Exhibit 99.1
LNB Bancorp, Inc. Reports First Quarter Results
-- Net Income 24-cents per diluted share for 1st quarter 2007
-- Results impacted by margin pressures and asset quality
-- Completion of Morgan Bancorp, Inc. acquisition anticipated in
May 2007
LORAIN, Ohio--(BUSINESS WIRE)--April 26, 2007--LNB Bancorp, Inc.
(NASDAQ:LNBB) today reported net income for the three months ended
March 31, 2007 of $1,535,000, or $.24 per diluted share, up 9 percent
from the $1,448,000, or $.22 per diluted share, reported for the same
period a year ago.
"We are pleased to see a gain in our earnings on a year-to-year
basis," said Daniel E. Klimas, president and chief executive officer
of LNB Bancorp, Inc., "Our results, however, continue to reflect the
margin pressures we have experienced since mid-year 2006. This
compression has been primarily caused by the flat yield curve, and
slower than expected loan growth. Our margin was also impacted by the
current level of nonperforming loans.
"Moving into the second quarter, our loan pipeline is increasing
and we have begun to experience some success in working through a few
of our current problem loans," said Klimas.
On January 16, 2007, LNB Bancorp, Inc. and Morgan Bancorp, Inc.,
of Hudson, Ohio announced the signing of a definitive agreement for
LNB to acquire Morgan and its wholly-owned subsidiary, Morgan Bank,
N.A., in a stock and cash merger transaction valued at approximately
$26.5 million. It is anticipated that this acquisition will be
completed in May of this year.
"We have made some significant investments over the past 18 months
in terms of locations and personnel as we create a community bank of
scale," said Klimas. "While those investments, including the Morgan
acquisition, certainly carry a short-term cost, we are confident that
these strategic moves will have a positive long-term impact on our
company."
Key Performance Measures
Net interest income for the first quarter of 2007 was $6,829,000,
compared to $7,203,000 for the first quarter a year ago and $6,888,000
for the fourth quarter of 2006. During the fourth quarter of 2006 and
into the first quarter of 2007, asset quality issues negatively
impacted the company's overall performance, having the effect of
decreasing net interest margin by 8 basis points. The remaining
decline in net interest margin can be attributed to the flat yield
curve and the competitive local environment for loans and deposits.
The margin compression has stabilized at 3.50 percent in both the
fourth quarter of 2006 and the first quarter of 2007.
Noninterest income was $2,989,000 for the first quarter of 2007,
an increase of $868,000, or 40.9 percent compared to $2,121,000 for
the same period in 2006, and an increase of $189,000, or 6.75 percent
over the fourth quarter of 2006. The two biggest components of
noninterest income are deposit service charges and trust and
investment management services. Deposit service charges during the
first quarter of 2007 totaled $1,082,000, an 11.8 percent increase
over the same period last year, and a decrease of 9.8 percent from the
fourth quarter of 2006. Trust and investment management services were
$522,000 for the first quarter of 2007, compared to $509,000 for the
same period in 2006.
During the first quarter of 2007, the Company established a
secondary market mortgage sales program through which the Company sold
$13,155,000 in mortgage loans to Freddie Mac. These were primarily
15-year and 30-year fixed rate mortgages. The Company recognized gains
of $189,000 on these sales.
In February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159, which permits the measurement of selected
eligible financial instruments at fair value at specified election
dates. Preliminary analysis of the merger with Morgan Bancorp suggests
that the combination will not improve the Company's existing net
interest margin exposure to falling rates. A major component of
Morgan's balance sheet is indirect automobile loans, and depending on
the prepayment behavior of this portfolio, the combined exposure to
falling rates could increase. Therefore in connection with the
anticipated acquisition, the Company has elected early adoption of
SFAS No. 159 to add an additional tool that might be used to improve
the asset-liability structure of the combined balance sheet. The goal
is to make the net interest margin more stable over a wider range of
rate environments. As part of this early adoption the Company selected
the fair value measurement option for approximately $51 million of its
aggregate $156 million available-for-sale investment securities as of
January 1, 2007. The securities chosen for the fair value measurement
option were substantially all of the Company's entire well-seasoned
seven-year balloon and 15-year mortgage-backed securities. These
securities represent approximately the same balances and approximately
the same duration characteristics as Morgan's indirect portfolio. As
of January 1, 2007, the date of the initial fair value measurement of
these securities as required under SFAS No. 159, the carrying value of
these securities exceeded their fair value by approximately $1,192,000
net of tax. This cumulative-effect adjustment was recorded as a charge
to beginning retained earnings at January 1, 2007. Under SFAS 159,
this one-time charge will not be recognized in current earnings. While
the adjustment to retained earnings is a permanent adjustment, there
is no material impact to shareholders' equity because the Company had
already recorded the market value adjustment in "accumulated other
comprehensive loss" at December 31, 2006. These securities were
reclassified as trading securities as of January 1, 2007. Securities
that are held for the sole purpose of being sold in the near term are
deemed trading securities with any related unrealized gains and losses
reported in earnings. As such, a gain of $473,000 was recorded during
the first quarter of 2007 on these securities.
Subsequent to the end of the second quarter of 2007 and in
connection with the anticipated completion of the Morgan transaction,
the Company intends to complete a repositioning of its balance sheet.
The Company expects that this repositioning will include the sale of
investment securities and the purchase of a mixture of well-structured
Collateralized Mortgage Obligations (CMO) and Mortgage Backed
Securities (MBS's) and municipal bonds, as well as agency securities.
The Company is evaluating the investment securities that may be
purchased and other financial assets and liabilities to determine the
specific instruments that may be carried at fair value in accordance
with the asset-liability management activities. The Company believes
that this repositioning, together with other possible restructuring of
the combined Company's assets and liabilities will enable the Company
to more effectively manage the combined Company's net interest margin.
In addition to this realignment of the asset-liability position of the
Company, we believe that the securities that we expect to purchase
will materially improve the yield of the Company's portfolio.
Noninterest expense was $7,358,000 in the first quarter 2007, a
$149,000, or 2.1 percent, increase from $7,209,000 during the same
period in 2006, and a $52,000, or 0.71 percent, increase from the
fourth quarter in 2006. During 2006 and into the first quarter of
2007, the Company continued to make significant investment to
strengthen its market presence in Lorain and Cuyahoga counties. Full
service offices were opened in North Ridgeville in 2006 and southern
Elyria in January of 2007. In 2006, a business development office was
also opened in Cuyahoga County. In the first quarter of 2007, the
Westlake, Ohio loan production office was relocated to Avon, Ohio.
Both the Cuyahoga County and Avon offices are staffed with commercial
banking and treasury management professionals. In this regard,
salaries and employee benefits during the first quarter 2007 increased
$245,000 or 6.8 percent, over the same period 2006. Net occupancy
expense increased $77,000, or 16.1 percent, over the same period last
year. Management continues to place a strong emphasis on control of
expenses. Expenses, other than those mentioned above, were lower in
comparison to the first quarter of 2006 by 5.5 percent.
Credit quality continues to be a primary focus of management. The
allowance for loan losses at March 31, 2007 was $7,258,000 or 1.17
percent, of outstanding loans, compared to $6,568,000 or 1.12 percent
of outstanding loans at March 31, 2006. The provision charged to
expense was $383,000 for the three months ended March 31, 2007
compared to $150,000 for the same period 2006. The allowance for loan
losses was 43.53 percent and 101.34 percent of nonperforming loans at
March 31, 2007 and 2006, respectively. At March 31, 2007,
nonperforming loans were $16,675,000, compared to $12,812,000 and
$6,481,000 at December 31, 2006 and March 31, 2006 respectively. At
the end of the first quarter 2007, the ratios of total nonperforming
loans to total portfolio loans and total nonperforming assets to total
assets were 2.68 percent and 2.08 percent, respectively, as compared
to the 2.04 percent and 1.66 percent, respectively, at year end 2006.
The increase since December 31, 2006 was primarily the result of a
comprehensive review of all commercial relationships involving amounts
greater than $500,000. As of March 31, 2007 management did not
identify any indicated losses on the increased balances. The Company's
senior management team is aggressively pursuing all options for
resolution of these nonperforming loans. Management is confident that
these levels will be reduced in the near term. Net charge-offs for the
first quarter were $426,000 as compared to $369,000 and $204,000 in
the fourth quarter 2006 and in the first quarter 2006, respectively.
Net charge-offs (annualized) for the first quarter were 0.27 percent
of average portfolio loans, as compared to 0.24 percent in the fourth
quarter 2006, and 0.14 percent in the first quarter 2006.
Total assets at the end of the first quarter 2007 were $852.8
million, an increase of $42.7 million, or 5.3 percent, compared to
March 31, 2006 and $1.7 million, or .20 percent compared to December
31, 2006. Total deposits at the end of the first quarter this year
were $722.6 million, up from $674.1 million a year ago and $717.3
million at the end of 2006. Total portfolio loans at March 31, 2007
were $621.9 million, up 5.73 percent from March 31, 2006, but down 1.0
percent compared to December 31, 2006.
About LNB Bancorp, Inc.
LNB Bancorp, Inc., is an $852.8 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. The Lorain National Bank serves customers through 23
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 ("SEC"). LNB
has filed with the SEC a registration statement on Form S-4 which
includes a proxy statement/prospectus that has been mailed to Morgan's
shareholders. Shareholders can also obtain a free copy of the proxy
statement/prospectus, as well as other filings containing information
about LNB and Morgan, at the SEC's internet site (http://www.sec.gov).
Copies of the proxy statement/prospectus and the filings with the SEC
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.
Shareholders are urged to read the proxy statement/prospectus, and
other relevant documents filed with the SEC 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 16, 2007. 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, is
or 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
March 31, 2007 December 31, 2006
-------------- -----------------
(unaudited)
(Dollars in thousands except
share amounts)
ASSETS
Cash and due from Banks $22,785 $29,122
Federal funds sold and short-term
investments 4,000 -
Securities:
Trading securities 48,615 -
Available for sale, at fair value 110,493 155,810
Federal Home Loan Bank and Federal
Reserve Bank Stock 3,248 3,248
-------------- -----------------
Total securities 162,356 159,058
-------------- -----------------
Loans:
Loans held for sale, at fair value 5,981 -
Portfolio loans 621,940 628,333
Allowance for loan losses (7,258) (7,300)
-------------- -----------------
Net loans 620,663 621,033
-------------- -----------------
Bank premises and equipment, net 12,769 12,599
Other real estate owned 1,073 1,289
Bank owned life insurance 14,922 14,755
Goodwill and intangible assets, net 3,268 3,157
Accrued interest receivable 4,169 3,939
Other assets 6,836 6,146
-------------- -----------------
Total Assets $852,841 $851,098
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-
bearing $78,361 $91,216
Savings, money market and
interest-bearing demand 289,432 278,401
Certificates of deposit 354,799 347,644
-------------- -----------------
Total deposits 722,592 717,261
-------------- -----------------
Short-term borrowings 21,054 22,163
Federal Home Loan Bank advances 32,083 35,086
Accrued interest payable 3,821 3,698
Accrued taxes, expenses and other
liabilities 4,158 4,193
-------------- -----------------
Total Liabilities 783,708 782,401
============== =================
Shareholders' Equity
Common stock, par value $1 per
share, authorized 15,000,000
shares, issued 6,771,867 shares at
March 31, 2007 and December 31,
2006 6,772 6,772
Additional paid-in capital 26,393 26,382
Retained earnings 42,915 43,728
Accumulated other comprehensive
loss (855) (2,093)
Treasury shares at cost, 328,194
shares at March 31, 2007 and
December 31, 2006 (6,092) (6,092)
-------------- -----------------
Total Shareholders' Equity 69,133 68,697
-------------- -----------------
Total Liabilities and Shareholders'
Equity $852,841 $851,098
============== =================
Consolidated Statements of Income (unaudited)
Three Months Ended March 31,
----------------------------
2007 2006
-------------- -------------
(Dollars in thousands except
share and per share
amounts)
Interest Income
Loans $11,088 $10,078
Securities:
U.S. Government agencies and
corporations 1,564 1,339
State and political subdivisions 135 103
Other debt and equity securities 55 52
Federal funds sold and short-term
investments 30 36
-------------- -------------
Total interest income 12,872 11,608
Interest Expense
Deposits:
Certificates of deposit, $100 and over 2,167 1,370
Other deposits 3,314 2,434
Federal Home Loan Bank advances 326 400
Short-term borrowings 236 201
-------------- -------------
Total interest expense 6,043 4,405
-------------- -------------
Net Interest Income 6,829 7,203
Provision for Loan Losses 383 150
-------------- -------------
Net interest income after provision
for loan losses 6,446 7,053
Noninterest Income
Investment and trust services 522 509
Deposit service charges 1,082 968
Other service charges and fees 506 451
Income from bank owned life insurance 167 145
Other income 67 46
-------------- -------------
Total fees and other income 2,344 2,119
Loss on loans HFS (33) -
Gain on trading securities 473 -
Gains on sale of loans 184 -
Gains on sale of other assets, net 21 2
-------------- -------------
Total noninterest income 2,989 2,121
Noninterest Expense
Salaries and employee benefits 3,823 3,578
Furniture and equipment 707 737
Net occupancy 555 478
Outside services 355 419
Marketing and public relations 262 391
Supplies, postage and freight 310 298
Telecommunications 188 199
Ohio Franchise tax 215 232
Electronic banking expenses 189 145
Loan and collection expense 94 87
Other expense 660 645
-------------- -------------
Total noninterest expense 7,358 7,209
-------------- -------------
Income before income tax expense 2,077 1,965
Income tax expense 542 517
-------------- -------------
Net Income $1,535 $1,448
============== =============
Net Income Per Common Share
Basic $0.24 $0.22
Diluted 0.24 0.22
Dividends declared 0.18 0.18
Average Common Shares Outstanding
Basic 6,443,673 6,504,981
Diluted 6,443,673 6,504,981
LNB Bancorp, Inc.
Supplemental Financial Information
(Unaudited - Dollars in thousands except Share and Per Share Data)
Three Months Ended
----------------------------------
March 31, December 31, March 31,
2007 2006 2006
----------------------------------
END OF PERIOD BALANCES
Assets $852,841 $851,098 $810,093
Deposits 722,592 717,261 674,056
Portfolio loans 621,940 628,333 588,226
Allowance for loan losses 7,258 7,300 6,568
Shareholders' equity 69,133 68,697 67,389
AVERAGE BALANCES
Assets:
Total assets $848,208 $836,812 $804,553
Earning assets 792,163 781,103 751,537
Securities 158,932 159,523 158,027
Portfolio loans 630,814 621,580 589,888
Liabilities and shareholders'
equity:
Total deposits $715,624 $699,008 $661,204
Interest bearing deposits 634,150 617,436 573,542
Interest bearing liabilities 689,319 678,336 642,058
Total shareholders' equity 69,309 69,590 69,339
INCOME STATEMENT
Net interest income $6,829 $6,888 $7,203
Net interest income-FTE (1) 6,918 6,977 7,251
Provision for loan losses 383 1,365 150
Noninterest income 2,989 2,800 2,121
Noninterest expense 7,358 7,306 7,209
Taxes 542 99 517
- ----------------------------------------------------------------------
Net income 1,535 918 1,448
- ----------------------------------------------------------------------
Total revenue 9,818 9,688 9,324
PER SHARE DATA
Basic net income per common share $0.24 $0.14 $0.22
Diluted net income per common
share 0.24 0.14 0.22
Cash dividends per common share 0.18 0.18 0.18
Basic average common shares
outstanding 6,443,673 6,443,673 6,504,981
Diluted average common shares
outstanding 6,443,673 6,443,684 6,504,981
KEY RATIOS
Return on average assets 0.73% 0.44% 0.73%
Return on average common equity 8.98% 5.23% 8.47%
Efficiency ratio 74.27% 74.73% 76.92%
Noninterest expense to average
assets 3.52% 3.46% 3.63%
Average equity to average assets 8.17% 8.32% 8.62%
Net interest margin 3.50% 3.50% 3.89%
Net interest margin (FTE) (1) 3.54% 3.54% 3.91%
ASSET QUALITY
Nonperforming loans $16,675 $12,812 $6,481
Other real estate owned 1,073 1,289 608
Total nonperforming assets 17,748 14,101 7,089
Net Charge Offs 426 369 204
Total nonperforming loans to
total loans 2.68% 2.04% 1.10%
Total nonperforming assets to
total assets 2.08% 1.66% 0.88%
Net charge-offs to average loans 0.27% 0.24% 0.14%
Allowance for loan losses 1.17% 1.16% 1.12%
Allowance to nonperforming loans 43.53% 56.98% 101.34%
(1) FTE -- fully tax equivalent at 34% tax rate
CONTACT: For LNB Bancorp, Inc.
W. John Fuller, 216-978-7643