Exhibit 99.1
LNB Bancorp, Inc. Reports 2006 Fourth Quarter and Year End Results
-- Record Loans, Assets, Deposits Levels Reached in 2006
-- Positive Developments in Expansion Strategy
-- Focus Continues on Effective Asset Quality Management
LORAIN, Ohio--(BUSINESS WIRE)--Jan. 30, 2007--LNB Bancorp, Inc.
(NASDAQ:LNBB), today reported financial results for its fourth quarter and full
year ended December 31, 2006.
Net income for the fourth quarter of 2006 totaled $918,000 compared to
$1,833,000 for the fourth quarter of 2005. Diluted net income per share for the
fourth quarter of 2006 was $0.14 versus $0.28 for the same period in 2005. For
the full year ended December 31, 2006, the Company reported net income of
$5,424,000, compared with $6,413,000 in 2005. Diluted earnings per share in 2006
were $.84 as compared to $.97 in 2005.
"We had many strong positives to the past year with record assets, loans
and deposits and important strategic investments in Lorain County and
surrounding markets," said Daniel E. Klimas, president and chief executive
officer of LNB Bancorp. "It is disappointing that margin pressures and asset
quality issues negatively impacted our overall performance.
"Returning to a strong asset quality basis is of the utmost importance as
we look at 2007 and we will aggressively pursue resolution to this important
issue," said Klimas. "The local economic weakness that we reported in the third
quarter report, continued into the fourth quarter. This weakness is most
pronounced in our residential and commercial real estate development portfolio,
and resulted in a sizable increase in our nonperforming loans and in potential
problem loans, despite the fact that our net charge-offs in 2006 were the lowest
since 2002. While we are confident in our ability to manage through this
environment, it was prudent to add substantially to our allowance for loan
losses in the third and fourth quarters."
Looking at 2006, Klimas said, "We are particularly encouraged by the
successful rollout of our expansion strategy which included strengthening our
Lorain County presence as well as expanding into attractive markets in nearby
counties. In 2006, we opened a new branch in North Ridgeville and early this
month we opened another in southern Elyria. Both offices are located in high
growth areas of the county. We also opened a business development office in
Cuyahoga County which serves small and medium-sized businesses throughout the
region."
On January 16, 2007, LNB Bancorp announced that it had signed a definitive
agreement with Morgan Bancorp, Inc. of Hudson, Ohio for a merger transaction in
which LNB Bancorp is to acquire Morgan and its wholly-owned subsidiary, Morgan
Bank, N.A. Completion of the merger is anticipated in the third quarter of 2007,
pending certain regulatory and Morgan shareholder approvals. Morgan Bank, which
has assets of about $129 million, operates from one branch location in Hudson, a
strategically-located, affluent community.
"Both LNB and Morgan share the same commitment to a strong community bank
culture and complementary product strengths. We believe we can export many of
the product and business capabilities we each have to help the merged company
grow and prosper in the future. Further, this merger will greatly enhance those
expansion initiatives, while providing top line growth and better leveraging of
our expense base," said Klimas. The transaction is expected to be accretive to
earnings in the first full year of operation.
Fourth Quarter Review
Net interest income was $6,888,000 in the fourth quarter of 2006, compared
with $7,671,000 in the same period a year before. This decrease was primarily
due to margin pressures. The net interest margin in the fourth quarter of 2006
was 3.63 percent, compared with 4.06 percent in the fourth quarter of 2005.
Noninterest income was $2,800,000 for the three months ended December 31,
2006, a 27 percent increase compared with $2,203,000 in the same period in 2005.
Investment and trust services and deposit service charges were improved totaling
$542,000 and $1,199,000, respectively, in the quarter as compared to $313,000
and $1,107,000 in the fourth quarter of 2005. Improved income on investment in
life insurance also contributed to this result. In the fourth quarter of 2006
the Company also recognized a gain on the sale of its Westlake loan production
office, which totaled $231,000. The Westlake operation has been relocated to a
leased facility in nearby Avon, Ohio.
The Company continues to show steady progress in managing expenses. For the
fourth quarter of 2006, noninterest expense was $7,306,000 compared to
$7,360,000 in the same period of 2005. Third party services, marketing and
telecommunications all were substantially lower. These improvements were
somewhat offset by increased salaries, equipment and occupancy related to the
expansion into Cuyahoga County and the new Lorain County offices. Also impacting
the fourth quarter was increased costs to manage the higher level of other real
estate.
Net charge-offs for the fourth-quarter of 2006 were $369,000 compared to
$1,418,000 in the same period of 2005. Included in the fourth quarter 2005
results were charge-offs of $1,173,000 associated with the sale of four loan
relationships. The provision for loan losses was $1,365,000 in the fourth
quarter of 2006 as compared to $600,000 in the third quarter of 2006 and
compared with $150,000 for the same period of 2005. The increase in the
provision for loan losses in the third and fourth quarters of 2006 reflect the
trends in the problem loan and potential problem loan portfolios to a greater
extent than the current trends in actual charge-offs.
Full year 2006 Review
Net interest income decreased 4.7 percent in 2006 as compared with the same
period a year ago. The net interest margin for 2006 was 3.74 percent--down 32
basis points from 4.06 percent in 2005. The flat yield curve, combined with a
shift in deposit mix from non-interest bearing and savings accounts to money
market accounts and time deposits contributed greatly to this decline. The
competition for loans and deposits in the market also adversely impacted
interest income and the net interest margin. Partially offsetting these factors
was 3.3 percent growth in average earning assets.
Noninterest income was $9,751,000 for the 12 months ended December 31,
2006, compared with $10,377,000 for 2005. Included in the 2005 results was
$959,000 in mortgage revenue from LNB Mortgage, LLC which was closed at year-end
2005. In 2006 investment and trust services and deposit service charges were up
7.2 percent and 7.4 percent, respectively, over the 2005. Also contributing were
ATM and merchant fees and income from investment in life insurance which were up
4.6 percent and 23.2 percent, respectively, over the prior year.
Noninterest expense was $28,985,000 in 2006 as compared to $30,267,000 in
2005, a decrease of $1,282,000, or 4.4 percent. Most expenses declined in 2006
as compared to 2005. The exceptions were modest increases in net occupancy, Ohio
franchise tax, other real estate expense and marketing and public relations.
Nonperforming loans increased to $12.8 million at December 31, 2006,
compared with $6.5 million at December 31, 2005, and from $7.0 million at
September 30, 2006. The nonperforming loans have either been charged down to
conservative collateral levels or have specific loan loss allocations
established. In addition to this activity the level of potential problem loans
increased to $22.1 million from $14.4 million at December 31, 2005 and is now at
approximately the same level as December 31, 2004. Net charge-offs for full-year
2006 were $1,602,000, compared to $2,012,000 in 2005. In 2006, net charge-offs
were .27 percent of average loans, compared with 0.34 percent in 2005.
As a result of the nonperforming loan and potential problem loan trends,
the provision for loan losses totaled $2,280,000 in 2006 versus $1,248,000 in
2005. The Company's allowance for loan losses at December 31, 2006, was
$7,300,000 as compared with $6,622,000 on December 31, 2005. The ratio of the
allowance for loan losses to nonperforming loans was 57 percent on December 31,
2006, a decrease from 102 percent at the end of last year.
Total loans at year-end were $628.3 million as compared to $588.4 million
at year-end 2005. This was a 6.8 percent increase and reflects growth in
commercial, mortgage and consumer lending.
Total average assets increased to $819.6 million in 2006 compared with
$793.3 million in 2005. Total average loans were $601.1 million in 2006 versus
$584.8 million in 2005. Average total deposits for 2006 were $679.8 million
versus $635.8 million in 2005. Average shareholders' equity for 2006 was $68.7
million versus $70.4 million in 2005.
"We will focus on a commitment to effectively manage asset quality in this
difficult economic environment and take prudent steps to proactively reserve for
these issues. At the same time we will continue to pursue our strategy of
growing our businesses and markets and positioning the company for solid
performance in the future," Klimas said.
About LNB Bancorp, Inc.
LNB Bancorp, Inc. is an $851.1 million financial holding company. Its major
subsidiary, The Lorain National Bank, is a full-service commercial bank,
specializing in commercial, personal banking services, residential mortgage
lending and investment and trust services. Lorain National Bank serves customers
through 22 retail-banking locations and 26 ATMs in Lorain, eastern Erie and
western Cuyahoga counties. North Coast Community Development Corporation is a
wholly owned subsidiary of The Lorain National Bank. Brokerage services are
provided by the bank through an agreement with Investment Centers of America.
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 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 expressions, 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.
Additional Information About the Merger and Where to Find It
LNB and Morgan will be filing relevant documents concerning the transaction
with the Securities and Exchange Commission, including a registration statement
on Form S-4 which will include a proxy statement/prospectus. Shareholders will
be able to obtain a free copy of the proxy statement/prospectus, as well as
other filings containing information about LNB and Morgan, at the Securities and
Exchange Commission's internet site (http://www.sec.gov). Copies of the proxy
statement/prospectus and the filings with the Securities and Exchange Commission
that will be incorporated by reference in the proxy statement/prospectus can
also be obtained, without charge, by directing a request to LNB Bancorp, Inc.,
457 Broadway, Lorain, Ohio 44052, Attention: Investor Relations, (440) 244-7185,
or Morgan Bancorp, Inc., 178 West Streetsboro Street, Hudson, Ohio 44236. The
final proxy statement/prospectus will be mailed to shareholders of Morgan.
Shareholders are urged to read the proxy statement/prospectus, and other
relevant documents filed with the Securities and Exchange Commission regarding
the proposed transaction when they become available, because they will contain
important information.
The directors and executive officers of LNB and Morgan and other persons
may be deemed to be participants in the solicitation of proxies in respect of
the proposed merger. Information regarding LNB's directors and executive
officers is available in its proxy statement filed with the SEC on March 17,
2006. Information regarding Morgan's directors and executive officers and other
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become available.
CONSOLIDATED BALANCE SHEETS
At December 31,
-----------------------------
2006 2005
--------------- -------------
(Dollars in thousands except
share amounts)
ASSETS
Cash and due from Banks $29,122 $23,923
Federal funds sold and short-term
investments - -
Securities:
Available for sale, at fair value 155,810 151,629
Federal Home Loan Bank and Federal
Reserve Stock 3,248 3,645
--------------- -------------
Total securities 159,058 155,274
--------------- -------------
Loans:
Loans held for sale - 2,586
Portfolio loans 628,333 588,425
Allowance for loan losses (7,300) (6,622)
--------------- -------------
Net loans 621,033 584,389
--------------- -------------
Bank premises and equipment, net 12,599 10,833
Other real estate owned 1,289 432
Bank owned life insurance 14,755 13,935
Goodwill and intangible assets, net 3,157 3,321
Accrued interest receivable 3,939 3,053
Other assets 6,146 5,961
--------------- -------------
Total Assets $851,098 $801,121
=============== =============
LIABILITIES
Deposits
Demand and other noninterest-bearing $91,216 $87,597
Savings, money market and interest-
bearing demand 278,401 265,831
Certificates of deposit 347,644 286,788
--------------- -------------
Total deposits 717,261 640,216
--------------- -------------
Short-term borrowings 22,163 32,616
Federal Home Loan Bank advances 35,086 53,896
Accrued interest payable 3,698 2,126
Accrued taxes, expenses and other
liabilities 4,193 3,861
--------------- -------------
Total Liabilities 782,401 732,715
=============== =============
Shareholders' Equity
Common stock, par value $1 per share,
authorized 15,000,000 shares, issued
6,771,867 shares at December 31, 2006
and 2005 6,772 6,772
Additional paid-in capital 26,382 26,334
Retained earnings 43,728 42,945
Accumulated other comprehensive loss (2,093) (2,996)
Treasury shares at cost, 328,194 shares
at December 31, 2006 and 250,694
shares at December 31, 2005 (6,092) (4,649)
--------------- -------------
Total Shareholders' Equity 68,697 68,406
--------------- -------------
Total Liabilities and Shareholders'
Equity $851,098 $801,121
=============== =============
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
2006 2005 2004
---------- ---------- ----------
(Dollars in thousands except
share and per share amounts)
Interest Income
Loans $42,800 $38,145 $32,560
Securities:
U.S. Government agencies and
corporations 5,699 4,487 3,784
State and political subdivisions 464 439 459
Other debt and equity securities 202 224 301
Federal funds sold and short-term
investments 77 137 120
---------- ---------- ----------
Total interest income 49,242 43,432 37,224
Interest Expense
Deposits:
Certificates of deposit, $100 and
over 6,884 3,937 1,448
Other deposits 11,261 6,976 5,366
Federal Home Loan Bank advances 1,585 1,862 2,066
Short-term borrowings 905 627 222
---------- ---------- ----------
Total interest expense 20,635 13,402 9,102
---------- ---------- ----------
Net Interest Income 28,607 30,030 28,122
Provision for Loan Losses 2,280 1,248 1,748
---------- ---------- ----------
Net interest income after provision
for loan losses 26,327 28,782 26,374
Noninterest Income
Investment and trust services 2,079 1,940 2,091
Deposit service charges 4,533 4,219 4,187
Other service charges and fees 1,948 1,895 2,794
Mortgage banking revenue - 959 364
Income from bank owned life
insurance 739 600 632
Other income 216 479 592
---------- ---------- ----------
Total fees and other income 9,515 10,092 10,660
Securities gains (losses), net (1) 173 (777)
Gains on sale of loans 5 132 181
Gains (loss) on sale of other
assets, net 232 (20) 378
---------- ---------- ----------
Total noninterest income 9,751 10,377 10,442
Noninterest Expense
Salaries and employee benefits 14,894 15,057 12,995
Furniture and equipment 2,984 3,001 2,784
Net occupancy 1,905 1,830 1,633
Outside services 1,609 1,925 1,182
Marketing and public relations 1,279 1,249 1,047
Supplies, postage and freight 1,236 1,245 1,208
Telecommunications 751 1,167 713
Ohio Franchise tax 817 772 729
Electronic banking expenses 618 542 1,257
Other expense 2,892 3,479 2,742
---------- ---------- ----------
Total noninterest expense 28,985 30,267 26,290
---------- ---------- ----------
Income before income tax expense 7,093 8,892 10,526
Income tax expense 1,669 2,479 3,051
---------- ---------- ----------
Net Income $5,424 $6,413 $7,475
========== ========== ==========
Net Income Per Common Share
Basic $0.84 $0.97 $1.13
Diluted 0.84 0.97 1.13
Dividends declared 0.72 0.72 0.72
Average Common Shares Outstanding
Basic 6,461,892 6,612,803 6,631,392
Diluted 6,462,094 6,612,852 6,632,324
LNB Bancorp, Inc.
Supplemental Financial Information
(Unaudited - Dollars in thousands except Share and Per Share Data)
Three Months Ended Twelve Months Ended
--------------------------------------------------
31-Dec 30-Sep 31-Dec 31-Dec 31-Dec
2006 2006 2005 2006 2005
--------------------------------------------------
END OF PERIOD
BALANCES
Assets $851,098 $831,544 $801,121 $851,098 $801,121
Deposits 717,261 688,488 640,216 717,261 640,216
Portfolio loans 628,333 607,036 588,425 628,333 588,425
Allowance for loan
losses 7,300 6,304 6,622 7,300 6,622
Shareholders'
equity 68,697 68,571 68,406 68,697 68,406
AVERAGE BALANCES
Assets:
Total assets $801,295 $825,815 $801,045 $819,635 $793,287
Earning assets 752,410 767,769 750,215 763,899 739,520
Securities 157,429 164,583 159,073 162,780 154,758
Portfolio loans 594,980 603,186 591,141 601,119 584,762
Liabilities and
shareholders'
equity:
Total deposits $673,993 $681,781 $643,592 $679,818 $635,785
Interest bearing
deposits 586,507 599,254 557,508 596,041 543,055
Interest bearing
liabilities 637,482 668,589 639,113 660,748 624,230
Total
shareholders'
equity 70,001 68,308 69,545 68,735 70,427
INCOME STATEMENT
Net interest
income $6,888 $7,320 $7,671 $28,607 $30,030
Net interest
income-FTE (1) 6,977 7,405 7,720 28,876 30,231
Provision for loan
losses 1,365 600 150 2,280 1,248
Noninterest income 2,800 2,453 2,203 9,751 10,377
Noninterest
expense 7,306 7,279 7,360 28,985 30,267
Taxes 99 475 531 1,669 2,479
- ----------------------------------------------------------------------
Net income 918 1,419 1,833 5,424 6,413
- ----------------------------------------------------------------------
Total revenue 9,688 9,773 9,874 38,358 40,407
PER SHARE DATA
Basic net income
per common share $0.14 $0.22 $0.28 $0.84 $0.97
Diluted net income
per common share 0.14 0.22 0.28 0.84 0.97
Cash dividends per
common share 0.18 0.18 0.18 0.72 0.72
Basic average
common shares
outstanding 6,443,673 6,450,086 6,544,706 6,461,892 6,612,803
Diluted average
common shares
outstanding 6,443,684 6,450,235 6,544,819 6,462,094 6,612,852
KEY RATIOS
Return on average
assets (2) 0.45% 0.68% 0.91% 0.66% 0.81%
Return on average
common equity (2) 5.20% 8.24% 10.46% 7.89% 9.11%
Efficiency ratio 74.73% 73.84% 74.17% 75.04% 74.53%
Noninterest
expense to
average assets
(2) 3.62% 3.50% 3.65% 3.54% 3.82%
Average equity to
average assets 8.74% 8.27% 8.68% 8.39% 8.88%
Net interest
margin 3.63% 3.78% 4.06% 3.74% 4.06%
Net interest
margin (FTE) (1) 3.68% 3.83% 4.08% 3.78% 4.09%
ASSET QUALITY
Nonperforming
loans $12,812 $7,023 $6,494 $12,812 $6,494
Other real estate
owned 1,289 1,702 432 1,289 432
Total
nonperforming
assets 14,101 8,725 6,926 14,101 6,926
Net Charge Offs 369 863 1,418 1,602 2,012
Total
nonperforming
loans to total
loans 2.04% 1.16% 1.10% 2.04% 1.10%
Total
nonperforming
assets to total
assets 1.66% 1.05% 0.86% 1.66% 0.86%
Net charge-offs to
average loans (2) 0.25% 0.57% 0.95% 0.27% 0.34%
Allowance for loan
losses to total
loans 1.16% 1.04% 1.13% 1.16% 1.13%
Allowance for loan
losses to
nonperforming
loans 56.98% 89.76% 101.97% 56.98% 101.97%
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized
CONTACT: For LNB Bancorp, Inc.
W. John Fuller, 216-978-7643