statements.
5
FORM 10-Q LNB BANCORP, INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF INCOME (UNAUDITED) -------------------------
2001 2000
INTEREST INCOME: ------------ ------------
Interest and fees on loans:
Taxable $28,619,000 $28,737,000
Tax-exempt 5,000 14,000
Interest and dividends on securities:
U.S. Government agencies and corporations 4,467,000 4,827,000
U.S. Treasury securities 74,000 340,000
U.S. Government CMO's 387,000 -0-
States and political subdivisions 312,000 187,000
Other debt and equity securities 300,000 176,000
Interest on Federal funds sold and other
interest-bearing instruments 126,000 171,000
------------ ------------
TOTAL INTEREST INCOME 34,290,000 34,452,000
------------ ------------
INTEREST EXPENSE:
Interest on Deposits:
Time certificates of $100,000 and over 1,986,000 2,206,000
Other deposits 9,636,000 9,423,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 942,000 1,355,000
Interest on Federal Home Loan Bank advances 965,000 987,000
------------ ------------
TOTAL INTEREST EXPENSE 13,529,000 13,971,000
------------ ------------
NET INTEREST INCOME 20,761,000 20,481,000
Provision for loan losses 1,350,000 1,250,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 19,411,000 19,231,000
------------ ------------
OTHER INCOME:
Investment and Trust Services Division income 1,723,000 1,704,000
Service charges on deposit accounts 2,558,000 2,353,000
Other service charges, exchanges and fees 2,297,000 2,072,000
Gain on sale of securities 250,000 -0-
Gain on sale of loans 35,000 -0-
Other operating income 100,000 40,000
------------ ------------
TOTAL OTHER INCOME 6,963,000 6,169,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 8,144,000 7,754,000
Furniture and equipment expenses 1,573,000 1,697,000
Net occupancy expense of premises 1,143,000 1,108,000
Supplies and postage 775,000 705,000
Ohio franchise tax 486,000 418,000
Credit card and merchant expenses 943,000 821,000
Other operating expenses 3,721,000 3,374,000
------------ ------------
TOTAL OTHER EXPENSES 16,785,000 15,877,000
------------ ------------
INCOME BEFORE INCOME TAXES 9,589,000 9,523,000
INCOME TAXES 3,235,000 3,262,000
------------ ------------
NET INCOME $ 6,354,000 $ 6,261,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ 1.48 $ 1.45
====== ======
DILUTED EARNINGS PER SHARE $ 1.48 $ 1.45
====== ======
DIVIDENDS DECLARED PER SHARE $ .74 $ .72
====== ======
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF INCOME (UNAUDITED) --------------------------
2001 2000
INTEREST INCOME ------------ ------------
Interest and fees on loans:
Taxable $ 9,212,000 $10,086,000
Tax-Exempt -0- 4,000
Interest and dividends on securities:
U.S. Government agencies and corporations 1,255,000 1,650,000
U.S. Treasury securities 17,000 80,000
U.S. Government CMO's 311,000 -0-
States and political subdivisions 132,000 63,000
Other debt and equity securities 116,000 67,000
Interest on Federal funds sold and other
interest-bearing instruments 38,000 42,000
------------ ------------
TOTAL INTEREST INCOME 11,081,000 11,992,000
------------ ------------
INTEREST EXPENSE:
Interest on Deposits:
Time certificates of $100,000 and over 552,000 880,000
Other deposits 3,030,000 3,327,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 306,000 523,000
Interest on Federal Home Loan Bank advances 306,000 308,000
------------ ------------
TOTAL INTEREST EXPENSE 4,194,000 5,038,000
------------ ------------
NET INTEREST INCOME 6,887,000 6,954,000
Provision for loan losses 450,000 650,000
NET INTEREST INCOME AFTER PROVISION ------------ ------------
FOR LOAN LOSSES 6,437,000 6,304,000
------------ ------------
OTHER INCOME:
Investment and Trust Services Division income 562,000 587,000
Service charges on deposit accounts 923,000 807,000
Other service charges, exchanges and fees 839,000 716,000
Gain on sale of securities 170,000 -0-
Gain on sale of loans 18,000 -0-
Other operating income 25,000 14,000
------------ ------------
TOTAL OTHER INCOME 2,537,000 2,124,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,788,000 2,649,000
Furniture and equipment expenses 528,000 408,000
Net occupancy expense of premises 365,000 350,000
Supplies and postage 232,000 229,000
Ohio franchise tax 162,000 88,000
Credit card and merchant expenses 346,000 288,000
Other operating expenses 1,216,000 1,125,000
------------ ------------
TOTAL OTHER EXPENSES 5,637,000 5,137,000
------------ ------------
INCOME BEFORE INCOME TAXES 3,337,000 3,291,000
INCOME TAXES 1,144,000 1,130,000
------------ ------------
NET INCOME $ 2,193,000 $ 2,161,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .51 $ .50
====== ======
DILUTED EARNINGS PER SHARE $ .51 $ .50
====== ======
DIVIDENDS DECLARED PER SHARE $ .25 $ .25
====== ======
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF CASH FLOWS (UNAUDITED) -------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Interest received $35,351,000 $34,516,000
Other income received 6,526,000 6,218,000
Interest paid (13,919,000) (13,759,000)
Cash paid for salaries and
employee benefits (8,637,000) (7,557,000)
Net occupancy expense of premises paid (888,000) (865,000)
Furniture and equipment expenses paid (540,000) (654,000)
Cash paid for supplies and postage (775,000) (705,000)
Cash paid for other operating expenses (3,974,000) (4,154,000)
Federal income taxes paid (3,135,000) (3,227,000)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,009,000 9,813,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 44,990,000 8,000,000
Proceeds from maturities of securities
held to maturity 28,854,000 502,000
Purchase of securities held to maturity (938,000) (753,000)
Purchase of securities available
for sale (75,616,000) (11,126,000)
Net (increase) in loans made to customers (20,907,000) (31,442,000)
Proceeds from sales of bank premises and
equipment 13,000 -0-
Purchases of bank premises, equipment
and software, net (668,000) (1,308,000)
Proceeds from liquidation of other
foreclosed assets 98,000 296,000
Purchases of other foreclosed assets -0- (247,000)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (24,174,000) (36,078,000)
------------ -----------
STATEMENT CONTINUED ON NEXT PAGE
10
STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and other
noninterest-bearing deposits 618,000 3,772,000
Net increase in savings and passbook deposits 21,183,000 12,409,000
Net increase in certificates of deposit 1,307,000 27,308,000
Net increase(decrease) in securities sold
Under repurchase agreements and other
short-term borrowings 824,000 (18,582,000)
Proceeds from Federal Home Loan
Bank advances 11,000,000 8,000,000
Payment on Federal Home Loan advances (14,000,000) (10,000,000)
Purchase of Treasury Stock -0- (39,000)
Proceeds from exercise of stock options 3,000 62,000
Dividends paid (3,263,000) (3,034,000)
NET CASH PROVIDED BY FINANCING ------------ -----------
ACTIVITIES 17,672,000 19,896,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,507,000 (6,369,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 25,136,000 37,343,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
QUARTER $28,643,000 $30,974,000
============ ============
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $6,354,000 $6,261,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,288,000 1,286,000
Amortization of intangible assets 283,000 298,000
Amortization of deferred loan fees
and costs, net 102,000 248,000
Provision for loan losses 1,350,000 1,250,000
Decrease in accrued interest receivable 1,302,000 123,000
(Increase) in other assets (545,000) (213,000)
Increase (Decrease) in accrued interest
payable (390,000) 212,000
Increase in accrued taxes,
expenses and other liabilities 100,000 43,000
Other, net 165,000 305,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $10,009,000 $ 9,813,000
============ ============
See notes to unaudited condensed consolidated financial statements.
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Form 10-Q LNB Bancorp, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTRODUCTION
The following areas of discussion pertain to the unaudited condensed
consolidated balance sheets of LNB Bancorp, Inc. (The Parent Company)
and its wholly-owned subsidiaries, Lorain National Bank (The Bank), and
Charleston Insurance Agency, Inc., and a 49% interest in Charleston Title
Agency, LLC., at September 30, 2001, compared to December 31, 2000,
and the results of its operations and cash flows for the three and nine
months ended September 30, 2001 compared to the same periods in 2000. The
term "the Corporation" refers to LNB Bancorp, Inc. and its subsidiaries.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of LNB
Bancorp, Inc. have been prepared in accordance with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, such information reflects all adjustments (consisting
of normal recurring adjustments), which are, in the opinion of LNB Bancorp,
Inc. management, necessary for fair statement of results for the interim
periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The consolidated balance sheet at
December 31, 2000 has been taken from the audited Financial Statements and
condensed. It is suggested that these unaudited condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Corporation's December 31, 2000 Annual Report
to Shareholders.
The results of operations for the period ended September 30, 2001 are not
necessarily indicative of the operating results for the full year.
RESERVE FOR LOAN LOSSES
Because some loans may not be repaid in full, a reserve for loan losses is
recorded. This reserve is increased by provisions charged to earnings and is
reduced by loan charge-offs, net of recoveries. Estimating the risk of loss
on any loan is necessarily subjective. Accordingly, the reserve is
12
maintained by Management at a level considered adequate to cover loan losses
inherent in the loan portfolio that are currently anticipated based on
Management's evaluation of several key factors including information about
specific borrower situations, their financial position and collateral values,
current economic conditions, changes in the mix and levels of the various
types of loans, past charge-off experience and other pertinent information.
The reserve for loan losses is based on estimates using currently available
information, and ultimate losses may vary from current estimates due to
changes in circumstances. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the periods in
which they become known. While Management may periodically allocate portions
of the reserve for specific problem situations, the entire reserve is
available for any charge-offs that may occur. Charge-offs are made against
the reserve for loan losses when Management concludes that it is probable
that all or a portion of a loan is uncollectible. After a loan is charged-
off, collection efforts continue and future recoveries may occur.
A loan is considered impaired, based on current information and events, if it
is probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the
present value of the expected future cash flows discounted at the loans
initial effective interest rate, except that all collateral-dependent loans
are measured for impairment based on the fair value of the collateral. If
the loan valuation is less than the recorded value of the loan, an impairment
reserve must be established for the difference. The impairment reserve is
established by either an allocation of the reserve for loan losses or by a
provision for loan losses, depending upon the adequacy of the reserve for
loan losses.
RECLASSIFICATIONS
Certain 2000 amounts have been reclassified to conform to the 2001
presentation.
13
2. EARNINGS PER SHARE
Earnings per share is calculated as follows:
For the 9 Months ended September 30, 2001
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $6,354,000
Basic EPS
Income available to
common shareholders $6,354,000 4,295,378 $1.48
Effect of Dilutive Securities
Incentive Stock Options -0- 4,078 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $6,354,000 4,299,456 $1.48
========== ========= =====
For the 9 Months ended September 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $6,261,000
Basic EPS
Income available to
common shareholders $6,261,000 4,294,587 $1.45
Effect of Dilutive Securities
Incentive Stock Options -0- 4,039 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $6,261,000 4,298,626 $1.45
========== ========= =====
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For the 3 Months ended September 30, 2001
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $2,193,000
Basic EPS
Income available to
common shareholders $2,193,000 4,295,491 $ .51
Effect of Dilutive Securities
Incentive Stock Options -0- 3,971 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,193,000 4,299,462 $ .51
========== ========= =====
For the 3 Months ended September 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $2,161,000
Basic EPS
Income available to
common shareholders $2,161,000 4,294,977 $ .50
Effect of Dilutive Securities
Incentive Stock Options -0- 2,878 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,161,000 4,297,855 $ .50
========== ========= =====
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3. COMPREHENSIVE INCOME
The Corporation's comprehensive income for the nine months ended
September 30, 2001 and 2000 are as follows:
For the nine months ended September 30,
2001 2000
--------------------------------
Net income $6,354,000 $6,261,000
Other comprehensive income:
Unrealized gain on securities
available for sale,
net of tax 1,647,000 361,000
----------- -----------
Comprehensive Income $8,001,000 $6,622,000
=========== ===========
Disclosure of Reclassification Amount
Unrealized holding gains arising
during the period,
net of tax $1,812,000 $ -0-
Less reclassification adjustment
for gains included in net income,
net of tax of $85,000 and $-0- 165,000 -0-
----------- ------------
Change in unrealized gain on
securities available for sale,
net of tax $1,647,000 $ -0-
=========== ============
The Corporation's comprehensive income for the three months ended
September 30, 2001 and 2000 are as follows:
For the three months ended September 30
2001 2000
------------------------------------
Net income $2,193,000 $2,161,000
Other comprehensive income:
Unrealized gain on securities
available for sale,
net of tax 822,000 520,000
----------- -----------
Comprehensive Income $3,015,000 $2,681,000
=========== ===========
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Disclosure of Reclassification Amount
Unrealized holding gains arising
during the period,
net of tax $ 934,000 $ -0-
Less reclassification adjustment
for gains included in net income,
net of tax of $58,000 and $-0- 112,000 -0-
----------- ------------
Change in unrealized gain on
securities available for sale,
net of tax $ 822,000 $ -0-
=========== ============
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements which are based
on various assumptions (some of which are beyond the Corporation's control),
may be identified by reference to a future period or periods, or by the use
of forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," "anticipate," "continue," or similar terms or variations of those
terms, or the negative of these terms. Actual results could differ
materially from those set forth in forward-looking statements, due to a
variety of factors, including, but not limited to, those related to the
economic environment, particularly in the market areas in which the company
operates, competitive products and pricing, fiscal and monetary policies of
the U.S. Government, changes in government regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management, asset/liability management, the financial
and securities markets and the availability of and costs associated with
sources of liquidity.
The Corporation does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
FINANCIAL CONDITION
Total assets of the Corporation increased $25,501,000 during the first nine
months of 2001, to $647,611,000. This growth was funded by increases in
CheckInvest and Market Access deposit accounts and offset in part by
declines in demand deposits, savings and certificates of deposit.
Total earning assets increased 4.1% to $605,210,000 at September 30, 2001
from December 31, 2000. The ratio of earning assets to total assets remained
at 93.54% at December 31, 2000 and September 30, 2001. The loan to deposit
ratio has decreased from 90.94% at 2000 year-end to 90.67% at September
30, 2001. Federal funds sold and short-term investments decreased by $6,000
during the first nine months of 2001.
Total securities increased $4,233,000 ending the third quarter at
$131,334,000. At September 30, 2001 gross unrealized gains and (losses) in
the investment securities portfolio were approximately $3,123,000 and
18
($74,000), respectively. The increase in the market value of the securities
portfolio is due to decreases in market interest rates during 2001.
Net loans grew by $19,455,000 during the first nine months to $470,757,000 at
September 30, 2001 for a 4.4% growth rate. Commercial loan growth was strong
accounting for almost all of the total loan growth during the nine months
ended September 30, 2001. Loan increase was supported by spring and summer
home equity loan sale programs which resulted in new loans totaling over
$6 million.
The reserve for loan losses ended the quarter at $5,412,000. Activity for
the nine months ended September 30, 2001 included provision for loan losses
of $1,350,000, recoveries of $128,000 and loan charge-offs of $1,316,000.
The reserve for loan losses as a percentage of ending loans decreased .01%
from 1.16% at December 31, 2000 to 1.15% at September 30, 2001. Corporate
management believes that the reserve for loan losses as a percentage of
loans at September 30, 2001 remains at an appropriate level. The ratio of
the reserve for loan losses to nonperforming assets remained at an
adequate level even though decreasing to 214.9% at September 30, 2001, from
226.6% at December 30, 2000. Also, Corporate management believes that
the current level of the reserve for loan losses is adequate based upon
quantitative analysis of identified risks and analysis of historical trends,
and probable losses inherent in the loan portfolio at September 30, 2001.
The level of nonperforming assets increased by $201,000 during the first nine
months of 2001. This increase is the result of an increase in non-accrual
loans of $299,000 offset by a decrease in other foreclosed assets in the
amount of $98,000. The decrease in other foreclosed assets results from the
liquidation of assets. The increase in nonaccrual loans is due to decreases
in nonaccrual principal balances of $583,000 which have been paid off and
brought current, loans charged-off in the amount of $354,000, liquidation of
non-accrual loans of $369,000 and increases in nonaccrual principal balances
of $1,605,000. The increase in nonaccrual loans in the first nine months
of 2001 was due primarily to ten commercial loan customers, three mortgage
loan customers and several personal loans, particularly in the indirect
automobile loan category. Management does not believe that this increase in
non-accrual loans is indicative of a failing local economy and that this
change did not result from any change in underwriting standards.
Nonperforming assets at September 30, 2001 totaled $2,518,000, up from
$2,020,000 at June 30, 2001. The third quarter increase in nonperforming
assets of $498,000 resulted from loans being paid off or brought current in
the amount of $257,000, loans charged-off in the amount of $71,000,
liquidation of non-accrual loans of $260,000, decreases in other foreclosed
assets of $19,000 and increases in nonaccrual loans of $1,105,000. The
increase in nonaccrual loans in the third quarter of 2001 was due primarily
to seven commercial loan customers and seventeen consumer loan customers.
19
The level of nonperforming assets at September 30, 2001 remains at relatively
low levels and Corporate management believes nonperforming assets are well
collateralized. The table below presents the level of nonperforming assets
at the end of the last four calendar quarters.
Amounts in thousands 09/30/01 06/30/01 03/31/01 12/31/00
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $2,518 $2,001 $1,724 $2,219
Restructured 0 0 0 0
Other Foreclosed Assets 0 19 224 98
-------- -------- -------- --------
Total Nonperforming Assets $2,518 $2,020 $1,948 $2,317
======== ======== ======== ========
Reserve for loan losses
to total nonperforming
assets 214.9% 257.2% 258.9% 226.6%
======== ======== ======== ========
Accruing loans past due 90 days $ 66 $ 119 $ 112 $ 306
======== ======== ======== ========
Potential problem loans are those loans identified on Management's watch list
in which Management has some doubt as to the borrower's ability to comply
with the present repayment terms and loans which Management is actively
monitoring due to changes in the borrower's financial condition. At September
30, 2001, potential problem loans totaled $2,695,000, a decrease of
$1,229,000 from the December 31, 2000 balance of $3,924,000.
The Corporation's credit policies are reviewed and modified on an on-going
basis in order to remain suitable for the management of credit risk within
the loan portfolio as conditions change. At September 30, 2001, there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $126,229,000 and $95,893,000 at September 30, 2001 and December
31, 2000, respectively. The increase in outstanding loan commitments results
in part from an increase in the unused portion of home equity lines of
credits from a home equity loan sale program in the second and third quarters
of 2001. Mortgage and commercial construction loan demand increased in the
second and third quarters of 2001 as seasonal weather conditions improved and
the construction season moved forward. Consumer loan demand leveled off in
the first, second and third quarters of 2001.
Total deposits increased $23,108,000 during the first nine months to
$519,199,000. Noninterest-bearing deposits increased to $83,711,000, at
September 30, 2001 for an increase of $618,000, while interest-bearing
deposits climbed to $435,488,000 for an increase of $22,490,000. Federal
funds purchased and securities sold under agreements to repurchase decreased
$8,176,000 during the first nine months of 2001 due to decreases in federal
20
funds purchased balances. Due to the volatility of customer repurchase
agreements, most funds generated by repurchase activity enter the
Corporation's earning assets as short-term investments. Federal Home Loan
Bank (FHLB) advances increased to $30,345,000 at September 30, 2001, up
$6,000,000 from 2000 year end.
LIQUIDITY
Liquidity measures a corporation's ability to generate cash or otherwise
obtain funds at reasonable prices to fund commitments to borrowers as well as
the demand of depositors and debt holders. Principal internal sources of
liquidity for the Corporation and the Bank are cash and cash equivalents,
Federal funds sold, and the maturity structures of investment securities and
portfolio loans. Securities and loans available for sale provide another
source of liquidity through the cash flows of these interest-bearing assets
as they mature or are sold. The Corporation continues to maintain a
relatively high liquid position in order to take advantage of interest rate
fluctuations. As of September 30, 2001, short-term security investments with
maturities of one year or less totaled $49,431,000 which represented 37.6% of
total securities. Adding cash and due from banks of $25,524,000 and Federal
funds sold and short-term investments of $3,119,000, total liquid assets
represented 12.1% of total assets. The Corporation's subsidiary bank has
established short-term lines of credit at correspondent banks, the Federal
Home Loan Bank, and the Federal Reserve Bank of Cleveland in the amounts of
$40,000,000, $28,361,000 and $18,000,000, respectively, with credit available
in the amounts of $32,000,000, $28,361,000 and $18,000,000, respectively.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity reached an all time high of $61,329,000, at September
30, 2001, an increase of $4,804,000, or 8.5% from December 31, 2000. The
increase resulted primarily from $6,354,000 of net income generated from the
first nine months of operations less a cash dividend payable to shareholders
of $3,179,000. The decrease in interest rates experienced in the first three
quarters of 2001 has caused an increase in the market value of available for
sale securities which resulted in an increase in shareholders' equity within
accumulated other comprehensive income of $1,647,000 for the nine months
ended September 30, 2001. As of September 30, 2001, the LNB Bancorp, Inc.
held 100,000 shares of common stock as treasury stock. LNB Bancorp, Inc.
purchased 97,996 of these shares in 1997 and 2,004 shares in 1998 for a total
cost of $2,900,000.
The Corporation continues to monitor growth to stay within the constraints
established by the regulatory authorities. Under Federal banking
regulations, an institution is deemed to be well-capitalized if it has a
Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk-based
Total capital ratio of 10.00 percent or greater and a Leverage ratio of 5.00
percent or greater. The Corporation's Risk-based capital and Leverage ratios
21
have exceeded the ratios for a well-capitalized financial institution for all
periods presented. The Corporation's capital and leverage ratios as of
September 30, 2001 and 2000 follow together with those ratios required for
the Corporation to be considered adequately capitalized .
September 30 Minimum Required Minimum
----------------- To Be Well Required
2001 2000 Capitalized Capital
------ ------ ---------------- ----------
Total capital ratio 12.99% 12.98% 10.00% 8.00%
Tier I capital ratio 11.84% 11.79% 6.00% 4.00%
Leverage ratio 8.75% 8.57% 5.00% 4.00%
The Corporation regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisitions in markets
near or within the Corporation's current geographic market. As a result,
acquisition discussions and, in some cases negotiations, take place and
future acquisitions could occur.
Corporate management believes that it's current capital resources are
sufficient to support any foreseeable acquisition activity.
RESULTS OF OPERATIONS
Interest and fees on loans was $28,624,000 for the first nine months of 2001
for a decrease of $127,000 when compared to the first nine months of 2000.
Decreased loan income resulted from the net of increases in the loan
portfolio of $19,617,000 and decreases in interest rates. Interest and
dividends on securities was $5,540,000 for the first nine months of 2001 for
an increase of $10,000 over the same period in 2000. Increased security
income results from increases in the volume of securities and from decreases
in yields on those securities. Interest and dividends on securities
represented 16.2% of total interest income at September 30, 2001 compared to
16.1% at September 30, 2000. Interest on Federal funds sold and short-term
investments was $126,000 at September 30, 2001 compared to $171,000 at
September 30, 2000. The decrease resulted from decreases in the average
balances invested in these forms of financial instruments plus decreases in
interest rates.
Total interest expense decreased by $442,000 when compared to the first nine
months of 2000. The interest expense decrease resulted from a decrease in
interest expense on deposits of $7,000 and repurchase agreement interest of
$413,000, and by decreases in Federal Home Loan Bank advances of $22,000.
Also, total interest expense for the first nine months of 2001 was impacted
by a net increase in deposits of $23,108,000, and by decreases in interest
rates paid on savings, Market Access and certificate of deposit accounts when
compared to the first nine months of 2000.
22
Total other income increased by $794,000 when compared to the first nine
months of 2000. This increase resulted from increases in income from
investment and trust services fees of $19,000, increases in service charges
of $205,000 and increases in other charges, exchanges and fees of $225,000.
The increase in service charges is due, in part, to reevaluating the
assessment of transaction account charges plus increases in the volume of
accounts. The Corporation reported gains on sale of investments and loans of
$285,000. Other operating income increased by $60,000.
The Corporation continuously monitors noninterest expenses for greater
profitability. The entire staff is geared to improving productivity at all
levels. Noninterest expense for the nine months ended September 30, 2001 was
$16,785,000, 5.7% above the first nine months of 2000. This increase was due
primarily to increases in salaries and benefits, furniture and equipment
expense and increases in credit card and merchant expenses. The Corporation
closed the Cooper Foster Park Road Banking Center on September 30, 2001 due
to the close proximity of 4 banking centers all located within 3 miles.
Along with shrinking margins, the Corporation faces potential uncontrollable
increases in postage rates, F.D.I.C. deposit insurance premiums, Ohio
franchise taxes and certain other operating expenses.
The effective tax rate remained reduced to 33.7% from 34.2% during the first
nine months of 2001 and 2000, respectively. The rate decrease is due to the
increase in investments in tax exempt securities. Net income was $6,354,000
and $6,261,000 for the nine months ended September 30, 2001 and 2000,
respectively. Net income per basic and diluted share was $1.48 and $1.45 for
the nine months ended September 2001 and 2000, respectively.
IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS
On July 20, 2001, The Financial Accounting Standards Board issued Statements
No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets." Statement 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. Poolings
initiated prior to June 30, 2001 are grandfathered. Statement 142 replaces
the requirement to amortize intangible assets with indefinite lives and
goodwill with a requirement for an impairment test. Statement 142 also
requires an evaluation of intangible assets and their useful lives and a
transitional impairment test for goodwill and certain intangible assets.
After transition, the impairment tests will be performed annually. A
Company must adopt Statement 142 at the beginning of the fiscal year. LNB
Bancorp, Inc. adopted Statement 141 as of July 1, 2001 and will adopt
Statement 142 as of January 1, 2002. Management is currently analyzing the
effect Statement 142 will have on our financial statements.
Corporate management is not aware of any current recommendations by the
Financial Accounting Standards Board or by regulatory authorities which, if
they were implemented, would have a material effect on the liquidity, capital
23
resources or operations of the Corporation.
LNB Bancorp, Inc. is not aware of any trends, events, or uncertainties that
might have a material effect on the soundness of operations; neither is LNB
Bancorp, Inc. aware of any proposed recommendations by regulatory authorities
which would have a similar effect if implemented, however we anticipate the
current and near term interest rate environment will continue to squeeze our
net interest margin and potentially our net income during the balance of 2001
and during the first and second quarter of 2002.
24
PART I - OTHER INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market indices such as interest rates, foreign exchange
rates and equity prices. The Corporation's principal market risk exposure is
interest rate risk, with no material impact on earnings from changes in
foreign exchange rates or equity prices. There have been no material changes
in the asset and liability mix of the Corporation since December 31, 2000,
which would impact the Corporation's level of market risk.
Interest rate risk is the exposure to changes in market interest rates.
Interest rate sensitivity is the relationship between market interest rates
and net interest income due to the repricing characteristics of assets and
liabilities. The Corporation monitors the interest rate sensitivity of its
on - and - off - balance sheet positions by examining its near-term
sensitivity and its longer term gap position. Corporate management has
determined no significant changes in the Corporation's interest rate risk
profile since December 31, 2000.
With the Federal Reserve Board's recent announcements to decrease the Federal
Funds rates by 400 basis points during the first nine months of 2001, the
Corporation anticipates a modest decrease in the net interest margin during
2001. The amount of the decrease will be determined, in part, by any rate
reductions resulting from actions of the Federal Open Market Committee.
Also, Corporate management does not anticipate any significant changes in the
Corporation's market risk of interest rate risk portfolio.
25
Part II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None
ITEM 2 - Changes in Securities
None
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K:
(3) Exhibit (3)(I) - Articles of Incorporation - Incorporated by
reference to the quarterly report on Form 10-Q for the period
ending September 30, 2000, as filed on November 14, 2000
Exhibit (3)(II) - Code of Regulations - Incorporated by
Reference to Form 8-K, as filed on January 4, 2001
(4) Exhibit (4) - Instrument Defining the Rights of Security Holders-
Incorporated by reference to the LNB Bancorp, Inc. Second Amended
Articles of Incorporation, included as an exhibit to the quarterly
report on Form 10-Q for the period ending September 30, 2000, as
filed November 14, 2000.
(11) Exhibit (11) - Computation of Shares Used for Earnings Per
Share Calculation.
(19) Exhibit (19) - Third Quarter Report to Shareholders of LNB
Bancorp, Inc., September 30, 2001 - EDGAR Version.
There were no reports on Form 8-K filed for the nine months
ended September 30, 2001.
26
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LNB BANCORP, INC.
(registrant)
Date: November 13, 2001 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman, CPA
Executive Vice President and
Chief Financial Officer
Date: November 13, 2001 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer
27
LNB Bancorp, Inc.
Form 10-Q
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K Reference Exhibit
Number
(3)(I) Articles of Incorporation - Incorporated by reference to the
quarterly report on Form 10-Q for the period ending September 30,
2000, as filed on November 14, 2000
(II) Code of Regulations - Incorporated by reference to Form 8-K, as
filed on January 4, 2001
(4) Instrument Defining the Rights of Security Holders-
Incorporated by reference to the LNB Bancorp, Inc. Second Amended
Articles of Incorporation, included as an exhibit to the quarterly
report on Form 10-Q for the period ending September 30, 2000, as
filed November 14, 2000.
(11) Computation of Shares Used for Earnings Per Share
Calculations Footnote 2 Earnings Per Share on pages 13-14
of this Form 10Q is incorporated by reference.
(19) Third Quarter Report to Shareholders of LNB Bancorp,
Inc. September 30, 2001 - EDGAR Version.
28
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the nine months ended September 30, 2001)
S - K Reference Number (19)
Third Quarter Report to Shareholders of
LNB Bancorp, Inc. (dated September 30, 2001)
EDGAR Version
DESCRIPTION:
Three sided pamphlet:
Outside cover: white with blue stripe across the top with two pictures of
LNB Employees with Ohio Reads Students
Third Quarter Report
September 30, 2001
Logo: LNB
Bancorp, Inc.
and subsidiaries
Inside contains:
Message to shareholders,
Unaudited EDGAR version Consolidated Balance Sheets for period ending
September 30, 2001 and September 30, 2000, respectively,
Unaudited EDGAR version Consolidated Statements of Income for the Nine
Months ended September 30, 2001 and September 30, 2000, respectively,
Home Equity Loan makes borrowing affordable
Banking Center, ATMS, Investment Center and Subsidiary Locations
29
Message to Our Shareholders
It's a pleasure, once again, to report on the progress of LNB Bancorp, Inc.,
and its owned subsidiary companies following the end of the third quarter
of 2001. During the third quarter of 2001, LNB Bancorp, Inc. reached a
record milestone in shareholders' equity. Earnings for the first nine months
of 2001 reached $6,354,000, up from $6,261,000 during the first nine months
of 2000. Third quarter's earnings for 2001 reached $2,193,000 compared to
$2,161,000 for the third quarter of 2000.
Numerous factors continue to restrain earnings growth during the first nine
months of 2001. One continuing factor was the Federal Reserve Board's ninth
consecutive interest rate cut, bringing the Fed Funds rate down a total of
400 basis or 61% from January 2001. This, combined with the asset-sensitive
position of the corporation's Balance Sheet, resulted in a lower interest
rate spread between the amount paid to depositors and other lenders and the
rate earned on our loans and other investments. Compounding these effects
were declining stock market indices, which impeded non-interest income growth
during the first nine months of 2001.
Nevertheless, despite these persistent factors, LNB Bancorp, Inc., was still
able to generate modest record earnings growth versus last year. We
accomplished this by working hard to lower our cost of doing business through
overhead rationalization and streamlining our operations to optimize
efficiency, as well as to lower our cost of funding-efforts that will remain
an integral part of our overall strategy in the months ahead. Economic
cycles, by their nature, include both peaks and valleys and we will continue
to manager our business for the opportunities accompanying the inevitable
return to a more favorable economic environment.
Basic and diluted earnings per share for the first nine months of 2001
reached $1.48, a 2% increase over the $1.45 amount reported for the same
period in 2000. The 2000 and 2001 per share amounts have been adjusted to
reflect the 2% stock dividend of July 2, 2001. Earnings for the first nine
months of 2001 were higher than a year ago because of higher net interest
income and non-interest income, offset in part by higher loan loss provision
and operating expenses. Increases in net interest income for the nine months
of 2001 were supported by strong commercial loan growth.
Cash dividends declared per share for the first nine months of 2001 increased
3% compared to the first nine months of 2000. The year to date cash
dividends declared per share in 2001 increased by $.02 to $.74 per share, up
from $.72 per share in 2000.
Assets increased 4.1% to $647.6 million, as of September 30, 2001, up $21.6
million from September 30, 2000. Net loans grew by $19.6 million from one
year ago to $465.4 million at September 30, 2001, for a 4% increase.
Commercial loan growth was strong accounting for almost all of the total loan
growth during the twelve months ended September 30, 2001.
30
Deposits increased 5% to $519.2 million, up $23.1 million from one year ago.
Increases in Checkinvest and Market Access accounts accounted for the deposit
increase. Lorain National Bank operates 21 retail branches and 28 Atms in
nine local communities.
Shareholders' equity surpassed the $60 million mark for the first time in the
history of LNB Bancorp, Inc. Shareholders' equity increased by $6.7 million
during the twelve months ended September 30, 2001, for a 12% increase.
Shareholders' equity amounted to $61.3 million or $14.28 per share at
September 30, 2001 compared with $54.6 million or $12.72 per share at
September 30, 2000.
We appreciate and thank you for your continuing support and look forward to
addressing you after the completion of another successful year of operations.
Sincerely,
/s/ Stanley G. Pijor /s/Gary C. Smith
--------------------- -------------------
Stanley G. Pijor Gary C. Smith
Chairman of the Board President and
Chief Executive Officer
NET INCOME millions of dollars
(A Net Income graph follows in printed version with net income on the y-
axis and years 1997 through 2001 on the x-axis. The graph is a vertical
bar graph. The co-ordinates, by year, which are presented in the table
below are plotted on the previously described grid.)
DIVIDENDS PER SHARE dollars*
(A Dividends Per Share graph follows in printed version with dividends
per share on the y-axis and years 1997 through 2001 on the x-axis. The
graph is a vertical bar graph. The co-ordinates, by year, which are
presented in the table below are plotted on the previously described
grid.)
BASIC EARNINGS PER SHARE dollars*
(A Basic Earnings Per Share graph follows in printed version with
earnings per share on the y-axis and years 1997 through 2001 on the
x-axis. The graph is a vertical bar graph. The co-ordinates, by year,
which are presented in the table below are plotted on the previously
described grid.)
31
Dividends Basic Earnings
Net Income Per Share Per Share
Year Millions of Dollars Dollars* Dollars*
2001 $6,354 $ .74 $1.48
2000 $6,261 $ .72 $1.45
1999 $5,787 $ .66 $1.34
1998 $5,258 $ .60 $1.23
1997 $4,780 $ .48 $1.10
*Adjusted for stock dividends and splits
32
Consolidated Balance Sheets
September 30 2001 2000
- -----------------------------------------------------------------------------
ASSETS:
Cash and Due from Banks. . . . . . . . . . . . .$ 25,524,000 $ 27,897,000
Federal Funds Sold and Short-Term Investments. . 3,119,000 3,077,000
Federal Home Loan Bank and Federal Reserve
Bank Stock, at Cost . . . . . . . . . . . . . . 3,537,000 3,098,000
Securities Held to Maturity, at Cost . . . . . . 17,908,000 44,529,000
Securities Available for Sale, at Fair Value . . 109,889,000 79,193,000
Loans. . . . . . . . . . . . . . . . . . . . . . 470,757,000 449,977,000
Reserve for Loan Losses. . . . . . . . . . . . . (5,412,000) (5,184,000)
-----------------------------
NET LOANS. . . . . . . . . . . . . . . . . . . . 465,345,000 444,793,000
-----------------------------
Premises, Equipment and Intangible
Assets, (net) . . . . . . . . . . . . . . . . . 14,147,000 15,203,000
Accrued Interest Receivable and
Other Assets. . . . . . . . . . . . . . . . . . 8,142,000 8,197,000
-----------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . .$647,611,000 $625,987,000
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-Bearing Deposits . . . . . . . . . .$ 83,711,000 $ 84,426,000
Interest-Bearing Deposits. . . . . . . . . . . . 435,488,000 415,894,000
-----------------------------
TOTAL DEPOSITS . . . . . . . . . . . . . . . . . 519,199,000 500,320,000
-----------------------------
Securities Sold under Repurchase Agreements
and Other Short-Term Borrowings. . . . . . . . 31,215,000 33,540,000
Federal Home Loan Bank Advances. . . . . . . . . 30,345,000 32,345,000
Accrued Interest, Taxes, Expenses and
Other Liabilities. . . . . . . . . . . . . . . 5,523,000 5,138,000
-----------------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . 586,282,000 571,343,000
-----------------------------
Preferred Stock. . . . . . . . . . . . . . . . . -0- -0-
Common Stock . . . . . . . . . . . . . . . . . . 4,937,000 4,312,000
Additional Capital . . . . . . . . . . . . . . . 25,915,000 24,333,000
Retained Earnings. . . . . . . . . . . . . . . . 32,078,000 29,554,000
Accumulated Other Comprehensive (Loss) . . . . . 1,839,000 (655,000)
Treasury Stock, at Cost. . . . . . . . . . . . . (2,900,000) (2,900,000)
-----------------------------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . 61,329,000 54,644,000
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . .$647,611,000 $625,987,000
-----------------------------
33
TOTAL ASSETS millions of dollars
(A Total Assets graph follows in printed version with earnings per share
on the y-axis and years 1997 through 2001 on the x-axis. The graph is a
vertical bar graph. The co-ordinates, by year, which are presented in
the table below are plotted on the previously described grid.)
TOTAL SHAREHOLDERS' EQUITY millions of dollars
(A Total Shareholders' Equity graph follows in printed version with
dividends per share on the y-axis and years 1997 through 2001 on the
x-axis. The graph is a vertical bar graph. The co-ordinates, by year,
which are presented in the table below are plotted on the previously
described grid.)
TOTAL DEPOSITS millions of dollars
(A Total Deposits graph follows in printed version with earnings per
share on the y-axis and years 1997 through 2001 on the x-axis. The
graph is a vertical bar graph. The co-ordinates, by year, which are
presented in the table below are plotted on the previously described
grid.)
Total Shareholders
Total Assets Equity Total Deposits
Year Millions of Dollars Millions of Dollars Millions of Dollars
2001 $647.6 $ 61.3 $519.2
2000 $626.0 $ 54.6 $500.3
1999 $587.5 $ 50.5 $475.1
1998 $523.6 $ 48.2 $433.3
1997 $496.8 $ 44.4 $422.1
34
Consolidated Statements of Income
Nine Months Ended September 30, 2001 2000
- ---------------------------------------------------------------------------
INTEREST INCOME:
Interest and Fees on Loans . . . . . . . . . . .$28,624,000 $28,751,000
Interest and Dividends on Securities . . . . . . 5,540,000 5,530,000
Interest on Federal Funds Sold and
Short-term Investments. . . . . . . . . . . . . 126,000 171,000
---------------------------
TOTAL INTEREST INCOME. . . . . . . . . . . . . . 34,290,000 34,452,000
---------------------------
INTEREST EXPENSE:
Interest on Deposits . . . . . . . . . . . . . . 11,622,000 11,629,000
Interest on Securities Sold Under Repurchase
Agreements and Other Short-term Borrowings. . . 942,000 1,355,000
Interest on Federal Home Loan Bank Advances. . . 965,000 987,000
---------------------------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . 13,529,000 13,971,000
---------------------------
NET INTEREST INCOME. . . . . . . . . . . . . . . 20,761,000 20,481,000
Provision for Loan Losses. . . . . . . . . . . . 1,350,000 1,250,000
---------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . . 19,411,000 19,231,000
---------------------------
OTHER INCOME:
Investment and Trust Services Division Income. . 1,723,000 1,704,000
Fees and Service Charges . . . . . . . . . . . . 4,855,000 4,425,000
Gains From Sales of Loans,
Securities, and Buildings . . . . . . . . . . . 285,000 -0-
Other Operating Income . . . . . . . . . . . . . 100,000 40,000
---------------------------
TOTAL OTHER INCOME . . . . . . . . . . . . . . . 6,963,000 6,169,000
---------------------------
OTHER EXPENSES:
Salaries and Employee Benefits . . . . . . . . . 8,144,000 7,754,000
Net Occupancy Expense of Premises. . . . . . . . 1,142,000 1,108,000
Furniture and Equipment Expenses . . . . . . . . 1,573,000 1,697,000
Supplies and Postage . . . . . . . . . . . . . . 775,000 705,000
Ohio Franchise Tax . . . . . . . . . . . . . . . 486,000 418,000
Other Operating Expenses . . . . . . . . . . . . 4,665,000 4,195,000
---------------------------
TOTAL OTHER EXPENSES . . . . . . . . . . . . . . 16,785,000 15,877,000
---------------------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 9,589,000 9,523,000
---------------------------
Income Taxes . . . . . . . . . . . . . . . . . . 3,235,000 3,262,000
---------------------------
35
NET INCOME . . . . . . . . . . . . . . . . . . .$ 6,354,000 $ 6,261,000
---------------------------
PER SHARE DATA:
BASIC EARNINGS PER SHARE . . . . . . . . . . . . $ 1.48 $ 1.45
---------------------------
DILUTED EARNINGS PER SHARE . . . . . . . . . . . $ 1.48 $ 1.45
---------------------------
DIVIDENDS DECLARED PER SHARE . . . . . . . . . . $ .74 $ .72
===========================
Logos LNB Bancorp, Inc. and subsidiaries, LNBB NASDAQ Listed, FDIC Insured,
Federal Home Loan Bank System, Equal Housing Lender
36
Home Equity Loan makes borrowing affordable
This fall, qualified homeowners have an opportunity to take advantage of
attractive interest rates with an LNB home equity loan. The Bank's loan sale
advertising prominently features the availability of a $10,000 loan for a
monthly payment of just $99.
Unlike some competitors' offers, the LNB home equity loan does not require a
minimum loan amount, nor does it require an automatic debit from a checking
account. Lastly, the LNB home equity loan is a 15-year note and not 20 like
other competitors require.
The LNB equity loan offer will be offered into the fourth quarter. For
information on the LNB equity loan, call our customer service department at
(440) 989-3348.
LNB restructures West Lorain service delivery
Lorain National Bank plans to renovate and add 1,400 square feet of new
customer service space to its Amherst office at 1175 Cleveland Avenue as part
of a two-phase restructuring of its Amherst and west Lorain service area.
Due to close proximity of branch offices on Lorain's west side, adjacent to
Amherst, the bank closed its office at 1920 cooper Foster Park Road during
the third quarter. LNB provided its customers the option of banking at the
soon-to-be-expanded Amherst office, 1.3 miles away, or at one of three other
offices nearby, all located within three miles. Customers' accounts will not
be affected by the change.
Lorain National Bank operates branch offices east of the Cooper Foster
location at Lake Avenue, Oberlin Avenue and on West Park Drive, just off
Route 58 on Lorain's west side. The neighboring offices each feature multi-
lane drive-in banking and spacious lobbies.
The Amherst expansion will provide much-needed floor space for the well
established yet growing Amherst office. The building will also receive a
contemporary face-lift of its exterior. The 40-year-old office will be given
a completely new architectural look, including new entryway elevations,
featuring smoked-glass and anodized framing.
First Choice Checking offers rewarding package
Customers who maintain at least $10,000 in balances in deposits and certain
loans are entitled to service-charge-free interest-bearing checking in LNB's
First Choice Checking program.
The bank promoted First Choice Checking at all of its banking offices,
involving branch merchandising posters and a sales campaign to spread the
word about one of LNB's best checking product values.
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The program concluded during the third quarter. The bank's LaGrange office
opened more that three dozen new First Choice Checking packages during the
promotion. For information on the LNB's First Choice checking account, call
our customer service department at (440) 989-3348.
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Back Cover:
White background with black lettering and blue stripe across top of the page
Three column format
Banking Centers, ATMs, Investment Center and Subsidiary Locations
Lorain National Bank
Lorain Banking Centers Avon Lake Banking Center
**Main **Avon Lake
457 Broadway 240 Miller Road
Lorain, Ohio 44052 Avon Lake, Ohio 44012
(440) 244-7185 (440) 933-2186
**Sixth Street Drive-In Elyria Banking Center
200 Sixth Street **Ely Square
Lorain, Ohio 44052 124 Middle Avenue
(440) 244-7242 Elyria, Ohio 44035
(440) 323-4621
**Kansas Avenue
1604 Kansas Avenue **Cleveland Street
Lorain, Ohio 44052 801 Cleveland Street
(440) 288-9151 Elyria, Ohio 44035
(440) 365-8397
**Oberlin Avenue
3660 Oberlin Avenue **Lake Avenue
Lorain, Ohio 44053 42935 North Ridge Road
(440) 282-9196 Elyria Township, Ohio 44035
(440) 233-7196
**Pearl Avenue
2850 Pearl Avenue **Midway Mall
Lorain, Ohio 44055 6395 Midway Mall Blvd.
(440) 277-1103 Elyria, Ohio 44035
(440) 324-6530
**West Park Drive
2130 West Park Drive **Elyria United Methodist Village
Lorain, Ohio 44053 807 West Avenue
(440) 989-3131 Elyria, Ohio 44035
(440) 323-6488
Amherst Banking Center
**Amherst
1175 Cleveland Avenue **ATM service available wherever
Amherst, Ohio 44001 you see this symbol
(440) 988-4423
*Restricted to residents, their visitors
and employees
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Village of LaGrange Banking Center **Cooper-Foster Park Road
**Village of LaGrange 1920 Cooper-Foster Park Road
546 North Center Street Lorain, Ohio 44053
Village of LaGrange, Ohio 44050
(440) 355-6734 **Dad's Sunoco
7580 Leavitt Road
Oberlin Banking Centers State Route 58
**Kendal at Oberlin* Amherst, Ohio 44001
600 Kendal Drive
Oberlin, Ohio 44074 **Fligner's Supermarket
(440) 774-5400 1846 Broadway
Lorain, Ohio 44052
**Oberlin
40 East College Street **Gateway Plaza
Oberlin, Ohio 44074 3451 Colorado Avenue
(440) 775-1361 Lorain, Ohio 44052
Olmsted Township Banking Centers **Lakeland Medical Center
**Olmsted Township 3700 Kolbe Road
27095 Bagley Road Lorain, Ohio 44053
Olmsted Township, Ohio 44138
(440) 235-4600 **Lorain County Community College
1005 North Abbe Road
The Renaissance Elyria, Ohio 44035
26376 John Road
Olmsted Township, Ohio 44138 **Lowe's Home
(440) 427-0041 Improvement Warehouse
620 Midway Boulevard
Vermilion Banking Center Elyria, Ohio 44035
**Vermilion
4455 East Liberty Avenue **Mobile ATM
Vermilion, Ohio 44089 2130 West Park Drive
(440) 967-3124 Lorain, Ohio 44053
Westlake Banking Centers Other Offices
**Crossings of Westlake Executive
30210 Detroit Road 457 Broadway
Westlake, Ohio 44145 Lorain, Ohio 44052
(440) 892-9696 (440) 244-7123
Westlake Village Branch Administration
28550 Westlake Village Drive 457 Broadway
Westlake, Ohio 44145 Lorain, Ohio 44052
(440) 808-0229 (440) 244-7253
ATMs
**Captain Larry's Marathon
1317 State Route 60
Vermilion, Ohio 44089
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Commercial, Consumer All Other Offices Not Listed
and Mortgage Loans Toll Free (800) 860-1007
457 Broadway Lorain (440) 244-6000
Lorain, Ohio 44052
Telebanker
Visa Telebanker (440) 245-4562
2130 West Park Drive Telebanker (800) 610-9033
Lorain, Ohio 44053
(440) 989-3348 Charleston Insurance Agency, Inc.
457 Broadway
Customer Service Lorain, Ohio 44052
2130 West Park Drive (440) 244-7158
Lorain, Ohio 44053
(440) 989-3348 Charleston Title Agency, LLC
(800) 860-1007 424 Middle Avenue
Elyria, Ohio 44035
Human Resources (440) 244-5212
2130 West Park Drive
Lorain, Ohio 44053 Internet: www.4LNB.com
(440) 989-3139
Logo: LNB
Operations Bancorp, Inc.
2130 West Park Drive and subsidiaries
Lorain, Ohio 44053
(440) 989-3315
Purchasing
2150 West Park Drive
Lorain, Ohio 44053
(440) 989-3327
Investor Relations
457 Broadway
Lorain, Ohio 44052
(440) 244-7317
Investment and Trust Services
457 Broadway
Lorain, Ohio
(440) 244-7226
LNB Investment Center
457 Broadway
Lorain, Ohio 44052
(440) 244-7158
(800) 845-2152