<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, 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 August 1, 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 June 30, 1998
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 5
Condensed Consolidated Statements of 9
Cash Flows
Notes to the Condensed Consolidated Financial 11
Statements
Item 2 - Management's Discussion and Analysis 16
of Financial Condition and Results of
Operations
Item 3 - Quantitative and Qualitative Disclosures 22
About Market Risk
Part II - Other Information
Item 1 - Legal Proceedings 23
Item 2 - Changes in Securities 23
Item 3 - Defaults upon Senior Securities 23
Item 4 - Submission of matters to a Vote of 23
Security Holders
Item 5 - Other Information 23
Item 6 - Exhibits and Reports on Form 8-K 23
Signatures 23
Exhibit Index 24
<PAGE>3
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 1998 1997
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 25,298,000 $ 24,273,000
Federal funds sold and other interest
bearing instruments 2,275,000 134,000
Securities:
Available for sale 37,505,000 19,336,000
Held to maturity 81,021,000 96,038,000
------------ ------------
Total Securities
(Market value $119,378,000 and
$116,197,000, respectively) 118,526,000 115,374,000
------------ ------------
Loans:
Portfolio loans 332,590,000 319,666,000
Loans available for sale 11,148,000 11,365,000
------------ ------------
Total Loans 343,738,000 331,031,000
Reserve for possible loan losses (4,525,000) (4,168,000)
------------ ------------
Net loans 339,213,000 326,863,000
------------ ------------
Bank premises and equipment, net 10,867,000 11,321,000
Intangible assets 4,890,000 5,114,000
Other assets 7,325,000 7,138,000
------------ ------------
TOTAL ASSETS $508,394,000 $490,217,000
============ ============
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>4
STATEMENT CONTINUED FROM PREVIOUS PAGE
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-bearing deposits $ 77,810,000 $ 68,565,000
Interest-bearing deposits 354,812,000 342,090,000
------------ ------------
Total deposits 432,622,000 410,655,000
Federal funds purchased and Securities
sold under agreements to repurchase 21,604,000 26,750,000
Federal Home Loan Bank advances 2,045,000 2,045,000
Line of credit 1,600,000 2,200,000
Other liabilities 3,785,000 3,582,000
------------ ------------
Total Liabilities 461,656,000 445,232,000
------------ ------------
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 22,600,000 22,599,000
Retained earnings 22,720,000 20,937,000
Accumulated other comprehensive income 96,000 70,000
Treasury Stock at cost, 100,000 and 97,996
shares respectively (2,900,000) (2,843,000)
------------ ------------
Total Shareholders' Equity 46,738,000 44,985,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $508,394,000 $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 I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME ----------------------
1998 1997
INTEREST INCOME ----------------------
Interest and fees on loans:
Taxable $14,775,000 $13,560,000
Tax-exempt 22,000 25,000
Interest and dividends on securities:
Taxable 3,510,000 3,157,000
Tax-exempt 102,000 71,000
Interest on Federal funds sold and other
interest bearing instruments 94,000 37,000
----------- -----------
TOTAL INTEREST INCOME 18,503,000 16,850,000
----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 1,078,000 1,151,000
Interest on other deposits 5,155,000 4,417,000
Interest on securities sold under
repurchase agreements and other
short-term borrowings 552,000 553,000
Interest on Federal Home Loan Bank advances 65,000 35,000
----------- -----------
TOTAL INTEREST EXPENSE 6,850,000 6,156,000
----------- -----------
NET INTEREST INCOME 11,653,000 10,694,000
Provision for possible loan losses 425,000 250,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 11,228,000 10,444,000
----------- -----------
OTHER INCOME:
Trust division income 1,026,000 577,000
Service charges on deposit accounts 1,294,000 1,093,000
Other charges, fees and exchanges 1,109,000 1,002,000
Other operating income 24,000 20,000
----------- -----------
TOTAL OTHER INCOME 3,453,000 2,692,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>6
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 4,503,000 4,137,000
Net occupancy expense 671,000 643,000
Furniture and equipment expense 1,178,000 1,126,000
Amortization of intangible assets 224,000 -0-
Supplies and postage 543,000 470,000
Ohio franchise tax 269,000 252,000
FDIC deposit insurance premium 25,000 22,000
Other operating expenses 2,078,000 1,740,000
------------ -----------
TOTAL OTHER EXPENSES 9,491,000 8,390,000
------------ -----------
INCOME BEFORE FEDERAL
INCOME TAXES 5,190,000 4,746,000
FEDERAL INCOME TAXES 1,758,000 1,626,000
------------ -----------
NET INCOME $ 3,432,000 $ 3,120,000
============ ===========
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .83 $ .74
====== ======
DILUTED EARNINGS PER SHARE $ .83 $ .74
====== ======
DIVIDENDS PER SHARE $ .40 $ .32
====== ======
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 JUNE 30,
OF INCOME ----------------------
1998 1997
INTEREST INCOME ----------------------
Interest and fees on loans:
Taxable $ 7,491,000 $ 6,918,000
Tax-exempt 11,000 12,000
Interest and dividends on securities:
Taxable 1,790,000 1,601,000
Tax-exempt 51,000 36,000
Interest on Federal funds sold and other
interest bearing instruments 34,000 27,000
----------- -----------
TOTAL INTEREST INCOME 9,377,000 8,594,000
----------- -----------
INTEREST EXPENSE:
Interest on certificates of deposit
of $100,000 or more 521,000 593,000
Interest on other deposits 2,573,000 2,245,000
Interest on securities sold under
repurchase agreements and
other short-term borrowings 285,000 301,000
Interest on Federal Home Loan Bank advances 36,000 18,000
----------- -----------
TOTAL INTEREST EXPENSE 3,415,000 3,157,000
----------- -----------
NET INTEREST INCOME 5,962,000 5,437,000
Provision for possible loan losses 238,000 125,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR POSSIBLE LOAN LOSSES 5,724,000 5,312,000
----------- -----------
OTHER INCOME:
Trust division income 589,000 299,000
Service charges on deposit accounts 655,000 548,000
Other charges, fees and exchanges 572,000 542,000
Other operating income 15,000 10,000
----------- -----------
TOTAL OTHER INCOME 1,831,000 1,399,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>8
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,348,000 2,129,000
Net occupancy expense 319,000 314,000
Furniture and equipment expense 600,000 565,000
Amortization of intangible assets 112,000 -0-
Supplies and postage 288,000 223,000
Ohio franchise tax 134,000 123,000
FDIC deposit insurance premium 12,000 11,000
Other operating expenses 1,096,000 912,000
------------ ------------
TOTAL OTHER EXPENSES 4,909,000 4,277,000
------------ ------------
INCOME BEFORE FEDERAL
INCOME TAXES 2,646,000 2,434,000
FEDERAL INCOME TAXES 892,000 839,000
------------ ------------
NET INCOME $ 1,754,000 $ 1,595,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .42 $ .38
====== ======
DILUTED EARNINGS PER SHARE $ .42 $ .38
====== ======
DIVIDENDS PER SHARE $ .20 $ .16
====== ======
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
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF CASH FLOWS -------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES: ------------------------
Interest received $18,366,000 $16,715,000
Other income received 3,242,000 2,696,000
Interest paid (6,720,000) (6,013,000)
Cash paid for salaries and benefits (4,202,000) (3,952,000)
Net occupancy expense of premises paid (485,000) (457,000)
Furniture and equipment expenses paid (402,000) (404,000)
Cash paid for supplies and postage (543,000) (470,000)
Cash paid for other operating expenses (2,018,000) (2,257,000)
Federal income taxes paid (1,839,000) (1,500,000)
----------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,399,000 4,358,000
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of
securities available for sale 17,307,000 2,130,000
Proceeds from maturities of
securities held to maturity 4,401,000 7,920,000
Purchases of securities available for sale (24,820,000) (11,575,000)
Purchases of securities held to maturity (155,000) (2,077,000)
Net decrease in credit card loans 544,000 439,000
Net (increase) in long-term loans (13,485,000) (10,252,000)
Purchases of bank premises, equipment
and software (458,000) (879,000)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (16,666,000) (14,294,000)
----------- ----------
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>10
STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and
other noninterest-bearing deposits 9,245,000 (4,564,000)
Net increase in savings and
passbook deposits 560,000 6,945,000
Net increase in time deposits 12,162,000 15,722,000
Net (decrease) in Federal funds purchased
and other interest bearing instruments (5,147,000) (1,220,000)
Proceeds from line of credit -0- 2,400,000
Payment of line of credit (600,000) -0-
Proceeds from exercise of stock options 1,000 19,000
Purchase of Treasury Stock (57,000) (2,436,000)
Dividends paid (1,731,000) (1,448,000)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 14,433,000 15,418,000
----------- -----------
NET INCREASE (DECREASE)IN CASH AND
CASH EQUIVALENTS 3,166,000 5,482,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 24,407,000 18,993,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $27,573,000 $24,475,000
=========== ===========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $3,432,000 $3,120,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 962,000 908,000
Amortization of deferred loan fees
and costs, net 330,000 190,000
Provision for possible loan losses 425,000 250,000
Amortization of Intangible Assets 224,000 -0-
(Increase)in accrued interest receivable (124,000) (127,000)
(Increase) in other assets (2,000) (226,000)
Increase in accrued interest payable 130,000 143,000
Increase in accrued taxes,
expenses and other liabilities 156,000 52,000
Others, net (134,000) 48,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $5,399,000 $4,358,000
=========== ===========
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 June 30, 1998, compared to December 31, 1997 and the results of its
operations and cash flows for the six months ending June 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 June 30, 1998,
the unaudited condensed consolidated statements of income and the
unaudited condensed consolidated statements of cash flows for the six
months ended June 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 June 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
Management's evaluation of several key factors including information about
<PAGE>12
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. PER SHARE DATA
Earnings per common and common equivalent shares (stock options) have
been computed using the weighted average number of shares outstanding
during each period after giving consideration to the dilutive effect of
incentive stock options and a two percent stock dividend in 1997.
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.
<PAGE>13
In accordance with SFAS No. 128, Earnings per share is calculated as
follows:
For the 6 Months ended June 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $3,432,000
Basic EPS
Income available to
common stockholders $3,432,000 4,123,078 $ .83
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 9,878
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $3,432,000 4,132,956 $ .83
========== ========= =====
For the 6 Months ended June 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $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
========== ========= =====
For the 3 Months ended June 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $1,754,000
Basic EPS
Income available to
common stockholders $1,754,000 4,123,078 $ .42
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 9,878
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $1,754,000 4,132,956 $ .42
========== ========= =====
<PAGE>14
For the 3 Months ended June 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $1,595,000
Basic EPS
Income available to
common stockholders $1,595,000 4,205,534 $ .38
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 11,038
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $1,595,000 4,216,572 $ .38
========== ========= =====
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 six months ended June 30, 1998 and 1997 are as follows:
For the six months ended June 30,
1998 1997
--------------------------------
Net income $3,432,000 $3,120,000
Other comprehensive income:
Unrealized gain on securities
available for sale, net of tax
of $49,000 and $11,000 96,000 22,000
----------- -----------
Comprehensive Income $3,528,000 $3,142,000
The Corporation's comprehensive income for the three months ended June
30, 1998 and 1997 are as follows:
For the three months ended June 30,
1998 1997
------------------------------------
Net income $1,754,000 $1,595,000
Other comprehensive income:
Unrealized gain on securities
available for sale, net of tax
of $14,000 and $24,000 27,000 46,000
----------- ------------
Comprehensive Income $1,781,000 $1,641,000
<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 half of 1998. In the first half of
1998, stock was purchased in the open market at the then 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 $18,177,000 during the first
half of 1998, to $508,394,000. This growth was funded by increases in
demand deposits, savings deposits, and certificates of deposit.
Federal funds sold and other interest bearing investments increased by
$2,141,000 during the first six months of 1998.
Total securities increased $3,152,000 ending the first half at
$118,526,000. At June 30, 1998 gross unrealized gains (losses) in the
investment portfolio were approximately $864,000 and ($12,000),
respectively.
Net loans increased $12,350,000 during the first half to $339,213,000 at
June 30, 1998. This loan increase was supported by a spring and summer
home equity loan sale program. This home equity sale program resulted in
new loans totaling over $8 million. The reserve for possible loan losses
ended the quarter at $4,525,000 supported by a provision for loan losses
of $425,000, recoveries of $99,000 and loan charge-offs of 167,000. The
reserve for possible loan losses as a percentage of ending loans was 1.26%
and 1.32% at December 31, 1997 and June 30, 1998, respectively. Corporate
Management believes that the reserve for possible loan losses as a
percentage of ending loans at June 30, 1998 remains at an appropriate
level as the ratio of the reserve for possible loan losses to
nonperforming assets remains at a relatively low level at 336.6% as of
June 30, 1998. Corporate management believes that the current level of
the reserve for possible loan losses is adequate based upon quantitative
analysis of identified risks and analysis of historical trends.
Nonperforming assets at June 30, 1998 totaled $1,344,000, up from
$1,078,000 at March 31, 1998. The second quarter increase in
nonperforming assets of $266,000 resulted from loans being brought current
in the amount of $113,000 loans charged-off in the amount of $24,000
liquidations of nonaccrual loans of $143,000 and increases in nonaccrual
loans of $546,000.
The level of nonperforming assets increased $563,000 during the first
quarter 1998. The first quarter increase is the result of a net increase
in nonaccrual loans plus 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 $12,000 which have been paid off and
brought current and increases in nonaccrual principal balances of
$515,000. The increase in nonaccrual loans in the first quarter of 1998
was due primarily to six commercial loan customers and one mortgage loan
customer.
<PAGE>17
The level of nonperforming assets at June 30, 1998 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 06/30/98 03/31/98 12/31/97 09/30/97
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $1,344 $1,078 $ 425 $ 882
Restructured 0 0 0 0
Other Real Estate Owned 0 0 90 0
------ ------ ------ ------
Total Nonperforming Assets $1,344 $1,078 $ 515 $ 882
====== ====== ====== ======
Reserve for possible
loan losses to total
nonperforming assets 336.6% 404.4% 809.3% 488.1%
====== ====== ====== ======
Accruing loans past due
90 days 421 645 461 919
====== ====== ====== ======
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 June 30, 1998, potential problem loans totaled $7,259,000, a decrease
of $1,505,000 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 the 90 day past due classification and nonaccrual status.
Potential problem loans at June 30, 1998 are primarily comprised of three
large creditors that the Bank is reviewing. Approximately $4,500,000 of
the potential problem loan balance 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 $1,500,000 in potential problem 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
$1,600,000 of the potential problem loans relates to the extension of
credit to a recreational entertainment center. These credits are being
monitored by management which has noted an increase in net earnings for
the first and second quarters of 1998. Management does not anticipate any
charge-offs relative to these potential problem loans which would deplete
the current reserve to the point where the current year provision of
$800,000 would have to be increased.
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, 1998 there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $80,633,000 and $68,706,000 at June 30, 1998 and December 31,
1997, respectively. The increase in outstanding loan commitments results
in part from an increase in the unused portion of home equity lines of
<PAGE>18
credits from a home equity loan sale program in the second quarter of
1998. Mortgage and commercial construction loan demand increased in the
second quarter of 1998 as seasonal weather conditions improved and the
construction season began. Consumer loan demand increased in the second
quarter as demand for home improvement and automobile loans increased.
Total deposits increased $21,967,000 during the first half to
$432,622,000. Non-interest bearing deposits increased to $77,810,000, at
June 30, 1998 for an increase of $9,245,000, while interest bearing
deposits climbed to $354,812,000 for an increase of $12,722,000.
Federal funds sold and securities sold under agreements to repurchase
decreased $5,746,000 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,
1998, short-term security investments with maturities of one year or less
totalled $37,116,000, which represented 31.3% of total securities. Adding
cash and due from banks of $25,298,000, and Federal Funds sold and other
interest bearing instruments of $2,275,000, total liquid assets
represented 12.7% of total assets.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity increased to $46,738,000, at June 30, 1998. The
increase resulted primarily from $3,432,000 of net income generated from
the first half of operations less a cash dividend payable to shareholders
of $1,649,000. The slight decrease in interest rates experienced in the
first half of 1998 has caused a increase in the overall market value of
available for sale securities which resulted in an increase in
shareholders' equity of $27,000 at June 30, 1998. During the first half
of 1998, LNB Bancorp, Inc. reduced its stockholders' equity by purchasing
2,004 shares of its common stock at a cost of $57,000. As of June 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
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
<PAGE>19
institution for all periods presented above. The Corporation's capital
and leverage ratios as of June 30, 1998 and 1997 follow.
June 30,
---------------------
1998 1997
------ ------
Tier I capital ratio 13.19% 16.13%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 14.44% 17.38%
Required total capital ratio 8.00% 8.00%
Leverage ratio 8.47% 9.81%
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 for the first half of 1998 increased $1,212,000
when compared to the first half of 1997. Increased loan income was the
result of the net increase in the loan portfolio of $32,000,000 offset
slightly by decreases in interest rates. Interest and dividends on
securities was $3,612,000 for the first half of 1998 for an increase of
$384,000 over the same period in 1997. Interest and dividends on
securities represented 19.5% of total interest income at June 30, 1998
compared to 19.2% at June 30, 1997. Interest on Federal funds sold and
other interest bearing instruments was $94,000 at June 30, 1998 compared
to $37,000 at June 30, 1997. The increase resulted from higher interest
rates plus an increase in the average balance invested in these forms of
financial instruments.
Total interest expense increased by $694,000 when compared to the first
half 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. Also, total interest expense
for the first half of 1998 was impacted by decreases in interest rates
paid on certificate of deposit accounts when compared to the first half of
1997.
Total other income increased by $761,000 when compared to the first half
of 1997. This increase resulted from increases in income from fiduciary
fees of $449,000, increases in service charges of $201,000 and increases
in other service charges, exchanges and fees of $107,000. The increase in
fiduciary 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 service charges, exchanges and fees is due to increases in ATM
fee income.
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, 1998
was $9,491,000, 13.1% above the first six months of 1997. This increase
was due primarily to certain one-time consulting expenses incurred in the
<PAGE>20
first half 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 34.3% during the first half of 1997
to 33.9% during the first half of 1998. The decrease in the effective tax
rate is due primarily to the increases in tax exempt interest income. Net
income was $3,432,000 and $3,120,000 for the six months ended June 30,
1998 and 1997, respectively. Net income per share after adjusting for the
two percent stock dividend in 1997 was $.83 and $.74 for the six months
ended June 30, 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 has notified its commercial customers of the year 2000
issue and is in contact with its' suppliers and third party vendors.
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 $100,000.
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. During 1998, the Corporation is well on
its way in the testing and evaluation of systems for year 2000 compliance.
The Corporation plans to complete testing of internal mission critical
systems by December 31, 1998. 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
<PAGE>21
especially to process and account for the transfer of funds
electronically.
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: January 1, 1999
Impact on the Corporation: This Statement establishes comprehensive
accounting and reporting requirements for derivative instruments and
hedging activities. The statement requires entities 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. At the present
time, the Corporation has not fully analyzed the effect of the adoption of
SFAS No. 133 on the Corporations's consolidated financial statements.
However, management does not believe that the adoption of SFAS No. 133
will have a significant impact on the Corporation's consolidated financial
statements. The adoption date of SFAS No. 133 will be determined after
the pronounement's impast has been fully analyzed. This analysis will
be completed prior to December 31, 1998.
<PAGE>22
PART I - OTHER INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in the interest rate risk or market
risk of LNB Bancorp, Inc. since December 31, 1997.
<PAGE>23
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 (13) - Second Quarter Report to shareholders of LNB
Bancorp, Inc., June 30, 1998.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the six months ended
June 30, 1998.
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, 1998 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman,
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: August 11, 1998 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis,
Vice President and
Chief Accounting Officer
<PAGE>24
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 Footnote 2 Earnings Per Share on pages 12-
13 of this Form 10Q is incorporated by reference.
(13) Second Quarter Report to Shareholders of LNB Bancorp,
Inc. June 30, 1998 - EDGAR Version
(27) Financial Data Schedule
<PAGE>25
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 1998)
S - K Reference Number (13)
Second Quarter Report to Shareholders of
LNB Bancorp, Inc. (dated June 30, 1998)
EDGAR Version
DESCRIPTION:
Three sided pamphlet: Outside cover second 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 June 30, 1998 and June 30,
1997, respectively, unaudited EDGAR version Consolidated Statements of
Income for the Six Months ended June 30, 1998 and June 30, 1997,
respectively, news release for new Village of LaGrange branch office, and
the list of Banking Offices & ATMs.
<PAGE>26
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 half of
1998. LNB Bancorp, Inc. and its wholly owned subsidiary, Lorain
National Bank, reported consolidated assets exceeded $500 million for
the first time in their history. Consolidated assets for LNB Bancorp,
Inc. and Lorain National Bank, reached a record $508.4 million at June
30, 1998.
We are pleased to announce that earnings have increased 10 percent for
the first half of the year, compared to the same period one year ago.
Earnings for the first six months of 1998 reached $3,432,000, up from
$3,120,000 during the first half of 1997.
Basic earnings per share for the first half of 1998 reached $.83, a
12.2 percent increase over the $.74 amount reported for the first half
of 1997. Earnings for the first half 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.
Year to date cash dividends declared to shareholders increased 24.5
percent over the comparative period in 1997. Total shareholders'
equity also increased $3.1 million to $46.7 million during the twelve
months ended June 30, 1998. Total shareholders' equity, as a
percentage of total assets, reached 9.2 percent at June 30, 1998.
Total assets rose 11.2 percent to $508.4 million as of June 30, 1998,
as compared to one year ago. Net loans increased by $32 million to
$339.2 at June 30, from one year ago. The loan increase was the result
of a recent home equity loan sale program plus increases in commercial,
mortgage and consumer lending.
We are pleased to report that our Dividend Reinvestment Plan continues
to grow. More than 35 percent of our shareholders are now
participating in the plan.
As we announced in the first quarter report, the planning and
construction of our new branch office in LaGrange is now complete. We
look forward to serving our communities and customers in the southern
part of Lorain County.
In the graphs presented below, we are pleased to show increases in
total assets and total shareholders' equity at June 30 from 1994
through 1998 and basic earnings per share for the first half, from 1994
through 1998.
We thank you for your continued support and look forward to addressing
you after the completion of our third quarter of operations.
Sincerely,
/s/ J. F. Kidd /s/ Stanley G. Pijor
------------------------ -----------------
James F. Kidd Stanley G. Pijor
President and Chairman of the Board
Chief Executive Officer
<PAGE>27
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 $508.4 $46.7 $0.83
1997 $457.0 $43.6 $0.74
1996 $424.5 $42.4 $0.67
1995 $413.2 $39.0 $0.56
1994 $394.0 $36.2 $0.53
*Adjusted for stock dividends and splits
<PAGE>28
Consolidated Balance Sheets
June 30
--------------------------
1998 1997
------------ ------------
ASSETS:
Cash and Due From Banks $ 25,298,000 $ 24,240,000
Federal Funds Sold and other Interest Bearing
Instruments 2,275,000 235,000
Securities Available for Sale 37,505,000 14,346,000
Investment Securities 81,021,000 94,229,000
Loans 343,738,000 311,568,000
Reserve for Possible Loan Losses (4,525,000) (4,238,000)
- --------------------------------------------------------------------------
NET LOANS 339,213,000 307,330,000
- --------------------------------------------------------------------------
Premises and Equipment (net) 15,757,000 10,876,000
Other Assets 7,325,000 5,733,000
- --------------------------------------------------------------------------
TOTAL ASSETS $508,394,000 $456,989,000
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Non-Interest Bearing Deposits $ 77,810,000 $ 59,238,000
Interest Bearing Deposits 354,812,000 325,245,000
- --------------------------------------------------------------------------
TOTAL DEPOSITS 432,622,000 384,483,000
- --------------------------------------------------------------------------
Securities Sold under Repurchase
Agreements and Other Short-term Borrowings 23,204,000 24,566,000
Federal Home Loan Bank Advances 2,045,000 1,095,000
Other Liabilities 3,785,000 3,255,000
- --------------------------------------------------------------------------
TOTAL LIABILITIES 461,652,000 413,399,000
- --------------------------------------------------------------------------
Common stock 4,222,000 4,222,000
Additional capital 22,600,000 22,597,000
Retained Earnings 22,720,000 19,185,000
Accumulated Other Comprehensive Income 96,000 22,000
Treasury Stock at Cost (2,900,000) (2,436,000)
- --------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 46,738,000 43,590,000
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $508,394,000 $456,989,000
- --------------------------------------------------------------------------
(LOGO) LNB
Bancorp, Inc.
and its subsidiary Lorain National Bank
<PAGE>29
Consolidated Statements of Income
Six Months Ended
June 30
------------------------
1998 1997
------------------------
INTEREST INCOME:
Interest and Fees on Loans $14,797,000 $13,585,000
Interest and Dividends on Securities: 3,612,000 3,231,000
Interest on Federal Funds Sold 94,000 34,000
- --------------------------------------------------------------------------
TOTAL INTEREST INCOME 18,503,000 16,850,000
- --------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 6,233,000 5,568,000
Interest on Securities Sold under Repurchase
Agreements and Other Short-Term Borrowings 552,000 553,000
Interest on Federal Home Loan Bank Advances 65,000 35,000
- --------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 6,850,000 6,156,000
- --------------------------------------------------------------------------
NET INTEREST INCOME 11,653,000 10,694,000
Provision for Loan Losses 425,000 250,000
- --------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,228,000 10,444,000
- --------------------------------------------------------------------------
OTHER INCOME:
Trust Department Income 1,026,000 577,000
Fees and Service Charges 2,403,000 2,095,000
Gains From Sales of Loans and Securities -0- -0-
Other Operating Income 24,000 20,000
- --------------------------------------------------------------------------
TOTAL OTHER INCOME 3,453,000 2,692,000
- --------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and Employee Benefits 4,503,000 4,137,000
Net Occupancy Expense of Premises 671,000 643,000
Furniture and Equipment Expenses 1,178,000 1,126,000
Supplies and Postage 543,000 470,000
Ohio Franchise Tax 269,000 252,000
Other Operating Expenses 2,327,000 1,762,000
- --------------------------------------------------------------------------
TOTAL OTHER EXPENSES 9,491,000 8,390,000
- --------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 5,190,000 4,746,000
- --------------------------------------------------------------------------
Federal Income Taxes 1,758,000 1,626,000
- --------------------------------------------------------------------------
NET INCOME $3,432,000 $3,120,000
- --------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ .83 $ .74
- -------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ .83 $ .74
- -------------------------------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ .40 $ .32
<PAGE>30
Inside cover
LNB's LaGrange office
our newest friendly place
Lorain National Bank has opened its 21st banking office in the Village of
LaGrange. The office features a staff of seven employees, including five
tellers, a customer service representative and a lending officer who will
manage the facility.
"Our newest office will allow us to better meet the needs of the growing
community of LaGrange and surrounding area," said James F. Kidd, president
and chief executive officer.
"Most of our LaGrange staff lives in town or in nearby communities, which
helps us fit into a community that's expressed an interest in supporting a
responsive, local bank like ours."
The bank branch also features a three-lane drive-in equipped with a
drive-up ATM, safe deposit boxes and a night depository.
Carrie Hartman, assistant vice president and LaGrange branch manager, is a
resident of LaGrange and has more than 15 years of banking experience.
Lorain National Bank's new LaGrange office officially opened for business
on Monday, July 13, 1998. The bank's 21st branch office opening was
celebrated with new account gifts and a grand prize drawing for $500 in
groceries at the nearby Sentinel Square IGA.
Home equity loan sale
spring event net $8 million in new credit
Low rates leave a lasting impression. Word of our 7.75% APR variable and
low fixed rate home equity loans and line of credit could be found on
billboards, newspaper ads, mailers and on the radio throughout the spring.
More than $8 million in loans and lines of credit were booked during our
Special Loan Sale.
Lorain National booked more than $8 million in home equity loans and
extended lines of credit during a three-month loan sale ending June 30.
Spring is always a heavy lending season thanks to annual home
improvements, new car buying and debt consolidation. But Lorain National
far exceeded its home equity sales goals thanks to excellent rates, a
dedicated sales effort by the lending staff and a strong marketing
message.
Look for more home equity news this fall when Lorain National participates
in the back-to-school, fall home fix-up borrowing season.
<PAGE>31
Back Cover:
White background with black lettering
Four column format
Banking Offices and ATMS
ATM service available wherever you see this symbol **
Lorain banking officers 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 N. 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 (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 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>32
Vermilion banking office Community-based automated
**Vermilion Office teller machine locations
4455 E. 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
457 Broadway
Lorain, Ohio 44052
(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 Loan Bank System, Equal Housing Lender
1-800-860-1007 and LNB Bancorp, Inc.
Elyria/Cleveland
(440) 236-5047
<PAGE>33
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 1998)
S - K Reference Number (27)
Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<NAME> LNB BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 25,298
<INT-BEARING-DEPOSITS> 275
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,505
<INVESTMENTS-CARRYING> 81,021
<INVESTMENTS-MARKET> 81,873
<LOANS> 343,738
<ALLOWANCE> 4,525
<TOTAL-ASSETS> 508,394
<DEPOSITS> 432,622
<SHORT-TERM> 25,249
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<LONG-TERM> 0
<COMMON> 4,222
0
0
<OTHER-SE> 42,516
<TOTAL-LIABILITIES-AND-EQUITY> 508,394
<INTEREST-LOAN> 14,797
<INTEREST-INVEST> 3,612
<INTEREST-OTHER> 94
<INTEREST-TOTAL> 18,503
<INTEREST-DEPOSIT> 6,233
<INTEREST-EXPENSE> 6,850
<INTEREST-INCOME-NET> 11,653
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,491
<INCOME-PRETAX> 5,190
<INCOME-PRE-EXTRAORDINARY> 5,190
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,432
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<YIELD-ACTUAL> 5.00
<LOANS-NON> 1,344
<LOANS-PAST> 421
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,259
<ALLOWANCE-OPEN> 4,168
<CHARGE-OFFS> 167
<RECOVERIES> 99
<ALLOWANCE-CLOSE> 4,525
<ALLOWANCE-DOMESTIC> 3,545
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 980
</TABLE>
