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 June 30, 1996
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)
(216) 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 August 1, 1996: 4,127,178 shares
Class of Common Stock: $1.00 par value
2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended June 30, 1996
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Requisition 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 4
Condensed Consolidated Statements of 8
Cash Flows
Notes to the Condensed Consolidated Financial 10
Statements
Item 2 - Management's Discussion and Analysis 12
of Financial Condition and Results of
Operations
Part II - Other Information
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults upon Senior Securities 16
Item 4 - Submission of matters to a Vote of 16
Security Holders
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 16
Exhibit Index 17
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1996 1995
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 24,131,000 $ 27,428,000
Federal funds sold and other interest
bearing instruments 705,000 102,000
Securities:
Securities available for sale 14,424,000 15,161,000
Investment securities 86,624,000 89,405,000
------------ ------------
Total Securities 101,048,000 104,566,000
(Market value $100,926,000 and
$106,076,000, respectively)
Total Loans 285,655,000 276,493,000
Reserve for possible loan losses (3,995,000) (4,002,000)
------------ ------------
Net loans 281,660,000 272,491,000
------------ ------------
Premises and equipment, net 10,871,000 11,006,000
Other assets 6,073,000 6,010,000
------------ ------------
TOTAL ASSETS $424,488,000 $421,603,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Noninterest-bearing deposits $ 61,554,000 $ 60,163,000
Interest-bearing deposits 296,013,000 293,292,000
------------ ------------
Total deposits 357,567,000 353,455,000
Federal funds purchased and securities
sold under agreements to repurchase 21,154,000 24,148,000
Federal Home Bank Advances 360,000 -0-
Other liabilities 2,998,000 3,209,000
------------ ------------
Total Liabilities 382,079,000 380,812,000
Shareholders' equity:
Common stock $1.00 par:
Authorized 5,000,000
Outstanding 4,126,878 and
4,039,347, respectively 4,126,000 4,039,000
Additional capital 20,077,000 17,854,000
Retained earnings 18,247,000 18,856,000
Net unrealized security losses (41,000) 42,000)
------------ ------------
Total Shareholders' Equity 42,409,000 40,791,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $424,488,000 $421,603,000
============ ============
Note 1: The consolidated balance sheet at December 31, 1995 has been
taken from the audited Financial Statements and condensed.
See notes to condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME -------------------------
1996 1995
INTEREST INCOME -------------------------
Interest and fees on loans:
Taxable $12,615,000 $12,077,000
Tax-exempt 31,000 39,000
Interest and dividends on securities:
Taxable 3,025,000 2,680,000
Tax-exempt 135,000 217,000
Interest on Federal funds sold and other
interest bearing instruments 118,000 122,000
----------- -----------
TOTAL INTEREST INCOME 15,924,000 15,135,000
----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 897,000 822,000
Interest on other deposits 4,300,000 4,261,000
Interest on Federal funds purchased
and securities sold under agreements
to repurchase 450,000 624,000
Other interest 1,000 1,000
----------- -----------
TOTAL INTEREST EXPENSE 5,648,000 5,708,000
----------- -----------
NET INTEREST INCOME 10,276,000 9,427,000
Provision for possible loan losses 300,000 200,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR POSSIBLE LOAN LOSSES 9,976,000 9,227,000
----------- -----------
OTHER INCOME:
Trust division income 536,000 477,000
Service charges on deposit accounts 1,010,000 758,000
Other charges, fees and exchanges 851,000 840,000
Other operating income 51,000 8,000
----------- -----------
TOTAL OTHER INCOME 2,448,000 2,083,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 4,010,000 3,764,000
Net occupancy expense 639,000 604,000
Furniture and equipment expense 1,078,000 1,001,000
FDIC deposit insurance premium 1,000 368,000
Ohio Franchise Tax 290,000 248,000
Other operating expenses 2,283,000 2,005,000
------------ ------------
TOTAL OTHER EXPENSES 8,301,000 7,990,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 4,123,000 3,320,000
FEDERAL INCOME TAXES 1,346,000 1,055,000
------------ ------------
NET INCOME $ 2,777,000 $ 2,265,000
============ ============
PER SHARE DATA:
EARNINGS $ .67 $ .55
====== ======
CASH DIVIDENDS $ .28 $ .24
====== ======
See notes to condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME --------------------------
1996 1995
INTEREST INCOME --------------------------
Interest and fees on loans:
Taxable $ 6,373,000 $ 6,200,000
Tax-exempt 15,000 19,000
Interest and dividends on securities:
Taxable 1,525,000 1,375,000
Tax-exempt 62,000 118,000
Interest on Federal funds sold and other
interest bearing instruments 57,000 77,000
----------- -----------
TOTAL INTEREST INCOME 8,032,000 7,789,000
----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 453,000 429,000
Interest on other deposits 2,104,000 2,226,000
Interest on Federal funds purchased
and securities sold under agreements
to repurchase 212,000 336,000
Other interest 1,000 1,000
----------- -----------
TOTAL INTEREST EXPENSE 2,770,000 2,992,000
----------- -----------
NET INTEREST INCOME 5,262,000 4,797,000
Provision for possible loan losses 175,000 100,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR POSSIBLE LOAN LOSSES 5,087,000 4,697,000
----------- -----------
OTHER INCOME:
Trust division income 258,000 238,000
Service charges on deposit accounts 526,000 383,000
Other charges, fees and exchanges 428,000 379,000
Other operating income 15,000 5,000
----------- -----------
TOTAL OTHER INCOME 1,227,000 1,005,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,024,000 1,868,000
Net occupancy expense 311,000 297,000
Furniture and equipment expense 537,000 494,000
FDIC deposit insurance premium -0- 182,000
Ohio Franchise Tax 143,000 123,000
Other operating expenses 1,158,000 1,006,000
------------ ------------
TOTAL OTHER EXPENSES 4,173,000 3,970,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 2,141,000 1,732,000
FEDERAL INCOME TAXES 690,000 554,000
------------ ------------
NET INCOME $ 1,451,000 $ 1,178,000
============ ============
PER SHARE DATA:
EARNINGS $ .35 $ .28
====== =====
CASH DIVIDENDS $ .14 $ .12
====== =====
See notes to condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF CASH FLOWS -------------------------
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: -------------------------
Interest received $15,971,000 $14,906,000
Other income received 2,442,000 2,010,000
Interest paid (5,736,000) (5,365,000)
Cash paid for salaries and benefits (3,665,000) (3,701,000)
Net occupancy expense of premises paid (491,000) (446,000)
Furniture and equipment expenses paid (383,000) (369,000)
Cash paid for supplies and postage (468,000) (459,000)
Cash paid for other operating expenses (2,372,000) (2,895,000)
Federal income taxes paid (1,395,000) (955,000)
----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 3,903,000 1,762,000
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceed from maturities of
securities available for sale 11,722,000 1,921,000
Proceeds from maturities of
investment securities 8,479,000 15,088,000
Purchases of securities available for sale (7,739,000) (2,468,000)
Purchases of investment securities (9,102,000) (20,187,000)
Net decrease in credit card loans 232,000 500,000
Net increase in long-term loans (9,823,000) (12,599,000)
Purchases of bank premises, equipment
and software (677,000) (1,214,000)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,908,000) (18,959,000)
----------- ----------
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and
other noninterest-bearing deposits 1,391,000 2,110,000
Net increase (decrease) in savings and
passbook deposits (2,361,000) (12,207,000)
Net increase (decrease) in time deposits 5,082,000 24,554,000
Net increase (decrease) in Federal funds purchased
and other interest bearing insturments (3,014,000 2,125,000
Federal Home Loan Bank Advances 360,000 -0-
Proceeds from exercise of stock options 66,000 96,000
Dividends paid (1,213,000) (1,025,000)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 311,000 16,617,000
----------- -----------
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS (2,694,000) (580,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 27,530,000 21,275,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
QUARTER $24,836,000 $20,695,000
=========== ===========
See notes to condensed consolidated financial statements.
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FORM 10-Q LNB Bancorp, Inc. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTRODUCTION
The following areas of discussion pertain to the condensed consolidated
financial statements of LNB Bancorp, Inc. at June 30, 1996, compared to December
31, 1995 and the results of operations for the six months ending June 30, 1996
compared to the same period in 1995. It is the intent of this discussion to
provide the reader with a more thorough understanding of the condensed
consolidated financial statements and supporting schedules, and should be read
in conjunction with those condensed consolidated financial statements and
schedules.
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.
BASIS OF PRESENTATION
The unaudited condensed consolidated balance sheet as of June 30, 1996, the
condensed consolidated statements of income and the condensed consolidated
statements of cash flows for the six months ended June 30, 1996 and 1995 are
prepared in accordance with generally accepted accounting principles for
interim financial information. The above mentioned statements reflect all
normal and recurring adjustments which are, in the opinion of Management,
necessary for a fair presentation of the financial position and the results
of operations for the interim periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Corporation's December 31, 1995
Annual Report to Shareholders.
The results of operations for the period ended June 30, 1996 are not
necessarily indicative of the operating results for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the balance sheet
date and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RESERVE FOR POSSIBLE LOAN LOSSES
Because some loans may not be repaid in full, a reserve for possible 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 maintained by
Management at a level considered adequate to cover possible loan losses that are
11
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 possible 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 possible 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.
The Corporation adopted the provision of Statement of Financial Accounting
Standards No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118 "Accounting for Creditors for Impairment of a Loan -
Income Recognition and Disclosure" on January 1, 1995. SFAS No. 114 provides
guidelines for measuring impairment losses on loans. Under SFAS No. 114, 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 possible loan losses or by a provision for
possible loan losses, depending upon the adequacy of the reserve for possible
loan losses. SFAS No. 118 permits existing income recognition practices to
continue.
RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform to 1996 presentation.
LONG-LIVED ASSETS
The Corporation adopted SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" on January 1, 1996.
This Statement establishes accounting for long-lived assets. Corporate
management determined that the adoption of SFAS No. 121 did not have a
significant impact on the carrying value of the long-lived assets or on net
income during the first half 1996.
STOCK-BASED COMPENSATION
The Corporation adopted SFAS No. 123 "Accounting for Stock-Based Compensation"
on January 1, 1996. This Statement provides elective accounting for stock-based
employee compensation arrangements using a fair value model. Companies
currently accounting for such arrangements under APB Opinion 25 "Accounting for
Stock Issued to Employees," may continue to do so. In accordance with SFAS No.
123, the Corporation has elected to continue to report Stock-Based compensation
under APB Opinion 25. Under APB Opinion 25, if the option is fixed and the
exercise price of the underlying stock equals the market price on the date of
grant, no compensation expense is recognized. Corporate management has
determined that the adoption on SFAS No. 123 will have no effect on the
Corporation's financial condition or results of operations. However, SFAS No.
123 will increase year-end disclosure requirements for stock-based compensation.
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2. PER SHARE DATA
Earnings per common and common equivalent shares (stock options) have been
computed using the weighted average number of shares outstanding during each
period after giving consideration to the dilutive effect of incentive stock
options, a two percent stock dividend and a five-for-four stock split which
were approved by shareholders in 1996 and 1995, respectively.
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATION
FINANCIAL CONDITION
Total assets of the Corporation increased $2,885,000 during the first half of
1996, to $424,488,000. Some of this growth is attributable to a successful
marketing program for new and renewal of certificates of deposit.
Federal funds sold and other interest bearing insvestments increased by $603,000
during the first six months of 1996. This increase was partially reflected in
the $3,297,000 decrease in cash and due from banks.
Total securities decreased $3,518,000 ending the first half at
$101,048,000. At June 30, 1996 unrealized gains (losses) in the investment
securities portfolio were approximately $564,000 and ($686,000), respectively.
Nonperforming assets at June 30, 1996 totaled $108,000, down from $1,293,000 at
March 31, 1996. The second quarter decrease in nonperforming assets of
$1,185,000 resulted from loans being brought current in the amount of $842,000,
loans charged-off in the amount of $303,000, reductions of other real estate
owned of $95,000 and increases in nonaccrual loans of $56,000.
The level of nonperforming assets increased $561,000 during the first
quarter 1996. The first quarter increase is the result of a net increase
in nonaccrual loans plus an increase in other real estate owned. The increase in
nonaccrual loans is due to decreases in nonaccrual principal balances of
$374,000 which have been paid off and brought current and increases in
nonaccrual principal balances of $840,000. The increase in nonaccrual loans in
the first quarter of 1996 was due primarily to three commercial loan customers.
The level of nonperforming assets at June 30, 1996 returned to 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 06/30/96 03/31/96 12/31/95 09/30/95
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $ 69 $1,198 $ 732 $ 356
Restructured 0 0 0 0
Other Real Estate Owned 39 95 0 0
------ ------ ------ ------
Total Nonperforming Assets $ 108 $1,293 $ 732 $ 356
====== ====== ====== ======
Reserve for possible
loan losses to total
nonperforming assets 3,699.07% 305.1% 546.7% 1,106.2%
======== ====== ====== =======
Accruing loans past due
90 days 243 183 0 124
====== ====== ====== ======
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Net loans increased $9,169,000 during the first half to $281,660,000 at
June 30, 1996. The reserve for possible loan losses ended the quarter at
$3,995,000 supported by a provision for loan losses of $300,000, recoveries
of $143,000 and loan charge-offs of $449,000. The reserve for possible loan
losses as a percentage of ending loans was 1.40% and 1.45% at December 31,
1995 and June 30, 1996, respectively. Corporate management believes that
the level of the reserve for possible loan losses is adequate based upon
quantitative analysis of indentified risks and analysis of historical trends.
The Corporation's credit policies are reviewed and modified on an ongoing
basis in order to remain suitable for the management of credit risk within
the loan portfolio as conditions change. At June 30, 1996 there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $69,762,000 and $67,947,000 at June 30, 1996 and 1995, respectively.
The increase in outstanding loan commitments results from increased loan
demand due to better economic and weather conditions, and the beginning of the
construction season.
Total deposits increased $4,112,000 during the first half to $357,567,000.
Non-interest bearing deposits increased to $61,554,000, at June 30, 1996 for
an increase of $1,391,000, while interest bearing deposits climbed to
$296,013,000 for an increase of $2,721,000. Federal funds sold and
securities sold under agreements to repurchase decreased $2,634,000 during
the first half. Due to the volatility of customer repurchase agreements,
most funds generated by repurchase activity enter the Corporation's earning
assets as short-term investments.
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 June 30, 1996,
short-term security investments with maturities of one year or less totalled
$27,759,000, which represented 27.5% of total securities. Adding cash and
due from banks of $24,131,000, and Federal Funds sold and other interest bearing
instruments of $705,000, total liquid assets represented 12.4% of total
assets.
CAPITAL RESOURCES
Total shareholders' equity increased to $42,409,000, at June 30, 1996. The
increase resulted primarily from $2,777,000 of net income generated from the
first six months of operations less a cash dividend payable to shareholders
of $1,144,000. Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", requires
that securities which the Bank has classified as "Available-for-Sale" are
recorded at market value with any adjustments recorded to equity. The increase
in interest rates experienced in the first half of 1996 has caused a decrease in
the market value of these securities which resulted in a reduction of
shareholders' equity by $83,000 for the six months ended June 30, 1996.
14
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 have exceeded the ratios for a well-capitalized financial
institution for all periods presented above. The Corporation's capital and
leverage ratios as of June 30, 1996 and 1995 follow.
June 30,
---------------------
1996 1995
------ ------
Tier I capital ratio 16.93% 16.24%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 18.18% 17.41%
Required total capital ratio 8.00% 8.00%
Leverage ratio 10.21% 9.60%
Required leverage ratio 3.00% 3.00%
On an ongoing basis the Corporation analyzes acquisition opportunities in
markets which are adjacent to or within the Corporation's current geograph-
ical market. Corporate management believes that it's current capital
resources are sufficient to support any foreseeable acquisition activity.
The Corporation has decided to let the lease lapse on June 30, 1996 for
its Plaza branch which is located at 1147 Meister Road, Lorain. A new branch
facility was built next to the Corporation's nearby Oberlin Avenue Auto Bank.
The new faciltiy opened in June 1996 at a cost of approximately $700,000 for the
building, improvements and equipment.
The Corporation has filed an application with the Comptroller of Currency to
secure approval for the installation of three stand-alone automated teller
machine stations. The Corporation is in the process of procuring a lease
agreement for one of these locations.
There were no material commitments outstanding at June 30, 1996, other than
the loan commitments and the contractual obligation for the new Oberlin Avenue
branch office.
RESULTS OF OPERATIONS
Interest and fees on loans for the first half of 1996 increased $530,000 when
compared to the first half of 1995. This was the result of the impact of
increases in interest rates during the last four quarters combined with loan
portfolio growth. Interest and dividends on securities was $3,160,000 for the
first half of 1996 for an increase of $266,000 over the same period in 1995.
Interest and dividends on securities represented 19.8% of total interest income
at June 30, 1996 compared to 19.1% at June 30, 1995. Interest on Federal funds
sold and other interest bearing instruments was $115,000 at June 30, 1996
compared to $122,000 at June 30, 1995. The decrease resulted from lower rates
which were more than offset by the slight increase in the average balance
invested in these forms of financial instruments.
Total interest expense increased by $849,000 when compared to the first
half of 1995. The increase resulted from increases in average balances of
certificates of deposit and checkinvest accounts which more than offset the
slight decrease in interest rates.
15
Total other income increased by $365,000 when compared to the first
half of 1995. This increase resulted from increases in income from
fiduciary fees of $59,000, increases in service charges of $252,000 and
increases in other charges of $12,000. The increase in service charges is due,
in part, to reevaluating the assessment of transaction account charges.
The Corporation continuously monitors non-interest expenses for greater
profitability. The entire staff is geared to improving productivity at all
levels. Non-interest expense for the six months ended June 30, 1996 was
$8,301,000, 3.9% above the first six months of 1995. This increase was due
primarily to increases in salaries and benefits, net occupancy expense,
furniture and equipment expense, postage rate increase, the impacts of
inflation, less a reduction in F.D.I.C. deposit insurance premiums of $367,000.
The effective tax rate increased from 31.8% during the first half of 1995 to
32.8% during the first half of 1996. The increase in the effective tax rate
is due primarily to the decreases in tax emempt interest income. Net income was
$2,777,000 and $2,265,000 for the six months ended June 30, 1996 and 1995,
respectively. Net income per share after adjusting for the two percent stock
dividend in 1996 and the five-for-four stock split in 1995 was $.67 and $.55 for
the six months ended June 30, 1996 and 1995, respectively.
IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS
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 resources or operations of the Corporation. However, the
potential impact of certain accounting and regulatory pronouncements
warrant further discussion.
Significant actions by the Federal government and its agencies, affecting
the financial institutions industry in general, are currently having and
will continue to have an impact on the Corporation. A discussion of these
actions follows:
"Omnibus Budget Reconciliation Act of 1993":
Effective date of impact on the Corporation: August 10, 1993
Impact on the Corporation: Although the cost of tax compliance will
increase, Corporate management does not anticipate that this tax act will
have a material impact on net income.
"The President's Reform Plan for the Savings and Loan Industry" and subsequent
action by the FDIC:
Effective date (direct impact on the Corporation): January 1, 1990
Impact on the Corporation: During 1993, a risk-related assessment system was
developed by the Federal Deposit Insurance Corporation. Effective, January 1,
1993, the Bank was assigned to the lowest deposit insurance rate currently
possible. Under the system, the FDIC will reevaluate the Bank's deposit
insurance rate on a semi-annual basis. The FDIC approved a new rate schedule
due to the fact that the Bank Insurance Fund (BIF) has reached its designated
reserve ratio. The new rates became effective September 15, 1995 and are
applied retroactive to June 1, 1995. The Bank was assigned the lowest deposit
insurance assessment rate under the September 15, 1995 guidelines. During the
first half of 1996, the Bank paid FDIC Deposit Insurance Premiums of $1,000
compared to the 1995 first quarter premium of $368,000. The lower 1996 FDIC
Premium results from the new rate which was effective September 15, 1995.
16
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
(a) Exhibit (11) - Computation of Shares Used for Earnings Per Share
Calculation.
(b) Exhibit (13) - Second Quarter Report to shareholders of LNB Bancorp,
Inc., June 30, 1996.
(c) Reports on Form 8-K
There were no reports on Form 8-K filed for the six months ended
June 30, 1996.
SIGNATURE
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: August 13, 1996 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman,
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: August 13, 1996 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis,
Vice President and
Chief Accounting Officer
17
LNB Bancorp, Inc.
Form 10-Q
Exhibit Index
Pursuant to Item 601 (a) of Regualtion S-K
S-K Reference Exhibit
(10a) Supplemental Retirement Agreement by and between James F.
Kidd and The Lorain National Bank dated July 30, 1996.
(10b) Supplemental Retirement Agreement by and between Thomas P.
Ryan and The Lorain National Bank dated July 30, 1996.
(10c) Supplemental Retiremenat Agreement by and between Gregory
D. Friedman and The Lorain National Bank dated July 30,
1996.
(11) Computation of Shares Used for Earnings Per Share
Calculations
(12) Second Quarter Report to Shareholders of LNB Bancorp, Inc.
June 30, 1996 - EDGAR Version
(27) Financial Data Schedule