<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 September 30, 1998
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)
(440) 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 October 25, 1998: 4,122,575 shares
Class of Common Stock: $1.00 par value
<PAGE>2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended September 30, 1998
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.01-01 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 5
Condensed Consolidated Statements 9
of Cash Flows
Notes to the Condensed Consolidated Financial
Statements 11
Item 2 - Management's Discussion and Analysis 16
of Financial Condition and Results of
Operations
Item 3 - Quantitative and Qualitative Disclosures 24
About Market Risk
Part II - Other Information
Item 1 - Legal Proceedings 25
Item 2 - Changes in Securities 25
Item 3 - Defaults upon Senior Securities 25
Item 4 - Submission of matters to a Vote of 25
Security Holders
Item 5 - Other Information 25
Item 6 - Exhibit and Reports on Form 8-K 25
Signatures 25
Exhibit Index 26
<PAGE>3
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SEPTEMBER 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1998 1997
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 22,054,000 $ 24,273,000
Federal funds sold and other interest
bearing instruments 3,936,000 134,000
Securities:
Available for sale 46,914,000 19,336,000
Held to maturity 71,003,000 96,038,000
------------- -------------
Total Securities 117,917,000 115,374,000
(Market Value $119,296,000 and ------------- -------------
$116,197,000 respectively)
Loans:
Portfolio Loans 351,431,000 319,666,000
Loans available for sale 10,368,000 11,365,000
------------- -------------
Total loans 361,799,000 331,031,000
Reserve for possible loan losses (4,675,000) (4,168,000)
------------- -------------
Net loans 357,124,000 326,863,000
------------- -------------
Bank premises and equipment, net 10,784,000 11,321,000
Intangible assets 4,778,000 5,114,000
Accrued interest receivable and other assets 7,018,000 7,138,000
------------- -------------
TOTAL ASSETS $523,611,000 $490,217,000
============= =============
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>4
STATEMENT CONTINUED FROM PREVIOUS PAGE
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-bearing deposits $ 74,543,000 $ 68,565,000
Interest-bearing deposits 358,765,000 342,090,000
------------- -------------
Total deposits 433,308,000 410,655,000
------------- -------------
Federal funds purchased and Securities
sold under agreements to repurchase 34,622,000 26,750,000
Federal Home Loan Bank advances 2,045,000 2,045,000
Line of Credit 1,600,000 2,200,000
Accrued taxes, expenses and other liabilities 3,868,000 3,582,000
------------- -------------
Total Liabilities 475,443,000 445,232,000
------------- -------------
Shareholders' equity:
Common stock $1.00 par:
Shares authorized 5,000,000
Shares issued 4,222,575 and 4,222,375,
respectively and outstanding
4,122,575 and 4,124,379,
respectively 4,222,000 4,222,000
Additional capital 22,602,000 22,599,000
Retained earnings 23,681,000 20,937,000
Accumulated other comprehensive income 563,000 70,000
Treasury Stock at cost, 100,000 and 97,996
shares respectively (2,900,000) (2,843,000)
------------- -------------
Total Shareholders' Equity 48,168,000 44,985,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $523,611,000 $490,217,000
============= =============
NOTE 1: The consolidated balance sheet at December 31, 1997 has been
derived from the audited Financial Statements and condensed.
See notes to unaudited condensed consolidated financial statements.
<PAGE>5
FORM 10-Q LNB BANCORP, INC. UNAUDITED
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF INCOME -------------------------
1998 1997
INTEREST INCOME: ------------ ------------
Interest and fees on loans:
Taxable $22,720,000 $20,725,000
Tax-exempt 32,000 37,000
Interest and dividends on securities:
Taxable 5,317,000 4,818,000
Tax-exempt 151,000 107,000
Interest on Federal funds sold and other
interest bearing instruments 113,000 63,000
------------ ------------
TOTAL INTEREST INCOME 28,333,000 25,750,000
------------ ------------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 1,742,000 1,733,000
Interest on other deposits 7,706,000 6,747,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 882,000 925,000
Interest on Federal Home Loan Bank advances 98,000 53,000
------------ ------------
TOTAL INTEREST EXPENSE 10,428,000 9,458,000
------------ ------------
NET INTEREST INCOME 17,905,000 16,292,000
Provision for possible loan losses 1,263,000 375,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 16,642,000 15,917,000
------------ ------------
OTHER INCOME:
Trust division income 1,358,000 955,000
Service charges on deposit accounts 1,993,000 1,690,000
Other charges, fees and exchanges 1,711,000 1,555,000
Other operating income 49,000 36,000
------------ ------------
TOTAL OTHER INCOME 5,111,000 4,236,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>6
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 6,576,000 6,321,000
Net occupancy expense 1,005,000 957,000
Furniture and Equipment Expense 1,617,000 1,719,000
Amortization of intangible assets 355,000 18,000
Supplies and postage 790,000 725,000
Ohio Franchise Tax 353,000 367,000
FDIC deposit insurance premium 38,000 30,000
Other operating expenses 3,071,000 2,728,000
------------ ------------
TOTAL OTHER EXPENSES 13,805,000 12,865,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 7,948,000 7,288,000
FEDERAL INCOME TAXES 2,690,000 2,508,000
------------ ------------
NET INCOME $ 5,258,000 $ 4,780,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ 1.27 $ 1.14
====== ======
DILUTED EARNINGS PER SHARE $ 1.27 $ 1.14
====== ======
DIVIDENDS PER SHARE $ .61 $ .49
====== ======
See notes to unaudited condensed consolidated financial statements.
<PAGE>7
FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF INCOME --------------------------
1998 1997
INTEREST INCOME ------------ ------------
Interest and fees on loans:
Taxable $ 7,945,000 $ 7,165,000
Tax-Exempt 10,000 12,000
Interest and dividends on securities:
Taxable 1,808,000 1,661,000
Tax-Exempt 49,000 36,000
Interest on Federal funds sold and other
interest bearing instruments 18,000 26,000
------------ -----------
TOTAL INTEREST INCOME 9,830,000 8,900,000
------------ -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 664,000 582,000
Interest on other deposits 2,551,000 2,330,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 330,000 372,000
Interest on Federal Home Loan Bank advances 33,000 18,000
------------ -----------
TOTAL INTEREST EXPENSE 3,578,000 3,302,000
------------ -----------
NET INTEREST INCOME 6,252,000 5,598,000
Provision for possible loan losses 838,000 125,000
NET INTEREST INCOME AFTER PROVISION ------------ -----------
FOR POSSIBLE LOAN LOSSES 5,414,000 5,473,000
------------ -----------
OTHER INCOME:
Trust division income 332,000 378,000
Service charges on deposit accounts 699,000 597,000
Other charges, fees and exchanges 602,000 553,000
Other operating income 25,000 16,000
------------ -----------
TOTAL OTHER INCOME 1,658,000 1,544,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>8
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,073,000 2,184,000
Net occupancy expense 334,000 314,000
Furniture and equipment expense 439,000 593,000
Amortization of intangible assets 131,000 18,000
Supplies and postage 247,000 255,000
Ohio Franchise Tax 84,000 115,000
FDIC deposit insurance premium 13,000 8,000
Other operating expenses 993,000 988,000
------------ ------------
TOTAL OTHER EXPENSES 4,314,000 4,475,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 2,758,000 2,535,000
FEDERAL INCOME TAXES 932,000 882,000
------------ ------------
NET INCOME $ 1,826,000 $ 1,660,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .44 $ .40
====== ======
DILUTED EARNINGS PER SHARE $ .44 $ .40
====== ======
DIVIDENDS PER SHARE $ .21 $ .17
====== ======
See notes to unaudited condensed consolidated financial statements.
<PAGE>9
FORM 10-Q LNB BANCORP, INC. Unaudited
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF CASH FLOWS -------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Interest received $27,947,000 $25,061,000
Other income received 4,883,000 4,221,000
Interest paid (10,277,000) (9,315,000)
Cash paid for salaries and benefits (6,320,000) (6,310,000)
Net occupancy expense of premises paid (744,000) (675,000)
Furniture and equipment expenses paid (597,000) (627,000)
Cash paid for supplies and postage (790,000) (725,000)
Cash paid for other operating expenses (2,011,000) (3,132,000)
Federal income taxes paid (2,798,000) (2,311,000)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES: 9,293,000 6,187,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 9,278,000 3,280,000
Proceeds from maturities of
securities held to maturity 27,366,000 11,979,000
Purchase of securities available for sale (38,938,000) (22,120,000)
Purchase of securities held to maturity (155,000) (4,201,000)
Net decrease in credit card loans 600,000 430,000
Net (increase) in long-term loans (32,427,000) (30,672,000)
Purchases of bank premises, equipment
and intangible assets (756,000) (7,075,000)
Proceeds from sales of bank premises
and equipment 7,000 9,000
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (35,025,000) (48,370,000)
------------- ------------
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>10
STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and other
noninterest-bearing deposits 5,978,000 1,747,000
Net increase (decrease) in savings
and passbook deposits (3,168,000) 12,349,000
Net increase in time deposits 19,843,000 41,627,000
Net increase in Federal funds purchased and
other interest bearing instruments 7,872,000 144,000
Proceeds from line of credit -0- 2,400,000
Payment of line of credit (600,000) -0-
Proceeds from exercise of stock options 3,000 19,000
Purchase of Treasury Stock (57,000) (2,583,000)
Dividends paid (2,556,000) (2,110,000)
------------- ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 27,315,000 53,593,000
------------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,583,000 11,410,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 24,407,000 18,993,000
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $25,990,000 $30,403,000
============ ============
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $5,258,000 $4,780,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,281,000 1,356,000
Amortization of deferred loan fees
and costs, net 796,000 285,000
Provision for possible loan losses 1,263,000 375,000
Amortization of Intangible Assets 355,000 18,000
(Increase)in accrued interest receivable (371,000) (697,000)
(Increase) in other assets 537,000 (92,000)
Increase in accrued interest payable 151,000 143,000
Increase (decrease) in accrued taxes,
expenses and other liabilities 161,000 (18,000)
Others, net (138,000) 37,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $9,293,000 $6,187,000
=========== ===========
See notes to unaudited condensed consolidated financial statements.
<PAGE>11
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 unaudited condensed
consolidated financial statements of LNB Bancorp, Inc. (The Parent
Company) and its wholly-owned subsidiary, Lorain National Bank (The Bank)
at September 30, 1998, compared to December 31, 1997, and the results of
its operations and cash flows for the nine months ended September 30,
1998 compared to the same period in 1997. The term "the Corporation"
refers to LNB Bancorp, Inc. and its wholly-owned subsidiary. It is the
intent of this discussion to provide the reader with a more thorough
understanding of the unaudited condensed consolidated financial statements
and supporting schedules, and should be read in conjunction with those
unaudited 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 September 30,
1998, the unaudited condensed consolidated statements of income for the
nine months and three months ended September 30, 1998 and 1997 and the
unaudited condensed consolidated statements of cash flows for the nine
months ended September 30, 1998 and 1997 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 unaudited condensed consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in
the Corporation's December 31, 1997 Annual Report to Shareholders.
The results of operations for the period ended September 30, 1998 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
<PAGE>12
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
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.
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.
RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform to 1998
presentation.
2. EARNINGS PER SHARE
Earnings per common and common equivalent shares (stock options) have been
computed using the weighted average number of shares outstanding during
each period after giving consideration to the dilutive effect of incentive
stock options and a two percent stock dividend in 1997.
<PAGE>13
Earnings per share is calculated as follows:
For the 9 Months ended September 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $5,258,000
Basic EPS
Income available to
common stockholders $5,258,000 4,122,952 $1.27
Effect of Dilutive Securities
Incentive Stock Options -0- 9,648 -0-
---------- --------- -----
Dilutive EPS
Income available to common
stockholders + assumed
conversions $5,258,000 4,132,600 $1.27
========== ========= =====
For the 9 Months ended September 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $4,780,000
Basic EPS
Income available to
common stockholders $4,780,000 4,182,228 $1.14
Effect of Dilutive Securities
Incentive Stock Options -0- 10,650 -0-
---------- --------- -----
Dilutive EPS
Income available to common
stockholders + assumed
conversions $4,780,000 4,192,878 $1.14
========== ========= =====
For the 3 Months ended September 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $1,826,000
Basic EPS
Income available to
common stockholders $1,826,000 4,122,525 $ .44
Effect of Dilutive Securities
Incentive Stock Options -0- 9,648 -0-
---------- --------- -----
Dilutive EPS
Income available to common
stockholders + assumed
conversions $1,826,000 4,132,173 $ .44
========== ========= =====
<PAGE>14
For the 3 Months ended September 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $1,660,000
Basic EPS
Income available to
common stockholders $1,660,000 4,182,228 $ .40
Effect of Dilutive Securities
Incentive Stock Options -0- 10,650 -0-
---------- --------- -----
Dilutive EPS
Income available to common
stockholders + assumed
conversions $1,660,000 4,192,878 $ .40
========== ========= =====
3. COMPREHENSIVE INCOME
The Corporation adopted SFAS No. 130 "Reporting Comprehensive Income" on
January 1, 1998. This statement requires companies to report all items
that are recognized as components of comprehensive income under accounting
standards. As required, the Corporation displays the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital. The Corporation's comprehensive income for
the nine months ended September 30, 1998 and 1997 are as follows:
For the nine months ended September 30,
1998 1997
--------------------------------
Net income $5,258,000 $4,780,000
Other comprehensive income:
Unrealized gain on securities
available for sale, net of tax
of $290,000 and $20,000 563,000 38,000
----------- -----------
Comprehensive Income $5,821,000 $4,818,000
The Corporation's comprehensive income for the three months ended
September 30, 1998 and 1997 are as follows:
For the three months ended September 30
1998 1997
------------------------------------
Net income $1,826,000 $1,660,000
Other comprehensive income:
Unrealized gain on securities
available for sale, net of tax
of $241,000 and $13,000 467,000 25,000
----------- ------------
Comprehensive Income $2,293,000 $1,685,000
<PAGE>15
4. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Corporation adopted SFAS No. 131 "Disclosures about segments of an
Enterprise and Related Information" on January 1, 1998. This statement
provides accounting and reporting standards for the way public business
are to report information about operating segments in annual financial
statements and requires those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders in years following the initial year of adoption. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Corporate management has determined
that adoption of SFAS No. 131 will have no increase in reporting and
disclosure requirements.
5. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Corporation adopted SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" on January 1, 1998. This
statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer as useful as the were
when FASB Statements No. 87, No. 88 and No. 106 were issued. Corporate
management has determined that the adoption of SFAS No. 132 will change
year end reporting requirements for pension and postretirement benefits.
6. DIVIDEND REINVESTMENT AND CASH STOCK PURCHASE PLAN
The Board of Directors adopted a dividend reinvestment and cash stock
purchase plan on November 18, 1997. Under the plan, the first dividend
reinvestment and cash stock purchase date was April 1, 1998. The plan
allows shareholders to elect to use their quarterly cash dividends to
purchase shares of LNB Bancorp, Inc. common stock. Additionally, cash can
be contributed directly to the plan for the purchase of shares of common
stock with a quarterly limit of $5,000.
The dividend reinvestment plan authorized the sale of 150,000 shares of
the Corporation's authorized but previously unissued common shares to
shareholders who choose to invest all or a portion of their cash dividends
plus additional cash payments. No shares were issued by the Corporation
pursuant to the plan in the first three quarters of 1998. In the first
three quarters of 1998, stock was purchased in the open market at the
current market price.
<PAGE>16
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATION
FINANCIAL CONDITION
Total assets of the Corporation increased $33,668,000 during the first
nine months in 1998, to $523,885,000. This growth was funded by increases
in Federal funds purchased, demand deposits, and certificates of deposit.
Total earning assets increased 8.3% to $483,652,000 at September 30, 1998
from December 31, 1997. The ratio of earning assets to total assets
increased from 91.1% at December 31, 1997 to 92.3% at September 30, 1998.
The loan to deposit ratio has increased from 80.6% at 1997 year-end to
83.5% at September 30, 1998.
Federal funds sold and other interest bearing investments increased by
$3,802,000 during the first nine months of 1998.
Total securities increased $2,543,000 ending the third quarter at
$117,917,000. At September 30, 1998 gross unrealized gains (losses)in the
investment securities portfolio were approximately $1,381,000 and
($2,000), respectively.
Net loans increased $30,261,000 during the first nine months to
$357,124,000 at September 30, 1998. Consumer loans at September 30, 1998
totaled $62,619,000, or 63%, of the increase in net loans from the
year-end 1997. This net loan increase was supported by spring and
summer home equity loan sale programs which resulted in new loans totaling
over $8 million. Also, the net increase in consumer loans is attributable
to an increase in indirect automobile loans totaling over $8 million. The
reserve for possible loan losses ended the quarter at $4,675,000.
Activity for the nine months ended September 30, 1998 included provision
for loan losses of $1,263,000, recoveries of $126,000 and loan charge-offs
of $882,000. The reserve for possible loan losses as a percentage of
ending loans increased .03% from 1.26% at December 31, 1997 to 1.29% at
September 30, 1998. Corporate management believes that the reserve for
possible loan losses as a percentage of ending loans at September 30, 1998
remains at an appropriate level as the ratio of the reserve for possible
loan losses to nonperforming assets remained at a level of 172.7% at
September 30, 1998. Corporate management believes that the current level
of the reserve for possible loan losses is adequate based upon an analysis
of identified risks and analysis of historical trends.
The level of nonperforming assets increased $2,192,000 during the first
nine months of 1998. This increase is the result of a net increase in
nonaccrual loans offset by a decrease in other real estate owned in the
amount of $90,000. The increase in nonaccrual loans is due to decreases
in nonaccrual principal balances of $448,000 which have been paid off and
brought current, loans charged-off in the amount of $130,000, liquidation
of non-accrual loans of $143,000 and increases in nonaccrual principal
balances of $3,003,000. The increase in nonaccrual loans in the first
nine months of 1998 was due primarily to six commercial loan customers and
one mortgage loan customer. Management does not believe that this
increase in non-accrual loans is indicative of a failing local economy and
that this change did not result from any change in underwriting standards.
Nonperforming assets at September 30, 1998 totaled $2,707,000, up from
$1,344,000 at June 30, 1998. The third quarter increase in nonperforming
<PAGE>17
assets of $1,362,000 resulted from loans being brought current in the
amount of $323,000, loans charged-off in the amount of $106,000 and
increases in nonaccrual loans of $1,792,000. The increase in nonaccrual
loans in the third quarter of 1998 was due primarily to three commercial
loan customers and one consumer loan customer.
The level of nonperforming assets at September 30, 1998 remains 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 09/30/98 06/30/98 03/31/98 12/31/97
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual loans $2,707 $1,344 $1,078 $ 425
Restructured loans 0 0 0 0
Other Real Estate Owned 0 0 0 90
-------- -------- -------- --------
Total Nonperforming Assets $2,707 $1,344 $1,078 $ 515
======== ======== ======== ========
Reserve for possible
loan losses to total
nonperforming assets 172.7% 336.6% 404.4% 809.3%
======== ======== ======== ========
Accruing loans past due 90 days $ 295 $ 421 $ 645 $ 461
======== ======== ======== ========
Potential problem loans are those loans identified on Management's watch
list in which Management has some doubt as to the borrower's ability to
comply with the present repayment terms and loans which Management is
actively monitoring due to changes in the borrower's financial condition.
At September 30, 1998, potential problem loans totaled $4,590,000, a
decrease of $4,174,000 from the December 31, 1997 balance. The decrease
in potential problem loans during 1998 is primarily due to a reduction in
the gross amount of potential problem loans plus transfers of potential
problem loans to nonaccrual status.
Non-performing and potential problem loans at September 30, 1998 are
primarily comprised of three large creditors that the Bank is reviewing.
Approximately $3,300,000 of these loan balances relates to the extension
of credit to a company that has a significant amount of business activity
in Southeast Asia. The Bank is monitoring these credits while the
creditor is pursuing potential equity partners. Another $1,200,000 in
these loans relates to credit extended to finance the development of a
single-family dwelling subdivision. These credits are being monitored by
management as the creditor liquidates their position through home sales.
Another $1,300,000 of these loans relates to the extension of credits to a
recreational entertainment center. These credits are being monitored by
management which has noted an increase in net earnings for the first,
second and third quarters of 1998.
The Corporation's credit policies are reviewed and modified on an on-going
basis in order to remain suitable for the management of credit risk within
the loan portfolio as conditions change. At September 30, 1998, there are
no significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totalling $80,029,000 and $68,706,000 at September 30, 1998 and December
31,1997, respectively. The increase in outstanding loan commitments
<PAGE>18
results in part from an increase in the unused portion of home equity
lines of credits from a home equity loan sale program in the second and
third quarters of 1998. Mortgage and commercial construction loan demand
increased in the second and third quarters of 1998 as seasonal weather
conditions improved and the construction season moved forward. Consumer
loan demand increased in the second and third quarters as demand for home
improvement and automobile loans increased.
Total deposits increased $22,653,000 during the first nine months to
$433,308,000. Non-interest bearing deposits increased to $74,453,000, at
September 30, 1998 for an increase of $5,978,000, while interest bearing
deposits climbed to $358,765,000 for an increase of $16,675,000. Federal
funds purchased and securities sold under agreements to repurchase
increased $7,272,000 during the first nine months of 1998. 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 September
30, 1998, short-term security investments with maturities of one year or
less totalled $28,721,000 which represented 24.4% of total securities.
Adding cash and due from banks of $22,054,000 and Federal funds sold and
other interest bearing instruments of $3,936,000, total liquid assets
represented 10.4% of total assets. The Corporation's subsidiary bank has
established short-term lines of credit at correspondent banks and the
Federal Home Loan Bank in the amount of $37,800,000.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity increased to $48,168,000, at September 30, 1998. The
increase resulted primarily from $5,258,000 of net income generated from
the first nine months of operations less dividends to shareholders of
$2,515,000. The decrease in interest rates experienced in the first three
quarters of 1998 has caused an increase in the market value of available
for sale securities which resulted in an increase in shareholders'
equity within accumulated other comprehensive income of $563,000 for the
nine months ended September 30, 1998. As of September 30, 1998, the LNB
Bancorp, Inc. held 100,000 shares of common stock as treasury stock. LNB
Bancorp, Inc. purchased 2,004 of these shares in the first quarter of 1998
and 97,996 shares in 1997 for a total cost of $2,900,000.
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
<PAGE>19
5.00 percent or greater. The Corporation's Risk-based capital and
Leverage ratios, along with the ratios required to be adequately
capitalized, have exceeded the ratios for a well-capitalized financial
institution for all periods presented.
The Corporation's capital and leverage ratios as of September 30, 1998 and
1997 follow.
September 30
-----------------
1998 1997
------ ------
Tier I capital ratio 12.44% 12.81%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 13.66% 14.04%
Required total capital ratio 8.00% 8.00%
Leverage ratio 8.66% 8.70%
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.
RESULTS OF OPERATIONS
Interest and fees on loans was $20,752,000 for the first nine months of
1998 for an increase of $1,990,000 when compared to the first nine months
of 1997. Increased loan income was the result of the net increase in the
loan portfolio of $30,561,000 offset slightly by decreases in interest
rates. Interest and dividends on securities was $5,469,000 for the first
nine months of 1998 for an increase of $544,000 over the same period in
1997. Interest and dividends on securities represented 19.3% of total
interest income at September 30, 1998 compared to 19.1% at September 30,
1997. Interest on Federal funds sold and other interest bearing
instruments was $112,000 at September 30, 1998 compared to $63,000 at
September 30, 1997. The increase resulted from increases in the average
balances invested in these forms of financial instruments which was
partially offset by lower interest rates.
Total interest expense increased by $970,000 when compared to the first
nine months of 1997. The purchase of three branch offices from KeyBank
National Association on September 15, 1997 increased the volume of
Checkinvest accounts and statement savings and certificates of deposit,
contributing to the increase in total interest expense in 1998 as
compared to 1997. Also, total interest expense for the first nine months
of 1998 was impacted by decreases in interest rates paid on Checkinvest,
Moneymarket and certificate of deposit accounts plus repurchase agreements
when compared to the first nine months of 1997.
Total other income increased by $875,000 when compared to the first nine
months of 1997. This increase resulted from increases in income from
Trust fees of $403,000, increases in service charges of $303,000 and
increases in other charges, exchanges and fees of $156,000. The increase
in Trust fees results in part by the realization of certain one-time fee
income and from increases in the volume of Trust assets under management.
The increase in service charges is due, in part, to reevaluating the
assessment of transaction account charges. The increase in other charges,
exchanges and fees is the result of pricing increases in credit card and
<PAGE>20
merchant fees and increases in ATM fees. Other operating income increased
by $13,000.
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 nine months ended September 30,
1998 was $13,805,000, 7.3% above the first nine months of 1997. This
increase was due primarily to certain one-time consulting expenses
incurred in the first nine months of 1998, increases in salaries and
benefits, increases in credit card and merchant expenses plus the
operating expenses of two additional branch offices acquired from KeyBank
and the related intangible amortization expenses.
The effective tax rate decreased from 34.4% during the first nine months
of 1997 to 34.1% during the first nine months of 1998. The decrease in
the effective tax rate is due primarily to the decrease in the ratio of
tax exempt interest income to total interest income. Net income was
$5,258,000 and $4,780,000 for the nine months ended September 30, 1998 and
1997, respectively. Basic and diluted earnings per share after adjusting
for the two percent stock dividend in 1997 was $1.27 and $1.14 for the
nine months ended September 1998 and 1997, respectively.
4. YEAR 2000 ISSUE
Several of the Corporation's and Bank's regulators including the
Securities and Exchange Commission, Federal Reserve Board, and the Office
of the Comptroller of Currency have issued guidance relative to the
management and disclosures for year 2000 issues. A discussion of the year
2000 issue as it relates to the Corporation, the Bank and their customers,
suppliers and vendors follows.
The Corporation has formed a strategic task force to perform a
comprehensive review of its computer systems to identify the systems that
could be affected by the "Year 2000" issue and has developed an
implementation plan to resolve the issue. The Year 2000 problem is the
result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Corporation's programs
that have time sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000.
The Corporation expects to incur internal staff costs, consulting, and
other expenses to identify, correct, and test the systems for the year
2000 compliance issue. The Corporation estimates that compliance costs
for the year 2000 issue from 1998 through 1999 will not exceed $150,000.
The Corporation continues to evaluate appropriate courses of corrective
action, including replacement of certain systems whose associated costs
would be recorded as assets and amortized. Accordingly, the Corporation
does not expect that year 2000 compliance costs to be expensed over the
next two years to have a material effect on the financial position,
liquidity or results of operations.
To date, the Corporation is in the process of obtaining formal
notifications from all of its major vendors and suppliers that their
systems are year 2000 compliant. The Corporation is well on its way in
the testing and evaluation of internal and external systems for year 2000
compliance. The Corporation plans to complete testing of internal mission
critical systems by December 31, 1998. The Corporation is performing a
customer risk assessment relative to Year 2000 issues. The Corporation's
customer awareness program includes providing: seminars to the business
<PAGE>21
and non-profit entities, Year 2000 information on statements and
maintaining a telephone number for customer inquiries. The Corporation
provides quarterly updates to the Board of Directors regarding the status
of the year 2000 issue. The project completion date for the year 2000
issue is slated for June, 1999.
The "Year 2000 Computer Problem" creates risk for the Corporation from
unforeseen problems in its own computer systems and from third parties
with whom the Corporation deals on financial transactions. Such failures
of the Corporation, and/or third parties' computer systems could have a
material impact on the Corporation's ability to conduct its business, and
especially to process and account for the transfer of funds
electronically.
Based upon testing of mission critical hardware and software, the
Corporation does not anticipate that it will have to rely on a
contingency plan relating to these areas. However, the Corporation is
in the process of developing a contingency plan that would cover the
failure of mission critical hardware and software. The contingency
plan is also being developed to cover Y2K failure(s) that might result
from a failure(s) outside of the control of the Corporation; such as a
utility company failure. The Corporation's contingency plan for Y2K
failure of its core processing systems will be to handle and process
customer transactions manually until the system failure is corrected. The
Corporation is reviewing all areas; such as staffing, supplies,
security and liquidity to determine all requirements to handle and process
customer transactions in a manual environment.
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.
SFAS NO. 133, "Accounting for Derivative Instruments and Hedging
Activities"
Implementation date by the Corporation: October 1, 1998
Impact on the Corporation: This Statement establishes comprehensive
accounting and reporting requirements for derivative instruments and
hedging activities. The statement requires entitles to recognize all
derivatives as either assets or liabilities with those instruments
measured at fair value. The accounting for gains and losses resulting
from changes in fair value of the derivative instrument, depends on the
use of the derivative and the type of risk being hedged. This statement
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. Earlier adoption, however, is permitted.
The Corporation adopted SFAS No, 133 on October 1, 1998. The Corporation
did not have any hedging activity or derivative instruments prior to
September 30, 1998. However, the Corporation elected to reclassify
approximately $7 million of Held-to-maturity securities to trading
securities and approximately $41 million in Held-to-maturity securities to
Available-for-sale securities. The above mentioned security transfers
from the Held-to-maturity category at the initial date of adoption shall
not call into question the Corporation's intent to hold other debt
securities to maturity in the future. The unrealized holding gain on
<PAGE>22
held-to-maturity securities transferred at the initial adoption of SFAS
No. 133 will be reported as a transition adjustment to net income or
Accumulated Other Comprehensive Income.
The cumulative effect of adoption of SFAS No. 133 is as follows:
Transfers of Debt Securities from the Held-to-Maturity to the Trading and
Available-for-Sale Categories as Part of the Transition to the Standard as
of October 1, 1998 (Amounts in Thousands)
Before Transition Adjustment
----------------------------
Statement of
Financial Position
Asset (Liability)
-----------------
Carrying Fair
Amount Value
------ ------
Transfer to the
trading category:
Debt Security $ 6,987 $ 7,386
Transfer to available-
for-Sale category:
Debt Security $40,979 $41,696
Accumulated Other N/A N/A
Comprehensive Income (SFAS 115)
After Transition Adjustment
---------------------------
Statement of Income
Financial Position Statement
------------------ ---------
Asset Stockholders' Gain
(Liability) Equity (Loss)
----------- ------ ------
Transfer to the
trading category:
Debt Security $ 7,386 N/A $399
Transfer to available-
for-Sale category:
Debt Security $41,696 N/A $-0-
Accumulated Other N/A $717 $-0-
Comprehensive Income (SFAS 115)
Transition result: In accordance with paragraphs 15(b) and 15(c) of SFAS
115, the unrealized holding gains or losses on the transfer of the held-
to-maturity securities to the trading and available-for-sale categories
are recorded in earnings and Accumulated Other Comprehensive Income,
respectively, as transition adjustments.
<PAGE>23
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise"
Implementation date by the Corporation: January 1, 1999
Impact on the Corporation: This Statement further amends Statement 65 to
require that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its
ability and intent to sell or hold those investments. After the
securitization of a mortgage loan held for sale, any retained
mortgage-backed securities shall be classified in accordance with the
provisions of Statement 115. However, a mortgage banking enterprise must
classify as trading any retained mortgage-backed securities that it
commits to sell before or during the securitization process. At the
present time, the Corporation has not fully analyzed the effect of the
adoption of SFAS No. 134 on the Corporation's consolidated financial
statements. However, Management does not believe that the adoption of
SFAS No. 134 will have a significant impact on the Corporation's
consolidated financial statements. The adoption date of SFAS No. 134 will
be determined after the pronouncements impact has been fully analyzed.
This analysis will be completed prior to December 31, 1998.
<PAGE>24
PART I - OTHER INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market indices such as interest rates, foreign exchange
rates and equity prices. The Corporation's principal market risk exposure
is interest rate risk, with no material impact on earnings from changes in
foreign exchange rates or equity prices. There have been no material
changes in the asset and liability mix of the Corporation since December
31, 1997, which would impact the Corporation's level of market risk.
Interest rate risk is the exposure to changes in market interest rates.
Interest rate sensitivity is the relationship between market interest
rates and net interest income due to the repricing characteristics of
assets and liabilities. The Corporation monitors the interest rate
sensitivity of its on - and - off balance sheet positions by examining its
near-term sensitivity and its longer term gap position.
With the Federal Reserve Board's recent announcements to reduce the
federal funds rate to 5.25% on September 29, 1998 and then to 5.00% on
October 15, 1998, the Corporation reduced its prime lending rate from
8.50% to 8.25% and then to 8.00%. The Corporation anticipates a slight
reduction in net interest margin. Corporate management does not
anticipate any significant changes in the Corporation's market risk or
interest rate risk profiles in the next year.
<PAGE>25
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.
Exhibit (19) - Third Quarter Report to Shareholders of LNB
Bancorp, Inc., September 30, 1998 - EDGAR Version.
(b) Exhibit (27) - Financial Data Schedule.
(c) Reports on Form 8-K
There were no reports on Form 8-K filed for the nine months
ended September 30, 1998.
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: October 27, 1998 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman, CPA
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: October 27, 1998 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer
<PAGE>26
LNB Bancorp, Inc.
Form 10-Q
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K Reference Exhibit
Number
(11) Computation of Shares Used for Earnings Per Share
Calculations Footnote 2 Earnings Per Share on pages 12-
13 of this Form 10Q is incorporated by reference.
(13) Third Quarter Report to Shareholders of LNB Bancorp,
Inc. September 30, 1998 - EDGAR Version.
(27) Financial Data Schedule.
<PAGE>27
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the nine months ended September 30, 1998)
S - K Reference Number (13)
Third Quarter Report to Shareholders of
LNB Bancorp, Inc. (dated September 30, 1998)
EDGAR Version
DESCRIPTION:
Three sided pamphlet: Outside cover third quarter 1998 LNB Bancorp, Inc.,
"Familiar Faces...Friendly places" among 15 assorted pictures.
Inside contains: Message to shareholders, Unaudited EDGAR version
Consolidated Balance Sheets for period ending September 30, 1998 and
September 30, 1997, respectively, unaudited EDGAR version Consolidated
Statements of Income for the Nine Months ended September 30, 1998 and
September 30, 1997, respectively and the list of Banking Offices & ATMs.
<PAGE>28
Message to Our Shareholders
It's a pleasure to report that we are well on our way to another
successful year of operations at LNB Bancorp, Inc. and its wholly owned
subsidiary, Lorain National Bank. As of September 30, 1998 we have
achieved significant growth in earnings, total assets, total loans and
shareholders' equity.
Earnings have increased 10 percent for the nine months ended September 30,
1998, compared to the same period one year ago. Consolidated net income
for the first nine months of 1998 reached $5,258,000, up from $4,780,000
for the comparative period in 1997. Basic earnings per share for the
first nine months of 1998 reached $1.27, a 12 percent increase over the
$1.14 amount reported for the same period in 1997. Earnings for the first
nine months of 1998 were higher than a year ago because of higher net
interest income and other non-interest income, offset in part by higher
operating expenses and loan loss provision.
Total assets rose 5% to $523.6 million, as of September 30, 1998, up $26.8
million from September 30, 1997. Net loans increased by $29.6 million
from one year ago to $357.4 million at September 30, 1998. The loan
increase was the result of a home equity loan sale program plus increases
in commercial, mortgage and consumer lending. Total deposits increased by
3% to $433.3 million, up $11.2 million from one year ago. Increases in
demand, savings and public fund certificates of deposit accounted for the
deposit increase. Lorain National Bank operates twenty-one retail
branches serving nine local communities.
Cash dividends declared per share for the first nine months of 1998
increased over 24% compared to the same period last year. The year to
date cash dividends declared per share in 1998 increased by $.12 per share
to $.61 per share, up from $.49 per share in 1997.
Total shareholders' equity increased $3.8 million to $48.2 million during
the twelve months ended September 30, 1998. The percentage of total
equity to total assets reached 9.2% at September 30, 1998.
As a locally owned, independent bank and holding company, we look forward
to providing personal service to our growing four publics - our customers,
shareholders, employees, and community. Information about Lorain National
Bank's financial results, its products and services and press releases can
be accessed at our new World Wide Web site on the Internet at
www.4LNB.com.
We thank you for your continued support and look forward to addressing you
after the completion of another year of successful operations.
Sincerely,
/s/ James F. Kidd /s/ Stanley G. Pijor
_______________________ ______________________
James F. Kidd Stanley G. Pijor
President & Chief Executive Officer Chairman of the Board
<PAGE>29
TOTAL ASSETS millions of dollars
(A Total Assets graph follows in printed version with assets on the x-
axis and years 1994 through 1998 on the y-axis. The graph is a vertical
bar graph. The co-ordinates, by year, which are presented in the table
below are plotted on the previously described grid.)
TOTAL SHAREHOLDERS' EQUITY millions of dollars
(A Total Shareholders' Equity graph follows in printed version with
shareholder's equity on the x-axis and years 1994 through 1998 on the
y-axis. The graph is a vertical bar graph. The co-ordinates, by year,
which are presented in the table below are plotted on the previously
described grid.)
BASIC EARNINGS PER SHARE dollars
(A Basic Earnings Per Share graph follows in printed version with
earnings per share on the x-axis and years 1994 through 1998 on the
y-axis. The graph is a vertical bar graph. The co-ordinates, by year,
which are presented in the table below are plotted on the previously
described grid.)
Total Shareholders' Basic Earnings
Total Assets Equity Per Share
Year Millions of Dollars Millions of Dollars Dollars
1998 $523.6 $48.2 $1.27
1997 $496.8 $44.4 $1.14
1996 $433.6 $43.3 $1.02
1995 $413.5 $40.0 $0.86
1994 $399.4 $36.9 $0.80
*Adjusted for stock dividends and splits
<PAGE>30
Consolidated Balance Sheets
September 30
------------------------------
1998 1997
-------------- --------------
ASSETS:
Cash and Due from Banks $ 22,054,000 $ 20,842,000
Federal Funds Sold and Other Interest-Bearing
Instruments 3,936,000 9,561,000
Securities Available for Sale 46,914,000 15,383,000
Securities Held to Maturity 71,003,000 100,677,000
Loans 361,799,000 331,844,000
Reserve for Possible Loan Losses (4,675,000) (4,305,000)
- --------------------------------------------------------------------------
NET LOANS 357,124,000 327,539,000
- --------------------------------------------------------------------------
Premises, Equipment and
Intangible Assets, net 15,562,000 16,597,000
Other Assets 7,018,000 6,180,000
- --------------------------------------------------------------------------
TOTAL ASSETS $523,611,000 $496,779,000
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Non-Interest Bearing Deposits $ 74,543,000 $ 65,549,000
Interest-Bearing Deposits 358,765,000 356,554,000
- --------------------------------------------------------------------------
TOTAL DEPOSITS 433,308,000 422,103,000
- --------------------------------------------------------------------------
Securities Sold under Repurchase Agreements
and Other Short-Term Borrowings 36,222,000 25,930,000
Federal Home Loan Bank Advances 2,045,000 1,095,000
Accrued Taxes, Expenses and
Other Liabilities 3,868,000 3,226,000
- --------------------------------------------------------------------------
TOTAL LIABILITIES 475,443,000 452,354,000
- --------------------------------------------------------------------------
Common Stock 4,222,000 4,222,000
Additional Capital 22,602,000 22,598,000
Retained Earnings 23,681,000 20,141,000
Accumulated Other Comprehensive Income 563,000 47,000
Treasury Stock at Cost (2,900,000) (2,583,000)
- --------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 48,168,000 44,425,000
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $523,611,000 $496,779,000
- --------------------------------------------------------------------------
(LOGO) LNB
Bancorp, Inc.
and its subsidiary Lorain National Bank
<PAGE>31
Consolidated Statements of Income
Nine Months Ended
September 30
----------------------------
1998 1997
------------- -------------
INTEREST INCOME:
Interest and Fees on Loans $22,752,000 $20,762,000
Interest and Dividends on Securities 5,468,000 4,925,000
Interest on Federal Funds Sold and Other
Interest-Bearing Instruments 113,000 63,000
- --------------------------------------------------------------------------
TOTAL INTEREST INCOME 28,333,000 25,750,000
- --------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 9,448,000 8,480,000
Interest on Securities Sold Under Repurchase
Agreements and Other Short-Term Borrowings 882,000 925,000
Interest on Federal Home Loan Bank Advances 98,000 53,000
- --------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 10,428,000 9,458,000
- --------------------------------------------------------------------------
NET INTEREST INCOME 17,905,000 16,292,000
Provision for Possible Loan Losses 1,263,000 375,000
- --------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,642,000 15,917,000
- --------------------------------------------------------------------------
OTHER INCOME:
Trust Department Income 1,358,000 955,000
Fees and Service Charges 3,704,000 3,245,000
Gains From Sales of Loans and Securities -0- -0-
Other Operating Income 49,000 36,000
- --------------------------------------------------------------------------
TOTAL OTHER INCOME 5,111,000 4,236,000
- --------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and Employee Benefits 6,576,000 6,321,000
Net Occupancy Expense of Premises 1,005,000 957,000
Furniture and Equipment Expenses 1,617,000 1,719,000
Supplies and Postage 790,000 725,000
Ohio Franchise Tax 353,000 367,000
Other Operating Expenses 3,464,000 2,776,000
- --------------------------------------------------------------------------
TOTAL OTHER EXPENSES 13,805,000 12,865,000
- --------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 7,973,000 7,288,000
Federal Income Taxes 2,690,000 2,508,000
- --------------------------------------------------------------------------
NET INCOME $5,258,000 $4,780,000
- --------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ 1.27 $ 1.14
- --------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 1.27 $ 1.14
- --------------------------------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ .61 $ .49
==========================================================================
<PAGE>32
Back Cover:
White background with black lettering
Four column format
Banking Offices and ATMS
ATM service available wherever you see this symbol **
Lorain Banking Offices Elyria Banking Offices
Main Office **Cleveland Street Office
457 Broadway 801 Cleveland Street
Lorain, Ohio 44052 Elyria, Ohio 44035
(440)244-7185 (440)365-8397
**Sixth Street Drive-In Office **Lake Avenue Office
200 Sixth Street 42935 North Ridge Road
Lorain, Ohio 44052 Elyria Township, Ohio 44035
(440)244-7242 (440)233-7196
**Cooper Foster Park **Midway Mall Office
Road Office 6395 Midway Mall Blvd.
1920 Cooper Foster Park Rd Elyria, Ohio 44035
Lorain, Ohio 44053 (440)324-6530
(440)282-1252
**Second Street Office
**Kansas Avenue Office 221 Second Street
1604 Kansas Avenue Elyria, Ohio 44035
Lorain, Ohio (440)323-4621
(440)288-9151
Village of LaGrange
**Oberlin Avenue Office Banking Office
3660 Oberlin Avenue **Village of LaGrange Office
Lorain, Ohio 44053 546 North Center Street
(440)282-9196 Village of LaGrange, Ohio 44050
(440)355-6734
**Pearl Avenue Office
2850 Pearl Avenue Oberlin Banking Office
Lorain, Ohio 44055 **Oberlin Office
(440)277-1103 40 E. College Street
Oberlin, Ohio 44074
**West Park Drive Office (440)775-1361
2130 West Park Drive
Lorain, Ohio 44053 Kendal at Oberlin Office
(440)989-3131 600 Kendal Drive
Oberlin, Ohio 44074
Amherst Banking Office (440)774-5400
**Amherst Office
1175 Cleveland Avenue Olmsted Township
Amherst, Ohio 44001 Banking Office
(440)988-4423 **Olmsted Township Office
27095 Bagley Road
Avon Lake Banking Office Olmsted Township, Ohio 44138
**Avon Lake Office (440)235-4600
240 Miller Road
Avon Lake, Ohio 44012 The Renaissance Office
(440)933-2186 26376 John Road
Olmsted Township, Ohio 44138
(440)427-0041
<PAGE>33
Vermilion Banking Office Community-Based Automated
**Vermilion Office Teller Machine Locations
4455 East Liberty Avenue **Captain Larry's Marathon
Vermilion, Ohio 44089 1317 State Route 60
(440)967-3124 Vermilion, Ohio
Westlake Banking Offices **Convenient Food Mart
**Crossing of Westlake, Office 5375 West Erie Avenue
30210 Detroit Road Lorain, Ohio
Westlake, Ohio 44145
(440)892-9696
**Gateway Plaza
Westlake Village Office 3451 Colorado Avenue
28550 Westlake Village Drive Lorain, Ohio
Westlake, Ohio 44145
(440)808-0229 **Lakeland Medical Center
3700 Kolbe Road
Other Offices Lorain, Ohio
Executive Offices
457 Broadway **Lorain County
Lorain, Ohio 44052 Community College
(440)244-7123 1005 N. Abbe Road
Elyria, Ohio
Administration
457 Broadway **Lorain Plaza
Lorain, Ohio 44052 Shopping Center
(440)244-7253 1147 Meister Road
Lorain, Ohio
Operations
2130 West Park Drive **Lowe's Home
Lorain, Ohio 44053 Improvement Warehouse
(440)989-3315 620 Midway Boulevard
Elyria, Ohio
Human Resources
2130 West Park Drive **Midway Mall Food Court
Lorain, Ohio 44053 3343 Midway Mall Blvd.
(440)989-3139 Elyria, Ohio
Marketing **State Route 58
457 Broadway 7580 Leavitt Road
Lorain, Ohio 44052 Amherst, Ohio
(440)244-7332
Purchasing
2150 West Park Drive
Lorain, Ohio 44053
(440)989-3260
All Other Departments &
Information Not Listed
Lorain (440)244-6000 Logos for FDIC Insured, Federal Home
Toll Free(800)860-1007 Loan Bank System, Equal Housing Lender
Elyria/Cleveland (440)236-5047 and LNB Bancorp, Inc.
<PAGE>34
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the nine months ended September 30, 1998)
S - K Reference Number (27)
Financial Data Schedule
(Follows as a separate document)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000737210
<NAME> LNB BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,054
<INT-BEARING-DEPOSITS> 3,936
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,914
<INVESTMENTS-CARRYING> 71,003
<INVESTMENTS-MARKET> 70,227
<LOANS> 361,799
<ALLOWANCE> 4,675
<TOTAL-ASSETS> 523,611
<DEPOSITS> 433,308
<SHORT-TERM> 36,222
<LIABILITIES-OTHER> 3,868
<LONG-TERM> 2,045
<COMMON> 4,222
0
0
<OTHER-SE> 43,946
<TOTAL-LIABILITIES-AND-EQUITY> 523,611
<INTEREST-LOAN> 22,752
<INTEREST-INVEST> 5,469
<INTEREST-OTHER> 112
<INTEREST-TOTAL> 28,333
<INTEREST-DEPOSIT> 9,448
<INTEREST-EXPENSE> 10,428
<INTEREST-INCOME-NET> 17,905
<LOAN-LOSSES> 1,263
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,805
<INCOME-PRETAX> 7,948
<INCOME-PRE-EXTRAORDINARY> 5,258
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,258
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 5.06
<LOANS-NON> 2,707
<LOANS-PAST> 295
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,590
<ALLOWANCE-OPEN> 4,168
<CHARGE-OFFS> 882
<RECOVERIES> 126
<ALLOWANCE-CLOSE> 4,675
<ALLOWANCE-DOMESTIC> 4,135
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 540
</TABLE>
