<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, 1999
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, 1999: 4,122,775 shares
Class of Common Stock: $1.00 par value
<PAGE>2
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended June 30, 1999
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
Cash Flows 9
Notes to the Condensed Consolidated Financial
Statements 11
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 22
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
Security Holders 23
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 1999 1998
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 25,427,000 $ 26,177,000
Federal funds sold and other interest-
bearing instruments 12,849,000 6,624,000
Federal Home Loan Bank and Federal Reserve
Bank stock, at cost 2,256,000 2,189,000
Securities:
Available for sale, at fair value 75,061,000 78,128,000
Held to maturity, at cost (fair value
$42,657,000 and $40,253,000, respectively) 44,543,000 38,202,000
------------ ------------
Total Securities 121,860,000 118,519,000
------------ ------------
Loans:
Portfolio loans 399,867,000 359,475,000
Loans available for sale 10,976,000 10,391,000
------------ ------------
Total Loans 410,843,000 369,866,000
Reserve for loan losses (3,774,000) (3,483,000)
------------ ------------
Net loans 407,069,000 366,383,000
------------ ------------
Bank premises and equipment, net 11,224,000 10,989,000
Intangible assets 4,455,000 4,666,000
Accrued interest receivable 3,965,000 3,685,000
Other assets 3,412,000 3,303,000
Other real estate owned 209,000 1,400,000
------------ ------------
TOTAL ASSETS $590,470,000 $541,746,000
============ ============
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>4
STATEMENT CONTINUED FROM PREVIOUS PAGE
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-bearing deposits $ 82,760,000 $ 85,558,000
Interest-bearing deposits 381,417,000 358,290,000
------------ ------------
Total deposits 464,177,000 443,848,000
------------ ------------
Securities sold under repurchase agreements
and other short-term borrowings 38,343,000 22,960,000
Federal Home Loan Bank advances 34,345,000 22,045,000
Accrued interest payable 1,656,000 1,487,000
Accrued taxes, expenses, and
other liabilities 2,322,000 2,730,000
------------ ------------
Total Liabilities 540,843,000 493,070,000
------------ ------------
Shareholders' equity:
Common stock $1.00 par: Shares authorized
5,000,000 Shares issued 4,222,775 and
4,222,575, respectively and Shares
outstanding 4,122,775 and 4,122,575
respectively 4,223,000 4,223,000
Additional capital 22,604,000 22,602,000
Retained earnings 26,177,000 24,210,000
Accumulated other comprehensive income(loss) (477,000) 541,000
Treasury stock at cost, 100,000 shares (2,900,000) (2,900,000)
------------ ------------
Total Shareholders' Equity 49,627,000 48,676,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $590,470,000 $541,746,000
============ ============
See notes to unaudited condensed consolidated financial statements.
<PAGE>5
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME (UNAUDITED) ------------------------
1999 1998
INTEREST INCOME ------------------------
Interest and fees on loans:
Taxable $16,429,000 $14,775,000
Tax-exempt 16,000 22,000
Interest and dividends on securities:
Taxable 3,421,000 3,510,000
Tax-exempt 108,000 102,000
Interest on Federal funds sold and other
interest-bearing instruments 85,000 94,000
----------- -----------
TOTAL INTEREST INCOME 20,059,000 18,503,000
----------- -----------
INTEREST EXPENSE:
Interest on Certificates of Deposit
of $100,000 and over 1,249,000 1,078,000
Interest on other deposits 4,920,000 5,155,000
Interest on securities sold under
repurchase agreements and other
short-term borrowings 528,000 552,000
Interest on Federal Home Loan Bank advances 617,000 65,000
----------- -----------
TOTAL INTEREST EXPENSE 7,314,000 6,850,000
----------- -----------
NET INTEREST INCOME 12,745,000 11,653,000
Provision for loan losses 700,000 425,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 12,045,000 11,228,000
----------- -----------
OTHER INCOME:
Trust division income 1,074,000 1,026,000
Service charges on deposit accounts 1,526,000 1,294,000
Other charges, fees and exchanges 1,193,000 1,109,000
Other operating income 218,000 24,000
----------- -----------
TOTAL OTHER INCOME 4,011,000 3,453,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>6
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 4,915,000 4,503,000
Net occupancy expense of premises 790,000 671,000
Furniture and equipment expense 1,201,000 1,178,000
Amortization of intangible assets 210,000 224,000
Supplies and postage 509,000 543,000
FDIC deposit insurance premium 25,000 25,000
Ohio franchise tax 293,000 269,000
Other operating expenses 2,363,000 2,078,000
------------ -----------
TOTAL OTHER EXPENSES 10,306,000 9,491,000
------------ -----------
INCOME BEFORE FEDERAL INCOME TAXES 5,750,000 5,190,000
FEDERAL INCOME TAXES 1,954,000 1,758,000
------------ -----------
NET INCOME $ 3,796,000 $ 3,432,000
============ ===========
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .92 $ .83
====== ======
DILUTED EARNINGS PER SHARE $ .92 $ .83
====== ======
DIVIDENDS DECLARED PER SHARE $ .44 $ .40
====== ======
See notes to unaudited condensed consolidated financial statements.
<PAGE>7
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME (UNAUDITED) ------------------------
1999 1998
INTEREST INCOME -----------------------
Interest and fees on loans:
Taxable $ 8,457,000 $ 7,491,000
Tax-exempt 8,000 11,000
Interest and dividends on securities:
Taxable 1,710,000 1,790,000
Tax-exempt 54,000 51,000
Interest on Federal funds sold and other
interest-bearing instruments 52,000 34,000
----------- -----------
TOTAL INTEREST INCOME 10,281,000 9,377,000
----------- -----------
INTEREST EXPENSE:
Interest on Certificates of Deposit
of $100,000 and over 638,000 521,000
Interest on other deposits 2,483,000 2,573,000
Interest on securities sold under
repurchase agreements and other
short-term borrowings 291,000 285,000
Interest on Federal Home Loan Bank advances 327,000 36,000
----------- -----------
TOTAL INTEREST EXPENSE 3,739,000 3,415,000
----------- -----------
NET INTEREST INCOME 6,542,000 5,962,000
Provision for loan losses 500,000 238,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 6,042,000 5,724,000
----------- -----------
OTHER INCOME:
Trust division income 604,000 589,000
Service charges on deposit accounts 849,000 655,000
Other charges, fees and exchanges 601,000 572,000
Other operating income 207,000 15,000
----------- -----------
TOTAL OTHER INCOME 2,261,000 1,831,000
STATEMENT CONTINUED ON NEXT PAGE
<PAGE>8
STATEMENT CONTINUED FROM PREVIOUS PAGE
OTHER EXPENSES:
Salaries and employee benefits 2,520,000 2,348,000
Net occupancy expense of premises 398,000 319,000
Furniture and equipment expense 593,000 600,000
Supplies and postage 253,000 288,000
FDIC deposit insurance premium 12,000 12,000
Ohio franchise tax 142,000 134,000
Amortization of intangible assets 105,000 112,000
Other operating expenses 1,275,000 1,096,000
------------ ------------
TOTAL OTHER EXPENSES 5,298,000 4,909,000
------------ ------------
INCOME BEFORE FEDERAL INCOME TAXES 3,005,000 2,646,000
FEDERAL INCOME TAXES 1 042,000 892,000
------------ ------------
NET INCOME $ 1,963,000 $ 1,754,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .48 $ .42
====== ======
DILUTED EARNINGS PER SHARE $ .48 $ .42
====== ======
DIVIDENDS DECLARED PER SHARE $ .22 $ .20
====== ======
See notes to unaudited condensed consolidated financial statements.
<PAGE>9
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF CASH FLOWS (UNAUDITED) -------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: -------------------------
Interest received $19,999,000 $18,366,000
Other income received 3,943,000 3,242,000
Interest paid (7,145,000) (6,720,000)
Cash paid for salaries and
employee benefits (4,707,000) (4,202,000)
Net occupancy expense of premises paid (589,000) (485,000)
Furniture and equipment expenses paid (418,000) (402,000)
Cash paid for supplies and postage (509,000) (543,000)
Cash paid for other operating expenses (2,466,000) (2,018,000)
Federal income taxes paid (2,010,000) (1,839,000)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,098,000 5,399,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 11,497,000 17,307,000
Proceeds from maturities of securities
held to maturity 122,000 4,401,000
Purchases of securities held to maturity (6,665,000) (155,000)
Purchases of securities available
for sale (9,471,000) (24,820,000)
Net decrease in credit card loans 378,000 544,000
Net (increase) in long-term loans (41,804,000) (13,485,000)
Purchases of bank premises, equipment
and software (821,000) (458,000)
Proceeds from sales of bank premises,
and equipment -0- -0-
Proceeds from liquidation of OREO 1,191,000 -0-
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (45,573,000) (16,666,000)
----------- -----------
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 (3,924,000) 9,245,000
Net increase in savings and
passbook deposits 7,133,000 560,000
Net increase in time deposits 15,994,000 12,162,000
Net (decrease) in securities sold
under repurchase agreements and other
short-term borrowings (15,383,000) (5,147,000)
Payment on line of credit -0- (600,000)
Proceeds from Federal Home Loan
Bank advances 12,300,000 -0-
Purchase of Treasury Stock -0- (57,000)
Proceeds from exercise of stock options 2,000 1,000
Dividends paid (1,938,000) (1,731,000)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 44,950,000 14,433,000
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 5,475,000 3,166,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 32,801,000 24,407,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $38,276,000 $27,573,000
=========== ===========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 3,796,000 $ 3,432,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 984,000 962,000
Amortization of deferred loan fees
and costs, net (139,000) 330,000
Provision for loan losses 700,000 425,000
Amortization of intangible assets 211,000 224,000
(Increase)in accrued interest receivable (280,000) (124,000)
(Increase) in other assets (260,000) (2,000)
Increase in accrued interest payable 167,000 130,000
Increase in accrued taxes,
expenses and other liabilities 827,000 156,000
Others, net 90,000 (134,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,098,000 $ 5,399,000
=========== ===========
See notes to unaudited condensed consolidated financial statements.
<PAGE>11
FORM 10-Q LNB Bancorp, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 1999, compared to December 31, 1998 and the results of its
operations and cash flows for the three and six months ending June 30,
1999 compared to the same period in 1998. 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.
This report contains statements that constitute forward-looking statements
and are subject to certain risks and uncertainties that could cause actual
facts to differ materially from those presented in this report. Readers
are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date of this report.
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, 1999,
the unaudited condensed consolidated statements of income and the
unaudited condensed consolidated statements of cash flows for the three
and six months ended June 30, 1999 and 1998 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. The consolidated
balance sheet at December 31, 1998 has been taken from the audited
Financial Statements and condensed. 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, 1998 Annual Report to Shareholders.
The results of operations for the period ended June 30, 1999 are not
necessarily indicative of the operating results for the full year.
<PAGE>12
RESERVE FOR LOAN LOSSES
Because some loans may not be repaid in full, a reserve for 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 probable
loan losses that are currently anticipated based on Management's
evaluation of several key factors including information about specific
borrower situations, their financial position and collateral values,
current economic conditions, changes in the mix and levels of the various
types of loans, past charge-off experience and other pertinent
information. The reserve for 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 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 loan losses or by a provision for loan losses,
depending upon the adequacy of the reserve for loan losses.
RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform to 1999
presentation.
<PAGE>13
2. EARNINGS PER SHARE DATA
Earnings per share is calculated as follows:
For the 6 Months ended June 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $3,796,000
Basic EPS
Income available to
common stockholders $3,796,000 4,122,688 $ .92
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 8,437
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $3,796,000 4,131,125 $ .92
========== ========= =====
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 3 Months ended June 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $1,963,000
Basic EPS
Income available to
common stockholders $1,963,000 4,122,737 $ .48
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 8,070
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $1,963,000 4,130,807 $ .48
========== ========= =====
<PAGE>14
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 4,122,475 $ .42
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 9,390
---------- ---------
Dilutive EPS
Income available to common
stockholders + assumed
conversions $1,754,000 4,131,865 $ .42
========== ========= =====
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 as a separate component of shareholders'
equity. The Corporation's comprehensive income for the six months ended
June 30, 1999 and 1998 are as follows:
For the six months ended June 30,
1999 1998
---------------------------------
Net income $3,796,000 $3,432,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of
$(525,000) and $49,000 (1,018,000) 96,000
----------- -----------
Comprehensive Income $2,778,000 $3,528,000
The Corporation's comprehensive income for the three months ended June
30, 1999 and 1998 are as follows:
For the three months ended June 30,
1999 1998
-----------------------------------
Net income $1,963,000 $1,754,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of
$(322,000) and $14,000 (624,000) 27,000
----------- ------------
Comprehensive Income $1,339,000 $1,781,000
<PAGE>15
4. 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 1999. In the first half of
1999, 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 OPERATIONS
FINANCIAL CONDITION
Total assets of the Corporation increased $48,724,000 during the first
half of 1999, to $590,470,000. This growth was funded by increases in
savings deposits, certificates of deposit, federal funds purchased and
Federal Home Loan Bank advances.
Federal funds sold and other interest bearing investments increased by
$6,225,000 during the first six months of 1999.
Total securities increased $3,341,000 ending the first half at
$121,860,000. At June 30, 1999 gross unrealized gains (losses) in the
investment portfolio were approximately $62,000 and $(1,947,000),
respectively.
Net loans increased $40,686,000 during the first half to $407,069,000 at
June 30, 1999, for a 11% increase. Consumer and commercial loan growth
was strong accounting for 45% and 44% of total loan growth while mortgage
loans accounted for 11% of total loan growth during the six months ended
June 30, 1999. This loan increase was supported by a spring/summer home
equity loan sale program. This home equity sale program resulted in
new loans totaling over $2 million. The reserve for loan losses ended the
quarter at $3,774,000 supported by a provision for loan losses of
$700,000, recoveries of $118,000 and loan charge-offs of $528,000. The
reserve for loan losses as a percentage of ending loans was .94% and .92%
at December 31, 1998 and June 30, 1999, respectively. Corporate management
believes that the reserve for loan losses as a percentage of ending loans
at June 30, 1999 remains at an appropriate level. The ratio of the
reserve for loan losses to nonperforming assets improved to 764.0% as of
June 30, 1999. Also, Corporate management believes that the current level
of the reserve for loan losses is adequate based upon quantitative
analysis of identified risks and analysis of historical trends, and
probable losses inherent in the loan portfolio at June 30, 1999.
Nonperforming assets at June 30, 1999 totaled $494,000, down from
$1,481,000 at March 31, 1999. The second quarter decrease in
nonperforming assets of $987,000 resulted from loans being brought current
in the amount of $423,000, loans charged-off in the amount of $105,000
liquidations of nonaccrual loans of $231,000, liquidations of other real
estate owned of $424,000 and increases in nonaccrual loans of $196,000.
The level of nonperforming assets decreased $1,006,000 during the first
quarter 1999. The decrease in nonaccrual loans is due to decreases in
nonaccrual principal balances of $168,000 which have been paid off or
brought current, loans charged-off in the amount of $76,000 and
liquidations of nonaccrual loans of $242,000 and increases in nonaccrual
principal balances of $247,000. The decrease in nonaccrual loans in the
first quarter of 1999 was due primarily to four commercial loan customers
and six personal loan customers. The decrease in Other Real Estate Owned
in the amount of $767,000 resulted from liquidation of assets. The level
of nonperforming assets remains at relatively low levels and Corporate
management believes nonperforming assets are well collateralized.
<PAGE>17
The table below presents the level of nonperforming assets at the end of
the last four calendar quarters.
Amounts in thousands 06/30/99 03/31/99 12/31/98 09/30/98
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $ 285 $ 848 $ 1,087 $ 2,707
Restructured 0 0 0 0
Other Real Estate Owned 209 633 1,400 0
------ ------ ------ ------
Total Nonperforming Assets $ 494 $ 1,481 $ 2,487 $ 2,707
====== ====== ====== ======
Reserve for possible
loan losses to total
nonperforming assets 764.0% 235.2% 140.1% 172.7%
====== ====== ====== ======
Accruing loans past due
90 days $ 494 $ 479 $ 213 $ 295
====== ====== ====== ======
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, 1999, potential problem loans totaled $3,199,000, an increase
of $258,000 from the December 31, 1998 balance.
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, 1999 there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $98,525,000 and $76,927,000 at June 30, 1999 and December 31,
1998, respectively. The increase in outstanding loan commitments 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 quarter of
1999. Mortgage and commercial construction loan demand increased in the
second quarter of 1999 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 $20,329,000 during the first half to
$464,177,000. Noninterest-bearing deposits decreased to $82,760,000, at
June 30, 1999 for a decrease of $2,798,000, while interest-bearing
deposits climbed to $381,417,000 for an increase of $23,127,000.
Federal funds purchased and securities sold under agreements to repurchase
increased $15,383,000 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
<PAGE>18
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,
1999, short-term security investments with maturities of one year or less
totalled $17,329,000, which represented 14.2% of total securities. Adding
cash and due from banks of $25,427,000, and Federal Funds sold and other
interest bearing instruments of $12,849,000, total liquid assets
represented 9.4% of total assets.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity increased to $49,627,000, at June 30, 1999. The
increase resulted primarily from $3,796,000 of net income generated from
the first half of operations less a cash dividend declared to shareholders
of $1,814,000. The slight increase in interest rates experienced in the
first half of 1999 has caused a decrease in the overall market value of
available for sale securities which resulted in a decrease in
shareholders' equity of $1,018,000 for the six months ended June 30, 1999.
As of June 30, 1999, 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
institution for all periods presented above. The Corporation's capital
and leverage ratios as of June 30, 1999 and 1998 follow together with
those ratios required for the Corporation to be considered adequately
capitalized.
June 30,
---------------------
1999 1998
------ ------
Tier I capital ratio 11.64% 13.19%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 12.61% 14.44%
Required total capital ratio 8.00% 8.00%
Leverage ratio 8.21% 8.47%
Required leverage ratio 3.00% 3.00%
The Corporation regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisition in
markets near or within the Corporation's current geographic market. As a
result, acquisition discussions and, in some cases, take place and future
acquisitions could occur. Corporate management believes that it's current
capital resources are sufficient to support any foreseeable acquisition
activity.
<PAGE>19
RESULTS OF OPERATIONS
Interest and fees on loans for the first half of 1999 increased $1,648,000
when compared to the first half of 1998. Increased loan income was the
result of the impact of increases in the loan portfolio of $40,686,000
offset slightly by decreases in interest rates. Interest and dividends on
securities was $3,529,000 for the first half of 1999 for a decrease of
$83,000 over the same period in 1998. Interest and dividends on
securities represented 17.6% of total interest income at June 30, 1999
compared to 19.5% at June 30, 1998. Interest on Federal funds sold and
other interest bearing instruments was $85,000 at June 30, 1999 compared
to $94,000 at June 30, 1998. The decrease resulted from lower interest
rates plus a decrease in the average balance invested in these forms of
financial instruments.
Total interest expense increased by $464,000 when compared to the first
half of 1998. The interest expense increase was fueled by an increase in
interest expense from Federal Home Loan Bank advances of $552,000, offset
by decreases in deposit account interest of $64,000. Total interest
expense for the first half of 1999 was impacted by decreases in interest
rates paid on savings accounts and certificate of deposit accounts when
compared to the first half of 1998.
Total other income increased by $558,000 when compared to the first half
of 1998. This increase resulted from increases in income from fiduciary
fees of $48,000, increases in service charges of $232,000, increases in
other service charges, exchanges and fees of $84,000 and a non-recurring
increase on gain on sale of building of $158,000.
The Corporation continuously monitors noninterest expenses for greater
profitability. The entire staff is geared to improving productivity at
all levels. Noninterest expense for the six months ended June 30, 1999
was $10,306,000, 8.6% above the first six months of 1998. This increase
was due primarily to certain loan collection expenses incurred in the
first half of 1999, increases in salaries and benefits, increases in
credit card and merchant expenses plus the operating expenses of one
additional branch office which was placed in service in June of 1998.
The effective tax rate increased slightly from 33.9% during the first half
of 1998 to 34.0% during the first half of 1999. The increase in the
effective tax rate is due primarily to the decreases in tax exempt
interest income to total interest income. Net income was $3,796,000 and
$3,432,000 for the six months ended June 30, 1999 and 1998, respectively.
Net income per basic and diluted share was $.92 and $.83 for the six
months ended June 30, 1999 and 1998, respectively.
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
<PAGE>20
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 or reprogram, 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
$250,000. 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 year 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 developed
strategies and plans to test and validate that these systems are year 2000
compliant. The Corporation has completed successful upgrades, testing and
validation of internal mission critical systems and they are Y2K
compliant. The Corporation's customer awareness program includes
providing: seminars to the business and non-profit entities, Year 2000
information on statements and maintaining a phone 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 September, 1999.
Financial institutions may experience increases in problem loans and
credit losses in the event that borrowers fail to properly respond to the
"Year 2000" issue. Cost of funds may become greater, if customers react
to publicity about this issue by withdrawing deposits. Accordingly, the
Corporation has formed an internal task force to assess potential problems
relating to credit, liquidity, and third party risk, and where
appropriate, develop contingency plans. This task force is conducting a
survey of significant credit and deposit relationships to determine their
"Year 2000" readiness and to evaluate the potential of credit and
liquidity risk to the Corporation. Also, the "Year 2000" issue 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. In the most reasonably
likely worst case scenario where any of the Corporation's mission critical
systems, either internal or external, would fail, the Corporation will be
operating in a manual mode. In preparation for the unlikely event of the
<PAGE>21
most reasonably likely worst case scenario, the Corporation is in the
process of planning and training all of its' employees and will have all
customer records backed up to ensure the accuracy of our customer records.
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.
<PAGE>22
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, 1998, 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. Corporate
management has determined no significant changes in the Corporation's
interest rate risk profile since December 31, 1998.
With the Federal Reserve Board's recent announcement to increase the
federal funds rate to 5.25% on June 29, 1999, the Corporation does not
anticipate any changes in net interest margin. Also, Corporate management
does not anticipate any significant changes in the Corporation's market
risk or interest rate risk profiles.
<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, 1999.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the six months ended
June 30, 1999.
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 16, 1999 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman,
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Date: August 16, 1999 /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
(10) Material Contract
Amended Supplemental Retirement Agreement by and between
James F. Kidd and The Lorain National Bank dated July
30, 1999.
(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.
(12) Second Quarter Report to Shareholders of LNB Bancorp,
Inc. June 30, 1999 - EDGAR Version
(27) Financial Data Schedule
<PAGE>25
LNB Bancorp, Inc.
Exhibit to Form 10-Q
(For the six months ended June 30, 1999)
S - K Reference Number (10)
Amended Supplemental Retirement Agreement by and
between James F. Kidd and the Lorain National
Bank dated July 30, 1999.
<PAGE>26
SUPPLEMENTAL RETIREMENT AGREEMENT
FOR JAMES F. KIDD
THIS AGREEMENT, made and entered into this 15th day of June, 1999, by
and between LORAIN NATIONAL BANK (hereinafter referred to as the "Bank"),
a national banking association organized and existing under the laws of
the United States, whose principal place of business is Lorain, Ohio, and
JAMES F. KIDD (hereinafter referred to as the "Executive").
WHEREAS, the Executive has rendered valuable services to the Bank for
many years and it is the desire of the Bank to provide him with certain
Supplemental Retirement Benefits in addition to the retirement benefits
provided to him under the Lorain National Bank Retirement Pension Plan;
and
WHEREAS, the Executive has performed his duties in a capable and
efficient manner, resulting in substantial growth and progress to the
Bank; and
WHEREAS, the Bank desires to retain the services of the Executive,
and realizes that if the Executive were to leave the Bank it could suffer
a substantial financial loss; and
WHEREAS, the Executive is willing to continue in the employ of the
Bank if the Bank will agree to pay certain benefits in accordance with the
provisions and conditions hereinafter set forth; and
WHEREAS, Bank and Executive entered into a Supplemental Retirement
Agreement dated July 30, 1996, and amended March 3, 1999; and
WHEREAS, The Board of Directors of Bank has authorized the Bank to
enter into a new and restated Supplemental Retirement Agreement with
Executive.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein, this Agreement is to be effective as of
June 1, 1999, and the parties agree as follows:
1. Employment of the Executive
The Executive shall continue to perform duties for the Bank in such
senior executive capacity as its Board of Directors may designate from
time to time. The Executive's employment shall continue until terminated
pursuant to Employment Agreement entered into between Bank and Executive,
dated September 11, 1995. The Executive shall devote his best efforts to
the performance of his duties for the Bank.
2. Compensation
The Executive shall be compensated for the performance of his duties
as provided for in the above referred to Employment Agreement.
3. Supplemental Retirement Benefit
If the Executive's employment with Bank should cease for any reason
other than discharge for cause (as hereinafter defined), the Executive or
his beneficiary, as the case may be, shall be entitled to receive the
<PAGE>27
Supplemental Retirement Benefit or a form thereof.
(a) Retirement
If the Executive remains in the continuous employ of the Bank and retires
from active employment with the Bank on or after January 1, 2000, the
Executive and/or his beneficiary will be entitled to receive a
Supplemental Retirement Benefit in the amount of Fifty Three Thousand Four
Hundred Seventy Four Dollars ($53,474.00), per annum for a period of ten
(10) years. Provided Executive has retired by said date, the first annual
payment shall be due and payable to Executive on March 1, 2000, and
thereafter payable on the first day of March of each year until March 1,
2009, which shall be the date of payment of the last installment. In the
event Executive has not retired by March 1, 2000, then in that event, the
first annual payment shall be due and payable on the first day of the
second month following his retirement, and thereafter payable on the first
day of the same month each year until Executive shall have received ten
(10) annual payments.
(b) Death Benefit
In the event the Executive should die at any time after the date of this
Agreement, he shall be entitled to the full benefit as provided for in
subparagraph (a) hereof, and any amounts due or remaining to be paid shall
be paid to such beneficiary or beneficiaries as the Executive may have
designated by filing with the Bank a notice in writing in a form
acceptable to the Bank. In the absence of any such designation, such
unpaid amounts shall be paid to the Executive's surviving spouse, or, if
the Executive should die without a spouse surviving, to the Executive's
estate, and shall be payable in the same manner as provided for in
subparagraph (a) hereof.
(c) Discharge Without Cause
If the Executive is discharged without cause, the Executive shall be
entitled to receive the Supplemental Retirement Benefit provided for in
subparagraph (a) hereof. Supplemental Retirement Benefit payments shall
commence to be paid to Executive on March 1, 2000, and thereafter at the
same time and in the same amounts as provided for in subparagraph (a)
above.
(d) Resignation Due to Change in Control
In the event the Executive resigns due to a change in control of the Bank,
the Supplemental Retirement Benefit shall be the total amount payable for
the 10-year period as provided for in paragraph (a) above reduced by a 6%
"present value" discount and payable to Executive within sixty (60) days
of his resignation.
For purposes of this Agreement, the term "discharge without cause"
shall mean a termination of the Executive's employment by reason of his
commission of any material act of dishonesty during his employment, or
breach of the terms of his Employment Agreement, which, in the good faith
opinion of the Board of Directors of the Bank, adversely affects the
interests of the Bank or his conviction by a court of last resort of a
felony involving moral turpitude committed during his employment.
The Agreement does not contain a provision with respect to "permanent
disability" as Bank has in place a plan of compensation and benefits for
<PAGE>28
employees who become permanently disabled during employment with Bank, and
to which Executive is entitled.
It is intended that the events which shall give rise to an
entitlement on the part of the Executive or his beneficiary to receive the
Supplemental Retirement Benefit or a form thereof shall include:
(i) The retirement of the Executive on or after January 1, 2000.
(ii) The death of the Executive.
(iii) Discharge of the Executive without cause.
(iv) Resignation due to change in control of the Bank.
For purposes of this Agreement, "change in control of the Bank" shall
mean the occurrence of any one of the following events:
(i.) Individuals who, on August 1, 1995, constitute the Employer's Board
of Directors (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Employer's Board of Directors,
provided that any person becoming a director subsequent to August 1, 1995,
whose election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of the Employer in
which such person is named as a nominee for director, without written
objection by such Incumbent Directors to such nomination) shall be deemed
to be an Incumbent Director; provided, however, that no individual elected
or nominated as a director of the Employer initially as a result of an
actual or threatened election contest with respect to directors of any
other actual or threatened election contest with respect to directors or
any other actual or threatened solicitation of proxies by or on behalf of
any persons other than the Board shall be deemed to be an Incumbent
Director;
(ii.) Any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes
a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Employer representing 15% or
more of the combined voting power of the Employer's then outstanding
securities eligible to vote for the election of the Board (the "Employer
Voting Securities"); provided, however, that the event described in this
paragraph 2 shall not be deemed to be a Change in Control of the Employer
by virtue of any of the following acquisitions: (a) by the Employer or any
Subsidiary, (b) by any employee benefit plan sponsored or maintained by
the Employer or any Subsidiary, or by an employee stock benefit trust
created by the Employer or any Subsidiary, by any underwriter
temporarily holding securities pursuant to an offering of such securities;
or (d) a transaction (other than one described in 3 below) in which
Employer Voting Securities are acquired from the Employer, if a majority
of the Incumbent Directors approves a resolution providing expressly that
the acquisition pursuant to this clause (d) does not constitute a Change
in Control under this paragraph 2;
(iii.) The consummation of a merger, consolidation, share exchange or
similar form of corporate transaction involving the Employer, or any of
its Subsidiaries that requires the approval of the Employer's
shareholders, whether for such transaction or the issuance of securities
<PAGE>29
in the transaction (a "Business Combination"), unless immediately
following such Business Combination: (a) more than 50% of the total
voting power of the corporation resulting from the consummation of such
Business Combination (the "Surviving Corporation"), or if applicable, the
ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of
the Surviving Corporation (the "Parent Corporation"), is represented by
Employer Voting Securities that were outstanding immediately prior to
such Business Combination (or, if applicable, represented by shares into
which such Employer Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof is
in substantially the same proportion as the voting power of such Employer
Voting Securities among the holders thereof immediately prior to the
Business Combination, (b) no person (other than any employee benefit plan
sponsored or maintained by the Surviving Corporation or the Parent
Corporation or any employee stock benefit trust created by the surviving
Corporation or the Parent Corporation), is or becomes the beneficial
owner, directly or indirectly, of 15% or more of the total voting
power of the outstanding voting securities eligible to elect directors of
the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation); and at least a majority of the members of the
board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) were Incumbent Directors at the
time of the Board's approval for the execution of the initial agreement
providing for such Business Combination (any Business Combination must
satisfy the criteria specified in (a), (b) and above so as to not
constitute a "Change in Control of the Corporation"); or
(iv.) The occurrence of a complete liquidation or dissolution of the
Employer or any of its Subsidiaries, or a sale of all or substantially
all of the assets of the Employer, or any of its Subsidiaries.
Notwithstanding the foregoing, a Change in Control of the Employer
shall not be deemed to occur solely because any persons acquire beneficial
ownership of more than 15% of the Employer Voting Securities as a result
of the acquisition of Employer Voting Securities by the Employer, which
reduces the number of Employer Voting Securities outstanding; provided,
that if after such acquisition by the Employer, such person becomes the
beneficial owner of additional Employer Voting Securities that increases
the percentage of outstanding Employer Voting Securities beneficially
owned by such person, a Change in Control of the Employer shall then
occur.
4. Non-alienation of Benefits
The right of the Executive, or any other person, to the payment of
benefits under this Agreement shall not be assigned, transferred, pledged
or encumbered, any attempt to do so shall be void.
5. Executive's Rights Under This Agreement to be Those of an Unsecured
Creditor of the Bank
The rights of the Executive under this Agreement, and of any
beneficiary of the Executive, shall be solely those of an unsecured
creditor of the Bank. Nothing contained in this Agreement and no action
taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind or a fiduciary relationship
between the Bank and the Executive or his beneficiaries. Any funds,
insurance contracts or other assets of the Bank, whether designated by the
<PAGE>30
Bank to provide the benefits contemplated herein or not, shall at all
times continue to be a part of the general funds of the Bank and no person
other than the Bank shall, by virtue of this Agreement, have any interest
in such funds or assets.
6. General Provisions
This Agreement shall not be deemed to constitute a contract of
employment between the parties, nor shall any provisions hereof restrict
the right of the Bank to terminate the Executive's services or restrict
the right of the Executive to terminate his services.
The Board of Directors shall have the full power and authority to
interpret, construe and administer this Agreement, and all actions taken
by the Board of Directors in good faith shall be binding and conclusive on
all persons concerned. No member of the Board of Directors shall be
liable to any person or any action taken or omitted in connection with the
interpretation or administration of this Agreement unless attributable to
his own willful misconduct or lack of good faith.
This Agreement shall be binding upon and inure to the benefit of the
Bank, its successors and assigns, and the Executive, his heirs, executors,
administrators and legal representatives.
This Agreement shall be construed in accordance with and governed by
the laws of the State of Ohio.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by its duly authorized officer, and the Executive has hereunto set his
hand as of the date first above written.
IN THE PRESENCE OF: BANK
LORAIN NATIONAL BANK:
/s/Daniel Batista /s/Stanley G. Pijor
_____________________________ BY:________________________
Chairman
/s/Suzanne M. Ludwig
_____________________________
EXECUTIVE
/s/Daniel Batista /s/James F. Kidd
_____________________________ ____________________________
James F. Kidd
/s/Suzanne M. Ludwig
_____________________________
<PAGE>31
SUPPLEMENTAL RETIREMENT AGREEMENT
DESIGNATION OF BENEFICIARY
EXECUTIVE: JAMES F. KIDD
I designate the following as Beneficiary or Beneficiaries to receive,
in accordance with the method indicated, any payments to which my
Beneficiary or Beneficiaries may be entitled under my Supplemental
Retirement Agreement, in the event of my death, either prior to or after
my retirement. This designation is subject to my right at any time to
change such Beneficiary or Beneficiaries as provided in the Plan.
For the purposes of this form, a "primary" beneficiary is the first
person to receive these benefits if I die, and a "secondary" beneficiary
is a person who will take only if the primary beneficiary is not surviving
at the time of my death.
X
_____ Method No. 1 - Designation of one primary beneficiary. In the
event of the death of the primary beneficiary, then 100% to the first
person then living in the following list of secondary beneficiaries. If
this method is used, name the beneficiaries in the order of your
preference and leave the "Share of Payment" blank.
_____ Method No. 2 - Designation of two or more primary beneficiaries,
(i.e., to the persons designated in the proportions indicated). In the
event of the death of any one or more of these beneficiaries, their
share(s) shall be apportioned to the remaining living beneficiaries in
proportion to the shares provided for each of them. If this method is
used, name each beneficiary and show the "Share of Payment" for each
beneficiary.
_____ Method No. 3 - Designation of a primary beneficiary and two or
more secondary beneficiaries, (i.e., to the person first named if
surviving; if not, to the remaining persons designated in the proportions
indicated). In the event of the death of any one or more of these
beneficiaries, their shares shall be apportioned to the remaining living
beneficiaries in proportion to the shares provided for each of them. If
this method is used, name each of the beneficiaries and show for the
primary beneficiary (for example, your wife) 100% and also the "Share of
Payment" for each secondary beneficiary.
<PAGE>32
DESIGNATION OF BENEFICIARIES
(Continued)
NOTE: (If your Beneficiary is a trust, please state the name and address
of the trustee).
Share of
Payment %
JoLyn Kidd ###-##-####
_______ _____________________________________ __________
Primary Name SSN
1027 E. Erie Ave., Lorain, Oh
_____________________________________
Address
_______ _____________________________________ __________
Primary Name SSN
_____________________________________
Address
James Kidd Trust UTD 7694
_______ _____________________________________ __________
Secondary Name SSN
L.N.B. Trust Dept., 457 Broadway, Lorain OH
_____________________________________
Address
_______ _____________________________________ __________
Primary Name SSN
_____________________________________
Address
_______ _____________________________________ __________
Secondary Name SSN
_____________________________________
Address
DESIGNATION OF BENEFICIARIES
(Continued)
I have designated my Beneficiary or Beneficiaries and the method of
payment to such on the upper half of this form. This Beneficiary
Designation shall be applicable to the sums, if any, payable to my
Beneficiaries under my Supplemental Retirement Agreement.
/s/James F. Kidd ###-##-####
____________________________ ___________________________
James F. Kidd Social Security Number
6-15-99
____________________________
Date ___________________________
Spouse's signature (if
community property state and
Primary Beneficiary other than
Spouse is to receive more than
a 50% share).
<PAGE>33
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 1999)
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: blue with white stripe
Second Quarter Report
LNB Bancorp, Inc. Logo on right hand side
LNB Bancorp, Inc.
June 30, 1999
Inside contains:
Message to shareholders,
Unaudited EDGAR version Consolidated Balance Sheets for period ending
June 30, 1999 and June 30, 1998, respectively,
Unaudited EDGAR version Consolidated Statements of Income for the Six
Months ended June 30, 1999 and June 30, 1998, respectively,
Gary C. Smith Joins Lorain National Bank.
Directors and Officers of LNB Bancorp, Inc.
<PAGE>34
Message to Shareholders
It's a pleasure, once again, to report on the progress of LNB Bancorp,
Inc., and its wholly owned subsidiary, The Lorain National Bank, after the
first half of 1999. We are pleased to announce that earnings have
increased 10.6 % for the first half of the year, compared to the same
period one year ago. Earnings for the first six months of 1999 reached
$3,796,000, up from $3,432,000 during the first half of 1998.
Basic earnings per share for the first half of 1999, reached $.92, a
10.8% increase over the $.83 amount reported for the first half of 1998.
Earnings for the first half of 1999 were higher than a year ago because of
higher net interest income, non-interest income, and the gain on sale of a
branch building, offset in part by higher operating expenses and loan loss
provision. Increases in net interest income were fueled by robust loan
growth.
Cash dividends declared per share for the first half of 1999 increased
10% compared to the first half of 1998. The year to date cash dividends
declared per share in 1999 increased by $.04 to $.44 per share, up from
$.40 per share in 1998. Total shareholders' equity increased by $2.9
million to $49.6 million during the twelve months ended June 30, 1999. The
return on average shareholders' equity rose to 15.53% for the first half
of 1999 from 14.60% for the first half of 1998.
Asset growth remains solid. Total assets climbed 16% to $590.5 million
as of June 30, 1999 up $82.1 million from June 30, 1998. Net loans grew
by $67.9 million from one year ago to $407.1 million at June 30, 1999 for
a 20 percent increase. Consumer loan growth was strong accounting for
63% of total loan growth while commercial and mortgage loans accounted for
26% and 11% of total loan growth during the twelve months ended June 30,
1999. Total deposits climbed by 7 percent to $464.2 million, up $31.6
million from one year ago. Increases in demand, savings and certificates
of deposit accounted for the deposit increase. Lorain National Bank
operates 21 retail branches and 29 ATMs in nine local communities.
As we reported in the first quarter report, the relocation of our Second
Street Branch Office to Ely Square occurred on June 1, 1999. Lorain
National Bank reconfigured the Ely Square office floor space to
accommodate the delivery of Commercial Lending, Trust & Investment
Management and retail banking services. We look forward to serving our
existing and new customers six days a week in the heart of Elyria.
We would like to welcome Gary C. Smith, Senior Executive Vice President
to Lorain National Bank. Gary Smith brings over 17 years of executive
level community bank experience to Lorain National Bank. Also, we would
like to welcome and congratulate our newly elected members to the Board of
Directors, James R. Herrick, President of Liberty Ford Lincoln Mercury,
Inc., and John W. Schaeffer, M.D., President of North Ohio Heart Center.
We thank you for your continued support and look forward to addressing
you after the completion of our third quarter of operations.
<PAGE>35
Sincerely,
/s/ J. F. Kidd /s/ Stanley G. Pijor
------------------------ ---------------------
James F. Kidd Stanley G. Pijor
President and Chairman of the Board
Chief Executive Officer
NET INCOME millions of dollars
(A Net Income graph follows in printed version with net income on the y-
axis and years 1995 through 1999 on the x-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.)
DIVIDENDS PER SHARE dollars*
(A Dividends Per Share graph follows in printed version with dividends per
share on the y-axis and years 1995 through 1999 on the x-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 y-axis and years 1995 through 1999 on the x-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
Net Income Dividends Per Share Per Share
Year Millions of Dollars Dollars* Dollars*
1999 $3,796 $ .44 $0.92
1998 $3,432 $ .40 $0.83
1997 $3,120 $ .32 $0.74
1996 $2,777 $ .27 $0.67
1995 $2,265 $ .24 $0.56
*Adjusted for stock dividends and splits
<PAGE>36
Consolidated Balance Sheets
June 30 1999 1998
- -------------------------------------------------------------------------
ASSETS:
Cash and Due From Banks $ 25,427,000 $ 25,298,000
Federal Funds Sold and Other
Interest-Bearing Instruments 12,849,000 2,275,000
Federal Home Loan Bank and Federal
Reserve Bank Stock, at Cost 2,256,000 2,121,000
Securities Held to Maturity, at Cost 44,543,000 81,021,000
Securities Available for Sale, at Fair Value 75,061,000 35,384,000
Loans 410,843,000 343,738,000
Reserve for Loan Losses (3,774,000) (4,525,000)
- ------------------------------------------------------------------------
NET LOANS 407,069,000 339,213,000
- ------------------------------------------------------------------------
Premises, Equipment and Intangible
Assets, (net) 15,679,000 15,757,000
Accrued Interest Receivable and
Other Assets 7,586,000 7,325,000
- ------------------------------------------------------------------------
TOTAL ASSETS $590,470,000 $508,394,000
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-Bearing Deposits $ 82,760,000 $ 77,810,000
Interest-Bearing Deposits 381,417,000 354,812,000
- -------------------------------------------------------------------------
TOTAL DEPOSITS 464,177,000 432,622,000
- -------------------------------------------------------------------------
Securities Sold under Repurchase Agreements
and Other Short-term Borrowings 38,343,000 23,204,000
Federal Home Loan Bank Advances 34,345,000 2,045,000
Accrued Interest, Taxes, Expenses and
Other Liabilities 3,978,000 3,785,000
- -------------------------------------------------------------------------
TOTAL LIABILITIES 540,843,000 461,656,000
- -------------------------------------------------------------------------
Common Stock 4,223,000 4,222,000
Additional Capital 22,604,000 22,600,000
Retained Earnings 26,177,000 22,720,000
Accumulated Other Comprehensive Income (477,000) 96,000
Treasury Stock at Cost (2,900,000) (2,900,000)
- -------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 49,627,000 46,738,000
- -------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $590,470,000 $508,394,000
- -------------------------------------------------------------------------
<PAGE>37
TOTAL ASSETS millions of dollars
(A Total Assets graph follows in printed version with total assets on the
y-axis and years 1995 through 1999 on the x-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 Shareholder's Equity graph follows in printed version with total
shareholder's equity on the y-axis and years 1995 through 1999 on the
x-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'
Total Assets Equity
Year Millions of Dollars Millions of Dollars
1999 $590.5 $49.6
1998 $508.4 $46.7
1997 $457.0 $43.6
1996 $424.5 $42.4
1995 $413.2 $39.0
(LOGO) LNB
Bancorp, Inc.
and its subsidiary Lorain National Bank
<PAGE>38
Consolidated Statements of Income
Six Months Ended June 30 1999 1998
- -------------------------------------------------------------------------
INTEREST INCOME:
Interest and Fees on Loans $16,445,000 $14,797,000
Interest and Dividends on Securities: 3,529,000 3,612,000
Interest on Federal Funds Sold and Other
Interest-Bearing Instruments 85,000 94,000
- -------------------------------------------------------------------------
TOTAL INTEREST INCOME 20,059,000 18,503,000
- -------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 6,169,000 6,233,000
Interest on Securities Sold under Repurchase Agreements
and Other Short-Term Borrowings 528,000 552,000
Interest on Federal Home Loan Bank Advances 617,000 65,000
- -------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 7,314,000 6,850,000
- -------------------------------------------------------------------------
NET INTEREST INCOME 12,745,000 11,653,000
Provision for Loan Losses 700,000 425,000
- -------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,045,000 11,228,000
- -------------------------------------------------------------------------
OTHER INCOME:
Trust and Investment Management Division Income 1,074,000 1,026,000
Fees and Service Charges 2,719,000 2,403,000
Gains From Sales of Loans,
Securities, and Buildings 158,000 -0-
Other Operating Income 60,000 24,000
- -------------------------------------------------------------------------
TOTAL OTHER INCOME 4,011,000 3,453,000
- -------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and Employee Benefits 4,915,000 4,503,000
Net Occupancy Expense of Premises 790,000 671,000
Furniture and Equipment Expenses 1,201,000 1,178,000
Supplies and Postage 509,000 543,000
Ohio Franchise Tax 293,000 269,000
Other Operating Expenses 2,598,000 2,327,000
- -------------------------------------------------------------------------
TOTAL OTHER EXPENSES 10,306,000 9,491,000
- -------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,750,000 5,190,000
- -------------------------------------------------------------------------
Income Taxes 1,954,000 1,758,000
- -------------------------------------------------------------------------
NET INCOME $ 3,796,000 $ 3,432,000
- -------------------------------------------------------------------------
PER SHARE DATA:
- -------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ .92 $ .83
DILUTED EARNINGS PER SHARE $ .92 $ .83
- -------------------------------------------------------------------------
DIVIDENDS DECLARED PER SHARE $ .44 $ .40
- -------------------------------------------------------------------------
<PAGE>39
Inside cover
Gary C. Smith Joins Lorain National Bank
Top left column black and white photograph of Gary C. Smith, Senior
Executive Vice President
During the second quarter, Lorain National welcomed its new Senior
Executive Vice President, Gary C. Smith to the bank. Gary, 52, brings
with him more than 30 years of banking experience, 17 of which were served
on the executive level of other community banks in Ohio.
He joins the bank's senior management team as an essential part of
Lorain National's management succession plan. Gary's addition to our
staff enhances our management group's skill set and underscores the bank's
commitment to future growth in a highly-competitive financial services
industry.
"I am truly looking forward to the challenge of maintaining the strong
commitment of Lorain County's only established, locally owned and locally
managed commercial bank," Gary says. "My task is to help coordinate the
activities of Lorain National Bank for the purpose of serving the best
interests of our dedicated shareholders and our loyal customers, through
our well-trained staff."
James F. Kidd, President & Chief Executive Officer of LNB Bancorp, Inc.
and Lorain National Bank, said he is looking forward to working with the
bank's new executive . "We were fortunate to find someone like Gary, who
shares our vision of what a community bank represents," Kidd said.
Smith has been a member of the Lorain County banking community for many
years, and as recently as 1996, represented EST National Bank, in Elyria
as the Senior Lending Officer and Chairman of the Board of Directors Loan
Committee. He most recently served as President of Bank First National,
in Newark, Ohio.
He has been a member of the Lorain County Chamber of Commerce, Elyria
Rotary, Sales and Marketing Executives International, Lorain County Joint
Vocational School Foundation Board, Avon Lake Kiwanis, Avon Lake Business
Association and Robert Morris Associates.
Actively involved in youth-at-risk organizations, such as Big Brother &
Big Sisters, Gary is also an avid outdoorsman and is well known for his
volunteer efforts with various wildlife conservation groups. He and Beth,
his wife of 30 years, have three grown children. The Smiths reside in
Avon Lake.
<PAGE>40
Back Cover:
White background with blue along top of page
Three column format
Directors and Officers of LNB Bancorp, Inc.
Directors:
- ---------------------------------------------------------
Stanley G. Pijor Benjamin G. Norton
Chairman of the Board H.R. Consultant
LNB Bancorp, Inc. and Lorain Technology, Inc.
Lorain National Bank
Jeffrey F. Riddell
Daniel P. Batista President and
Attorney/Partner Chief Executive Officer,
Cook & Batista Co., L.P.A. Consumeracq, Inc. and
Consumers Builders Supply Co.
Robert M. Campana
Managing Director Thomas P. Ryan
P.C. Campana, Inc. Executive Vice President
and Secretary/Treasurer
Terry D. Goode LNB Bancorp, Inc.
Vice President Executive Vice President
Lorain County Title Company and Secretary
Lorain National Bank
Wellsley O. Gray
Retired John W. Schaeffer, M.D.
President
James R. Herrick North Ohio Heart Center
President
Liberty Ford Lincoln Mercury, Inc. Eugene M. Sofranko
President and
James F. Kidd Chief Executive Officer
President and Lorain Glass Company, Inc.
Chief Executive Officer
LNB Bancorp, Inc. and Paul T. Stack
Lorain National Bank Retired
David M. Koethe Leo Weingarten
Chairman of the Board Retired
The Lorain Printing Company
Directors Emeritus of Lorain National Bank:
- -------------------------------------------
James L Bardoner T.L. Smith, M.D.
Retired Former President Retired Physician
Dorn Industries, Inc.
Officers:
- ---------------------------
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James F. Kidd
President and
Chief Executive Officer
<PAGE>41
Gary C. Smith
Senior Executive Vice President
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
Sandra L. Dubell
Senior Vice President and
Chief Lending Officer
Gregory D. Friedman
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Michael D. Ireland
Senior Vice President
Emma N. Mason
Senior Vice President
James H. Weber
Senior Vice President
Mitchell J. Fallis
Vice President and
Chief Accounting Officer
(Logo) LNB
Bancorp, Inc.
Mail: LNB Bancorp, Inc.*457 Broadway*Lorain, Ohio 44052-1739
E-Mail: [email protected]*Internet:www.4LNB.com
Telephone: (440) 244-6000*Toll Free: (800) 860-1007
Telefax: (440) 244-4815*Telebanker: (440) 245-4562
<PAGE>42
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 1999)
S - K Reference Number (27)
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000737210
<NAME> LNB BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 25,427
<INT-BEARING-DEPOSITS> 12,849
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,061
<INVESTMENTS-CARRYING> 46,799
<INVESTMENTS-MARKET> 44,913
<LOANS> 410,843
<ALLOWANCE> 3,774
<TOTAL-ASSETS> 590,470
<DEPOSITS> 464,177
<SHORT-TERM> 48,343
<LIABILITIES-OTHER> 3,978
<LONG-TERM> 24,345
<COMMON> 4,223
0
0
<OTHER-SE> 45,404
<TOTAL-LIABILITIES-AND-EQUITY> 590,470
<INTEREST-LOAN> 16,445
<INTEREST-INVEST> 3,529
<INTEREST-OTHER> 85
<INTEREST-TOTAL> 20,059
<INTEREST-DEPOSIT> 6,169
<INTEREST-EXPENSE> 7,314
<INTEREST-INCOME-NET> 12,745
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,306
<INCOME-PRETAX> 5,750
<INCOME-PRE-EXTRAORDINARY> 5,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,796
<EPS-BASIC> .92
<EPS-DILUTED> .92
<YIELD-ACTUAL> 4.80
<LOANS-NON> 285
<LOANS-PAST> 494
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,199
<ALLOWANCE-OPEN> 3,483
<CHARGE-OFFS> 528
<RECOVERIES> 119
<ALLOWANCE-CLOSE> 3,774
<ALLOWANCE-DOMESTIC> 2,787
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 987
</TABLE>
