Exhibit 99.2
LNB BANCORP, INC. QUARTERLY REPORT
November 7, 2005
Dear Fellow Shareholder,
It is a great pleasure to report our third quarter earnings to you. The
performance of the company this past quarter was solid -- a marked improvement
from a year ago and quarters earlier this year. Earnings were up 22 percent in
the third quarter from the quarter a year ago when excluding the gains on sales
of assets in the third quarter of 2004. We reached record levels of total
assets, loans and deposits and improved our expense levels. Our news release of
October 26, 2005 provides more details and follows this letter.
Your management team and Board of Directors have been working diligently to
build a firm foundation for LNB. In the first half of this year, we made some
difficult decisions to position the company for the future. Those decisions are
already bearing fruit as illustrated in our solid third quarter performance.
This performance gives us confidence as we look to the future. Let me share some
important elements of our strategy.
First and foremost, this is a people business and we have a talented group of
people in the company. We have a group of dedicated, customer-focused associates
who have been with us for many years and have helped us to preserve the history
and heritage of the company and we have brought in some new people who bring
additional skills, capabilities and ideas to the team.
In the second quarter report to you, I introduced some of our new senior
managers and recently we have added expertise in two important line of business
areas with the addition of John Matey in small business and John Simacek in
residential lending. To provide marketing expertise for our business strategies,
Pete Catanese has joined us as marketing director. All three have the experience
and knowledge to help take us to a higher level of performance.
We will continue to position Lorain National Bank under the community bank model
because we feel it offers us the best chance for success. Lorain National Bank
fills a niche that many consumers and business owners are looking for in a bank.
When we survey the banking landscape in northern Ohio, there are few banks like
us. As an independent community bank we have a distinct advantage over our
larger competitors. With a group of associates who live in and care deeply for
their communities, Lorain National Bank can provide a level of personalized,
responsive service and flexibility unmatched by larger institutions. Looking at
our markets, we intend to continue to build upon our solid presence in Lorain
County and take that strong community bank expertise to contiguous counties.
With a solid team and a keen knowledge of our markets, we are focused on
operating our businesses around the notion of disciplined execution. By making
certain we have the right processes in place, supporting our associates with the
proper tools and technology and building businesses that are scaleable we will
continue to work toward growing successfully in the market place and delivering
a high level of customer service.
On December 1, 2005, we celebrate the fact that 100 years ago we opened our
doors for business. It is altogether fitting that we are on our way to
fulfilling a vision that will serve us well as we head into our second century.
We owe that to our clients, our communities and to you, our shareholders. Thank
you for your confidence in us.
Sincerely,
Daniel E. Klimas
President & Chief Executive Officer
LNB Bancorp, Inc.
LNB Bancorp Reports Improved Third Quarter Performance
LORAIN, Ohio--(BUSINESS WIRE)--Oct. 26, 2005--LNB Bancorp, Inc.
(NASDAQ:LNBB):
-- Earnings for quarter up 4 percent from a year ago; a 22 percent
increase when excluding gains on the sale of assets in 2004
-- Record levels of assets, loans and deposits
-- Meaningful improvement in expense levels
Buoyed by record-setting levels of loans and deposits, LNB Bancorp, Inc.
(NASDAQ:LNBB) reported improved earnings in third quarter 2005 versus a year ago
and each of the first two quarters of 2005.
LNB Bancorp earned 33 cents per diluted share in the third quarter of 2005,
compared to 31 cents per diluted share earned in the third quarter of 2004. Net
income for the third quarter was $2,157,000, up 4 percent from the $2,074,000
earned in the same quarter a year ago.
"A better indication of our improved performance can be found by looking at
the company's earnings excluding the gains on the sales of assets in the third
quarter of 2004," said Daniel E. Klimas, president and chief executive officer
of LNB Bancorp. Third quarter 2005 earnings are up 22 percent as compared to the
year ago quarter when gains on the sale of assets of $443,000 in the third
quarter of 2004 are excluded.
"We are tremendously encouraged by our third quarter results, which vividly
portray the important steps we took in the first half of the year to improve our
long-term performance," said Klimas.
"We are particularly heartened to see a continuation of solid revenue
growth and expense levels more appropriately in line with our revenue stream,"
said Klimas. "Our focus is to build upon this momentum for the remainder of the
year and beyond. This quarter is another important step toward realizing our
vision of being a high growth, efficiently managed independent community bank.
"The focus of management and our associates has been on continuing our
positive revenue gains and we are highly pleased to see that, while our margins
were under pressure in the third quarter, they have remained solid and we
experienced record levels of loans and deposits in the third quarter," said
Klimas. At the end of the third quarter of 2005, portfolio loans closed at
$594.5 million and deposits closed at $655.7 million, both record levels for LNB
Bancorp.
For the first nine months of 2005, LNB Bancorp earned $4,580,000, or 69
cents per diluted share, compared to $6,310,000, or 95 cents per share, for the
same period of 2004. The 2005 performance reflected a number of significant
expenses in the second quarter that were designed to the lay the groundwork for
improved financial performance in the future.
Net interest income
For the third quarter of 2005, net interest income was $7,470,000, an
increase of 6.2 percent over the same quarter last year. For the first nine
months of 2005, net interest income was $22.4 million, an increase of 7.9
percent over the same period in 2004.
Net interest margin
The net interest margin in the third quarter of 2005 was 3.97 percent, up 2
basis points over the third quarter of 2004. For the first nine months of 2005,
the net interest margin was 4.09 percent, compared to 3.96 percent for the same
period in 2004. While the net interest margin has remained strong compared to
the company's peers, when compared to the company's second quarter margin of
4.17 percent, third quarter performance does reflect the ongoing competitive
pressures in the market for both loans and deposits, as well as the flat yield
curve.
Noninterest Income
Total noninterest income was $2,608,000 for the quarter, as compared to
$3,111,000 for the same period in 2004, however fee income gains were
impressive. For the third quarter of 2005, deposit service charges, trust and
investment management services and ATM and debit card fees all improved over the
same quarter last year. Of particular note is the increase in deposit service
charges, which were up 9.5 percent over the second quarter of 2005 and 1.9
percent over the third quarter in 2004. "Solid gains in new accounts for the
quarter were largely instrumental in this strong fee income performance," said
Klimas. Included in 2004 is $443,000 of gains on the sales of assets including
securities and a bank office building.
Noninterest Expense
Noninterest expense was $6,764,000 for the third quarter as compared to
$6,760,000 for the same period in 2004. The increase was primarily the result of
increases in salaries and benefits and outside services, which were up 5.9
percent and 28.8 percent, respectively. Salaries and benefits levels reflect
normal increases and higher health care costs, while outside services levels
reflect the cost of the company's decision to outsource its internal audit
function.
Assets
Total assets ended the third quarter of 2005 at a new record level of
$812.4 million, up $41.6 million or 5.4 percent over September 30, 2004, and
$30.8 million or 3.9 percent over December 31, 2004. This growth was primarily
in portfolio loans, which ended the quarter at $594.5 million. This new record
loan level was a $22.3 million increase over December 31, 2004. On a
year-over-year basis, commercial loans rose 12.4 percent, home equity loans
gained 8.0 percent, and purchased installment loans were up 63.3 percent. Real
estate and other consumer loans were down on a year-over-year basis, but other
consumer loans began to grow in the last two months of the quarter.
Deposits
Total deposits were a record $655.7 million at the end of the third quarter
of 2005, an increase of $53.3 million, or 8.9 percent, compared to the third
quarter of 2004, and $50.2 million, or 8.3 percent over year end 2004.
"We continue to experience solid growth in noninterest and interest bearing
checking accounts and in retail time deposits. These deposit sources are being
supplemented by deposits from local public entities, as well as deposits
gathered through brokers," said Klimas.
Asset Quality
Overall, asset quality for the company has improved. The provision for loan
losses was $300,000 in the third quarter 2005, as compared to $399,000 in the
same period 2004. For the nine months ended September 30, 2005, the provision
for loan losses was $1,098,000, as compared to $1,349,000 for the same period
last year. This decrease is partially due to lower net charge-offs. For the
three months ended September 30, 2005, net charge-offs were $203,000 as compared
to $1,037,000 for the same quarter in 2004. For the first nine months of 2005,
net charge-offs were $594,000 as compared to $1,728,000 for the same period in
2004. Non-performing loans were $7.5 million at the end of the quarter as
compared to $7.2 million at June 30, 2005, and $4.9 million at December 31,
2004. At September 30, 2005, the allowance of loan losses was $7,890,000 as
compared to $7,793,000 at June 30, 2005 and $7,386,000 at December 31, 2004.
"The Board of Directors is encouraged by the performance of the company in
this latest quarter, including reaching record levels of assets and deposits,"
said James R. Herrick, chairman of the Board of Directors of LNB Bancorp. "The
difficult, but necessary steps taken by management earlier this year are taking
hold and we share their enthusiasm for the future."
About LNB Bancorp, Inc.
LNB Bancorp, Inc. is an $812.4 million financial holding company with two
wholly owned subsidiaries: The Lorain National Bank and Charleston Insurance
Agency, Inc. and a 49-percent owned subsidiary, Charleston Title Agency, LLC.
LNB Mortgage LLC and North Coast Community Development Corporation are wholly
owned subsidiaries of The Lorain National Bank. Brokerage services are provided
by the bank through an agreement with Online Brokerage Services. For more
information about LNB Bancorp, Inc. and its related products and services or to
view its filings with the Securities and Exchange Commission, visit us at
http://www.4lnb.com.
This letter and press release contains forward-looking statements within
the meaning of the "Safe Harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Terms such as "will," "should," "plan," "intend," "expect,"
"continue," "believe," "anticipate" and "seek," as well as similar comments, are
forward-looking in nature. Actual results and events may differ materially from
those expressed or anticipated as a result of risks and uncertainties which
include fluctuations in interest rates, inflation, government regulations, and
economic conditions and competition in the geographic and business areas in
which LNB Bancorp, Inc. conducts its operations, as well as the risks and
uncertainties described from time to time in LNB Bancorp's reports as filed with
the Securities and Exchange Commission. We undertake no obligation to review or
update any forward-looking statements, whether as a result of new information,
future events or otherwise.
Consolidated Balance Sheets
(Dollars in thousands except share and per September 30, December 31,
share amounts) 2005 2004
- ----------------------------------------------------------------------
Assets (unaudited)
Cash and cash equivalents:
Cash and due from banks $27,442 $23,123
Short-term investments - 3,695
- ----------------------------------------------------------------------
Total cash and cash equivalents 27,442 26,818
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Investment Securities:
Available for sale, at fair value 152,435 145,588
Federal Home Loan Bank and Federal
Reserve stock 4,187 4,033
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Total securities 156,622 149,621
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Loans:
Loans held for sale 3,656 3,067
Portfolio loans 594,493 572,157
Allowance for loan losses (7,890) (7,386)
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Net loans 590,259 567,838
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Bank premises and equipment, net 10,996 11,493
Other real estate owned 399 420
Intangible assets 3,361 3,801
Other assets 23,358 21,658
- ----------------------------------------------------------------------
Total Assets $812,437 $781,649
- ----------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing $96,537 $96,280
Interest bearing 559,203 509,263
- ----------------------------------------------------------------------
Total deposits 655,740 605,543
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Short-term borrowings 20,277 31,619
Federal Home Loan Bank advances 61,099 69,296
Accrued interest, taxes and other
liabilities 5,843 4,617
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Total Liabilities 742,959 711,075
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Shareholders' Equity
Common stock, par value $1 per share,
authorized 15,000,000 shares,
issued 6,771,867 at September 30, 2005 and
6,766,867 at December 31, 2004 6,772 6,767
Additional paid-in capital 26,334 26,243
Retained earnings 42,295 41,291
Accumulated other comprehensive loss (2,269) (1,297)
Treasury stock at cost, 195,694 shares at
September 30, 2005 and 125,686 shares at
December 31, 2004 (3,654) (2,430)
- ----------------------------------------------------------------------
Total Shareholders' Equity 69,478 70,574
- ----------------------------------------------------------------------
Total Liabilities and Shareholders'
Equity $812,437 $781,649
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Consolidated Statements of Income
- ----------------------------------------------------------------------
(Dollars in thousands For the Three Months For the Nine Months
except share and per Ended September 30, Ended September 30,
share amounts) 2005 2004 2005 2004
- ----------------------------------------------------------------------
Interest Income (unaudited) (unaudited)
Interest and fees on
loans $9,712 $8,196 $27,847 $23,848
Interest and dividends
on investment securities:
Taxable 1,239 1,022 3,413 3,053
Tax Exempt 107 102 333 375
Interest on cash
equivalents 37 23 109 56
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Total interest
income 11,095 9,343 31,702 27,332
Interest Expense
Deposits 3,021 1,712 7,561 4,933
Short-term borrowings 201 62 395 154
Federal Home Loan Bank
advances 403 536 1,387 1,515
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Total interest
expense 3,625 2,310 9,343 6,602
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Net Interest Income 7,470 7,033 22,359 20,730
Provision for Loan Losses 300 399 1,098 1,349
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Net interest income
after provision for
loan losses 7,170 6,634 21,261 19,381
Noninterest Income
Deposit service charges 1,152 1,131 3,112 3,146
Trust and investment
management services 555 539 1,627 1,611
Mortgage banking
revenue 242 108 967 108
Income from investment
in life insurance 117 157 426 477
Securities gains, net - 158 174 381
Gains on sales of loans - 17 132 100
Gains (losses) on
sales of other
assets, net (31) 285 (32) 285
Other noninterest
income 573 716 1,768 2,494
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Total noninterest
income 2,608 3,111 8,174 8,602
Noninterest Expense
Salaries and employee
benefits 3,414 3,223 11,653 9,168
Net occupancy 402 407 1,368 1,190
Furniture and
equipment 746 717 2,281 2,046
Electronic banking
expenses 136 350 400 1,075
Supplies, postage, and
delivery 290 421 934 930
Outside services 394 306 1,224 840
Marketing and public
relations 258 264 863 757
Ohio franchise tax 179 181 561 549
Goodwill impairment - - 311 -
Other noninterest
expense 945 891 3,312 2,443
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Total noninterest
expense 6,764 6,760 22,907 18,998
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Income before income tax
expense 3,014 2,985 6,528 8,985
Income tax expense 857 911 1,948 2,675
- ----------------------------------------------------------------------
Net Income $2,157 $2,074 $4,580 $6,310
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Net Income Per Common Share
Basic $0.33 $0.31 $0.69 $0.95
Diluted 0.33 0.31 0.69 0.95
Dividends declared 0.18 0.18 0.54 0.54
Average Common Shares
Outstanding
Basic 6,625,086 6,641,095 6,635,752 6,628,097
Diluted 6,625,168 6,641,709 6,635,780 6,629,103
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LNB Bancorp, Inc.
Third Quarter 2005 Financial Highlights
(Unaudited - Dollars in thousands except Share and Per Share Data)
Three Months Ended
----------------------------------------------
September 30, June 30, March 31, September 30,
2005 2005 2005 2004
----------------------------------------------
END OF PERIOD BALANCES
Assets $812,437 $791,078 $781,092 $770,794
Deposits 655,740 638,817 609,098 602,391
Portfolio Loans 594,493 578,331 574,100 560,537
Allowance for Loan Losses 7,890 7,793 7,545 7,351
Shareholders' Equity 69,478 70,316 68,356 70,609
AVERAGE BALANCES
Assets:
Total Assets $804,797 $783,493 $780,963 $757,782
Earning Assets 751,254 728,769 726,431 713,548
Securities 156,972 143,555 144,501 156,620
Loans 589,684 575,774 572,464 556,026
Liabilities and
Shareholders' Equity:
Total Deposits $652,513 $623,315 $619,576 $587,065
Interest Bearing
Deposits 561,038 526,570 521,514 498,843
Interest Bearing
Liabilities 636,721 610,318 606,554 595,172
Total Shareholders'
Equity 70,804 70,683 70,707 69,499
INCOME STATEMENT
Net Interest Income $7,470 $7,557 $7,332 $7,033
Net Interest Income-FTE 7,519 7,573 7,376 7,080
Provision for Loan Losses 300 399 399 399
Noninterest Income 2,608 2,639 2,927 3,111
Noninterest Expense 6,764 8,472 7,671 6,760
Net Income 2,157 852 1,571 2,074
PER SHARE DATA
Basic Net Income Per
Common Share $0.33 $0.13 $0.23 $0.31
Diluted Net Income Per
Common Share 0.33 0.13 0.23 0.31
Cash Dividends Per
Common Share 0.18 0.18 0.18 0.18
Basic Avg Common
Shares Outstanding 6,625,086 6,642,390 6,641,181 6,641,095
Diluted Avg Common
Shares Outstanding 6,625,168 6,642,390 6,641,181 6,641,709
KEY RATIOS
Return on Average
Assets (annualized) 1.06% 0.44% 0.82% 1.09%
Return on Average
Common Equity
(annualized) 12.09% 4.83% 9.01% 11.87%
Efficiency Ratio 67% 83% 74% 66%
Average Equity to
Average Assets 8.80% 9.02% 9.05% 9.17%
Net Interest Margin (FTE) 3.97% 4.17% 4.12% 3.95%
Annualized Net Charge
Offs to Average Loans 0.14% 0.11% 0.17% 0.74%
Allowance for Loan Losses 1.33% 1.35% 1.31% 1.31%
ASSET QUALITY
Non-accrual Loans $7,452 $7,233 $6,586 $5,576
Net Charge Offs 203 151 240 1,037
Other Real Estate Owned 399 357 476 125
Total Nonperforming Assets 7,851 7,590 7,062 5,701
LNB Bancorp, Inc.
Third Quarter 2005 Financial Highlights
(Unaudited - Dollars in thousands except Share and Per Share Data)
Nine Months Ended
---------------------------
September 30, September 30,
2005 2004
---------------------------
END OF PERIOD BALANCES
Assets $812,437 $770,794
Deposits 655,740 602,391
Portfolio Loans 594,493 560,537
Allowance for Loan Losses 7,890 7,351
Shareholders' Equity 69,478 70,609
AVERAGE BALANCES
Assets:
Total Assets $790,672 $754,269
Earning Assets 736,346 704,748
Securities 150,785 155,511
Loans 580,461 545,057
Liabilities and Shareholders' Equity:
Total Deposits $633,154 $583,882
Interest Bearing Deposits 538,185 494,406
Interest Bearing Liabilities 619,215 590,871
Total Shareholders' Equity 70,724 68,995
INCOME STATEMENT
Net Interest Income $22,359 $20,730
Net Interest Income-FTE 22,512 20,904
Provision for Loan Losses 1,098 1,349
Noninterest Income 8,174 8,602
Noninterest Expense 22,907 18,998
Net Income 4,580 6,310
PER SHARE DATA
Basic Net Income Per Common Share $0.69 $0.95
Diluted Net Income Per Common Share 0.69 0.95
Cash Dividends Per Common Share 0.54 0.54
Basic Avg Common Shares Outstanding 6,635,752 6,628,097
Diluted Avg Common Shares Outstanding 6,635,780 6,629,103
KEY RATIOS
Return on Average Assets (annualized) 0.77% 1.12%
Return on Average Common Equity (annualized) 8.66% 12.22%
Efficiency Ratio 75% 64%
Average Equity to Average Assets 8.94% 9.15%
Net Interest Margin (FTE) 4.09% 3.96%
Annualized Net Charge Offs to Average Loans 0.14% 0.42%
Allowance for Loan Losses 1.33% 1.31%
ASSET QUALITY
Non-accrual Loans $7,452 $5,576
Net Charge Offs 594 1,728
Other Real Estate Owned 399 125
Total Nonperforming Assets 7,851 5,701
CONTACT: LNB Bancorp, Inc.
John Fuller, 216-978-7643