<PAGE>1
COVER DESCRIPTION
Dark gray border on left hand side of front cover.
LNB BANCORP, INC.
1994 ANNUAL REPORT
Gray lettering set off on green blocks
Light gray background overall.
INSIDE FRONT COVER, LEFT FLAP
1994 Downtown Expansion
In November, The Lorain National Bank
completed construction of its new
corporate office building and Main Office
complex remodeling. These photographs
depict our new Broadway streetscape, below,
remodeled Main Office lobby, top right,
and first floor entryway to the new office
building.
NOTICE OF ANNUAL MEETING
The 1995 Annual Meeting of Shareholders of LNB Bancorp, Inc. will be held
at 10:00 a.m. on Tuesday, April 18, 1995 at The Lorain National Bank, 521
Broadway, Lorain, Ohio.
FORM 10-K
A copy of the LNB Bancorp, Inc.'s Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission, will be furnished to
shareholders upon written request to:
Thomas P. Ryan
Executive Vice President
and Secretary
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052
REGISTRAR
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052
(216) 244-6000
STOCK TRANSFER AGENT
The Lorain National Bank
457 Broadway
Lorain, Ohio 44052
(216) 244-6000
<PAGE>2
INSIDE FRONT COVER, RIGHT FLAP
Table of Contents
Highlights . . . . . . . . . . . . . . . . . . . . . . . . 1
Common Stock Trading Ranges and
Cash Dividends Declared . . . . . . . . . . . . . . . . 1
Corporate Profile . . . . . . . . . . . . . . . . . . . . 1
Message to Our Shareholder's . . . . . . . . . . . . . . . 2
Consolidated Financial Statements . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . .10
Report of Management . . . . . . . . . . . . . . . . . . .20
Independent Auditors' Report . . . . . . . . . . . . . . .20
Selected Quarterly Financial Data . . . . . . . . . . . .21
Management's Discussion and Analysis . . . . . . . . . . .22
Officers of Lorain National Bank . . . . . . . . . . . . .28
Bank Offices and Officers . . . . . . . . . . . . . . . .29
Directors and Officers of LNB Bancorp, Inc.. . . . . . . .30
Five Year Consolidated Financial Summary . . . . . . . . .31
Earnings and Stock Performance . . . . . . . . . . . . . .32
<PAGE>3
Highlights
DECEMBER 31, 1994 1993 1984
- ----------------------------------------------------------------------
BANKING OFFICES 17 17 13
OFFICERS AND STAFF 294 299 225
SHAREHOLDERS 1,867 1,740 1,321
ASSETS $394,855,000 $379,616,000 $237,940,000
DEPOSITS $335,219,000 $321,012,000 $206,891,000
NET LOANS $257,975,000 $242,043,000 $129,192,000
----------------------------------------------
TOTAL CAPITAL $ 37,511,000 $ 35,060,000 $ 16,257,000
----------------------------------------------
NET INCOME $ 4,432,000 $ 4,029,000 $ 2,055,000
----------------------------------------------
SHARES OUTSTANDING 3,200,054 3,190,688 2,950,647
----------------------------------------------
CASH DIVIDENDS DECLARED $ 1,905,000 $ 1,725,000 $ 758,000
----------------------------------------------
Shares outstanding have been adjusted for a five-for-four stock split in
1993 and a two-for-one stock split in 1989 and stock dividends.
Common Stock Trading Ranges and Cash Dividends Declared
1994 1993
--------------------------------------------------------
Bid Price Bid Price
--------------------------------------------------------
Dividend Dividend
High Low Amount High Low Amount
------- ------ --------- ------- ------ --------
First Quarter $27.75 $26.25 $.14 $22.40 $21.80 $.13
Second Quarter 29.25 27.75 .14 24.25 22.40 .13
Third Quarter 30.00 29.25 .15 24.75 24.25 .13
Fourth Quarter 30.13 30.00 .17 26.25 24.75 .15
The shares of common stock, par value $1.00 per share, of LNB Bancorp,
Inc. are traded on the over-the-counter market primarily with brokers in
the Corporation's service area.
Dividend amounts have been adjusted for the 3% stock dividend on April 19,
1994. Dividend amounts, bid prices, and par value have also been adjusted
to reflect the five-for-four stock split on April 20, 1993.
The above quoted bid prices may reflect inter-dealer prices, without
adjustments for retail markups, markdowns or commissions and may not
represent actual transactions.
<PAGE>4
Corporate Profile
LNB Bancorp, Inc. is a $395 million locally owned one bank holding company
headquartered in Lorain, Ohio. The Bancorp's predecessor, The Lorain
National Bank, was formed as a result of the merger of the The Lorain
Banking Company and The National Bank of Lorain on January 1, 1961. The
Lorain Banking Company was a state bank formed in 1905 and The National
Bank of Lorain was a national bank receiving its national charter in 1934.
On March 30, 1984, The Lorain National Bank became the wholly owned
subsididary of LNB Bancorp, Inc.
The Lorain National Bank has seventeen banking offices in Lorain, Elyria,
Amherst, Avon Lake, Oberlin, Olmsted Township, Vermilion, and Westlake
which offer a wide range of commercial and personal banking services.
The major services include checking, savings and time deposits, personal,
mortgage, student and commercial loans, home equity loans, Small Business
Administration loans, credit cards, an ATM network, and trust and
investment management services. The Lorain National Bank is an equal
opportunity employer.
END PUBLISHED PAGE 1
<PAGE>5
Message to Our Shareholders
It pleases us to report that once again, LNB Bancorp, Inc. and its
subsidiary, The Lorain National Bank, experienced a highly successful year
of operations.
Once again the nation's interest rate structure has taken an upward
turn, challenging the investment and borrowing strategies of bankers and
consumers alike. Fortunately, we have prepared ourselves well to respond
to these challenges and look forward to 1995 with optimism.
As our market's leading locally owned, independent bank, we continue to
enhance our position as a community leader, as a responsive lender and as
a provider of outstanding customer service.
Since this time last year, we have built new buildings, renovated others
and have made significant strides in acquiring and employing technology to
help us deliver high quality service to our customers.
Earnings Increase
In 1994 we posted our 13th consecutive year of increased earnings, as
net income increased in 1994 by 10% over 1993, reaching $4,432,000.
Earnings per share also increased to $1.37 for 1994 compared to $1.25 for
1993.
Dividends declared per share amounted to $.60 in 1994 compared to $.56
in 1993. It should be noted that dividend amounts have been adjusted to
reflect the 3% stock dividend in April of 1994 and the five-for-four stock
split in April of 1993.
Total cash dividends in 1994, including the EXTRA dividend declared by
the Board of Directors in November, rose to almost $1,905,000. The cash
dividends declared in 1994 represent a 51.2% increase over 1990, when
$1,260,000 in cash dividends were paid.
In each of the last 10 years, an increase in the regular cash dividend
has been approved. Cash dividends declared increased 151% since 1984,
when the payout totaled $758,000.
The graphs on page 32 depict the performance of our stock, including
accumulation of dividends and market value, over the past 10 years. The
graphs display a hypothetical purchase of 100 shares of stock in 1984 and
its approximate annual performance without further reinvestment. Also, you
will find a graph which displays a history of earnings over the past 10
years on the same page.
Other financial highlights as of December 31, 1994 include an increase
in net loans to $258.0 million, up $15.9 million from 1993 and an increase
in total deposits to $335.2 million, up $14.2 million from 1993.
Total consolidated assets reached $394.9 million, which represents an
increase of $15.3 million over 1993. The return on average assets of LNB
Bancorp, Inc. rose from 1.08% in 1993 to 1.13% in 1994.
END PUBLISHED PAGE 2
Total shareholders' equity increased $2.4 million to $37.5 million, an
increase of 6.8% over the year-end 1993 equity position. The ratios of
total shareholders' equity to total assets were 9.5% and 9.2% at December
31, 1994 and 1993, respectively.
LNB Bancorp, Inc. and its subsidiary, The Lorain National Bank,
significantly exceed all current regulatory capital guidelines (for more
detail, see Management's Discussion and Analysis on page 22.)
<PAGE>6
Investment Strategy
The recent upswing in interest rates has many financial institutions
nationwide grappling with the prospect of decreased earnings as a result
of past decisions to purchase securities with long-term maturities.
Fortunately, we chose to take the conservative approach of staying
short in our investment portfolio, due to historically low interest rates.
Today, that strategy is working to our benefit as rates begin to edge
higher. Of course we cannot predict what the future holds but we can rely
on history to an extent to assist us in making future investment
decisions.
Loan Division
The Loan Division experienced a great year, increasing its loan
portfolio by almost $16 million in 1994. The combination of attractive
interest rates, a growing business community, increased housing demand and
a team of responsive lenders was largely responsible for our loan growth.
We remain a leading local participant in the Federal government's Small
Business Administration lending programs. As both Certified and Preferred
SBA lenders, we have made a significant, positive impact on start-up,
growth and development of many small businesses within our community.
We take pride in watching the emergence and growth of many small to
medium size businesses. As these businesses develop and grow, the
community benefits by the creation of jobs for the area's workforce.
Trust and Investment
Management Division
The Trust and Investment Management Division continues to grow, not only
in terms of assets under management, but in the size and scope of its
abilities to provide high quality service.
In 1994, the Division expanded its private conference room space, found
more effective ways to utilize computer technology and in doing so,
enhanced its reputation for providing prompt, personal attention to the
needs of its clients.
END PUBLISHED PAGE 3
The Trust and Investment Management Division's assets under management
increased to $147.0 million, with a market value of $164.8 million.
Direct revenues for the Division in 1994 were $916,000.
1994 Highlights
Our most ambitious building expansion project in many years became a
reality in December when we celebrated the opening of our new corporate
office building in downtown Lorain.
The project included remodeling of the Main Office banking facility and
construction of a new entrance to our Trust and Investment Management
Division. The former Branch Administration building was also reconfigured
as the Bank's employee training center.
The downtown complex, which is now under one roof, provides much greater
customer comfort and allows departments within the complex to interact
more productively.
<PAGE>7
We also unveiled another new off-premise automated teller machine at the
Lowe's home improvement warehouse near the Midway Mall in Elyria. The new
ATM is located in a high traffic area and has already become one of our
most popular locations.
Both capital improvement projects have been nominated for recognition by
the Lorain County Beautiful Awards program.
Also in 1994, as a result of our tireless efforts to ascertain and meet
the wants and needs of the community, we received an Outstanding
performance rating from the Office of the Comptroller of the Currency on
our first official Community Reinvestment Act examination.
This rating recognizes the successful efforts of our employees to tailor
deposit, loan, investment, trust and other banking services to the needs
of the community which we serve.
Employees and Technology
In 1994, our employees participated in a record number of personal and
professional enrichment programs designed to increase product knowledge
and provide a higher level of quality customer service.
In addition to training, we made a significant investment in technology
to augment our employees' skills. In fact, at most of our employees' work
stations you will find personal computers and/or terminals linked to our
mainframe computer system, which will be upgraded in 1995.
Technology coupled with advanced product knowledge is a powerful
combination which enables us to meet customer needs quickly and allows our
customers to make more informed decisions.
END PUBLISHED PAGE 4
In Memoriam
We regrettably acknowledge the passing in 1994 of four retired veterans
of our organization. Our friends, Charles F. Friend, Janice E. Long,
Mildred A. Rose and John F. Sauer, will be greatly missed. Their many
years of dedicated service will not soon be forgotten.
Local Economy
We look forward to a favorable economic climate in Lorain County in 1995
thanks to continuing strength in new business start-ups, new housing and
strong automobile sales.
Our county continues to be a popular place to do business. Thanks to
companies such as A.J. Rose, Inc., the Geon Corporation and Manco, Inc.,
more tax dollars and payroll will be infused into our county's revenue
pool.
Likewise, our unemployment rate at year-end leveled off at less than 5%,
an outstanding figure compared to years passed.
The Ford Motor Company continues to ride the crest of sales for its
popular, locally produced products like Avon Lake's Mercury
Villager/Nissan Quest minivans. Lorain's Thunderbird and Cougar 2-door
coupes and sturdy Econoline vans are also steady sellers.
Little, if any, overtime is forecast for Ford assembly workers in 1995,
but indications are that Ford will experience another strong year. The
nation's automakers produced 15.2 million vehicles in 1994 and that number
is expected to increase slightly in 1995.
Lorain's USS/KOBE Steel Company continues to improve its manufacturing
capabilities by employing new technology like that found in its new
continuous caster. The steelmaker remains a vital employer in Lorain
County.
<PAGE>8
As for the Bank, we continue to make good use of our resources. We are
finding new and innovative ways to bring high quality service to our
customers while controlling expenses.
We have been able to maintain staffing at a constant level over the past
three years as assets continue to grow. We are also quite proud of our
ability to provide a market return on our shareholders' investment while
building for our future growth.
We appreciate your continued support of our current activities and look
forward to a rewarding 1995.
Stanley G. Pijor James F. Kidd
/s/ Stanley G. Pijor /s/ JF Kidd
Chairman and President and
Chief Executive Officer Chief Operating Officer
END PUBLISHED PAGE 5
<PAGE>9
Consolidated Balance Sheets
December 31, 1994 1993
- -------------------------------------------------------------------------
ASSETS:
Cash and due from banks (note 2) $ 21,275,000 $ 14,876,000
Federal funds sold and other interest
bearing instruments -0- 6,400,000
Securities (note 3):
Securities available for sale 10,137,000 -0-
Investment securities 89,387,000 103,086,000
----------------------------
Total securities
(Market value $ 97,080,000 and
$103,952,000, respectively) 99,524,000 103,086,000
----------------------------
Loans (notes 4 and 14):
Portfolio loans 253,889,000 240,776,000
Loans available for sale 7,918,000 4,981,000
----------------------------
Total loans 261,807,000 245,757,000
Reserve for possible loan losses (3,832,000) (3,714,000)
----------------------------
Net loans 257,975,000 242,043,000
----------------------------
Bank premises and equipment, net (note 5) 10,682,000 8,338,000
Accrued interest receivable 2,391,000 2,274,000
Other assets 3,008,000 2,599,000
----------------------------
TOTAL ASSETS $394,855,000 $379,616,000
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (note 6):
Demand and other noninterest-bearing
deposits $ 57,096,000 $ 50,241,000
Savings and passbook accounts 171,095,000 172,896,000
Time, including certificates of deposit
over $100,000 totaling $26,652,000 and
$17,445,000, respectively 107,028,000 97,875,000
----------------------------
Total deposits 335,219,000 321,012,000
----------------------------
Securities sold under repurchase
agreements and other short-term
borowings (note 7) 19,171,000 19,400,000
Construction line of credit (note 7) -0- 1,100,000
Accrued interest payable 868,000 788,000
Taxes and other liabilities (notes 8 and 10) 2,086,000 2,256,000
----------------------------
Total liabilities 357,344,000 344,556,000
----------------------------
<PAGE>10
Shareholders' equity:
Common stock, $1.00 par:
Shares authorized 4,000,000
Shares issued and outstanding
3,200,054 and 3,097,755,
respectively (notes 11, 12 and 13) 3,200,000 3,098,000
Additional capital 18,415,000 15,858,000
Retained earnings (note 9) 16,028,000 16,104,000
Net unrealized securities losses (132,000) -0-
----------------------------
Total shareholders' equity 37,511,000 35,060,000
----------------------------
Commitments and contingencies (notes 5 and 16)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $394,855,000 $379,616,000
----------------------------
See accompanying notes to consolidated financial statements
END PUBLISHED PAGE 6
<PAGE>11
Consolidated Statements of Income
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans:
Taxable $ 21,353,000 $ 20,158,000 $ 20,725,000
Tax exempt 72,000 82,000 105,000
Interest and dividends on
securities:
U.S. Treasury securities 4,323,000 4,449,000 4,936,000
U.S. Government agencies
and corporations 170,000 285,000 461,000
States and political
subdivisions 595,000 624,000 863,000
Other debt and equity
securities 20,000 20,000 19,000
Interest on Federal funds
sold and other interest
bearing instruments 297,000 274,000 356,000
--------------------------------------------
TOTAL INTEREST INCOME 26,830,000 25,892,000 27,465,000
INTEREST EXPENSE:
Interest on deposits:
Time certificates of
$100,000 and over 793,000 740,000 971,000
Other deposits 6,968,000 7,398,000 8,656,000
Interest on securities sold
under repurchase agreements
and other short-term
borrowings 755,000 400,000 594,000
Other interest 56,000 2,000 2,000
--------------------------------------------
TOTAL INTEREST EXPENSE 8,572,000 8,540,000 10,223,000
--------------------------------------------
NET INTEREST INCOME 18,258,000 17,352,000 17,242,000
Provision for possible
loan losses (note 4) 400,000 500,000 700,000
--------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 17,858,000 16,852,000 16,542,000
--------------------------------------------
OTHER INCOME:
Trust division income 916,000 825,000 756,000
Service charges on deposit
accounts 1,300,000 1,284,000 1,257,000
Other service charges,
exchanges and fees 1,837,000 1,642,000 1,580,000
Gains on sales of loans
and securities 70,000 191,000 14,000
Other operating income 11,000 67,000 12,000
--------------------------------------------
TOTAL OTHER INCOME 4,134,000 4,009,000 3,619,000
<PAGE>12
OTHER EXPENSES:
Salaries and employee benefits
(notes 10, 12 and 13) 7,675,000 7,318,000 7,113,000
Net occupancy expense of
premises (note 5) 1,112,000 1,091,000 1,156,000
Furniture and equipment
expenses (note 5) 1,768,000 1,653,000 1,767,000
Supplies and postage 837,000 825,000 783,000
FDIC deposit insurance
premium 722,000 699,000 683,000
Ohio franchise tax 475,000 474,000 444,000
Other operating expenses 3,090,000 2,957,000 2,839,000
--------------------------------------------
TOTAL OTHER EXPENSES 15,679,000 15,017,000 14,785,000
--------------------------------------------
INCOME BEFORE FEDERAL
INCOME TAXES 6,313,000 5,844,000 5,376,000
--------------------------------------------
FEDERAL INCOME TAXES (BENEFIT)
(note 8):
Current 1,816,000 1,895,000 1,930,000
Deferred 65,000 (80,000) (380,000)
--------------------------------------------
TOTAL FEDERAL INCOME TAXES 1,881,000 1,815,000 1,550,000
--------------------------------------------
NET INCOME $ 4,432,000 $ 4,029,000 $ 3,826,000
--------------------------------------------
NET INCOME PER SHARE
(note 15) $ 1.37 $ 1.25 $ 1.20
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 7
<PAGE>13
Consolidated Statements of Cash Flows
Years ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Interest received $ 26,732,000 $ 26,094,000 $ 27,787,000
Other income received 4,057,000 3,797,000 3,653,000
Interest paid (8,492,000) (8,638,000) (10,667,000)
Cash paid for salaries
and employee benefits (7,661,000) (7,434,000) (7,178,000)
Net occupancy expense of
premises paid (847,000) (842,000) (879,000)
Furniture and equipment
expenses paid (708,000) (697,000) (804,000)
Cash paid for supplies and
postage (837,000) (825,000) (783,000)
Cash paid for other
operating expenses (4,372,000) (3,894,000) (4,240,000)
Federal income taxes paid (1,960,000) (1,838,000) (1,925,000)
--------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 5,912,000 5,723,000 4,964,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and
maturities of securities
available for sale 7,069,000 -0- -0-
Proceeds from sales and
maturities of investment
securities 43,905,000 50,062,000 40,420,000
Purchases of securities
available for sale (6,999,000) -0- -0-
Purchases of investment
securities (40,494,000) (56,371,000) (41,365,000)
Net decrease in credit
card loans 129,000 229,000 499,000
Net increase in long-term
loans (16,528,000) (12,344,000) (11,088,000)
Purchases of bank premises,
equipment and software (4,052,000) (2,465,000) (1,527,000)
Proceeds from sales of
bank premises and equipment -0- 260,000 8,000
--------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (16,970,000) (20,629,000) (13,053,000)
<PAGE>14
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
demand and other noninterest-
bearing deposits 6,855,000 (1,815,000) 8,155,000
Net increase (decrease)
in savings and passbook
deposits (1,801,000) 12,514,000 19,339,000
Net increase (decrease) in
time deposits 9,153,000 (7,417,000) (11,717,000)
Net increase (decrease)
in securities sold under re-
purchase agreements and other
short-term borrowings (249,000) 539,000 2,352,000
Proceeds from line of credit 1,668,000 1,100,000 -0-
Cash paid on line of credit (2,768,000) -0- -0-
Proceeds from exercise of
stock options 56,000 204,000 143,000
Dividends paid (1,857,000) (1,671,000) (1,515,000)
--------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 11,057,000 3,454,000 16,757,000
--------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (1,000) (11,452,000) 8,668,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 21,276,000 32,728,000 24,060,000
--------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 21,275,000 $ 21,276,000 $ 32,728,000
--------------------------------------------
<PAGE>15
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 4,432,000 $ 4,029,000 $ 3,826,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 1,325,000 1,207,000 1,238,000
Gain on sales of loans and
securities (70,000) (191,000) (14,000)
Amortization and accretion on
securities, net 19,000 45,000 (72,000)
Amortization of deferred loan
fees and costs, net 67,000 (64,000) (17,000)
Provision for possible
loan losses 400,000 500,000 700,000
Increase (decrease) in deferred
Federal income taxes 65,000 (80,000) (380,000)
(Increase) decrease in accrued
interest receivable (117,000) 157,000 394,000
(Increase) decrease in
other assets (282,000) 467,000 (421,000)
Increase (decrease) in accrued
interest payable 80,000 (98,000) (444,000)
Increase (decrease) in Federal
income taxes payable (79,000) 23,000 (112,000)
Increase (decrease) in accrued
expenses 65,000 (251,000) 214,000
Others, net 7,000 (21,000) 52,000
--------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $5,912,000 $5,723,000 $4,964,000
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 8
<PAGE>16
Consolidated Statements of Changes in Shareholders' Equity
Years ended Net Unrealized
December 31, 1994 Common Additional Retained Securities
1993 and 1992 Stock Capital Earnings Losses Total
- -------------------------------------------------------------------------
BALANCE AT
DECEMBER 31,
1991 $2,958,000 $13,802,000 $13,378,000 -0- $30,138,000
-----------------------------------------------------------
Net income -0- -0- 3,826,000 -0- 3,826,000
Cash dividends
declared,
$.51 per share -0- -0- (1,555,000) -0- (1,555,000)
Issuance of 20,567
shares of common
stock under stock
option plans 20,000 123,000 -0- -0- 143,000
Market value of
stock issued in
payment of stock
dividend,
88,883 shares 89,000 1,760,000 (1,849,000) -0- -0-
-----------------------------------------------------------
BALANCE AT
DECEMBER 31,
1992 3,067,000 15,685,000 13,800,000 -0- 32,552,000
-----------------------------------------------------------
Net income -0- -0- 4,029,000 -0- 4,029,000
Cash dividends
declared,
$.56 per share -0- -0- (1,725,000) -0- (1,725,000)
Issuance of 30,249
shares of common
stock under stock
option plans 31,000 173,000 -0- -0- 204,000
-----------------------------------------------------------
BALANCE AT
DECEMBER 31,
1993 3,098,000 15,858,000 16,104,000 -0- 35,060,000
-----------------------------------------------------------
BALANCES CONTINUED ON FOLLOWING PAGE
<PAGE>17
BALANCES CONTINUED FROM PREVIOUS PAGE
Consolidated Statements of Changes in Shareholders' Equity
Years ended Net Unrealized
December 31, 1994 Common Additional Retained Securities
1993 and 1992 Stock Capital Earnings Losses Total
- -------------------------------------------------------------------------
Net income -0- -0- 4,432,000 -0- 4,432,000
Cash dividends
declared,
$.60 per share -0- -0- (1,905,000) -0- (1,905,000)
Issuance of 9,334
shares of common
stock under stock
option plans 9,000 47,000 -0- -0- 56,000
Market value of
stock issued in
payment of stock
dividend,
92,965 shares 93,000 2,510,000 (2,603,000) -0- -0-
Net unrealized
securities
losses -0- -0- -0- (132,000) (132,000)
-----------------------------------------------------------
BALANCE AT
DECEMBER 31,
1994 $3,200,000 $18,415,000 $16,028,000 $(132,000) $37,511,000
-----------------------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 9
<PAGE>18
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies:
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of LNB Bancorp,
Inc. (the Corporation) and its wholly owned subsidiary, The Lorain
National Bank (the Bank). All material intercompany transactions and
balances have been eliminated in consolidation.
(b) Segment of Business:
The Corporation's activities are considered to be a single industry
segment for financial reporting purposes.
(c) Cash and Cash Equivalents:
For purposes of reporting in the Consolidated Statements of Cash Flows,
cash and cash equivalents include currency on hand, amounts due from
banks, Federal funds sold, and securities purchased under resale
agreements. Generally, Federal funds sold and securities purchased under
resale agreements are for one day periods.
(d) Securities:
Effective January 1, 1994, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 115 (SFAS No. 115),
"Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires the Corporation to classify debt and equity securities as
held to maturity, trading or available for sale. The cumulative effect on
retained earnings at December 31, 1994 of adopting SFAS No. 115, is
included as a separate component of shareholders' equity in the
Consolidated Balance Sheets and represents the after-tax effect of
adjusting securities available for sale to fair value. Prior to the
adoption of SFAS No. 115, the Corporation recorded investment securities
at amortized cost.
Investment securities which are classified as being held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts. Securities available for sale are carried at fair value with
unrealized gains and losses included as a separate component of
shareholders' equity, net of tax. Gains or losses on dispositions are
based on net proceeds and the carrying value of securities sold, using the
specific identification method.
(e) Loans Available for Sale:
The Bank has identified certain commercial and student loans which may be
sold prior to maturity. These loans are carried at the lower of amortized
cost (carrying value) or estimated market value, determined on an
aggregate basis for each type of loan available for sale.
(f) Provision for Possible Loan Losses:
The provision for possible loan losses is determined based on management's
evaluation of the loan portfolio and the adequacy of the reserve for
possible loan losses under current economic conditions and such other
factors which, in management's judgement, deserve current recognition.
<PAGE>19
(g) Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed
generally on the straight-line method over the estimated useful lives of
the assets.
(h) Other Real Estate Owned:
Other real estate owned is carried in other assets at fair value, net of
estimated costs to sell, not to exceed the cost of property acquired
through foreclosure. Neither the Corporation nor the Bank carried any
other real estate owned at December 31, 1994 or 1993.
(i) Additional Capital and Retained Earnings:
The additional capital account includes amounts received in excess of par
value of common stock sold and amounts voluntarily transferred from
retained earnings. In the case of stock dividends, the Corporation
transfers the market value of shares issued from retained earnings to the
common stock and additional capital accounts.
(j) Interest and Fees on Loans:
Interest income on loans is accrued on the principal balances of loans
outstanding on a "simple interest" basis. Loan origination fees and
certain direct origination costs are deferred and amortized over the
contractual lives of the related loans on a level yield basis.
(k) Trust Division Assets and Income:
Property held by the Corporation in fiduciary or agency capacity for its
customers is not included in the accompanying financial statements, as
such items are not assets of the Corporation. Income from the Trust
Division is reported on an accrual basis.
(l) Federal Income Taxes:
The Corporation follows the asset and liability method of accounting for
income taxes as prescribed by Statement of Financial Accounting Standards
No. 109 (SFAS No. 109), "Accounting for Income Taxes". Deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(m) Reclassifications:
Certain 1992 and 1993 amounts have been reclassified to conform to the
1994 presentation.
(2) Cash and Due From Banks:
At December 31, 1994 and 1993, cash and due from banks included
approximately $5,726,000 and $6,391,000, respectively, deposited with the
Federal Reserve Bank and other banks to compensate for check-clearing,
safekeeping, collection and other bank services.
During 1994 and 1993, the average balances on deposit with the Federal
Reserve Bank to satisfy reserve requirements approximated $5,719,000 and
$5,196,000, respectively.
END PUBLISHED PAGE 10
<PAGE>20
(3) Securities:
The amortized cost, gross unrealized gains and losses and
fair values of securities at December 31, 1994 and 1993
follow:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Gains Losses Value
- -------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities $ 9,995,000 $ -0- $(228,000) $9,767,000
Equity securities 343,000 27,000 -0- 370,000
------------------------------------------------
Total securities
available for sale 10,338,000 27,000 (228,000) 10,137,000
------------------------------------------------
Investment securities:
U.S. Treasury securities 80,112,000 14,000 (2,427,000) 77,699,000
Securities of other U.S.
Government agencies and
corporations 1,500,000 2,000 (8,000) 1,494,000
States and political
subdivisions 7,775,000 92,000 (117,000) 7,750,000
-------------------------------------------------
Total investment
securities 89,387,000 108,000 (2,552,000) 86,943,000
-------------------------------------------------
Total securities $99,725,000 $135,000 $(2,780,000) $97,080,000
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1993 Cost Gains Losses Value
- -------------------------------------------------------------------------
Investment securities:
U.S. Treasury
securities $88,291,000 $570,000 $(105,000) $ 88,756,000
Securities of other U.S.
Government agencies and
corporations 3,900,000 59,000 -0- 3,959,000
States and political
subdivisions 10,552,000 330,000 (13,000) 10,869,000
-------------------------------------------------
Total debt securities 102,743,000 959,000 (118,000) 103,584,000
-------------------------------------------------
Equity securities
available for sale 343,000 25,000 -0- 368,000
-------------------------------------------------
Total securities $103,086,000 $984,000 $(118,000) $103,952,000
-------------------------------------------------
<PAGE>21
The amortized cost, fair values and yields of
debt securities by contractual maturity date at
December 31, 1994 follow:
Fully-Tax
Amortized Fair Equivalent
December 31, 1994 Cost Value Yield
- -------------------------------------------------------------------------
U.S. Treasury securities
available for sale:
Due within 1 year $4,998,000 $4,901,000 4.03%
After 1 but within
5 years 4,997,000 4,866,000 5.30
-------------------------------------------
9,995,000 9,767,000 4.66
-------------------------------------------
Investment securities:
Due within 1 year 36,716,000 36,264,000 4.78
After 1 but within
5 years 49,452,000 47,490,000 5.83
After 5 but within
10 years 3,075,000 3,054,000 8.30
After 10 years 144,000 135,000 7.38
-------------------------------------------
89,387,000 86,943,000 5.49
-------------------------------------------
Total $99,382,000 $96,710,000 5.41%
===========================================
END PUBLISHED PAGE 11
(3) Securities (continued)
There were no sales of securities in 1994.
Proceeds from the sale of securities during 1993 were $4,230,000 resulting
in gross realized gains of $140,000 and realized losses of $-0-. Proceeds
from the sale of securities during 1992 were $2,012,000 resulting in gross
realized gains of $14,000 and realized losses of $-0-.All other
redemptions during these three years were in the form of proceeds at
maturity or calls by the issuers of debt. The carrying value of
securities pledged to secure trust and public deposits and for other
purposes required by law amounted to $76,430,000 and $69,951,000 at
December 31, 1994 and 1993 respectively.
The fair values of securities are obtained form an independent valuation
service. At December 31, 1994 the securities portfolio contained
approximately $3,560,000 in non-rated securities of state and political
subdivisions. Based upon yield, term to maturity and market risk, the
valuation service estimated the fair value of these securities to be
$3,495,000. The majority of these non-rated securities are short-term
debt issues of local political subdivisions. Management has reviewed
these non-rated securities and has determined that there is no material
impairment to their value as of December 31, 1994.
<PAGE>22
(4) Loans and Reserve for Possible Loan Losses:
Loan balances at December 31, 1994 and 1993 are summarized as follows:
December 31, 1994 1993
- --------------------------------------------------------------------------
Real estate loans (includes loans
secured primarily by real estate only):
Construction and land development $ 24,340,000 $ 19,963,000
One to four family residential 130,066,000 116,299,000
Multi-family residential 7,863,000 7,013,000
Non-farm non-residential properties 59,185,000 59,372,000
Commercial and industrial loans
(except those secured primarily
by real estate) 16,179,000 20,099,000
Personal loans to individuals:
Auto, single payment and installment 17,393,000 15,974,000
Credit card and related plans 4,986,000 5,205,000
Obligations of states and political
subdivisions other than securities 1,242,000 1,443,000
All other loans 553,000 389,000
------------------------------------
TOTAL LOANS 261,807,000 245,757,000
Reserve for possible loan losses (3,832,000) (3,714,000)
------------------------------------
NET LOANS $257,975,000 $242,043,000
------------------------------------
Activity in the reserve for possible loan losses for 1994, 1993 and 1992
is summarized as follows:
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------
Balance at beginning of year $3,714,000 $3,406,000 $2,803,000
Provision for possible loan
losses 400,000 500,000 700,000
Loans charged-off (399,000) (515,000) (372,000)
Recoveries on loans previously
charged-off 117,000 323,000 275,000
--------------------------------------------
BALANCE AT END OF YEAR $3,832,000 $3,714,000 $3,406,000
--------------------------------------------
At December 31, 1994 and 1993, $7,918,000 and $4,981,000 of commercial and
student loans were available for sale in the secondary market.
At December 31, 1994, the Bank had firm commitments for the sale of
approximately $1,257,000 of these loans. No provision for loss on the
carrying value of these loans was necessary at December 31, 1994.
END PUBLISHED PAGE 12
<PAGE>23
(5) Bank Premises and Equipment:
Bank premises and equipment are summarized as follows:
December 31, 1994 1993
- -------------------------------------------------------------------------
Land $ 1,941,000 $ 1,901,000
Buildings 8,549,000 6,412,000
Equipment and furniture 10,920,000 9,376,000
Leasehold improvements 441,000 439,000
Construction in progress -0- 979,000
---------------------------------------------
21,851,000 19,107,000
---------------------------------------------
Less accumulated depreciation
and amortization 11,169,000 10,769,000
---------------------------------------------
TOTAL $10,682,000 $ 8,338,000
---------------------------------------------
Depreciation and amortization of Bank premises and equipment charged to
other expense amounted to $1,170,000 in 1994, $1,052,000 in 1993 and
$1,086,000 in 1992.
Amortization of purchased software charged to other operating expenses
amounted to $155,000 in 1994, $155,000 in 1993 and $152,000 in 1992.
At December 31, 1994, the Bank was obligated to pay rental commitments
under noncancelable operating leases on branch offices and certain
equipment as follows:
Year Ending Branch
December 31, Offices Equipment
- -----------------------------------------------------------
1995 $80,000 $66,000
1996 31,000 50,000
1997 14,000 39,000
1998 4,000 5,000
1999 and thereafter -0- -0-
------------------------
Rentals paid under leases on branch offices and equipment, respectively,
amounted to $106,000 and $65,000 in 1994, $99,000 and $74,000 in 1993 and
$98,000 and $80,000 in 1992.
<PAGE>24
(6) Deposits:
Deposit balances at December 31, 1994 and 1993 are summarized as follows:
December 31, 1994 1993
- --------------------------------------------------------------------------
Demand and other noninterest-
bearing deposits:
Individuals, partnerships
and corporations $ 47,743,000 $ 43,321,000
U.S. Government 1,595,000 837,000
States and political subdivisions 4,032,000 2,246,000
Certified, official, travelers
checks and other 3,726,000 3,837,000
-----------------------------------
Total demand and other noninterest-
bearing deposits 57,096,000 50,241,000
-----------------------------------
Savings and passbook accounts:
Individuals and non-profit organizations 152,126,000 152,985,000
Corporations and profit organizations 18,969,000 19,911,000
-----------------------------------
Total savings and passbook accounts 171,095,000 172,896,000
-----------------------------------
Time deposits:
Individuals, partnerships and
corporations 93,484,000 87,085,000
States and political subdivisions 13,544,000 10,790,000
------------------------------------
Total time deposits 107,028,000 97,875,000
------------------------------------
TOTAL DEPOSITS $335,219,000 $321,012,000
------------------------------------
The maturity distribution of time certificates of deposit over
$100,000 as of December 31, 1994 and 1993 follows:
After 3 After 6
Months Months
Within 3 But Within But Within
Months 6 Months 1 Year
- -------------------------------------------------------------------------
December 31, 1994 $17,802,000 $3,357,000 $ 3,680,000
- -------------------------------------------------------------------------
December 31, 1993 $4,199,000 $2,908,000 $ 8,680,000
- -------------------------------------------------------------------------
After 1 After 2
Year But Years But
Within Within
2 Years 5 Years Total
- -------------------------------------------------------------------------
December 31, 1994 $ 600,000 $1,213,000 $26,652,000
- -------------------------------------------------------------------------
December 31, 1993 $ 335,000 $1,323,000 $17,445,000
- -------------------------------------------------------------------------
END PUBLISHED PAGE 13
<PAGE>25
(7) Short-Term Borrowings:
Information relating to short-term borrowings for the
years ended December 31, 1994 and 1993 follows:
1994 1993
- --------------------------------------------------------------------------
Securities sold under repurchase agreements
and other short-term borrowings
At December 31:
Outstanding $19,171,000 $19,400,000
Interest rate 5.360% 2.503%
Average for the period:
Outstanding $21,106,000 $15,483,000
Interest rate 3.575% 2.584%
Maximum month-end outstanding $30,750,000 $19,756,000
Construction line of credit
At December 31:
Outstanding $ -0- $ 1,100,000
Interest rate 0.000% 3.945%
Average for the period:
Outstanding $ 2,061,000 $ 69,000
Interest rate 4.895% 3.945%
Maximum month-end outstanding $ 2,750,000 $ 1,100,000
In December of 1993, the Corporation obtained a $3,000,000 construction
line of credit from a commercial bank to fund the expansion of the Bank's
main office complex. The Corporation made monthly draws on the line to
pay billings from construction contractors. The term of the line was 15
months. The interest rate was based upon the current LIBOR rate plus fifty
basis points and was adjustable monthly.
The line was collateralized with $3,400,000 of U.S. Treasury securities.
During construction the interest and fee from the line were capitalized as
part of the construction in progress. When the building was placed into
service in August 1994, a total of approximately $61,000 in interest and
fees had been capitalized. In December 1994 the line was paid off and no
further draws are anticipated.
END PUBLISHED PAGE 14
<PAGE>26
(8) Federal Income Taxes:
Effective January 1, 1993, the Corporation adopted SFAS No. 109 on a
prospective basis. The cumulative effect of this change in accounting
method did not have a material impact on the Corporation's consolidated
financial position or results of operations.
In 1992 and prior years, deferred income taxes were reported under APB
Opinion 11. Pursuant to the deferred method under APB Opinion 11, deferred
income taxes are recognized for income and expense items that are reported
in different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the calculation.
Under APB Opinion 11, deferred taxes are not adjusted for subsequent
changes in tax rates. Federal income tax expense for prior years'
financial statements has not been restated. Income taxes on gains from
sales of loans and investment securities are provided at the statutory
income tax rate and included in the current portion of the provision.
The components of deferred Federal income tax (benefit) are as follows:
Years ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------
Provision for possible
loan losses $ (40,000) $(105,000) $(205,000)
Depreciation 39,000 (8,000) (82,000)
Accrued expenses 48,000 (22,000) (45,000)
Pension expense 4,000 32,000 (24,000)
Deferred loan fees and costs 2,000 23,000 (24,000)
Other, net 12,000 0 0
---------------------------------------------
DEFERRED FEDERAL INCOME TAX
(BENEFIT) $ 65,000 $ (80,000) $(380,000)
---------------------------------------------
The following presents a reconciliation of the total Federal income taxes
as shown on the Consolidated Statements of Income with that which would be
completed by applying the statutory Federal tax rate of 34 percent to
income before Federal income taxes.
Years ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------
Computed "expected" tax expense $2,146,000 $1,987,000 $1,828,000
Increase (reduction) in income
taxes resulting from:
Tax exempt interest on
obligations of states
and political subdivisions (216,000) (212,000) (308,000)
Other, net (49,000) 40,000 30,000
---------------------------------------------
TOTAL FEDERAL INCOME TAXES $1,881,000 $1,815,000 $1,550,000
---------------------------------------------
Net deferred Federal tax assets of $1,101,000 and $1,098,000 at December
31, 1994 and 1993 respectively, are included in other assets on the
consolidated balance sheets. Management believes that it is more likely
than not that the deferred tax assets will be realized. The tax effect of
temporary differences that give rise to significant portions of the
deferred Federal tax assets and deferred Federal tax liabilities are
presented below.
<PAGE>27
December 31, 1994 1993
- -------------------------------------------------------------------------
Deferred Federal tax assets:
Reserve for possible loan losses 859,000 839,000
Deferred compensation 132,000 118,000
Accrued pension expense 106,000 109,000
Accrued vacation payable 105,000 102,000
Deferred loan fees and costs 162,000 160,000
Securities available for sale 68,000 -0-
Other, net 2,000 2,000
----------------------------
Total deferred Federal tax assets 1,434,000 1,330,000
Deferred Federal tax liabilities:
Bank premises and equipment (147,000) (111,000)
Deferred charges (186,000) (121,000)
----------------------------
Total deferred Federal tax
liabilities (333,000) (232,000)
NET DEFERRED FEDERAL TAX ASSETS 1,101,000 1,098,000
----------------------------
END PUBLISHED PAGE 15
<PAGE>28
(9) Parent Company:
Substantially all of the retained earnings of the Corporation represent
undistributed net income of its subsidiary. Dividends paid by the
subsidiary are subject to restrictions by the Office of the Comptroller of
the Currency.
As of December 31, 1994, retained earnings available for payment of
dividends without obtaining regulatory approval amounted to approximately
$4,026,000. Condensed financial information of LNB Bancorp, Inc. (Parent
Company only) is as follows:
Condensed Balance Sheets
ASSETS:
December 31, 1994 1993
- --------------------------------------------------------------------------
Cash $ 941,000 $ 994,000
Investment in subsidiary
at equity in underlying
value of its net assets 32,879,000 30,512,000
Investment securities 4,181,000 4,353,000
Construction in progress -0- 979,000
Due from Bank -0- 979,000
Other assets 54,000 51,000
-----------------------------------
$38,055,000 $37,868,000
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
December 31, 1994 1993
- --------------------------------------------------------------------------
Dividends payable $ 544,000 $ 496,000
Other liabilities -0- 2,000
Construction line of credit -0- 1,100,000
Construction obligations -0- 1,210,000
Shareholders' equity:
Common stock, $1.00 par 3,200,000 3,098,000
Additional capital 18,415,000 15,858,000
Retained earnings 16,028,000 16,104,000
Net unrealized securities losses (132,000) -0-
------------------------------------
Total shareholders' equity 37,511,000 35,060,000
------------------------------------
$38,055,000 $37,868,000
------------------------------------
<PAGE>29
Condensed Statements of Income
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------
INCOME:
Cash dividends from subsidiary $1,841,000 $4,725,000 $1,555,000
Interest and other income 209,000 106,000 78,000
----------------------------------------------
2,050,000 4,831,000 1,633,000
EXPENSES:
Other expenses 70,000 74,000 35,000
----------------------------------------------
Income before Federal income
taxes and equity in undistributed
net income of subsidiary 1,980,000 4,757,000 1,598,000
Federal income tax expense 47,000 11,000 15,000
----------------------------------------------
1,933,000 4,746,000 1,583,000
Equity in undistributed net
income of subsidiary 2,499,000 (717,000) 2,243,000
----------------------------------------------
NET INCOME $4,432,000 $4,029,000 $3,826,000
----------------------------------------------
Condensed Statements of Cash Flows
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from subsidiary $1,841,000 $4,725,000 $1,555,000
Other, net 89,000 (23,000) 15,000
---------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,930,000 4,702,000 1,570,000
---------------------------------------------
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES:
Proceeds from maturities of
investment securities 622,000 496,000 635,000
Purchases of investment scurities (450,000) (3,654,000) (799,000)
Proceeds from sale of building
to Bank 2,855,000 -0- -0-
Construction of Bank permises (2,109,000) -0- -0-
Cash paid on line of credit (2,768,000) -0- -0-
Investment in construction
in progress, net -0- (746,000) -0-
Proceeds from line of credit 1,668,000 1,100,000 -0-
Proceeds from exercise of
stock options 56,000 204,000 143,000
Dividends paid (1,857,000) (1,671,000) (1,515,000)
---------------------------------------------
NET CASH USED IN INVESTING
AND FINANCING ACTIVITIES (1,983,000) (4,271,000) (1,536,000)
---------------------------------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS (53,000) 431,000 34,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 994,000 563,000 529,000
---------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 941,000 $ 994,000 $ 563,000
END OF PUBLISHED PAGE 16 ---------------------------------------------
<PAGE>30
(10) Retirement Plan:
The Bank maintains a non-contributory defined benefit pension plan
covering substantially all of its employees. In general, benefits are
based on years of service and the employee's level of compensation. The
Bank's policy is to fund the pension plan according to the requirements of
the Employee Retirement Income Security Act of 1974 (ERISA).
The net periodic pension costs charged to other expenses amounted to
$128,000 in 1994, $124,000 in 1993 and $72,000 in 1992. An analysis of net
periodic pension cost for 1994, 1993 and 1992 is presented below.
An analysis which sets forth the plan's funded status at December 31, 1994
and 1993 is also presented below.
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 7.75% and 5.50%, respectively for 1994
and 7.25% and 5.25%, respectively for 1993. The expected long-term rate of
return on assets was 8.0% for both 1994 and 1993.
Components of Net Periodic
Pension Cost: 1994 1993 1992
- -------------------------------------------------------------------------
Service cost $ 229,000 $ 212,000 $ 198,000
Interest cost of projected
benefit obligation 467,000 439,000 398,000
Actual return on plan assets (131,000) (483,000) (365,000)
Net total of other components (437,000) (44,000) (159,000)
---------------------------------------------
Net periodic pension cost $ 128,000 $ 124,000 $ 72,000
---------------------------------------------
Actuarial Present Value of Benefit Obligations: 1994 1993
- --------------------------------------------------------------------------
Accumulated benefit obligation including
vested benefits of $(4,800,000) in 1994
and $(4,660,000) in 1993 $(4,924,000) $(4,806,000)
-----------------------------------
Projected benefit obligation $(6,370,000) $(6,162,000)
Plan assets at market value, primarily
U. S. Government securities and
investments in bond and equity funds 6,405,000 6,410,000
-----------------------------------
Plan assets in excess of projected
benefit obligations 35,000 248,000
Unrecognized net (gains) losses
subsequent to transition 183,000 (61,000)
Unrecognized prior service cost (363,000) (311,000)
Unrecognized net assets, being recognized
over employees' average remaining
service life (167,000) (198,000)
-----------------------------------
Accrued pension cost $ (312,000) $ (322,000)
-----------------------------------
<PAGE>31
(11) Stock Option Plan:
The Corporation's shareholders approved incentive stock option plans on
April 6, 1982 and April 16, 1985 for all officers at or above the position
of Vice President or equivalent. Under each plan, 50,000 shares of stock
were originally reserved. Options may be granted at fair market value at
the date of the grant and, accordingly, no charges are reflected in
salaries and employee benefits expense due to the granting of stock
options. The excess of the option price over the par value of the shares
purchased through the exercise of stock options is credited to additional
capital. Options granted under the plans may not be outstanding for
periods exceeding 10 years. On December 27, 1993, the remaining 17,165
options available for granting under the 1985 plan, were awarded to
officers by the employee benefits committee, in accordance with the plan
agreement. The grant price of the options was $25.49.
During 1994, stock options amounting to 9,334 shares were exercised at a
price of $6.01. An analysis of the status of the stock option plans as of
December 31, 1994 follows:
Plan Year 1985 1982
- --------------------------------------------------------------------------
Options outstanding:
Total 55,310 12,121
Vested 55,310 9,091
Options available for granting -0- -0-
Range of exercise prices $6.01-$25.49 $19.04
- --------------------------------------------------------------------------
Pursuant to the terms of the plans, share information and exercise prices
have been adjusted to reflect the impact of stock splits and dividends
subsequent to the granting dates of the options.
END PUBLISHED PAGE 17
(12) Employee Stock Ownership Plan:
The Lorain National Bank Employee Stock Ownership Plan (ESOP) is a
non-contributory plan that covers substantially all employees.
Contributions by the Bank to the ESOP are discretionary and subject to
approval by the Board of Directors. Contributions are expensed in the year
in which they are approved and totaled $375,000, $327,000, and $351,000 in
1994, 1993, and 1992, respectively.
Under the terms of the ESOP agreement, Corporation common stock is to be
the plan's primary investment. Therefore, it is anticipated that the ESOP
will acquire additional Corporation common stock, at fair market value, in
future years.
Transactions by the ESOP, relating to activity in the Corporation's common
stock, are summarized below:
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------
Cash dividend income $ 31,000 $ 23,000 $ 19,000
Stock dividend/split shares 1,350 8,419 836
Shares purchased 12,216 8,699 5,000
Shares distributed 101 3,826 551
Year end holdings:
Shares 57,466 44,001 30,709
Market value $1,731,000 $1,155,000 $837,000
As a percentage of
total plan assets 57.6% 49.3% 42.5%
<PAGE>32
(13) Stock Purchase Plan:
The Bank maintains a voluntary Stock Purchase Plan. Under provisions of
the plan, a participating employee can contribute up to 6% of their
compensation. The Bank then makes a contribution equal to 50% of each
participant's contribution. The plan uses the contributions to purchase
Corporation common stock at fair market value. The common stock is
distributed to plan participants, under provisions of the plan, based upon
the participant's cumulative prorata share of plan assets.
The Bank's 50% matching contributions are expensed in the year in which
the associated participant contributions are made and totaled $105,000,
$88,000 and $86,000 in 1994, 1993 and 1992, respectively. At December 31,
1994, 189 Bank employees were participating in the plan.
Transactions by the Stock Purchase Plan relating to the activity in the
Corporation's common stock are summarized below:
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------
Cash dividend income $ 63,000 $ 54,000 $ 56,000
Stock dividend/split shares 3,052 19,955 2,495
Shares purchased 18,991 3,130 11,417
Shares distributed 8,765 14,534 11,496
Year end holdings:
Shares 109,419 96,141 87,590
Market value $3,296,000 $2,524,000 $2,387,000
As a percentage of
total plan assets 96.9% 87.5% 94.3%
(14) Transactions With Related Parties:
The Corporation makes no loans to officers, directors and their affiliates
other than on substantially the same terms and conditions as transactions
with other parties.
An analysis of loans outstanding to related parties follows:
Years ended December 31, 1994 1993
- -------------------------------------------------------------------------
Aggregate amount at beginning of year $3,186,000 $2,744,000
Additions (deductions):
New loans 31,000 768,000
Repayments (444,000) (325,000)
Changes in directors and officers
and/or their affiliations, net -0- (1,000)
- -------------------------------------------------------------------------
Aggregate amount at end of year $2,773,000 $3,186,000
- -------------------------------------------------------------------------
(15) 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 year after giving consideration to the dilutive effect of shares
granted under incentive stock option plans, the 3% stock dividend in 1994
and the five-for-four stock split in 1993.
<PAGE>33
(16) Commitments and Contingencies:
In the normal course of business, the Corporation is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These instruments are currently limited to commitments to
extend credit and standby letters of credit.
These instruments possess credit risk characteristics which are
essentially the same as that involved in extending loans to customers and
are subject to the Corporation's normal credit policies.
The Corporation's maximum potential obligation to extend credit for
financial instruments with off-balance sheet risk at December 31, 1994
was:
Commitments to extend credit $62,752,000
Standby letters of credit 1,368,000
-----------
Total $64,120,000
-----------
Most of the Corporation's business activity is with customers located
within the Corporation's defined market area. As of December 31, 1994, the
Corporation had no significant concentrations of credit risk in its loan
portfolio. The Corporation also has no exposure to highly leveraged
transactions and no foreign credits in its loan portfolio.
There are pending against the Corporation various lawsuits and claims
which arise in the normal course of business. In the opinion of
management, any liabilities that may result from pending lawsuits and
claims will not materially affect the financial position of the
Corporation.
(17) Recent Accounting and Regulatory Pronouncements:
The Financial Accounting Standards Board and Federal regulators have
issued several pronouncements which are or will be impacting the
Corporation. These pronouncements are briefly discussed on page 27 of this
report.
END PUBLISHED PAGE 18
<PAGE>34
(18) Estimated Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures about Fair Value of Financial Instruments" requires that the
Corporation disclose estimated fair values for its financial instruments.
Fair value estimates, methods, and assumptions are set forth below for the
Corporation's financial instruments.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and due from banks and Federal funds sold and other interest-bearing
instruments:
For those short-term investments, the carrying amount is a reasonable
estimate of fair value.
Securities:
The fair value of securities is based on quoted prices, where available.
If quoted market prices are not available, fair value is estimated using
the quoted market prices of comparable instruments.
Loans:
For variable rate loans with interest rates that may be adjusted on a
quarterly, or more frequent basis, the carrying amount is a reasonable
estimate of fair market value. The fair value of other types of loans is
estimated by discounting future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
Accrued interest, accounts receivable and other financial assets:
For these short-term financial instruments, the carrying amount is a
reasonable estimate of fair value.
Deposits:
Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, savings, money market,
checking and NOW accounts, is equal to the amount payable on demand as of
December 31, for each year presented. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities. For variable rate certificates
of deposit, the carrying amount is a reasonable estimate of fair value.
Securities sold under repurchase agreements and other short-term
borrowings:
For this short term debt, the carrying amount is a reasonable estimate of
fair value.
Accrued dividends and interest and other financial liabilities:
For these short-term financial instruments, the carrying amount is a
reasonable estimate of fair value.
Commitments to extend credit and standby letters of credit:
The difference between the notional amount and the estimated fair value of
these commitments is not material.
<PAGE>35
Limitations:
Estimates of fair value are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Estimates of fair value are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Bank has a
substantial trust division that contributes net fee income annually. The
Trust Division is not considered a financial instrument and its value has
not been incorporated into the fair value estimates. Other significant
assets and liabilities that are not considered financial instruments
include property, plant, and equipment and deferred tax liabilities. In
addition, it is not practicable for the Corporation to estimate the tax
ramifications related to the realization of the unrealized gains and
losses and they have not been reflected in any of the estimates of fair
value. The impact of these tax ramifications can have a significant
effect on estimates of fair value.
<PAGE>36
The estimated fair values of the Corporation's financial instruments at
December 31, 1994 and 1993 are summarized as follows:
December 31, 1994 1993
- -------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
- -------------------------------------------------------------------------
Financial assets:
Cash and due from
banks and Federal
funds sold and other
interest-bearing $ 21,275,000 $ 21,275,000 $ 21,276,000 $ 21,276,000
instruments ============ ============ ============ ============
Securities $ 99,524,000 $ 97,080,000 $103,086,000 $103,952,000
============ ============ ============ ============
Loans $261,807,000 $245,757,000
Reserve for
possible loan (3,832,000) (3,714,000)
losses ------------ ------------
Net loans $257,975,000 $258,456,000 $242,043,000 $245,528,000
============ ============ ============ ============
Accrued interest,
accounts receivable
and other financial
assets $ 3,823,000 $ 3,823,000 $ 3,464,000 $ 3,464,000
============ ============ ============ ============
Financial liabilities:
Deposits:
Demand deposits,
savings accounts
and money market
deposits $228,191,000 $228,191,000 $223,137,000 $223,137,000
Certificates of 107,028,000 106,881,000 97,875,000 99,122,000
deposit ------------ ------------ ------------ ------------
Total deposits $335,219,000 $335,072,000 $321,012,000 $322,259,000
============ ============ ============ ============
Securities sold under
repurchase agree-
ments and other
short-term
borrowings 19,171,000 $ 19,171,000 $ 19,400,000 $ 19,400,000
repurchase ============ ============ ============ ============
Accrued dividends
and interest and
other financial $ 2,336,000 $ 2,336,000 $ 3,438,000 $ 3,438,000
liabilities ============ ============ ============ ============
END PUBLISHED PAGE 19
<PAGE>37
Report of Management
To The Shareholders of LNB Bancorp, Inc. January 17, 1995
The integrity of the financial statements and other financial
information contained in this Annual Report is the responsibility of the
management of LNB Bancorp, Inc. Such financial information has been
prepared in accordance with generally accepted accounting principles,
based on the best estimates and judgement of management.
LNB Bancorp, Inc. maintains an internal control structure designed to
provide reasonable assurance that transactions are executed and recorded
in accordance with management's authorizations, that assets are properly
safeguarded, that financial information is objective and reliable and that
compliance with laws and regulations is maintained. Because of the
inherent limitations in any system of internal control there can be no
absolute assurance that errors or irregularities will not occur.
Nevertheless, management believes that the internal control structure and
related control procedures provide reasonable assurance that the
objectives cited above are being attained.
The internal control structure includes the careful delineation of
functions, the proper selection and training of staff, the communication
of policies and procedures consistent with the highest standards of
business conduct and the maintenance of an internal audit function that
independently evaluates and formally reports on the adequacy and
effectiveness of the system.
The Audit Committee of the Board of Directors is composed entirely of
outside directors who are independent of management and meets
periodically with both internal and independent auditors to review the
results and recommendations of their audits. The Committee selects the
independent auditor with approval by the shareholders.
The accounting firm of KPMG Peat Marwick LLP has been engaged by LNB
Bancorp, Inc. to audit its financial statements and their report follows.
/s/ Stanley G. Pijor /s/ Gregory D. Friedman
Stanley G. Pijor Gregory D. Friedman
Chairman and Senior Vice President and
Chief Executive Officer Chief Financial Officer
<PAGE>38
Independent Auditors' Report KPMG Peat Marwick LLP (LOGO)
The Board of Directors 1500 National City Center
LNB Bancorp, Inc. 1900 East Ninth Street
Cleveland, OH 44114-3495
We have audited the accompanying consolidated balance sheets of LNB
Bancorp, Inc. and subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in cash flows and
shareholders' equity for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LNB
Bancorp, Inc. and subsidiary at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in the notes to consolidated financial statements, in 1994
the Corporation changed its method of accounting for certain investments
in debt and equity securities and in 1993 changed its method of accounting
for income taxes.
/s/ KPMG Peat Marwick LLP
January 17, 1995
END PUBLISHED PAGE 20
<PAGE>39
Selected Quarterly Financial Data
Quarterly financial and per share data for the years ended December 31,
1994, 1993 and 1992 are summarized as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
Total interest income 1994 $6,197,000 $6,480,000 $6,901,000 $7,252,000
1993 6,501,000 6,462,000 6,507,000 6,422,000
1992 6,958,000 6,935,000 6,873,000 6,699,000
- --------------------------------------------------------------------------
Total interest expense 1994 1,928,000 1,972,000 2,176,000 2,496,000
1993 2,226,000 2,156,000 2,134,000 2,024,000
1992 2,840,000 2,671,000 2,396,000 2,316,000
- --------------------------------------------------------------------------
Net interest income 1994 4,269,000 4,508,000 4,725,000 4,756,000
1993 4,275,000 4,306,000 4,373,000 4,398,000
1992 4,118,000 4,264,000 4,477,000 4,383,000
- --------------------------------------------------------------------------
Provision for possible 1994 100,000 100,000 100,000 100,000
loan losses 1993 150,000 100,000 125,000 125,000
1992 150,000 150,000 150,000 250,000
- --------------------------------------------------------------------------
Net interest income 1994 4,169,000 4,408,000 4,625,000 4,656,000
after provision for 1993 4,125,000 4,206,000 4,248,000 4,273,000
loan losses 1992 3,968,000 4,114,000 4,327,000 4,133,000
- --------------------------------------------------------------------------
Other income 1994 929,000 1,033,000 1,060,000 1,112,000
1993 918,000 1,052,000 1,009,000 1,030,000
1992 848,000 913,000 889,000 969,000
- --------------------------------------------------------------------------
Other expenses, 1994 4,064,000 4,360,000 4,552,000 4,584,000
including Federal 1993 4,041,000 4,276,000 4,237,000 4,278,000
income taxes 1992 3,914,000 4,050,000 4,250,000 4,121,000
- --------------------------------------------------------------------------
Net income 1994 $1,034,000 $1,081,000 $1,133,000 $1,184,000
1993 1,002,000 982,000 1,020,000 1,025,000
1992 902,000 977,000 966,000 981,000
- --------------------------------------------------------------------------
Net income per share 1994 $ .32 $ .34 $ .35 $ .36
1993 .31 .30 .32 .32
1992 .28 .31 .30 .31
- --------------------------------------------------------------------------
END PUBLISHED PAGE 21
<PAGE>40
Management's Discussion and Analysis
The following is management's discussion and analysis of the financial
condition and results of operations of LNB Bancorp, Inc. (the
Corporation). It is intended to amplify certain financial information
regarding LNB Bancorp, Inc. and should be read in conjunction with the
Consolidated Financial Statements, related Notes and other financial
information and discussions included in the 1994 Annual Report to
Shareholders.
LNB Bancorp, Inc. is a locally owned one bank holding company whose
wholly owned banking subsidiary is The Lorain National Bank (the Bank).
LNB Bancorp, Inc. is headquartered in Lorain, Ohio and the Bank operates
seventeen banking offices in Lorain and western Cuyahoga counties. It is
a full service commercial bank offering personal, trust and business
services and products. The Bank is committed to enhance its position as a
community leader by providing quality customer service.
Earnings Summary:
LNB Bancorp, Inc.'s consolidated 1994 net income reached a record high
of $4,432,000, compared to $4,029,000 in 1993 and $3,826,000 in 1992. Net
income for 1994 and 1993 was favorably affected by a reduction in the
provision for possible loan losses and increased noninterest income.
Earnings per share totaled $1.37 for 1994 compared to $1.25 for 1993 and
$1.20 for 1992. Prior period earnings per share data have been restated to
reflect the five-for-four stock split in 1993 and the 3% stock dividend in
1994. The return on average assets increased to 1.13% in 1994 from 1.08%
in 1993 and 1.07% in 1992.
Results from Operations:
The Corporation's primary source of interest income is from loans. The
relationship of loan income to total interest income, on a fully-tax
equivalent basis, was relatively constant, increasing from 77.4% in 1993
to 79.1% in 1994. The amount of non-performing loans remained at
relatively low levels during the period from 1992 through 1994. This is
the result of management's aggressive approach to loan collections and
charge-offs. Non-performing loans did not have a material impact on
interest income during 1992, 1993 or 1994. Additional information
regarding the loan portfolio is presented on page 12.
Interest and dividends on securities and Federal funds sold,
as a percentage of total interest income, on a fully-tax equivalent basis,
decreased from 22.6% in 1993 to 20.9% in 1994. This decrease results from
a lower yield on the securities portfolio, even though the average balance
of the security portfolio increased from 1992 to 1994. The market rates on
securities decreased from 1992 through 1994. The lower yield of the
security portfolio is the result of 1993 and some 1994 purchases of
securities with lower interest rates than those securities that matured in
1993 and 1994. This trend began to reverse during the second half of 1994
when interest rates on securities started to rise.
The cost of interest-bearing liabilities in 1994 was $8,572,000 compared
to $8,540,000 and $10,223,000 in 1993 and 1992, respectively. The
favorable impact of decreases in rates more than offset increases in
volume and caused interest expense to drop from 1992 through 1993.
Repricing of interest-bearing liabilities from 1992 through 1994 resulted
in a significant net favorable change in interest expense during 1993. The
favorable impact of decreases in deposit rates began to diminish during
1994 and were offset by increases in volume. This caused interest expense
to remain relatively constant from 1993 to 1994.
<PAGE>41
Net interest margin is affected not only by management's asset/liability
strategies to alter the volume and mix of earning assets and sources of
funds, but also such external factors as interest rate movements, economic
conditions and credit demand.
A summary of the impacts of volume and rate changes on the Corporation's
net interest margin is presented on the next page. Changes in net
interest margin result from changes in both rate and volume. Volume refers
to the impact of net changes in the balances of earning assets and
interest-bearing liabilities. Rate refers to the impact of net changes in
interest rates.
Net interest margin on a fully-tax equivalent basis increased by
$901,000 in 1994 from $17,652,000 in 1993 to $18,553,000 in 1994. Net
interest margin in 1994 was affected by increases in the volume of
interest-bearing assets and liabilities plus increases in market interest
rates. The cost of funds dropped from 2.98% in 1993 to 2.87% in 1994, or a
total of 11 basis points. During the same period, the yield on earning
assets fell 12 basis points to 7.45% in 1994, compared to 7.57% in 1993,
resulting in a slight decrease in the interest spread.
Net interest margin in 1993 increased by $4,000 from $17,648,000 in 1992
to $17,652,000 in 1993. This increase was affected by increases in the
volume of interest-bearing assets and liabilities plus decreases in market
interest rates. The cost of funds dropped from 3.64% in 1992 to 2.98% in
1993, or a total of 66 basis points. During the same period, the yield on
earning assets fell 77 basis points to 7.57% in 1993, compared to 8.34% in
1992, resulting in a decrease in the interest spread by 11 basis points in
1993. However, the decrease in the interest spread was equally offset by
increases in the volume of earning assets, which were greater than the
increases in the volume of interest-bearing liabilities. Thus, net
interest margin from 1992 to 1993 was relatively constant.
END PUBLISHED PAGE 22
<PAGE>42
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent Interest Rate and Interest Differential
December 31, 1994
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
----------------------------------------------
ASSETS:
Securities $ 93,658 $ 4,513 4.82%
Securities-tax exempt 11,113 859 7.73
Federal funds sold and other
interest-bearing instruments 7,140 297 4.16
Loans 251,017 21,353 8.51
Loans-tax exempt 1,328 103 7.76
----------------------------------------------
TOTAL EARNING ASSETS 364,256 27,125 7.45
----------------------------------------------
Reserve for possible loan losses (3,836)
Cash and due from banks 16,277
Other assets 14,627
----------------------------------------------
TOTAL ASSETS $391,324
----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing deposits $275,968 7,761 2.81
Short-term borrowings 23,167 811 3.50
----------------------------------------------
TOTAL INTEREST- 299,135 8,572 2.87
BEARING LIABILITIES ---------------------------------------------
Noninterest-bearing deposits 53,143
Other liabilities 2,626
Shareholders' equity 36,420
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $391,324
----------------------------------------------
NET INTEREST INCOME $18,553
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.09%
----------------------------------------------
<PAGE>43
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent Interest Rate and Interest Differential
December 31, 1993
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
--------------------------------------------
ASSETS:
Securities $ 88,037 $ 4,754 5.40%
Securities-tax exempt 11,089 889 8.02
Federal funds sold and other
interest-bearing instruments 9,179 274 2.99
Loans 236,058 20,158 2.54
Loans-tax exempt 1,613 117 7.25
----------------------------------------------
TOTAL EARNING ASSETS 345,976 26,192 7.57
----------------------------------------------
Reserve for possible loan losses (3,670)
Cash and due from banks 16,450
Other assets 12,779
----------------------------------------------
TOTAL ASSETS $371,535
-----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing deposits $271,030 8,138 3.00
Short-term borrowings 15,483 402 2.60
----------------------------------------------
TOTAL INTEREST- 286,513 8,540 2.98
BEARING LIABILITIES ----------------------------------------------
Noninterest-bearing deposits 48,572
Other liabilities 2,592
Shareholders' equity 33,858
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $371,535
----------------------------------------------
NET INTEREST INCOME $17,652
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.10%
----------------------------------------------
<PAGE>44
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent Interest Rate and Interest Differential
December 31, 1992
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
----------------------------------------------
ASSETS:
Securities $ 81,954 $ 5,416 6.61%
Securities-tax exempt 14,042 1,226 8.73
Federal funds sold and other
interest-bearing instruments 10,414 356 3.42
Loans 225,851 20,725 9.18
Loans-tax exempt 1,929 148 7.67
----------------------------------------------
TOTAL EARNING ASSETS 334,190 27,871 8.34
----------------------------------------------
Reserve for possible loan losses (3,124)
Cash and due from banks 15,608
Other assets 11,980
----------------------------------------------
TOTAL ASSETS $358,654
----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing deposits $261,708 9,627 3.68
Short-term borrowings 19,426 596 3.07
----------------------------------------------
TOTAL INTEREST- 281,134 10,223 3.64
BEARING LIABILITIES ----------------------------------------------
Noninterest-bearing deposits 43,426
Other liabilities 2,645
Shareholders' equity 31,449
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $358,654
----------------------------------------------
NET INTEREST INCOME $17,648
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.28%
----------------------------------------------
<PAGE>45
Rate/Volume Analysis of Net Interest Income
Fully-Tax Equivalent
Years ended December 31, 1994 and 1993
- -------------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities $ 304 $ (545) $ (241)
Securities-tax exempt 2 (32) (30)
Federal funds sold and
other interest-
bearing instruments (61) 84 23
Loans 1,277 (82) 1,195
Loans-tax exempt (21) 7 (14)
---------------------------------------------
TOTAL INTEREST INCOME 1,501 (568) 933
---------------------------------------------
Interest-bearing deposits 148 (525) (377)
Short-term borrowings 197 212 409
---------------------------------------------
TOTAL INTEREST EXPENSE 345 (313) 32
---------------------------------------------
NET INTEREST INCOME $ 1,156 $ (255) $ 901
---------------------------------------------
Rate/Volume Analysis of Net Interest Income
Fully-Tax Equivalent
Years ended December 31, 1993 and 1992
- -------------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities $ 402 $(1,064) $ (662)
Securities-tax exempt (258) (79) (337)
Federal funds sold and
other interest-
bearing instruments (42) (40) (82)
Loans 937 (1,504) (567)
Loans-tax exempt (24) (7) (31)
---------------------------------------------
TOTAL INTEREST INCOME 1,015 (2,694) (1,679)
---------------------------------------------
Interest-bearing deposits 343 (1,832) (1,489)
Short-term borrowings (121) (73) (194)
---------------------------------------------
TOTAL INTEREST EXPENSE 222 (1,905) (1,683)
-------------------------------------------
NET INTEREST INCOME $ 793 $ (789) $ 4
---------------------------------------------
END PUBLISHED PAGE 23
<PAGE>46
Results from Operations (continued):
The net yield on earning assets in 1994 was 5.09% compared to 5.10% in
1993 and 5.28% in 1992. This relatively constant yield reflects the fact
that the Corporations's portfolio of earning assets and interest-bearing
liabilities are well matched and that Corporate management is responsive
to the impacts of competition and regulation.
Total other income in 1994 increased by $125,000 to $4,134,000 as
compared to 1993. This increase resulted from increases in trust division
income of $91,000 and increases of other service charges of $195,000. The
increase in other service charge is the result of pricing increases in
credit card and merchant fees. Other operating income and gains on sales
of loans and securities decreased by $56,000 and $121,000, respectively.
Total other income in 1993 increased to $4,009,000 compared to $3,619,000
in 1992 for an increase of $390,000. This increase primarily results from
increases from Trust Division income of $69,000, service charges of
$89,000, security gains of $140,000 and gains on sales of loans of
$51,000.
Total other expenses increased 4.4% in 1994 compared to 1993 after a
1.6% increase for 1993 compared to 1992. A significant poriton of the
increases in 1994 and 1993 were the result of the affects of inflation on
salaries and benefits plus increases in furniture and equipment expenses.
Total other expenses in 1993 were also affected by increases in Ohio
franchise taxes and postage and supplies. This increase was more than
offset by decreases in net occupancy expense of premises and furniture and
equipment expenses.
The effective tax rate of the Corporation was 29.8%, 31.1%, and 28.8% in
1994, 1993, and 1992, respectively. The increase in the effective tax rate
in 1993 was primarily due to lower levels of tax-exempt income. The
decrease in the effective tax rate in 1994 was due primarily to the
favorable outcome of a Federal tax examination. A detailed analysis of
Federal income taxes is presented on page 15.
The Corporation's consolidated statements of income reflect the effects
of inflation. Since interest rates, loan demand and deposit levels are
related to inflation, the resulting changes in interest sensitive assets
and liabilities are reflected in net interest income. Similarly,
operating expenses such as salaries, rents and maintenance are affected by
inflation. The only major expense items which do not reflect inflation are
depreciation and amortization as these expenses are based on original
purchase costs.
Selected quarterly financial data for 1994, 1993 and 1992 is presented
on page 21. There were no significant intra-quarter fluctuations except
for fourth quarter increases in other income in 1994 and 1992. The
increase in other income reflects the realization of annual Trust Division
billings which are based on year end market values. The fourth quarter of
1992 also reflects the impact of a $100,000 increase in the provision for
possible loan losses. Management decided that it would be prudent to
increase the general provision for possible loan losses due to the
potential impacts of the weak economy.
<PAGE>47
Financial Condition:
The earning assets mix has changed considerably from December 31, 1993
to December 31, 1994. During this period, loans increased by $16,050,000
and investment securities increased by $3,562,000. Increases in loans and
are primarily funded by growth in deposits, current retained arnings, and
reductions in Federal funds sold. The economy showed moderate rowth during
1994 which stimulated loan demand.
The maturity distribution of investment securities at amoritized cost
which appears on page 11 of this report, indicates that $89,243,000, or
99.8%, of investment securities mature within the next five year period
with $36,716,000, or 41.1% maturing during 1995. At the close of 1993 and
1992 there were no significant differences between the book and
fair values of the investment securities portfolio. The net amortized
cost of the investment securities portfolio exceeded its fair value by
$2,444,000 or 2.7%, at the close of 1994.
The reserve for possible loan losses is determined by management based
on an analysis of individual credits, prior and current loss experience,
overall growth in the loan portfolio, current local and national economic
conditions and other factors. Credit card loans are charged-off within
industry norms while personal, mortgage, and commercial loans are
evaluated individually.
The Corporation's credit policies are reviewed and modified on an
ongoing basis in order to remain suitable for management of credit risks
within the loan portfolio as conditions change. At December 31, 1994,
there were no significant concentrations of credit risk in the loan
portfolio.
END PUBLISHED PAGE 24
Financial Condition (continued):
The reserve for possible loan losses as a percentage of loans was 1.46%,
1.51% and 1.46% at the end of 1994, 1993 and 1992, respectively. The
provision for possible loan losses was $400,000, $500,000 and $700,000 in
1994, 1993 and 1992, respectively. The 1994 and 1993 decrease in the level
of the provision for possible loan losses resulted from low levels of net
charge-offs in 1994, 1993 and 1992. Net charge-offs were $282,000,
$192,000 and $97,000 in 1994, 1993, and 1992, respectively. Net charge-
offs as a percentage of average loans outstanding remained at low levels
of less than .11% during 1994, 1993, and 1992. Corporate management
continuously reviews and evaluates the loan portfolio and the reserve for
possible loan losses and believes that the reserve is adequate.
Total deposits held by the Corporation increased $14,207,000 during 1994
compared to an increase of $3,282,000 during 1993. Interest-bearing
deposits represented 83.0% and 84.4% of total deposits at December 31,
1994 and 1993, respectively. Noninterest-bearing deposits increased by
$6,855,000 while interest-bearing deposits increased by $7,352,000 during
1994. During 1993, noninterest-bearing deposits decreased by $1,815,000
while interest-bearing deposits increased by $5,097,000. In both 1994 and
1993, as long-term deposits matured and new funds were deposited, these
funds were primarily placed in short-term deposits.
Total other borrowings, primarily repurchase agreements, decreased by
$229,000 during 1994, following an increase of $539,000 in 1993. Due to
the volatility of customer repurchase agreements all funds generated by
repurchase agreement activity enter the Bank's earning assets as
short-term investments.
<PAGE>48
Capital Resources:
The capital resources of the Corporation and the Bank continue to grow
stronger. The percentages of average equity to average assets were 9.31%,
9.11%, and 8.78% for 1994, 1993, and 1992, respectively.
Federal regulators adopted risk-based capital guidelines for banks and
bank holding companies. The guidelines require that percentages be applied
to various assets, including off-balance sheet assets, in relation to the
regulators' perceived risk. The guidelines establish two components of
capital, Tier I and Tier II. For the reporting purposes of the
Corporation, Tier I capital consists of shareholders' equity excluding net
unrealized securities losses and Tier II capital consists of the allowable
portion of the reserve for possible loan losses.
Under "Prompt Corrective Action" regulations adopted in September of
1992, the FDIC has defined five categories of capitalization (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized). The Corporation meets
the "well capitalized" definition which requires a Tier 1 risk-based
capital ratio of at least 6%, a total risk-based capital ratio of at least
10%, and a leverage ratio of at least 5% and the absence of any written
agreement, order, or directive from any regulatory agency. "Well
capitalized" status affords the Corporation the ability to operate with
the greatest flexibility under current laws and regulations.
The Corporation exceeds all applicable capital requirements. An analysis
of the Corporation's risk-based capital position at December 31, 1994 and
1993 follows:
December 31, 1994 1993
- -------------------------------------------------------------------------
Tier I capital -
Shareholders' equity $ 37,645 $ 35,060
Tier II capital -
Allowable portion of the reserve
for possible loan losses 2,735 2,552
---------- ----------
Total capital $ 40,380 $ 37,612
---------- ----------
Risk-weighted assets $218,819 $204,193
Risk weighted off-balance
sheet exposure 12,699 9,910
---------- ----------
Total risk-weighted exposure $231,518 $214,103
---------- ----------
Tier I capital ratio 16.26% 16.38%
Required Tier I capital ratio 4.00 4.00
Total capital ratio 17.44 17.57
Required capital ratio 8.00 8.00
Leverage ratio - Tier I capital
as a percentage of average assets 9.62 9.44
Required leverage ratio 3.00 3.00
The Corporation returns a portion of the income it earns to its
shareholders in the form of cash dividends. Dividends declared as a
percentage of net income were 43.0%, 42.8% and 40.6% in 1994, 1993 and
1992, respectively.
<PAGE>49
The Corporation also retains a portion of the income it earns to
accommodate current operational and regulatory capital requirements and to
fund future growth opportunities. A part of future growth depends on
capital expenditure programs. Capital expenditures of approximately
$2,250,000 are planned in 1995.
END PUBLISHED PAGE 25
Interest Rate Sensitivity Management:
Interest rate sensitivity is a measurement of the risk inherent in net
interest income attributable to fluctuations in market interest rates.
The Corporation manages the repricing of interest rate sensitive
assets and liabilities to stabilize interest margins and reduce the risk
resulting from fluctuations of interest rates. Differences in the
repricing of interest rate sensitive assets and liabilities over a period
of time is referred to as the interest rate gap. If more rate sensitive
assets reprice than rate sensitive liabilities during a given period of
time, the period is said to have a positive interest rate gap. If the
opposite relationship exists, the period is said to have a negative
interest rate gap. When rates are increasing a positive interest rate gap
will, with all other factors held constant, result in an increase in the
net interest margin. When rates are decreasing, a negative interest rate
gap will, with all other factors held constant, also result in an increase
in the net interest margin.
<PAGE>50
The table below presents an analysis of the interest rate sensitivity of
the Corporation at December 31, 1994. However, this table does not
necessarily indicate the impact of general interest rate movements on the
Corporation's net interest yield because repricing of various categories
of assets and liabilities is discretionary and is subject to competition
and other external factors. At December 31, 1994 the Corporation was in a
moderate asset-sensitive gap position as illustrated in the following
table:
Interest Rate Sensitivity Analysis
After 3 After 6
Months Months
Within 3 But Within But Within
December 31, 1994 Months 6 Months 1 Year
- --------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning
assets:
Loans $ 126,331 $ 14,138 $ 25,996
Securities 10,095 7,194 24,698
Federal funds
sold and other
interest-bearing
assets -0- -0- -0-
-------------------------------------------------------
Total interest
earning assets $ 136,426 21,332 50,694
-------------------------------------------------------
Interest-bearing
liabilities:
Savings and other
non-time deposits 74,793 5,927 -0-
Time deposits 38,744 18,415 16,303
Short-term
borrowings and
other interest
bearing
liabilities 19,171 -0- -0-
-------------------------------------------------------
Total interest
bearing
liabilities 132,708 24,342 16,303
-------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP $ 3,718 $ (3,010) $ 34,391
------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY $ 3,718 $ 708 $ 35,099
GAP
-------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP AS A PERCENTAGE
OF TOTAL INTEREST
EARNING ASSETS 1.03% .20% 9.71%
-------------------------------------------------------
<PAGE>51
After 1
Year But
Within After 5
December 31, 1994 5 Year Years Total
- --------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning
assets:
Loans $ 85,065 $ 10,277 $ 261,807
Securities 54,318 3,219 99,524
Federal funds
sold and other
interest-bearing
assets -0- -0- -0-
-------------------------------------------------------
Total interest
earning assets 139,383 13,496 361,331
-------------------------------------------------------
Interest-bearing
liabilities:
Savings and other
non-time deposits 90,375 -0- 171,095
Time deposits 33,566 -0- 107,028
Short-term
borrowings and
other interest
bearing
liabilities -0- -0- 19,171
-------------------------------------------------------
Total interest-
bearing
liabilities 123,941 -0- 297,294
-------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP $ 15,442 $ 13,496 $ 64,037
------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP $ 50,541 $ 64,037
-------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP AS A PERCENTAGE
OF TOTAL INTEREST
EARNING ASSETS 13.99% 17.72%
-------------------------------------------------------
Liquidity Managment:
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 demands of depositors and debt holders. Principal internal sources
of liquidity for the Corporation and the Bank are cash and cash
equivalents, Federal funds sold, and the maturity structures of investment
securities and portfolio loans. Securities and loans available for sale
provide another source of liquidity through the cash flows of these
interest-bearing assets as they mature or are sold.
<PAGE>52
On December 31, 1994, cash and cash equivalents equaled $21,275,000 or
5.4% of total assets. The change in cash and cash equivalents is shown in
the Consolidated Statement of Cash Flows and arises from operating,
investing and financing activities.
The adjustements to reconcile 1994 net income to net cash provided by
operating activities primarily consists of depreciation and amortization
of $1,325,000 and a provision of possible loan losses of $400,000 less
gains on sales of loans and securities of $70,000. These items represent
income and expenses included in net income which do not represent an
expenditure or receipt of cash.
END PUBLISHED PAGE 26
Liquidity Management (continued):
The cash flows from investing activities relate primarily to securities,
loans and purchases of capital assets. Net cash used in investing
activities was $16,970,000. Cash provided by investing activities
resulted from decreases in securities of $3,481,000. Cash used in
investing activities included net loan increases of $16,399,000 and
purchases of capital assets of $4,052,000 which includes about $3,000,000
in costs of the new corporate office building and remodeling of other
parts of the main office complex.
Net cash provided by financing activities was $11,057,000. Cash
provided by financing activities included increases in deposits of
$14,207,000 and proceeds from a line of credit of $1,668,000. Cash used
by financing activities primarily included payments on the line of credit
of $2,768,000 and dividends paid of $1,857,000. These cash flows
resulted in a $1,000 reduction in cash and cash equivalents from December
31, 1993 to December 31, 1994.
The Corporation can obtain additional liquidity from off-balance sheet
sources which include the purchase of Federal funds from correspondent
banks and borrowing from the Federal Reserve Bank's discount window. At
year-end, the Bank had available Federal funds facilities in excess of
$9,000,000 at three correspondent banks. The internal and external
sources of funds for liquidity, in the opinion of management, satisfy the
liquidity needs of the Corporation.
Impacts of Accounting and Regulatory Pronouncements:
Corporate management is not aware of any current recommendations 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.
The Financial Accounting Standards Board (FASB) has issued:
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
Implementation date by the Corporation: January 1, 1995
Impact on the Corporation: This Statement will impact the accounting by
creditors for impairment of certain loans. It requires that certain
impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price of the fair
value of the collateral. Corporate management does not believe that
adoption of SFAS No. 114 will have a significant impact on the carrying
value of impaired loans or on net income.
<PAGE>53
All other applicable Statements of Financial Accounting Standards that
have been issued and have effective dates impacting 1994 and prior years
financial statements have been adopted by the Corporation. Corporate
management believes there are no Statements of Financial Accounting
Standards which have been issued and have implementation dates in the
future which will materially impact the financial statements of future
years.
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: The deposit insurance premium rates which the
Bank pays were increased during 1990 and 1991. The premium increases
caused an increase in pretax premium expense of approximately $271,000 in
1991 and an additional $163,000 in 1992. During 1992, 1993 and 1994, the
FDIC did not increase deposit insurance premium rates. During 1992, a
risk-related assessment system was developed by the FDIC. Effective,
January 1, 1993, the Bank was assigned to the lowest deposit
insurance assessment rate which is currently possible. Under the system,
the FDIC will reevaluate the Bank's deposit insurance rate on a
semi-annual basis. No increase in the premium paid by the Bank, other
than from changes in deposit volume and mix, is anticipated in 1995.
END PUBLISHED PAGE 27
<PAGE>54
Officers of Lorain National Bank
Executive Offices
Stanley G. Pijor
Chairman and Chief Executive Officer
James F. Kidd
President and Chief Operating Officer
Thomas P. Ryan
Executive Vice President
and Secretary
Administration
James H. Weber
Senior Vice President
Debra R. Brown
Vice President
Carol A. Mesko
Assistant Vice President
James E. Long
Assistant Vice President
Susan I. Tuttle
Assistant Cashier
Marianne Kocak
Assistant Cashier
Robert J. Witkowski
Maintenance Officer
Teresa E. George
Administration Officer
Audit Division
David P. Krebs
Vice President
Gary W. Sedlak
Assistant Vice President
and Compliance Officer
Carol A. Cavanaugh
Senior Staff Auditor
Randy E. Lottman
E.D.P. Auditor
<PAGE>55
Loan Division
Willard H. DoBrunz
Senior Vice President
Edwin F. Klenz
Vice President
Sandra L. Kotradi
Vice President
Bruce Diso
Vice President
Kenneth P. Wayton
Vice President
Ellen M. Walsh
Assistant Vice President
Joan M. Raymond
Assistant Vice President
Karen L. Borer
Assistant Vice President
Denise M. Kosakowski
Assistant Cashier
Eunice F. Ramirez
Installment Loan Officer
Fiscal Division
Gregory D. Friedman
Senior Vice President and
Chief Financial Officer
Mitchell J. Fallis
Vice President
and Controller
Patricia A. Adams
Financial Accounting
Officer
Marketing Division
Steven F. Cooper
Assistant Vice President
<PAGE>56
Trust and Investment
Management Division
Emma N. Mason
Senior Vice President
Gerald S. Falcon
Vice President
Edward J. Baker
Vice President
Brian D. Morgan
Vice President
Patrick E. Sheridan
Investment Officer
James E. Carpenter
Assistant Trust Officer
Jodi L. Penwell
Assistant Trust Officer
Operations and Consumer
Revolving Credit Divisions
Michael D. Ireland
Senior Vice President
Larry R. Johnson
Vice President
Frances V. Lesniak
Vice President
Larry A. Hill
Assistant Vice President
Donna Jean Phillips
Assistant Vice President
Jeanne C. Maschari
Assistant Vice President
Patricia L. Cole
Operations Officer
END PUBLISHED PAGE 28
<PAGE>57
Bank Offices and Officers
Amherst Office
G. Dale Rosenkranz
Vice President
Fred W. Zemanek
Assistant Cashier
1175 Cleveland Avenue
Amherst, Ohio
(216) 988-4423
Avon Lake Office
Charles A. DeAngelis
Assistant Vice President
240 Miller Road
Avon Lake, Ohio
(216) 933-2186
Cleveland Street Office
Timothy J. Gallagher
Vice President
801 Cleveland Street
Elyria, Ohio
(216) 365-8397
Kansas Avenue Office
Jennifer M. Nickolls
Assistant Vice President
1604 Kansas Avenue
Lorain, Ohio
(216) 288-9151
Lake Avenue Office
Christine M. Weber
Branch Manager
42935 E. North Ridge Road
Elyria, Ohio
(216) 233-7196
Main Office*
Joel A. Krueck
Assistant Vice President
and CRA Officer
Patricia A. Wolanczyk
Assistant Branch Manager
457 Broadway
Lorain, Ohio
(216) 244-6000
Sixth Street Drive-In
Joel A. Krueck
Assistant Vice President
and CRA Officer
200 Sixth Street
Lorain, Ohio
(216) 244-6000
<PAGE>58
Oberlin Office
Marilyn R. Krasienko
Assistant Vice President
40 East College Street
Oberlin, Ohio
(216) 775-1361
Kendal at Oberlin Office
Marilyn R. Krasienko
Assistant Vice President
600 Kendal Drive
Oberlin, Ohio
(216) 244-6000
Olmsted Office
Diana L. Schmittgen
Branch Manager
27095 Bagley Road
Olmsted Twp., Ohio
(216) 235-4600
Pearl Avenue Office
Keith H. Kapanke
Assistant Cashier
2850 Pearl Avenue
Lorain, Ohio
(216) 277-1103
Lorain Plaza Office
Edward R. Olah
Vice President
1147 Meister Road
Lorain, Ohio
(216) 282-9196
W. 37th and Oberlin Avenue
Auto Bank
Edward R. Olah
Vice President
3660 Oberlin Avenue
Lorain, Ohio
(216) 282-9196
Second Street Office
James E. Schmittgen
Assistant Vice President
221 Second Street
Elyria, Ohio
(216) 323-4621
Vermilion Office
Robert B. White
Assistant Vice President
4455 Liberty Avenue
Vermilion, Ohio
(216) 967-3124
<PAGE>59
The Crossings of Westlake Office
Susan M. Neiding
Vice President
30210 Detroit Road
Westlake, Ohio
(216) 892-9696
West Park Drive Office
Evi C. Sklarek
Branch Manager
2130 West Park Drive
Lorain, Ohio
(216) 989-3131
Community Based Automated Teller
Machine Locations
Lakeland Medical Center
3700 Kolbe Road,
Lorain, Ohio
Lorain County Community College
1005 N. Abbe Road,
Elyria, Ohio
Lowe's Home Improvement Warehouse
620 Midway Boulevard,
Elyria, Ohio
Route 60 and Sailorway Drive
1317 State Route 60,
Vermilion, Ohio
Lorain Community/St. Joseph Regional Health Center
205 W. 20th Street,
Lorain, Ohio
*Drive-up ATM is available at Sixth Street Drive-In. All other offices
feature ATMs.
END PUBLISHED PAGE 29
<PAGE>60
Directors and Officers of LNB Bancorp, Inc.
Directors
James L. Bardoner
Retired, Former President
Dorn Industries, Inc.
Daniel P. Batista
Attorney/Partner
Cook & Batista Co., L.P.A.
Wellsley O. Gray
Sales Consultant
Smith Dairy Company
James F. Kidd
President and
Chief Operating Officer
LNB Bancorp, Inc.
Lorain National Bank
David M. Koethe
Chairman of the Board
The Lorain Printing Company
Benjamin G. Norton
Employee and Community
Relations Manager
Reliance Comm/Tec - Lorain Products
Stanley G. Pijor
Chairman and
Chief Executive Officer
LNB Bancorp, Inc.
Lorain National Bank
James H. Riddell
Chairman of the Board
Consumers Builders Supply Company
President, Consumeracq, Inc.
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
LNB Bancorp, Inc.
Executive Vice President
and Secretary
Lorain National Bank
Don A. Sanborn
Retired
T. L. Smith, M.D.
Physician
<PAGE>61
Eugene M. Sofranko
President and
Chief Executive Officer
Lorain Glass Company, Inc.
Paul T. Stack
Manufacturer's Representative
Coley's Inc. and
A-1 Welding and Fabricating, Inc.
Leo Weingarten
Retired
Officers
Stanley G. Pijor
Chairman and
Chief Executive Officer
James F. Kidd
President and
Chief Operating Officer
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
Willard H. DoBrunz
Senior Vice President
Gregory D. Friedman
Senior Vice President and
Chief Financial Officer
Michael D. Ireland
Senior Vice President
Emma N. Mason
Senior Vice President
James H. Weber
Senior Vice President
END PUBLISHED PAGE 30
<PAGE>62
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1994 1993 1992
- --------------------------------------------------------------------------
Total interest income $26,830,000 $25,892,000 $27,465,000
Total interest expense 8,572,000 8,540,000 10,223,000
---------------------------------------------
Net interest income 18,258,000 17,352,000 17,242,000
Provision for possible
loan losses 400,000 500,000 700,000
Other income 4,064,000 3,818,000 3,605,000
Gains from sales
of loans and securities 70,000 191,000 14,000
Other expense 15,679,000 15,017,000 14,785,000
---------------------------------------------
Income before Federal
income taxes 6,313,000 5,844,000 5,376,000
Federal income taxes 1,881,000 1,815,000 1,550,000
---------------------------------------------
NET INCOME $ 4,432,000 $ 4,029,000 $ 3,826,000
---------------------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31,
1994 1993 1992
- --------------------------------------------------------------------------
Cash and cash equivalents $ 21,275,000 $ 21,276,000 $ 32,728,000
Securities 99,524,000 103,086,000 96,631,000
Net loans 257,975,000 242,043,000 230,364,000
Other assets 16,081,000 13,211,000 12,503,000
---------------------------------------------
TOTAL ASSETS $394,855,000 $379,616,000 $372,226,000
---------------------------------------------
Total deposits $335,219,000 $321,012,000 $317,730,000
Other borrowings 19,151,000 19,400,000 18,861,000
Other liabilities 2,974,000 4,144,000 3,083,000
---------------------------------------------
Total liabilities 357,344,000 344,556,000 339,674,000
---------------------------------------------
Total shareholders' equity 37,511,000 35,060,000 32,552,000
---------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $394,855,000 $379,616,000 $372,226,000
---------------------------------------------
SHARE DATA
1994 1993 1992
- --------------------------------------------------------------------------
Per share data (1):
Net income $ 1.37 $ 1.25 $ 1.20
Cash dividends $ .60 $ .56 $ .51
Cash dividends declared $1,905,000 $1,725,000 $1,555,000
Net increase in
shareholders' equity $2,451,000 $2,508,000 $ 2,414,000
Book value per share (1) $11.72 $11.32 $10.61
Number of shares out-
standing at end of year (1) 3,200,054 3,190,688 3,159,531
- --------------------------------------------------------------------------
<PAGE>63
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1991 1990
- --------------------------------------------------------------------------
Total interest income $30,080,000 $31,046,000
Total interest expense 14,087,000 15,968,000
------------------------------
Net interest income 15,993,000 15,078,000
Provision for possible
loan losses 600,000 500,000
Other income 3,612,000 3,584,000
Gains from sales of loans
and securities -0- -0-
Other expense 14,164,000 13,789,000
------------------------------
Income before Federal
income taxes 4,841,000 4,373,000
Federal income taxes 1,329,000 1,030,000
------------------------------
NET INCOME $ 3,512,000 $ 3,343,000
------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31, 1991 1990
- --------------------------------------------------------------------------
Cash and cash equivalents $24,060,000 $22,581,000
Securities 95,600,000 82,498,000
Net loans 220,458,000 219,244,000
Other assets 11,611,000 12,270,000
------------------------------
TOTAL ASSETS $351,729,000 $336,593,000
------------------------------
Total deposits $301,953,000 $285,907,000
Other borrowings 16,509,000 19,762,000
Other liabilities 3,129,000 3,066,000
------------------------------
Total liabilities 321,591,000 308,735,000
------------------------------
Total shareholders' equity 30,138,000 27,858,000
------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $351,729,000 $336,593,000
------------------------------
SHARE DATA 1991 1990
- --------------------------------------------------------------------------
Per share data (1):
Net income $ 1.10 $ 1.06
Cash dividends $ .46 $ .42
Cash dividends declared $ 1,404,000 $ 1,260,000
Net increase in
shareholders' equity $ 2,280,000 $ 2,347,000
Book value per share (1) $9.89 $9.23
Number of shares out-
standing at end of year (1) 3,138,203 3,107,716
- --------------------------------------------------------------------------
(1) All share and per share data have been adjusted to reflect the five-
for-four stock split in 1993, the two-for-one stock split in 1989 and 3
percent stock dividends in all other years presented.
END PUBLISHED PAGE 31
<PAGE>64
EARNINGS AND STOCK PERFORMANCE
10 Year Earnings History
The graph above depicts the earnings history of LNB Bancorp, Inc. from 1985
through 1994.
The Corporation's management team is proud of its record of continuously
increasing profits over this ten year period.
Market Value of Cumulative Shares
100 Shares Purchased December 31, 1994 - Cost: $1,850.00
312 Shares Currently Held December 31, 1994 - Market Value: $9,399.00
Cumulative Cash Dividends Declared
Total Cash Dividends Declared 1985 - 1994: $1,267.79
For the information of our shareholders, the bottom two graphs reflect a
10 year chronological record of stock and dividend performance following a
hypothetical purchase of 100 shares of LNB Bancorp, Inc. stock without
further reinvestment.
Purchase of 100 shares of LNB Bancorp, Inc. stock at $18.50 per share in
1984:
Total market value..........................$1,850.00
Through two stock spilts and several stock dividends over the years, the
shareholder in this example now owns 312 shares of LNB Bancorp, Inc. stock
with a market value of $30.13 per share as of December 31, 1994.
Total market value..........................$9,399.00
In addition, our hypothetical shareholder would have benefited from the
cash dividends declard on the stock.
Cumulative cash dividends declared ........ $1,267.79
END PUBLISHED PAGE 32
END OF PUBLISHED LNB BANCORP, INC. 1994 ANNUAL REPORT
