<PAGE>1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its charter)
Ohio 34-1406303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at August 1, 1997: 4,138,279 shares
Class of Common Stock: $1.00 par value
<PAGE>2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended June 30, 1997
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Requisition 210.10-01 of
Regulation S-X is included in this Form 10-Q as referenced below:
Page
Number(s)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of 8
Cash Flows
Notes to the Condensed Consolidated Financial 10
Statements
Item 2 - Management's Discussion and Analysis 13
of Financial Condition and Results of
Operations
Part II - Other Information
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities 17
Item 3 - Defaults upon Senior Securities 17
Item 4 - Submission of matters to a Vote of 17
Security Holders
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 17
Exhibit Index 18
<PAGE>3
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1997 1996
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 24,240,000 $ 18,890,000
Federal funds sold and other interest
bearing instruments 235,000 103,000
Securities:
Securities available for sale 14,346,000 16,102,000
Investment securities 94,229,000 88,858,000
------------ ------------
Total Securities 108,575,000 104,960,000
(Market value $108,907,000 and
$105,639,000, respectively)
Total Loans 311,568,000 302,073,000
Reserve for possible loan losses (4,238,000) (4,116,000)
------------ ------------
Net loans 307,330,000 297,957,000
------------ ------------
Premises and equipment, net 10,876,000 10,893,000
Other assets 5,733,000 5,440,000
------------ ------------
TOTAL ASSETS $456,989,000 $438,243,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Noninterest-bearing deposits $ 59,238,000 $ 63,802,000
Interest-bearing deposits 325,245,000 302,578,000
------------ ------------
Total deposits 384,483,000 366,380,000
Federal funds purchased and Securities
sold under repurchase agreements
and other short-term borrowings 24,566,000 23,386,000
Federal Home Loan Bank advances 1,095,000 1,095,000
Other liabilities 3,255,000 3,184,000
------------ ------------
Total Liabilities 413,399,000 394,045,000
Shareholders' equity:
Common stock $1.00 par:
Authorized 5,000,000
Issued 4,222,275 and 4,138,533, respectively 4,222,000 4,138,000
Additional capital 22,597,000 20,178,000
Retained earnings 19,185,000 19,873,000
Net unrealized security gains 22,000 9,000
Treasury Stock at cost, 83,996 and -0-
shares respectively (2,436,000) -0-
------------ ------------
Total Shareholders' Equity 43,590,000 44,198,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $456,989,000 $438,243,000
============ ============
Note 1: The consolidated balance sheet at December 31, 1996 has been
taken from the audited Financial Statements and condensed.
See notes to condensed consolidated financial statements.
<PAGE>4
FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME ----------------------
1997 1996
INTEREST INCOME -------------------------
Interest and fees on loans:
Taxable $13,560,000 $12,615,000
Tax-exempt 25,000 31,000
Interest and dividends on securities:
Taxable 3,157,000 3,025,000
Tax-exempt 71,000 135,000
Interest on Federal funds sold and other
interest bearing instruments 37,000 118,000
----------- -----------
TOTAL INTEREST INCOME 16,850,000 15,924,000
----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 1,151,000 897,000
Interest on other deposits 4,417,000 4,300,000
Interest on securities sold under
repurchase agreements and other
short-term borrowings 553,000 451,000
Interest on Federal Home Loan Bank advances 35,000 -0-
----------- -----------
TOTAL INTEREST EXPENSE 6,156,000 5,648,000
----------- -----------
NET INTEREST INCOME 10,694,000 10,276,000
Provision for possible loan losses 250,000 300,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR POSSIBLE LOAN LOSSES 10,444,000 9,976,000
----------- -----------
OTHER INCOME:
Trust division income 577,000 536,000
Service charges on deposit accounts 1,093,000 1,010,000
Other charges, fees and exchanges 1,002,000 851,000
Other operating income 20,000 51,000
----------- -----------
TOTAL OTHER INCOME 2,692,000 2,448,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>5
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 4,137,000 4,010,000
Net occupancy expense 643,000 639,000
Furniture and equipment expense 1,126,000 1,078,000
Supplies and postage 470,000 468,000
Ohio Franchise Tax 252,000 290,000
Other operating expenses 1,762,000 1,816,000
------------ ------------
TOTAL OTHER EXPENSES 8,390,000 8,301,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 4,746,000 4,123,000
FEDERAL INCOME TAXES 1,626,000 1,346,000
------------ ------------
NET INCOME $ 3,120,000 $ 2,777,000
============ ============
PER SHARE DATA:
EARNINGS $ .74 $ .66
====== ======
CASH DIVIDENDS $ .32 $ .27
====== ======
See notes to condensed consolidated financial statements.
<PAGE>6
FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME ----------------------
1997 1996
INTEREST INCOME ----------------------
Interest and fees on loans:
Taxable $ 6,918,000 $ 6,373,000
Tax-exempt 12,000 15,000
Interest and dividends on securities:
Taxable 1,601,000 1,525,000
Tax-exempt 36,000 62,000
Interest on Federal funds sold and other
interest bearing instruments 27,000 57,000
----------- -----------
TOTAL INTEREST INCOME 8,594,000 8,032,000
----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 593,000 453,000
Interest on other deposits 2,245,000 2,104,000
Interest on securities sold under
repurchase agreements and
other short-term borrowings 301,000 213,000
Interest on Federal Home Loan Bank advances 18,000 -0-
----------- -----------
TOTAL INTEREST EXPENSE 3,157,000 2,770,000
----------- -----------
NET INTEREST INCOME 5,437,000 5,262,000
Provision for possible loan losses 125,000 175,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR POSSIBLE LOAN LOSSES 5,312,000 5,087,000
----------- -----------
OTHER INCOME:
Trust division income 299,000 258,000
Service charges on deposit accounts 548,000 526,000
Other charges, fees and exchanges 542,000 428,000
Other operating income 10,000 15,000
----------- -----------
TOTAL OTHER INCOME 1,399,000 1,227,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>7
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,129,000 2,024,000
Net occupancy expense 314,000 311,000
Furniture and equipment expense 565,000 537,000
Supplies and postage 223,000 223,000
Ohio Franchise Tax 123,000 143,000
Other operating expenses 923,000 935,000
------------ ------------
TOTAL OTHER EXPENSES 4,277,000 4,173,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 2,434,000 2,141,000
FEDERAL INCOME TAXES 839,000 690,000
------------ ------------
NET INCOME $ 1,595,000 $ 1,451,000
============ ============
PER SHARE DATA:
EARNINGS $ .38 $ .35
====== =====
CASH DIVIDENDS $ .16 $ .14
====== =====
See notes to condensed consolidated financial statements.
<PAGE>8
FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF CASH FLOWS ---------------------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: -------------------------
Interest received $16,715,000 $14,906,000
Other income received 2,696,000 2,010,000
Interest paid (6,013,000) (5,365,000)
Cash paid for salaries and benefits (3,952,000) (3,701,000)
Net occupancy expense of premises paid (457,000) (446,000)
Furniture and equipment expenses paid (404,000) (369,000)
Cash paid for supplies and postage (470,000) (459,000)
Cash paid for other operating expenses (2,257,000) (3,377,000)
Federal income taxes paid (1,500,000) (955,000)
----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 4,358,000 2,244,000
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceed from maturities of
securities available for sale 2,130,000 1,921,000
Proceeds from maturities of
investment securities 7,920,000 15,088,000
Purchases of securities available for sale (2,077,000) (2,468,000)
Purchases of investment securities (11,575,000) (20,187,000)
Net decrease in credit card loans 439,000 500,000
Net (increase) in long-term loans (10,252,000) (12,599,000)
Purchases of bank premises, equipment
and software (879,000) (1,214,000)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (14,294,000) (18,959,000)
----------- ----------
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>9
STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and
other noninterest-bearing deposits (4,564,000) 2,592,000
Net increase (decrease) in savings and
passbook deposits 6,945,000 (12,207,000)
Net increase in time deposits 15,722,000 24,554,000
Net increase (decrease) in Federal funds purchased
and other interest bearing instruments (1,220,000) 2,125,000
Proceeds from line of credit 2,400,000 -0-
Proceeds from exercise of stock options 19,000 96,000
Purchase of Treasury Stock (2,436,000) -0-
Dividends paid (1,448,000) (1,025,000)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 15,418,000 16,135,000
----------- -----------
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS 5,482,000 (580,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 18,993,000 21,275,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
QUARTER $24,475,000 $20,695,000
=========== ===========
See notes to condensed consolidated financial statements.
<PAGE>10
FORM 10-Q LNB Bancorp, Inc. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTRODUCTION
The following areas of discussion pertain to the condensed consolidated
financial statements of LNB Bancorp, Inc. at June 30, 1997, compared to
December 31, 1996 and the results of operations for the six months ending
June 30, 1997 compared to the same period in 1996. It is the intent of
this discussion to provide the reader with a more thorough understanding
of the condensed consolidated financial statements and supporting
schedules, and should be read in conjunction with those condensed
consolidated financial statements and schedules.
LNB Bancorp, Inc. is not aware of any trends, events, or uncertainties
that might have a material effect on the soundness of operations; neither
is LNB Bancorp, Inc. aware of any proposed recommendations by regulatory
authorities which would have a similar effect if implemented.
BASIS OF PRESENTATION
The unaudited condensed consolidated balance sheet as of June 30, 1997,
the condensed consolidated statements of income and the condensed
consolidated statements of cash flows for the six months ended June 30,
1997 and 1996 are prepared in accordance with generally accepted
accounting principles for interim financial information. The above
mentioned statements reflect all normal and recurring adjustments which
are, in the opinion of Management, necessary for a fair presentation of
the financial position and the results of operations for the interim
periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Corporation's December 31, 1996 Annual Report to Shareholders.
The results of operations for the period ended June 30, 1997 are not
necessarily indicative of the operating results for the full year.
RESERVE FOR POSSIBLE LOAN LOSSES
Because some loans may not be repaid in full, a reserve for possible loan
losses is recorded. This reserve is increased by provisions charged to
earnings and is reduced by loan charge-offs, net of recoveries. Estimating
the risk of loss on any loan is necessarily subjective. Accordingly, the
reserve is maintained by Management at a level considered adequate to
cover possible loan losses that are currently anticipated based on
Management's evaluation of several key factors including information about
specific borrower situations, their financial position and collateral
values, current economic conditions, changes in the mix and levels of the
various types of loans, past charge-off experience and other pertinent
<PAGE>11
information. The reserve for possible loan losses is based on
estimates using currently available information, and ultimate losses may
vary from current estimates due to changes in circumstances. These
estimates are reviewed periodically and, as adjustments become necessary,
they are reported in earnings in the periods in which they become known.
While Management may periodically allocate portions of the reserve for
specific problem situations, the entire reserve is available for any
charge-offs that may occur. Charge-offs are made against the reserve for
possible loan losses when Management concludes that it is probable that
all or a portion of a loan is uncollectible. After a loan is charged-off,
collection efforts continue and future recoveries may occur.
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 for 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.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to 1997 presentation.
2. PER SHARE DATA
The Corporation adopted SFAS No. 128 "Earnings Per Share" on January 1,
1997. This Statement specifies the computation, presentation and
disclosure requirements for earnings per share, for entities with publicly
held common stock or potential common stock. The per share data has been
adjusted to reflect the two percent stock dividend in 1996.
<PAGE>12
In accordance with SFAS No. 128, Earnings per share is calculated as
follows:
For the Quarter ended June 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Income before extraordinary
Item and accounting change $3,120,000
Basic EPS
Income available to
common stockholders $3,120,000 4,205,534 $ .74
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 11,038
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $3,120,000 4,216,572 $ .74
========== ========= =====
3. DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
The Corporation adopted SFAS No. 129 "Disclosure of Information about
Capital Structure" on January 1, 1997. This statement requires in summary
form within the financial statements, the pertinent rights and privileges
of the various securities outstanding. Corporate Management has
determined that the adoption of SFAS No. 129 will increase year-end
disclosure requirements for capital.
4. CONTINGENCY AND COMMITMENT
On April 14, 1997, LNB Bancorp, Inc. (the "Corporation"), the holding
company for Lorain National Bank (the "Bank"), issued a news release
announcing that the Bank had entered into a Branch Purchase and Assumption
Agreement to acquire three branch offices located in Lorain County, Ohio,
and approximately $55 million of deposits and consumer loans totaling
nearly $18 million from KeyBank National Association, Cleveland, Ohio
("Seller"). Consummation of the transaction is subject to, among other
conditions, regulatory approval. On May 28, 1997, the Office of the
Comptroller of Currency granted approval to Lorain National Bank to effect
the above mentioned Branch Purchase and Assumption Agreement with KeyBank
National Association. The Bank's management team is diligently working on
this agreement.
<PAGE>13
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATION
FINANCIAL CONDITION
Total assets of the Corporation increased $18,746,000 during the first
half of 1997, to $456,989,000. This growth is attributable to increases in
savings deposits, certificates of deposit, and checkinvest accounts.
Federal funds sold and other interest bearing investments increased by
$132,000 during the first six months of 1997.
Total investment securities increased $3,615,000 ending the first half at
$108,575,000. At June 30, 1997 unrealized gains (losses) in the investment
securities portfolio were approximately $711,000 and ($316,000),
respectively.
Nonperforming assets at June 30, 1997 totaled $376,000, down from $597,000
at March 31, 1997. The second quarter decrease in nonperforming assets of
$221,000 resulted from loans being brought current in the amount of
$14,000 loans charged-off in the amount of $13,000 liquidations of
nonaccrual loans of $398,000 and increases in nonaccrual loans of
$204,000.
The level of nonperforming assets decreased $207,000 during the first
quarter 1997. The first quarter decrease is the result of a net decrease
in nonaccrual loans plus a decrease in other real estate owned. The
decrease in nonaccrual loans is due to decreases in nonaccrual principal
balances of $243,000 which have been paid off and brought current and
increases in nonaccrual principal balances of $75,000. The decrease in
nonaccrual loans in the first quarter of 1997 was due primarily to two
commercial loan customers which included recoveries from the Small
Business Administration.
The level of nonperforming assets at June 30, 1997 remained at relatively
low levels and Corporate management believes nonperforming assets are well
collateralized. The table below presents the level of nonperforming assets
at the end of the last four calendar quarters.
Amounts in thousands 06/30/97 03/31/97 12/31/96 09/30/96
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $ 376 $ 597 $ 765 $ 941
Restructured 0 0 0 0
Other Real Estate Owned 0 0 39 39
------ ------ ------ ------
Total Nonperforming Assets $ 376 $ 597 $ 804 $ 980
====== ====== ====== ======
Reserve for possible
loan losses to total
nonperforming assets 1,127.1% 684.4% 511.9% 419.6%
======== ====== ====== ======
Accruing loans past due
90 days 271 180 357 396
====== ====== ====== ======
Net loans increased $9,373,000 during the first half to $307,330,000 at
June 30, 1997. The reserve for possible loan losses ended the quarter at
<PAGE>14
4,238,000 supported by a provision for loan losses of $250,000, recoveries
of $98,000 and loan charge-offs of $226,000. The reserve for possible
loan losses as a percentage of ending loans was 1.36% and 1.36% at
December 31, 1996 and June 30, 1997, respectively. Corporate management
believes that the level of the reserve for possible loan losses is
adequate based upon quantitative analysis of identified risks and analysis
of historical trends.
The Corporation's credit policies are reviewed and modified on an ongoing
basis in order to remain suitable for the management of credit risk within
the loan portfolio as conditions change. At June 30, 1997 there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $62,817,000 and $69,762,000 at June 30, 1997 and 1996,
respectively. The decrease in outstanding loan commitments results from a
softening in loan demand in Commercial real Estate and Mortgages loans.
Total deposits increased $18,103,000 during the first half to
$384,438,000. Non-interest bearing deposits decreased to $59,238,000, at
June 30, 1997 for a decrease of $4,564,000, while interest bearing
deposits climbed to $325,245,000 for an increase of $22,667,000. Federal
funds sold and securities sold under agreements to repurchase increased
$1,180,000 during the first half. Due to the volatility of customer
repurchase agreements, most funds generated by repurchase activity enter
the Corporation's earning assets as short-term investments.
LIQUIDITY
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 demand 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.
The Corporation continues to maintain a relatively high liquid position in
order to take advantage of interest rate fluctuations. As of June 30,
1997, short-term security investments with maturities of one year or less
totalled $29,685,000, which represented 27.3% of total securities. Adding
cash and due from banks of $24,240,000, and Federal Funds sold and other
interest bearing instruments of $235,000, total liquid assets represented
11.9% of total assets.
CAPITAL RESOURCES
Total shareholders' equity decreased $608,000 during the first half of
1997 to $43,590,000, at June 30, 1997. The decrease resulted primarily
from $3,120,000 of net income generated from the first six months of
operations less a cash dividend payable to shareholders of $1,324,000,
less Treasury Stock purchased at cost in the amount of $2,436,000.
Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", requires that
securities which the Bank has classified as "Available-for-Sale" are
recorded at market value with any adjustments recorded to equity. The
increase in interest rates experienced in the first half of 1997 has
caused a decrease in the market value of these securities which resulted
<PAGE>15
in an increase of shareholders' equity by $13,000 for the six months ended
June 30, 1997.
The Corporation continues to monitor growth to stay within the
constraints established by the regulatory authorities. Under Federal
banking regulations, an institution is deemed to be well-capitalized if it
has a Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk-
based Total capital ratio of 10.00 percent or greater and a Leverage ratio
of 5.00 percent or greater. The Corporation's Risk-based capital and
Leverage ratios have exceeded the ratios for a well-capitalized financial
institution for all periods presented above. The Corporation's capital
and leverage ratios as of June 30, 1997 and 1996 follow.
June 30,
---------------------
1997 1996
------ ------
Tier I capital ratio 16.13% 16.93%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 17.38% 18.18%
Required total capital ratio 8.00% 8.00%
Leverage ratio 9.81% 10.21%
Required leverage ratio 3.00% 3.00%
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 it's current
capital resources are sufficient to support any foreseeable acquisition
activity, in addition to the purchase of three branch offices from KeyBank
National Association.
Lorain National Bank has signed agreements for the expansion and
remodeling of its Kansas Avenue Branch Office. Construction began in May
and is expected to be completed by August 1997. Total construction costs
plus new equipment is expected to be $450,000.
There were no other material commitments outstanding at June 30, 1997,
other than the Branch Purchase and Assumption Agreement with KeyBank
National Association and the construction and remodeling contracts for the
Kansas Avenue Branch Office.
RESULTS OF OPERATIONS
Interest and fees on loans for the first half of 1997 increased $939,000
when compared to the first half of 1996. This was the result of the
impact of slight increases in interest rates along with loan portfolio
growth. Interest and dividends on securities was $3,228,000 for the first
half of 1997 for an increase of $68,000 over the same period in 1996.
Interest and dividends on securities represented 19.2% of total interest
income at June 30, 1997 compared to 19.8% at June 30, 1996. Interest on
Federal funds sold and other interest bearing instruments was $37,000 at
June 30, 1997 compared to $118,000 at June 30, 1996. The decrease
resulted from higher rates which were more than offset by the decrease in
the average balance invested in these forms of financial instruments.
Total interest expense increased by $508,000 when compared to the first
half of 1996. The increase resulted from increases in average balances of
savings, certificates of deposit and checkinvest accounts along with
increases in interest rates on certificates of deposit.
<PAGE>16
Total other income increased by $244,000 when compared to the first
half of 1996. This increase resulted from increases in income from
fiduciary fees of $41,000, increases in service charges of $83,000 and
increases in other charges of $151,000. The increase in service charges is
due, in part, to reevaluating the assessment of transaction account
charges. The increase in other charges is due to increases in ATM fees.
The Corporation continuously monitors non-interest expenses for greater
profitability. The entire staff is geared to improving productivity at
all levels. Non-interest expense for the six months ended June 30, 1997
was $8,390,000, 1.1% above the first six months of 1996. This increase
was due primarily to increases in salaries and benefits, net occupancy
expense, furniture and equipment expense, and the impacts of inflation.
The effective tax rate increased from 32.8% during the first half of 1996
to 34.3% during the first half of 1997. The increase in the effective tax
rate is due primarily to the decreases in tax exempt interest income. Net
income was $3,120,000 and $2,777,000 for the six months ended June 30,
1997 and 1996, respectively. Net income per share after adjusting for the
two percent stock dividend in 1997 and 1996 was $.74 and $.66 for the six
months ended June 30, 1997 and 1996, respectively.
IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS
Corporate management is not aware of any current recommendations by the
Financial Accounting Standards Board or 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. 130, "Reporting Comprehensive Income"
Implementation date by the Corporation: January 1, 1998
Impact on the Corporation: This Statement provides accounting and
reporting standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Corporate management does not
believe that adoption of SFAS No. 130 will have a significant impact on
net income, but will increase reporting requirements.
SFAS No. 131, "Disclosures about segments of an Enterprise and Related
Information"
Implementation date by the Corporation: January 1, 1998
Impact on the Corporation: This Statement provides accounting and reports
standards about opening segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. Corporate management
does not believe that adoption of SFAS No. 131 will have a significant
impact on net income but will increase disclosure requirements.
<PAGE>17
Part II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None
ITEM 2 - Changes in Securities
None
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibit (11) - Computation of Shares Used for Earnings Per Share
Calculation.
(b) Exhibit (13) - Second Quarter Report to shareholders of LNB
Bancorp, Inc., June 30, 1997.
(c) Reports on Form 8-K
There were no reports on Form 8-K filed for the six months ended
June 30, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LNB BANCORP, INC.
(registrant)
Date: August 11, 1997 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman,
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: August 11, 1997 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis,
Vice President and
Chief Accounting Officer
<PAGE>18
LNB Bancorp, Inc.
Form 10-Q
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K Reference Exhibit
(11) Computation of Shares Used for Earnings Per Share
Calculations
(13) Second Quarter Report to Shareholders of LNB Bancorp,
Inc. June 30, 1997 - EDGAR Version
(27) Financial Data Schedule
<PAGE>19
LNB Bancorp, Inc.
Exhibit to Form 10-Q
(For the six months ended June 30, 1997)
S - K Reference Number (11)
Computation of Shares Used for Earnings
Per Share Calculation.
Six Months Ended
June 30
----------------------
1997 1996
--------- ---------
Weighted Average Shares Outstanding 4,205,534 4,123,600
Common Stock Equivalents (Stock Options) 11,038 16,825
--------- ---------
4,216,572 4,140,425
========= =========
<PAGE>20
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 1997)
S - K Reference Number (13)
Second Quarter Report to Shareholders of
LNB Bancorp, Inc. (dated June 30, 1997)
EDGAR Version
Description:
Two sided pamphlet: Backside cover containing the list of Director's of
LNB Bancorp, Inc., Officers of LNB Bancorp, Inc. and Directors Emeritus of
Lorain National Bank and outside beige cover with brown lettering stating
LNB Bancorp, Inc., Quarterly Report, a picture of five hands pulling on a
rope with a hoist, June 30, 1997 along with logo.
Inside contains: Message to Our Shareholders, unaudited EDGAR Version
Consolidated Balance Sheets for period ending June 30, 1997 and June 30,
1996 and unaudited Consolidated Statements of Income for the Six Months
Ended June 30, 1997 and June 30, 1996.
<PAGE>21
Message to Our Shareholders
It's a pleasure, once again, to report on the progress of LNB Bancorp,
Inc., and its subsidiary, Lorain National Bank, after the first six
months of 1997.
We are pleased to announce that earnings have increased 12.4 percent
for the first half of the year, compared to the same period one year
ago. Consolidated net income for the first six months of 1997 reached
$3,120,000, up from $2,777,000 for the comparative period in 1996.
Our performance continues to strengthen, as indicated by our steadily
increasing annualized return on average assets, which reached 1.41
percent at mid-year.
Year-to-date cash dividends declared to shareholders has increased
13.1 percent over the comparative period in 1996. Total shareholders'
equity also increased $1.2 million during the 12 months ended June 30,
1997 and total shareholders' equity, as a percentage of total assets,
reached 9.5 percent.
Total assets rose 7.7 percent to $456,989,000 as of June 30, 1997. Net
loans increased to $307,330,000 at June 30, 1997. This represents an
increase of $26 million or 9.1 percent over the net loans at June 30,
1996.
During the second quarter, we welcomed Terry D. Goode to the Board of
Directors of LNB Bancorp, Inc. and its subsidiary Lorain National Bank.
Mr. Goode is Vice President and Co-owner of the Lorain County Title
Company of Elyria.
As mentioned during our Annual Meeting in April, we are acquiring
three branch offices from KeyBank in Lorain and Elyria. Our management
team is busy preparing for the acquisition and the arrival of many new
customers to Lorain National Bank. We look forward to providing our
new customers with the same high quality personal service on which we
have built our reputation.
We thank you for your continued support and look forward to addressing
you after the completion of another year of successful operations.
Sincerely,
/s/ Stanley G. Pijor /s/ J. F. Kidd
------------------------ -----------------
Stanley G. Pijor James F. Kidd
Chairman of the Board President and
Chief Executive Officer
<PAGE>22
Consolidated Balance Sheets
June 30
--------------------------
1997 1996
------------ ------------
ASSETS:
Cash and Due From Banks $ 24,240,000 $ 24,131,000
Federal Funds Sold and other Interest Bearing
Instruments 235,000 705,000
Securities Available for Sale 14,346,000 14,424,000
Investment Securities 94,229,000 86,624,000
Loans 311,568,000 285,655,000
Reserve for Possible Loan Losses (4,238,000) (3,995,000)
- --------------------------------------------------------------------------
NET LOANS 307,330,000 281,660,000
- --------------------------------------------------------------------------
Premises and Equipment (net) 10,876,000 10,871,000
Other Assets 5,733,000 6,073,000
- --------------------------------------------------------------------------
TOTAL ASSETS $456,989,000 $424,488,000
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Non-Interest Bearing Deposits $ 59,238,000 $ 61,554,000
Interest Bearing Deposits 325,245,000 296,013,000
- --------------------------------------------------------------------------
TOTAL DEPOSITS 384,483,000 357,567,000
- --------------------------------------------------------------------------
Securities Sold under Repurchase
Agreements and Other Short-term Borrowings 24,566,000 21,514,000
Federal Home Loan Bank Advances 1,095,000 -0-
Other Liabilities 3,255,000 2,998,000
- --------------------------------------------------------------------------
TOTAL LIABILITIES 413,399,000 382,079,000
- --------------------------------------------------------------------------
Common stock 4,222,000 4,126,000
Additional capital 22,597,000 20,077,000
Retained Earnings 19,185,000 18,247,000
Net Unrealized Security Gains(Losses) 22,000 (41,000)
Treasury Stock at Cost (2,436,000) -0-
- --------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 43,590,000 42,409,000
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $456,989,000 $424,488,000
- --------------------------------------------------------------------------
(LOGO) LNB
Bancorp, Inc.
and its subsidiary Lorain National Bank
<PAGE>23
Consolidated Statements of Income
Six Months Ended
June 30
------------------------
1997 1996
------------------------
INTEREST INCOME:
Interest and Fees on Loans $13,585,000 $12,646,000
Interest and Dividends on Securities: 3,231,000 3,163,000
Interest on Federal Funds Sold 34,000 115,000
- --------------------------------------------------------------------------
TOTAL INTEREST INCOME 16,850,000 15,924,000
- --------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 5,568,000 5,198,000
Interest on Securities Sold under Repurchase
Agreements and Other Short-Term Borrowings 553,000 450,000
Interest on Federal Home Loan Bank Advances 35,000 -0-
- --------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 6,156,000 5,648,000
- --------------------------------------------------------------------------
NET INTEREST INCOME 10,694,000 10,276,000
Provision for Loan Losses 250,000 300,000
- --------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,444,000 9,976,000
- --------------------------------------------------------------------------
OTHER INCOME:
Trust Department Income 577,000 536,000
Fees and Service Charges 2,095,000 1,861,000
Gains From Sales of Loans and Securities -0- -0-
Other Operating Income 20,000 51,000
- --------------------------------------------------------------------------
TOTAL OTHER INCOME 2,692,000 2,448,000
- --------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and Employee Benefits 4,137,000 4,010,000
Net Occupancy Expense of Premises 643,000 639,000
Furniture and Equipment Expenses 1,126,000 1,078,000
Supplies and Postage 470,000 468,000
Ohio Franchise Tax 252,000 290,000
Other Operating Expenses 1,762,000 1,816,000
- --------------------------------------------------------------------------
TOTAL OTHER EXPENSES 8,390,000 8,301,000
- --------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 4,746,000 4,123,000
- --------------------------------------------------------------------------
Federal Income Taxes 1,626,000 1,346,000
- --------------------------------------------------------------------------
NET INCOME $3,120,000 $2,777,000
- --------------------------------------------------------------------------
PER SHARE DATA:
NET INCOME $ .74 $ .66
- --------------------------------------------------------------------------
DIVIDENDS DECLARED $ .32 $ .27
==========================================================================
The per share data has been adjusted to reflect the 2% stock dividend in
1997. Net income per share is based on weighted average common and common
equivalent shares outstanding.
<PAGE>24
Backside Cover: 3 Column format
Directors and Officers of LNB Bancorp, Inc.
Directors
Stanley G. Pijor Benjamin G. Norton
Chairman of the Board Employee and Community
LNB Bancorp, Inc. and Relations Manager
Lorain National Bank RELTEC Corporation
James L. Bardoner Jeffrey F. Riddell
Retired, Former President President
Dorn Industries, Inc. Consumers Builders Supply Co.
Vice President and
Daniel P. Batista Chief Executive Officer,
Attorney/Partner Consumeracq, Inc.
Cook & Batista Co., L.P.A.
Thomas P. Ryan
Robert M. Campana Executive Vice President
Managing Director and Secretary/Treasurer
P.C. Campana, Inc. LNB Bancorp, Inc.
Executive Vice President
Terry D. Goode and Secretary
Vice President Lorain National Bank
Lorain County Title Company
T.L. Smith, M.D.
Wellsley O. Gray Retired Physician
Sales Consultant
Smith Dairy Company Eugene M. Sofranko
President and
James F. Kidd Chief Executive Officer
President and Lorain Glass Company, Inc.
Chief Executive Officer
LNB Bancorp, Inc. and Paul T. Stack
Lorain National Bank Retired Manufacturer's
Representative
Coley's Inc.
David M. Koethe
Chairman of the Board Leo Weingarten
The Lorain Printing Company Retired
Directors Emeritus of Lorain National Bank
James H. Riddell Don A. Sanborn
Chairman of the Board Retired
Consumers Builders Supply Co.
President, Consumeracq, Inc.
<PAGE>25
Backside Cover: 3 Column format (Continued)
Officers
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James F. Kidd
President and
Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
Sandra L. Dubell
Senior Vice President and
Chief Lending Officer
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
Front Cover:
LNB BANCORP, INC.
Quarterly Report
Picture of five hands pulling down on a rope with a hoist.
June 30, 1997
(lower middle of cover)
<PAGE>26
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 1997)
S - K Reference Number (27)
Financial Data Schedule
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<ARTICLE> 9
<CIK> 0000737210
<NAME> LNB BANCORP, INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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