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, 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 November 10, 1996: 4,135,606 shares
Class of Common Stock: $1.00 par value
2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended September 30, 1996
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.01-01 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 14
of Financial Condition and Results of
Operations
Part II - Other Information
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults upon Senior Securities 18
Item 4 - Submission of matters to a Vote of 18
Security Holders
Item 5 - Other Information 18
Item 6 - Exhibit and Reports on Form 8-K 18
Signatures 18
Exhibit Index 19
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SEPTEMBER 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1996 1995
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 19,404,000 $ 27,428,000
Federal funds sold and other interest
bearing instruments 102,000 102,000
Securities:
Securities available for sale 14,244,000 15,161,000
Investment securities 89,725,000 89,405,000
------------- -------------
Total Securities 103,969,000 104,566,000
(Market Value $103,918,000 and ------------- -------------
$103,155,000 respectively)
Total loans 297,080,000 276,493,000
Reserve for possible loan losses (4,112,000) (4,002,000)
------------- -------------
Net loans 292,968,000 272,491,000
------------- -------------
Premises and equipment, net 10,863,000 11,006,000
Other assets 6,281,000 6,010,000
------------- -------------
TOTAL ASSETS $433,587,000 $421,603,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Noninterest-bearing deposits $ 63,175,000 $ 60,163,000
Interest-bearing deposits 297,289,000 293,292,000
------------- -------------
Total deposits 360,464,000 353,455,000
------------- -------------
Federal funds purchased and securities
sold under agreements to repurchase 26,203,000 24,148,000
Federal Home Loan Bank Advances 360,000 -0-
Other liabilities 3,242,000 3,209,000
------------- -------------
Total Liabilities 390,269,000 380,812,000
STATEMENT CONTINUED ON NEXT PAGE ------------- -------------
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STATEMENT CONTINUED FROM PREVIOUS PAGE
Shareholders' equity:
Common stock $1.00 par:
Authorized 5,000,000
Outstanding 4,135,606 and 4,036,248,
respectively 4,135,000 4,039,000
Additional capital 20,129,000 17,854,000
Retained earnings 19,087,000 18,856,000
Net unrealized security gains(losses) (33,000) 42,000
------------- -------------
Total Shareholders' Equity 43,318,000 40,791,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $433,587,000 $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 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF INCOME --------------------------
1996 1995
INTEREST INCOME: ------------ ------------
Interest and Fees on Loans:
Taxable $19,136,000 $18,395,000
Tax-Exempt 46,000 57,000
Interest and Dividends on Securities:
Taxable 4,578,000 4,073,000
Tax-Exempt 184,000 339,000
Interest on Federal funds sold and other
interest bearing instruments 167,000 171,000
------------ -----------
TOTAL INTEREST INCOME 24,111,000 23,035,000
------------ -----------
INTEREST EXPENSE:
Interest on Certificates of Deposit
of $100,000 or more 1,404,000 1,336,000
Interest on Other Deposits 6,437,000 6,455,000
Interest on Federal funds purchases
and securities sold under agreements
to repurchase 690,000 848,000
Other Interest 7,000 1,000
------------ -----------
TOTAL INTEREST EXPENSE 8,538,000 8,640,000
------------ -----------
NET INTEREST INCOME 15,573,000 14,395,000
Provision for Possible Loan Losses 425,000 300,000
NET INTEREST INCOME AFTER PROVISION ------------ -----------
FOR POSSIBLE LOAN LOSSES 15,148,000 14,095,000
------------ -----------
OTHER INCOME:
Trust Division income 801,000 756,000
Service charges on deposit accounts 1,546,000 1,008,000
Other Charges Fees and Exchanges 1,291,000 1,399,000
Gains from Sales of Loans -0- 9,000
Other operating income 64,000 -0-
------------ -----------
TOTAL OTHER INCOME 3,702,000 3,172,000
STATEMENT CONTINUED ON NEXT PAGE ------------ -----------
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 6,059,000 5,937,000
Net occupancy expense 939,000 914,000
Furniture and Equipment Expense 1,630,000 1,499,000
FDIC deposit insurance premium 1,000 351,000
Ohio Franchise Tax 427,000 387,000
Other operating expenses 3,397,000 2,959,000
----------- -----------
TOTAL OTHER EXPENSES 12,453,000 12,047,000
----------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 6,397,000 5,220,000
FEDERAL INCOME TAXES 2,117,000 1,646,000
----------- -----------
NET INCOME $ 4,280,000 $ 3,574,000
=========== ===========
PER SHARE DATA:
EARNINGS $ 1.03 $ .87
====== ======
CASH DIVIDENDS $ .44 $ .37
====== ======
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 SEPTEMBER 30,
OF INCOME --------------------------
1996 1995
INTEREST INCOME ------------ ------------
Interest and Fees on Loans:
Taxable $ 6,521,000 $ 6,318,000
Tax-Exempt 15,000 18,000
Interest and Dividends on Securities:
Taxable 1,553,000 1,391,000
Tax-Exempt 49,000 122,000
Interest on Federal funds sold and other
interest bearing instruments 49,000 51,000
------------ -----------
TOTAL INTEREST INCOME 8,187,000 7,900,000
------------ -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 507,000 514,000
Interest on other deposits 2,137,000 2,194,000
Interest on Federal funds purchased
and securities sold under agreements
to repurchase 240,000 224,000
Other interest 6,000 -0-
------------ -----------
TOTAL INTEREST EXPENSE 2,890,000 2,932,000
------------ -----------
NET INTEREST INCOME 5,297,000 4,968,000
Provision for possible loan losses 125,000 100,000
NET INTEREST INCOME AFTER PROVISION ------------ -----------
FOR POSSIBLE LOAN LOSSES 5,172,000 4,868,000
------------ -----------
OTHER INCOME:
Trust division income 265,000 279,000
Service charges on deposit accounts 536,000 250,000
Other charges fees and exchanges 439,000 555,000
Gains from sales of loans -0- -0-
Other operating income 14,000 5,000
------------ -----------
TOTAL OTHER INCOME 1,254,000 1,089,000
STATEMENT CONTINUED ON NEXT PAGE ------------ -----------
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STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,049,000 2,173,000
Net occupancy expense 300,000 310,000
Furniture and equipment expense 552,000 498,000
Ohio Franchise Tax 137,000 139,000
Other operating expenses 1,114,000 937,000
----------- -----------
TOTAL OTHER EXPENSES 4,152,000 4,057,000
----------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 2,274,000 1,900,000
FEDERAL INCOME TAXES 771,000 591,000
----------- -----------
NET INCOME $ 1,503,000 $ 1,309,000
=========== ===========
PER SHARE DATA:
EARNINGS $ .36 $ .32
====== ======
CASH DIVIDENDS $ .14 $ .14
====== ======
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
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF CASH FLOWS -------------------------
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Interest received $23,953,000 $22,142,000
Other income received 3,760,000 3,188,000
Interest paid (8,589,000) (8,315,000)
Cash paid for salaries and benefits (5,733,000) (5,981,000)
Net occupancy expense of premises paid (720,000) (679,000)
Furniture and equipment expenses paid (579,000) (704,000)
Cash paid for supplies and postage (716,000) (676,000)
Cash paid for other operating expenses (3,362,000) (2,643,000)
Federal income taxes paid (2,060,000) (1,480,000)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES: 5,954,000 4,852,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 9,667,000 2,912,000
Proceeds from maturities of investment
securities 18,971,000 24,313,000
Purchase of securities available for sale (10,446,000) (3,943,000)
Purchase of investment securities (17,725,000) (25,870,000)
Net (increase) in long-term loans (21,297,000) (15,737,000)
Net decrease in credit card loans 200,000 154,000
Purchases of bank premises, equipment
and software (1,094,000) (1,568,000)
Proceeds from sales of bank premises,
and equipment 5,000 -0-
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (21,719,000) (19,739,000)
------------ ------------
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
non-interest bearing deposits 3,012,000 2,628,000
Net (decrease) in savings
and passbook deposits (4,874,000) (15,518,000)
Net increase in time deposits 8,871,000 25,737,000
Net increase in federal funds
purchased and other interest bearing
instruments 2,035,000 2,755,000
Proceeds from Federal Home Loan Bank 360,000 -0-
Proceeds from exercise of stock options 127,000 257,000
Dividends paid (1,790,000) (1,507,000)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 7,741,000 14,352,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,024,000) (535,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 27,530,000 21,275,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
QUARTER $19,506,000 $20,740,000
============ ============
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 September 30, 1996, compared to
December 31, 1995, and the results of operations for the nine months ending
September 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 September 30, 1996, the
condensed consolidated statements of income and the condensed consolidated
statements of cash flows for the nine months ended September 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 September 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
currently anticipated based on Management's evaluation of several key factors
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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 nine months ended September 30, 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.
13
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 during 1996 and 1995, respectively.
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATION
FINANCIAL CONDITION
Total assets of the Corporation increased $11,984,000 during the first nine
months, to $433,587,000. A portion of this growth is attributable to the
cyclical influx of municipal county tax money.
Federal funds sold and other interest bearing investments remained at
$102,000 during the first nine months of 1995.
Total securities decreased $597,000 ending the third quarter at $103,969,000.
At September 30, 1996 unrealized gains (losses)in the investment securities
portfolio were approximately $524,000 and ($575,000), respectively.
Nonperforming assets at September 30, 1996 totaled $980,000, up from $108,000 at
June 30, 1996. The third quarter increase in nonperforming assets of
$872,000 resulted from loans being brought current in the amount of $53,000,
loans charged-off in the amount of $4,000, reductions of other real estate
owned of $0,000 and increases in nonaccrual loans of $929,000. The increase in
nonaccrual loans in the third quarter of 1996 was due primarily to two
commercial loan customers.
The level of nonperforming assets at September 30, 1996 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 09/30/96 06/30/96 03/31/96 12/31/95
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $ 941 $ 69 $1,198 $ 732
Restructured 0 0 0 0
Other Real Estate Owned 39 39 95 0
------ ------ ------ ------
Total Nonperforming Assets $ 980 $ 108 $1,293 $ 732
====== ====== ====== ======
Reserve for possible
loan losses to total
nonperforming assets 419.6% 3,699.07% 305.1% 546.7%
======== ====== ====== =======
Accruing loans past due
90 days 396 243 183 0
====== ====== ====== ======
Net loans increased $20,477,000 during the first nine months to $292,968,000 at
September 30, 1996. The reserve for possible loan losses ended the quarter at
$4,112,000 supported by a provision for loan losses of $425,000, recoveries of
$164,000 and loan charge-offs of $479,000. The reserve for possible loan losses
as a percentage of ending loans decreased .02% from 1.40% at December 31, 1995
to 1.38% at September 30, 1996. Corporate management believes that the current
level of the reserve for possible loan losses is adequate based upon
quantitative analysis of identified risks and analysis of historical trends.
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, 1996, there are no significant
concentrations of credit in the loan portfolio.
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The Corporation had outstanding loan and credit commitments to make loans
totalling $62,933,000 and $61,718,000 at September 30, 1996 and 1995,
respectively. The consistent outstanding loan and credit commitments balance
from 1995 to 1996 results from loan demand due to good local economic
conditions.
Total deposits increased $7,009,000 during the first nine months to
$360,464,000. Non-interest bearing deposits increased to $63,175,000, at
September 30,1996 for an increase of $3,012,000, while interest bearing deposits
climbed to $297,289,000 for an increase of $3,997,000. Federal funds purchased
and securities sold under agreements to repurchase increased $4,277,000 during
the first nine months of 1996. 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 investments 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, 1996,
short-term security investments with maturities of one year or less totalled
$24,427,000 which represented 23.5% of total securities. Adding cash and due
from banks of $19,404,000, total liquid assets represented 10.1% of total
assets. The Corporation's subsidiary bank has established short-term lines
of credit at correspondent banks and the Federal Home Loan Bank which exceed
$15,000,000.
CAPITAL RESOURCES
Total shareholders' equity increased to $43,318,000, at September 30, 1996. The
increase resulted primarily from $4,280,000 of net income generated from the
first nine months of operations less a cash dividend payable to shareholders
of $1,805,000. 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 three quarters of 1996 has
caused a decrease in the market value of these securities which resulted in a
reduction of shareholders' equity of $75,000 for the nine months ended
September 30, 1996.
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.
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The Corporation's capital and leverage ratios as of September 30, 1996 and 1995
follow.
September 30
-----------------
1996 1995
------ ------
Tier I capital ratio 16.71% 17.02%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 17.96% 18.27%
Required total capital ratio 8.00% 8.00%
Leverage ratio 10.26% 9.90%
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 geographical
market. Corporate management believes that it's current capital resources are
sufficient to support any foreseeable acquisition activity.
The Corporation has filed an application with the Comptroller of Currency to
secure approval for a branch office in Westlake.
There were no material commitments outstanding at September 30, 1996, other than
the loan and credit commitments.
RESULTS OF OPERATIONS
Interest and fees on loans increased by $730,000 when compared to the first nine
months of 1995. This was the net result of the impact of slight increases in
rates in conjunction with loan portfolio growth of $20,587,000. Interest and
dividends on securities was $4,762,000 for the first nine months of 1996 for an
increase of $319,000 over the same period in 1995. Interest and dividends on
securities represented 19.8% of total interest income at September 30, 1996
compared to 19.1% at September 30, 1995. Interest on Federal funds sold and
other interest bearing instruments was $162,000 at September 30, 1996 compared
to $171,000 at September 30, 1995. The decrease resulted from declining average
balances invested in this form of financial instrument along with lower interest
rates.
Total interest expense decreased by $102,000 when compared to the first nine
months of 1995. The decrease resulted from increases in average balances of
certificates of deposit and checkinvest accounts coupled with decreases in
interest rates paid on certificates of deposit and checkinvest accounts.
Total other income increased by $530,000 when compared to the first nine months
of 1995. This increase resulted from increases in income from fiduciary
fees of $45,000, increases in service charges of $399,000 and increases in other
charges of $43,000. The increase in service charges is due, in part, to
reevaluating the assessment of transaction account charges. The increase in
other charges is the result of pricing increases in credit card and merchant
fees. Other income increased by $64,000 and gains from sales of loans decreased
by $9,000 respectively.
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 nine months ended September 30, 1996
was $12,453,000, 3.4% above the first nine months of 1995. This increase was due
primarily to increases in salaries and employee benefits, net occupancy expense,
furniture and equipment expense, and the impacts of inflation.
The effective tax rate increased from 31.5% during the first nine months of 1995
to 33.1% during the first nine months of 1996. The increase in the effective
17
tax rate is due primarily to the decrease in tax exempt interest income. Net
income was $4,280,000 and $3,574,000 for the nine months ended September 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
$1.03 and $.87 for the nine months ended September 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
nine months ended September 30, 1996, the Bank paid FDIC Deposit Insurance
Premiums of $1,000 compared to $351,000 for the same period in 1995. The lower
1996 FDIC Premium results from the new rate which was effective September 15,
1995.
18
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 (19) - Third Quarter Report to Shareholders of LNB Bancorp,
Inc., September 30, 1996 - EDGAR Version.
(c) Exhibit (27) - Financial Data Schedule.
(d) Reports on Form 8-K - There were no reports on Form 8-K filed for the
nine months ended September 30, 1996.
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 10, 1996 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman,
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: November 10, 1996 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis,
Vice President and
Chief Accounting Officer
19
LNB Bancorp, Inc.
Form 10-Q
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K Reference Exhibit Page
Number Number
(11) Computation of Shares Used for Earnings Per Share
Calculations 20
(19) Third Quarter Report to Shareholders of LNB Bancorp,
Inc. September 30, 1996 - EDGAR Version. 21
(27) Financial Data Schedule. 27
20
LNB Bancorp, Inc.
Exhibit to Form 10-Q
(For the nine months ended September 30, 1996)
S - K Reference Number (11)
Computation of Shares Used for Earnings Per Share Calculation.
Nine Months Ended
September 30
--------------------
1996 1995
--------- ---------
Weighted Average Shares Outstanding 4,125,664 4,096,431
Common Stock Equivalents (Stock Options) 10,590 19,168
--------- ---------
4,136,254 4,115,599
========= =========
21
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the nine months ended September 30, 1996)
S - K Reference Number (19)
Third Quarter Report to Shareholders of
LNB Bancorp, Inc. (dated September 30, 1996)
EDGAR Version
DESCRIPTION:
Two sided pamphlet: Backside cover containing the list of Customer Service
Locations of Lorain National Bank and outside green cover with beige lettering
stating LNB Bancorp, Inc., Quarterly Report, September 30, 1996 along with logo.
Inside contains: Unaudited Consolidated Balance Sheets for period ending
September 30, 1996 and September 30, 1995, respectively and unaudited
Consolidated Statements of Income for the Nine Months Ended September 30, 1996
and September 30, 1995, respectively.
22
Consolidated Balance Sheets
September 30
------------------------------
1996 1995
-------------- --------------
ASSETS:
Cash and Due from Banks $ 19,404,000 $ 20,040,000
Federal Funds Sold and Other Interest Bearing
Instruments 102,000 700,000
Securities Available for Sale 14,244,000 10,326,000
Investment Securities 89,725,000 91,946,000
Loans 297,080,000 277,056,000
Reserve for Possible Loan Losses (4,112,000) (3,938,000)
- -------------------------------------------------------------------------------
NET LOANS 292,968,000 273,118,000
------------------------------------------------------------------------------
Premises and Equipment (net) 10,863,000 10,856,000
Other Assets 6,281,000 6,493,000
- ------------------------------------------------------------------------------
TOTAL ASSETS $433,587,000 $413,479,000
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-Interest Bearing Deposits $ 63,175,000 $ 59,724,000
Interest Bearing Deposits 297,289,000 288,342,000
- ------------------------------------------------------------------------------
TOTAL DEPOSITS 360,464,000 348,066,000
- ------------------------------------------------------------------------------
Federal Funds Purchased -0- -0-
Securities Sold under Repurchase
Agreements 26,203,000 21,926,000
Other Liabilities 3,602,000 3,517,000
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 390,269,000 373,509,000
- ------------------------------------------------------------------------------
Common Stock 4,135,000 4,036,000
Additional Capital 20,129,000 17,836,000
Retained Earnings 19,087,000 18,074,000
Net Unrealized Security Gains(Losses) (33,000) 24,000
- ------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 43,318,000 39,970,000
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $433,587,000 $413,479,000
- ------------------------------------------------------------------------------
(LOGO) LNB
Bancorp, Inc.
and its subsidiary Lorain National Bank
23
Consolidated Statements of Income
Nine Months Ended
September 30
----------------------------
1996 1995
------------- -------------
INTEREST INCOME:
Interest and Fees on Loans $19,182,000 $18,452,000
Interest and Dividends on Securities 4,767,000 4,412,000
Interest on Federal Funds Sold 162,000 171,000
- --------------------------------------------------------------------------------
TOTAL INTEREST INCOME 24,111,000 23,035,000
- -------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest Deposits 7,841,000 7,791,000
Interest on Securities Sold Under
Repurchase Agreements 690,000 848,000
Other Interest Expense 7,000 1,000
- --------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 8,538,000 8,640,000
- -------------------------------------------------------------------------------
NET INTEREST INCOME 15,573,000 14,395,000
Provision for Loan Losses 425,000 300,000
- -------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,148,000 14,095,000
- --------------------------------------------------------------------------------
OTHER INCOME:
Trust Department Income 801,000 756,000
Fees and Service Charges 2,836,000 2,407,000
Gains From Sales of Loans and Securities -0- -0-
Other Operating Income 65,000 9,000
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,702,000 3,172,000
- --------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and Employee Benefits 6,059,000 5,937,000
Net Occupancy Expense 939,000 914,000
Furniture and Equipment Expenses 1,630,000 1,499,000
FDIC Deposit Insurance Premium 1,000 351,000
Ohio Franchise Tax 427,000 387,000
Other Operating Expenses 3,397,000 2,959,000
- --------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 12,453,000 12,047,000
- --------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 6,397,000 5,220,000
Federal Income Taxes 2,117,000 1,646,000
- -------------------------------------------------------------------------------
NET INCOME $4,280,000 $3,574,000
- -------------------------------------------------------------------------------
PER SHARE DATA:
NET INCOME $ 1.03 $ .87
- -------------------------------------------------------------------------------
DIVIDENDS DECLARED $ .44 $ .37
===============================================================================
The per share data has been adjusted to reflect the 2% stock dividend in 1996
and the 5-for-4 stock split in 1995. Net income per share is based on weighted
average common and common equivalent shares outstanding.
24
Outside Cover: 2 column format
Customer Service Locations
Bank Offices Second Street Office
221 Second Street
Amherst Office Elyria, Ohio
1175 Cleveland Avenue (216) 323-4621
Amherst, Ohio
(216) 988-4423 Vermilion Office
4455 Liberty Avenue
Avon Lake Office Vermilion, Ohio
240 Miller Road (216) 967-3124
Avon Lake, Ohio
(216) 933-2186 The Crossing of Westlake Office
30210 Detroit Road
Cleveland Street Office Westlake, Ohio
801 Cleveland Street (216) 892-9696
Elyria, Ohio
(216) 365-8397 West Park Drive Office
2130 West Park Drive
Kansas Avenue Office Lorain, Ohio
1604 Kansas Avenue (216) 989-3131
Lorain, Ohio
(216) 288-9151 Community-Based Automated
Teller Machine Locations
Lake Avenue Office
42935 E. North Ridge Road Convenient Food Mart
Elyria, Ohio Cash Machine
(216) 233-7196 5375 West Erie Avenue
Lorain, Ohio
Main Office*
457 Broadway Lakeland Medical Center
Lorain, Ohio 3700 Kolbe Road
(216) 244-7185 Lorain, Ohio
Sixth Street Drive-In Lorain Community/St. Joseph
200 Sixth Street Regional Health Center
Lorain, Ohio 205 W. 20th Street
(216) 244-7242 Lorain, Ohio
Oberlin Office Lorain County Community College
40 East College Street 1005 N. Abbe Road
Oberlin, Ohio Elyria, Ohio
(216) 775-1361
Lorain Plaza
Kendal at Oberlin Office 1147 Meister Road
600 Kendal Drive Lorain, Ohio
Oberlin, Ohio
(216) 774-5400 Lowe's Home Improvement
Warehouse
Olmsted Office 620 Midway Boulevard
27095 Bagley Road Elyria, Ohio
Olmsted Twp., Ohio
(216) 235-4600 Midway Mall Food Court
3343 Midway Mall
Pearl Avenue Office Elyria, Ohio
2850 Pearl Avenue
Lorain, Ohio Route 60 and Sailorway Drive
(216) 277-1103 1317 State Route 60
Vermilion, Ohio
25
Oberlin Avenue Office *Drive-up ATM is available at
3660 Oberlin Avenue Sixth Street Drive-In. All other
Lorain, Ohio offices feature ATMs.
(216) 282-9196
Frontside cover description:
Green background, beige lettering.
(Logo) LNB
Bancorp, Inc.
and its subsidiary Lorain National Bank
(bottom middle of outside cover)
QUARTERLY REPORT
(middle right side of frontside cover)
LNB Bancorp, INC.
(middle right side of frontside cover)
September 30, 1996
(bottom right side of frontside cover)
26
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the nine months ended September 30, 1996)
S - K Reference Number (27)
Financial Data Schedule
(Follows as a separate document)