SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file
December 31, 1996 number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its Charter)
Ohio 34-1406303
(State of incorporation) (I.R.S. Employer Identification No.)
457 Broadway, Lorain, Ohio 44052-1769
(Address of principal executive offices) (Zip Code)
(216) 244 - 6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, Par Value $1.00 NASDAQ - OTC
Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at February 28, 1997 was approximately $85,563.000.
The number of shares of Registrant's Common Stock outstanding on
February 28, 1997 was 4,138,533.
Portions of the 1996 Annual Report to Stockholders of Registrant are
incorporated in Parts I, II, III and IV of this report. Portions of the
Proxy Statement of Registrant dated March 17, 1997 are incorporated in
Part III of this report.
<PAGE>1
LNB Bancorp, Inc.
Form 10-K Report
Table of Contents
1996
Page
PART I
Item 1 Business
a. General Development of Business 2
b. Financial Information About Industry
Segments 2
c. Description of LNB Bancorp, Inc.'s Business 3
d. Financial Information About Foreign and
Domestic Operations and Export Sales 5
e. Statistical Disclosure by Bank Holding
Companies 6
I. Distribution of Assets, Liabilities
and Shareholders' Equity: Interest Rates
and Interest Differential 6
II. Investment Portfolio 6
III. Loan Portfolio 9
IV. Summary of Loan Loss Experience 12
V. Deposits 14
VI. Return on Equity and Assets 15
VII. Short-Term Borrowings 16
Item 2 Properties 16
Item 3 Legal Proceedings 17
Item 4 Submission to Matters to a Vote of Shareholders 17
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 18
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8 Financial Statements and Supplementary Data 19
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10 Directors and Executive Officers of the Registrant 20
Item 11 Executive Compensation 20
Item 12 Security Ownership of Certain Beneficial Owners
and Management 20
Item 13 Certain Relationships and Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 25
<PAGE>2
PART 1
ITEM 1 - BUSINESS
a) GENERAL DEVELOPMENT OF BUSINESS
LNB Bancorp, Inc. (the Corporation), a bank holding company, was
incorporated on October 11, 1983 under the laws of the State of Ohio at
the direction of the Board of Directors of The Lorain National Bank (the
Bank), a national banking association, for the purpose of acquiring all
the outstanding common stock of the Bank. At a special meeting of the
shareholders of the Bank, held on February 28, 1984, the shareholders
approved the Plan of Reorganization, involving the merger of the Bank into
the Lorain Interim Association, a national banking corporation,
incorporated solely for the purpose of effecting the Reorganization Plan.
Lorain Interim was a wholly-owned subsidiary of the Corporation.
Upon the consummation of the merger on March 30, 1984, under the Plan of
Reorganization, the business of the Bank is conducted by the merged Bank
under the name "The Lorain National Bank". Each outstanding share of
common stock of the Bank, par value $2.50, was converted into one share of
the Bancorp stock, par value $2.50. A total of 904,570 shares of corporate
stock were issued at the effective date of the merger. On April 18, 1989,
the shareholders of the Corporation approved a two-for-one stock split, which
reduced the par value to $1.25. On April 20, 1993, the shareholders of the
Corporation approved a five-for-four stock split, which reduced the par value to
$1.00.
On April 18, 1995, the Corporation's Shareholders approved an amendment to the
Articles of Incorporation to increase the authorized number of shares of Common
Stock from 4,000,000 to 5,000,000 and fix the par value of Common Stock at $1.00
per share to allow for a five-for-four stock split.
On April 18, 1995, the Corporation's Board of Directors authorized a five-for-
four stock split in the form of a 25 percent stock dividend. The stock split
increased the number of shares outstanding by 802,692. Also, Common Stock has
been increased by $802,692 with an offsetting reduction to additional capital to
reflect the fixed $1.00 par value per share for each additional share issued
pursuant to the stock split.
LNB Bancorp, Inc. has broader corporate powers than the Bank. These corporate
powers principally include the power to engage in certain non-banking businesses
closely related to banking, to own capital stock of banks located in Ohio and
certain other states and to own capital stock of business corporations (other
than banks) located within or outside Ohio. The Corporation has no present plans
to engage in any non-banking activities or to acquire companies engaged in such
activities.
b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Corporation and the Bank are engaged in commercial and retail banking.
Reference is hereby made to Item 1e., Statistical Disclosure by Bank
Holding Companies, and to Item 8 of this Form 10-K for financial information
pertaining to the Corporation's business.
<PAGE>3
c) DESCRIPTION OF LNB BANCORP, INC.'S BUSINESS
LNB Bancorp, Inc. is a $438 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 sixteen banking offices in Lorain, Elyria,
Amherst, Avon Lake, Oberlin, Olmsted Township, Vermilion and Westlake.
The Bank is a full service bank offering a wide range of commercial and
personal banking services. These services include checking accounts,
savings accounts, certificates of deposit, IRA's, Fortune Fifty (a Senior
Citizen program), Keogh plans, commercial loans, real estate loans,
installment loans, home equity loans, Small Business Administration loans,
Visa card, student loans, safe deposit boxes, night depository, U. S.
savings bonds, travelers' checks, money orders, cashiers checks,
bank-by-mail, automatic teller machine cash and transaction services, wire
transfers, electronic funds transfer, utility bill collections, computer
services, notary public service, personal computer based cash management
service, 24 hour telephone banking with bill paying service, and discount
brokerage services.
The Trust and Investment Management Division of the Bank performs complete trust
administrative functions and offers agency and trust services to individuals,
partnerships, corporations, institutions and municipalities.
The Bank is not dependent upon any one significant customer or specific
industry. The business of the Corporation is not seasonal to any material
degree.
In the opinion of management, LNB Bancorp, Inc. does not have exposure to
material costs associated with environmental hazardous waste clean up.
Competition
The banking business is and will continue to be highly competitive. The
Lorain National Bank competes with seven other banks and bank holding companies
operating in Lorain County which range in size from approximately $438 million
to over $102 billion in assets. Other competition comes primarily from savings
and loans, credit unions, and other financial intermediaries operating in Lorain
County and counties adjacent to it. The Bank's market share of total deposits in
Lorain County in all types of financial institutions was approximately 12.77%
and 11.91% in 1996 and 1995, respectively.
Supervision and Regulation
The Corporation, as a bank holding company, is regulated under the Bank
Holding Company Act of 1956, as amended (the Act), and is subject to the
supervision and examination of the Board of Governors of the Federal Reserve
System (the Federal Reserve Board). Generally, the Act limits the business of
bank holding companies to banking, managing or controlling banks, performing
certain servicing activities for subsidiaries and engaging in such other
activities as the Federal Reserve Board may determine to be closely related to
banking and a proper incident thereto.
<PAGE>4
The Act requires the prior approval of the Federal Reserve Board for a bank
holding company to acquire or hold more than a 5% voting interest in any bank
and restricts interstate banking activities. The Act does not place territorial
restrictions on the banking subsidiaries of bank holding companies. The
Corporation's banking subsidiary is subject to limitations with respect to
intercompany loans and investments.
The Corporation and the Bank are subject to an extensive scheme of banking laws
and regulations that are intended primarily for the protection of the customers
and depositors of the Corporation's subsidiaries rather than holders of the
Corporation's securities. These laws and regulations govern such areas as
permissible activities, loans and investments, rates of interest that can be
charged on loans and reserves. The Corporation and the Bank also are subject to
general U.S. federal laws and regulations and to the laws and regulations of the
State of Ohio. Set forth below are brief descriptions of selected laws and
regulations applicable to the Corporation and the Bank.
A substantial portion of the Corporation's cash revenues is derived from
dividends paid by its subsidiary bank. These dividends are subject to various
legal and regulatory restrictions as summarized in Note(10) on page 16 of the
LNB Bancorp, Inc. 1996 Annual Report. This note is incorporated herein by
reference.
The Bank is subject to the provisions of the National Bank Act. The Bank is
subject to primary supervision, regulation and examination by the Office of the
Comptroller of the Currency (OCC). The Bank is also subject to the rules and
regulations of the Board of Governors of the Federal Reserve System and the
Federal Deposit Insurance Corporation (FDIC). Under the Act, as amended, and
under Regulations of the Federal Reserve Board pursuant thereto, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with the extension of credit.
The Corporation and its subsidiary bank are also subject to the state banking
laws of Ohio. Ohio adopted nationwide reciprocal interstate banking effective
October, 1988. However, banking laws of other states may restrict branching of
banks to other counties within the state and acquisition or merger involving
banks and bank holding companies located in other states.
Federal regulators adopted risk-based capital guidelines and leverage standards
for banks and bank holding companies. A discussion of the impact of risk-based
capital guidelines and leverage standards is presented on page 16 of the LNB
Bancorp, Inc. 1996 Annual Report and is incorporated herein by reference.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company and its controlled insured depository institutions are
liable for any loss incurred by the Federal Deposit Insurance Corporation after
the date of enactment of FIRREA and incurred in connection with the default
involving any affiliated insured bank or savings association or the default of
any FDIC assisted transaction involving an affiliated insured bank or savings
association.
<PAGE>5
On December 19, 1991, the President signed the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA) which covers an expanse of
banking regulatory issues. FDICIA deals with the recapitalization of the
Bank Insurance Fund, with deposit insurance reform including requiring the
FDIC to establish a risk-based premium assessment system with a number of
other regulatory and supervisory matters. Under current FDIC practices, the
Bank will not be required to pay deposit insurance premiums during 1997.
However, The Bank will be required to make payments for the servicing of
obligations of the Financing Corporation ("FICO") issued in connection with the
resolution of savings and loan associations, so long as such obligations remain
outstanding.
Noncompliance to laws and regulations by bank holding companies and banks can
lead to monetary penalties and/or an increased level of supervision or a
combination of these two items. Management is not aware of any current
instances of noncompliance to laws and regulations and does not anticipate any
problems maintaining compliance on a prospective basis. Recent regulatory
inspections and examinations of the Bancorp and the Bank have not disclosed any
significant instances of noncompliance. The minor instances of noncompliance
detected during these inspections and examinations were promptly corrected by
management and no action was taken by the regulators against the Corporation or
the Bank.
The earnings and growth of LNB Bancorp, Inc. are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government and its agencies, particularly the Federal Reserve Board. Its
policies influence the amount of bank loans and deposits and the interest rates
charged and paid thereon, and thus have an effect on earnings. The nature of
future monetary policies and the effect of such policies on the future business
and earnings of the Corporation and its subsidiary bank cannot be predicted.
The discussion of "Impacts of Accounting and Regulatory Pronouncements" is
incorporated herein by reference to page 27 of the LNB Bancorp, Inc. 1996 Annual
Report.
Employees
As of December 31, 1996, the Corporation and the Bank employed 218 full-time
employees and 67 part-time employees. The Corporation is not a party to any
collective bargaining agreement. Management considers its relationship with its
employees to be very good. Employee benefits programs are considered by
management to be competitive with benefits programs provided by other financial
institutions and major employers within the Bank's market area.
d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Corporation and the Bank do not have any offices located in foreign
countries and they have no foreign assets, liabilities or related income
and expense for the years presented.
<PAGE>6
e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following section contains certain financial disclosures related to
the Corporation as required under the Securities and Exchange Commission's
Industry Guide 3, "Statistical Disclosures by Bank Holding Companies", or
a specific reference as to the location of the required disclosures in the
LNB Bancorp, Inc. 1996 Annual Report, portions of which are incorporated
in this Form 10-K by reference.
LNB BANCORP, INC.'S STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
A. & B. The average balance sheet information and the related analysis of net
interest income for the years ending December 31, 1996, 1995, and 1994 are
included in the Condensed Consolidated Average Balance Sheets, within
Management's Discussion and Analysis found on page 23 of the LNB Bancorp, Inc.
1996 Annual Report and is incorporated into this Item I by reference.
All interest is reported on a fully taxable equivalent basis. Nonaccruing
loans, for the purpose of the computations are included in the daily average
loan amounts outstanding. Loan fees are included in interest on loans.
C. Tables setting forth the effect of volume and rate changes on interest
income and expense for the years ended December 31, 1996 and 1995 are included
in Rate/Volume Analysis of Net Interest Income within Management's Discussion
and Analysis found on page 23 of the LNB Bancorp, Inc. 1996 Annual Report and is
incorporated into this Item I by reference.
II. INVESTMENT PORTFOLIO
A. The carrying values of securities at year end are as follows:
December 31,
-----------------------------------
(Amounts in Thousands) 1996 1995 1994
- -------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities $ 14,380 $ 14,768 $ 9,767
Equity securities 1,722 393 370
- -------------------------------------------------------------------------
Total securities available for sale 16,102 15,161 10,137
- -------------------------------------------------------------------------
Investment securities:
U.S. Treasury securities 69,673 69,422 80,112
Securities of other U.S. Government
agencies and corporations 16,500 14,500 1,500
States and political subdivisions 2,685 5,483 7,775
- -------------------------------------------------------------------------
Total investment securities 88,858 89,405 89,387
- -------------------------------------------------------------------------
Total securities $104,960 $104,566 $ 99,524
- -------------------------------------------------------------------------
<PAGE>7
B. MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Maturities of nonequity securities owned by the Corporation as of December 31,
1996 are presented below:
Maturing
----------------------------------------------------
Within From 1 to From 5 to After 10
(Amounts in Thousands) 1 year 5 years 10 years years Total
- -------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities $ 5,363 $ 9,017 $ 0 $ 0 $ 14,380
- -------------------------------------------------------------------------
Total securities
available for sale 5,363 9,017 0 0 14,380
- -------------------------------------------------------------------------
Investment securities:
U.S. Treasury
securities 13,745 54,933 995 0 69,673
Securities of other
U.S. Government
agencies and
corporations 3,500 13,000 0 0 16,500
States and political
subdivisions 544 1,692 318 131 2,685
- -------------------------------------------------------------------------
Total investment
securities 17,789 69,625 1,313 131 88,858
- -------------------------------------------------------------------------
Total securities $23,152 $78,642 $ 1,313 $ 131 $103,238
- -------------------------------------------------------------------------
<PAGE>8
WEIGHTED-AVERAGE YIELD OF INVESTMENT SECURITIES
The weighted-average yield for each range of maturities of investment
securities is shown below as of December 31, 1996:
Maturing
-----------------------------------------------------
Within From 1 to From 5 to After 10
1 year 5 years 10 years years Total
- --------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities 5.43 5.44 N/A N/A 5.44
- -------------------------------------------------------------------------
Total securities
available for sale 5.43 5.44 N/A N/A 5.44
- -------------------------------------------------------------------------
Investment securities:
U.S. Treasury
securities 6.07 6.21 7.96 N/A 6.21
Securities of other
U.S. Government
agencies and
corporations 7.49 6.29 N/A N/A 6.54
States and political
subdivisions (1) 8.36 7.73 8.58 7.55 7.95
- -------------------------------------------------------------------------
Total investment
securities 6.42 6.26 8.11 7.55 6.32
- -------------------------------------------------------------------------
Total securities 6.19 6.16 8.11 7.55 6.19
- -------------------------------------------------------------------------
(1) Yields on tax-exempt obligations are computed on a tax equivalent basis
based upon a 34% statutory Federal income tax rate.
C. Excluding those holdings of the securities portfolio in U.S. Treasury
Securities and U.S. Government Agencies and corporations, there were no
investments in securities of any one issuer which exceeded 10% of the
consolidated shareholders' equity of the Corporation at December 31, 1996.
<PAGE>9
III. LOAN PORTFOLIO
A. The following table summarized the distribution of the loan portfolio:
December 31,
---------------------------------------------------
(Amounts in Thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
Commercial $113,170 $105,847 $104,209 $105,289 $ 98,514
Mortgage 138,455 124,012 114,611 100,140 94,787
Installment 27,683 23,310 19,933 18,554 17,939
Consumer revolving
lines of credit 22,765 23,324 23,054 21,774 22,530
- --------------------------------------------------------------------------
TOTAL LOANS 302,073 276,493 261,807 245,757 233,770
Reserve for possible
loan losses (4,116) (4,002) (3,832) (3,714) (3,406)
- --------------------------------------------------------------------------
NET LOANS $297,957 $272,491 $257,975 $242,043 $230,364
==========================================================================
B. COMMERCIAL LOAN MATURITY AND REPRICING ANALYSIS
AS OF DECEMBER 31, 1996
(Amounts in Thousands) 1996
- ----------------------------------------------
Maturing in one year or less $ 15,620
Maturing after one year,
but within five years 22,335
Maturing beyond five years 75,215
- ----------------------------------------------
TOTAL COMMERCIAL LOANS $ 113,170
==============================================
Loans repricing beyond one year:
Fixed rate 7,251
Variable rate 90,299
- ----------------------------------------------
TOTAL $ 97,550
==============================================
C. RISK ELEMENTS
A summary of nonaccrual, restructured loans, other real estate owned, accruing
loans past due 90 days, and potential problem loans at December 31, follows:
(Amounts in Thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------
Nonaccrual loans:
Real estate loans $ 641 $ 511 $ 318 $ 438 $ 801
Commercial loans 114 221 0 420 90
Consumer loans 10 0 0 0 38
- -----------------------------------------------------------------
Total nonaccrual loans 765 732 318 858 929
Restructured loans 0 0 0 0 0
Other Real Estate owned 39 0 0 0 0
Total nonperforming
assets $ 804 $ 732 $ 318 $ 858 $ 929
- -----------------------------------------------------------------
<PAGE>10
Reserve for possible
loan losses to
nonperforming assets 511.9% 546.7% 1,205.4% 432.8% 366.6%
=================================================================
Accruing loans past due
90 days $ 357 $ 725 $ 419 $ 407 $ 109
Potential problem
loans 1,066 942 1,197 1,095 2,669
=================================================================
1) The Corporation, through its subsidiary bank, grants commercial,
residential, and consumer loans to customers located primarily in the
northern Ohio counties of Lorain, Cuyahoga and Huron.
Nonperforming assets consist of nonaccrual loans and loans which have been
restructured, which are defined as follows:
Nonaccrual loans are loans which are 90 days past due and with respect
to which, in management's opinion, collection of interest is doubtful.
These loans no longer accrue interest and are accounted for on a cash
basis.
Loans are classified as restructured when, due to the deterioration of
a customer's financial ability, the original terms have been favorably
modified or either principal or interest has been forgiven.
The level of nonperforming assets remains at a relatively low level from
1992 through 1996, except for 1994. The amount of nonperforming loans at
December 31, 1994 was lower than in other years due to the charge-off of a large
credit in late 1994. The lower level of nonperforming loans at December 31,
1994, is not, by itself an adequate measure of the credit risk in the loan
portfolio. The level of nonperforming loans at December 31, 1994 was at a
trough because of the aforementioned charge-off and is not indicative of the
credit risk in the loan portfolio. The ratio of the reserve for possible loan
loss to nonperforming assets decreased from 1,205.4% in 1994 to 546.7% in 1995
and decreased to 511.9% in 1996. The 1996 decrease is the result of net
increases in nonperforming loans in the amount of $72,000.
It is the Bank's policy to cease accruing interest on any loans where the
principal and/or interest remains unpaid for 90 days or more, unless the
loan is both well secured and in the process of collection. For the year
ending December 31, 1996, the interest income that would have been earned
on the nonaccrual loans in the loan portfolio at year end, would have been
approximately $74,000; however, the interest income actually earned and
reported as income in 1996 amounted to approximately $27,000.
In addition to the nonperforming assets classified above, the loan review
committee identifies accruing loans past due 90 days plus potential problem
loans. These loans are closely monitored by the loan review committee to assess
the borrowers' ability to comply with the terms of the loans. Management's
year-end review indicated that a charge to the reserve for possible loan losses
or classification to nonperforming status was not warranted. Loans which are 90
days or more past due but continue to accrue interest are loans which, in
management's opinion, are well secured and are in the process of collection.
<PAGE>11
2. Potential Problem Loans - As shown in the table on page 10 of Form 10-K, at
December 31, 1996, there are approximately $1,066,000 of loans identified on
management's watch list which includes both loans which management has some
doubt as to the borrowers' ability to comply with the present repayment terms
and loans which management is actively monitoring due to changes in the
borrowers financial condition. These loans and their potential loss exposure
have been considered in management's analysis of the adequacy of the allowance
for loan losses.
The increase in potential problem loans during 1992 is due, in part, to the lag
between the weakened condition of the local economy from 1990 through the first
half of 1992 and its subsequent effect on local businesses which have borrowed
from the Bank. The decrease in the potential problem loans in 1993, 1994, 1995,
and 1996 is due in part to improved national and local economic conditions.
3) Foreign Outstandings - There were no foreign loans outstandings at December
31, 1996, 1995 or 1994.
4) Loan Concentrations - Bank management reviews concentrations of credit and
other portfolio risk elements on a quarterly basis. Management is not aware of
any significant loans, group of loans or segments of the loan portfolio, other
than those reported in the schedule of nonperforming loans, where there are
serious doubts as to the ability of the borrower to comply with the present loan
repayment terms. No loans are outstanding which would, if consolidated, be
considered as a concentration of lending in any particular industry or group of
industries nor are there significant amounts of loans made to agricultural or
energy related businesses.
Credit risk is managed through the bank's loan loss review policy which provides
loan department officers and the loan review committee with the responsibility
to manage loan quality. The Corporation's credit policies are reviewed and
modified on an ongoing basis in order to remain suitable for the management of
credit risks within the loan portfolio as conditions change. At December 31,
1996, there were no significant concentrations of credit risk in the loan
portfolio.
The Corporation's credit policies and review procedures are intended to minimize
the risk and uncertainties inherent in lending. In following these policies and
procedures, management must rely upon estimates, appraisals and evaluations of
loans and the possibility that changes in such estimates, appraisals and
evaluations could occur quickly because of changing economic conditions and the
economic prospects of borrowers. Also see Note (17) of the "Notes to
Consolidated Financial Statements" which appears on page 19 of the LNB Bancorp,
Inc. 1996 Annual Report and is incorporated herein by reference.
5) No material amount of loans that have been classified by regulatory examiners
as loss, substandard, doubtful, or special mention have been excluded from the
amounts disclosed as nonaccrual, past due 90 days or more, restructured, or
potential problem loans. 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 or its subsidiary bank.
D. Other interest-bearing assets - As of December 31, 1996, there are no other
interest-bearing assets that would be required to be disclosed under Item III
C.1 or 2 if such assets were loans. The Corporation had $39,000 and $0 in Other
Real Estate Owned at December 31, 1996, and 1995, respectively.
<PAGE>12
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes activity relating to the Reserve for
Possible Loan Losses:
December 31,
-------------------------------------------
(Amounts in Thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------
BALANCE AT BEGINNING
OF YEAR $ 4,002 $ 3,832 $ 3,714 $ 3,406 $2,803
Charge-offs:
Commercial (296) (100) (190) (177) (71)
Real Estate (185) (209) (141) (222) (71)
Consumer (191) (140) (68) (116) (230)
- ----------------------------------------------------------------------
Total charge-offs (672) (449) (399) (515) (372)
Recoveries:
Commercial 61 163 18 70 38
Real Estate 67 5 57 152 152
Consumer 58 51 42 101 85
- ----------------------------------------------------------------------
Total recoveries 186 219 117 323 275
- ----------------------------------------------------------------------
Net charge-offs (486) (230) (282) (192) (97)
- ----------------------------------------------------------------------
PROVISION FOR POSSIBLE
LOAN LOSSES 600 400 400 500 700
- ----------------------------------------------------------------------
BALANCE AT END OF YEAR $ 4,116 $4,002 $ 3,832 $ 3,714 $ 3,406
======================================================================
ANALYTICAL DATA
BALANCES:
Average total loans $287,809 $272,011 $252,345 $237,671 $227,780
Total loans at year
end 302,073 276,493 261,807 245,757 233,770
Net charge-offs 486 230 282 192 97
Provision for
possible loan
losses 600 400 400 500 700
Reserve for possible
loan losses at year
end 4,116 4,002 3,832 3,714 3,406
RATIOS:
Net charge-offs to:
Average total loans .17% 0.08% 0.11% 0.08% 0.04%
Total loans at year
end .16 0.08 0.11 0.08 0.04
Provision for possible
loan losses 81.00 57.50 70.50 38.40 13.86
Reserve for possible
loan losses 11.81 5.75 7.36 5.17 2.85
Reserve for possible
loan losses to:
Average total loans 1.43 1.47 1.52 1.56 1.50
Total loans at year
end 1.36 1.45 1.46 1.51 1.46
<PAGE>13
The higher amount of 1996 net charge-offs and the higher provision for
possible loan losses charge to expense resulted from increases in net charge-
offs of commercial and consumer loans. The decreasing trend in the provision
for possible loan losses charged to expense which occurred from 1993 through
1995 resulted from the influences of an improvement in the local and national
economy. The level of net charge-offs in 1997 is expected to be comparable
to the 1996 level.
The Bank's policy is to maintain the allowance for possible loan losses at a
level considered by management to be adequate for potential future losses. The
evaluation performed by the Loan Review Committee is based upon a continuous
review of delinquency trends; the amount of nonperforming loans (nonaccrual,
restructured, and other real estate owned); loans past due 90 days or more and
potential problem loans; historical and present trends in loans charged-off;
changes in the composition and level of various loan categories; and current
economic conditions.
Net charge-offs (recoveries) by portfolio type which are summarized from
the analysis of the Reserve for Possible Loan Losses on page 13 of the
Form 10-K are presented in the following table:
(Amounts in Thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------
Commercial $ 235 $(63) $172 $107 $ 33
Real estate 118 204 84 70 (81)
Consumer 133 89 26 15 145
- ------------------------------------------------------------------
Total net charge-offs $ 486 $230 $282 $192 $ 97
==================================================================
Both the provision and the allowance are based on an analysis of individual
credits, prior and current loss experience, overall growth in the portfolio,
changes in portfolio mix, current economic conditions, and other factors.
Consumer and credit card loans are charged off within industry norms, while
commercial loans are evaluated individually. An allocation of the ending
reserve for possible loan losses by major type follows:
(Amounts in Thousands) 1996 1995 1994 1993 1992
----------------------------------------------------------------
Commercial $1,429 $1,597 $1,487 $1,036 $ 819
Real estate 803 651 623 485 469
Consumer 381 363 348 313 321
Off-balance sheet risk 250 250 250 250 150
Unallocated 1,253 1,141 1,124 1,630 1,647
- ------------------------------------------------------------------
TOTAL $4,116 $4,002 $3,832 $3,714 $3,406
==================================================================
<PAGE>14
This allocation is made for analytical purposes. The total allowance is
available to absorb losses from any segment of the portfolio. The 1996, 1995
and 1994 provision for possible loan losses exceeded net charge-offs by
$114,000, $170,000 and $118,000 respectively. The allocated portion of the
reserve for possible loan losses has remained relatively consistent during 1992
through 1993. The Bank allocates a portion of the reserve for possible loan
losses to off-balance sheet risks which consist primarily of commitments to
extend credit. The allocated portion of the reserve to commercial and real
estate loans increased in 1994, 1995 and 1996 due to changes in credit risk in
those areas.
With the adoption of SFAS No. 114 in 1995, it is anticipated that the allowance
for possible loan losses in future filings will not be materially different
from the 1995 or 1996 allocation due to the current risk inherent in the loan
portfolio. The major risk classifications used to aggregate loans for
application of SFAS No.114 are commercial, mortgage, and consumer loans.
The following table shows the percentage of loans in each category to total
loans at year end:
1996 1995 1994 1993 1992
- -------------------------------------------------------------
Commercial 37.5% 38.3% 39.8% 42.8% 42.1%
Real estate 45.8 44.8 43.8 40.8 40.6
Consumer 16.7 16.9 16.4 16.4 17.3
------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
------------------------------------------
The loan portfolio mix has shifted during the past five years. Consumer loans
as a percent of total loans has decreased each year from 1992 through 1993 and
leveled off in 1994 while increasing in 1995. The commercial loans percentage
has increased from 1992 through 1993. During 1994 the commercial loans as a
percentage of total loans decreased by three percent with a related increase in
real estate loans of three percent. During 1995 Real estate loans increased by
1 percent and Consumer loans increased by .5%, while Commercial loans decreased
by the related 1.5%. During 1996, Real estate loans increased by 1.0% with a
related decrease in commercial loans of .8% and consumer loans of .2%.
V. DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
The following table sets forth the classification of average deposits for
the indicated period.
December 31,
-------------------------------------
(Amounts in Thousands) 1996 1995 1994
- ----------------------------------------------------------------
Demand deposits $ 58,989 $ 55,456 $ 53,287
NOW accounts 45,983 44,646 46,253
Money market accounts 21,650 25,578 33,034
Savings deposits 92,570 91,845 96,485
Time deposits 139,028 128,977 100,197
- ----------------------------------------------------------------
Total $358,220 $346,502 $329,256
================================================================
<PAGE>15
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of
interest-bearing deposits for the periods indicated:
Years ended December 31,
----------------------------------------
1996 1995 1994
- ---------------------------------------------------------------
NOW accounts 1.61% 1.89% 1.95%
Money market accounts 1.95 2.10 2.18
Savings deposits 2.20 2.27 2.31
Time deposits 5.25 5.52 3.91
========================================
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000
or more, in thousands of dollars, at December 31, 1996.
Maturing within 3 months $ 26,904
After 3 but within 6 months 5,928
After 6 but within 12 months 3,626
After 12 months 1,875
- ----------------------------------------------
Total $ 38,333
==============================================
VI. RETURN ON EQUITY AND ASSETS
Information relating to key operating ratios for the years ended December
31, 1996, 1995, 1994, 1993 and 1992 is presented in the tabular form below.
December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------
Return on average assets 1.37% 1.21% 1.13% 1.08% 1.07%
Return on average equity 13.70 12.72 12.16 11.90 12.17
Dividend payout ratio 44.28 43.47 42.98 42.81 40.64
Average equity to
average assets 10.01 9.55 9.31 9.11 8.78
Net interest margin 5.33 5.14 5.09 5.10 5.28
<PAGE>16
VII. SHORT-TERM BORROWINGS
Information relating to short-term borrowings for the years ended December
31, 1996, 1995 and 1994 follows:
(Amounts in Thousands) 1996 1995 1994
- ----------------------------------------------------------------
Federal funds purchased
and securities sold under
repurchase agreements
At December 31:
Outstanding $23,386 $24,148 $19,171
Interest Rate 4.22% 4.98% 5.36%
Average for the period:
Outstanding $21,465 $22,864 $21,106
Interest rate 4.75% 4.85% 3.58%
Maximum month-end
outstanding $34,076 $29,121 $30,750
Construction line of credit
At December 31:
Outstanding $ 0 $ 0 $ 0
Interest rate 0.000% 0.000% 0.000%
Average for the period:
Outstanding $ 0 $ 0 $ 2,061
Interest rate 0.000% 0.000% 4.895%
Maximum month-end
outstanding $ 0 $ 0 $ 2,750
ITEM 2 - PROPERTIES
THE LORAIN NATIONAL BANK
The principal executive offices are located at its Main Office, 457
Broadway, Lorain, Ohio. The Bank owns the land and buildings occupied by
the Main Office, twelve of its branch banking offices, the Branch
Administration Building, and the Computer Operations Center. The
remaining three branch offices are subject to lease obligations with
various lessors and varying lease terms. There is no outstanding mortgage
debt on any of the properties which the bank owns. In January of 1997, the
Bank entered into two lease agreements to rent branch banking offices in
Cuyahoga County at The Renaissance and Westlake Village.
<PAGE>17
Listed below are the branches/customer service facilities of the Bank and their
locations:
Main Office 457 Broadway, Lorain
Vermilion Office 4455 Liberty Avenue, Vermilion
Amherst Office 1175 Cleveland Avenue, Amherst
Lake Avenue Office Lake Avenue & Route 254, Elyria
Avon Lake Office 240 Miller Road, Avon Lake
Kansas Avenue Office 1604 Kansas Avenue, Lorain
Sixth Street Auto Bank 200 Sixth Street, Lorain
Pearl Avenue Office 2850 Pearl Avenue, Lorain
Oberlin Office 40 East College Street, Oberlin
West Park Drive Office 2130 West Park Drive, Lorain
Second Street Office 221 Second Street, Elyria
Cleveland Street Office 801 Cleveland Street, Elyria
Oberlin Avenue Office 3660 Oberlin Avenue, Lorain
Olmsted Office 27095 Bagley Road, Olmsted Township
Westlake Office 30210 Detroit Road, Westlake
Kendal at Oberlin Office 600 Kendal Drive, Oberlin
Computer Operations Center 2130 West Park Drive, Lorain
Maintenance Building 2140 West Park Drive, Lorain
Purchasing Building 2150 West Park Drive, Lorain
Branch Administration Building 521 Broadway, Lorain
The Bank also owns automated teller machines and on-line teller terminals,
as well as computers and related equipment for use in its business. The
Corporate office facility is currently utilized at a level of 75%. The
remaining space will be utilized as the Bank continues to grow. The
Corporation considers its Corporate offices, branch offices and computer
operations center to be in good to excellent condition, well maintained
and are more than adequate to conduct the business of Banking.
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Corporation or its
subsidiary is a party to or which any of its property is subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1996
there were no matters submitted to a vote of security holders.
<PAGE>18
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Common Stock Trading Ranges, Cash Dividends Declared information and information
relating to dividend restrictions appear on pages 1 and 16 of the LNB Bancorp,
Inc. 1996 Annual Report and are incorporated herein by reference.
HOLDERS
The total number of shareholders was 2,021`as of February 28, 1997.
Upon the consummation of the Plan of Reorganization on March 30, 1984, the
Corporation became a one bank holding company and shareholders of the Bank
became shareholders of the Corporation, receiving one share of voting
Common Stock for each outstanding share of Common Stock of the Bank.
ITEM 6 - SELECTED FINANCIAL DATA
A Five Year Consolidated Financial Summary of selected financial data on
page 29 of the LNB Bancorp, Inc. 1996 Annual Report is incorporated herein
by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" is incorporated herein by reference to
pages 22 - 27 of the LNB Bancorp, Inc. 1996 Annual Report. Also, see Item 8 -
Financial Statements and Supplementary Data.
In March 1997, Ford Motor Company announced that it would cease production of
the Ford Thunderbird and Mercury Cougar at its Lorain, Ohio assembly plant.
This will result in the lay-off of 1,800 local Ford Motor Company employees in
the third quarter of 1997. The immediate impact on the local economy should be
minimal due to the fact that the laid-off employees will continue to receive a
significant portion of their wages under union benefit agreements. Also, there
has been significant growth in the number of new jobs in the local industries
and this trend is expected to continue. There will be a "trickle down" effect
through the area caused by the subsequent lay-off of employees in satellite
industries and reduction of tax revenues collected by local government and
school districts. Lorain National Bank has analyzed the impact of the lay-offs
and their subsequent economic impact and has made the initial determination that
they should not have a material impact on its financial condition.
<PAGE>19
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's Independent Auditor's Report and Consolidated Financial
Statements are listed below and are incorporated herein by reference to the LNB
Bancorp, Inc. 1996 Annual Report (Exhibit 13), pages 6 through 21. The
supplementary financial information specified by Item 302 of Regulation S-K,
selected quarterly financial data, is included on page 28 of the LNB Bancorp,
Inc. 1996 Annual Report.
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income
for Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
Report of Management
Independent Auditors' Report
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
<PAGE>20 PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All Directors of the Bank, prior to the merger, became Directors of the
Bank and of the Corporation. The Officers of the Bank, prior to the
merger, became Officers of the Bank and certain Executive Officers became
Officers of the Corporation.
"Election of Directors" and "Director's Committees" on pages 3 through 5
of the Notice of Annual Meeting of Shareholders and Proxy Statement (dated
March 17, 1997) is incorporated herein by reference. Also, see the additional
information presented below which relates to Executive Officers of the
Corporation and/or the Bank.
BANK LNB BANCORP
PRINCIPAL OCCUPATION DIRECTOR DIRECTOR
NAME(AGE) DURING PAST 5 YEARS SINCE SINCE
Mitchell J. Fallis Vice President and (Not a Director)
(42) Chief Accounting Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Gregory D. Friedman Senior Vice President, (Not a Director)
(46) Chief Operating Officer and
Chief Financial Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Michael D. Ireland Senior Vice President, (Not a Director)
(50) LNB Bancorp, Inc. and
The Lorain National Bank
Sandra L. Kotradi Vice President and (Not a Director)
(51) Chief Lending Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Emma N. Mason Senior Vice President, (Not a Director)
(59) LNB Bancorp, Inc. and
The Lorain National Bank
James H. Weber Senior Vice President, (Not a Director)
(50) LNB Bancorp, Inc. and
The Lorain National Bank
ITEM 11 - EXECUTIVE COMPENSATION
The information contained on pages 7 through 12 of the Notice of Annual
Meeting of Shareholders and Proxy Statement (dated March 17, 1997) is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained on page 15 of the Notice of Annual Meeting of
Shareholders and Proxy Statement (dated March 17, 1997), relating to
"Compliance with Section 16(A) of the Securities Exchange Act" is
incorporated herein by reference.
The information contained on page 13 of the Notice of Annual Meeting of
Shareholders and Proxy Statement (dated March 17, 1997) is incorporated
herein by reference.
<PAGE>21
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on pages 6, 7 and 15 of the Notice of Annual
Meeting of Shareholders and Proxy Statement (dated March 17, 1997) is
incorporated herein by reference.
Analysis of Loans to Related Parties:
The information contained in Note (11) "Transactions with Related Parties"
on page 16 of the LNB Bancorp, Inc. 1996 Annual Report is incorporated
herein by reference.
<PAGE>22
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following Consolidated Financial Statements and related Notes to
Consolidated Financial Statements, together with the Independent Auditors'
Report, KPMG Peat Marwick LLP, dated January 24, 1997, appear on pages 6
through 21 of the LNB Bancorp, Inc. 1996 Annual Report and are
incorporated herein by reference:
(1) Financial Statements
Consolidated Balance Sheets
December 31, 1996 and 1995
Consolidated Statements of Income for Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for Years
Ended December 31, 1996, 1995 and 1994
Report of Management
Independent Auditors' Report
(2) Financial Statement Schedules
Financial statement schedules are omitted as they are not
required or are not applicable or because the required information
is included in the consolidated financial statements or notes thereto.
(3) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page 25 of
this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year
ending December 31, 1996
(c) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page 25 of this
Form 10-K.
(d) See Item 14(a)(2) above.
<PAGE>23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LNB Bancorp, Inc.
(Registrant)
By /s/ Thomas P. Ryan
Thomas P. Ryan
Executive Vice President,
Secretary/Treasurer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
and on the dates indicated:
/s/ James L. Bardoner DIRECTOR March 18, 1997
- -----------------------
James L. Bardoner
/s/ Daniel P. Batista DIRECTOR March 18, 1997
- -----------------------
Daniel P. Batista
/s/ Robert M. Campana DIRECTOR March 18, 1997
- -----------------------
Robert M. Campana
/s/ Wellsley O. Gray DIRECTOR March 18, 1997
- -----------------------
Wellsley O. Gray
/s/ David M. Koethe DIRECTOR March 18, 1997
- -----------------------
David M. Koethe
/s/ Benjamin G. Norton DIRECTOR March 18, 1997
- -----------------------
Benjamin G. Norton
/s/ Jeffrey F. Riddell DIRECTOR March 18, 1997
- -----------------------
Jeffrey F. Riddell
<PAGE>24
/s/ T. L. Smith, M.D. DIRECTOR March 18, 1997
- -----------------------
T. L. Smith, M.D.
/s/ Eugene M. Sofranko DIRECTOR March 18, 1997
- -----------------------
Eugene M. Sofranko
/s/ Paul T. Stack DIRECTOR March 18, 1997
- -----------------------
Paul T. Stack
ABSENT - EXCUSED DIRECTOR March 18, 1997
- -----------------------
Leo Weingarten
/s/ Stanley G. Pijor CHAIRMAN OF THE March 18, 1997
- ----------------------- BOARD AND DIRECTOR
Stanley G. Pijor
PRESIDENT, CHIEF March 18, 1997
/s/ James F. Kidd EXECUTIVE OFFICER
- ----------------------- AND DIRECTOR
James F. Kidd
SENIOR VICE
/s/ Gregory D. Friedman PRESIDENT, March 18, 1997
- ----------------------- CHIEF FINANCIAL
Gregory D. Friedman OFFICER AND CHIEF
OPERATING OFFICER
/s/ Mitchell J. Fallis VICE PRESIDENT AND March 18, 1997
- ----------------------- CHIEF ACCOUNTING
Mitchell J. Fallis OFFICER
<PAGE>25
LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K
Reference
Number Exhibit Method of Filing
(10) Material Contracts
(a)Supplemental Retirement Agreement by Previously filed as
and between James F. Kidd and The Exhibit (10a) to
Lorain National Bank dated July 30, 1996. Quarterly Report
Form 10-Q (Commission
File no.0-13203) for
the quarter ended
June 30, 1996, and
incorporated herein
by reference.
(b)Supplemental Retirement Agreement by Previously filed as
and between Thomas P. Ryan and The Exhibit(10b) to
Lorain National Bank dated July 30, 1996. Quarterly Report on
Form 10-Q (Commission
File no. 0-13203) for
the quarter ended
June 30, 1996, and
incorporated herein
by reference.
(c)Supplemental Retirement Agreement by Previously filed as
and between Gregory D. Friedman and The Exhibit (10.c) to
Lorain National Bank dated July 30, 1996. Quarterly Report on
Form 10-Q (Commission
File no. 0-13203) for
the quarter ended
June 30, 1996, and
incorporated herein
by reference.
(d)Employment Agreement by and between Previously filed as
James F. Kidd and LNB Bancorp, Inc. and Exhibit (10a) to
The Lorain National Bank dated September Quarterly Report on
11, 1995. Form 10-Q (Commission
File no. 0-13203) for
the quarter ended
September 30, 1995, and
incorporated herein
by reference.
<PAGE>26
S-K
Reference
Number Exhibit Method of Filing
(e)Employment Agreement by and between Previously filed as
Thomas P. Ryan and LNB Bancorp, Inc. and Exhibit (10b) to
The Lorain National Bank dated September Quarterly Report on
11, 1995. Form 10-Q (Commission
File no. 0-13203 for
the quarter ended
September 30, 1995,
and incorporated herein
by reference.
(11) Computation of Shares Used for
Earnings Per Share Calculation.
(13) LNB Bancorp, Inc. 1996 Annual
Report to Shareholders.
(21) Subsidiary of LNB Bancorp, Inc.
(22) Notice of Annual Meeting to
Shareholders and Proxy Statement
(dated March 17, 1997).
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
(99.1) Annual report on Form 11-K of The
Lorain National Bank Employee Stock
Ownership Plan (registration number
33-65034) for the plan year ended
December 31, 1996 to be filed as an
amendment to this annual report on Form
10-K.
(99.2) Annual report on Form 11-K of The
Lorain National Bank Stock Purchase
Plan (registration number 33-65034) for
the plan year ended December 31, 1996
to be filed as an amendment to this
annual report on Form 10-K.
<PAGE>27
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1996)
S - K Reference Number (11)
Computation of Shares Used for Earnings
Per Share Calculation.
Years Ended December 31,
-------------------------------------
1996 1995 1994
-------------------------------------
Weighted-Average Shares
Outstanding 4,128,459 4,101,825 4,073,793
Common Stock Equivalents
(Stock Options) 10,269 19,222 42,269
----------- ----------- -----------
4,138,728 4,121,047 4,116,062
=========== =========== ===========
<PAGE>28
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1996)
S - K Reference Number (13)
LNB Bancorp, Inc. 1996 Annual Report
to Shareholders.
<PAGE>29
COVER DESCRIPTION
Beige background
LNB Bancorp, Inc.
Annual Report 1996
"Achieving as a team
What cannot be achieved individually"
Dark brown lettering
Picture of five hands pulling down on a rope
with a hoist.
INSIDE FRONT COVER
Mission Statement
The Mission of Lorain National Bank is to be a profitable,
responsible, independent business that provides extraordinary
service to our customers and community, while maximizing
shareholder value and creating a high-quality and challenging
work environment for our employees.
Vision Statement
Lorain National Bank's vision is to become recognized as the
most progressive and dynamic, independent provider of
financial services in our market.
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 1997 Annual Meeting of Shareholders of LNB Bancorp,
Inc. will be held at 10:00 a.m. on Tuesday, April 15, 1997 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/Treasurer
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1739
STOCK TRANSFER AGENT AND REGISTRAR
Shareholders requesting information about their stock holdings
should contact our Shareholders Relations Department listed below:
The Lorain National Bank
Shareholder Relations Department
457 Broadway
Lorain, Ohio 44052-1739
(216) 244-7317 or (800) 860-1007
COMMON STOCK INFORMATION
The common stock of LNB Bancorp, Inc. is traded on the over-the-counter market
under the symbol LNBB. The stock is listed as "LNB Bancorp" in the newspapers.
LNB Bancorp, Inc.'s CUSIP is 502100 10 0.
MARKET MAKERS IN LNB BANCORP, INC. STOCK
Akin Investment Services Group, Elyria, Ohio
Everen Securities, Inc. Lorain, Ohio
Kemper Securities, Lorain, Ohio
McDonald & Company Securities, Inc., Elyria and Sandusky, Ohio
Merrill Lynch, North Olmsted, Ohio
The Ohio Company, Cleveland, 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>30
HALF PAGE INSERT BACK SIDE
Table of Contents
Mission Statement . . . . . . . . . . . . . . . . . . . IFC
Vision Statement . . . . . . . . . . . . . . . . . . . . IFC
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
Directors Emeritus of Lorain National Bank . . . . . . . .30
Officers of Lorain National Bank . . . . . . . . . . . . .31
Earnings and Stock Performance . . . . . . . . . . . . . .32
Customer Service Locations . . . . . . . . . . . . . . . IBC
<PAGE>31
Highlights
DECEMBER 31, 1996 1995 1986
- ----------------------------------------------------------------------
BANKING OFFICES 16 17 15
OFFICERS AND STAFF 285 294 270
SHAREHOLDERS 2,028 1,991 1,389
ASSETS $438,243,000 $421,603,000 $267,930,000
DEPOSITS $366,380,000 $353,455,000 $231,690,000
NET LOANS $297,957,000 $272,491,000 $150,367,000
----------------------------------------------
TOTAL CAPITAL $ 44,198,000 $ 40,791,000 $ 19,385,000
----------------------------------------------
NET INCOME $ 5,852,000 $ 5,003,000 $ 2,407,000
----------------------------------------------
CASH DIVIDENDS DECLARED $ 2,591,000 $ 2,175,000 $ 816,000
----------------------------------------------
SHARES OUTSTANDING 4,138,533 4,120,134 3,778,661
----------------------------------------------
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
1996 1995
--------------------------------------------------------
Bid Price Bid Price
--------------------------------------------------------
Dividend Dividend
High Low Amount High Low Amount
------- ------ --------- ------- ------ --------
First Quarter $28.75 $27.75 $.14 $24.60 $24.10 $.12
Second Quarter 28.00 27.75 .14 26.50 24.60 .12
Third Quarter 28.50 28.00 .16 27.00 26.50 .14
Fourth Quarter 29.00 28.50 .19 27.50 27.00 .15
The shares of common stock, par value $1.00 per share, of LNB Bancorp,
Inc. are traded on the over-the-counter market primarily through registered
brokers in the Corporation's service area. The above bid prices represent
quotations between dealers without adjustments for retail markups, markdowns or
commissions and may not represent actual transactions.
Dividend amounts have been adjusted for the 2% stock dividend on April 16,
1996. Dividend amounts and bid prices have also been adjusted to reflect the
five-for-four stock split on April 18, 1995.
There are 4,138,533 common shares outstanding, held by 2,028 shareholders as
of December 31, 1996.
<PAGE>32
Corporate Profile
LNB Bancorp, Inc. is a $438 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 sixteen banking offices in Lorain, Elyria,
Amherst, Avon Lake, Oberlin, Olmsted Township, Vermilion, and Westlake
which offer a wide range of commercial and personal banking services.
The major services include checking, savings and time deposits, personal,
mortgage, student and commercial loans, home equity loans, Small Business
Administration Loans, credit cards, an ATM network, and trust and
investment management services. The Lorain National Bank is an equal
opportunity employer.
END PUBLISHED PAGE 1
<PAGE>33
Bottom right column dark brown and white photograph of Stanley G. Pijor,
Chairman of the Board
Message to Our Shareholders
Once again, it is our pleasure to report that LNB Bancorp, Inc. and its
subsidiary, The Lorain National Bank, have successfully completed another
year of operation. Since this time a year ago, we have recorded increases in
all significant areas of financial performance, including our 15th consecutive
year of earnings growth, and record high cash and stock dividends paid to our
shareholders.
Synergy
Entering 1996, we were aware of the need to modify various aspects of our
operations to meet future challenges. For example, we were faced with downward
pressure on margins and growing non-bank competition. At the same time, our
Board of Directors set some very specific and ambitious goals for us to
accomplish.
We viewed these external and internal challenges as an opportunity to make
some positive changes. Our first objective was to continue reducing expenses
while increasing operating efficiencies. It was, and still is, our goal to
accomplish both without adversely affecting service to our four publics - our
shareholders, customers, employees and community.
As we continue to address the challenges of reducing expenses, we have
resolved that we would not seek a significant reduction in staff as an
initiative to increase profitability. The staff reductions we've experienced
have come as a result of attrition. Instead, we chose a more difficult, yet
positive course of action, focusing on our people's strengths, our technological
resources and confidence in our management team's ability to achieve our goals.
The word that best describes our team-building concept is synergy - the
ability to achieve as a team what cannot be achieved individually. As a
result, we're operating more efficiently, more effectively and more profitably
than ever.
Facing Realities
The challenges we spoke of earlier still confront us today. Through mergers
and acquisitions, the number of commercial banks is decreasing at a quickening
pace. Today, there are fewer than 10,000 banks operating nationally, down from
15,000 a decade ago. The competition for quality loans is increasing, overhead
costs are rising and the technology we use is becoming increasingly difficult to
manage. Meanwhile, customer needs are changing and we're competing in an arena
with financial services providers of all sizes.
We are well-positioned to meet those challenges by preserving our core values
and purpose while adapting our corporate culture, developing more effective
operating and management practices and specific strategies to attain goals.
We're confident that we have established ourselves as the most experienced,
END PUBLISHED PAGE 2
<PAGE>34
Bottom left column dark brown and white photograph of James F. Kidd, President &
Chief Executive Officer
knowledgeable and responsive community bankers in our service area.
Our continued success will come as a result of being true to our mission and
vision and having the ability to adapt to the changing financial services
environment.
Planning
Without proper planning, the saying "If you don't know where you're going, any
road will lead you there" is more appropriate today than ever - just ask the
5,000 banks which have disappeared over the past 10 years.
As with any successful organization, short-term and long-term strategic
planning will guide our operations through 1997 and beyond, and will include
asset growth, branch and market share growth, enhancement of products and
services, attention to compliance issues, expansion of our sales and corporate
cultures and growth of our shareholder base.
Our synergistic approach to planning has helped bring the five corners of our
organization together to reach a consensus on strategic planning. Input from
all key divisions including lending, branches, trust and investment management,
operations and marketing has greatly expanded our scope of knowledge bank-wide.
Financial Performance
In 1996 we posted our 15th consecutive year of increased earnings, as net
income increased in 1996 by 17.0% over 1995, reaching $5,852,000. Earnings per
share also increased to $1.41 for 1996 compared to $1.21 for 1995.
Dividends declared per share amounted to $.63 in 1996 compared to $.53 in
1995. Total cash dividend in 1996, including the EXTRA dividend declared by the
Board of Directors in November, rose to approximately $2,591,000.
In each of the last 10 years, an increase in the regular cash dividend has
been approved. The cash dividends declared in 1996 represent a 218% increase
over 1986, when $816,000 in cash dividends were declared.
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 1986 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, 1996 include an increase in
net loans to $298.0 million, up $25.5 million from 1995 and an increase in total
deposits to $366.4 million, up $12.9 million from 1995.
END PUBLISHED PAGE 3
<PAGE>35
Total assets of LNB Bancorp, Inc. reached $438.2 million, which represents
an increase of $16.6 million over 1995. The return on average assets of LNB
Bancorp, Inc. rose from 1.21% in 1995 to 1.37% in 1996.
Total shareholders' equity increased $3.4 million to $44.2 million, an
increase of 8.4% over the year-end 1995 equity position. The ratios of total
shareholders' equity to total assets were 10.1% and 9.7% at December 31, 1996
and 1995, respectively.
LNB Bancorp, Inc. and its subsidiary, The Lorain National Bank, significantly
exceed all current regulatory capital guidelines (for more detail, see Note 10-
Shareholders' Equity on page 16).
1996 Highlights
Early in the year, we recognized the many years of dedicated service of retired
directors Don A. Sanborn and James H. Riddell, naming them Directors Emeritus of
Lorain National Bank. We also welcomed Robert M. Campana as our newest member
of the Board of Directors during the first quarter.
Our Lending Division enjoyed another robust year in 1996. Nearly $9.0 million
in new commercial loans were booked, $14.1 million in mortgage loans and another
$5.1 million in consumer loans were approved. This success can be attributed to
a favorable economic climate, a low interest rate environment, diversity of
business credit, an experienced lending staff and a loyal and growing customer
base.
The Trust & Investment Management Division continues to grow, surpassing the
$200 million mark in assets under management for the first time ever, which
represents an increase of 13.9% in 1996, over the year-end 1995 position.
Direct revenues for the division in 1996 increased 5.5%. For 1997, the division
will continue to develop plans for offering mutual funds to complement our bank
customers' savings and investment portfolios.
The ever-changing world of electronic technology kept the Bank Operations
Division active in 1996. Installation of a wide area network (WAN) and
enhancements to our local area network (LAN) provide greater speed, accuracy,
system maintenance and communication to the organization. In addition to
running the bank's daily transaction systems, this division supported new
product development, delivery systems and personal computer use bank-wide.
Our Branch Operations Division opened a new banking facility on Oberlin Avenue
in Lorain and prepared for the opening of two mini-branches in the Westlake
Village and The Renaissance retirement centers in Westlake and Olmsted Township,
respectively, at year-end. This division effectively took strides in reducing
branch employee turnover, increased operating efficiencies, assisted in product
and service enhancements and was instrumental in achieving its team-building
goals. More than 1,800 employee training contacts were made with our staff in
1996 in areas of personal computing, customer service, job knowledge and related
education.
In 1996, our Marketing Division capitalized on a wave of bank mergers and
subsequent name changes with a message of our own. The outdoor and newspaper
theme, "If Your Bank Just Changed Names, Maybe It's Time You Changed Banks,"
helped clarify our position on the matter.
END PUBLISHED PAGE 4
<PAGE>36
Later in the year, we assisted the Lorain Fire Department with fund-raising
for the purchase of high-tech thermal imaging lifesaving equipment. Our
direct-mail campaign and resulting television coverage on all five Cleveland
television stations resulted in the purchase of not one, but three pieces of
equipment that may one day save the life of one or more members of the Lorain
community.
When we opened the new banking facility on Oberlin Avenue in June in
conjunction with the closing of our Lorain Plaza location, our goal was to
consolidate facilities while providing a smooth customer transition. Not only
was the transition seamless, it actually attracted many new customers and
accompanying account relationships.
In October, we celebrated the 10th anniversary of the Olmsted Township office
with a $1,200 diamond giveaway promotion. The direct-mail motivated promotion
more than doubled the rate of new account openings for the month and gave us an
opportunity to re-introduce ourselves to the Olmsted market.
At year-end we installed a new free-standing automated teller machine in the
food court at the Midway Mall in Elyria. It immediately became one of our most
heavily-used ATMs in the system. We are currently investigating several other
potential high-volume sites throughout the community.
Throughout the course of the year, we established several new corporate direct
deposit programs, conducted research on a variety of products and services and
employed an outside firm to conduct mystery shops of our branch and customer
sales and service staff for quality control purposes.
New products introduced in 1996 had a decidedly electronic nature to them.
Our business customers may now avail themselves to Corporate Connection, a
personal computer-based cash management system which allows cash managers to
access their accounts for balance inquiries and funds transfers at their
discretion. TeleBanker is a 24-hour banking system which allows retail
customers to perform similar functions by phone. A bill payment function of
TeleBanker, called Telepay, will be introduced early in 1997.
Local Economy
Lorain County continues to grow, spurred on by a relatively healthy national
economy. Unemployment has remained constant and new industries continue to
discover the benefits of moderate-cost resources and easier access to the Lorain
County marketplace.
Our commercial and residential lending portfolios attest to the demand for
dollars for business expansion and affordable housing throughout the communities
we serve. Low interest rates continue to fuel spending, even in the consumer
lending market. We're hopeful that the growth we've witnessed in 1996 will
continue through this year and beyond.
In closing, we once again thank you for your continued support of our
current activities and look forward to a rewarding 1997.
Stanley G. Pijor James F. Kidd
/s/ Stanley G. Pijor /s/ James F. Kidd
Chairman of the Board President and Chief Executive Officer
END PUBLISHED PAGE 5
<PAGE>37
Consolidated Balance Sheets
December 31, 1996 1995
- -------------------------------------------------------------------------
ASSETS:
Cash and due from banks (note 2) $ 18,890,000 $ 27,428,000
Federal funds sold and other interest
bearing instruments 103,000 102,000
Securities (note 3):
Securities available for sale 16,102,000 15,161,000
Investment securities held to maturity 88,858,000 89,405,000
----------------------------
Total securities
(Market value $105,639,000 and
$106,076,000, respectively) 104,960,000 104,566,000
----------------------------
Loans (notes 4 and 11):
Portfolio loans 290,133,000 263,824,000
Loans available for sale 11,940,000 12,669,000
----------------------------
Total loans 302,073,000 276,493,000
Reserve for possible loan losses (4,116,000) (4,002,000)
----------------------------
Net loans 297,957,000 272,491,000
----------------------------
Bank premises and equipment, net (note 5) 10,893,000 11,006,000
Accrued interest receivable 2,721,000 2,764,000
Other assets 2,719,000 3,246,000
----------------------------
TOTAL ASSETS $438,243,000 $421,603,000
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (note 6):
Demand and other noninterest-bearing
deposits $ 63,802,000 $ 60,163,000
Savings and passbook accounts 159,589,000 159,447,000
Time deposits 142,989,000 133,845,000
----------------------------
Total deposits 366,380,000 353,455,000
----------------------------
Securities sold under repurchase
agreements and other short-term
borrowings (note 7) 23,386,000 24,148,000
Federal Home Loan Bank advances (note 8) 1,095,000 -0-
Accrued interest payable 1,263,000 1,250,000
Taxes and other liabilities (notes 9 and 13) 1,921,000 1,959,000
----------------------------
Total liabilities 394,045,000 380,812,000
----------------------------
<PAGE>38
Shareholders' equity: (note 10)
Common stock, $1.00 par:
Shares authorized 5,000,000
Shares issued and outstanding
4,138,533 and 4,039,347,
respectively (notes 14, 15 and 16) 4,138,000 4,039,000
Additional capital 20,178,000 17,854,000
Retained earnings (note 12) 19,873,000 18,856,000
Net unrealized gain on securities
available for sale, net of tax 9,000 42,000
----------------------------
Total shareholders' equity 44,198,000 40,791,000
----------------------------
Commitments and contingencies (notes 5 and 17)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $438,243,000 $421,603,000
----------------------------
See accompanying notes to consolidated financial statements
END PUBLISHED PAGE 6
<PAGE>39
Consolidated Statements of Income
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans:
Taxable $ 25,851,000 $ 24,752,000 $ 21,353,000
Tax exempt 59,000 75,000 72,000
Interest and dividends on
securities:
U.S. Treasury securities 5,107,000 5,104,000 4,323,000
U.S. Government agencies
and corporations 949,000 408,000 170,000
States and political
subdivisions 228,000 452,000 595,000
Other debt and equity
securities 93,000 20,000 20,000
Interest on Federal funds
sold and other interest
bearing instruments 183,000 300,000 297,000
--------------------------------------------
TOTAL INTEREST INCOME 32,470,000 31,111,000 26,830,000
INTEREST EXPENSE:
Interest on deposits:
Time certificates of
$100,000 and over 1,875,000 1,847,000 793,000
Other deposits 8,630,000 8,681,000 6,968,000
Interest on securities sold
under repurchase agreements
and other short-term
borrowings 954,000 1,107,000 755,000
Other interest 19,000 1,000 56,000
--------------------------------------------
TOTAL INTEREST EXPENSE 11,478,000 11,636,000 8,572,000
--------------------------------------------
NET INTEREST INCOME 20,992,000 19,475,000 18,258,000
Provision for possible
loan losses (note 4) 600,000 400,000 400,000
--------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 20,392,000 19,075,000 17,858,000
--------------------------------------------
OTHER INCOME:
Trust division income 1,095,000 1,038,000 916,000
Service charges on deposit
accounts 1,903,000 1,360,000 1,300,000
Other service charges,
exchanges and fees 1,870,000 1,849,000 1,837,000
Gains (loss) on sales of loans
and securities (1,000) -0- 70,000
Other operating income 58,000 40,000 11,000
--------------------------------------------
TOTAL OTHER INCOME 4,925,000 4,287,000 4,134,000
<PAGE>40
OTHER EXPENSES:
Salaries and employee benefits
(notes 13, 14, 15 and 16) 8,134,000 7,926,000 7,675,000
Net occupancy expense of
premises (note 5) 1,224,000 1,211,000 1,112,000
Furniture and equipment
expenses (note 5) 2,045,000 1,895,000 1,768,000
Supplies and postage 971,000 904,000 837,000
FDIC deposit insurance
premium 2,000 385,000 722,000
Ohio franchise tax 554,000 508,000 475,000
Other operating expenses 3,635,000 3,194,000 3,090,000
--------------------------------------------
TOTAL OTHER EXPENSES 16,565,000 16,023,000 15,679,000
--------------------------------------------
INCOME BEFORE FEDERAL
INCOME TAXES 8,752,000 7,339,000 6,313,000
--------------------------------------------
FEDERAL INCOME TAXES (note 9):
Current 2,763,000 2,111,000 1,816,000
Deferred 137,000 225,000 65,000
--------------------------------------------
TOTAL FEDERAL INCOME TAXES 2,900,000 2,336,000 1,881,000
--------------------------------------------
NET INCOME $ 5,852,000 $ 5,003,000 $ 4,432,000
--------------------------------------------
NET INCOME PER SHARE
(note 1) $ 1.41 $ 1.21 $ 1.07
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 7
<PAGE>41
Consolidated Statements of Cash Flows
Years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Interest received $ 32,561,000 $ 30,734,000 $ 26,732,000
Other income received 4,970,000 4,245,000 4,057,000
Interest paid (11,465,000) (11,254,000) (8,492,000)
Cash paid for salaries
and employee benefits (8,015,000) (7,832,000) (7,661,000)
Net occupancy expense of
premises paid (935,000) (901,000) (847,000)
Furniture and equipment
expenses paid (787,000) (733,000) (708,000)
Cash paid for supplies and
postage (971,000) (904,000) (837,000)
Cash paid for other
operating expenses (3,829,000) (4,354,000) (4,372,000)
Federal income taxes paid (2,974,000) (1,956,000) (1,960,000)
--------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,555,000 7,045,000 5,912,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities 30,006,000 45,799,000 43,905,000
Proceeds from maturities and
sales of securities available
for sale 9,763,000 2,953,000 7,069,000
Purchases of investment
securities (29,405,000) (45,914,000) (40,494,000)
Purchases of securities
available for sale (10,743,000) (7,702,000) (6,999,000)
Net (increase) decrease in
credit card loans (132,000) (119,000) 129,000
Net (increase) in long-term
loans (26,214,000) (14,969,000) (16,528,000)
Purchases of bank premises,
equipment and software (1,407,000) (2,276,000) (4,052,000)
Proceeds from sales of
bank premises and equipment 55,000 -0- -0-
--------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (28,077,000) (22,228,000) (16,970,000)
<PAGE>42
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and other
noninterest-bearing deposits 3,639,000 3,067,000 6,855,000
Net increase (decrease)
in savings and passbook
deposits 142,000 (11,648,000) (1,801,000)
Net increase in time deposits 9,144,000 26,817,000 9,153,000
Net increase (decrease)
in securities sold under re-
purchase agreements and other
short-term borrowings (762,000) 4,997,000 (249,000)
Proceeds from Federal Home
Loan Bank advances 1,095,000 -0- -0-
Proceeds from line of credit -0- -0- 1,668,000
Cash paid on line of credit -0- -0- (2,768,000)
Proceeds from exercise of
stock options 179,000 278,000 56,000
Dividends paid (2,452,000) (2,073,000) (1,857,000)
--------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 10,985,000 21,438,000 11,057,000
--------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (8,537,000) 6,255,000 (1,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 27,530,000 21,275,000 21,276,000
--------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 18,993,000 $ 27,530,000 $ 21,275,000
--------------------------------------------
<PAGE>43
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 5,852,000 $ 5,003,000 $ 4,432,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 1,547,000 1,473,000 1,325,000
(Gains) loss on sales of loans
and securities 1,000 -0- (70,000)
Amortization and accretion on
securities, net (48,000) (4,000) 19,000
Amortization of deferred loan
fees and costs, net 280,000 173,000 67,000
Provision for possible
loan losses 600,000 400,000 400,000
Decrease in deferred
Federal income taxes 137,000 157,000 65,000
(Increase) decrease in accrued
interest receivable 43,000 (373,000) (117,000)
(Increase) decrease in
other assets 302,000 (188,000) (282,000)
Increase in accrued
interest payable 13,000 382,000 80,000
Increase (decrease) in Federal
income taxes payable (211,000) 223,000 (79,000)
Increase (decrease) in accrued
expenses 34,000 (424,000) 65,000
Others, net 5,000 223,000 7,000
--------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $8,555,000 $7,045,000 $5,912,000
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 8
<PAGE>44
Consolidated Statements of Shareholders' Equity
Net Unrealized
Gains (Loss)
Years Ended on Securities Total
December 31, 1996 Common Additional Retained Available Shareholders'
1995 and 1994 Stock Capital Earnings for Sale Equity
- -------------------------------------------------------------------------
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
-----------------------------------------------------------
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,
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
-----------------------------------------------------------
<PAGE>45
Net Unrealized
Gain(Loss) on
Years ended Securities Total
December 31, 1996 Common Additional Retained Available Shareholders'
1995 and 1994 Stock Capital Earnings For Sale Equity
- -------------------------------------------------------------------------
Net income -0- -0- 5,852,000 -0- 5,852,000
Cash dividends
declared,
$.63 per share -0- -0- (2,591,000) -0- (2,591,000)
Issuance of 18,307
shares of common
stock under stock
option plans 18,000 161,000 -0- -0- 179,000
Market value of
stock issued in
payment of 2%
stock dividend,
80,879 shares 81,000 2,163,000 (2,244,000) -0- -0-
Change in unrealized
gain(loss) on securities
available for
sale, net of tax -0- -0- -0- (33,000) (33,000)
-----------------------------------------------------------
BALANCE AT
DECEMBER 31,
1996 $4,138,000 $20,178,000 $19,873,000 $ 9,000 $44,198,000
-----------------------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 9
<PAGE>46
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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) Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
that affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Industry Segment Information:
The Corporation's activities are considered to be a single industry segment for
financial reporting purposes. LNB Bancorp, Inc. is a bank holding company
engaged in the business of commercial and retail banking and trust and
investment management services, with operations conducted through its main
office and branches located throughout Lorain and western Cuyahoga Counties of
Ohio. Lorain and western Cuyahoga Counties provide the source for substantially
all of the Bank's deposit, loan and trust activities. The majority of the
Bank's income is derived from a diverse base of commercial, mortgage and retail
lending activities and investments.
(d) 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.
(e) Securities:
The Corporation provides for securities as required by 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, 1996 and 1995 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.
Investment securities which are classified as being held to maturity are
stated at cost. Securities are 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. The Bank does not maintain a
trading account.
(f) 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>47
(g) 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.
END PUBLISHED PAGE 10
<PAGE>48
(1) Summary of Significant Accounting Policies (continued):
(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) Trust and Investment Management 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 and
Investment Management Division is reported on an accrual basis.
(m) Interest on Deposit Accounts:
Interest on deposit accounts is accrued and charged to expense monthly and is
paid or credited in accordance with the terms of the respective accounts.
(n) Federal Income Taxes:
The Corporation and its wholly owned subsidiary file a consolidated federal
income tax return. The Corporation provides for federal income taxes as
required by Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes". Under this 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.
(o) 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 2% stock dividend in 1996 and the
five-for-four stock split in 1995 and the 3% stock dividend in 1994.
(p) Reclassifications:
Certain 1994 and 1995 amounts have been reclassified to conform to the
1996 presentation.
<PAGE>49
(q) Employee Stock Ownership Plan and Stock Purchase Plan:
These two qualified defined contribution plans are accounted for under the
provisions of Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions".
(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 $6,252,000 and $5,660,000
at December 31, 1996 and 1995, 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
$6,271,000 and $5,674,000, during 1996 and 1995 respectively.
END PUBLISHED PAGE 11
<PAGE>50
(3) Securities:
The amortized cost, gross unrealized gains and losses and
fair values of securities at December 31, 1996 and 1995
follow:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
- ---------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities $ 14,424,000 $ 32,000 $( 76,000) $ 14,380,000
Equity securities 1,665,000 57,000 -0- 1,722,000
--------------------------------------------------
Total securities
available for sale 16,089,000 89,000 ( 76,000) 16,102,000
--------------------------------------------------
Investment securities
held-to-maturity:
U.S. Treasury securities 69,673,000 783,000 (126,000) 70,330,000
Securities of other U.S.
Government agencies and
corporations 16,500,000 39,000 (93,000) 16,446,000
States and political
subdivisions 2,685,000 79,000 (3,000) 2,761,000
---------------------------------------------------
Total investment
securities held-
to-maturity 88,858,000 901,000 (222,000) 89,537,000
-----------------------------------------------------
Total securities $104,947,000 $ 990,000 $(298,000) $105,639,000
-----------------------------------------------------
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
held-to-maturity:
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 held-
to-maturity 89,405,000 1,672,000 (162,000) 90,915,000
----------------------------------------------------
Total securities $104,496,000 $1,793,000 $ (213,000) $ 106,076,000
----------------------------------------------------
<PAGE>51
The amortized cost, fair values and yields of
debt securities by contractual maturity date at
December 31, 1996 follow:
Fully-Tax
Amortized Fair Equivalent
December 31, 1996 Cost Value Yield
- -------------------------------------------------------------------------
U.S. Treasury securities
available for sale:
Due within 1 year $ 5,348,000 $ 5,363,000 5.43%
After 1 but within
5 years 9,076,000 9,017,000 5.44
Equity securities 1,665,000 1,722,000 5.59
-------------------------------------------
16,089,000 16,102,000 5.45
-------------------------------------------
Investment securities
held-to-maturity:
Due within 1 year 17,789,000 17,853,000 6.42
After 1 but within
5 years 69,625,000 70,115,000 6.26
After 5 but within
10 years 1,313,000 1,440,000 8.11
After 10 years 131,000 129,000 7.55
-------------------------------------------
88,858,000 89,537,000 6.32
-------------------------------------------
Total $104,947,000 $105,639,000 6.19%
===========================================
END PUBLISHED PAGE 12
<PAGE>52
(3) Securities (continued):
Proceeds from the sale of securities during 1996 were $1,999,000 resulting in
gross realized gains of $-0- and realized losses of $1,000. There were no sales
of securities in 1995 and 1994. 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 $94,173,000 and $87,922,000 at
December 31, 1996 and 1995, 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 market prices of comparable instruments. At December 31, 1996 the
securities portfolio contained approximately $1,974,000 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 $2,039,000. 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, 1996.
(4) Loans and Reserve for Possible Loan Losses:
Loan balances at December 31, 1996 and 1995 are summarized as follows:
December 31, 1996 1995
- --------------------------------------------------------------------------
Real estate loans (includes loans
secured primarily by real estate only):
Construction and land development $ 26,188,000 $ 24,804,000
One to four family residential 153,178,000 138,979,000
Multi-family residential 10,062,000 7,719,000
Non-farm non-residential properties 63,292,000 59,419,000
Commercial and industrial loans
(except those secured primarily
by real estate) 19,055,000 17,732,000
Personal loans to individuals:
Auto, single payment and installment 23,631,000 20,445,000
Credit card and related plans 5,195,000 5,073,000
Obligations of states and political
subdivisions other than securities 842,000 991,000
All other loans 630,000 1,331,000
------------------------------------
TOTAL LOANS 302,073,000 276,493,000
Reserve for possible loan losses (4,116,000) (4,002,000)
------------------------------------
NET LOANS $297,957,000 $272,491,000
------------------------------------
<PAGE>53
Activity in the reserve for possible loan losses for 1996, 1995 and 1994
is summarized as follows:
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
Balance at beginning of year $4,002,000 $3,832,000 $3,714,000
Provision for possible loan
losses 600,000 400,000 400,000
Loans charged-off (672,000) (449,000) (399,000)
Recoveries on loans previously
charged-off 186,000 219,000 117,000
--------------------------------------------
BALANCE AT END OF YEAR $4,116,000 $4,002,000 $3,832,000
--------------------------------------------
At December 31, 1996 and 1995, $11,940,000 and $12,669,000 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, 1996 and 1995. The market value of loans available for sale
equaled or exceeded its carrying value. At December 31, 1996, the Bank had firm
commitments for the sale of approximately $936,000 of these loans.
At December 31, 1996, the recorded investment in loans have been identified as
being impaired and have been evaluated in accordance with SFAS No. 114 and 118
totalled $1,216,000 (of which $540,000 were on a non-accrual basis). Included in
the impaired amount is $911,000 related to loans with a corresponding valuation
allowance of $152,000. For the year ended December 31, 1996, the average
recorded investment in impaired loans was approximately $983,000. The
Corporation recognized $66,000 of interest on impaired loans (during the
portion of the year that they were impaired), of which $7,000 related to
impaired loans for which income is recognized on the cash basis.
At December 31, 1995, the recorded investment in loans have been identified as
being impaired and have been evaluated in accordance with SFAS No. 114 and 118
totalled $1,513,000 (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>54
(5) Bank Premises and Equipment:
Bank premises and equipment are summarized as follows:
December 31, 1996 1995
- -------------------------------------------------------------------------
Land $ 1,941,000 $ 1,941,000
Buildings 9,159,000 8,777,000
Equipment and furniture 11,462,000 11,428,000
Leasehold improvements 311,000 441,000
---------------------------------------------
22,873,000 22,587,000
---------------------------------------------
Less accumulated depreciation
and amortization 11,980,000 11,581,000
---------------------------------------------
TOTAL $10,893,000 $11,006,000
---------------------------------------------
Depreciation and amortization of Bank premises and equipment charged to
other expense amounted to $1,332,000 in 1996, $1,299,000 in 1995 and
$1,170,000 in 1994.
Amortization of purchased software charged to other operating expenses
amounted to $215,000 in 1996, $174,000 in 1995 and $155,000 in 1994.
At December 31, 1996, 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
- -----------------------------------------------------------
1997 $ 49,000 $38,000
1998 32,000 38,000
1999 25,000 4,000
2000 20,000 4,000
2001 and thereafter 108,000 4,000
------------------------
Rentals paid under leases on branch offices and equipment, respectively,
amounted to $101,000 and $54,000 in 1996, $115,000 and $68,000 in 1995 and
$106,000 and $65,000 in 1994.
<PAGE>55
(6) Deposits:
Deposit balances at December 31, 1996 and 1995 are summarized as follows:
December 31, 1996 1995
- --------------------------------------------------------------------------
Demand and other noninterest-
bearing deposits:
Individuals, partnerships
and corporations $ 54,899,000 $ 50,513,000
U.S. Government 693,000 1,612,000
States and political subdivisions 4,411,000 5,088,000
Certified, official, travelers
checks and other 3,799,000 2,950,000
-----------------------------------
Total demand and other noninterest-
bearing deposits 63,802,000 60,163,000
-----------------------------------
Savings and passbook accounts:
Individuals and non-profit organizations 141,978,000 142,020,000
Corporations and profit organizations 17,611,000 17,427,000
-----------------------------------
Total savings and passbook accounts 159,589,000 159,447,000
-----------------------------------
Time deposits:
Individuals, partnerships and
corporations 116,364,000 113,473,000
States and political subdivisions 26,625,000 20,372,000
------------------------------------
Total time deposits 142,989,000 133,845,000
------------------------------------
TOTAL DEPOSITS $366,380,000 $353,455,000
------------------------------------
The aggregate amount of certificates of deposit in denominations of $100,000 or
more amounted to $38,333,000 and $33,942,000 at December 31, 1996 and 1995,
respectively.
The maturity distribution of time certificates of deposit as of December 31,
1996 and 1995 follows:
After 3 After 6
Months Months
Within 3 But Within But Within
Months 6 Months 1 Year
- -------------------------------------------------------------------------
December 31, 1996 $60,553,000 $23,053,000 $25,110,000
- ------------------------------------------------------------------------
December 31, 1995 $46,457,000 $36,044,000 $20,956,000
- -------------------------------------------------------------------------
After 1 After 2
Year But Years But
Within Within
2 Years 5 Years Total
- -------------------------------------------------------------------------
December 31, 1996 $22,707,000 $11,566,000 $142,989,000
- -------------------------------------------------------------------------
December 31, 1995 $20,489,000 $ 9,899,000 $133,845,000
- -------------------------------------------------------------------------
END PUBLISHED PAGE 14
<PAGE>56
(7) Short-Term Borrowings:
Information relating to short-term borrowings for the
years ended December 31, 1996 and 1995 follows:
December 31, 1996 1995
- --------------------------------------------------------------------------
Securities sold under repurchase agreements
and other short-term borrowings
At December 31:
Outstanding $23,386,000 $24,148,000
Interest rate 4.22% 4.98%
Average for the period:
Outstanding $21,465,000 $22,864,000
Interest rate 4.75% 4.85%
Maximum month-end outstanding $34,076,000 $29,121,000
(8) Federal Home Loan Bank Advances:
Advances from the Federal Home Loan Bank of Cincinnati, with maturities and
fixed interest rates thereon at December 31, 1996 are as follows:
Maturity Interest Rate 1996
- ---------------------------------------------------
2001 6.85% $ 360,000
2001 6.25% 735,000
- ---------------------------------------------------
Total $1,095,000
--------------
The Bank maintains a $10,000,000 line of credit with the Federal Home Loan Bank
of Cincinnati (FHLB) which matures in October 1997.
At December 31, 1996, pledged as collateral for FHLB advances were all of the
shares of FHLB stock owned by the Bank, with a carrying value of $1,322,000, and
qualified mortgage loans totaling $1,642,500. Based on the carrying amount of
FHLB stock owned by the Bank, total FHLB advances available were limited to
approximately $13,046,000 at December 31, 1996.
<PAGE>57
(9) Federal Income Taxes:
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, 1996 1995 1994
- -------------------------------------------------------------------------
Computed "expected" tax expense $2,976,000 $2,495,000 $2,146,000
Increase (reduction) in income
taxes resulting from:
Tax exempt interest on
obligations of states
and political subdivisions (89,000) (162,000) (216,000)
Other, net 13,000 3,000 (49,000)
---------------------------------------------
TOTAL FEDERAL INCOME TAXES $2,900,000 $2,336,000 $1,881,000
---------------------------------------------
Net deferred Federal tax assets of $739,000, $876,000 and $1,101,000 at
December 31, 1996, 1995 and 1994, 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.
December 31, 1996 1995 1994
- -------------------------------------------------------------------------
Deferred Federal tax assets:
Reserve for possible loan losses $ 956,000 $ 917,000 $ 859,000
Deferred compensation 127,000 131,000 132,000
Accrued vacation payable 135,000 120,000 105,000
Accrued pension expense -0- 51,000 106,000
Deferred loan fees and costs -0- 34,000 162,000
Other, net 2,000 2,000 70,000
------------------------------------
Total deferred Federal tax assets 1,220,000 1,255,000 1,434,000
Deferred Federal tax liabilities:
Bank premises and equipment (265,000) (214,000) (147,000)
Deferred charges (168,000) (165,000) (186,000)
FHLB stock dividends (25,000) -0- -0-
Prepaid pension expense (15,000) -0- -0-
Accrued loan fees and costs (8,000) -0- -0-
-------------------------------------
Total deferred Federal tax
liabilities (481,000) (379,000) (333,000)
-------------------------------------
NET DEFERRED FEDERAL TAX ASSETS $ 739,000 $ 876,000 $1,101,000
-------------------------------------
END PUBLISHED PAGE 15
<PAGE>58
(10) Shareholders' Equity:
The capital resources of the Corporation and the Bank continue to grow stronger.
The percentage of average equity to average assets were 10.01%, 9.55%, and 9.31%
for 1996, 1995 and 1994, respectively.
The approval of the Comptroller of the Currency is required for national banks
to pay dividends in excess of earnings retained in the current year plus
retained net profits for the preceding two years. As of December 31, 1996
approximately $532,000 of undistributed earnings of the Bank was available for
distribution to the parent company as dividends without prior regulatory
approval.
Under regulations issued by the Federal Reserve Board and the Comptroller of the
Currency, banks and bank holding companies are required to maintain certain
minimum capital ratios known as the risk-based capital ratio and the leverage
ratio. An objective of these ratios is to incorporate risk-weighted capital
guidelines that include not only balance sheet items but also off-balance sheet
activities such as unused commitments and letters of credit. Banks and bank
holding companies are required to maintain total risk-based capital ratios of 8%
of which 4% must be Tier I (core) capital, and a leverage capital ratio of
generally 4%. Tier I capital consists of shareholders' equity, exclusive of net
unrealized gain (loss) on securities available for sale, while total risk-based
capital consists of shareholders' equity, exclusive of net gain (loss) on
securities available for sale, plus the allowable portion of the reserve for
possible loan losses and subordinated debt. The allowance included in total
risk-based capital cannot exceed 1.25% of risk-weighted assets.
In addition to adopting a risk-based assessment system, federal regulatory
agencies adopted regulations defining five capital categories. These
regulations define specific capital categories based on an institution's capital
ratios. The capital categories, in declining order, are "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized",
and "critically undercapitalized." To be considered "well capitalized", an
institution must generally have a leverage capital ratio of at least 5 percent,
a Tier I risk-based capital ratio of at least 6 percent, and a total risk-based
capital ratio of at least 10 percent. At December 31, 1996, and 1995, the
capital ratios for the Corporation and its wholly owned subsidiary, Lorain
National Bank, exceeded the above ratios required to be "well capitalized". The
"well capitalized" status affords the Bank the ability to operate with the
greatest flexibility under current laws and regulations.
As of March 31, 1996, the most recent notification from the Comptroller of the
Currency categorized the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Bank's category.
<PAGE>59
An analysis of the Corporation's risk-based capital position at December 31,
1996 and 1995 follows:
December 31, 1996 1995
- -------------------------------------------------------------------------
Tier I capital -
Shareholders' equity $ 44,189 $ 40,749
Tier II capital -
Allowable portion of the reserve
for possible loan losses 3,273 2,857
---------- ----------
Total risk-based capital $ 47,462 $ 43,606
---------- ----------
Risk-weighted assets $246,983 $228,578
Risk weighted off-balance
sheet assets 14,875 13,783
---------- ----------
Total risk-weighted assets $261,858 $242,361
---------- ----------
Tier I capital ratio 16.93% 16.81%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 18.18% 17.99%
Required capital ratio 8.00% 8.00%
Leverage ratio - Tier I capital
as a percentage of average assets 10.36% 9.89%
Required leverage ratio 3.00% 3.00%
(11) 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, 1996 1995
- -------------------------------------------------------------------------
Aggregate amount at beginning of year $2,907,000 $2,773,000
Additions (deductions):
New loans 1,271,000 652,000
Repayments (1,342,000) (529,000)
Changes in directors and officers
and/or their affiliations, net 1,048,000 11,000
- -------------------------------------------------------------------------
Aggregate amount at end of year $3,884,000 $2,907,000
- -------------------------------------------------------------------------
END PUBLISHED PAGE 16
<PAGE>60
(12)Parent Company:
Substantially all of the retained earnings of the Corporation represent
undistributed net income of its subsidiary.
Condensed financial information of LNB Bancorp, Inc. (Parent Company only) is as
follows:
Condensed Balance Sheets
ASSETS:
December 31, 1996 1995
- --------------------------------------------------------------------------
Cash $ 934,000 $ 753,000
Investment in subsidiary
at equity in underlying
value of its net assets 31,097,000 35,885,000
Securities available for sale 4,864,000 4,729,000
Notes receivable - subsidiary 8,000,000 -0-
Other assets 89,000 71,000
-----------------------------------
$44,984,000 $41,438,000
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
December 31, 1996 1995
- --------------------------------------------------------------------------
Dividends payable $ 786,000 $ 647,000
Shareholders' equity:
Common stock, $1.00 par 4,138,000 4,039,000
Additional capital 20,178,000 17,854,000
Retained earnings 19,873,000 18,856,000
Net unrealized gain on securities
available for sale, net of tax 9,000 42,000
------------------------------------
Total shareholders' equity 44,198,000 40,791,000
------------------------------------
$44,984,000 $41,438,000
------------------------------------
Condensed Statements of Income
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
INCOME:
Cash dividends from subsidiary $10,509,000 $2,094,000 $1,841,000
Interest and other income 258,000 235,000 209,000
----------------------------------------------
10,767,000 2,329,000 2,050,000
EXPENSES:
Other expenses 70,000 92,000 70,000
----------------------------------------------
Income before Federal income
taxes and equity in undistributed
net income of subsidiary 10,697,000 2,237,000 1,980,000
Federal income tax expense 63,000 49,000 47,000
Equity in undistributed net
income of subsidiary (1) (4,782,000) 2,815,000 2,499,000
----------------------------------------------
NET INCOME $ 5,852,000 $5,003,000 $4,432,000
----------------------------------------------
(1) Amount in parentheses represents the excess of dividends declared over net
income of subsidiary.
<PAGE>61
Condensed Statements of Cash Flows
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from subsidiary $10,509,000 $2,094,000 $1,841,000
Other, net 107,000 77,000 89,000
---------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 10,616,000 2,171,000 1,930,000
---------------------------------------------
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES:
Proceeds from maturities of
securities available for sale 965,000 -0- -0-
Proceeds from maturities of
investment securities -0- 470,000 622,000
Purchases of investment securities -0- -0- (450,000)
Purchases of securities available
for sale (1,127,000) (1,034,000) -0-
Proceeds from sale of building
to Bank -0- -0- 2,855,000
Construction of bank premises -0- -0- (2,109,000)
Cash paid on line of credit -0- -0- (2,768,000)
Advance to subsidiary (8,000,000) -0- -0-
Proceeds from line of credit -0- -0- 1,668,000
Proceeds from exercise of
stock options 179,000 278,000 56,000
Dividends paid (2,452,000) (2,073,000) (1,857,000)
---------------------------------------------
NET CASH USED IN INVESTING
AND FINANCING ACTIVITIES (10,435,000) (2,359,000) (1,983,000)
---------------------------------------------
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS 181,000 (188,000) (53,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 753,000 941,000 994,000
---------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 934,000 $ 753,000 $ 941,000
---------------------------------------------
END OF PUBLISHED PAGE 17
<PAGE>62
(13) 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
$55,000 in 1996, $92,000 in 1995 and $128,000 in 1994. At December 31, 1996
there were 213 participants in the plan. An analysis of net periodic pension
cost for 1996, 1995 and 1994 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 1996
and 1995. The expected long-term rate of return on assets was 8.50% for 1996 and
1995.
An analysis which sets forth the plan's funded status and prepaid (accrued)
pension liability as reported in the Corporations financial statements at
December 31, 1996 and 1995 is also presented below.
Components of Net Periodic
Pension Cost: 1996 1995 1994
- -------------------------------------------------------------------------
Service cost $ 257,000 $ 184,000 $ 229,000
Interest cost of projected
benefit obligation 435,000 466,000 467,000
Actual return on plan assets (1,097,000) (1,410,000) (131,000)
Net total of other components 460,000 852,000 (437,000)
---------------------------------------------
Net periodic pension cost $ 55,000 $ 92,000 $ 128,000
---------------------------------------------
Actuarial Present Value of Benefit Obligations: 1996 1995
- --------------------------------------------------------------------------
Accumulated benefit obligation including
vested benefits of $(5,433,000) in 1996
and $(5,591,000) in 1995 $(5,455,000) $(5,644,000)
-----------------------------------
Projected benefit obligation $(7,025,000) $(7,251,000)
Plan assets at market value, primarily
U. S. Government securities and
investments in bond and equity funds 7,666,000 7,758,000
-----------------------------------
Plan assets in excess of projected
benefit obligations 641,000 507,000
Unrecognized net (gains) losses
subsequent to transition (220,000) (196,000)
Unrecognized prior service cost (294,000) (329,000)
Unrecognized net assets, being recognized
over employees' average remaining
service life (87,000) (136,000)
-----------------------------------
Prepaid (accrued) pension liability $ 40,000 $ (154,000)
-----------------------------------
<PAGE>63
(14) Stock Option Plan:
The Corporation applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" to account for stock option plans and,
accordingly, no compensation cost has been recognized for its incentive stock
options in the financial statements. Had the Corporation determined
compensation cost on the fair value at the date of grant for its incentive stock
options under the provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", there would have been no
difference in the Corporation's 1996 net income and earnings per share and the
impact on the 1995 net income and earnings per share would have not been
material.
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.
During 1996, stock options amounting to 18,307 shares were exercised at a
price range of $6.57 to $19.99.
An analysis of the status of the stock option plans as of December 31, 1996
follows:
Plan Year 1985 1982
- --------------------------------------------------------------------------
Options outstanding:
Total 17,650 9,864
Vested 17,650 9,864
Options available for granting -0- -0-
Exercise price $19.99 $14.93
- --------------------------------------------------------------------------
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
<PAGE>64
(15) 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 $400,000, $360,000, and $375,000 in 1996, 1995, and 1994,
respectively. At December 31, 1996 there were 266 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.
Transactions by the ESOP, relating to activity in the Corporation's common
stock, are summarized below:
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
Cash dividend income $ 62,000 $ 44,000 $ 31,000
Stock dividend/split shares 1,865 13,845 1,350
Shares purchased 22,542 18,958 12,216
Shares distributed 4,246 3,420 101
Year end holdings:
Shares 107,010 86,849 57,466
Market value $3,103,000 $2,388,000 $1,731,000
As a percentage of
total plan assets 86.0% 68.6% 57.6%
(16) 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 $110,000,
$105,000 and $105,000 in 1996, 1995 and 1994, respectively. At December 31,
1996 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, 1996 1995 1994
- --------------------------------------------------------------------------
Cash dividend income $ 76,000 $ 66,000 $ 63,000
Stock dividend/split shares 2,427 25,537 3,052
Shares purchased 19,447 5,552 18,991
Shares distributed 13,394 21,238 8,765
Year end holdings:
Shares 127,750 119,270 109,419
Market value $3,705,000 $3,280,000 $3,296,000
As a percentage of
total plan assets 99.8% 90.8% 96.9%
<PAGE>65
(17) Commitments, Credit Risk, and Contingencies:
In the normal course of business, the Bank enters into commitments 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. Commitments to extend credit involve elements of credit risk
and interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the commitment is represented by the
contractual amount of the commitment. The Bank uses the same credit policies in
making commitments as it does for on-balance sheet instruments. Interest rate
risk on commitments to extend credit results from the possibility that interest
rates may have moved unfavorably from the position of the Bank since the time
the commitment was made.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates of 60 to 120 days or other termination
clauses and may require payment of a fee. Since some of the commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
The Bank evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained by the Bank upon extension of credit is based
on management's credit evaluation of the applicant. Collateral held is
generally single-family residential real estate, and commercial real estate.
The Corporation's maximum potential obligation to extend credit for
financial instruments with off-balance sheet risk at December 31, 1996 was:
Commitments to extend credit $61,898
Standby letters of credit 1,686
-------
Total $63,584
-------
Most of the Corporation's business activity is with customers located within the
Corporation's defined market area. As of December 31, 1996, 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.
(18) 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
<PAGE>66
(19) 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 and Accrued interest, accounts receivable and other financial
assets:
For these short-term financial instruments, the carrying value is a reasonable
estimate of fair value.
Securities:
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 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.
Deposits:
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 and Accrued interest payable and other financial liabilities:
For these short term financial instruments, the carrying value is a reasonable
estimate of fair value.
Federal Home Loan Bank advances:
The fair value of these long-term financial instruments is estimated by
discounting future cash flows using current FHLB rates for the remaining term to
maturity.
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.
<PAGE>67
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, 1996 and 1995 are summarized as follows:
December 31, 1996 1995
- -------------------------------------------------------------------------
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 $ 18,993,000 $ 18,993,000 $ 27,530,000 $ 27,530,000
instruments ============ ============ ============ ============
Securities $104,960,000 $105,639,000 $104,566,000 $106,076,000
============ ============ ============ ============
Net loans $297,957,000 $297,917,000 $272,491,000 $272,754,000
============ ============ ============ ============
Accrued interest,
accounts receivable
and other financial
assets $ 3,965,000 $ 3,965,000 $ 4,424,000 $ 4,424,000
============ ============ ============ ============
Financial liabilities:
Deposits:
Demand deposits,
savings accounts
and money market
deposits $223,391,000 $223,391,000 $219,610,000 $219,610,000
Certificates of 142,989,000 143,569,000 133,845,000 134,791,000
deposit ------------ ------------ ------------ ------------
Total deposits $366,380,000 $366,960,000 $353,455,000 $354,401,000
============ ============ ============ ============
Securities sold under
repurchase agree-
ments and other
short-term
borrowings $ 23,386,000 $ 23,386,000 $ 24,148,000 $ 24,148,000
============ ============ ============ ============
Federal Home Loan
Bank advances $ 1,095,000 $ 1,103,000 $ -0- $ -0-
============ ============ ============ ============
Accrued interest
payable and
other financial $ 2,849,000 $ 2,849,000 $ 2,673,000 $ 2,673,000
liabilities ============ ============ ============ ============
END PUBLISHED PAGE 20
<PAGE>68
Report of Management
To The Shareholders of LNB Bancorp, Inc. January 24, 1997
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/ James F. Kidd /s/ Gregory D. Friedman
James F. Kidd Gregory D. Friedman
President and Senior Vice President,
Chief Executive Officer Chief Operating Officer and
Chief Financial Officer
<PAGE>69
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in the notes to consolidated financial statements the Corporation
adopted the provisions of Statement of Financial Standards No. 114 "Accounting
by Creditors for Impairment of a Loan," and No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures" in 1995, and No.
115, "Accounting for Certain Investment in Debt and Equity Securities", in 1994.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
January 24, 1997
END PUBLISHED PAGE 21
<PAGE>70
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 1996 Annual Report to
Shareholders.
Forward-Looking Statements:
When used in this Annual Report, the words or phrases "will likely result",
"are expected to","will continue","is anticipated", "estimate", "projected" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Corporation's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Corporation's market area and competition, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Corporation wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. The Corporation wishes to advise readers that the factors listed above
could affect the Corporation's financial performance and could cause the
Corporation's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Corporation does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Earnings Summary:
LNB Bancorp, Inc.'s consolidated 1996 net income reached a record high
of $5,852,000, compared to $5,003,000 in 1995 and $4,432,000 in 1994. Net
income for 1996 and 1995 was favorably affected by an increase in net interest
income and increased noninterest income. Net income in 1996 and 1995 was
favorably affected by reductions in FDIC Deposit Insurance Premiums.
Earnings per share totaled $1.41 for 1996 compared to $1.21 for 1995 and
$1.07 for 1994. Prior period earnings per share data have been restated to
reflect the 2% stock dividend in 1996, five-for-four stock split in 1995 and the
3% stock dividend in 1994. The return on average assets increased to 1.37% in
1996 from 1.21% in 1995 and 1.13% in 1994.
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.
<PAGE>71
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.
Net interest income in 1996 increased by $1,426,000 from $19,674,000 in 1995
to $21,100,000 in 1996. 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 decreased from 3.71% in 1995 to 3.58% in
1996, or a total of 13 basis points. During the same period, the yield on
earning assets increased 4 basis points to 8.23% in 1996, compared to 8.19% in
1995, resulting in a increase in the interest spread by 17 basis points in
1996. 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 1995 to
1996 from increases in interest rates and volumes.
Net interest income increased by $1,121,000 in 1995 from $18,553,000 in 1994
to $19,674,000 in 1995. Net interest income in 1995 was affected by increases in
the volume of interest-bearing assets and liabilities plus increases in market
interest rates during the second half of 1995. The cost of funds dropped 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 8.91% in 1995,
compared to 7.45% in 1994, resulting in a decrease in the interest spread by 10
basis points in 1995.
The net yield on earning assets in 1996 was 5.33% compared to 5.14% in
1995 and 5.09% in 1994. 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.
END PUBLISHED PAGE 22
<PAGE>72
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) Interest Rate and Interest Differential
December 31, 1996
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
----------------------------------------------
ASSETS:
Securities $ 98,661 $ 6,056 6.14%
Securities-tax exempt 4,312 313 7.26
Federal funds sold and other
interest-bearing instruments 4,916 276 5.61
Commercial loans 108,750 10,327 9.50
Commercial loans tax-exempt 929 82 8.83
Mortgage loans 130,026 10,369 7.97
Consumer loans 48,104 5,155 10.72
----------------------------------------------
TOTAL EARNING ASSETS 395,698 32,578 8.23%
----------------------------------------------
Reserve for possible loan losses (4,043)
Cash and due from banks 17,794
Other assets 17,173
----------------------------------------------
TOTAL ASSETS $426,622
----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit $139,028 $ 7,302 5.25%
Savings deposits 92,570 2,041 2.20
Interest-bearing demand 67,633 1,162 1.72
Short-term borrowings 21,465 954 4.47
Long-term borrowings 291 19 6.53
----------------------------------------------
TOTAL INTEREST- 320,987 11,478 3.58%
BEARING LIABILITIES ----------------------------------------------
Noninterest-bearing deposits 58,989
Other liabilities 3,944
Shareholders' equity 42,702
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $426,622
----------------------------------------------
NET INTEREST INCOME(FTE) $21,100
Taxable equivalent adjustment (108)
----------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $20,992
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.33%
----------------------------------------------
<PAGE>73
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:
Certificates of deposit $127,013 $ 7,013 5.52%
Savings deposits 93,809 2,133 2.27
Interest-bearing demand 70,224 1,383 1.97
Short-term borrowings 22,864 1,107 4.84
Long-term borrowings -0- -0- -0-
----------------------------------------------
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>74
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:
Certificates of deposit $100,185 $ 3,913 3.91%
Savings deposits 96,375 2,227 2.31
Interest bearing demand 79,408 1,621 2.04
Short-term borrowings 23,167 811 3.50
Long-term borrowings -0- -0- -0-
----------------------------------------------
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>75
Rate/Volume Analysis of Net Interest Income
Fully-Tax Equivalent
Years ended December 31, 1996 and 1995
- -------------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities $ 81 $ 443 $ 524
Securities-tax exempt (288) (22) (310)
Federal funds sold and
other interest-
bearing instruments (13) (11) (24)
Commercial loans 338 (244) 94
Commercial loans tax-exempt (16) (5) (21)
Mortgage loans 737 (6) 731
Consumer loans 354 (80) 274
---------------------------------------------
TOTAL INTEREST INCOME 1,193 75 1,268
---------------------------------------------
Certificates of deposit 663 (374) 289
Savings deposits (28) (64) (92)
Interest-bearing demand (51) (170) (221)
Short-term borrowings (68) (85) (153)
Long-term borrowings -0- 19 19
---------------------------------------------
TOTAL INTEREST EXPENSE 516 (674) (158)
---------------------------------------------
NET INTEREST INCOME $ 677 $ 749 $ 1,426
---------------------------------------------
<PAGE>76
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
---------------------------------------------
Certificates of deposit 1,048 2,052 3,100
Savings deposits (59) (35) (94)
Interest-bearing demand (187) (51) (238)
Short-term borrowings (11) 307 296
Long-term borrowings -0- -0- -0-
---------------------------------------------
TOTAL INTEREST EXPENSE 791 2,273 3,064
---------------------------------------------
NET INTEREST INCOME $ 717 $ 404 $ 1,121
---------------------------------------------
END PUBLISHED PAGE 23
<PAGE>77
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 79.4% in 1995
to 79.6% in 1996.
Interest and dividends on securities and Federal funds sold, as a percentage
of total interest income, on a fully-tax equivalent basis, decreased from 20.6%
in 1995 to 20.4% in 1996. This decrease results from a lower average balance in
the security portfolio and Federal funds from 1995 to 1996, even though the
market rates on securities increased from 1995 through 1996. The higher yield in
1996 of the security portfolio is the result of 1994 and some 1995 purchases of
securities with higher interest rates than those securities that matured in 1994
and 1995.
The cost of interest-bearing liabilities in 1996 was $11,478,000 compared
to $11,636,000 and $8,572,000 in 1995 and 1994, respectively. The net
favorable impact of decreases in rates plus increases in volume caused
interest expense to decrease from 1995 through 1996. Repricing of
interest-bearing liabilities from 1995 through 1996 resulted in a significant
net favorable change in interest expense during 1996. The unfavorable impact of
increases in deposit rates plus increases in volume caused interest expense to
increase from 1994 to 1995. Repricing of interest bearing liabilities from 1994
through 1995 resulted in a significant net unfavorable change in interest
expense in 1995.
Total other income in 1996 increased to $4,925,000 compared to $4,287,000
in 1995 for an increase of $638,000. This increase results from increases from
Trust Division income of $57,000, and service charges of $543,000. The increase
in service charges is due, in part, to reevaluating the assessment of
transaction account charges. Total other income in 1995 increased by $153,000
to $4,287,000 as compared to 1994. This increase resulted from increases in
Trust division income of $122,000 and service charges of $60,000.
Total other expenses increased 3.4% in 1996 compared to 1995 after a
2.2% increase for 1995 compared to 1994. A significant portion of the
increases in 1996 and 1995 were the result of the effects of inflation on
salaries and benefits plus increases in furniture and equipment expenses.
Total other expenses in 1996 and 1995 were also affected by decreases in FDIC
Deposit Insurance Premiums.
The effective tax rate of the Corporation was 33.1%, 31.8%, and 29.8% in
1996, 1995, and 1994, respectively. The increase in the effective tax rate
in 1996 and 1995 was primarily due to lower levels of tax-exempt interest
income. The decrease in the effective tax rate in 1994 was due primarily to the
favorable outcome of a Federal tax examination. A detailed analysis of
Federal income taxes is presented on page 15.
The Corporation's Consolidated Statements of Income reflect the effects
of inflation. Since interest rates, loan demand and deposit levels are
related to inflation, the resulting changes in interest sensitive assets
and liabilities are reflected in net interest income. Similarly,
operating expenses such as salaries, rents and maintenance are affected by
inflation. The only major expense items which do not reflect inflation are
depreciation and amortization as these expenses are based on original
purchase costs.
Selected quarterly financial data for 1996, 1995 and 1994 is presented
on page 28. There were no significant intra-quarter fluctuations except
for fourth quarter increases in other income in 1995 and 1996. The
increase in other income reflects the realization of annual Trust Division
billings which are based on year-end market values.
<PAGE>78
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, 1996, was $4,116,000, or 1.36% of
outstanding loans, compared to $4,002,000, or 1.45% at year-end 1995.
The provision for possible loan losses charged to operating expense was
$600,000 and $400,000 in 1996 and 1995, respectively. In addition to meeting
management's expectations for adequacy, this level of funding for the reserve
also kept the Bank's ratio of the reserve as a percentage of outstanding loans
comparable to that of banks of similar size, loan portfolio size and mix and
credit philosophies.
Net charge-offs for 1996 were $486,000, as compared to $230,000 for 1995,
while net charge-offs as a percentage of average loans outstanding for 1996 was
0.17%, compared to 0.08% for 1995.
Non-performing loans at year-end 1996 were $1,122,000 compared to $1,457,000
at year-end 1995. 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,
1996, 63% of non-performing loans were Commercial Loans and 37% were Residential
Mortgage Loans. This compares to 29% and 71%, respectively for the same
categories at year-end 1995. Non-performing loans did not have a material
impact on interest income during 1996, 1995 or 1994.
END PUBLISHED PAGE 24
<PAGE>79
Provision and Reserve for Possible Loan Losses (continued)
The quality of the loan portfolio remains fairly high, as the ratio of
non-performing loans to total loans decreased from 0.53% at year-end 1995 to
0.37% at year-end 1996.
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, 1996, there were no significant
concentrations of credit risk in the loan portfolio. Additional information
regarding the loan portfolio is presented on page 13.
Financial Condition:
The earning assets mix has changed considerably from December 31, 1995
to December 31, 1996. During this period, loans increased by $25,580,000
and securities increased by $394,000. Increases in loans are primarily funded
by growth in deposits, current retained earnings, and reductions in cash and due
from banks. The economy showed good growth during 1996 which stimulated loan
demand.
The maturity distribution of debt securities which appears on page 12 of this
report, indicates that $101,794,000, or 97.0%, of debt securities mature within
the next five year period with $23,152,000, or 22.1% maturing during 1997. At
the close of 1996 and 1995 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 $692,000 or 0.6%, at
the close of 1996.
Total deposits held by the Corporation increased $12,925,000 during 1996
compared to an increase of $18,236,000 during 1995. Interest-bearing deposits
represented 82.6% and 83.0% of total deposits at December 31, 1996 and 1995,
respectively. Noninterest-bearing deposits increased by $3,639,000 while
interest-bearing deposits increased by $9,286,000 during 1996. During 1995,
noninterest-bearing deposits increased by $3,067,000 while interest-bearing
deposits increased by $15,169,000. In both 1996 and 1995, as long-term deposits
matured and new funds were deposited, these funds were primarily placed in
short-term deposits.
Total other borrowings, primarily repurchase agreements, decreased by
$762,000 during 1996, following a increase of $4,977,000 in 1995. 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:
Total shareholder's equity was $44,198,000 at December 31, 1996 compared to
$40,791,000 at December 31, 1995, an increase of $3,407,000, or 8.4%. This
increase was primarily attributable to net income of $5,852,000 less dividends
declared to shareholders of $2,591,000 and a decrease in the unrealized gains,
net of deferred tax, on available for sale securities from year-end 1995 to
year-end 1996 of $33,000. The book value per share of common stock was $10.68
at year-end 1996 compared to $9.90 at year-end 1995, a 7.9% increase, adjusted
for a 2% stock dividend in April 1996.
Cash dividends declared on the common stock of LNB Bancorp, Inc. during the
year ended December 31, 1996 totaled $2,591,00 or $.63 per share. This compared
to $2,175,000, or $.53 per share for the year ended December 31, 1995. In
addition to the regular fourth quarter dividend of $.16 per share, an EXTRA cash
dividend of $.03 per share was declared by the Board of Directors. The 1996
dividends per share represent an increase of 18.9% over the cash dividend
declared in 1995. Dividends declared in 1996 represented a payout ratio of
44.3% of net income compared to 43.5% in 1995. In addition to cash dividends
declared in 1996, the Board of Directors approved a 2% stock dividend to its
shareholders which was paid on April 16, 1996.
<PAGE>80
The Corporation's primary source of funds for the payment of dividends is its
Bank subsidiary. During December of 1996, the Bank paid $8,786,000 in dividends
to the Corporation. Of this amount, $786,000 was used to fund the fourth
quarter dividend to shareholders. The remainder, $8,000,000, was upstreamed to
the Corporation in order for it to have sufficient equity capital to take
advantage of future acquisition opportunities and to pay future dividends. In
order for the Bank to fund its balance sheet and remain well capitalized, the
Corporation and the Bank entered into a subordinated debt agreement on December
30, 1996 for $8,000,00 payable on January 1, 2007 at an interest rate of 6.80%.
The Bank, which is limited by regulation as to the amount of a dividend which
can be paid, remains within these regulatory guidelines. Currently this
restriction will not preclude the Bank from paying sufficient dividends to fund,
as needed, the usual quarterly dividends paid to the Corporation's shareholders.
Under regulations issued by the Federal Reserve Board and the Office of the
Comptroller of the Currency, bank holding companies and banks are required to
maintain certain minimum capital ratios in order to be considered "well
capitalized." At December 31, 1996 and 1995, the capital ratios of both the
Corporation and the Bank exceeded those required to be considered "well
capitalized." For additional information on the Corporation and Bank's capital
ratios, refer to Note 10-Shareholders' Equity, on page 16.
On an ongoing basis the Corporation analyzes acquisition opportunities in
markets which are adjacent to or within the Corporation's current geographical
market. Corporate management believes that its current capital resources are
sufficient to support any foreseeable acquisition activity. The Corporation
also retains a portion of the net income it earns to accommodate current
operational and regulatory capital requirements and to fund future growth
opportunities. A part of future growth depends upon capital expenditure
programs. Capital expenditures of approximately $1,250,000 are projected for
1997.
END PUBLISHED PAGE 25
<PAGE>81
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>82
The table below presents an analysis of the interest rate sensitivity of
the Corporation at December 31, 1996. 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, 1996 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, 1996 Months 6 Months 1 Year
- --------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning
assets:
Loans $ 137,797 $ 19,522 $ 28,450
Securities 5,780 4,195 13,109
Federal funds
sold and other
interest-bearing
assets -0- 103 -0-
-------------------------------------------------------
Total interest
earning assets $ 143,577 23,820 41,559
-------------------------------------------------------
Interest-bearing
liabilities:
Savings and other
non-time deposits 67,229 4,146 -0-
Time deposits 60,552 23,053 25,110
Short-term
borrowings and
other interest
bearing
liabilities 23,386 -0- -0-
-------------------------------------------------------
Total interest
bearing
liabilities 151,167 27,199 25,110
-------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP $ (7,590) $ (3,379) $ 16,449
------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY $ (7,590) $ (10,969) $ 5,480
GAP
-------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP AS A PERCENTAGE
OF TOTAL INTEREST
EARNING ASSETS (1.86%) (2.69%) 1.35%
-------------------------------------------------------
<PAGE>83
After 1
Year But
Within After 5
December 31, 1996 5 Years Years Total
- --------------------------------------------------------------------------
(Dollars in Thousands)
Interest earning
assets:
Loans $ 107,758 $ 8,546 $ 302,073
Securities 78,772 3,104 104,960
Federal funds
sold and other
interest-bearing
assets -0- -0- 103
-------------------------------------------------------
Total interest
earning assets 186,530 11,650 407,136
-------------------------------------------------------
Interest-bearing
liabilities:
Savings and other
non-time deposits 88,214 -0- 159,589
Time deposits 34,243 31 142,989
Short-term
borrowings and
other interest
bearing
liabilities 1,095 -0- 24,481
-------------------------------------------------------
Total interest-
bearing
liabilities 123,552 31 327,059
-------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP $ 62,978 $ 11,619 $ 80,077
------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP $ 68,458 $ 80,077
-------------------------------------------------------
CUMULATIVE INTEREST
RATE SENSITIVITY
GAP AS A PERCENTAGE
OF TOTAL INTEREST
EARNING ASSETS 16.81% 19.67%
-------------------------------------------------------
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>84
On December 31, 1996, cash and cash equivalents equaled $18,993,000 or
4.3% 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 1996 net income to net cash provided by
operating activities primarily consists of depreciation and amortization
of $1,547,000 and a provision of possible loan losses of $600,000. These items
represent expenses included in net income which do not represent an expenditure
or receipt of cash.
END PUBLISHED PAGE 26
<PAGE>85
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 $28,077,000. Cash used in investing activities resulted from net increases
in securities of $379,000. Cash used in investing activities included net loan
increases of $26,346,000 and purchases of capital assets of $1,407,000.
Net cash provided by financing activities was $10,985,000. Cash provided by
financing activities included increases in deposits of $12,925,000, decreases in
securities sold under repurchase agreements of $762,000 and proceeds from
stock options exercised of $179,000. Cash used by financing activities
primarily included dividends paid of $2,452,000. These cash flows resulted in a
$8,537,000 decrease in cash and cash equivalents from December 31, 1995 to
December 31, 1996.
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
$10,800,000 at three correspondent banks. The internal and external
sources of funds for liquidity, in the opinion of management, satisfy the
liquidity needs of the Corporation.
Impacts of Accounting and Regulatory Pronouncements:
Corporate management is not aware of any current recommendations by
regulatory authorities which, if they were implemented, would have a material
effect on the liquidity, capital resources, or operations of the Corporation.
However, the potential impact of certain accounting and regulatory
pronouncements warrant further discussion.
The Financial Accounting Standards Board (FASB) has issued:
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities"
Implementation date by the Corporation: January 1, 1997
Impact on the Corporation: This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfer of financial assets that are
sales from transfers that are secured borrowings. Corporate management does not
believe that adoption of SFAS No. 125 will have a significant impact on net
income.
All other applicable Statements of Financial Accounting Standards that
have been issued and have effective dates impacting 1996 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>86
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:
"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 had 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. During 1996, the Bank paid FDIC Insurance Premiums of $2,000
compared to $385,000 for 1995. The lower FDIC Insurance Premium results from a
full year of lower FDIC insurance rates. During 1995, the lower FDIC insurance
rates were in affect for only June through December. The Bank does not
anticipate significant increases in FDIC insurance rates during 1997.
END PUBLISHED PAGE 27
<PAGE>87
Selected Quarterly Financial Data
Quarterly financial and per share data for the years ended December 31,
1996, 1995 and 1994 are summarized as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
Total interest income 1996 $7,892,000 $8,032,000 $8,187,000 $8,359,000
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
- --------------------------------------------------------------------------
Total interest expense 1996 2,878,000 2,770,000 2,890,000 2,940,000
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
- --------------------------------------------------------------------------
Net interest income 1996 5,014,000 5,262,000 5,297,000 5,419,000
1995 4,630,000 4,797,000 4,968,000 5,080,000
1994 4,269,000 4,508,000 4,725,000 4,756,000
- --------------------------------------------------------------------------
Provision for possible 1996 125,000 175,000 125,000 175,000
loan losses 1995 100,000 100,000 100,000 100,000
1994 100,000 100,000 100,000 100,000
- --------------------------------------------------------------------------
Net interest income 1996 4,889,000 5,087,000 5,172,000 5,244,000
after provision for 1995 4,530,000 4,697,000 4,868,000 4,980,000
possible loan losses 1994 4,169,000 4,408,000 4,625,000 4,656,000
- --------------------------------------------------------------------------
Other income 1996 1,221,000 1,227,000 1,254,000 1,223,000
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
- --------------------------------------------------------------------------
Other expenses, 1996 4,784,000 4,863,000 4,923,000 4,895,000
including Federal 1995 4,521,000 4,524,000 4,648,000 4,666,000
income taxes 1994 4,064,000 4,360,000 4,552,000 4,584,000
- --------------------------------------------------------------------------
Net income 1996 1,326,000 1,451,000 1,503,000 1,572,000
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
- --------------------------------------------------------------------------
Net income per share 1996 .33 .35 .36 .37
(2) 1995 .27 .28 .32 .34
1994 .25 .27 .27 .28
- --------------------------------------------------------------------------
Dividends paid per
share (1) 1996 .14 .14 .16 .19
1995 .12 .12 .14 .15
1994 .10 .12 .12 .13
- --------------------------------------------------------------------------
(1) All share and per share data have been adjusted to reflect the 2 percent
stock dividend in 1996, the five-for-four stock split in 1995, and 3 percent
stock dividend in 1994.
(2) Net income per share is computed using the weighted average number of shares
outstanding during each year.
END PUBLISHED PAGE 28
<PAGE>88
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------
Total interest income $32,470,000 $31,111,000 $26,830,000
Total interest expense 11,478,000 11,636,000 8,572,000
---------------------------------------------
Net interest income 20,992,000 19,475,000 18,258,000
Provision for possible
loan losses 600,000 400,000 400,000
Other income 4,925,000 4,287,000 4,064,000
Gains from sales
of loans and securities -0- -0- 70,000
Other expense 16,565,000 16,023,000 15,679,000
---------------------------------------------
Income before Federal
income taxes 8,752,000 7,339,000 6,313,000
Federal income taxes 2,900,000 2,336,000 1,881,000
---------------------------------------------
NET INCOME $ 5,852,000 $ 5,003,000 $ 4,432,000
---------------------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------
Cash and cash equivalents $ 18,993,000 $ 27,530,000 $ 21,275,000
Securities 104,960,000 104,566,000 99,524,000
Net loans 297,957,000 272,491,000 257,975,000
Other assets 16,333,000 17,016,000 16,081,000
---------------------------------------------
TOTAL ASSETS $438,243,000 $421,603,000 $394,855,000
---------------------------------------------
Total deposits $366,380,000 $353,455,000 $335,219,000
Other borrowings 24,481,000 24,148,000 19,171,000
Other liabilities 3,184,000 3,209,000 2,954,000
---------------------------------------------
Total liabilities 394,045,000 380,812,000 357,344,000
---------------------------------------------
Total shareholders' equity 44,198,000 40,791,000 37,511,000
---------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $438,243,000 $421,603,000 $394,855,000
---------------------------------------------
SHARE DATA
1996 1995 1994
- --------------------------------------------------------------------------
Per share data (1):
Net income (2) $ 1.41 $ 1.21 $ 1.07
Cash dividends $ .63 $ .53 $ .47
Cash dividends declared $2,591,000 $2,175,000 $1,905,000
Net increase in
shareholders' equity $3,407,000 $3,280,000 $2,451,000
Book value per share (1) $10.68 $ 9.90 $ 9.19
Number of shares out-
standing at end of year (1) 4,138,533 4,120,134 4,080,069
- --------------------------------------------------------------------------
<PAGE>89
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1993 1992
- --------------------------------------------------------------------------
Total interest income $25,892,000 $27,465,000
Total interest expense 8,540,000 10,223,000
------------------------------
Net interest income 17,352,000 17,242,000
Provision for possible
loan losses 500,000 700,000
Other income 3,818,000 3,605,000
Gains from sales of loans
and securities 191,000 14,000
Other expense 15,017,000 14,785,000
------------------------------
Income before Federal
income taxes 5,844,000 5,376,000
Federal income taxes 1,815,000 1,550,000
------------------------------
NET INCOME $ 4,029,000 $ 3,826,000
------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31, 1993 1992
- --------------------------------------------------------------------------
Cash and cash equivalents $ 21,276,000 $32,728,000
Securities 103,086,000 96,631,000
Net loans 242,043,000 230,364,000
Other assets 13,211,000 12,503,000
------------------------------
TOTAL ASSETS $379,616,000 $372,226,000
------------------------------
Total deposits $321,012,000 $317,730,000
Other borrowings 19,400,000 18,861,000
Other liabilities 4,144,000 3,083,000
------------------------------
Total liabilities 344,556,000 339,674,000
------------------------------
Total shareholders' equity 35,060,000 32,552,000
------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $379,616,000 $372,226,000
------------------------------
SHARE DATA 1993 1992
- --------------------------------------------------------------------------
Per share data (1):
Net income (2) $ .98 $ .94
Cash dividends $ .43 $ .39
Cash dividends declared $ 1,725,000 $ 1,555,000
Net increase in
shareholders' equity $ 2,508,000 $ 2,414,000
Book value per share (1) $ 8.62 $8.08
Number of shares out-
standing at end of year (1) 4,068,127 4,082,402
- --------------------------------------------------------------------------
(1) All share and per share data have been adjusted to reflect the 2 percent
stock dividend in 1996, the five-for-four stock split in 1995 and 1993, and the
3 percent stock dividends in 1994 and 1992
(2) Net income per share is computed using the weighted average number of shares
outstanding during each year.
END PUBLISHED PAGE 29
<PAGE>90
Directors and Officers of LNB Bancorp, Inc.
Directors
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James L. Bardoner
Retired, Former President
Dorn Industries, Inc.
Daniel P. Batista
Attorney/Partner
Cook & Batista Co., L.P.A.
Robert M. Campana
Managing Director
P.C. Campana, Inc.
Wellsley O. Gray
Sales Consultant
Smith Dairy Company
James F. Kidd
President and
Chief Executive 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
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
T. L. Smith, M.D.
Retired Physician
<PAGE>91
Eugene M. Sofranko
President and
Chief Executive Officer
Lorain Glass Company, Inc.
Paul T. Stack
Retired
Manufacturer's Representative
Coley's Inc.
Leo Weingarten
Retired
Officers
James F. Kidd
President and
Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
Gregory D. Friedman
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Michael D. Ireland
Senior Vice President
Emma N. Mason
Senior Vice President
James H. Weber
Senior Vice President
Mitchell J. Fallis
Vice President and
Chief Accounting Officer
Sandra L. Kotradi
Vice President and
Chief Lending Officer
Directors Emeritus of Lorain National Bank
James H. Riddell
Chairman of the Board
Consumers Builders Supply Company
President, Consumeracq, Inc.
Don A. Sanborn
Retired
END PUBLISHED PAGE 30
<PAGE>92
Officers of Lorain National Bank
Executive Offices
James F. Kidd
President and Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary
Gregory D. Friedman
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Administration
Debra R. Brown
Vice President
David P. Krebs
Vice President
Teresa E. George
Assistant Vice President
Marianne Kocak
Assistant Vice President
James E. Long
Assistant Vice President
Carol A. Mesko
Assistant Vice President
Teresa E. Kreger
Employment Officer
Susan I. Tuttle
Assistant Cashier
Robert J. Witkowski
Maintenance Officer
Audit Division
Gary W. Sedlak
Vice President, Auditor
and Compliance Officer
Randy E. Lottman
Assistant Vice President
and E.D.P. Auditor
Daniel P. Dudziak
Senior Staff Auditor
<PAGE>93
Fiscal Division
Mitchell J. Fallis
Vice President and
Chief Accounting Officer
Mary L. Kapanke
Fiscal Operations Officer
Marketing Division
James H. Weber
Senior Vice President
Steven F. Cooper
Assistant Vice President
Debra L. Temerario
Marketing Operations Officer
Loan Division
Sandra L. Kotradi
Vice President and
Chief Lending Officer
Edwin F. Klenz
Vice President
Bruce Diso
Vice President
John A. Funderberg
Vice President
Denise M. Kosakowski
Vice President
Ellen M. Walsh
Vice President
Kenneth P. Wayton
Vice President
Joel A. Krueck
Assistant Vice President
And CRA Officer
Joan M. Raymond
Assistant Vice President
Robert D. Asik
Consumer Loan Officer
Kelly A. Dunfee
Assistant Cashier
Cynthia M. Pena
Assistant Cashier
<PAGE>94
Joyce L. Wasela
Commercial Loan
Operations 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
Jeanne C. Maschari
Assistant Vice President
Donna Jean Phillips
Assistant Vice President
Patricia L. Cole
Operations Officer
Trust and Investment
Management Division
Emma N. Mason
Senior Vice President
Edward J. Baker
Vice President
Gerald S. Falcon
Vice President
Brian D. Morgan
Vice President
Patrick E. Sheridan
Investment Officer
James E. Carpenter
Assistant Trust Officer
Jodi L. Penwell
Assistant Trust Officer
Carol A. Cavanaugh
Assistant Employee Benefits Officer
Bank Offices
Amherst Office
G. Dale Rosenkranz
Vice President
<PAGE>95
Avon Lake Office
Charles A. DeAngelis
Assistant Vice President
Cleveland Street Office
Timothy J. Gallagher
Vice President
Kansas Avenue Office
Connie Sklarek
Assistant Cashier
Lake Avenue Office
Christine M. Weber
Assistant Cashier
Main Office & 6th St. Drive-In
Keith H. Kapanke
Assistant Cashier
Oberlin Office & Kendal at Oberlin
Marilyn R. Krasienko
Assistant Vice President
Oberlin Avenue Office
Jennifer M. Nickolls
Assistant Vice President
Olmsted Office & The
Renaissance Office
Diana L. Schmittgen
Assistant Cashier
Pearl Avenue Office
Patricia A. Wolanczyk
Branch Manager
Second Street Office
James E. Schmittgen
Assistant Vice President
Vermilion Office
Robert B. White
Assistant Vice President
The Crossings of Westlake Office
& Westlake Village Office
Susan M. Neiding
Vice President
West Park Drive Office
Rita M. Hoyt
Branch Manager
END PUBLISHED PAGE 31
<PAGE>96
EARNINGS AND STOCK PERFORMANCE
10 Year Earnings History
(10 Year Earnings History graph follows in printed version with years 1987
through 1996 on the X-axis and earnings on the Y-axis in $2,000,000.00
increments ranging from $0 to $6,000,000.00. 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
identification purposes.)
The graph above depicts the earnings history of LNB Bancorp, Inc. from 1987
through 1996.
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, 1986 - Cost: $2,650.00
381 Shares Currently Held December 31, 1996 - Market Value: $11,049.00
(Market Value of Cumulative Shares graph follows in printed version with years
1987 through 1996 on the X-axis and market values on the Y-axis in $4,000.00
increments ranging from $0 to $12,000.00. 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
identification purposes.)
Cumulative Cash Dividends Declared
Total Cash Dividends Declared 1987 - 1996: $1,486.99
(Cumulative Cash Dividends Declared graph follows in printed version with years
1987 through 1996 on the X-axis and Dividends Declared on the Y-axis in $500.00
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 $26.50 per share in
1986:
Total market value..........................$2,650.00
Through three stock splits and several stock dividends over the years, the
shareholder in this example now owns 381 shares of LNB Bancorp, Inc. stock
with a market value of $29.00 per share as of December 31, 1996.
Total market value.........................$11,049.00
<PAGE>97
In addition, our hypothetical shareholder would have benefited from the
cash dividends declared on the stock.
Cumulative cash dividends declared ........ $1,486.99
(The data points used to plot the three (3) graphs previously described follows:
NET INCOME CUMULATIVE CUMULATIVE
YEAR IN THOUSANDS MARKET VALUE CASH DIVIDENDS
1996 $5,852,000.00 $11,049.00 $1,486.99
1995 $5,003,000.00 $10,285.00 $1,246.96
1994 $4,432,000.00 $ 9,007.38 $1,045.00
1993 $4,029,000.00 $ 7,612.50 $ 865.60
1992 $3,826,000.00 $ 6,322.00 $ 703.20
1991 $3,512,000.00 $ 5,681.25 $ 555.74
1990 $3,343,000.00 $ 5,177.50 $ 421.66
1989 $3,217,000.00 $ 4,293.00 $ 299.58
1988 $2,881,000.00 $ 3,710.00 $ 187.22
1987 $2,562,000.00 $ 3,141.50 $ 86.52
END PUBLISHED PAGE 32
<PAGE>98
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>99
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
Oberlin Avenue Office
3660 Oberlin Avenue
Lorain, Ohio
(216) 282-9196
Olmsted Office
27095 Bagley Road
Olmsted Township, Ohio
(216) 235-4600
<PAGE>100
Pearl Avenue Office
2850 Pearl Avenue
Lorain, Ohio
(216) 277-1103
The Renaissance Office**
26376 John Road
Olmsted Township, Ohio
(216) 427-0041
**Opened Bank Office in
January 1997.
Second Street Office
221 Second Street
Elyria, Ohio
(216) 323-4621
Vermilion Office
4455 Liberty Avenue
Vermilion, Ohio
(216) 967-3124
West Park Drive Office
2130 West Park Drive
Lorain, Ohio
(216) 989-3131
The Crossings of Westlake Office
30210 Detroit Road
Westlake, Ohio
(216) 892-9696
Westlake Village Office**
28550 Westlake Village Drive
Westlake, Ohio 44145
(216) 808-0229
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 Community/St. Joseph
Regional Health Center
205 W. 20th Street
Lorain, Ohio
Lorain County Community College
1005 N. Abbe Road
Elyria, Ohio
Lorain Plaza
1147 Meister Road
Lorain, Ohio
<PAGE>101
Lowe's Home Improvement
Warehouse
620 Midway Boulevard
Elyria, Ohio
Midway Mall Food Court
3343 Midway Mall Boulevard
Elyria, Ohio
Route 60 and Sailorway Drive
1317 State Route 60
Vermilion, Ohio
* Drive-up ATM is available at Sixth Street Drive-In. All other offices
feature ATMs, except Westlake Village Office and The Renaissance Office.
END OF INSIDE BACK COVER
Outside back cover
Beige background
LNB
Bancorp, Inc.
Dark brown lettering
END OF PUBLISHED LNB BANCORP, INC. 1996 ANNUAL REPORT
<PAGE>102
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1996)
S - K Reference Number (21)
Corporate Organization Structure
..............................
. LNB Bancorp, Inc. .
. One Bank Holding Company .
. an Ohio Corporation (1) .
..............................
.
.
.............................
. The Lorain National Bank .
. Wholly-Owned Subsidiary .
. an Ohio Corporation (1) .
.............................
.
.
.................................
. LNB Financial Services, Inc. .
. Wholly-Owned Subsidiary .
. an Ohio Corporation (1) .
. (inactive) .
.................................
(1) The physical location and legal mailing address
for all entities is:
457 Broadway
Lorain, Ohio 44052
<PAGE>103
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1996)
S - K Reference Number (22)
Notice of Annual Meeting to shareholders and
Proxy Statement (dated March 17, 1997).
<PAGE>104
LNB BANCORP, INC.
LORAIN, OHIO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
LNB BANCORP, INC. March 17, 1997
The Annual Meeting of Shareholders of LNB Bancorp, Inc. will be held at
521 Broadway, Lorain, Ohio 44052, on Tuesday, April 15, 1997, at 10:00
a.m., Eastern Daylight Savings Time, for the purpose of considering and
voting upon the following matters as more fully described in the Proxy
Statement.
PROPOSALS:
1. ELECTION OF DIRECTORS - To elect five (5) directors to hold
office until their term expires (April 18, 2000) or until their
successors are elected and qualified.
2. STOCK DIVIDEND - Increase the outstanding common stock of LNB
Bancorp, Inc. by declaration of a stock dividend consisting of
approximately 82,771 shares of common stock of $1.00 par value each,
and the terms and conditions thereof.
3. OTHER BUSINESS - To transact such other business as may properly
come before the meeting.
Shareholders of record at the close of business on March 7, 1997 will be
entitled to vote the number of shares held of record in their names on
that date. The transfer books will not be closed.
We urge you to sign and return the enclosed proxy as promptly as
possible, whether or not you plan to attend the meeting in person. This
proxy may be revoked prior to its exercise.
By Order of the Board of Directors
/s/ Thomas P. Ryan
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED
PROXY FORM(S) WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. A
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
-1-
<PAGE>105
THIS PAGE LEFT INTENTIONALLY BLANK
-2-
<PAGE>106
LNB BANCORP, INC.
457 BROADWAY
LORAIN, OHIO 44052
PROXY STATEMENT
MARCH 17, 1997
This proxy solicitation is made on behalf of the Board of Directors of
LNB Bancorp, Inc., (hereinafter called the "Corporation") being a One Bank
Holding Company owning all of the stock of The Lorain National Bank
(hereinafter called the "Bank"). As of this date, the number of shares of
Common Stock outstanding and entitled to vote at the Annual Meeting of
Shareholders to be held on April 15, 1997, is 4,138,533. Only those
shareholders of record at the close of business on March 7, 1997 shall be
entitled to vote. This proxy may be revoked prior to its exercise. The
cost of this solicitation is being paid by the Corporation.
VOTING
Each shareholder shall be entitled to one vote for each share of stock
standing in their name on the books of the Corporation. No holder of
shares of any class shall have the right to vote cumulatively in the
election of directors.
Shares held in accounts by the Bank's Trust and Investment Management
Division will be voted by the trustee in accordance with written
instructions from account administrators or account plan participants, and
where no instructions are received, as the trustee deems proper.
Shares of Common Stock represented by proxies in the accompanying form
which are properly executed and returned to the Corporation will be voted
at the Annual Meeting of Shareholders in accordance with the shareholders'
instruction contained in such proxies. Where no such instructions are
given, the shares will be voted for the election of directors as described
herein; in support of the increase in the number of authorized shares; and
at the discretion of the proxy holders on such other matters as may come
before the meeting. The Board of Directors has no reason to believe that
any of the nominees will be unable to serve as a director. In the event,
however, of the death or unavailability of any nominee or nominees, the
proxy to that extent will be voted for such other person or persons as the
Board of Directors may recommend.
The results of votes taken at the Annual Meeting will be disclosed in
the Corporation's First Quarterly Report for 1997 on Form 10-Q, as filed
with the Securities and Exchange Commission (SEC). The disclosure will
include for each proposal, the number of votes for, the number of votes
against and the number of abstentions. In addition, the disclosure will
set forth the number of votes received by each candidate running for a
directorship and the percentage of these votes as to the total shares
outstanding.
ELECTION OF DIRECTORS
Article III of the Code of Regulations of the Corporation provides that
directors are to be divided into three (3) classes. Each class serves a
term of three (3) years, or until their respective successors are elected
and qualified. In that the term of office for five (5) members of the
present Board of Directors will expire on April 15, 1997, the management
has nominated the hereinafter named five (5) individuals for election to
serve until April 18, 2000, or until their successors are elected and
qualified.
The affirmative vote of the holders of at least a majority of a quorum
is required in order to elect each director. Under the Code of Regulations
of the Corporation, a quorum is constituted by the presence, in person or
by proxy, of a majority of the voting power of the Corporation.
-3-
<PAGE>107
Other nominations may be made only in accordance with the notice
procedures set forth in Article III of the Code of Regulations of the
Corporation. The procedure states that nominations for election to the
Board of Directors may be made by the Board of Directors or by any
shareholder of any outstanding class of capital stock of the Corporation
entitled to vote for the election of directors. Nominations, other than
those made by or on behalf of the existing management of the Corporation,
shall be made in writing and shall be delivered or mailed to the President
of the Corporation not less than fourteen (14) days nor more than fifty
(50) days prior to any meeting of shareholders called for the election of
directors, provided however, that if less than twenty-one (21) days notice
of the meeting is given to shareholders, such nomination shall be mailed
or delivered to the President of the Corporation no later than the close
of business on the seventh (7th) day following the day on which the notice
of the meeting was mailed. Such notification shall contain the following
information as to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c) the total number of shares of capital stock of the
Corporation that will be voted for each proposed nominee; (d) the name and
resident address of the notifying shareholder; and (e) the number of
shares of capital stock of the Corporation owned by the notifying
shareholder. Nominations not made in accordance herewith may, at his
discretion, be disregarded by the Chairman of the meeting, and upon his
instructions, the vote teller may disregard all votes cast for each such
nominee. Unless otherwise instructed, it is the intention of the persons
named in the proxy to vote for the election of the following five(5)
nominees:
1) James F. Kidd
2) Jeffrey F. Riddell
3) Thomas P. Ryan
4) Paul T. Stack
5) Robert M. Campana
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
NOMINEE.
The following individuals are directors whose term of office is
scheduled to expire on April 21, 1998:
1) Daniel P. Batista
2) David M. Koethe
3) Stanley G. Pijor
4) Eugene M. Sofranko
5) Leo Weingarten
The following individuals are directors whose term of office is
scheduled to expire on April 20, 1999:
1) James L. Bardoner
2) Wellsey O. Gray
3) Benjamin G. Norton
4) T.L. Smith, M.D.
-4-
<PAGE>108
DIRECTOR'S COMMITTEES
The Bank has six (6) standing committees upon which members of the Board
of Directors serve. They are:
1) The Audit Committee 4) The Pension/Fringe Benefit Committee
2) The Executive Committee 5) The Incentive Stock Option Committee
3) The Trust Committee 6) The Compensation Committee
Membership of each of these committees is indicated by footnote on page 7.
The Audit Committee met three (3) times during the last fiscal year.
It establishes policies for the administration of the Bank's Audit
Division. The Executive Committee met thirteen (13) times during the last
fiscal year. This committee is authorized to approve matters relating to
loans, the purchase of bills, notes, and other evidence of debt. The Trust
Committee reviews the various trusts accepted by the Bank's Trust and
Investment Management Division. It held six (6) meetings during the last
fiscal year. The Pension/Fringe Benefit Committee reviews indirect
compensation of officers and employees. It did not meet during the last
fiscal year. The Incentive Stock Option Committee determines who will
receive stock options and the number of shares to be granted under the
terms of the Incentive Stock Option Plan. The actions of the Incentive
Stock Option Committee are subject to the approval of the Compensation
Committee. It did not meet during the last fiscal year. The Compensation
Committee meets to review all officers' salaries. It held one (1) meeting
during the last fiscal year. The Bank has no designated Nominating
Committee. Nominees for the Board of Directors are determined by a vote of
the total Board of Directors.
The Bank held thirteen (13) Board of Directors meetings during the last
fiscal year. Of the directors who served during 1996, Leo Weingarten
attended fewer than 75% of the total number of meetings of the Board of
Directors and all committee meetings of which the aforementioned director
was a member.
The Corporation held twelve (12) Board of Directors meetings during the
last fiscal year. Of the directors who served during 1996, no one attended
fewer than 75% of the total of twelve (12) meetings held.
DIRECTOR'S COMPENSATION
Each outside director of the Bank is entitled to receive an annual
retainer fee of $2,500. Bank officers, who are also directors of the
Bank, do not receive an annual retainer fee.
All of the directors of the Corporation are also directors of the Bank.
A director's fee of $500 is paid to outside directors for each meeting
attended. Directors, who are also officers of the Corporation, receive a
fee of $250 for their attendance at the Corporation's board meetings and
receive no director's fees for their attendance at the meetings of the
Bank's board.
Mr. Stanley G. Pijor entered into a Consulting Agreement (The Agreement)
with the Bank and the Corporation dated March 15, 1994. The Agreement
provides that Mr. Pijor shall receive a consulting fee of $85,000 each
year for a period of five (5) years commencing January 1, 1996. The
Agreement also stipulates that Mr. Pijor will be provided with an
automobile and will be reimbursed for reasonable expenses relative to his
duties as a consultant during the term of the Agreement. Termination of
the Agreement (by either party) would not prejudice Mr. Pijor's right to
receive the benefits referred to above for a period of up to two (2)
years.
-5-
<PAGE>109
LORAIN
NATIONAL
BANK LNB BANCORP,
PRINCIPAL OCCUPATION DIRECTOR INC. DIRECTOR
NAME AND AGE FOR THE PAST FIVE YEARS SINCE SINCE
JAMES L. BARDONER RETIRED, FORMER PRESIDENT 1974 1983
Age 78 Dorn Industries, Inc.
(1-2-4-5-6) (Manufacturing Company)
DANIEL P. BATISTA ATTORNEY/PARTNER 1976 1983
Age 62 Cook & Batista Co.,L.P.A.(A)
(2-3-5-6)
ROBERT M. CAMPANA MANAGING DIRECTOR 1996 1996
Age 37 P.C.Campana, Inc.
(3)
WELLSLEY O. GRAY SALES CONSULTANT 1973 1983
Age 63 Smith Dairy Company
(1-3)
JAMES F. KIDD PRESIDENT AND CHIEF 1989 1989
Age 57 EXECUTIVE OFFICER
(2-3-4) LNB Bancorp, Inc. and
The Lorain National Bank
DAVID M. KOETHE CHAIRMAN OF THE BOARD 1975 1983
Age 61 The Lorain Printing Company(B)
(2-3-4-5-6)
BENJAMIN G. NORTON EMPLOYEE AND 1983 1983
Age 57 COMMUNITY RELATIONS MANAGER
(3-7) RELTEC Corporation
STANLEY G. PIJOR CHAIRMAN OF THE BOARD 1969 1983
Age 66 LNB Bancorp, Inc. and
(2-3-4-6) The Lorain National Bank
JEFFREY F. RIDDELL PRESIDENT 1995 1995
Age 45 Consumers Builders Supply
(1) Company
VICE PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Consumeracq, Inc.
THOMAS P. RYAN EXECUTIVE VICE PRESIDENT 1989 1989
Age 58 AND SECRETARY/TREASURER
LNB Bancorp, Inc.
EXECUTIVE VICE PRESIDENT
AND SECRETARY
The Lorain National Bank
-6-
<PAGE>110
LORAIN
NATIONAL
BANK LNB BANCORP,
PRINCIPAL OCCUPATION DIRECTOR INC. DIRECTOR
NAME AND AGE FOR THE PAST FIVE YEARS SINCE SINCE
T.L. SMITH, M.D RETIRED PHYSICIAN 1968 1983
Age 83
(1-2-4-5-6)
EUGENE M. SOFRANKO PRESIDENT AND CHIEF 1974 1983
Age 66 EXECUTIVE OFFICER
(1-2-4-5-6) Lorain Glass Company, Inc.
PAUL T. STACK RETIRED MANUFACTURER'S 1974 1983
Age 67 REPRESENTATIVE
(1-2-3-6) Coley's Inc.
LEO WEINGARTEN RETIRED 1964 1983
Age 77
(2-4-5-6)
(1) Member of Audit Committee (5) Member of Incentive Stock Option
(2) Member of Executive Committee Committee
(3) Member of Trust Committee (6) Member of Compensation Committee
(4) Member of Pension/Fringe Benefit(7) Alternate Member of Executive
Committee and Compensation Committees
(A) The Bank has retained the law firm of Cook & Batista Co., L.P.A. as
legal counsel for the last several years. During the last fiscal
year, The Lorain National Bank has paid to Cook & Batista, Co.,
L.P.A. an amount of $115,634. It is anticipated that this
relationship will continue during the current fiscal year.
(B) During the last fiscal year, The Lorain National Bank has paid to
The Lorain Printing Company an amount of $62,503 for printing
services and supplies. It is anticipated that such business
relationship will continue during the current fiscal year.
(C) During the last fiscal year the Bank paid to Stanley G. Pijor the
sum of $1,031,574 which constituted the lump sum distribution of his
retirement benefits payable under the provisions of the Lorain
National Bank Retirement Pension Plan. Mr. Pijor was also a party
to a Consulting Agreement with the Bank dated March 15, 1994, which
provides Mr. Pijor shall receive a consulting fee of $85,000 each
year for a period of five (5) years commencing on January 1, 1996.
The Agreement also stipulates that Mr. Pijor will be provided with
an automobile and will be reimbursed for reasonable expenses
relative to his duties as a consultant during the term of the
Agreement. Termination of the Agreement (by either party) would not
prejudice Mr. Pijor's rights to receive the benefits referred to
above for a period of up to two (2) years. Mr. Pijor was also a
party to a Supplemental Retirement Agreement entered into with the
Bank on December 31, 1987. Under the terms of this Agreement, Mr.
Pijor shall receive an annual supplemental retirement benefit in the
amount of $50,000 for a period on ten (10) years. The payment of
these supplemental retirement benefits commenced in January of 1996.
-7-
<PAGE>111
EXECUTIVE COMPENSATION
LNB Bancorp, Inc. did not pay any separate compensation, other than
Corporation director fees, to its executive officers during 1996, 1995,
and 1994. All executive compensation was paid by Lorain National Bank.
The information which follows discloses the annual and long term
compensation for services in all capacities to the Corporation and the
Bank for the fiscal years ended December 31, 1996, 1995 and 1994, for all
persons who were, during 1996, (i) the chief executive officer and (ii)
the other most highly compensated Officers of the Bank who made in excess
of $100,000 during 1996 (the Named Executive Officers).
SUMMARY COMPENSATION TABLE
The named executive officers disclosure requirements affect the Chief
Executive Officer and those executive officers earning more than $100,000
in salary and bonuses. In 1996, 1995 and 1994, Mr. James F. Kidd,
President and Chief Executive Officer, and Mr. Thomas P. Ryan, Executive
Vice President and Secretary/Treasurer, met the criteria for disclosure.
The following table discloses the annual salary, bonuses and all other
compensation awards and payouts for services in all capacities to the
Corporation and the Bank for the fiscal years ended December 31, 1996,
1995 and 1994.
Compensation (1)
-----------------------------------------------
Annual
Name and -------------------------------- All
Principal Position Year Salary Bonuses Other (2)
----------------------------------------------------------------------
James F. Kidd 1996 $151,154 $32,500 $20,600
President and Chief 1995 $124,000 $15,000 $18,427
Executive Officer 1994 $104,556 $15,000 $15,646
Thomas P. Ryan 1996 $104,050 $15,375 $18,755
Executive Vice President 1995 $ 99,375 $15,000 $15,693
and Secretary/Treasurer 1994 $ 92,323 $15,000 $14,450
(1) The aggregate of Other Annual Compensation is less than 10% of the
total of annual salary and bonus for all individuals for all years
presented and therefore is not required to be reported under the
SEC rules.
(2) All Other Compensation consisted of the following:
James F. Kidd: 1996 1995 1994
Contribution, in Mr. Kidd's behalf to:
The Bank's Stock Purchase Plan $ 4,500 $ 4,176 $ 3,909
The Bank's Employee Stock Ownership Plan $10,925 $10,236 $ 8,860
Mr. Kidd's Supplemental Life Insurance $ 2,250 $ 2,239 $ 2,077
Corporation director's fees $ 2,925 $ 1,775 $ 800
Thomas P. Ryan: 1996 1995 1994
Contribution, in Mr. Ryan's behalf to:
The Bank's Stock Purchase Plan $ 3,583 $ 3,431 $ 3,508
The Bank's Employee Stock Ownership Plan $ 8,698 $ 8,518 $ 7,993
Mr. Ryan's Supplemental Life Insurance $ 2,079 $ 1,969 $ 1,949
Corporation director's fees $ 2,700 $ 1,775 $ 1,000
Anniversary Stock Award $ 1,695 $ 0 $ 0
OPTION GRANTS TABLE (last fiscal year)
There were no stock options granted by the Corporation or the Bank in 1996.
LONG TERM INCENTIVE PLAN AWARD TABLE (last fiscal year)
There were no long term incentive plans or plan awards in 1996.
-8-
<PAGE>112
OPTION EXERCISES AND YEAR END VALUE TABLE (last fiscal year)
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE(1)
Value of
Number of Unexercised
Unexercised In-the-Money
Option Option
Shares Shares Shares
Acquired Value at FY-End(#) at FY-End ($)
on Realized Exercisable/ Exercisable/
Name Exercise(#) ($)(2) Unexercisable Unexercisable(2)
--------------------------------------------------------------------------
James F. Kidd 0 $0 2,101/0 $18,933/$0
Thomas P. Ryan 0 $0 2,101/0 $18,933/$0
(1) All amounts reflect the 2% stock dividend in April of 1996.
(2) Market value of underlying securities at exercise date or year end, as
the case may be, minus the exercise or price of "in-the-money" options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of: James L. Bardoner, Daniel P.
Batista, David M. Koethe, Stanley G. Pijor, T.L. Smith, Eugene M.
Sofranko, Paul T. Stack and Leo Weingarten. Mr. Batista is a shareholder
of the law firm of Cook and Batista Co., L.P.A., which performs legal
services for the Bank. During 1996, the Bank paid to Cook and Batista
Co., L.P.A. legal fees in the amount of $115,634. The amount of Mr.
Batista's interest in such fees cannot be practicably determined. Mr.
Koethe is the Chairman of The Board of The Lorain Printing Company.
During 1996, the Bank paid to The Lorain Printing Company an amount of
$62,530 for printing services and supplies. The amount of Mr. Koethe's
interest in such payments cannot be practicably determined. During 1996,
the Bank paid to Stanley G. Pijor the sum of $1,031,574 which constituted
the lump sum distribution for his retirement benefits payable under the
provisions of the Lorain National Bank Retirement Pension Plan. Mr. Pijor
was also a party to a Consulting Agreement with the Bank dated March 15,
1994, which provides Mr. Pijor shall receive a consulting fee of $85,000
each year for a period of five (5) years, said payments having commenced
on January 1, 1996. This Consulting Agreement also stipulates that Mr.
Pijor will be provided with an automobile and will be reimbursed for
reasonable expenses relative to his duties as a consultant during the term
of the Agreement. Mr. Pijor was also a party to a Supplemental Retirement
Agreement entered into with the Bank on December 31, 1987. Under the
terms of this Supplemental Retirement Agreement, Mr. Pijor is to receive
supplemental retirement benefits in the amount of $50,000 per year, for a
period of ten (10) years. The payment of these supplemental retirement
benefits commenced in January of 1996.
COMPENSATION COMMITTEE REPORT
The Lorain National Bank's Compensation Committee has the responsibility of
evaluating and recommending to the Board of Directors, for its approval, the
amount of compensation, including salary, bonus, and other benefits, for all
officers of the Bank, including the named Executive Officers and the Chief
Executive Officer.
It is the philosophy and policy of the Compensation Committee to
establish a compensation program for Bank officers to attract, motivate
and retain a highly qualified management team. The criteria used to
determine the recommended compensation of Bank officers includes their
level of responsibility, performance, experience, the Committee's
<PAGE>113
judgment as to the past performance and expected further contribution.
-9-
<PAGE>114
A comparison to the industry peer group as well as national and regional
surveys are also used. In addition, Mr. James F. Kidd, as the Bank's Chief
Executive Officer, evaluates the performance of other officers and presents
his evaluations and salary recommendations for all officers, other than
himself, to the Compensation Committee. The Committee is also advised by
independent compensation consultants, concerning compensation of Bank
officers. Based upon the foregoing, the Compensation Committee prepares
a report on recommended base salaries for all officers. In addition, in
some cases, the Compensation Committee recommends bonuses for certain
officers of the Bank, based upon the attainment of preestablished
performace goals. The recommendations of the Compensation Committee
regarding base salaries and bonuses for all officers are sublect to
approval by the Board of Directors.
As to the Chief Executive Officer, Mr. James F. Kidd's compensation,
including salary, bonus, and other benefits is also based upon a
recommendation of the Compensation Committee, which is then approved by the
Board of Directors. The factors and criteria considered by the Compensation
Committee included the pay level for CEOs of comparable banks, the financial
performance of the Bank, and the individual performance and leadership of Mr.
Kidd. Based upon the foregoing, and based upon the attainment of
preestablished performance goals established by the Compensation Committee,
the Compensation Committee recommended a base salary and bonus for Mr. Kidd
for 1996, in the amounts set forth in the Summary Compensation Table, which
amounts were approved by the Board of Directors.
The members of the Compensation Committee are:
James L. Bardoner T.L. Smith, M.D.
Daniel P. Batista Eugene M. Sofranko
David M. Koethe Paul T. Stack
Stanley G. Pijor Leo Weingarten
EMPLOYMENT AGREEMENTS
As of September 1, 1995, Mr. James F. Kidd entered into an Employment
Agreement with LNB Bancorp, Inc. and The Lorain National Bank. The
Agreement provides for Mr. Kidd's employment until he reaches the age of
65 as President. Mr. Kidd shall be compensated at the initial rate of One
Hundred and Twenty Four Thousand Dollars ($124,000) with an annual
compensation review each year thereafter. Mr. Kidd will continue to
receive his present fringe benefits and such additional benefits as are
set forth in the Bank's Employee Benefit Program. If the Agreement is
terminated earlier, other than for just cause, or by Mr. Kidd, then he
will be entitled to the salary and benefits described above for a period
of up to two (2) years.
As of September 1, 1995, Mr. Thomas P. Ryan entered into an Employment
Agreement with LNB Bancorp, Inc. and The Lorain National Bank. The
Agreement provides for Mr. Ryan's employment until he reaches the age of
65 as Executive Vice President. Mr. Ryan shall be compensated at the
initial rate of Ninety Seven Thousand Five Hundred Dollars ($97,500) with
an annual compensation review each year thereafter. Mr. Ryan will
continue to receive his present fringe benefits and such additional
benefits as are set forth in the Bank's Employee Benefit Program. If the
Agreement is terminated earlier, other than for just cause, or by Mr.
Ryan, then he will be entitled to the salary and benefits described above
for a period of up to two (2) years.
PENSION PLAN
The Bank sponsors The Lorain National Bank Retirement Pension Plan
(the Plan) covering substantially all employees of the Bank. An
employee is eligible to participate on January 1 or July 1 after the
<PAGE>115
attainment of age twenty-one (21) and completion of one year of service,
as defined in the Plan. The Bank's 1996 contribution to the Plan was
$249,461. The amount of contributions with respect to a specific person is
not and cannot readily be calculated on an individual basis.
-10-
Participants are eligible for normal retirement upon reaching age
sixty-five (65). Annual benefit payments are determined as a percentage
for the five (5) consecutive plan years that yield the highest average
salary. Participants in the Plan prior to January 1, 1989 will have
annual benefit payments reduced if they have less than fifteen (15) years
of continuous employment upon retirement. Participants who join the Plan
after January 1, 1989 will have benefit payments reduced if they have less
than twenty-five (25) years of continuous employment upon retirement. The
normal form of benefit payment is a joint and survivor annuity. Benefits
become fully vested after a participant has completed five (5) years of
service. The Plan also provides for the payment of early retirement,
death, disability, and deferred vested benefits in the form of a lump sum
distribution, or monthly annuity.
Annual benefit payments under the provisions of the Plan are computed
by a formula, the factors of which include annual compensation, years of
service and the social security taxable wage base.
The Plan was amended, effective January 1, 1995, to allow the payment
of accrued benefits in the form of a lump sum distribution upon retirement
at normal retirement age. The estimated present value of the accrued
benefit using the Plan's actuarial equivalence assumptions for the Named
Executive Officers ranged from $308,000 to $315,000 as of December 31,
1996.
Assuming the participant selects the benefit payable in a ten (10) year
Certain and Life Annuity at normal retirement date, the following table
reflects annual benefits payable to the employee based upon average annual
compensation levels and twenty-five (25) years of service.
Employee's Annual Estimated Pension
Final Average Payments Assuming Minimum of
Annual Compensation 25 Years of Service
$250,000* $76,144
200,000* 76,144
150,000 76,144
100,000 49,269
*The current annual compensation limit with respect to determining an
employee's annual pension payment is currently limited by the Internal
Revenue Code to $150,000. The Plan reflects the annual compensation limit
and this results in a maximum annual pension payment of $76,144.
Therefore, an employee's annual estimated pension payment for final
average compensation levels of $150,000 and above remains at the $76,144
level. Pension benefits accrued prior to 1995 are grand fathered, if
their calculated benefit is greater than $76,144. These pension payments
do not reflect any additional retirement benefits which the
employee may receive in the form of Social Security and other forms of
supplemental retirement benefits. Messrs. Kidd and Ryan have thirty-two
(32) and thirty-five (35) credited years of service respectively, under
the provisions of the Plan.
Benefit payments under the provisions of the Plan are computed using
formulas, the factors of which include annual compensation, years of
<PAGE>116
service, social security taxable wage base, and, in the case of a lump sum
distribution, current interest rates are also taken into consideration.
On July 30, 1996, the Bank entered into Supplemental Retirement
Agreements (SRA) with Mr. James F. Kidd and Mr. Thomas P. Ryan. The
purpose of the SRA is to provide supplemental retirement benefits to
Messrs. Kidd and Ryan in addition to the benefits provided by the Bank's
qualified retirement plan, to assist the Bank in retaining their services
through their normal retirement dates.
The SRA provides for payments, monthly or annually, at Messrs. Kidd and
Ryan's election, in the event of: (a) normal retirement; **(b) reduced
supplemental retirement benefits in the event of early retirement;
(c)disability prior to retirement; (d) death; or (e) discharge "without
cause."
-11-
<PAGE>117
Under the terms of their SRA, Messrs. Kidd and Ryan will receive
supplemental retirement benefits for a period of ten (10) years. The full
benefit amount is equal to seventy percent (70%) of the compensation paid
in the final year of employment, minus the Bank's pension benefit and
Social Security benefits. Mr. Kidd and Mr. Ryan are entitled to the full
benefit amount if they retire on their normal retirement date;** 75% of the
full benefit amount if they retire at age 64; 50% of the full benefit
amount if they retire at age 63; 25% of the full benefit amount if they
retire at age 62; and no SRA benefit if they retire prior to age 62.
In the event of disability prior to retirement, the disabled individual
would receive their full SRA benefit amount beginning at age 65. In the event
of death prior to retirement, after meeting the eligibility and employment
requirements, the applicable benefit (based upon the decedent's age) is
payable to his designated beneficiary. In the event of discharge "without
cause", the discharged individual would receive their full SRA benefit amount,
as if he retired at age 65, commencing at the recipient's discretion.
The SRA is a non-qualified defined benefit agreement. As of December 31,
1996, the monthly benefits that would be paid at normal retirement age,
would be $8,287 and $2,151 for Mr. Kidd and Mr. Ryan respectively.
**Mr. Kidd's normal retirement date is November 1, 2004
**Mr. Ryan's normal retirement date will be April 1, 2003
PERFORMANCE GRAPH
The graph which follows compares the five (5) year cumulative total
return from investing $100 on December 31, 1991 in each of LNB Bancorp, Inc.
common stock, the Standard & Poor's 500 index (S&P 500 Index) of companies and
the National Association of Securities Dealers Association Quotation System
Bank Index (NASDAQ Bank Index) of companies, with dividends assumed to be
reinvested when received.
Comparison of Five Year Cumulative Total Return*
AMONG LNB BANCORP, INC, THE S&P 500 INDEX AND NASDAQ BANK INDEX
(PERFORMANCE GRAPH FOLLOWS IN PRINTED VERSION WITH YEARS 1991 THROUGH
1996 ON THE X-AXIS AND CUMULATIVE INVESTMENT ON THE Y-AXIS IN $100
INCREMENTS RANGING FROM $0 TO $400. 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.)
* $100 INVESTED ON 12/31/91 IN STOCK OR INDEX - INCLUDING REINVESTMENT
OF DIVIDENDS.
DECEMBER 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---------------------------------------------------------------------------
LNB Bancorp, Inc. $100 $115 $141 $187 $200 $218
---------------------------------------------------------------------------
S&P 500 Index $100 $108 $118 $120 $165 $203
---------------------------------------------------------------------------
NASDAQ Bank Index $100 $146 $166 $165 $246 $326
---------------------------------------------------------------------------
-12-
<PAGE>118
BENEFICIAL OWNERSHIP OF SHARES
The following table reflects as of December 31, 1996, any person known
to the Corporation to be the beneficial owner of more than five percent (5%)
of any class of the Corporation's voting securities, consisting of common
stock only, as well as the total number of shares of common stock beneficially
owned by each director, nominee, and the director and executive officers of
the Corporation as a group.
Five Percent Beneficial Ownership
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership Class
Standen and Co. as nominee for
The Lorain National Bank 613,091(1) 14.81%
457 Broadway
Lorain, Ohio 44052
(1) The Bank, a wholly owned subsidiary of LNB Bancorp, Inc. (a U. S.
Corporation) disclaims beneficial ownership of all shares. The shares
were held by the Bank in various accounts administered by it, as
fiduciary, for the benefit of beneficiaries, donors, or principals of
such accounts. The Bank, as fiduciary, had (a) sole power to vote
111,583 shares; (b) sole investment power to purchase/sell, but no
power to vote on 243,748 shares; (c)shared investment power with sole
power to vote with respect to 33,446 shares; and (d) no investment
power and no power to vote on 224,314 shares. Shares of the
Corporation held by the Bank in various fiduciary capacities will be
voted only in accordance with directions, approvals or instructions
where called by the governing instruments or by law, and in the
absence of special factors affecting any individual account, will be
voted in accordance with management's recommendations where the Bank
as fiduciary has authority to determine the manner of voting.
BENEFICIAL OWNERSHIP OF MANAGEMENT (As of December 31, 1996)
Sole Shared Total Amount
Investment and Investment and of Beneficial Percent
Name Voting Power Voting Power Ownership of Class
James L. Bardoner 8,326 609 8,935 .22%
Daniel P. Batista 22,882 44,474 67,356 1.63%
Robert M. Campana 4,361 0 4,361 .11%
Wellsley O. Gray 8,073 4,642 12,715 .31%
James F. Kidd 47,215 0 47,215 1.14%
David M. Koethe 53,500 180 53,680 1.30%
Benjamin G. Norton 44,072 45,461 89,533 2.16%
Stanley G. Pijor 61,550 32,507 94,057 2.27%
Jeffrey F. Riddell 11,117 26,747 37,864 .91%
Thomas P. Ryan 32,473 1,244 33,717 .81%
T. L. Smith, M.D. 12,997 8,932 21,929 .53%
Eugene M. Sofranko 6,560 21,422 27,982 .68%
Paul T. Stack 8,801 1,220 10,021 .24%
Leo Weingarten 103,553 8,519 112,072 2.71%
Executive Officers
who are not
Directors 109,736 385 110,121 2.66%
------- -------- ------- ------
All Directors and
Executive Officers
as a Group 535,216 196,342 731,558 17.68%
======= ======== ======= ======
-13-
<PAGE>119
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Some of the directors of the Corporation and the companies with which they
are associated, are customers of and had banking transactions with the Bank
in the ordinary course of the Bank's business during 1996. Loans and
commitments to loans included in such transactions were made on
substantially the same terms, including interest rates and collateral, as were
those prevailing at the time for comparable transactions with other persons,
and in the opinion of the management of the Bank, do not involve more than a
normal risk of collectibility or present other unfavorable features.
STOCK DIVIDEND
The Board of Directors has the authority to declare and implement common
stock dividends without shareholder approval. However, as it has in prior
years, the Board has elected to seek shareholder approval for the proposed
stock dividend.
A stock dividend of approximately 82,771 shares of common stock (2%) is
recommended by the Board of Directors. THE BOARD HAS STIPULATED THAT THE
PROPOSED 2% STOCK DIVIDEND WOULD REQUIRE APPROVAL, IN THE FORM OF AN
AFFIRMATIVE VOTE BY SHAREHOLDERS OWNING TWO-THIRDS OR MORE OF THE STOCK OF THE
CORPORATION. The stock dividend will be payable to shareholders of record
April 15, 1997. This stock dividend is recommended as a distribution of
earnings of the Corporation and to conserve the cash assets.
The stock dividend will consist of approximately 82,771 shares which will
increase the total number of shares outstanding to approximately 4,221,304.
As a result of the stock dividend, a transfer of approximately $82,771 will be
made from retained earnings increasing the common stock of the Corporation to
approximately $4,221,000. An additional amount of approximately $2,348,000
will be transferred from retained earnings to surplus. The stock dividend
will not change the common stock par value or the total equity capital of the
Corporation.
The number of shares to be issued and the dollar amounts discussed above
are based upon shares outstanding and stock bid prices as of March 3, 1997.
The actual stock dividend will be calculated based upon shares outstanding and
stock bid prices on the record date.
No fractional shares will be issued. The Corporation will sell full shares
representing all the fractions to the highest bidder after having solicited
sealed bids from at least three (3) licensed stockbrokers. The proceeds of
the sale shall be distributed pro rata to shareholders who otherwise would be
entitled to fractional shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE DECLARATION
OF A 2% STOCK DIVIDEND.
PRINCIPAL ACCOUNTANTS
The independent accounting firm of KPMG Peat Marwick LLP has served
as the principal accountants for the Bank since 1972. A representative
of the firm will be present at the Annual Meeting and will be available to
respond to questions.
-14-
<PAGE>120
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action
at the Corporation's Annual Meeting consistent with the regulations of
the Securities and Exchange Commission. For proposals to be considered
for inclusion in the Proxy Statement for the 1998 Annual Meeting, they
must be received by the Corporation no later than December 1, 1997.
Such proposals should be directed to LNB Bancorp, Inc., Attention:
Shareholder Relations, 457 Broadway, Lorain, Ohio 44052.
OTHER BUSINESS
Management is not aware of any other matter which may be presented
for action at the meeting other than the matters set forth herein.
Should any matter other than those set forth herein be presented for a
vote of the shareholders, the proxy in the enclosed form directs the
persons voting such proxy to vote in accordance with their judgement.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the Corporation's
officers and directors to file reports of ownership and changes of ownership
of the Corporation's registered securities on Forms 3, 4 and 5 with the
Securities and Exchange Commission (SEC).
The Corporation believes that all officers and directors complied with all
filing requirements applicable to them with respect to transactions during
fiscal year 1996.
ANNUAL REPORT
A copy of the Corporation's Annual Report has been mailed to shareholders
prior to the meeting. The Annual Report is not intended to be part of this
Proxy Statement. A report of the operations of the Corporation and the Bank
for the fiscal year ended December 31, 1996 will be presented at the meeting.
A copy of the Corporation's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 is available to shareholders without charge upon request
to Thomas P. Ryan, Executive Vice President and Secretary/Treasurer, LNB
Bancorp, Inc., 457 Broadway, Lorain, Ohio 44052.
By Order of the Board of Directors
/s/ Thomas P. Ryan
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
-15-
<PAGE>121
PROXY ANNUAL MEETING LNB BANCORP, INC., LORAIN, OHIO
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoint JAMES L. BARDONER, DAVID M. KOETHE
and DANIEL P. BATISTA, as Proxies, each with the power to appoint
his substitute, and hereby authorize them to represent and to
vote, as designated below, all the shares of Common Stock of the
LNB Bancorp, Inc. held on record by the undersigned on March 7,
1997, at the Annual Meeting of Shareholders to be held on April
15, 1997 or any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to the
contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
James F. Kidd, Jeffrey F. Riddell, Thomas P. Ryan, Paul T. Stack,
Robert M. Campana
(Instruction: To withhold authority to vote for any individual nominee
write that nominee's name on the space provided below.)
-----------------------------------------------------------------
2. STOCK DIVIDEND - Increase the outstanding common stock of LNB Bancorp,
Inc. by declaration of a stock dividend consisting of approximately 82,771
shares of common stock of $1.00 par value each, and the terms and
conditions thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
END PUBLISHED PROXY CARD FRONT SIDE
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>122
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy
will be voted for proposals 1 and 2.
Dated -----------, 1997 Number of shares in my/our name ---------
-------------------------- (L.S.)
-------------------------- (L.S.)
NOTE: Please sign exactly as name appears above. When signing
as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND MAIL THIS
PROXY FORM WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
A RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
Please read and vote on other side.
<PAGE>123
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1996)
S - K Reference Number (23)
Consent of Independent Accountants.
<PAGE>124
KPMG Peat Marwick, LLP (LOGO) EXHIBIT 23
Certified Public Accountants
1500 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3495
Consent of Independent Accountants
The Board of Director
LNB Bancorp, Inc. and Subsidiary
We consent to incorporation by reference in the registration
statement (No. 33-64034) on Form S-8 of LNB Bancorp, Inc. of
our report dated January 24, 1997, relating to the consoli-
dated balance sheets of LNB Bancorp, Inc. and subsidiary as of
December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for
each of the three years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 annual
report on Form 10-K of LNB Bancorp, Inc.
Our report refers to the Corporation's adoption of the provisions of
Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan, and No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures, in 1995,
and No. 115, Accounting for Certain Investments in Debt and Equity Securities,
in 1994.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick
Cleveland, Ohio
March 27, 1997
<PAGE>125
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1996)
S - K Reference Number (27)
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000737210
<NAME> LNB BANCORP, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 18,890
<INT-BEARING-DEPOSITS> 102
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,102
<INVESTMENTS-CARRYING> 88,858
<INVESTMENTS-MARKET> 89,537
<LOANS> 302,073
<ALLOWANCE> 4,116
<TOTAL-ASSETS> 438,243
<DEPOSITS> 366,380
<SHORT-TERM> 23,386
<LIABILITIES-OTHER> 3,184
<LONG-TERM> 1,095
0
0
<COMMON> 4,138
<OTHER-SE> 40,060
<TOTAL-LIABILITIES-AND-EQUITY> 438,243
<INTEREST-LOAN> 25,910
<INTEREST-INVEST> 6,377
<INTEREST-OTHER> 183
<INTEREST-TOTAL> 32,470
<INTEREST-DEPOSIT> 10,505
<INTEREST-EXPENSE> 11,478
<INTEREST-INCOME-NET> 20,992
<LOAN-LOSSES> 600
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 16,565
<INCOME-PRETAX> 8,752
<INCOME-PRE-EXTRAORDINARY> 5,852
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,852
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 5.33
<LOANS-NON> 765
<LOANS-PAST> 357
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,066
<ALLOWANCE-OPEN> 4,002
<CHARGE-OFFS> 672
<RECOVERIES> 186
<ALLOWANCE-CLOSE> 4,116
<ALLOWANCE-DOMESTIC> 2,867
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,253
</TABLE>
