<PAGE>1
COVER DESCRIPTION
Dark green background
1995
ANNUAL
REPORT
LNB
BANCORP, INC.
Beige lettering
Picture of family at Customer Service Desk
Vault in background
INSIDE FRONT COVER
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HALF PAGE INSERT FRONT SIDE
LNB Bancorp, Inc. - Shareholder Information
CORPORATE HEADQUARTERS
The Corporation's headquarters are located at:
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1739
(216) 244-6000
NOTICE OF ANNUAL MEETING
The 1996 Annual Meeting of Shareholders of LNB Bancorp, Inc. will be held
at 10:00 a.m. on Tuesday, April 16, 1996 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 44052-1739
REGISTRAR
The Lorain National Bank
457 Broadway
Lorain, Ohio 44052-1739
(216) 244-7317
STOCK TRANSFER AGENT
Shareholders requesting information about their stock holdings should contact
our Shareholders Relations Department listed below:
<PAGE>2
The Lorain National Bank
Shareholder Relations Department
457 Broadway
Lorain, Ohio 44052-1739
(216) 244-7317
(800) 860-1007
MARKET MAKERS IN LNB BANCORP, INC. STOCK
Kemper Securities, Lorain, Ohio
McDonald & Company Securities, Inc., Elyria, Ohio
Merrill Lynch, North Olmsted, Ohio
The Ohio Company, Cleveland, Ohio
Pierre R. Smith & Co., Elyria, Ohio
CASH DIVIDEND PAYMENTS
Subject to approval of the Board of Directors, cash dividends are paid on
LNB Bancorp Inc.'s common stock on or about the first day of January, April,
July, and October.
<PAGE>3
HALF PAGE INSERT BACK SIDE
Table of Contents
Highlights . . . . . . . . . . . . . . . . . . . . . . . . 1
Common Stock Trading Ranges and
Cash Dividends Declared . . . . . . . . . . . . . . . . 1
Corporate Profile . . . . . . . . . . . . . . . . . . . . 1
Message to Our Shareholders . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets . . . . . . . . . . . . . . . 6
Consolidated Statements of Income . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows . . . . . . . . . . 8
Consolidated Statements of Shareholders' Equity . . . . . 9
Notes to Consolidated Financial Statements . . . . . . . .10
Report of Management . . . . . . . . . . . . . . . . . . .21
Independent Auditors' Report . . . . . . . . . . . . . . .21
Management's Discussion and Analysis . . . . . . . . . . .22
Selected Quarterly Financial Data . . . . . . . . . . . .28
Five Year Consolidated Financial Summary . . . . . . . . .29
Directors and Officers of LNB Bancorp, Inc.. . . . . . . .30
Officers of Lorain National Bank . . . . . . . . . . . . .31
Earnings and Stock Performance . . . . . . . . . . . . . .32
Customer Service Locations . . . . . . . . . . . . . . . IBC
<PAGE>4
HIGHLIGHTS
December 31, 1995 1994 1985
- ----------------------------------------------------------------------
BANKING OFFICES 17 17 13
OFFICERS AND STAFF 294 294 259
SHAREHOLDERS 1,991 1,867 1,349
ASSETS $421,603,000 $394,855,000 $251,384,000
DEPOSITS $353,455,000 $335,219,000 $222,381,000
NET LOANS $272,491,000 $257,975,000 $133,493,000
----------------------------------------------
TOTAL CAPITAL $ 40,791,000 $ 37,511,000 $ 17,756,000
----------------------------------------------
NET INCOME $ 5,003,000 $ 4,432,000 $ 2,259,000
----------------------------------------------
SHARES OUTSTANDING 4,039,347 4,000,068 3,694,380
----------------------------------------------
CASH DIVIDENDS DECLARED $ 2,175,000 $ 1,905,000 $ 783,000
----------------------------------------------
Shares outstanding have been adjusted for five-for-four stock splits in
1995 and 1993 and a two-for-one stock split in 1989 and stock dividends.
Common Stock Trading Ranges and Cash Dividends Declared
1995 1994
--------------------------------------------------------
Bid Price Bid Price
--------------------------------------------------------
Dividend Dividend
High Low Amount High Low Amount
------- ------ --------- ------- ------ --------
First Quarter $24.60 $24.10 $.12 $22.20 $21.00 $.11
Second Quarter 26.50 24.60 .12 23.40 22.20 .11
Third Quarter 27.00 26.50 .14 24.00 23.40 .12
Fourth Quarter 27.50 27.00 .16 24.10 24.00 .14
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. There are 4,039,347 common shares outstanding,
held by 1,991 shareholders as of December 31, 1995.
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 18, 1995.
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>5
Corporate Profile
LNB Bancorp, Inc. is a $422 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 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
subsidiary 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
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Upper left margin black and white photograph of Staley G. Pijor,
Chairman, Chief Executive Officer
Message to Our Shareholders
It pleases us to report that LNB Bancorp, Inc. and its subsidiary, The
Lorain National Bank, have enjoyed another successful year of
operation. We have recorded increases in all significant areas of
financial performance, including 14 consecutive years of earnings growth
and a record high dividend payout to shareholders.
A Tradition of Change
In order to ensure results like these, we continuously refine our
strengths and adjust our operations to meet the changing needs of our four
publics: our customers, shareholders, employees and community. For more
than 90 years, we've faced the challenges of a dynamic financial services
industry and we have emerged a leader in local independent banking,
serving those publics well.
Two years ago at this time, our directors announced a management
succession plan which would provide leadership of our organization well
into the next century. Our 1996 management team with James F. Kidd,
President and C.E.O., Thomas P. Ryan, Executive Vice President and
Secretary, Gregory D. Friedman, Senior Vice President - C.O.O. and C.F.O.,
Willard H. DoBrunz, Senior Vice President - Loan Administration,
Michael D. Ireland, Senior Vice President - Operations, Emma N. Mason,
Senior Vice President - Trust Investment, and James H. Weber, Senior Vice
President - Marketing Adminsitration, has nearly 200 years of combined
banking experience. This team will continue to focus its strengths
on issues critical to our bank's success. In late 1995, we accepted with
regret the retirement of James H. Riddell as a member of our board. The
Riddell name will remain, however, as his son Jeffrey has accepted a
position on our board. We wish Jim well and thank him for his years of
service and at the same time, welcome Jeffrey to our team.
In 1996, we will respond to many exciting challenges. Our customers
are solicited by competitors from around the world, who reach them through
the mail, on television, over the phone and now through their home
computers. Consumers have more choices now than ever before.
Our shareholders have more investment opportunities at their disposal
than ever before. They are looking for return, for increased value and
for growth without undue risk.
Our employees need training and education to keep pace with the
advances of technology and the skills to deal with the changing needs of
our customers. Employment opportunities elsewhere are more varied than
ever before.
The communities we serve rely on us to remain involved in civic
affairs where our expertise is needed. Our people are continuously sought
for seats on boards across our market area. As communities grow, the need
for knowledgeable, enthusiastic support is larger than ever before.
END PUBLISHED PAGE 2
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Upper right margin black and white photograph of James F. Kidd,
President & Chief Operating Officer
We will address these challenges by employing our strengths - our
people and our technology. In November, we announced a new organizational
structure, which was designed to position key individuals in management
roles where they can make the best use of these two key ingredients.
We'll develop and market new products and take them to new
marketplaces, using new methods of distribution. We'll learn more about
our existing customers and find new ways to attract business.
We'll strive to work as a team, through improved communications and
committee structures which lead to a broader exchange of ideas. As a
result, we will be a better bank, fortified with a renewed vigor to
provide unparalleled customer service.
Earnings Increase
In 1995 we posted our 14th consecutive year of increased earnings, as
net income increased in 1995 by 12.9% over 1994, reaching $5,003,000.
Earnings per share also increased to $1.24 for 1995 compared to $1.10 for
1994. Dividends declared per share amounted to $.54 in 1995 compared to
$.48 in 1994. 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 1995.
Total cash dividends in 1995, including the EXTRA dividend declared
by the Board of Directors in November, rose to almost $2,175,000. The
cash dividends declared in 1995 represent a 54.9% increase over 1991, when
$1,404,000 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 178% since
1985, when the payout totaled $783,000.
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 1985 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, 1995 include an
increase in net loans to $272.5 million, up $14.5 million from 1994 and an
increase in total deposits to $353.5 million, up $18.2 million from 1994.
Total assets of the Bank reached $421.6 million, which represents an
increase of $26.7 million over 1994. The return on average assets of LNB
Bancorp, Inc. rose from 1.13% in 1994 to 1.21% in 1995.
Total shareholders' equity increased $3.3 million to $40.8 million,
an increase of 8.7% over the year-end 1994 equity position. The ratios of
total shareholders' equity to total assets were 9.7% and 9.5% at December
31, 1995 and 1994, respectively.
END PUBLISHED PAGE 3
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LNB Bancorp, Inc. and its subsidiary, The Lorain National Bank,
significantly exceed all current regulatory capital guidelines (for more
detail, See Management's Discussion & Analysis on page 22.)
Trust & Investment
Management Division
The Trust & 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.
The Trust & Investment Management Division's assets under management
increased 11% in 1995, compared to the same period in 1994. Direct
revenues for the division in 1995 increased 11.7%.
1995 Highlights
In November, we installed a new cash dispensing machine at the
Convenient Food Mart at West Erie Avenue and Kolbe Road in Lorain. It is
our first location inside a retail establishment where "convenient"
shopping and banking come together. This exciting new "mini-ATM"
dispenses cash, allows transfers between accounts and provides balance
inquiries.
After 30 years of leasing space at the Lorain Plaza shopping center,
we have chosen to construct a full-service branch office at the site of
our drive-in facility less than two blocks away at 37th Street and Oberlin
Avenue. Upon its completion in May, customers of our Plaza office will
enjoy ample parking and a spacious lobby complete with state-of-the-art
banking amenities.
We improved our technological capabilities with the installation of a
new main-frame computer, electronic hardware and local area network
software in 1995. We have also developed a blueprint to guide our use of
technology for 1996 and beyond.
We developed three new products which will become available to
customers bankwide in 1996. Our Four-Point Banking checking package is
designed to meet the needs of college students who need a simple banking
account while at school. Corporate Connection is a personal
computer-based cash management service designed for business customers to
manage funds on a daily basis. Customers will soon be able to bank by
telephone 24-hours a day by telephone with our new TeleBanker voice
response system. All three products will be made available to customers
early in 1996.
In the fall, we made several exterior improvements to our Kansas
Avenue office, including the expansion of the customer parking area and a
more convenient entranceway to the lobby. We also relocated our Cleveland
Street office ATM to the innermost lane to improve serviceability.
END PUBLISHED PAGE 4
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Throughout 1995, our staff received an extensive amount of training
in the Use of personal computers and software, sales techniques and
customer relations skills. Our training department has been extremely
active in providing high quality training and education in areas which
directly relate to improved customer service and employee productivity.
Also in 1995, we developed a new disaster recovery plan for bankwide
protection in the event of a major interruption of service. The plan
provides highly detailed information critical to the bank's operation in
case of emergency.
In Memoriam
We regrettably acknowledge the passing in 1995 of former director
James C. Hageman. His many years of service as a director of both The
Lorain National Bank and LNB Bancorp, Inc. is deeply appreciated. Mr.
Hageman's knowledge of local industry and banking were invaluable to us.
He will not soon be forgotten.
Local Economy
The future of the Lorain County economy continues to brighten.
Through cooperation, teamwork and a re-focused leadership, the expansion
and stabilization of our economy has become a reality.
Through the overall reinvestment by both government and business into
our community, we have set a new tone for a strong, aggressive economy,
filled with opportunities.
New industry continues to flow into Lorain County. Corporations like
Manco and A.J. Rose are providing new jobs, new tax dollars and a renewed
feeling of expansion in our marketplace. These new industries are leading
the way for others into our industrial parks and are spurring the
development of growth throughout the county.
As we have for several years, we continue to grow in size physically,
yet we have maintained staffing levels over the past several years. We
are finding new ways to increase productivity and operate more profitably
without adding to staff.
We appreciate your continued support of our current activities and
look forward to a rewarding 1996.
Stanley G. Pijor James F. Kidd
/s/ Stanley G. Pijor /s/ James F. Kidd
Chairman & Chief Executive Officer President & Chief Operating Officer
END PUBLISHED PAGE 5
<PAGE>10
Consolidated Balance Sheets
December 31, 1995 1994
- -------------------------------------------------------------------------
ASSETS:
Cash and due from banks (note 2) $ 27,428,000 $ 21,102,000
Federal funds sold and other interest
bearing instruments 102,000 173,000
Securities (note 3):
Securities available for sale 15,161,000 10,137,000
Investment securities 89,405,000 89,387,000
----------------------------
Total securities
(Market value $106,076,000 and
$97,080,000, respectively) 104,566,000 99,524,000
----------------------------
Loans (notes 4 and 14):
Portfolio loans 263,824,000 253,889,000
Loans available for sale 12,669,000 7,918,000
----------------------------
Total loans 276,943,000 261,807,000
Reserve for possible loan losses (4,002,000) (3,832,000)
----------------------------
Net loans 272,491,000 257,975,000
----------------------------
Bank premises and equipment, net (note 5) 11,006,000 10,682,000
Accrued interest receivable 2,764,000 2,391,000
Other assets 3,246,000 3,008,000
----------------------------
TOTAL ASSETS $421,603,000 $394,855,000
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (note 6):
Demand and other noninterest-bearing
deposits $ 60,163,000 $ 57,096,000
Savings and passbook accounts 159,447,000 171,095,000
Time, including certificates of deposit
over $100,000 totaling $33,942,000 and
$26,652,000, respectively 133,845,000 107,028,000
----------------------------
Total deposits 353,455,000 335,219,000
----------------------------
Securities sold under repurchase
agreements and other short-term
borrowings (note 7) 24,148,000 19,171,000
Accrued interest payable 1,250,000 868,000
Taxes and other liabilities (notes 8 and 10) 1,959,000 2,086,000
----------------------------
Total liabilities 380,812,000 357,344,000
----------------------------
<PAGE>11
Shareholders' equity:
Common stock, $1.00 par:
Shares authorized 5,000,000
Shares issued and outstanding
4,039,347 and 3,200,054,
respectively (notes 11, 12 and 13) 4,039,000 3,200,000
Additional capital 17,854,000 18,415,000
Retained earnings (note 9) 18,856,000 16,028,000
Net unrealized gain (losses) on
Securities available for sale,
net of tax 42,000 (132,000)
----------------------------
Total shareholders' equity 40,791,000 37,511,000
----------------------------
Commitments and contingencies (notes 5 and 16)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $421,603,000 $394,855,000
----------------------------
See accompanying notes to consolidated financial statements
END PUBLISHED PAGE 6
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Consolidated Statements of Income
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans:
Taxable $ 24,752,000 $ 21,353,000 $ 20,158,000
Tax exempt 75,000 72,000 82,000
Interest and dividends on
securities:
U.S. Treasury securities 5,104,000 4,323,000 4,449,000
U.S. Government agencies
and corporations 408,000 170,000 285,000
States and political
subdivisions 452,000 595,000 624,000
Other debt and equity
securities 20,000 20,000 20,000
Interest on Federal funds
sold and other interest
bearing instruments 300,000 297,000 274,000
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TOTAL INTEREST INCOME 31,111,000 26,830,000 25,892,000
INTEREST EXPENSE:
Interest on deposits:
Time certificates of
$100,000 and over 1,847,000 793,000 740,000
Other deposits 8,681,000 6,968,000 7,398,000
Interest on securities sold
under repurchase agreements
and other short-term
borrowings 1,107,000 755,000 400,000
Other interest 1,000 56,000 2,000
--------------------------------------------
TOTAL INTEREST EXPENSE 11,636,000 8,572,000 8,540,000
--------------------------------------------
NET INTEREST INCOME 19,475,000 18,258,000 17,352,000
Provision for possible
loan losses (note 4) 400,000 400,000 500,000
--------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 19,075,000 17,858,000 16,852,000
--------------------------------------------
OTHER INCOME:
Trust division income 1,038,000 916,000 825,000
Service charges on deposit
accounts 1,360,000 1,300,000 1,284,000
Other service charges,
exchanges and fees 1,849,000 1,837,000 1,642,000
Gains on sales of loans
and securities -0- 70,000 191,000
Other operating income 40,000 11,000 67,000
--------------------------------------------
TOTAL OTHER INCOME 4,287,000 4,134,000 4,009,000
<PAGE>13
OTHER EXPENSES:
Salaries and employee benefits
(notes 10, 11, 12 and 13) 7,926,000 7,675,000 7,318,000
Net occupancy expense of
premises (note 5) 1,211,000 1,112,000 1,091,000
Furniture and equipment
expenses (note 5) 1,895,000 1,768,000 1,653,000
Supplies and postage 904,000 837,000 825,000
FDIC deposit insurance
premium 385,000 722,000 699,000
Ohio franchise tax 508,000 475,000 474,000
Other operating expenses 3,194,000 3,090,000 2,957,000
--------------------------------------------
TOTAL OTHER EXPENSES 16,023,000 15,679,000 15,017,000
--------------------------------------------
INCOME BEFORE FEDERAL
INCOME TAXES 7,339,000 6,313,000 5,844,000
--------------------------------------------
FEDERAL INCOME TAXES (BENEFIT)
(note 8):
Current 2,111,000 1,816,000 1,895,000
Deferred 225,000 65,000 (80,000)
--------------------------------------------
TOTAL FEDERAL INCOME TAXES 2,336,000 1,881,000 1,815,000
--------------------------------------------
NET INCOME $ 5,003,000 $ 4,432,000 $ 4,029,000
--------------------------------------------
NET INCOME PER SHARE
(note 15) $ 1.24 $ 1.10 $ 1.00
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 7
<PAGE>14
Consolidated Statements of Cash Flows
Years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Interest received $ 30,734,000 $ 26,732,000 $ 26,094,000
Other income received 4,245,000 4,057,000 3,797,000
Interest paid (11,254,000) (8,492,000) (8,638,000)
Cash paid for salaries
and employee benefits (7,832,000) (7,661,000) (7,434,000)
Net occupancy expense of
premises paid (901,000) (847,000) (842,000)
Furniture and equipment
expenses paid (733,000) (708,000) (697,000)
Cash paid for supplies and
postage (904,000) (837,000) (825,000)
Cash paid for other
operating expenses (4,354,000) (4,372,000) (3,894,000)
Federal income taxes paid (1,956,000) (1,960,000) (1,838,000)
--------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,045,000 5,912,000 5,723,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of
securities available for sale 2,953,000 7,069,000 -0-
Proceeds from maturities of
investment securities 45,799,000 43,905,000 45,832,000
Proceeds from sales of
investment securities -0- -0- 4,230,000
Purchases of securities
available for sale (7,702,000) (6,999,000) -0-
Purchases of investment
securities (45,914,000) (40,494,000) (56,371,000)
Net (increase) decrease in
credit card loans (119,000) 129,000 229,000
Net (increase) in long-term
loans (14,969,000) (16,528,000) (12,344,000)
Purchases of bank premises,
equipment and software (2,276,000) (4,052,000) (2,465,000)
Proceeds from sales of
bank premises and equipment -0- -0- 260,000
--------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (22,228,000) (16,970,000) (20,629,000)
<PAGE>15
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in
demand and other noninterest-
bearing deposits 3,067,000 6,855,000 (1,815,000)
Net increase (decrease)
in savings and passbook
deposits (11,648,000) (1,801,000) 12,514,000
Net increase (decrease) in
time deposits 26,817,000 9,153,000 (7,417,000)
Net increase (decrease)
in securities sold under re-
purchase agreements and other
short-term borrowings 4,997,000 (249,000) 539,000
Proceeds from line of credit -0- 1,668,000 1,100,000
Cash paid on line of credit -0- (2,768,000) -0-
Proceeds from exercise of
stock options 278,000 56,000 204,000
Dividends paid (2,073,000) (1,857,000) (1,671,000)
--------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 21,438,000 11,057,000 3,454,000
--------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 6,255,000 (1,000) (11,452,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 21,275,000 21,276,000 32,728,000
--------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 27,530,000 $ 21,275,000 $ 21,276,000
--------------------------------------------
<PAGE>16
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 5,003,000 $ 4,432,000 $ 4,029,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 1,473,000 1,325,000 1,207,000
Gain on sales of loans and
securities -0- (70,000) (191,000)
Amortization and accretion on
securities, net (4,000) 19,000 45,000
Amortization of deferred loan
fees and costs, net 173,000 67,000 (64,000)
Provision for possible
loan losses 400,000 400,000 500,000
Increase (decrease) in deferred
Federal income taxes 157,000 65,000 (80,000)
(Increase) decrease in accrued
interest receivable (373,000) (117,000) 157,000
(Increase) decrease in
other assets (188,000) (282,000) 467,000
Increase (decrease) in accrued
interest payable 382,000 80,000 (98,000)
Increase (decrease) in Federal
income taxes payable 223,000) (79,000) 23,000
Increase (decrease) in accrued
expenses (424,000) 65,000 (251,000)
Others, net 223,000 7,000 (21,000)
--------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $7,045,000 $5,912,000 $5,723,000
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 8
<PAGE>17
Consolidated Statements of Shareholders' Equity
Net Unrealized
Gains (Loss)
Years Ended on Securities Total
December 31, 1995 Common Additional Retained Available Shareholders'
1994 and 1993 Stock Capital Earnings for Sale Equity
- -------------------------------------------------------------------------
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,
$.44 per share -0- -0- (1,725,000) -0- (1,725,000)
Issuance of 37,811
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
-----------------------------------------------------------
Net income -0- -0- 4,432,000 -0- 4,432,000
Cash dividends
declared,
$.48 per share -0- -0- (1,905,000) -0- (1,905,000)
Issuance of 11,668
shares of common
stock under stock
option plans 9,000 47,000 -0- -0- 56,000
Market value of
stock issued in
payment of 3% stock
dividend,
116,206 shares 93,000 2,510,000 (2,603,000) -0- -0-
Change in unrealized
gain(loss) on
securities available
for sale, net of tax -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
-----------------------------------------------------------
<PAGE>18
Net Unrealized
Gain(Loss) on
Years ended Securities Total
December 31, 1995 Common Additional Retained Available Shareholders'
1994 and 1993 Stock Capital Earnings For Sale Equity
- -------------------------------------------------------------------------
Net income -0- -0- 5,003,000 -0- 5,003,000
Cash dividends
declared,
$.54 per share -0- -0- (2,175,000) -0- (2,175,000)
Issuance of 36,601
shares of common
stock under stock
option plans 36,000 242,000 -0- -0- 278,000
Issuance of 802,692
shares of common
stock with a fixed
par value of $1.00,
under a five-for-four
stock split 803,000 (803,000) -0- -0- -0-
Change in unrealized
gain(loss) on securities
available for
sale, net of tax -0- -0- -0- 174,000 174,000
-----------------------------------------------------------
BALANCE AT
DECEMBER 31,
1995 $4,039,000 $17,854,000 $18,856,000 $ 42,000 $40,791,000
-----------------------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 9
<PAGE>19
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(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 effect on retained
earnings at December 31, 1995 and 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. The Bank does not maintain a trading account.
Investment securities which are classified as being held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts using the interest method. 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.
<PAGE>20
(f) Reserve for Possible Loan Losses:
The Corporation adopted the provision of Statement of Financial Accounting
Standards No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosure" on January 1, 1995. SFAS No.
114 provides guidelines for measuring impairment losses on loans. Under
SFAS No. 114, a loan is considered impaired, based on current information
and events, if it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired
loans is generally based on the present value of the expected future cash
flows discounted at the loans initial effective interest rate, except that
all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. If the loan valuation is less than the
recorded value of the loan, an impairment reserve must be established for the
difference. The impairment reserve is established by either an
allocation of the reserve for possible loan losses or by a provision for
possible loan losses, depending upon the adequacy of the reserve for
possible loan losses. SFAS No. 118 permits existing income recognition
practices to continue.
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.
(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, 1995 or 1994.
(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.
END OF PUBLISHED PAGE 10
<PAGE>21
(1) Summary of Significant Accounting Policies (continued):
(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 using the interest method.
(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:
In 1993, the Corporation changed its method of accounting for income taxes
from the deferred method to the liability method required by Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes" (see Note 8 "Federal Income Taxes"). Under the liability
method, 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 1993 and 1994 amounts have been reclassified to conform to the
1995 presentation.
(2) Cash and Due From Banks:
In order to meet deposit reserve requirements, the Corporation's
subsidiary bank is required to maintain cash on hand and reserve balances
at the Federal Reserve Bank. Cash and due from banks included
approximately $5,751,000 and $6,143,000 at December 31, 1995 and 1994,
respectively, to meet these deposit reserve requirements.
The average balances maintained in cash on hand and in reserve balances at the
Federal Reserve Bank to meet deposit reserve requirements approximated
$5,674,000 and $5,719,000, during 1995 and 1994 respectively.
END PUBLISHED PAGE 11
<PAGE>22
(3) Securities:
The amortized cost, gross unrealized gains and losses and
fair values of securities at December 31, 1995 and 1994
follow:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- -------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities $ 14,748,000 $ 71,000 $( 51,000) $ 14,768,000
Equity securities 343,000 50,000 -0- 393,000
------------------------------------------------
Total securities
available for sale 15,091,000 121,000 ( 51,000) 15,161,000
------------------------------------------------
Investment securities:
U.S. Treasury securities 69,422,000 1,328,000 (146,000) 70,604,000
Securities of other U.S.
Government agencies and
corporations 14,500,000 161,000 (3,000) 14,658,000
States and political
subdivisions 5,483,000 183,000 ( 13,000) 5,653,000
-------------------------------------------------
Total investment
securities 89,405,000 1,672,000 (162,000) 90,915,000
-------------------------------------------------
Total securities $104,496,000 $1,793,000 $(213,000) $106,076,000
-------------------------------------------------
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
--------------------------------------------------
<PAGE>23
The amortized cost, fair values and yields of
debt securities by contractual maturity date at
December 31, 1995 follow:
Fully-Tax
Amortized Fair Equivalent
December 31, 1995 Cost Value Yield
- -------------------------------------------------------------------------
U.S. Treasury securities
available for sale:
Due within 1 year $ 5,749,000 $ 5,755,000 5.25%
After 1 but within
5 years 8,999,000 9,013,000 5.55
-------------------------------------------
14,748,000 14,768,000 5.43
-------------------------------------------
Investment securities:
Due within 1 year 29,268,000 29,723,000 5.81
After 1 but within
5 years 55,927,000 57,120,000 6.28
After 5 but within
10 years 3,713,000 3,937,000 8.17
After 10 years 137,000 135,000 7.25
-------------------------------------------
89,405,000 90,915,000 6.20
-------------------------------------------
Total $104,153,000 $105,683,000 6.07%
===========================================
END PUBLISHED PAGE 12
<PAGE>24
(3) Securities (continued)
There were no sales of securities in 1995 and 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-. 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 $87,922,000 and $76,430,000 at
December 31, 1995 and 1994 respectively.
The fair value of securities is based on quoted market prices, where available.
If quoted market prices are not available, fair value is estimated using the
quoted prices of comparable instruments. At December 31, 1995 the securities
portfolio contained approximately $3,256,000 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
$3,348,000. 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 impairment to
their value as of December 31, 1995.
(4) Loans and Reserve for Possible Loan Losses:
Loan balances at December 31, 1995 and 1994 are summarized as follows:
December 31, 1995 1994
- --------------------------------------------------------------------------
Real estate loans (includes loans
secured primarily by real estate only):
Construction and land development $ 24,804,000 $ 24,340,000
One to four family residential 138,979,000 130,066,000
Multi-family residential 7,719,000 7,863,000
Non-farm non-residential properties 59,419,000 59,185,000
Commercial and industrial loans
(except those secured primarily
by real estate) 17,732,000 16,179,000
Personal loans to individuals:
Auto, single payment and installment 20,445,000 17,393,000
Credit card and related plans 5,073,000 4,986,000
Obligations of states and political
subdivisions other than securities 991,000 1,242,000
All other loans 1,331,000 553,000
------------------------------------
TOTAL LOANS 276,493,000 261,807,000
Reserve for possible loan losses (4,002,000) (3,832,000)
------------------------------------
NET LOANS $272,491,000 $257,975,000
------------------------------------
<PAGE>25
Activity in the reserve for possible loan losses for 1995, 1994 and 1993
is summarized as follows:
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
Balance at beginning of year $3,832,000 $3,714,000 $3,406,000
Provision for possible loan
losses 400,000 400,000 500,000
Loans charged-off (449,000) (399,000) (515,000)
Recoveries on loans previously
charged-off 219,000 117,000 323,000
--------------------------------------------
BALANCE AT END OF YEAR $4,002,000 $3,832,000 $3,714,000
--------------------------------------------
At December 31, 1995 and 1994, $12,669,000 and $7,918,000 of commercial and
student loans were available for sale in the secondary market. No provision for
possible loan loss on the carrying value of these loans was necessary at
December 31, 1995 and 1994. The market value of loans available for sale
equaled or exceeded its carrying value.
At December 31, 1995, the Bank had firm commitments for the sale of
approximately $1,134,000 of these loans.
At December 31, 1995, the recorded investment in loans has been identified as
being impaired and has been evaluated in accordance with SFAS No. 114 and 118
totalled $1,420,000 (of which $518,000 were on a non-accrual basis). Included in
the impaired amount is $699,000 related to loans with a corresponding valuation
allowance of $239,000. For the year ended December 31, 1995, the average
recorded investment in impaired loans was approximately $910,000. The
Corporation recognized $103,000 of interest on impaired loans (during the
portion of the year that they were impaired), of which $24,000 related to
impaired loans for which income is recognized on the cash basis.
END PUBLISHED PAGE 13
<PAGE>26
(5) Bank Premises and Equipment:
Bank premises and equipment are summarized as follows:
December 31, 1995 1994
- -------------------------------------------------------------------------
Land $ 1,941,000 $ 1,941,000
Buildings 8,777,000 8,549,000
Equipment and furniture 11,428,000 10,920,000
Leasehold improvements 441,000 441,000
---------------------------------------------
22,587,000 21,851,000
---------------------------------------------
Less accumulated depreciation
and amortization 11,581,000 11,169,000
---------------------------------------------
TOTAL $11,006,000 $10,682,000
---------------------------------------------
Depreciation and amortization of Bank premises and equipment charged to
other expense amounted to $1,299,000 in 1995, $1,170,000 in 1994 and
$1,052,000 in 1993.
Amortization of purchased software charged to other operating expenses
amounted to $174,000 in 1995, $155,000 in 1994 and $155,000 in 1993.
At December 31, 1995, 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
- -----------------------------------------------------------
1996 $84,000 $52,000
1997 14,000 46,000
1998 4,000 12,000
1999 -0- 12,000
2000 and thereafter -0- -0-
------------------------
Rentals paid under leases on branch offices and equipment, respectively,
amounted to $115,000 and $68,000 in 1995, $106,000 and $65,000 in 1994 and
$99,000 and $74,000 in 1993.
<PAGE>27
(6) Deposits:
Deposit balances at December 31, 1995 and 1994 are summarized as follows:
December 31, 1995 1994
- --------------------------------------------------------------------------
Demand and other noninterest-
bearing deposits:
Individuals, partnerships
and corporations $ 50,513,000 $ 47,743,000
U.S. Government 1,612,000 1,595,000
States and political subdivisions 5,088,000 4,032,000
Certified, official, travelers
checks and other 2,950,000 3,726,000
-----------------------------------
Total demand and other noninterest-
bearing deposits 60,163,000 57,096,000
-----------------------------------
Savings and passbook accounts:
Individuals and non-profit organizations 142,020,000 152,126,000
Corporations and profit organizations 17,427,000 18,969,000
-----------------------------------
Total savings and passbook accounts 159,447,000 171,095,000
-----------------------------------
Time deposits:
Individuals, partnerships and
corporations 113,473,000 93,484,000
States and political subdivisions 20,372,000 13,544,000
------------------------------------
Total time deposits 133,845,000 107,028,000
------------------------------------
TOTAL DEPOSITS $353,455,000 $335,219,000
------------------------------------
The maturity distribution of time certificates of deposit over
$100,000 as of December 31, 1995 and 1994 follows:
After 3 After 6
Months Months
Within 3 But Within But Within
Months 6 Months 1 Year
- -------------------------------------------------------------------------
December 31, 1995 $21,956,000 $7,659,000 $ 2,559,000
- -------------------------------------------------------------------------
December 31, 1994 $17,802,000 $3,357,000 $ 3,680,000
- -------------------------------------------------------------------------
After 1 After 2
Year But Years But
Within Within
2 Years 5 Years Total
- -------------------------------------------------------------------------
December 31, 1995 $ 883,000 $ 885,000 $33,942,000
- -------------------------------------------------------------------------
December 31, 1994 $ 600,000 $1,213,000 $26,652,000
- -------------------------------------------------------------------------
END PUBLISHED PAGE 14
<PAGE>28
(7) Short-Term Borrowings:
Information relating to short-term borrowings for the
years ended December 31, 1995 and 1994 follows:
December 31, 1995 1994
- --------------------------------------------------------------------------
Securities sold under repurchase agreements
and other short-term borrowings
At December 31:
Outstanding $24,148,000 $19,171,000
Interest rate 4.981% 5.360%
Average for the period:
Outstanding $22,863,000 $21,106,000
Interest rate 4.846% 3.575%
Maximum month-end outstanding $29,121,000 $30,750,000
Construction line of credit
At December 31:
Outstanding $ -0- $ -0-
Interest rate 0.000% 0.000%
Average for the period:
Outstanding $ -0- $ 2,061,000
Interest rate 0.000% 4.895%
Maximum month-end outstanding $ -0- $ 2,750,000
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 expired in
February of 1995 with no further draws being made against it.
END PUBLISHED PAGE 16
<PAGE>29
(8) Federal Income Taxes:
In 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.
Income taxes on gains from sales of loans and investment securities are provided
at the statutory income tax rate and included on the current portion of the
provision.
The following presents a reconciliation of the total Federal income taxes
as shown on the Consolidated Statements of Income with that which would be
computed by applying the statutory Federal tax rate of 34 percent to
income before Federal income taxes.
Years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------
Computed "expected" tax expense $2,495,000 $2,146,000 $1,987,000
Increase (reduction) in income
taxes resulting from:
Tax exempt interest on
obligations of states
and political subdivisions (162,000) (216,000) (212,000)
Other, net 3,000 (49,000) 40,000
---------------------------------------------
TOTAL FEDERAL INCOME TAXES $2,336,000 $1,881,000 $1,815,000
---------------------------------------------
Net deferred Federal tax assets of $876,000,$1,101,000 and $1,098,000 at
December 31, 1995, 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 effects of
temporary differences that give rise to significant portions of the
deferred Federal tax assets and deferred Federal tax liabilities are
presented below.
<PAGE>30
December 31, 1995 1994 1993
- -------------------------------------------------------------------------
Deferred Federal tax assets:
Reserve for possible loan losses 917,000 859,000 839,000
Deferred compensation 131,000 132,000 118,000
Accrued pension expense 51,000 106,000 109,000
Accrued vacation payable 120,000 105,000 102,000
Deferred loan fees and costs 34,000 162,000 160,000
Other, net 2,000 70,000 2,000
------------------------------------
Total deferred Federal tax assets 1,255,000 1,434,000 1,330,000
Deferred Federal tax liabilities:
Bank premises and equipment (214,000) (147,000) (111,000)
Deferred charges (165,000) (186,000) (121,000)
-------------------------------------
Total deferred Federal tax
liabilities (379,000) (333,000) (232,000)
-------------------------------------
NET DEFERRED FEDERAL TAX ASSETS 876,000 1,101,000 1,098,000
-------------------------------------
END PUBLISHED PAGE 16
<PAGE>31
(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, 1995, Bank retained earnings available for payment of
dividends without obtaining regulatory approval amounted to approximately
$4,597,000. Condensed financial information of LNB Bancorp, Inc. (Parent
Company only) is as follows:
Condensed Balance Sheets
ASSETS:
December 31, 1995 1994
- --------------------------------------------------------------------------
Cash $ 753,000 $ 941,000
Investment in subsidiary
at equity in underlying
value of its net assets 35,885,000 32,879,000
Investment securities -0- 4,181,000
Securities available for sale 4,729,000 -0-
Other assets 71,000 54,000
-----------------------------------
$41,438,000 $38,055,000
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
December 31, 1995 1994
- --------------------------------------------------------------------------
Dividends payable $ 647,000 $ 544,000
Shareholders' equity:
Common stock, $1.00 par 4,039,000 3,200,000
Additional capital 17,854,000 18,415,000
Retained earnings 18,856,000 16,028,000
Net unrealized gain (loss) on
securities available for sale 42,000 (132,000)
------------------------------------
Total shareholders' equity 40,791,000 37,511,000
------------------------------------
$41,438,000 $38,055,000
------------------------------------
<PAGE>32
Condensed Statements of Income
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
INCOME:
Cash dividends from subsidiary $2,094,000 $1,841,000 $4,725,000
Interest and other income 235,000 209,000 106,000
----------------------------------------------
2,329,000 2,050,000 4,831,000
EXPENSES:
Other expenses 92,000 70,000 74,000
----------------------------------------------
Income before Federal income
taxes and equity in undistributed
net income of subsidiary 2,237,000 1,980,000 4,757,000
Federal income tax expense 49,000 47,000 11,000
----------------------------------------------
2,188,000 1,933,000 4,746,000
Equity in undistributed net
income of subsidiary 2,815,000 2,499,000 (717,000)
----------------------------------------------
NET INCOME $5,003,000 $4,432,000 $4,029,000
----------------------------------------------
<PAGE>33
Condensed Statements of Cash Flows
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from subsidiary $2,094,000 $1,841,000 $4,725,000
Other, net 77,000 89,000 (23,000)
---------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,171,000 1,930,000 4,702,000
---------------------------------------------
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES:
Proceeds from maturities of
investment securities 470,000 622,000 496,000
Purchases of investment securities -0- (450,000) (3,654,000)
Purchases of securities available
sale (1,034,000) -0- -0-
Proceeds from sale of building
to Bank -0- 2,855,000 -0-
Construction of Bank premises -0- (2,109,000) -0-
Cash paid on line of credit -0- (2,768,000) -0-
Investment in construction
in progress, net -0- -0- (746,000)
Proceeds from line of credit -0- 1,668,000 1,100,000
Proceeds from exercise of
stock options 278,000 56,000 204,000
Dividends paid (2,073,000) (1,857,000) (1,671,000)
---------------------------------------------
NET CASH USED IN INVESTING
AND FINANCING ACTIVITIES (2,359,000) (1,983,000) (4,271,000)
---------------------------------------------
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS (188,000) (53,000) 431,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 941,000 994,000 563,000
---------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 753,000 $ 941,000 $ 994,000
END OF PUBLISHED PAGE 17 ---------------------------------------------
<PAGE>34
(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
$92,000 in 1995, $128,000 in 1994 and $124,000 in 1993. At December 31, 1995
there were 214 participants in the plan. An analysis of net periodic pension
cost for 1995, 1994 and 1993 is 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 6.50% and 5.00%, respectively for 1995
and 7.75% and 5.50%, respectively for 1994. The expected long-term rate of
return on assets was 8.50% and 7.75% for 1995 and 1994.
An analysis which sets forth the plan's funded status at December 31, 1995
and 1994 is also presented below.
Components of Net Periodic
Pension Cost: 1995 1994 1993
- -------------------------------------------------------------------------
Service cost $ 184,000 $ 229,000 $ 212,000
Interest cost of projected
benefit obligation 466,000 467,000 439,000
Actual return on plan assets (1,410,000) (131,000) (483,000)
Net total of other components 852,000) (437,000) (44,000)
---------------------------------------------
Net periodic pension cost $ 92,000 $ 128,000 $ 124,000
---------------------------------------------
Actuarial Present Value of Benefit Obligations: 1995 1994
- --------------------------------------------------------------------------
Accumulated benefit obligation including
vested benefits of $(5,591,000) in 1995
and $(4,800,000) in 1994 $(5,644,000) $(4,924,000)
-----------------------------------
Projected benefit obligation $(7,251,000) $(6,370,000)
Plan assets at market value, primarily
U. S. Government securities and
investments in bond and equity funds 7,758,000 6,405,000
-----------------------------------
Plan assets in excess of projected
benefit obligations 507,000 35,000
Unrecognized net (gains) losses
subsequent to transition (196,000) 183,000
Unrecognized prior service cost (329,000) (363,000)
Unrecognized net assets, being recognized
over employees' average remaining
service life (136,000) (167,000)
-----------------------------------
Accrued pension cost $ (154,000) $ (312,000)
-----------------------------------
<PAGE>35
(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 from date of grant. On December 27, 1993, the
remaining 21,456 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 $20.39.
During 1995, stock options amounting to 36,601 shares were exercised at a
price range of $4.81 to $20.39. An analysis of the status of the stock option
plans as of December 31, 1995 follows:
Plan Year 1985 1982
- --------------------------------------------------------------------------
Options outstanding:
Total 32,540 12,471
Vested 32,540 12,471
Options available for granting -0- -0-
Range of exercise prices $6.70-$20.39 $15.23
- --------------------------------------------------------------------------
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 18
(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 $360,000, $375,000, and $327,000 in
1995, 1994, and 1993, respectively. At December 31, 1995 there were 246
participants in the plan.
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.
<PAGE>36
Transactions by the ESOP, relating to activity in the Corporation's common
stock, are summarized below:
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------
Cash dividend income $ 44,000 $ 31,000 $ 23,000
Stock dividend/split shares 13,845 1,350 8,419
Shares purchased 18,958 12,216 8,699
Shares distributed 3,420 101 3,826
Year end holdings:
Shares 86,849 57,466 44,001
Market value $2,388,000 $1,731,000 $1,155,000
As a percentage of
total plan assets 68.6% 57.6% 49.3%
(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,
$105,000 and $88,000 in 1995, 1994 and 1993, respectively. At December 31,
1995 there were 201 participants 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, 1995 1994 1993
- --------------------------------------------------------------------------
Cash dividend income $ 66,000 $ 63,000 $ 54,000
Stock dividend/split shares 25,537 3,052 19,955
Shares purchased 5,552 18,991 3,130
Shares distributed 21,238 8,765 14,534
Year end holdings:
Shares 119,270 109,419 96,141
Market value $3,280,000 $3,296,000 $2,524,000
As a percentage of
total plan assets 90.8% 96.9% 87.5%
<PAGE>37
(14) Transactions With Related Parties:
The Corporation, through its subsidiary Bank, makes loans to its officers,
directors and their affiliates. These loans are made with substantially the same
terms and conditions as transactions with nonrelated parties.
An analysis of loans outstanding to related parties follows:
Years ended December 31, 1995 1994
- -------------------------------------------------------------------------
Aggregate amount at beginning of year $2,773,000 $3,186,000
Additions (deductions):
New loans 652,000 31,000
Repayments (529,000) (444,000)
Changes in directors and officers
and/or their affiliations, net 11,000 -0-
- -------------------------------------------------------------------------
Aggregate amount at end of year $2,907,000 $2,773,000
- -------------------------------------------------------------------------
(15) Per Share Data:
Net income 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 splits in 1995 and 1993.
(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, 1995
was:
Commitments to extend credit $60,776,000
Standby letters of credit 1,304,000
-----------
Total $62,080,000
-----------
Most of the Corporation's business activity is with customers located
within the Corporation's defined market area. As of December 31, 1995, 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 various lawsuits and claims pending against the Corporation 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.
<PAGE>38
(17) Recent Accounting and Regulatory Pronouncements:
The Financial Accounting Standards Board, the Federal government and Federal
regulators have issued several pronouncements and legislation which are or will
be impacting the Corporation. These pronouncements are briefly discussed on page
27 of this report.
END PUBLISHED PAGE 19
(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.
<PAGE>39
Accrued interest payable 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.
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.
The estimated fair values of the Corporation's financial instruments at
December 31, 1995 and 1994 are summarized as follows:
December 31, 1995 1994
- -------------------------------------------------------------------------
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 $ 27,530,000 $ 27,530,000 $ 21,275,000 $ 21,275,000
instruments ============ ============ ============ ============
Securities $104,566,000 $106,076,000 $ 99,524,000 $ 97,080,000
============ ============ ============ ============
Loans $276,493,000 $261,807,000
Reserve for
possible loan (4,002,000) (3,832,000)
losses ------------ ------------
Net loans $272,491,000 $272,754,000 $257,975,000 $258,456,000
============ ============ ============ ============
Accrued interest,
accounts receivable
and other financial
assets $ 4,424,000 $ 4,424,000 $ 3,823,000 $ 3,823,000
============ ============ ============ ============
<PAGE>40
Financial liabilities:
Deposits:
Demand deposits,
savings accounts
and money market
deposits $219,610,000 $219,610,000 $228,191,000 $228,191,000
Certificates of 133,845,000 134,791,000 107,028,000 106,881,000
deposit ------------ ------------ ------------ ------------
Total deposits $353,455,000 $354,401,000 $335,219,000 $335,072,000
============ ============ ============ ============
Securities sold under
repurchase agree-
ments and other
short-term
borrowings 24,148,000 $ 24,148,000 $ 19,171,000 $ 19,171,000
repurchase ============ ============ ============ ============
Accrued interest
payable and
other financial $ 2,673,000 $ 2,673,000 $ 2,336,000 $ 2,336,000
liabilities ============ ============ ============ ============
END PUBLISHED PAGE 20
<PAGE>41
Report of Management
To The Shareholders of LNB Bancorp, Inc. January 16, 1996
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>42
Independent Auditors' Report
The Board of Directors
LNB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of LNB
Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the years in the three-year period ended December 31, 1995. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, 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
Cleveland, Ohio
January 16, 1996
END PUBLISHED PAGE 21
<PAGE>43
Management's Discussion and Analysis
Introduction:
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 1995 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 1995 net income reached a record high
of $5,003,000, compared to $4,432,000 in 1994 and $4,029,000 in 1993. Net
income for 1995 and 1994 was favorably affected by an increase in net interest
income and increased noninterest income. Net income in 1995 was favorably
affected by reductions in F.D.I.C. Deposit Insurance Premiums.
Earnings per share totaled $1.24 for 1995 compared to $1.10 for 1994 and
$1.00 for 1993. Prior period earnings per share data have been restated to
reflect the five-for-four stock splits in 1995 and 1993 and the 3% stock
dividend in 1994. The return on average assets increased to 1.21% in 1995 from
1.13% in 1994 and 1.08% in 1993.
Net Interest Income:
Net interest income, the difference between interest and loan fee income on
earnings assets and the interest paid on deposits and borrowed funds, is the
principal source of earnings for the Corporation. Throughout this discussion
net interest income is presented on a fully taxable equivalent (FTE) basis which
restates interest on tax-exempt securities and loans as if such interest was
subject to federal income tax at the statutory rate.
Net interest income is affected by market interest rates on both earnings
assets and interest bearing liabilities, the level of earning assets being
funded by interest bearing liabilities, non-interest bearing liabilities and
equity and the growth in earning assets. In addition, net interest income 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 economic conditions and credit demand.
A summary of the impacts of volume and rate changes on the Corporation's
net interest income is presented on the next page. Changes in net
interest income 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.
<PAGE>44
Net interest income in 1995 increased by $1,121,000 from $18,553,000 in 1994
to $19,674,000 in 1995. This increase was affected by increases in the
volume of interest-bearing assets and liabilities plus increases in market
interest rates. The cost of funds increased from 2.87% in 1994 to 3.71% in
1995, or a total of 84 basis points. During the same period, the yield on
earning assets increased 74 basis points to 8.19% in 1995, compared to 7.45% in
1994, resulting in a decrease in the interest spread by 10 basis points in
1995. The increase in net interest income resulted from increases in the volume
of earning assets, which were greater than the increases in the volume of
interest-bearing liabilities. Thus, net interest income increased from 1994 to
1995 from increases in interest rates and volumes.
Net interest income increased by $901,000 in 1994 from $17,652,000 in 1993 to
$18,553,000 in 1994. Net interest income in 1994 was affected by increases in
the volume of interest-bearing assets and liabilities plus increases in market
interest rates during the second half of 1994. 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
in 1994.
The net yield on earning assets in 1994 was 5.14% compared to 5.09% in
1994 and 5.10% in 1993. 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.
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 79.1% in 1994
to 79.4% in 1995.
Interest and dividends on securities and Federal funds sold, as a percentage
of total interest income, on a fully-tax equivalent basis, decreased from 20.9%
in 1994 to 20.6% in 1995. This decrease results from a lower average balance in
the security portfolio and Federal funds from 1994 to 1995, even though the
market rates on securities decreased from 1994 through 1995. The higher yield in
1995 of the security portfolio is the result of 1993 and some 1994 purchases of
securities with higher interest rates than those securities that matured in 1993
and 1994.
END PUBLISHED PAGE 22
<PAGE>45
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) Interest Rate and Interest Differential
December 31, 1995
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
----------------------------------------------
ASSETS:
Securities $ 97,242 $ 5,532 5.69%
Securities-tax exempt 8,025 623 7.76
Federal funds sold and other
interest-bearing instruments 5,143 300 5.83
Commercial loans 105,277 10,233 9.72
Commercial loans
tax-exempt 1,094 103 9.41
Mortgage loans 120,788 9,638 7.98
Consumer loans 44,852 4,881 10.88
----------------------------------------------
TOTAL EARNING ASSETS 382,421 31,310 8.19
----------------------------------------------
Reserve for possible loan losses (3,956)
Cash and due from banks 16,277
Other assets 17,060
----------------------------------------------
TOTAL ASSETS $411,802
----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Time deposits 199,038 8,636 4.34
Savings deposits 21,784 510 2.34
Interest-bearing demand 70,224 1,383 1.97
Short-term borrowings 22,864 1,107 4.84
----------------------------------------------
TOTAL INTEREST- 313,910 11,636 3.71
BEARING LIABILITIES ---------------------------------------------
Noninterest-bearing deposits 55,456
Other liabilities 3,113
Shareholders' equity 39,323
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $411,802
----------------------------------------------
NET INTEREST INCOME (FTE) $19,674
Taxable equivalent adjustment (199)
----------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $19,475
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.14%
----------------------------------------------
<PAGE>46
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) 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
Commercial loans 104,170 8,777 8.43
Commercial loans
tax-exempt 1,328 103 7.76
Mortgage loans 105,839 8,499 8.03
Consumer loans 41,008 4,077 9.94
----------------------------------------------
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:
Time deposits 172,764 5,589 3.24
Savings deposits 23,796 551 2.32
Interest bearing demand 79,408 1,621 2.04
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 (FTE) $18,553
Taxable equivalent adjustment (295)
----------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $18,258
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.09%
----------------------------------------------
<PAGE>47
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) 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
Commercial loans 99,893 7,771 7.78
Commercial loans tax-exempt 1,613 117 7.25
Mortgage loans 96,252 8,422 8.75
Consumer loans 39,913 3,965 9.93
----------------------------------------------
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:
Time deposits 168,259 5,652 3.36
Savings deposits 23,751 764 3.22
Interest-bearing demand 79,020 1,722 2.18
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(FTE) $17,652
Taxable equivalent adjustment (300)
----------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $17,352
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.10%
----------------------------------------------
<PAGE>48
Rate/Volume Analysis of Net Interest Income
Fully-Tax Equivalent
Years ended December 31, 1995 and 1994
- -------------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities $ 173 $ 846 $ 1,019
Securities-tax exempt (239) 3 (236)
Federal funds sold and
other interest-
bearing instruments (83) 86 3
Commercial loans 93 1,363 1,456
Commercial loans tax-exempt (18) 18 -0-
Mortgage loans 1,200 (61) 1,139
Consumer loans 382 422 804
---------------------------------------------
TOTAL INTEREST INCOME 1,508 2,677 4,185
---------------------------------------------
Time deposits 850 2,197 3,047
Savings deposits (47) 6 (41)
Interest-bearing demand (187) (51) (238)
Short-term borrowings (11) 307 296
---------------------------------------------
TOTAL INTEREST EXPENSE 605 2,459 3,064
---------------------------------------------
NET INTEREST INCOME $ 903 $ 218 $ 1,121
---------------------------------------------
<PAGE)49
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
Commercial loans 333 673 1,006
Commercial loans tax-exempt (21) 7 (14)
Mortgage loans 839 (762) 77
Consumer loans 109 3 112
---------------------------------------------
TOTAL INTEREST INCOME 1,505 (572) 933
---------------------------------------------
Time deposits 152 (215) (63)
Savings deposits 1 (214) (213)
Interest-bearing demand 8 (109) (101)
Short-term borrowings 197 212 409
---------------------------------------------
TOTAL INTEREST EXPENSE 358 (326) 32
---------------------------------------------
NET INTEREST INCOME $ 1,147 $ (246) $ 901
---------------------------------------------
END PUBLISHED PAGE 23
<PAGE>50
Results from Operations (continued):
The cost of interest-bearing liabilities in 1995 was $11,636,000 compared
to $8,572,000 and $8,540,000 in 1994 and 1993, respectively. The
unfavorable impact of increases in rates plus increases in volume caused
interest expense to increase from 1994 through 1995. Repricing of
interest-bearing liabilities from 1994 through 1995 resulted
in a significant net unfavorable change in interest expense during 1995. 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.
Total other income in 1995 increased to $4,287,000 compared to $4,134,000
in 1994 for an increase of $153,000. This increase primarily results from
increases from Trust Division income of $122,000, and service charges of
$60,000.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, exchanges and fees of
$195,000. The increase in other service charges, exchanges and fees 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 expenses increased 2.2% in 1995 compared to 1994 after a
4.4% increase for 1994 compared to 1993. A significant portion of the
increases in 1995 and 1994 were the result of the effects of inflation on
salaries and benefits plus increases in furniture and equipment expenses.
Total other expenses in 1995 were also affected by decreases in FDIC Deposit
Insurance Premiums.
The effective tax rate of the Corporation was 31.8%, 29.8%, and 31.1% in
1995, 1994, and 1993, respectively. The increase in the effective tax rate
in 1995 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 16.
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 1995, 1994 and 1993 is presented
on page 28. There were no significant intra-quarter fluctuations except
for fourth quarter increases in other income in 1994 and 1995. The
increase in other income reflects the realization of annual Trust Division
billings which are based on year-end market values.
<PAGE>51
Provision and Reserve for Possible Loan Losses
The reserve for possible loan losses is maintained by management at a level
considered adequate to cover possible losses. The amount of the provision for
possible loan losses charged to operating expenses is the amount necessary, in
the opinion of management, to maintain the reserve for possible loan losses at
an adequate level. Management determines the adequacy of the reserve based on
past experience, changes in portfolio size and mix, relative quality of the loan
portfolio and the rate of loan growth, assessments of current and future
economic conditions, information about specific borrower situations, including
their financial position and collateral values, and other factors and estimates,
which are subject to change over time. While management's periodic analysis of
the reserve for possible loan losses may dictate portions of the reserve be
allocated to specific problem loans, the entire amount is available for any loan
charge-offs that may occur.
The reserve for loan losses on December 31, 1995, was $4,002,000, or 1.45% of
outstanding loans, compared to $3,832,000, or 1.46% at year-end 1994.
The provision for possible loan losses charged to operating expense was
$400,000 in 1995 and 1994. In addition to meeting management's expectations for
adequacy, this level of funding for the reserve also kept the Bank's ratio of
reserve as a percentage of outstanding loans comparable to that of bank's of
similar size, loan portfolio size and mix and credit philosophies.
Net charge-offs for 1995 were $230,000, as compared to $282,000 for 1994,
while charge-offs as a percentage of average loans outstanding for 1995 was
0.08%, compared to 0.11% for 1994.
Non-performing loans at year-end 1995 were $1,457,000 compared to $737,000 at
year-end 1994. Non-performing loans consist of loans past due 90 days or more
and loans which have been placed on non-accrual status. As of December 31,
1995, 29% of non-performing loans were Commercial Loans and 71% were Residential
Mortgage Loans. This compares to 42.0% and 58%, respectively for the same
categories at year-end 1994. Non-performing loans did not have a material
impact on interest income during 1993, 1994 or 1995. The quality of the loan
portfolio remains fairly high, even though the ratio of non-performing loans to
total loans increased from .28% at year-end 1994 to 0.53% at year-end 1995.
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, 1995, there were no significant
concentrations of credit risk in the loan portfolio. Additional information
regarding the loan portfolio is presented on page 13.
END PUBLISHED PAGE 24
<PAGE>52
Financial Condition:
The earning assets mix has changed considerably from December 31, 1994
to December 31, 1995. During this period, loans increased by $14,686,000
and securities increased by $5,042,000. Increases in loans are primarily funded
by growth in deposits, current retained earnings, and reductions in Federal
funds sold. The economy showed moderate growth during 1995 which stimulated loan
demand.
The maturity distribution of debt securities which appears on page 12 of this
report, indicates that $100,323,000, or 96.3%, of debt securities mature within
the next five year period with $35,383,000, or 34.0% maturing during 1996. At
the close of 1994 and 1993 there were no significant differences between the
book and fair values of the debt securities portfolio. The fair value of the
debt securities portfolio exceeded its amortized cost by $1,530,000 or 1.5%, at
the close of 1995.
Total deposits held by the Corporation increased $18,236,000 during 1995
compared to an increase of $ 14,207,000 during 1994. Interest-bearing
deposits represented 83.0% of total deposits at December 31, 1995 and 1994,
Noninterest-bearing deposits increased by $3,067,000 while interest-bearing
deposits increased by $15,169,000 during 1995. During 1994, noninterest-bearing
deposits increased by $6,855,000 while interest-bearing deposits increased by
$7,352,000. In both 1995 and 1994, 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, increased by
$4,977,000 during 1995, following a decrease of $229,000 in 1994. 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.
Capital Resources:
The capital resources of the Corporation and the Bank continue to grow
stronger. The percentages of average equity to average assets were 9.55%,
9.31%, and 9.11% for 1995, 1994, and 1993, 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 gain (loss) on securities available for sale 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.
<PAGE>53
The Corporation exceeds all applicable capital requirements. An analysis
of the Corporation's risk-based capital position at December 31, 1995 and
1994 follows:
December 31, 1995 1994
- -------------------------------------------------------------------------
Tier I capital -
Shareholders' equity $ 40,749 $ 37,643
Tier II capital -
Allowable portion of the reserve
for possible loan losses 2,857 2,735
---------- ----------
Total risk-based capital $ 43,606 $ 40,378
---------- ----------
Risk-weighted assets $228,578 $218,819
Risk weighted off-balance
sheet assets 13,783 12,699
---------- ----------
Total risk-weighted assets $242,361 $231,518
---------- ----------
Tier I capital ratio 16.81% 16.26%
Required Tier I capital ratio 4.00 4.00
Total capital ratio 17.99 17.44
Required capital ratio 8.00 8.00
Leverage ratio - Tier I capital
as a percentage of average assets 9.89 9.62
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 43.5%, 43.0% and 42.8% in 1995, 1994 and
1993, respectively.
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
$1,600,000 are planned in 1996.
END PUBLISHED PAGE 25
<PAGE>54
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 income. 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 income.
<PAGE>55
The table below presents an analysis of the interest rate sensitivity of
the Corporation at December 31, 1995. 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, 1995 the Corporation's cumulative
twelve month gap position 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, 1995 Months 6 Months 1 Year
- --------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning
assets:
Loans $ 129,550 $ 19,993 $ 29,608
Securities 6,926 10,175 18,283
Federal funds
sold and other
interest-bearing
assets -0- 102 -0-
-------------------------------------------------------
Total interest
earning assets $ 136,476 30,270 47,891
-------------------------------------------------------
Interest-bearing
liabilities:
Savings and other
non-time deposits 69,851 4,936 -0-
Time deposits 46,675 36,045 20,957
Short-term
borrowings and
other interest
bearing
liabilities 24,148 -0- -0-
-------------------------------------------------------
Total interest
bearing
liabilities 140,674 40,981 20,957
-------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP $ (4,198) $ (10,711) $ 26,934
------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY $ (4,198) $ (14,909) $ 12,025
GAP
-------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP AS A PERCENTAGE
OF TOTAL INTEREST
EARNING ASSETS (1.10%) (3.91%) 3.15%
-------------------------------------------------------
<PAGE>56
After 1
Year But
Within After 5
December 31, 1995 5 Year Years Total
- --------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning
assets:
Loans $ 89,846 $ 7,496 $ 276,493
Securities 65,332 3,850 104,566
Federal funds
sold and other
interest-bearing
assets -0- -0- 102
-------------------------------------------------------
Total interest
earning assets 155,178 11,346 381,161
-------------------------------------------------------
Interest-bearing
liabilities:
Savings and other
non-time deposits 84,660 -0- 159,447
Time deposits 30,168 -0- 133,845
Short-term
borrowings and
other interest
bearing
liabilities -0- -0- 24,148
-------------------------------------------------------
Total interest-
bearing
liabilities 114,828 -0- 317,440
-------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP $ 40,350 $ 11,346 $ 63,721
------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP $ 52,375 $ 63,721
-------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP AS A PERCENTAGE
OF TOTAL INTEREST
EARNING ASSETS 13.74% 16.72%
-------------------------------------------------------
Liquidity Management:
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>57
On December 31, 1995, cash and cash equivalents equaled $27,530,000 or
6.5% 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 adjustments to reconcile 1995 net income to net cash provided by
operating activities primarily consists of depreciation and amortization
of $1,473,000 and a provision of possible loan losses of $400,000. These items
represent 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 $22,228,000. Cash used in investing activities resulted from net
increases in securities of $4,864,000. Cash used in investing activities
included net loan increases of $15,088,000 and purchases of capital assets of
$2,276,000.
Net cash provided by financing activities was $21,438,000. Cash provided by
financing activities included increases in deposits of $18,236,000, increases in
securities sold under repurchase agreements of $4,997,000 and proceeds from
stock options exercised of $278,000. Cash used by financing activities
primarily included dividends paid of $2,073,000. These cash flows resulted in a
$6,255,000 increase in cash and cash equivalents from December 31, 1994 to
December 31, 1995.
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.
<PAGE>58
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. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of"
Implementation date by the Corporation: January 1, 1996
Impact on the Corporation: This Statement establishes accounting standards for
the impairment of long-lived assets. Corporate management does not believe that
adoption of SFAS No. 121 will have a significant impact on net income.
SFAS No. 123, "Accounting for Stock Based Compensation"
Implementation date by the Corporation: January 1, 1996
Impact on the Corporation: This Statement provides elective accounting
for stock-based employee compensation arrangements using a fair value
model. Companies currently accounting for such arrangements under APB Opinion
25 "Accounting for Stock Issued to Employees," may continue to do so: however,
SFAS No. 123 supersedes the disclosure requirements of Opinion 25. Corporate
management does not believe that adoption of SFAS No. 123 will have a
significant impact on net income, but will increase disclosure requirements for
stock based compensation.
All other applicable Statements of Financial Accounting Standards that
have been issued and have effective dates impacting 1995 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.
<PAGE>59
Significant actions by the Federal government and its agencies, affecting
the financial institutions industry in general, are currently having and
will continue to have an impact on the Corporation. A discussion of these
actions follows:
"Omnibus Budget Reconciliation Act of 1993"
Effective date of impact on the Corporation: August 10, 1993
Impact on the Corporation: Although the cost of tax compliance will
increase, Corporate management does not anticipate that this tax act will
have a material impact on net income.
"The President's Reform Plan for the Savings and Loan
Industry" and subsequent action by the FDIC:
Effective date (direct impact on the Corporation):
January 1, 1990
Impact on the Corporation: During 1993, a risk-related assessment system was
developed by the Federal Deposit Insurance Corporation. Effective, January 1,
1993, the Bank was assigned to the lowest deposit insurance assessment rate
currently possible. Under the system, the FDIC will reevaluate the Bank's
deposit insurance rate on a semi-annual basis. The Corporation's subsidiary
Bank will have a significantly lower deposit insurance assessment rate for
the second half of 1995. The FDIC has approved a new rate schedule due to the
fact that the Bank Insurance Fund (BIF) has reached its designated reserve
ratio. The new rates became effective September 15, 1995 and are applied
retroactive to June 1, 1995. June is the month following the month in which
the BIF reached the 1.25 percent reserve ratio mandated by the Federal Deposit
Insurance Corporation Improvement Act (FDICIA).
During the third quarter of 1995, the Bank received a refund for second and
third quarter FDIC Insurance Premiums totalling about $207,000. The Bank was
assigned to the lowest deposit insurance assessment rate under the September, 15
1995 guidelines.
END PUBLISHED PAGE 27
<PAGE>60
Selected Quarterly Financial Data
Quarterly financial and per share data for the years ended December 31,
1995, 1994 and 1993 are summarized as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
Total interest income 1995 $7,346,000 $7,789,000 $7,900,000 $8,076,000
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
- --------------------------------------------------------------------------
Total interest expense 1995 2,716,000 2,992,000 2,932,000 2,996,000
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
- --------------------------------------------------------------------------
Net interest income 1995 4,360,000 4,797,000 4,968,000 5,080,000
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
- --------------------------------------------------------------------------
Provision for possible 1995 100,000 100,000 100,000 100,000
loan losses 1994 100,000 100,000 100,000 100,000
1993 150,000 100,000 125,000 125,000
- --------------------------------------------------------------------------
Net interest income 1995 4,530,000 4,697,000 4,868,000 4,980,000
after provision for 1994 4,169,000 4,408,000 4,625,000 4,656,000
possible loan losses 1993 4,125,000 4,206,000 4,248,000 4,273,000
- --------------------------------------------------------------------------
Other income 1995 1,078,000 1,005,000 1,089,000 1,115,000
1994 929,000 1,033,000 1,060,000 1,112,000
1993 918,000 1,052,000 1,009,000 1,030,000
- --------------------------------------------------------------------------
Other expenses, 1995 4,521,000 4,524,000 4,648,000 4,666,000
including Federal 1994 4,064,000 4,360,000 4,552,000 4,584,000
income taxes 1993 4,041,000 4,276,000 4,237,000 4,278,000
- --------------------------------------------------------------------------
Net income 1995 $1,087,000 $1,178,000 $1,309,000 $1,429,000
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
- --------------------------------------------------------------------------
Net income per share 1995 $ .27 $ .29 $ .33 $ .35
1994 .26 .27 .28 .30
1993 .25 .25 .25 .26
- --------------------------------------------------------------------------
Dividends paid per
share (1) 1995 $ .12 $ .12 $ .14 $ .16
1994 .11 .11 .12 .14
1993 .10 .10 .11 .13
- --------------------------------------------------------------------------
(1) All share and per share data have been adjusted to reflect the five-
for-four stock splits in 1993 and 1995, and 3 percent stock dividends in
all other years presented.
END PUBLISHED PAGE 28
<PAGE>61
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1995 1994 1993
- --------------------------------------------------------------------------
Total interest income $31,111,000 $26,830,000 $25,892,000
Total interest expense 11,636,000 8,572,000 8,540,000
---------------------------------------------
Net interest income 19,475,000 18,258,000 17,352,000
Provision for possible
loan losses 400,000 400,000 500,000
Other income 4,287,000 4,064,000 3,818,000
Gains from sales
of loans and securities -0- 70,000 191,000
Other expense 16,023,000 15,679,000 15,017,000
---------------------------------------------
Income before Federal
income taxes 7,339,000 6,313,000 5,844,000
Federal income taxes 2,336,000 1,881,000 1,815,000
---------------------------------------------
NET INCOME $ 5,003,000 $ 4,432,000 $ 4,029,000
---------------------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31,
1995 1994 1993
- --------------------------------------------------------------------------
Cash and cash equivalents $ 27,530,000 $ 21,275,000 $ 21,276,000
Securities 104,566,000 99,524,000 103,086,000
Net loans 272,491,000 257,975,000 242,043,000
Other assets 17,016,000 16,081,000 13,211,000
---------------------------------------------
TOTAL ASSETS $421,603,000 $394,855,000 $379,616,000
---------------------------------------------
Total deposits $353,455,000 $335,219,000 $321,012,000
Other borrowings 24,148,000 19,171,000 19,400,000
Other liabilities 3,209,000 2,954,000 4,144,000
---------------------------------------------
Total liabilities 380,812,000 357,344,000 344,556,000
---------------------------------------------
Total shareholders' equity 40,791,000 37,511,000 35,060,000
---------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $421,603,000 $394,855,000 $379,616,000
---------------------------------------------
SHARE DATA
1995 1994 1993
- --------------------------------------------------------------------------
Per share data (1):
Net income (2) $ 1.24 $ 1.10 $ 1.00
Cash dividends $ .54 $ .48 $ .44
Cash dividends declared $2,175,000 $1,905,000 $1,725,000
Net increase in
shareholders' equity $3,280,000 $2,451,000 $ 2,508,000
Book value per share (1) $10.10 $ 9.38 $ 8.79
Number of shares out-
standing at end of year (1) 4,039,347 4,000,068 3,988,360
- --------------------------------------------------------------------------
<PAGE>62
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1992 1991
- --------------------------------------------------------------------------
Total interest income $27,465,000 $30,080,000
Total interest expense 10,223,000 14,087,000
------------------------------
Net interest income 17,242,000 15,993,000
Provision for possible
loan losses 700,000 600,000
Other income 3,605,000 3,612,000
Gains from sales of loans
and securities 14,000 -0-
Other expense 14,785,000 14,164,000
------------------------------
Income before Federal
income taxes 5,376,000 4,841,000
Federal income taxes 1,550,000 1,329,000
------------------------------
NET INCOME $ 3,826,000 $ 3,512,000
------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31, 1992 1991
- --------------------------------------------------------------------------
Cash and cash equivalents $32,728,000 $24,060,000
Securities 96,631,000 95,600,000
Net loans 230,364,000 220,458,000
Other assets 12,503,000 11,611,000
------------------------------
TOTAL ASSETS $372,226,000 $351,729,000
------------------------------
Total deposits $317,730,000 $301,953,000
Other borrowings 18,861,000 16,509,000
Other liabilities 3,083,000 3,129,000
------------------------------
Total liabilities 339,674,000 321,591,000
------------------------------
Total shareholders' equity 32,552,000 30,138,000
------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $372,226,000 $351,729,000
------------------------------
SHARE DATA 1992 1991
- --------------------------------------------------------------------------
Per share data (1):
Net income (2) $ .97 $ .88
Cash dividends $ .39 $ .36
Cash dividends declared $ 1,555,000 $ 1,404,000
Net increase in
shareholders' equity $ 2,414,000 $ 2,280,000
Book value per share (1) $ 8.24 $7.68
Number of shares out-
standing at end of year (1) 3,949,414 3,922,754
- --------------------------------------------------------------------------
<PAGE>63
(1) All share and per share data have been adjusted to reflect the five-
for-four stock splits in 1993 and 1995 and 3 percent stock dividends in all
other years presented.
(2) Net income per share is computed using the weighted average number of shares
outstanding during each year.
END PUBLISHED PAGE 29
<PAGE>63
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. and
Lorain National Bank
David M. Koethe
Chairman of the Board
The Lorain Printing Company
Benjamin G. Norton
Employee and Community
Relations Manager
RelTec Corporation - Lorain Products
Stanley G. Pijor
Chairman and
Chief Executive Officer
LNB Bancorp, Inc. and
Lorain National Bank
James H. Riddell*
Chairman of the Board
Consumers Builders Supply Company
President, Consumeracq, Inc.
* Retired as a Director in November 1995
Jeffrey F. Riddell
President
Consumers Builders Supply Company
Vice President and Chief Executive Officer,
Consumeracq, Inc.
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
LNB Bancorp, Inc.
Executive Vice President
and Secretary
Lorain National Bank
<PAGE>64
Don A. Sanborn
Retired
T. L. Smith, M.D.
Retired Physician
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
Gregory D. Friedman
Senior Vice President and
Chief Financial Officer
Willard H. DoBrunz
Senior Vice President
Michael D. Ireland
Senior Vice President
Emma N. Mason
Senior Vice President
James H. Weber
Senior Vice President
END PUBLISHED PAGE 30
<PAGE>65
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
Teresa E. Kreger
Employment Officer
James E. Long
Assistant Vice President
Susan I. Tuttle
Assistant Cashier
Marianne Kocak
Assistant Vice President
Robert J. Witkowski
Maintenance Officer
Teresa E. George
Assistant Cashier
Audit Division
David P. Krebs
Vice President
Gary W. Sedlak
Assistant Vice President
and Compliance Officer
Carol A. Cavanaugh
Senior Staff Auditor
Dan P. Dudziak
Senior Staff Auditor
<PAGE>66
Randy E. Lottman
E.D.P. Auditor
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
Vice President
Joan M. Raymond
Assistant Vice President
Karen L. Borer
Assistant Vice President
Denise M. Kosakowski
Assistant Vice President
John A. Funderberg
Assistant Vice President
Robert D. Asik
Consumer Retail Officer
Fiscal Division
Gregory D. Friedman
Senior Vice President and
Chief Financial Officer
Mitchell J. Fallis
Vice President
and Controller
Marketing Division
Steven F. Cooper
Assistant Vice President
<PAGE>67
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
<PAGE>68
Banking Offices
Amherst Office
G. Dale Rosenkranz
Vice President
Fred W. Zemanek
Assistant Cashier
Avon Lake Office
Charles A. DeAngelis
Assistant Vice President
Cleveland Street Office
Timothy J. Gallagher
Vice President
Kansas Avenue Office
Connie Sklarek
Branch Manager
Lake Avenue Office
Christine M. Weber
Assistant Cashier
Main Office & 6th St. Drive-In
Joel A. Krueck
Assistant Vice President
and CRA Officer
Rita M. Hoyt
Assistant Branch Manager
Oberlin Office & Kendal at Oberlin
Marilyn R. Krasienko
Assistant Vice President
Olmsted Office
Diana L. Schmittgen
Assistant Cashier
Pearl Avenue Office
Keith H. Kapanke
Assistant Cashier
Plaza Office & Oberlin Ave. Drive-In
Jennifer M. Nickolls
Assistant Vice President
Second Street Office
James E. Schmittgen
Assistant Vice President
Vermilion Office
Robert B. White
Assistant Vice President
<PAGE>69
The Crossings of Westlake Office
Susan M. Neiding
Vice President
West Park Drive Office
Patricia A. Wolanczyk
Branch Manager
END PUBLISHED PAGE 31
<PAGE>70
EARNINGS AND STOCK PERFORMANCE
10 Year Earnings History
(10 Year Earnings History graph follows in printed version with years 1986
through 1995 on the X-axis and earnings on the Y-axis in $1,000,000.00
increments ranging from $0 to $5,000,000.00. The graph is a horizontal bar
graph. The co-ordinates, by year, which are presented in the table below are
plotted on the previously described grid along with an accompanying legend for
indentification purposes.)
The graph above depicts the earnings history of LNB Bancorp, Inc. from 1986
through 1995.
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, 1985 - Cost: $2,000.00
378 Shares Currently Held December 31, 1995 - Market Value: $10,395.00
(Market Value of Cumulative Shares graph follows in printed version with years
1986 through 1995 on the X-axis and market values on the Y-axis in $2,500.00
increments ranging from $0 to $12,500.00. The graph is a horizontal bar graph.
The co-ordinates, by year, which are presented in the table below are plotted on
the previously described grid along with an accompanying legend for
identification purposes.)
Cumulative Cash Dividends Declared
Total Cash Dividends Declared 1986 - 1995: $1,356.21
(Cumulative Cash Dividends Declared graph follows in printed version with years
1986 through 1995 on the X-axis and Dividends Declared on the Y-axis in $300.00
increments ranging from $0 to $1,500.00. The graph is horizontal bar graph. The
co-ordinates, by year, which are presented in the table below are plotted on the
previously described grid along with an accompanying legend for identification
purposes.)
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 $20.00 per share in
1985:
Total market value..........................$2,000.00
Through three stock splits and several stock dividends over the years, the
shareholder in this example now owns 378 shares of LNB Bancorp, Inc. stock
with a market value of $27.50 per share as of December 31, 1995.
Total market value.........................$10,395.00
<PAGE>71
In addition, our hypothetical shareholder would have benefited from the
cash dividends declared on the stock.
Cumulative cash dividends declared ........ $1,356.21
(The data points used to plot the three (3) graphs previously described follows:
NET INCOME CUMMULATIVE CUMULATIVE
YEAR IN THOUSANDS MARKET VALUE CASH DIVIDENDS
1995 $5,003,000.00 $10,395.00 $1,356.21
1994 $4,432,000.00 $ 9,127.88 $1,152.09
1993 $4,029,000.00 $ 7,953.75 $ 970.29
1992 $3,826,000.00 $ 6,431.00 $ 805.09
1991 $3,512,000.00 $ 5,807.50 $ 655.09
1990 $3,343,000.00 $ 5,320.00 $ 518.03
1989 $3,217,000.00 $ 4,414.50 $ 392.59
1988 $2,881,000.00 $ 3,815.00 $ 277.05
1987 $2,562,000.00 $ 3,233.00 $ 173.50
1986 $2,407,000.00 $ 2,729.50 $ 84.46)
END PUBLISHED PAGE 32
<PAGE>72
HALF PAGE INSERT FRONT SIDE
Please detach postage-paid card(s) and return through U.S. Mail or to a Lorain
National Bank office near you.
Two cards reading as follows:
To:
James F. Kidd
President and Chief Executive Officer
LNB Bancorp, Inc.
457 Broadway, Lorain Ohio 44052
Yes, I am interested in acquiring LNB Bancorp, Inc., stock and would like to be
contacted by a stock broker when a stock purchase opportunity arises.
Name
Address
City State Zip Phone
Number of Shares Requested
HALF PAGE INSERT BACK SIDE
Two postage paid postcards reading as follows:
Lorain National Bank
Attn: James F. Kidd
457 Broadway
Lorain Oh 44052-9986
<PAGE>73
COVER DESCRIPTION
Inside Back Cover
CUSTOMER SERVICE LOCATIONS
Bank Offices
Amherst Office
1175 Cleveland Avenue
Amherst, Ohio
(216) 988-4423
Avon Lake Office
240 Miller Road
Avon Lake, Ohio
(216) 933-2186
Cleveland Street Office
801 Cleveland Street
Elyria, Ohio
(216) 365-8397
Kansas Avenue Office
1604 Kansas Avenue
Lorain, Ohio
(216) 288-9151
Lake Avenue Office
42935 E. North Ridge Road
Elyria, Ohio
(216) 233-7196
Main Office *
457 Broadway
Lorain, Ohio
(216) 244-7185
Sixth Street Drive-In
200 Sixth Street
Lorain, Ohio
(216) 244-7242
Oberlin Office
40 East College Street
Oberlin, Ohio
(216) 775-1361
Kendal at Oberlin Office
600 Kendal Drive
Oberlin, Ohio
(216) 774-5400
Olmsted Office
27095 Bagley Road
Olmsted Twp., Ohio
(216) 235-4600
<PAGE>74
Pearl Avenue Office
2850 Pearl Avenue
Lorain, Ohio
(216) 277-1103
Plaza Office**
1147 Meister Road
Lorain, Ohio
(216) 282-9196
W. 37th and Oberlin Avenue**
Drive-In
3660 Oberlin Avenue
Lorain, Ohio
(216) 282-9196
Second Street Office
221 Second Street
Elyria, Ohio
(216) 323-4621
Vermilion Office
4455 Liberty Avenue
Vermilion, Ohio
(216) 967-3124
The Crossings of Westlake Office
30210 Detroit Road
Westlake, Ohio
(216) 892-9696
West Park Drive Office
2130 West Park Drive
Lorain, Ohio
(216) 989-3131
<PAGE>75
Community-Based Automated Teller
Machine Locations
Convenient Food Mart
Cash Machine
5375 West Erie Avenue
Lorain, Ohio
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.
**Plaza Office will be relocated to W. 37th & Oberlin Avenue in May 1996.
Outside back cover
Dark green background
LNB
Bancorp, Inc.
Beige lettering
END OF PUBLISHED LNB BANCORP, INC. 1995 ANNUAL REPORT
