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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file
December 31, 2000 number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its Charter)
Ohio 34-1406303
(State of incorporation) (I.R.S. Employer Identification No.)
457 Broadway, Lorain, Ohio 44052-1769
(Address of principal executive offices) (Zip Code)
(440) 244 - 6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, Par Value $1.00 NASDAQ - National Market
Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at February 28, 2001 was approximately $73,590,000.
The number of shares of Registrant's Common Stock outstanding on
February 28, 2001 was 4,211,047.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2000 Annual Report to Stockholders of Registrant are
incorporated by reference in Parts I, II, and IV of this report.
Portions of the Definitive Proxy Statement of Registrant dated March 19,
2001 (the Proxy Statement) are incorporated by reference in Part III of
this report.
1
LNB Bancorp, Inc.
Form 10-K Report
Table of Contents
2000
Page
PART I
Item 1 Business
a. General Development of Business 2
b. Financial Information About Industry
Segments 3
c. Description of LNB Bancorp, Inc.'s Business 3
d. Financial Information About Foreign and
Domestic Operations and Export Sales 8
e. Statistical Disclosure by Bank Holding
Companies 8
I. Distribution of Assets, Liabilities
and Shareholders' Equity: Interest Rates
and Interest Differential 9
II. Investment Portfolio 9
III. Loan Portfolio 11
IV. Summary of Loan Loss Experience 15
V. Deposits 17
VI. Return on Equity and Assets 18
VII. Short-Term Borrowings 18
Item 2 Properties 19
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Shareholders 20
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 21
Item 6 Selected Financial Data 21
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 7(a) Quantitative and Qualitative Disclosures about
Market Risk 21
Item 8 Financial Statements and Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10 Directors and Executive Officers of the Registrant 22
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners
and Management 22
Item 13 Certain Relationships and Related Transactions 22
PART IV
Item 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX 26
2
PART 1
ITEM 1 - BUSINESS
a) GENERAL DEVELOPMENT OF BUSINESS
LNB Bancorp, Inc. received its financial holding company status on March
13, 2000. In the second half of 2000, LNB Bancorp, Inc. formed a
wholly owned insurance subsidiary named Charleston Insurance Agency,
Inc., which will initially offer life, accident and health insurance and
fixed annuity products. Also, LNB Bancorp, Inc. entered into a joint
venture owning a 49 percent interest in a title company named Charleston
Title Insurance Agency, LLC offering traditional title services.
In the first quarter of 2001, Lorain National Bank entered into an
agreement with Raymond James Financial Services, Inc. for Raymond James
to offer brokerage services including stock, mutual funds and variable
annuity products at select Lorain National Bank offices.
LNB Bancorp, Inc.(the Parent Company), a financial holding company, was
incorporated on October 11, 1983 under the laws of the State of Ohio at
the direction of the Board of Directors of The Lorain National Bank (the
Bank), a national banking association, for the purpose of acquiring all
the outstanding common stock of the Bank. The term "the Corporation"
refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries. At a
special meeting of the shareholders of the Bank, held on February 28,
1984, the shareholders approved the Plan of Reorganization, involving
the merger of the Bank into the Lorain Interim Association, a national
banking corporation, incorporated solely for the purpose of effecting
the Reorganization Plan. Lorain Interim was a wholly-owned subsidiary
of the Corporation.
Upon the consummation of the merger on March 30, 1984, under the Plan of
Reorganization, the business of the Bank is conducted by the merged Bank
under the name "The Lorain National Bank". Each outstanding share of
common stock of the Bank, par value $2.50, was converted into one share
of LNB Bancorp, Inc. common stock, par value $2.50. A total of 904,570
shares of corporate stock were issued at the effective date of the
merger. On April 8, 1989, the shareholders of the Corporation approved a
two-for-one stock split, which reduced the par value to $1.25. On April
20, 1993, the shareholders of the Corporation approved a five-for-four
stock split, which reduced the par value to $1.00.
On April 18, 1995, the Corporation's Shareholders approved an amendment
to the Articles of Incorporation to increase the number of authorized
shares of Common Stock from 4,000,000 to 5,000,000 and fix the par value
of Common Stock at $1.00 per share to allow for a five-for-four stock
split.
On April 18, 1995, the Corporation's Board of Directors authorized a
five-for-four stock split in the form of a 25 percent stock dividend.
The stock split increased the number of shares outstanding by 802,692.
Also, Common Stock has been increased by $802,692 with an offsetting
reduction to additional capital to reflect the fixed $1.00 par value per
share for each additional share issued pursuant to the stock split.
3
At a special meeting of shareholders held on December 14, 1999, the
Corporation's Shareholders approved an amendment to the Articles of
Incorporation to increase the number of authorized shares of Common
Stock from 5,000,000 to 15,000,000 shares. Also, on December 14, 1999,
the Corporation's Shareholders approved an amendment to the Articles of
Incorporation to provide for 1,000,000 shares of Voting Preferred Stock.
On October 24, 2000, the Board of Directors of LNB Bancorp, Inc. adopted
a Shareholder Rights Plan. The rights plan is designed to prevent a
potential acquiror from exceeding a prescribed ownership level in LNB
Bancorp, Inc., other than in the context of a negotiated acquisition
involving the Board of Directors.
LNB Bancorp, Inc. has broader corporate powers than the Bank. These
corporate powers principally include the power to engage in certain
non-banking businesses closely related to banking, to own capital stock
of banks located in Ohio and certain other states and to own capital
stock of business corporations (other than banks) located within or
outside Ohio.
The enactment of the Gramm, Leach Bliley Act of 1999 (the "GLB Act")
represents a pivotal point in the history of the financial services
industry. The GLB Act sweeps away large parts of a regulatory framework
that had its origins in the Depression Era of the 1930s. Effective
March 11, 2000, new opportunities are available for banks, other
depository institutions, insurance companies and securities firms to
enter into combinations that permit a single financial services
organization to offer customers a more complete array of financial
products and services. The GLB Act provides a new regulatory framework
for regulation through the financial holding company, which will have as
its umbrella regulator the Federal Reserve Board. Functional regulation
of the financial holding company's separately regulated subsidiaries
will be conducted by their primary functional regulator. The GLB Act
makes satisfactory or above Community Reinvestment Act compliance for
insured depository institutions and their financial holding companies
necessary in order for them to engage in new financial activities. The
GLB Act provides a federal right to privacy of non-public personal
information of individual customers.
b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Corporation and subsidiary companies are engaged in one line of
business which is banking services. Reference is hereby made to Item
1e., Statistical Disclosure by Bank Holding Companies, and to Item 8 of
this Form 10-K for financial information pertaining to the Corporation's
business.
c) DESCRIPTION OF LNB BANCORP, INC.'S BUSINESS
LNB Bancorp, Inc. is a $622.1 million locally owned financial holding
company headquartered in Lorain, Ohio. The predecessor of LNB Bancorp,
Inc., Lorain National Bank, was formed as a result of the merger of
the Lorain Banking Company and the National Bank of Lorain on January 1,
1961. The Lorain Banking Company was a state chartered bank founded in
1905. The National Bank of Lorain was a national bank receiving its
national charter in 1934. On March 30, 1984, Lorain National Bank
4
became the wholly owned subsidiary of LNB Bancorp, Inc.
LNB Bancorp, Inc. received its financial holding company status on
March 13, 2000. In the second half of 2000, LNB Bancorp, Inc. formed
a wholly owned insurance subsidiary named Charleston Insurance Agency,
Inc., which will initially offer life, accident and health insurance
and fixed annuity products. Also, LNB Bancorp, Inc. entered into a
joint venture owning a 49 percent interest in a title company named
Charleston Title Insurance Agency, LLC offering traditional title
services.
The Lorain National Bank operates 21 retail branches and 29 ATMs in the
nine communities of Lorain, Elyria, Amherst, Avon Lake, LaGrange,
Oberlin, Olmsted Township, Vermilion, and Westlake. Lorain National
Bank offers a full range of bank products and services while
specializing in small business, mortgage, and personal banking services,
including investment management and trust services.
The Bank's commercial lending activities consist of commercial loans,
working capital loans, commercial mortgage loans, construction loans,
equipment loans, equipment leases, letter of credit, revolving line of
credit, Small Business Administration loans, government guaranteed loans
and Federal Home Loan Bank program loans.
The Bank's residential mortgage lending activities consist primarily of
loans for purchasing personal residences, home equity loans, local
lender loans, or loans for commercial or consumer purposes secured by
residential mortgages. Consumer lending activities consist of
traditional forms of financing for automobile and personal loans plus
indirect automobile loans.
The Bank's credit card lending activities consist of Visa Lorain
Lighthouse and VISA Gold cards, ATM cards, Access debit card and
Bankcard Merchant services.
The Bank's range of deposit services include checking accounts,
CheckInvest accounts, savings accounts, Holiday savings, money market
accounts, Market Access accounts, Fortune Fifty accounts(a Senior
Citizen program), individual retirement accounts, certificates of
deposit, Keough plans, and overdraft protection. Deposits of the Bank
are insured by the Bank Insurance Fund administered by the Federal
Deposit Insurance Corporation.
Other bank services offered include safe deposit boxes, night
depository, U. S. savings bonds, travelers' checks, money orders,
cashiers checks, bank-by-mail, automatic teller machine cash and
transaction services, debit cards, wire transfers, electronic funds
transfer, utility bill collections, notary public service, payroll
direct deposit, cash management services, 24 hour telephone banking with
bill paying service, Lockbox, sweep accounts, ACH, discount brokerage
services and other services tailored for both individuals and
businesses. The Bank's electronic data processing department provides
centralized electronic data processing services to local financial
intermediaries.
The Investment and Trust Services Division of the Bank performs complete
5
trust administrative functions and offers agency and trust services and
Mutual fund investment products to individuals, partnerships,
corporations, institutions and municipalities. The Investment and Trust
Services Division designs and administers employee benefit plans.
The Bank is not dependent upon any one significant customer or specific
industry. The business of the Corporation is not seasonal to any
material degree.
In the opinion of Management, LNB Bancorp, Inc. does not have exposure
to material costs associated with environmental hazardous waste clean
up.
Competition
Lorain National Bank faces strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the
wide spread enactment of state laws that permit multi-bank holding
companies as well as the availability of nationwide interstate banking
has created a highly competitive environment for financial services
providers. Lorain National Bank competes with other national and state
banks, savings and loan associations, credit unions, finance companies,
mutual funds, insurance companies, brokerage and investment banking
companies and other financial intermediaries operating in its market and
elsewhere, many of whom have substantially greater financial and
managerial resources.
Lorain National Bank competes with seven other banks and bank holding
companies operating in Lorain County which range in size from
approximately $622.1 million to over $260.0 billion in assets. Other
competition comes primarily from savings and loans, credit unions, and
other financial intermediaries operating in Lorain County and counties
adjacent to it. The Bank's market share of total deposits in Lorain
County in all types of financial institutions increased to 17.4% in
2000 compared to 15.9% in 1999, while ranking number two in market
share in 2000 and 1999. Lorain National Bank seeks to minimize the
competitive effect of larger financial institutions through a community
banking approach that emphasizes direct customer access to the Bank's
president and other officers in an environment conducive to friendly,
informed and courteous personal services. Management believes that
Lorain National Bank is well positioned to compete successfully in its
respective primary market area. Competition among financial
institutions is based upon interest rates offered on deposit accounts,
interest rates charged on loans and other credit and service charges,
the quality and scope of the services rendered, the convenience of the
banking facilities and, in the case of loans to commercial borrowers,
relative lending limits. Management believes that the commitment of
Lorain National Bank to personal service, innovation and involvement in
their respective communities and primary market areas, as well as their
commitment to quality community banking service, are factors that
contribute to it's competitive advantage.
Supervision and Regulation
LNB Bancorp, Inc., as a financial holding company, is regulated under
the Bank Holding Company Act of 1956, as amended (the BHC Act), and is
6
subject to the supervision and examination of the Board of Governors of
the Federal Reserve System (the Federal Reserve Board). The BHC Act
requires the prior approval of the Federal Reserve Board for a financial
holding company to acquire or hold more than a 5% voting interest in any
bank and restricts interstate banking activities. The BHC Act allows
interstate bank acquisitions anywhere in the country and interstate
branching by acquisition and consolidation in those states that have not
opted out by January 1, 1997.
The BHC Act restricts LNB Bancorp, Inc.'s nonbanking activities to
those which are determined by the Federal Reserve Board to be financial
in nature, incidental to such financial activity or complementary to a
financial activity. The BHC Act does not place territorial
restrictions on the activities of nonbank subsidiaries of financial
holding companies. LNB Bancorp, Inc.'s banking subsidiary is subject to
limitations with respect to intercompany loans and investments.
A substantial portion of the Corporation's cash revenues is derived from
dividends paid by its subsidiary bank. These dividends are subject to
various legal and regulatory restrictions as summarized in Note(14) on
page 25 of the LNB Bancorp, Inc. 2000 Annual Report. This note is
incorporated herein by reference.
The Corporation and the Bank are subject to an extensive array of
banking laws and regulations that are intended primarily for the
protection of the customers and depositors of the Corporation's
subsidiaries rather than holders of the Corporation's securities. These
laws and regulations govern such areas as permissible activities, loans
and investments, rates of interest that can be charged on loans and
reserves. The Corporation and the Bank also are subject to general U.S.
federal laws and regulations and to the laws and regulations of the
State of Ohio. Set forth below are brief descriptions of selected laws
and regulations applicable to the Corporation and the Bank.
The Bank is subject to the provisions of the National Bank Act. The
Bank is subject to primary supervision, regulation and examination by
the Office of the Comptroller of the Currency (OCC). The Bank is also
subject to the rules and regulations of the Board of Governors of the
Federal Reserve System and the Federal Deposit Insurance Corporation
(FDIC). Under the BHC Act, as amended, and under Regulations of the
Federal Reserve Board pursuant thereto, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with the extension of credit.
The Corporation's subsidiary bank is also subject to the state banking
laws of Ohio. Ohio adopted nationwide reciprocal interstate banking
effective October, 1988. However, banking laws of other states may
restrict branching of banks to other counties within the state and
acquisitions or mergers involving banks and bank holding companies
located in other states.
Federal regulators adopted risk-based capital guidelines and leverage
standards for banks and bank holding companies. A discussion of the
impact of risk-based capital guidelines and leverage standards is
7
presented in Note 15 on page 26 of the LNB Bancorp, Inc. 2000 Annual
Report and is incorporated herein by reference.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA)
provides that a holding company and its controlled insured depository
institutions are liable for any loss incurred by the Federal Deposit
Insurance Corporation in connection with the default of any FDIC
assisted transaction involving an affiliated insured bank or savings
association.
During 2000, the Securities and Exchange Commission issued Regulation
FD which established affirmative disclosure requirements on public
corporations such that material nonpublic information must be widely,
rather than selectively, disseminated. Regulation FD is based on the
premise that full and fair disclosure is the cornerstone of an efficient
market system. LNB Bancorp, Inc. is subject to Regulation FD. Through
Regulation FD, the Securities and Exchange Commission seeks to encourage
broad public disclosure in order to increase investor confidence in the
integrity of the capital markets.
Noncompliance to laws and regulations by financial holding companies and
banks can lead to monetary penalties and/or an increased level of
supervision or a combination of these two items. Management is not
aware of any current instances of noncompliance to laws and regulations
and does not anticipate any problems maintaining compliance on a
prospective basis. Recent regulatory inspections and examinations of
the Bancorp and the Bank have not disclosed any significant instances of
noncompliance. The minor instances of noncompliance detected during
these inspections and examinations were promptly corrected by Management
and no action was taken by the regulators against the Corporation or the
Bank.
The earnings and growth of LNB Bancorp, Inc. are affected not only by
general economic conditions, but also by the fiscal and monetary
policies of the federal government and its agencies, particularly the
Federal Reserve Board. Its policies influence the amount of bank loans
and deposits and the interest rates charged and paid thereon, and thus
have an effect on earnings. The nature of future monetary policies and
the effect of such policies on the future business and earnings of the
Corporation and its subsidiary bank cannot be predicted. The discussion
of "Impacts of Accounting and Regulatory Pronouncements" is incorporated
herein by reference to page 43 of the LNB Bancorp, Inc. 2000 Annual
Report.
Employees
As of December 31, 2000, the Corporation and the Bank employed 239
full-time employees and 59 part-time employees. The Corporation is not
a party to any collective bargaining agreement. Management considers
its relationship with its employees to be very good. Employee benefits
programs are considered by Management to be competitive with benefits
programs provided by other financial institutions and major employers
within the Bank's market area.
8
d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
The Corporation and the Bank do not have any offices located in foreign
countries and they have no foreign assets, liabilities or related income
and expense for the years presented.
e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following section contains certain financial disclosures related to
the Corporation as required under the Securities and Exchange
Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding
Companies", or a specific reference as to the location of the required
disclosures in the LNB Bancorp, Inc. 2000 Annual Report, portions of
which are incorporated in this Form 10-K by reference.
9
LNB BANCORP, INC.'S STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
A. & B. The average balance sheet information and the related analysis
of net interest income for the years ending December 31, 2000, 1999, and
1998 are included in the Condensed Consolidated Average Balance Sheets,
within Management's Discussion and Analysis found on page 37 of the LNB
Bancorp, Inc. 2000 Annual Report and is incorporated into this Item I by
reference.
All interest is reported on a fully taxable equivalent basis.
Nonaccruing loans, for the purpose of the computations are included in
the daily average loan amounts outstanding. Loan fees are included in
interest on loans.
C. Tables setting forth the effect of volume and rate changes on
interest income and expense for the years ended December 31, 2000 and
1999 are included in Rate/Volume Analysis of Net Interest Income within
Management's Discussion and Analysis found on page 37 of the LNB
Bancorp, Inc. 2000 Annual Report and is incorporated into this Item I by
reference.
II. INVESTMENT PORTFOLIO
A. The carrying values of securities at year end are as follows:
December 31,
-----------------------------------
(Amounts in Thousands) 2000 1999 1998
- ------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities $ 2,090 $ 11,075 $ 27,416
Securities of other U.S. Government
agencies and corporations 76,133 64,484 50,531
Equity securities 1,295 169 181
- ------------------------------------------------------------------------
Total securities available for sale 79,518 75,728 78,128
- ------------------------------------------------------------------------
Securities held to maturity:
Securities of other U.S. Government
agencies and corporations 39,566 39,848 33,719
States and political subdivisions 4,865 4,794 4,483
- ------------------------------------------------------------------------
Total securities held to maturity 44,431 44,642 38,202
- ------------------------------------------------------------------------
Federal Home Loan Bank and
Federal Reserve Bank Stock $ 3,152 $ 2,949 $ 2,189
- ------------------------------------------------------------------------
Total securities $127,101 $123,319 $118,519
- ------------------------------------------------------------------------
10
B. MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Maturities of nonequity securities owned by the Corporation as of
December 31, 2000 are presented below:
Maturing
----------------------------------------------------
Within From 1 to From 5 to After 10
(Amounts in Thousands) 1 year 5 years 10 years years Total
- ------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury
securities $ 1,000 $ 1,090 $ -0- $ -0- $ 2,090
U.S. Government agencies
and corporations 10,996 65,137 -0- -0- 76,133
- ------------------------------------------------------------------------
Total securities
available for sale 11,996 66,227 -0- -0- 78,223
- ------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agencies
and corporations -0- 5,022 34,544 -0- 39,566
States and political
subdivisions 1,519 583 181 2,582 4,865
- ------------------------------------------------------------------------
Total securities
held to maturity 1,519 5,605 34,725 2,582 44,431
- ------------------------------------------------------------------------
Total securities $13,515 $71,739 $34,725 $2,582 $122,561
- ------------------------------------------------------------------------
WEIGHTED-AVERAGE YIELD OF INVESTMENT SECURITIES
The weighted-average yield for each range of maturities of investment
securities is shown below as of December 31, 2000:
Maturing
-----------------------------------------------------
Within From 1 to From 5 to After 10
1 year 5 years 10 years years Total
- ------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury
securities 5.25% 6.37% 0.00% 0.00% 5.83%
U.S. Government agencies
and corporations 5.80 6.09 0.00 0.00 6.05
- ------------------------------------------------------------------------
Total securities
available for sale 5.75 5.80 0.00 0.00 5.79
- ------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agencies
and corporations 0.00 6.29 5.51 0.00 5.61
States and political
subdivisions (1) 7.01 7.78 6.53 7.76 7.45
- ------------------------------------------------------------------------
Total securities
held to maturity 7.01 6.17 5.56 7.76 5.81
- ------------------------------------------------------------------------
Total securities 5.62% 5.62% 5.50% 5.65% 5.80%
11
1) Yields on tax-exempt obligations are computed on a tax equivalent
basis based upon a 34% statutory Federal income tax rate.
C. Excluding those holdings of the securities portfolio in U.S. Treasury
Securities and U.S. Government Agencies and Corporations, there were no
investments in securities of any one issuer which exceeded 10% of the
consolidated shareholders' equity of the Corporation at December 31,
2000.
III. LOAN PORTFOLIO
A. The following table summarized the distribution of the loan
portfolio:
December 31,
---------------------------------------------------
(Amounts in Thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------
Commercial $186,866 $157,897 $124,875 $120,892 $113,170
Mortgage 157,575 152,825 147,651 142,223 138,455
Installment 69,821 74,682 65,793 37,250 27,683
Consumer revolving
lines of credit 36,878 34,112 31,547 30,666 22,765
- ------------------------------------------------------------------------
TOTAL LOANS 451,140 419,516 369,866 331,031 302,073
Reserve for loan losses(5,250) (4,667) (3,483) (4,168) (4,116)
- ------------------------------------------------------------------------
NET LOANS $445,890 $414,849 $366,383 $326,863 $297,957
========================================================================
B. COMMERCIAL LOAN MATURITY AND REPRICING ANALYSIS
AS OF DECEMBER 31, 2000
(Amounts in Thousands) 2000
- ---------------------------------------------------------
Maturing and repricing in one year or less $178,096
Maturing and repricing after one year
but within five years 6,781
Maturing and repricing beyond five years 1,989
- ---------------------------------------------------------
TOTAL COMMERCIAL LOANS $186,866
=========================================================
Loans repricing beyond one year:
Fixed rate 965
Variable rate 7,805
- ---------------------------------------------------------
TOTAL $ 8,770
=========================================================
12
C. RISK ELEMENTS
A summary of nonaccrual, restructured loans, other foreclosed assets,
accruing loans past due 90 days, and potential problem loans at December
31, follows:
(Amounts in Thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------
Nonaccrual loans:
Real estate loans $1,652 $ 816 $ 980 $ 383 $ 641
Commercial loans 378 42 54 42 114
Consumer loans 189 385 53 0 10
- -----------------------------------------------------------------
Total nonaccrual loans 2,219 1,243 1,087 425 765
Restructured loans 0 0 0 0 0
Other Foreclosed Assets 98 96 1,400 90 39
- -----------------------------------------------------------------
Total nonperforming
assets $2,317 $1,339 $2,487 $ 515 $ 804
- -----------------------------------------------------------------
Reserve for loan losses
to nonperforming assets 226.6% 348.5% 140.1% 809.3% 511.9%
=================================================================
Accruing loans past due
90 days $ 306 $ 555 $ 213 $ 461 $ 357
Potential problem
loans 3,924 4,348 2,941 8,764 1,066
=================================================================
(1) The Corporation, through its subsidiary bank, grants commercial,
residential, and consumer loans to customers located primarily in the
northern Ohio counties of Lorain, Cuyahoga, Erie and Huron.
Nonperforming assets consist of nonaccrual loans and loans which have
been restructured, which are defined as follows:
Nonaccrual loans are loans which are 90 days past due and with
respect to which, in Management's opinion, collection of interest is
doubtful. These loans no longer accrue interest and are accounted
for on a cash basis.
Loans are classified as restructured when, due to the deterioration
of a customer's financial ability, the original terms have been
favorably modified or either principal or interest has been forgiven.
The level of nonperforming assets increasing during 1998 due to one
significant commercial loan credit of $1,300,000, placed in other
foreclosed assets at December 31, 1998, and subsequently liquidated for
$1,300,000 in January of 1999. The level of nonperforming assets
increased $978,000 during 2000. This increase is the result of a net
increase in nonaccrual loans of $976,000 plus increases in other
foreclosed assets in the amount of $2,000. During 2000, non-accrual
loans increased due to increases in commercial, mortgage and indirect
automobile credits placed on non-accrual status. The reserve for loan
loss coverage to total nonperforming assets increased from 1.4 times at
1998 year end to 3.5 times at 1999 year end while decreasing to 2.3
13
times at 2000 year end. This ratio decreased in 2000 from the net of:
increases in nonperforming assets in the amount of $978,000 and
increases in the loan loss reserve of $583,000.
The increase in other foreclosed assets relates to the net increase in
repossessions of motor vehicles at December 31, 2000. The increase in
nonaccrual loans is due to decreases in nonaccrual principal balances of
$1,480,000 which have been paid off and brought current, loans
charged-off in the amount of $325,000, liquidation of nonaccrual loans
of $965,000 and increases in nonaccrual principal balances of
$3,746,000. The 2000 increase in nonaccrual loans was due primarily to
sixteen commercial loan customers and eight mortgage loan customers and
several personal loan customers, particularly in the indirect
automobile loan category. Management does not believe that changes in
nonaccrual loans is indicative of a failing economy and that this change
did not result from any change in underwriting standards.
It is the Bank's policy to cease accruing interest on any loans where
the principal and/or interest remains unpaid for 90 days or more, unless
the loan is both well secured and in the process of collection. For the
year ended December 31, 2000, the interest income that would have been
earned on the nonaccrual loans in the loan portfolio would have been
approximately $122,000; however, the interest income actually earned and
reported as income in 2000 amounted to approximately $109,000.
In addition to the nonperforming assets classified above, the loan
review committee identifies accruing loans past due 90 days plus
potential problem loans. These loans are closely monitored by the loan
review committee to assess the borrowers' ability to comply with the
terms of the loans. Management's year-end review indicated that a charge
to the reserve for loan losses or classification to nonperforming status
was not warranted. Loans which are 90 days or more past due but
continue to accrue interest are loans which, in Management's opinion,
are well secured and are in the process of collection.
(2) Potential Problem Loans - As shown in the table on page 12 of Form
10-K, at December 31, 2000, there are approximately $3,924,000 of loans
identified on Management's watch list which includes both loans which
Management has some concern as to the borrowers' ability to comply with
the present repayment terms and loans which Management is actively
monitoring due to changes in the borrowers financial condition. These
loans and their potential loss exposure have been considered in
Management's analysis of the adequacy of the allowance for loan losses.
At December 31, 2000, potential problem loans totaled $3,924,000, a
decrease of $424,000 from one year ago. The net decrease in potential
problem loans is mainly due to five small to medium commercial credit
customers added during 2000 in the amount of $1,328,000 less the
liquidation of one large commercial credit in the amount of $1,060,000
and some small commercial credits. Potential problem loans at December
31, 2000 are primarily comprised of four large credits that the Bank is
reviewing. Another $1,439,000 of these loans relates to the extension
of credits to a recreational entertainment center. These credits are
being monitored by Management. Another $669,000 of the potential
problem loans relates to the extension of credit to a retail beverage
store. About $415,000 in potential problem loans relates to credit
14
extended to a steel frame construction company. Another $1,109,000 of
these loans relates to the extension of credits to a union industrial
electrical contractor. These credits are being monitored by Management
after the consolidation of loans. Management does not anticipate any
charge-offs relative to these potential problem loans. The potential
problem loans in 1999, and 1998 remained at a relatively moderate level.
(3) Foreign Outstandings - There were no foreign loans outstandings at
December 31, 2000, 1999 or 1998.
(4) Loan Concentrations - Bank management reviews concentrations of
credit and other portfolio risk elements on a quarterly basis.
Management is not aware of any significant loans, group of loans or
segments of the loan portfolio, other than those reported in the
schedule of nonperforming loans, where there are serious doubts as to
the ability of the borrower to comply with the present loan repayment
terms. No loans are outstanding which would, if consolidated, be
considered as a concentration of lending in any particular industry or
group of industries nor are there significant amounts of loans made to
agricultural or energy related businesses.
Credit risk is managed through the bank's loan loss review policy which
provides loan department officers and the loan review committee with the
responsibility to manage loan quality. The Corporation's credit
policies are reviewed and modified on an ongoing basis in order to
remain suitable for the management of credit risks within the loan
portfolio as conditions change. At December 31, 2000, there were no
significant concentrations of credit risk in the loan portfolio.
The Corporation's credit policies and review procedures are intended to
minimize the risk and uncertainties inherent in lending. In following
these policies and procedures, Management must rely upon estimates,
appraisals and evaluations of loans and the possibility that changes in
such estimates, appraisals and evaluations could occur quickly because
of changing economic conditions and the economic prospects of borrowers.
Also see Note (21) of the "Notes to Consolidated Financial Statements"
which appears on page 30 of the LNB Bancorp, Inc. 2000 Annual Report and
is incorporated herein by reference.
(5) No material amount of loans that have been classified by regulatory
examiners as loss, substandard, doubtful, or special mention have been
excluded from the amounts disclosed as nonaccrual, past due 90 days or
more, restructured, or potential problem loans. Corporate management is
not aware of any current recommendations by regulatory authorities
which, if they were implemented, would have a material effect on the
liquidity, capital resources or operations of the Corporation or its
subsidiary bank.
D. Other interest-bearing assets - As of December 31, 2000, there are no
other interest-bearing assets that would be required to be disclosed
under Item III C.1 or 2 if such assets were loans. The Corporation had
$98,000 and $96,000 in Other Foreclosed Assets at December 31, 2000,
and 1999, respectively.
15
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes activity relating to the Reserve for
Loan Losses:
December 31,
-------------------------------------------
(Amounts in Thousands) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------
BALANCE AT BEGINNING
OF YEAR $ 4,667 $ 3,483 $ 4,168 $ 4,116 $ 4,002
Charge-offs:
Commercial (25) (23) (3,060) (190) (296)
Real Estate (59) (359) (147) (359) (185)
Consumer (1,249) (668) (384) (300) (191)
- ----------------------------------------------------------------------
Total charge-offs (1,333) (1,050) (3,591) (849) (672)
Recoveries:
Commercial 14 23 29 7 61
Real Estate 9 108 71 72 67
Consumer 193 103 81 72 58
- ----------------------------------------------------------------------
Total recoveries 216 234 181 151 186
- ----------------------------------------------------------------------
Net charge-offs (1,117) (816) (3,410) (698) (486)
- ----------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 1,700 2,000 2,725 750 600
- ----------------------------------------------------------------------
BALANCE AT END OF YEAR $ 5,250 $ 4,667 $ 3,483 $ 4,168 $ 4,116
======================================================================
ANALYTICAL DATA
BALANCES:
Average total loans $437,593 $403,388 $346,161 $315,215 $287,809
Total loans at year
end 451,140 419,516 369,866 331,031 302,073
Net charge-offs 1,117 816 3,410 698 486
Provision for loan
losses 1,700 2,000 2,725 750 600
Reserve for loan
losses at year end 5,250 4,667 3,483 4,168 4,116
RATIOS:
Net charge-offs to:
Average total loans 0.26% 0.20% 0.99% 0.22% 0.17%
Total loans at year end 0.25 0.19 0.92 0.21 0.16
Provision for loan losses 65.71 40.80 125.14 93.07 81.00
Reserve for loan losses 21.28 17.48 97.90 16.75 11.81
Reserve for loan losses to:
Average total loans 1.20 1.16 1.01 1.32 1.43
Total loans at year
end 1.16 1.11 .94 1.26 1.36
The amount of 2000 net charge-offs resulted from increase indirect
automobile credits and the lower provision for loan losses charged to
expense resulted from decreases in net charge-offs, changes in the
portfolio mix of commercial loans compared to historical levels of
16
charge-offs. Net charge-offs for 2000 showed increases in consumer
loans due to increases in the consumer indirect automobile loans booked
in late 1999 and early 2000. This was anticipated and reserved for in
1999. The increasing trend in the provision for loan losses charged to
expense which occurred from 1995 through 1997 resulted from increases in
the loan portfolio.
The Bank's policy is to maintain the reserve for loan losses at a level
considered by Management to be adequate for probable future losses. The
evaluation performed by the Loan Review Committee is based upon a
continuous review of delinquency trends; the amount of nonperforming
loans (nonaccrual, restructured, and other real estate owned); loans
past due 90 days or more and potential problem loans; historical and
present trends in loans charged-off; changes in the composition and
level of various loan categories; and current economic conditions.
Net charge-offs (recoveries) by portfolio type which are summarized from
the analysis of the Reserve for Loan Losses on page 15 of the Form 10-K
are presented in the following table:
(Amounts in Thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------
Commercial $ 11 $ -0- $3,031 $183 $235
Real estate 50 251 76 287 118
Consumer 1,056 565 303 228 133
- ------------------------------------------------------------------
Total net charge-offs $1,117 $ 816 $3,410 $698 $486
==================================================================
Both the provision and the reserve are based on an analysis of
individual credits, prior and current loss experience, overall growth in
the portfolio, changes in portfolio mix, current economic conditions,
and other factors. Consumer and credit card loans are charged-off
within industry norms, while commercial and mortgage loans are evaluated
individually. An allocation of the ending reserve for loan losses by
major type follows:
(Amounts in Thousands) 2000 1999 1998 1997 1996
----------------------------------------------------------------
Commercial $2,729 $1,803 $1,398 $2,404 $1,429
Real estate 338 530 500 733 803
Consumer 1,738 1,236 704 515 381
Off-balance sheet risk 150 150 125 200 250
Unallocated 295 948 756 316 1,253
- ------------------------------------------------------------------
TOTAL $5,250 $4,667 $3,483 $4,168 $4,116
==================================================================
This allocation is made for analytical purposes. The total allowance is
available to absorb losses from any segment of the portfolio. The 2000
provision for loan losses was greater than net charge-offs by $583,000.
The 1999 provision for loan losses was greater than net charge-offs by
$1,184,000. The 1998 provision for loan losses was less than net
charge-offs by $685,000. The allocated portion of the reserve for
loan losses has changed during 1996 through 2000 due to the loan
portfolio mix. The Bank allocates a portion of the reserve for loan
17
losses to off-balance sheet risks which consist primarily of commitments
to extend credit. The allocated portion of the reserve to consumer
loans increased in 2000 and 1999 due to increases in credit risk from
purchases of indirect automobile lending plus increased consumer loan
outstandings. The allocated portion of commercial loans increased in
2000 and increased in 1999 due to credit risk increases in 2000 and
1999.
The following table shows the percentage of loans in each category to
total loans at year end:
2000 1999 1998 1997 1996
- -------------------------------------------------------------
Commercial 41.4% 37.7% 33.8% 36.5% 37.5%
Real estate 34.9 36.4 39.9 43.0 45.8
Consumer 23.7 25.9 26.3 20.5 16.7
------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
------------------------------------------
The loan portfolio mix has shifted during the past five years. Consumer
loans as a percent of total loans remained relatively constant in 1997.
During 1998, consumer loans increased by 5.8% with a related decrease in
commercial loans of 2.7% and real estate loans of 3.1%. During 1999, the
commercial loans as a percentage of total loans increased by 3.9% with a
corresponding decrease in consumer loans by 0.4% and real estate loans
decreased by 3.5%. During 2000, the commercial loans as a percentage of
total loans increased by 3.7%, real estate loans decreased 1.5% and
consumer loans decreased by 2.2%.
The consumer loan portfolio is running off slightly due to the lack of
quality indirect automobile paper. Commercial loans experienced fairly
strong growth during 2000. This is the result of increased demand and
not reduced credit standards. The commercial loan pending list is at a
good level at year end.
V. DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
The following table sets forth the classification of average deposits
for the indicated period.
December 31,
-------------------------------------
(Amounts in Thousands) 2000 1999 1998
- ----------------------------------------------------------------
Demand deposits $ 81,221 $ 81,348 $ 72,575
NOW accounts 54,332 55,145 51,910
Money market accounts 13,385 17,355 18,599
Market access accounts 33,464 6,646 -0-
Savings deposits 101,276 107,654 103,863
Time deposits 205,877 195,563 178,989
- ----------------------------------------------------------------
Total $489,555 $463,711 $425,936
================================================================
18
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of
interest-bearing deposits for the periods indicated:
Years ended December 31,
----------------------------------------
2000 1999 1998
- ---------------------------------------------------------------
NOW accounts 1.19% 1.19% 1.22%
Money market accounts 2.06 2.05 2.11
Market access accounts 5.44 4.50 N/A
Savings deposits 1.97 1.98 2.15
Time deposits 5.47 4.81 5.17
========================================
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000
or more, in thousands of dollars, at December 31, 2000.
Maturing within 3 months $ 64,404
After 3 but within 6 months 33,470
After 6 but within 12 months 51,909
After 12 months 43,597
- ----------------------------------------------
Total $193,380
==============================================
VI. RETURN ON EQUITY AND ASSETS
Information relating to key operating ratios for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996 is presented in the tabular
form below.
December 31, 2000 1999 1998 1997 1996
- ----------------------------------------------------------------
Return on average assets 1.39% 1.33% 1.34% 1.41% 1.37%
Return on average equity 15.83 15.29 14.46 14.51 13.70
Dividend payout ratio 49.72 49.65 52.00 45.26 44.28
Average equity to
average assets 8.77 8.67 9.27 9.70 10.01
Net interest margin 4.85 4.88 5.17 5.20 5.33
VII. SHORT-TERM BORROWINGS
Information relating to short-term borrowings for the years ended
December 31, 2000, 1999 and 1998 appears on page 23 of the LNB Bancorp,
Inc. 2000 Annual Report under footnote (10) "Securities Sold Under
Repurchase Agreements and Other Short-Term Borrowings" and is
incorporated herein by reference.
19
ITEM 2 - PROPERTIES
THE LORAIN NATIONAL BANK
The principal executive offices are located at its Main Office, 457
Broadway, Lorain, Ohio. The Bank owns the land and buildings occupied by
the Main Office, twelve of its branch banking offices, the Branch
Administration Building, the Maintenance Building, the Purchasing
Building and the Computer Operations Center. The remaining nine branch
offices are subject to lease obligations with various lessors and
varying lease terms.
There is no outstanding mortgage debt on any of the properties which the
bank owns. Listed below are the branches/customer service facilities of
the Bank and their locations:
Main Office 457 Broadway, Lorain
Vermilion Office 4455 Liberty Avenue, Vermilion
Amherst Office 1175 Cleveland Avenue, Amherst
Lake Avenue Office 42935 North Ridge Road, Elyria Township
Avon Lake Office 240 Miller Road, Avon Lake
Kansas Avenue Office 1604 Kansas Avenue, Lorain
Sixth Street Drive-In Office 200 Sixth Street, Lorain
Pearl Avenue Office 2850 Pearl Avenue, Lorain
Oberlin Office 40 East College Street, Oberlin
West Park Drive Office 2130 West Park Drive, Lorain
Ely Square Office 124 Middle Avenue, Elyria
Cleveland Street Office 801 Cleveland Street, Elyria
Oberlin Avenue Office 3660 Oberlin Avenue, Lorain
Olmsted Township Office 27095 Bagley Road, Olmsted Township
Westlake Office 30210 Detroit Road, Westlake
Kendal at Oberlin Office 600 Kendal Drive, Oberlin
The Renaissance Office 26376 John Road, Olmsted Township
Westlake Village Office 28550 Westlake Village Drive, Westlake
Cooper Foster Park Road Office 1920 Cooper Foster Park Road, Lorain
Midway Mall Office 6395 Midway Mall, Elyria
Village of LaGrange Office 546 North Center Street, LaGrange
Computer Operations Center 2130 West Park Drive, Lorain
Maintenance Building 2140 West Park Drive, Lorain
Purchasing Building 2150 West Park Drive, Lorain
Professional Development Center 521 Broadway, Lorain
The Bank also owns automated teller machines and on-line teller
terminals, as well as computers and related equipment for use in its
business. The Corporate office facility at 457 Broadway is currently
utilized at a level of 75%. The remaining space will be utilized as the
Bank continues to grow. The Corporation considers its Corporate
offices, branch offices and computer operations center to be in good to
excellent condition, well maintained and are more than adequate to
conduct the business of Banking.
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Corporation or its
subsidiary is a party to or which any of its property is subject.
20
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 2000 there were
no matters submitted to a vote of security holders.
Pursuant to Form 10-M, General Instruction G(3), the following
information is included as additional item in Part I:
EXECUTIVE OFFICERS OF THE REGISTRANT
BANK LNB BANCORP
PRINCIPAL OCCUPATION DIRECTOR DIRECTOR
NAME(AGE) DURING PAST 5 YEARS SINCE SINCE
Debra R. Brown Senior Vice President, (Not a Director)
(42) Branch Administration
LNB Bancorp, Inc. and
The Lorain National Bank
Robert Cox Senior Vice President and (Not a Director)
(45) Sales
LNB Bancorp, Inc. and
The Lorain National Bank
Sandra L. Dubell Senior Vice President and (Not a Director)
(55) Senior Lending Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Mitchell J. Fallis Vice President and (Not a Director)
(46) Chief Accounting Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Gregory D. Friedman Executive Vice President and (Not a Director)
(50) Chief Financial Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Michael D. Ireland Senior Vice President and (Not a Director)
(54) Senior Operations Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Emma N. Mason Senior Vice President and (Not a Director)
(63) Senior Trust Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
James H. Weber Senior Vice President and (Not a Director)
(54) Senior Marketing Officer
LNB Bancorp, Inc. and
The Lorain National Bank
21
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Common Stock Trading Ranges, Cash Dividends Declared information and
information relating to dividend restrictions appear on the inside front
flap of the LNB Bancorp, Inc. 2000 Annual Report and are incorporated
herein by reference.
HOLDERS
The total number of shareholders was 2,200 as of February 28, 2001. Upon
the consummation of the Plan of Reorganization on March 30, 1984, the
Corporation became a one bank holding company and shareholders of the
Bank became shareholders of the Corporation, receiving one share of
voting Common Stock for each outstanding share of Common Stock of the
Bank.
ITEM 6 - SELECTED FINANCIAL DATA
A Five Year Consolidated Financial Summary of selected financial data on
page 34 of the LNB Bancorp, Inc. 2000 Annual Report is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" is incorporated herein by
reference to pages 35 - 43 of the LNB Bancorp, Inc. 2000 Annual Report.
Also, see Item 8 - Financial Statements and Supplementary Data.
(a) Quantitative and Qualitative Disclosures about Market Risk are
incorporated herein by reference to pages 40 - 41 of the LNB
Bancorp, Inc. 2000 Annual Report to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's Independent Auditors' Report and Consolidated
Financial Statements are listed below and are incorporated herein by
reference to the LNB Bancorp, Inc. 2000 Annual Report (Appendix 13),
pages 12 through 32. The supplementary financial information specified
by Item 302 of Regulation S-K, selected unaudited quarterly financial
data, is included on page 33 of the LNB Bancorp, Inc. 2000 Annual
Report.
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income
for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998
22
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Report of Management
Report of Independent Auditors
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers of the Corporation is set
forth in Part I in accordance with General Instruction G(3), pursuant to
Instruction 3 to Item 401(b) of Regulation S-K. Other information
responding to Item 10 is included in the Proxy Statement of LNB Bancorp,
Inc. and Notice for the Annual Meeting of Shareholders on April 17,
2001, dated March 19, 2001, under the caption "Election of Directors"
and is incorporated herein by reference to Form DEF 14.A filed by LNB
Bancorp, Inc. dated March 16, 2001.
ITEM 11 - EXECUTIVE COMPENSATION
Pursuant to Instruction G, the information required by this item is
incorporated by reference to Form DEF 14.A filed by LNB Bancorp, Inc.,
dated March 16, 2001, from the caption titled "Executive Compensation
and Other Information" on pages 9 through 17 of the Proxy Statement of
LNB Bancorp, Inc. and Notice for the Annual Meeting of Shareholders on
April 17, 2001, dated March 19, 2001.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 3 and 4 of the Proxy Statement of
LNB Bancorp, Inc. and Notice for the Annual Meeting of Shareholders on
April 17, 2001, dated March 19, 2001, relating to "Ownership of Voting
Shares" is incorporated herein by reference to Form DEF 14.A filed by
LNB Bancorp, Inc. dated MArch 16, 2001.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Instruction G, the information required by this item is
incorporated by reference to Form DEF 14.A filed by LNB Bancorp, Inc.
dated March 16, 2001, from the caption titled "Compensation Committee
Interlocks and Insider Participation in CompensationDecisions" and
"Certain Transactions" on pages 16 and 20 of the Proxy Statement of LNB
Bancorp, Inc. and Notice for the Annual Meeting of Shareholders on April
17, 2001, dated March 19, 2001.
23
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following Consolidated Financial Statements and related Notes to
Consolidated Financial Statements, together with the Independent
Auditors' Report, dated January 23, 2001, appear on pages 12 through 32
of the LNB Bancorp, Inc. 2000 Annual Report and are incorporated herein
by reference:
(1) Financial Statements
Consolidated Balance Sheets
December 31, 2000 and 1999
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2000, 1999 and 1998
Report of Management
Report of Independent Auditors
(2) Financial Statement Schedules
Financial statement schedules are omitted as they are not
required or are not applicable or because the required
information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page
27 of this Form 10-K.
(b) Reports on Form 8-K
On January 4, 2001, LNB Bancorp, Inc. filed a Form 8-K with the
Securities and Exchange Commission under Item 5 Other Events and under
Item 7 Financial Statements and Exhibits. LNB Bancorp, Inc. reported:
(1) Registrant's Common Shares, par value $1.00 per share, are
registered under Section 12(g) of the Securities Exchange Act
of 1934 (the "Exchange Act"). The report updates the
description of Registrant's Common Shares.
24
(2) Amended Code of Regulations of LNB Bancorp, Inc. (effective
April 18, 2000) under Item 7 Exhibit 3.
(c) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page 27 of
this Form 10-K.
(d) See Item 14(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LNB Bancorp, Inc.
(Registrant)
By /s/Thomas P. Ryan
------------------------
Thomas P. Ryan
Executive Vice President,
Secretary/Treasurer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated:
/s/Daniel P. Batista DIRECTOR March 29, 2001
- -----------------------
Daniel P. Batista
/s/Robert M. Campana DIRECTOR March 29, 2001
- -----------------------
Robert M. Campana
/s/Terry D. Goode DIRECTOR March 29, 2001
- -----------------------
Terry D. Goode
/s/Wellsley O. Gray DIRECTOR March 29, 2001
- -----------------------
Wellsley O. Gray
/s/James R. Herrick DIRECTOR March 29, 2001
- -----------------------
James R. Herrick
/s/David M. Koethe DIRECTOR March 29, 2001
- -----------------------
David M. Koethe
25
/s/Benjamin G. Norton DIRECTOR March 29, 2001
- -----------------------
Benjamin G. Norton
/s/Jeffrey F. Riddell DIRECTOR March 29, 2001
- -----------------------
Jeffrey F. Riddell
/s/Thomas P. Ryan DIRECTOR March 29, 2001
- -----------------------
Thomas P. Ryan
/s/John W. Schaeffer, M.D. DIRECTOR March 29, 2001
- -----------------------
John W. Schaeffer, M.D.
/s/Eugene M. Sofranko DIRECTOR March 29, 2001
- -----------------------
Eugene M. Sofranko
ABSENT - EXCUSED DIRECTOR March 29, 2001
- -----------------------
Leo Weingarten
/s/Stanley G. Pijor CHAIRMAN OF THE March 29, 2001
- ----------------------- BOARD AND DIRECTOR
Stanley G. Pijor
/s/James F. Kidd VICE CHAIRMAN OF March 29, 2001
- ----------------------- THE BOARD AND
James F. Kidd DIRECTOR
/s/Gary C. Smith PRESIDENT AND March 29, 2001
- ----------------------- CHIEF EXECUTIVE
Gary C. Smith OFFICER AND
DIRECTOR
EXECUTIVE VICE
/s/Gregory D. Friedman PRESIDENT AND March 29, 2001
- ----------------------- CHIEF FINANCIAL
Gregory D. Friedman CPA OFFICER
EXECUTIVE VICE
/s/Kevin W. Nelson PRESIDENT AND March 29, 2001
- ----------------------- CHIEF OPERATIONS
Kevin W. Nelson OFFICER
/s/Mitchell J. Fallis VICE PRESIDENT AND March 29, 2001
- ----------------------- CHIEF ACCOUNTING
Mitchell J. Fallis CPA OFFICER
26
LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K
Reference Page
Number Exhibit Number
(3) (a)LNB Bancorp, Inc. Second Amended Articles of N/A
Incorporation. Previously filed under Item 6,
Exhibit (3)i to Quarterly Report on Form 10-Q
(Commission File No. 0-13202) for the quarter
ended September 30, 2000, and incorporated herein
by reference.
(b)LNB Bancorp, Inc. Amended Code of Regulations. N/A
Previously filed under Item 7, Exhibit 3 to Form
8-K (Commission File No. 0-13203) filed January 4,
2001 and incorporated herein by reference.
(10) Material Contracts
(a)Supplemental Retirement Benefits Agreement by and 30
between Gary C. Smith and LNB Bancorp, Inc, and The
Lorain National Bank dated December 22, 2000.
(b)Supplemental Retirement Benefits Agreement by and 42
between Thomas P. Ryan and LNB Bancorp, Inc. and The
Lorain National Bank dated December 23, 2000.
(c)Supplemental Retirement Benefits Agreement by and 54
between Gregory D. Freidman and LNB Bancorp, Inc. and
The Lorain National Bank dated December 22, 2000.
(d)Non-qualified Incentive Stock Option Agreement by 66
and between Gary C. Smith and LNB Bancorp, Inc. dated
December 15, 2000.
(e) Rights Agreement between LNB Bancorp, Inc. and N/A
Registrar and Transfer Company dated October 24, 2000.
Previously filed as Exhibit 1 to Form 8-A (Commission
File No. 0-13203) filed November 11, 2000, and
incorporated herein by reference.
(f)Employment Agreement by and between Kevin W. Nelson N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated February 13, 2000. Previously filed as Exhibit
(10a) to Annual Report Form 10-K (Commission File No.
0-13203) for the year ended December 31, 1999, and
incorporated herein by reference.
(g)Incentive Stock Option Agreement by and between N/A
Kevin W. Nelson and LNB Bancorp, Inc. dated February 13,
2000. Previously filed as Exhibit (10b) to Annual
Report Form 10-K (Commission File No. 0-13203) for the
year ended December 31, 1999 and incorporated herein
27
S-K
Reference Page
Number Exhibit Number
by reference.
(h)Amended Supplemental Retirement Agreement by and N/A
between James F. Kidd and The Lorain National Bank
dated June 15, 1999. Previously filed as Exhibit
(10a) to Quarterly Report on Form 10-Q (Commission File
No.0-13203) for the quarter ended June 30, 1999, and
incorporated herein by reference.
(i)Employment Agreement by and between Gary C. Smith N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated March 16, 1999. Previously filed as Exhibit
(10a) to Annual Report Form 10-K (Commission File
No. 0-13203) for the year ended December 31, 1998, and
incorporated herein by reference.
(j)Incentive Stock Option Agreement by and between N/A
Gary C. Smith and LNB Bancorp, Inc. dated March 16, 1999.
Previously filed as Exhibit (10b) to Annual Report Form
10-K (Commission File No. 0-13203) for the year ended
December 31, 1998, and incorporated herein by reference.
(k)Amended Employment Agreement by and between James F. N/A
Kidd and LNB Bancorp, Inc. And The Lorain National Bank
dated March 3, 1999. Previously filed as Exhibit (10c)
to Annual Report Form 10-K (Commission File No. 0-13203)
for the year ended December 31, 1998, and incorporated
herein by reference.
(l) Amended Employment Agreement by and between Thomas N/A
P. Ryan and LNB Bancorp, Inc. and The Lorain National
Bank dated March 3, 1999. Previously filed as Exhibit
(10d) to Annual Report Form 10-K (Commission File No.
0-13203) for the year ended December 31, 1998, and
incorporated herein by reference.
(m) Branch Purchase and Assumption Agreement by and N/A
between KeyBank National Association and the Lorain
National Bank dated April 10, 1997. Previously filed as
Exhibit (99.1) to Form 8-K (Commission File No. 0-13203)
filed October 3, 1997, and incorporated herein by reference.
(n)Supplemental Retirement Agreement by and between N/A
James F. Kidd and The Lorain National Bank dated July 30,
1996. Previously filed as Exhibit (10a) to Quarterly
Report on Form 10-Q (Commission File No.0-13203) for the
quarter ended June 30, 1996, and incorporated herein by
reference.
(o)Supplemental Retirement Agreement by and between N/A
Thomas P. Ryan and The Lorain National Bank dated July 30,
1996. Previously filed as Exhibit(10b) to Quarterly
28
S-K
Reference Page
Number Exhibit Number
Report on Form 10-Q (Commission File No. 0-13203) for
the quarter ended June 30, 1996, and incorporated
herein by reference.
(p)Supplemental Retirement Agreement by and between N/A
Gregory D. Friedman and The Lorain National Bank dated
July 30, 1996. Previously filed as Exhibit (10c) to
Quarterly Report on Form 10-Q (Commission File No.
0-13203) for the quarter ended June 30, 1996, and
incorporated herein by reference.
(q)Employment Agreement by and between James F. Kidd N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated September 11, 1995. Previously filed as Exhibit
(10a) to Quarterly Report on Form 10-Q (Commission File
No. 0-13203) for the quarter ended September 30, 1995,
and incorporated herein by reference.
(r)Employment Agreement by and between Thomas P. Ryan N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated September 11, 1995. Previously filed as Exhibit
(10b) to Quarterly Report on Form 10-Q (Commission File
No. 0-13203) for the quarter ended September 30, 1995,
and incorporated herein by reference.
(s)Consultant Agreement by and between Lorain National N/A
Bank, LNB Bancorp, Inc. and Stanley G. Pijor dated
March 15, 1994. Previously filed as Exhibit (10) to
Annual Report Form 10-K (Commission File No. 0-13203)
for the year ended December 31, 1993 and incorporated
herein by reference.
(t)Supplemental Retirement Agreement by and between N/A
Stanley G. Pijor and The Lorain National Bank dated
December 31, 1987. Previously filed as Exhibit (10)
to Annual Report on Form 10-K (Commission File No.
0-13203) for the year ended December 31, 1987, and
incorporated herein by reference.
(u)Employment Agreement by and between Lorain National N/A
Bank and Stanley G. Pijor dated December 31, 1987.
Previously filed as Exhibit (10) to Annual Report Form
10-K (Commission File No. 0-13203) for the year ended
December 31, 1987 and incorporated herein by reference.
(v)The Lorain National Bank 1985 Incentive Stock Option N/A
Plan dated April 16, 1985. Previously filed as Exhibit
(10) to Annual Report on Form 10-K (Commission File No.
2-8867-1) for the year ended December 31, 1985, and
incorporated herein by reference.
29
S-K
Reference Page
Number Exhibit Number
(w)Agreement To Join In The Filing of Consolidated N/A
Federal Income Tax Returns between LNB Bancorp, Inc.
and The Lorain National Bank dated December 15, 1986.
Previously filed as Exhibit (10) to Annual Report on
Form 10-K (Commission File No. 2-8867-1) for the year
ended December 31, 1986 and incorporated herein by
reference.
(11) Statements re: Computation of Per Share Earnings. 71
(13) LNB Bancorp, Inc. 2000 Annual Report to Shareholders. 72
(21) Subsidiaries of LNB Bancorp, Inc. 196
(23) Consent of Independent Accountants. 197
(99.1) Annual report on Form 10-K/A of The Lorain National Bank N/A
Employee Stock Ownership Plan (registration number
33-65034) for the plan year ended December 31, 1999 to
be filed as an amendment to this annual report on Form 10-K.
(99.2) Annual report on Form 10-K/A of The Lorain National Bank N/A
Stock Purchase Plan (registration number 33-65034) for
the plan year ended December 31, 1999 to be filed as an
amendment to this annual report on Form 10-K.
30
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (10a)
Supplemental Retirement Benefits Agreement by and between
Gary C. Smith and LNB Bancorp, Inc. and The Lorain National
Bank dated December 22, 2000.
31
SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT
FOR
GARY C. SMITH
This Supplemental Retirement Benefits Agreement (the "Agreement"),
made as of this 15th day of December, 2000, by and among LNB BANCORP,
INC. (an Ohio corporation) and THE LORAIN NATIONAL BANK (a national
banking association organized and existing under the laws of the United
States), which together with their respective successors and assigns are
herein collectively called "Employer", and GARY C. SMITH, hereinafter
called "Executive", is to EVIDENCE THAT:
WHEREAS Executive has rendered valuable services to Employer and
has performed Executive's duties in a capable and efficient manner and
has generated substantial growth and progress to Employer; and
WHEREAS Employer desires to retain the services of Executive and
acknowledges that, if Executive were to leave Employer's employment,
Employer could suffer a substantial financial loss; and
WHEREAS Employer desires to provide Executive with certain
supplemental retirement benefits (as defined in Section 3) in addition
to the retirement benefits provided to Executive under The Lorain
National Bank Retirement Pension Plan as restated on January 1, 1989
(herein called the "LNB Pension Plan"); and
WHEREAS Employer further desires to provide Executive with certain
benefits in the event of a "Change in Control" (as defined in Section
4); and
WHEREAS Executive is willing to continue in the employ of Employer
if Employer agrees to pay the benefits in accordance with the provisions
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Employer and Executive (herein collectively called the
"Parties") agree as follows:
1. Employment of Executive.
In accordance with Executive's employment agreement with
Employer dated March 16, 1999, as may be amended (herein called the
"Employment Agreement"), Executive shall continue to perform duties for
Employer in such senior executive capacity as the Board of Directors of
Employer may periodically designate. Executive shall devote Executive's
best efforts to the performance of Executive's duties for Employer.
Executive's employment with Employer shall continue until terminated
pursuant to the Employment Agreement.
2. Compensation.
Executive shall be compensated for the performance of
Executive's duties in accordance with the Employment Agreement.
32
3. Supplemental Retirement Benefits.
3.1 Normal Retirement. If Executive remains in the
continuous employ of Employer pursuant to the Employment Agreement and
retires or is discharged by Employer (for any reason, with or without
cause) from active employment with Employer on or after age 65 (herein
called the "Normal Retirement Date"), Executive will be entitled to
receive such supplemental retirement benefits (herein called the
"Supplemental Retirement Benefits") which, when added to Executive's LNB
Pension Plan benefits and the social security benefits (to which
Executive is eligible on the date of Executive's employment
termination), would equal seventy percent (70%) of Executive's
Compensation (as defined herein). For purposes of this Agreement, the
term "Compensation" is limited to the largest annual base salary and the
largest annual bonuses paid to Executive by Employer and by any
Subsidiary (as defined in Section 4.1[i] of this Agreement) for the two
(2) full calendar years of employment immediately preceding the date of
Executive's employment termination as reflected on Executive's combined
W-2 Federal Income Tax Statements from Employer and from any Subsidiary
for such years. The Supplemental Retirement Benefit shall be payable by
Employer in one hundred twenty (120) equal monthly installments
commencing on the first day of the calendar month immediately following
the date of Executive's employment termination and continuing for one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter. Executive shall be under no obligation to
elect to receive Social Security benefits as a condition to entitlement
to the Supplemental Retirement Benefits. For purposes of this
Agreement, Executive's LNB Pension Plan benefits shall be calculated as
though payable as a single life annuity for Executive's life expectancy.
3.2 Early Retirement. If Executive remains in the
continuous employ of Employer pursuant to the Employment Agreement and
retires or is discharged by Employer (for any reason, with or without
cause) prior to the Normal Retirement Date but after attaining age 62
(herein called the "Early Retirement Date"), Executive shall be entitled
to receive an applicable percentage of the Supplemental Retirement
Benefits as follows:
Early Retirement Ages: Applicable Percentage:
62 25%
63 50%
64 75%
The Supplemental Retirement Benefits determined under this Section 3.2
shall be paid by Employer in one hundred twenty (120) equal monthly
installments, commencing on the first day of the calendar month after
the date of Executive's employment termination and continuing in one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter.
3.3 Disability. If Executive incurs a Disability (as
defined in this Section 3.3) while employed by Employer under the
Employment Agreement and prior to the Normal Retirement Date, Executive
will be entitled to receive the actuarial equivalent of the Supplemental
Retirement Benefits but payable by Employer commencing on the first day
33
of the calendar month immediately following the date Executive's
employment terminates because of such Disability and continuing for one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter. For purposes of this Agreement, the term
"Disability" shall mean physical or mental impairment which prevents
Executive from engaging in further employment by Employer under the
Employment Agreement as a senior executive on a full-time basis and
which, on the basis of medical evidence satisfactory to the Board of
Directors of Employer, is expected to continue for a period of at least
six (6) months.
3.4 Death. If Executive dies while receiving Supplemental
Retirement Benefits, any amounts due or remaining to be paid shall be
paid in the same manner to such beneficiary or beneficiaries (herein
called the "Designated Beneficiaries") as Executive may have designated
by filing with Employer a written notice in a form acceptable to
Employer. In the absence of any such designation, such unpaid amounts
shall be paid to Executive's surviving spouse or, if Executive has no
surviving spouse, to Executive's estate. If Executive dies prior to the
Normal Retirement Date while employed by Employer under the Employment
Agreement, Executive's Designated Beneficiaries will be entitled to
receive the actuarial equivalent of the Supplemental Retirement Benefit
but payable by Employer commencing on the first day of the calendar
month immediately following the date of Executive's death and continuing
for one hundred nineteen (119) equal installments on the first day of
each calendar month thereafter.
3.5 Discharge Without Cause. If Executive is discharged
without cause (as defined in this Section 3.5) at any time after the
date of this Agreement and before the Normal Retirement Date, Executive
shall be entitled to receive the actuarial equivalent of the
Supplemental Retirement Benefits but payable by Employer commencing on
the first day of the calendar month immediately following the date of
Executive's discharge and continuing in one hundred nineteen (119) equal
installments on the first day of each calendar month thereafter. For
purposes of this Agreement, the term "discharged without cause" shall
mean a termination of Executive's employment for any reason other than
Executive's commission of any material act of dishonesty during the
period of Executive's employment, or Executive's breach of any material
term of the Employment Agreement which (in the good faith opinion of the
Board of Directors of Employer) adversely affects the interests of
Employer, or Executive's conviction by a court (whose decision is final,
binding and not subject to appeal) of a felony committed during the
period of Executive's employment.
3.6 No Duplication of Benefits. Notwithstanding any
contrary provision in this Agreement, if Executive and Executive's
Designated Beneficiaries become entitled to the payment of the
Supplemental Retirement Benefits under any particular Section of this
Agreement, such persons shall not be entitled to additional Supplemental
Retirement Benefits under any other Section of this Agreement.
4. Change in Control Benefits.
4.1 Definitions. For purposes of solely this Section 4,
the following terms shall have the respective meanings set forth below:
34
(a) "Company" means LNB Bancorp, Inc. and its successors.
(b) "Cause" means any one or more of the following: (i) the willful
and continued failure of Executive to perform substantially Executive's
duties with Employer (other than any such failure resulting from
Executive's Disability as defined in Section 4.1(e) or any such failure
subsequent to Executive's being delivered a Notice of Termination
without Cause by Employer or after Executive's delivering a Notice of
Termination for Good Reason to Employer) after a written demand for
substantial performance is delivered to Executive by Employer's Board of
Directors which specifically identifies the manner in which the Board
believes that Executive has not substantially performed Executive's
duties and provides Executive with three (3) days to correct such
failure, or (ii) the willful engaging by Executive in illegal conduct or
gross misconduct which is injurious to Company or its Subsidiaries, or
(iii) the conviction of Executive of, or a plea by Executive of nolo
contendere to, a felony, or (iv) Executive's breach of or failure to
perform any material provision of the Employment Agreement (as defined
in Section 1) which, in the good faith opinion of Employer's Board of
Directors, adversely affects Employer's interests, or (v) Executive's
commission of a material act of dishonesty. For purposes of this
paragraph (b), no act or failure to act by Executive shall be considered
"willful" unless done or omitted to be done by Executive in bad faith
and without reasonable belief that Executive's action or omission was in
the best interests of Employer. Any act or failure to act based upon
authority given pursuant to a resolution duly adopted by Employer's
Board of Directors, based upon the advice of counsel for Employer, or
based upon the instructions of Employer's chief executive officer or
another senior officer of Employer shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in the best
interests of Employer.
(c) "Change in Control" means the occurrence of any one of the
following events:
(i) if individuals who, on the date of this Agreement, constitute
Company's Board of Directors (the "Incumbent Directors") cease for any
reason to constitute at least a majority of Company's Board of
Directors; provided, however, that: (A) any person becoming a director
subsequent to the date of this Agreement, whose election or nomination
for election was approved by a vote of at least two-thirds (2/3) of the
Incumbent Directors then on Company's Board of Directors (either by a
specific vote or by approval of the proxy statement of Company 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, and (B) no individual elected or
nominated as a director of Company initially as a result of an actual or
threatened election contest with respect to directors or any other
actual or threatened solicitation of proxies by or on behalf of any
person other than Company's Board of Directors shall be deemed to be an
Incumbent Director;
(ii) if 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
35
Exchange Act), directly or indirectly, of securities of Company
representing twenty percent (20%) or more of the combined voting power
of Company's then-outstanding securities eligible to vote for the
election of Company's Board of Directors (the "Company Voting
Securities"); provided, however, that the events described in this
paragraph (ii) shall not be deemed to be a Change in Control by virtue
of any of the following acquisitions: (A) by Company or any Subsidiary,
(B) by any employee benefit plan sponsored or maintained by Company or
any Subsidiary or by any employee stock benefit trust created by Company
or any Subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in clause (iii) of this paragraph
(c), below), (E) pursuant to any acquisition by Executive or any group
of persons including Executive (or any entity controlled by Executive or
by any group of persons including Executive), or (F) a transaction
(other than one described in clause (iii) of this paragraph (c), below)
in which Company Voting Securities are acquired from Company, if a
majority of the Incumbent Directors approves a resolution providing
expressly that the acquisition pursuant to this subparagraph (F) does
not constitute a Change in Control under this clause (ii);
(iii) upon the consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving Company or any of its
Subsidiaries that requires the approval of Company's shareholders,
whether for such transaction or the issuance of securities in the
transaction (a "Business Combination"), unless immediately following
such Business Combination: (A) more than fifty percent (50%) of the
total voting power of either (x) the corporation resulting from the
consummation of such Business Combination (the "Surviving Corporation")
or, if applicable, (y) the ultimate parent corporation that directly or
indirectly has beneficial ownership of one hundred percent (100%) of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation") is represented by Company Voting
Securities that were outstanding immediately prior to such Business
Combination (or, if applicable, represented by shares into which such
Company 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 Company
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 twenty percent (20%) 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 (C) 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 of the execution
of the initial agreement providing for such Business Combination (any
Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) if the shareholders of Company approve a plan of complete
36
liquidation or dissolution of Company or a sale of all or substantially
all of Company's assets but only if, pursuant to such liquidation or
sale, the assets of Company are transferred to an entity not owned
(directly or indirectly) by Company's shareholders.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any person acquires beneficial ownership of more
than twenty percent (20%) of Company Voting Securities as a result of
the acquisition of Company Voting Securities by Company which reduces
the number of Company Voting Securities outstanding; provided, however,
that if (after such acquisition by Company) such person becomes the
beneficial owner of additional Company Voting Securities that increases
the percentage of outstanding Company Voting Securities beneficially
owned by such person, a Change in Control shall then occur.
Notwithstanding anything in this Agreement to the contrary, if (A)
Executive's employment is terminated prior to a Change in Control for
reasons that would have constituted a Qualifying Termination if they had
occurred following a Change in Control, (B) Executive reasonably
demonstrates that such termination (or event constituting Good Reason)
was at the request of a third party who had indicated an intention or
taken steps reasonably calculated to effect a Change in Control, and (C)
a Change in Control involving such third party (or a party competing
with such third party to effectuate a Change in Control) does occur,
then (for purposes of this Agreement) the date immediately prior to the
date of such termination of employment (or event constituting Good
Reason) shall be treated as a Change in Control.
(d) "Date of Termination" means (1) the effective date on which
Executive's employment by Company and its Subsidiaries terminates as
specified in a prior written notice by Company, a Subsidiary or
Executive (as the case may be) to the other, or (2) if Executive's
employment by Company terminates by reason of death, the date of death
of Executive, or (3) if the Executive incurs a Disability (as defined in
Section 4.1(e)), the date of such Disability as determined by a
physician chosen by Company. For purposes of determining the timing of
payments and benefits to Executive under this Section 4, the date of the
actual Change in Control shall be treated as Executive's Date of
Termination.
(e) "Disability" means Executive's inability to perform Executive's
then-existing duties with Company or its Subsidiaries on a full-time
basis for at least one hundred eighty (180) consecutive days as a result
of Executive's incapacity due to physical or mental illness.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
(i) (A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in any
material and adverse respect with Executive's positions, duties,
responsibilities or status with Employer immediately prior to such
Change in Control (including any material and adverse diminution of such
duties or responsibilities), or (B) a material and adverse change in
Executive's titles or offices (including, if applicable, membership on
Employer's Board of Directors) with Employer as existing immediately
prior to such Change in Control;
37
(ii) (A) a reduction by Employer in Executive's rate of annual base
salary as in effect immediately prior to such Change in Control (or as
such annual base salary may be increased from time to time thereafter),
or (B) the failure by Employer to pay Executive an annual bonus in
respect of the year in which such Change in Control occurs or any
subsequent year in an amount greater than or equal to the annual bonus
earned for the year ended prior to the year in which such Change in
Control occurs;
(iii) any requirement of Employer that Executive: (A) be based anywhere
more than fifty (50) miles from the office where Executive is located at
the time of the Change in Control, or (B) travel on Employer business to
an extent substantially greater than the travel obligations of Executive
immediately prior to such Change in Control; or
(iv) the failure of Employer to: (A) continue in effect any material
employee benefit plan, compensation plan, welfare benefit plan or other
material fringe benefit plan in which Executive is participating
immediately prior to such Change in Control or the taking of any action
by Employer which would materially and adversely affect Executive's
participation in or reduce Executive's benefits under any such plan,
unless Executive is permitted to participate in other plans providing
Executive with substantially equivalent benefits in the aggregate, or
(B) provide Executive with paid vacation in accordance with the most
favorable vacation policies of Employer as in effect for Executive
immediately prior to such Change in Control, including the crediting of
all service for which Executive had been credited under such vacation
policies prior to the Change in Control.
Notwithstanding any contrary provision in this Agreement: (A) an
isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by Employer within ten (10) days after receipt of
notice thereof given by Executive shall not constitute Good Reason; and
(B) Executive's right to terminate employment for Good Reason shall not
be affected by Executive's Disability; and (C) Executive's continued
employment shall not constitute a consent to, or a waiver of rights with
respect to, any event or condition constituting Good Reason (provided,
however, that Executive must provide notice of termination of employment
within thirty (30) days following Executive's knowledge of an event
constituting Good Reason or such event shall not constitute Good Reason
under this Agreement).
(g) "Qualifying Termination" means a termination of Executive's
employment after a Change in Control (i) by Employer other than for
Cause, or (ii) by Executive for Good Reason. Termination of Executive's
employment on account of death, Disability (as defined in Section 4(e))
or Retirement shall not constitute a Qualifying Termination.
(h) "Retirement " means the termination of Executive's employment with
Employer: (A) on or after the first of the month coincident with or
next following Executive's attainment of age sixty-five (65), or (B) on
such later date as may be provided in a written agreement between
Employer and Executive.
(i) "Subsidiary" means any corporation or other entity in which
Company: (A) has a direct or indirect ownership interest of fifty
38
percent (50%) or more of the total combined voting power of the
then-outstanding securities or interests of such corporation or other
entity entitled to vote generally in the election of directors, or (B)
has the right to receive fifty percent (50%) or more of the distribution
of profits or fifty percent (50%) of the assets upon liquidation or
dissolution.
(j) "Termination Period" means the period of time beginning with a
Change in Control and ending two (2) years following such Change in
Control.
4.2 Obligation of Executive. In the event of a tender or
exchange offer, proxy contest, or the execution of any agreement which,
if consummated, would constitute a Change in Control, Executive agrees
(as a condition to receiving any payments and benefits hereunder) not to
voluntarily leave the employ of Employer (other than as a result of
Disability, Retirement or an event which would constitute Good Reason if
a Change in Control had occurred) until the Change in Control occurs or,
if earlier, such tender or exchange offer, proxy contest, or agreement
is terminated or abandoned.
4.3 Benefits Upon Termination of Employment. If during
the Termination Period Executive's employment with Employer terminates
pursuant to a Qualifying Termination, then Employer shall pay to
Executive the Supplemental Retirement Benefits commencing on Executive's
Normal Retirement Date and payable pursuant to Section 3.1; provided,
however, that Employer shall not be obligated under this Section 4.3 to
pay the Supplemental Retirement Benefits if Executive is entitled to or
is receiving the Supplemental Retirement Benefits under any other
Section of this Agreement.
4.4 Withholding Taxes. Employer shall withhold from all
payments due to Executive (or Executive's Designated Beneficiaries)
under this Agreement all taxes which, by applicable federal, state,
local or other law, Employer is required to withhold therefrom.
4.5 Reimbursement of Expenses. If any contest or dispute
shall arise under this Section 4 involving the alleged failure or
refusal of Employer to perform fully in accordance with the terms of
Section 4, Employer shall reimburse Executive for all reasonable legal
fees and expenses (if any) incurred by Executive with respect to such
contest or dispute, together with interest in an amount equal to the
prime rate of Lorain National Bank from time to time in effect (but, in
no event, higher than the legal rate permissible under applicable law),
such interest to accrue from the date Employer becomes obligated to pay
such fees and expenses through the date of payment thereof; provided,
however, that this Section 4.5 shall apply only if (and to the extent
that) Employer is held to have breached or violated its duties and
obligations hereunder to Executive.
4.6 Binding Agreement and Successors.
(a) This Section 4 shall not be terminated by any Business
Combination. In the event of any Business Combination, the provisions
of this Section 4 shall be binding upon the Surviving Corporation and
such Surviving Corporation shall be treated as Employer hereunder.
39
(b) Employer agrees that, in connection with any Business Combination,
Employer will cause any successor entity to Employer unconditionally to
assume (and, for any Parent Corporation in such Business Combination, to
guaranty), by written instrument delivered to Executive (or Executive's
Designated Beneficiaries), all of the obligations of Employer under this
Section 4. Failure of Employer to obtain such assumption or guaranty
prior to the effectiveness of any such Business Combination that
constitutes a Change in Control shall be a breach of this Agreement and
shall constitute Good Reason under this Section 4. For purposes of
implementing this Section 4.6(b), the date on which any such Business
Combination becomes effective shall be deemed the date Good Reason
occurs and shall be the Date of Termination, if so requested by
Executive.
(c) This Section 4 shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
4.7 Employment with Subsidiaries. For purposes of this
Section 4, any and all references to Executive's employment with
Employer shall be deemed to include Executive's employment by any
Subsidiary and, with respect to such employment by a Subsidiary, the
term "Employer" as used in this Section 4 shall be deemed to include any
Subsidiary which employs Executive.
5. Non-Alienation of Benefits.
The right of Executive, the Designated Beneficiaries or any
other person to the payment of benefits under this Agreement shall not
be assigned, transferred, pledged or encumbered, and any attempt to do
so shall be void.
6. Status of Rights to Benefits.
The rights of Executive and the Designated Beneficiaries to
any benefits under this Agreement shall be solely those of an unsecured
general creditor of Employer. Nothing contained in this Agreement and
no action taken pursuant to this Agreement shall create or be construed
to create a trust of any kind or a fiduciary relationship between
Employer and Executive or the Designated Beneficiaries. Any funds,
insurance contracts or other assets of Employer (whether or not
designated by Employer to provide the benefits contemplated herein)
shall at all times continue to remain a part of the general funds of
Employer and no person other than Employer shall have any interest in
such funds or assets.
7. General Provisions.
7.1 This Agreement shall not be deemed to constitute a
contract of employment between the Parties and no provisions hereof
shall restrict the right of Employer to terminate the Executive's
services or restrict the right of the Executive to terminate Executive's
services in accordance with the Employment Agreement.
7.2 The Board of Directors of Employer shall have the full
40
power and authority to interpret, construe and administer this
Agreement, and all actions taken by the Board of Directors of Employer
in good faith shall be binding and conclusive on all Parties and other
interested persons. No member of the Board of Directors of Employer
shall be liable to any person for any action taken or omitted in
connection with the interpretation or administration of this Agreement
unless attributable to said member's own willful misconduct or lack of
good faith.
7.3 This Agreement shall be binding upon and inure to the
benefit of Employer, its successors and assigns, and Executive and
Executive's Designated Beneficiaries, heirs, executors, administrators
and legal representatives.
7.4 This Agreement shall be construed in accordance with
and governed by the laws of the State of Ohio. All Parties hereby agree
that exclusive venue for all litigation arising under this Agreement
lies solely with the State Courts of Lorain County, Ohio, and each Party
hereby submits to the personal jurisdiction of such Lorain County State
Courts.
7.5 Except as otherwise expressly provided herein, this
Agreement represents the entire agreement among the Parties regarding
the subject matter hereof and all prior or contemporaneous written or
oral statements, negotiations, representations, arrangements and/or
agreements regarding the subject matter hereof are merged into and
superseded by this Agreement. All Parties acknowledge that there are no
oral or other written understandings, arrangements and/or agreements
among the Parties relating to the subject matter of this Agreement.
7.6 This Agreement may be amended only by a written
document signed by all Parties, which document must clearly indicate
that it constitutes an amendment to this specific Agreement and/or to a
specific provision or provisions herein.
7.7 No course of action by any Party and no refusal or
neglect of any Party to exercise any right granted under this Agreement
or to enforce compliance with any provision of this Agreement shall
constitute a waiver of any provision of or right under this Agreement,
unless such waiver is expressed in a written document which is clearly
designated as a waiver to a specific provision or provisions of this
Agreement and unless such document is signed by the waiving Party.
7.8 For purposes of this Agreement, the singular includes
the plural and vice-versa and the feminine, masculine and neuter include
each other.
7.9 All provisions of this Agreement are severable and
neither this Agreement nor any provision herein shall be affected by the
invalidity or inapplicability of any other provision of this Agreement.
IN WITNESS WHEREOF, Employer has caused this Agreement to be
executed by its duly authorized officers, and Executive has set
Executive's hand as of the date first above written.
41
In The Presence Of: THE LORAIN NATIONAL BANK
/s/Denise Harmych By:/s/Thomas P. Ryan
/s/Ann Koler Title:Exec. V.P. & Secretary
LNB BANCORP, INC.
/s/Denise Harmych By:/s/Thomas P. Ryan
/s/Ann Koler Title:Exec. V.P. & Secretary & Treas.
"Employer"
/s/Denise Harmych /s/Gary C. Smith
Gary C. Smith, President
and Chief Executive Officer
/s/Ann Koler
"Executive"
42
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (10b)
Supplemental Retirement Benefits Agreement by and between
Thomas P. Ryan and LNB Bancorp, Inc. dated December 23, 2000.
SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT
FOR
THOMAS P. RYAN
This Supplemental Retirement Benefits Agreement (the "Agreement"),
made as of this 22nd day of December, 2000, by and among LNB BANCORP,
INC. (an Ohio corporation) and THE LORAIN NATIONAL BANK (a national
banking association organized and existing under the laws of the United
States), which together with their respective successors and assigns are
herein collectively called "Employer", and THOMAS P. RYAN, hereinafter
called "Executive", is to EVIDENCE THAT:
WHEREAS Executive has rendered valuable services to Employer and
has performed Executive's duties in a capable and efficient manner and
has generated substantial growth and progress to Employer; and
WHEREAS Employer desires to retain the services of Executive and
acknowledges that, if Executive were to leave Employer's employment,
Employer could suffer a substantial financial loss; and
WHEREAS Employer desires to provide Executive with certain
supplemental retirement benefits (as defined in Section 3) in addition
to the retirement benefits provided to Executive under The Lorain
National Bank Retirement Pension Plan as restated on January 1, 1989
(herein called the "LNB Pension Plan"); and
WHEREAS Employer further desires to provide Executive with certain
benefits in the event of a "Change in Control" (as defined in Section
4); and
WHEREAS Executive is willing to continue in the employ of Employer
if Employer agrees to pay the benefits in accordance with the provisions
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Employer and Executive (herein collectively called the
"Parties") agree as follows:
1. Employment of Executive.
In accordance with Executive's employment agreement with
Employer dated September 11, 1995, as may be amended (herein called the
"Employment Agreement"), Executive shall continue to perform duties for
Employer in such senior executive capacity as the Board of Directors of
Employer may periodically designate. Executive shall devote Executive's
best efforts to the performance of Executive's duties for Employer.
Executive's employment with Employer shall continue until terminated
pursuant to the Employment Agreement.
2. Compensation.
Executive shall be compensated for the performance of
Executive's duties in accordance with the Employment Agreement.
44
3. Supplemental Retirement Benefits.
3.1 Normal Retirement. If Executive remains in the
continuous employ of Employer pursuant to the Employment Agreement and
retires or is discharged by Employer (for any reason, with or without
cause) from active employment with Employer on or after age 65 (herein
called the "Normal Retirement Date"), Executive will be entitled to
receive such supplemental retirement benefits (herein called the
"Supplemental Retirement Benefits") which, when added to Executive's LNB
Pension Plan benefits and the social security benefits (to which
Executive is eligible on the date of Executive's employment
termination), would equal seventy percent (70%) of Executive's
Compensation (as defined herein). For purposes of this Agreement, the
term "Compensation" is limited to the largest annual base salary, plus
the largest annual bonuses, plus the largest annual Directors fees paid
to Executive by Employer and by any Subsidiary (as defined in Section
4.1[i] of this Agreement) for the two (2) full calendar years of
employment immediately preceding the date of Executive's employment
termination as reflected on Executive's combined W-2 Federal Income Tax
Statements and Form 1099s from Employer and from any Subsidiary for such
years. The Supplemental Retirement Benefit shall be payable by Employer
in one hundred twenty (120) equal monthly installments commencing on the
first day of the calendar month immediately following the date of
Executive's employment termination and continuing for one hundred
nineteen (119) equal installments on the first day of each calendar
month thereafter. Executive shall be under no obligation to elect to
receive Social Security benefits as a condition to entitlement to the
Supplemental Retirement Benefits. For purposes of this Agreement,
Executive's LNB Pension Plan benefits shall be calculated as though
payable as a single life annuity for Executive's life expectancy.
3.2 Early Retirement. If Executive remains in the
continuous employ of Employer pursuant to the Employment Agreement and
retires or is discharged by Employer (for any reason, with or without
cause) prior to the Normal Retirement Date but after attaining age 62
(herein called the "Early Retirement Date"), Executive shall be entitled
to receive an applicable percentage of the Supplemental Retirement
Benefits as follows:
Early Retirement Ages: Applicable Percentage:
62 25%
63 50%
64 75%
The Supplemental Retirement Benefits determined under this Section 3.2
shall be paid by Employer in one hundred twenty (120) equal monthly
installments, commencing on the first day of the calendar month after
the date of Executive's employment termination and continuing in one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter.
3.3 Disability. If Executive incurs a Disability (as
defined in this Section 3.3) while employed by Employer under the
Employment Agreement and prior to the Normal Retirement Date, Executive
will be entitled to receive the actuarial equivalent of the Supplemental
45
Retirement Benefits but payable by Employer commencing on the first day
of the calendar month immediately following the date Executive's
employment terminates because of such Disability and continuing for one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter. For purposes of this Agreement, the term
"Disability" shall mean physical or mental impairment which prevents
Executive from engaging in further employment by Employer under the
Employment Agreement as a senior executive on a full-time basis and
which, on the basis of medical evidence satisfactory to the Board of
Directors of Employer, is expected to continue for a period of at least
six (6) months.
3.4 Death. If Executive dies while receiving Supplemental
Retirement Benefits, any amounts due or remaining to be paid shall be
paid in the same manner to such beneficiary or beneficiaries (herein
called the "Designated Beneficiaries") as Executive may have designated
by filing with Employer a written notice in a form acceptable to
Employer. In the absence of any such designation, such unpaid amounts
shall be paid to Executive's surviving spouse or, if Executive has no
surviving spouse, to Executive's estate. If Executive dies prior to the
Normal Retirement Date while employed by Employer under the Employment
Agreement, Executive's Designated Beneficiaries will be entitled to
receive the actuarial equivalent of the Supplemental Retirement Benefit
but payable by Employer commencing on the first day of the calendar
month immediately following the date of Executive's death and continuing
for one hundred nineteen (119) equal installments on the first day of
each calendar month thereafter.
3.5 Discharge Without Cause. If Executive is discharged
without cause (as defined in this Section 3.5) at any time after the
date of this Agreement and before the Normal Retirement Date, Executive
shall be entitled to receive the actuarial equivalent of the
Supplemental Retirement Benefits but payable by Employer commencing on
the first day of the calendar month immediately following the date of
Executive's discharge and continuing in one hundred nineteen (119) equal
installments on the first day of each calendar month thereafter. For
purposes of this Agreement, the term "discharged without cause" shall
mean a termination of Executive's employment for any reason other than
Executive's commission of any material act of dishonesty during the
period of Executive's employment, or Executive's breach of any material
term of the Employment Agreement which (in the good faith opinion of the
Board of Directors of Employer) adversely affects the interests of
Employer, or Executive's conviction by a court (whose decision is final,
binding and not subject to appeal) of a felony committed during the
period of Executive's employment.
3.6 No Duplication of Benefits. Notwithstanding any
contrary provision in this Agreement, if Executive and Executive's
Designated Beneficiaries become entitled to the payment of the
Supplemental Retirement Benefits under any particular Section of this
Agreement, such persons shall not be entitled to additional Supplemental
Retirement Benefits under any other Section of this Agreement.
4. Change in Control Benefits.
4.1 Definitions. For purposes of solely this Section 4,
46
the following terms shall have the respective meanings set forth below:
(a) "Company" means LNB Bancorp, Inc. and its successors.
(b) "Cause" means any one or more of the following: (i) the willful
and continued failure of Executive to perform substantially Executive's
duties with Employer (other than any such failure resulting from
Executive's Disability as defined in Section 4.1(e) or any such failure
subsequent to Executive's being delivered a Notice of Termination
without Cause by Employer or after Executive's delivering a Notice of
Termination for Good Reason to Employer) after a written demand for
substantial performance is delivered to Executive by Employer's Board of
Directors which specifically identifies the manner in which the Board
believes that Executive has not substantially performed Executive's
duties and provides Executive with three (3) days to correct such
failure, or (ii) the willful engaging by Executive in illegal conduct or
gross misconduct which is injurious to Company or its Subsidiaries, or
(iii) the conviction of Executive of, or a plea by Executive of nolo
contendere to, a felony, or (iv) Executive's breach of or failure to
perform any material provision of the Employment Agreement (as defined
in Section 1) which, in the good faith opinion of Employer's Board of
Directors, adversely affects Employer's interests, or (v) Executive's
commission of a material act of dishonesty. For purposes of this
paragraph (b), no act or failure to act by Executive shall be considered
"willful" unless done or omitted to be done by Executive in bad faith
and without reasonable belief that Executive's action or omission was in
the best interests of Employer. Any act or failure to act based upon
authority given pursuant to a resolution duly adopted by Employer's
Board of Directors, based upon the advice of counsel for Employer, or
based upon the instructions of Employer's chief executive officer or
another senior officer of Employer shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in the best
interests of Employer.
(c) "Change in Control" means the occurrence of any one of the
following events:
(i) if individuals who, on the date of this Agreement, constitute
Company's Board of Directors (the "Incumbent Directors") cease for any
reason to constitute at least a majority of Company's Board of
Directors; provided, however, that: (A) any person becoming a director
subsequent to the date of this Agreement, whose election or nomination
for election was approved by a vote of at least two-thirds (2/3) of the
Incumbent Directors then on Company's Board of Directors (either by a
specific vote or by approval of the proxy statement of Company 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, and (B) no individual elected or
nominated as a director of Company initially as a result of an actual or
threatened election contest with respect to directors or any other
actual or threatened solicitation of proxies by or on behalf of any
person other than Company's Board of Directors shall be deemed to be an
Incumbent Director;
(ii) if 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
47
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 Company
representing twenty percent (20%) or more of the combined voting power
of Company's then-outstanding securities eligible to vote for the
election of Company's Board of Directors (the "Company Voting
Securities"); provided, however, that the events described in this
paragraph (ii) shall not be deemed to be a Change in Control by virtue
of any of the following acquisitions: (A) by Company or any Subsidiary,
(B) by any employee benefit plan sponsored or maintained by Company or
any Subsidiary or by any employee stock benefit trust created by Company
or any Subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in clause (iii) of this paragraph
(c), below), (E) pursuant to any acquisition by Executive or any group
of persons including Executive (or any entity controlled by Executive or
by any group of persons including Executive), or (F) a transaction
(other than one described in clause (iii) of this paragraph (c), below)
in which Company Voting Securities are acquired from Company, if a
majority of the Incumbent Directors approves a resolution providing
expressly that the acquisition pursuant to this subparagraph (F) does
not constitute a Change in Control under this clause (ii);
(iii) upon the consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving Company or any of its
Subsidiaries that requires the approval of Company's shareholders,
whether for such transaction or the issuance of securities in the
transaction (a "Business Combination"), unless immediately following
such Business Combination: (A) more than fifty percent (50%) of the
total voting power of either (x) the corporation resulting from the
consummation of such Business Combination (the "Surviving Corporation")
or, if applicable, (y) the ultimate parent corporation that directly or
indirectly has beneficial ownership of one hundred percent (100%) of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation") is represented by Company Voting
Securities that were outstanding immediately prior to such Business
Combination (or, if applicable, represented by shares into which such
Company 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 Company
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 twenty percent (20%) 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 (C) 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 of the execution
of the initial agreement providing for such Business Combination (any
Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
48
(iv) if the shareholders of Company approve a plan of complete
liquidation or dissolution of Company or a sale of all or substantially
all of Company's assets but only if, pursuant to such liquidation or
sale, the assets of Company are transferred to an entity not owned
(directly or indirectly) by Company's shareholders.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any person acquires beneficial ownership of more
than twenty percent (20%) of Company Voting Securities as a result of
the acquisition of Company Voting Securities by Company which reduces
the number of Company Voting Securities outstanding; provided, however,
that if (after such acquisition by Company) such person becomes the
beneficial owner of additional Company Voting Securities that increases
the percentage of outstanding Company Voting Securities beneficially
owned by such person, a Change in Control shall then occur.
Notwithstanding anything in this Agreement to the contrary, if (A)
Executive's employment is terminated prior to a Change in Control for
reasons that would have constituted a Qualifying Termination if they had
occurred following a Change in Control, (B) Executive reasonably
demonstrates that such termination (or event constituting Good Reason)
was at the request of a third party who had indicated an intention or
taken steps reasonably calculated to effect a Change in Control, and (C)
a Change in Control involving such third party (or a party competing
with such third party to effectuate a Change in Control) does occur,
then (for purposes of this Agreement) the date immediately prior to the
date of such termination of employment (or event constituting Good
Reason) shall be treated as a Change in Control.
(d) "Date of Termination" means (1) the effective date on which
Executive's employment by Company and its Subsidiaries terminates as
specified in a prior written notice by Company, a Subsidiary or
Executive (as the case may be) to the other, or (2) if Executive's
employment by Company terminates by reason of death, the date of death
of Executive, or (3) if the Executive incurs a Disability (as defined in
Section 4.1(e)), the date of such Disability as determined by a
physician chosen by Company. For purposes of determining the timing of
payments and benefits to Executive under this Section 4, the date of the
actual Change in Control shall be treated as Executive's Date of
Termination.
(e) "Disability" means Executive's inability to perform Executive's
then-existing duties with Company or its Subsidiaries on a full-time
basis for at least one hundred eighty (180) consecutive days as a result
of Executive's incapacity due to physical or mental illness.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
(i) (A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in any
material and adverse respect with Executive's positions, duties,
responsibilities or status with Employer immediately prior to such
Change in Control (including any material and adverse diminution of such
duties or responsibilities), or (B) a material and adverse change in
Executive's titles or offices (including, if applicable, membership on
Employer's Board of Directors) with Employer as existing immediately
49
prior to such Change in Control;
(ii) (A) a reduction by Employer in Executive's rate of annual base
salary as in effect immediately prior to such Change in Control (or as
such annual base salary may be increased from time to time thereafter),
or (B) the failure by Employer to pay Executive an annual bonus in
respect of the year in which such Change in Control occurs or any
subsequent year in an amount greater than or equal to the annual bonus
earned for the year ended prior to the year in which such Change in
Control occurs;
(iii) any requirement of Employer that Executive: (A) be based anywhere
more than fifty (50) miles from the office where Executive is located at
the time of the Change in Control, or (B) travel on Employer business to
an extent substantially greater than the travel obligations of Executive
immediately prior to such Change in Control; or
(iv) the failure of Employer to: (A) continue in effect any material
employee benefit plan, compensation plan, welfare benefit plan or other
material fringe benefit plan in which Executive is participating
immediately prior to such Change in Control or the taking of any action
by Employer which would materially and adversely affect Executive's
participation in or reduce Executive's benefits under any such plan,
unless Executive is permitted to participate in other plans providing
Executive with substantially equivalent benefits in the aggregate, or
(B) provide Executive with paid vacation in accordance with the most
favorable vacation policies of Employer as in effect for Executive
immediately prior to such Change in Control, including the crediting of
all service for which Executive had been credited under such vacation
policies prior to the Change in Control.
Notwithstanding any contrary provision in this Agreement: (A) an
isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by Employer within ten (10) days after receipt of
notice thereof given by Executive shall not constitute Good Reason; and
(B) Executive's right to terminate employment for Good Reason shall not
be affected by Executive's Disability; and (C) Executive's continued
employment shall not constitute a consent to, or a waiver of rights with
respect to, any event or condition constituting Good Reason (provided,
however, that Executive must provide notice of termination of employment
within thirty (30) days following Executive's knowledge of an event
constituting Good Reason or such event shall not constitute Good Reason
under this Agreement).
(g) "Qualifying Termination" means a termination of Executive's
employment after a Change in Control (i) by Employer other than for
Cause, or (ii) by Executive for Good Reason. Termination of Executive's
employment on account of death, Disability (as defined in Section 4(e))
or Retirement shall not constitute a Qualifying Termination.
(h) "Retirement " means the termination of Executive's employment with
Employer: (A) on or after the first of the month coincident with or
next following Executive's attainment of age sixty-five (65), or (B) on
such later date as may be provided in a written agreement between
Employer and Executive.
50
(i) "Subsidiary" means any corporation or other entity in which
Company: (A) has a direct or indirect ownership interest of fifty
percent (50%) or more of the total combined voting power of the
then-outstanding securities or interests of such corporation or other
entity entitled to vote generally in the election of directors, or (B)
has the right to receive fifty percent (50%) or more of the distribution
of profits or fifty percent (50%) of the assets upon liquidation or
dissolution.
(j) "Termination Period" means the period of time beginning with a
Change in Control and ending two (2) years following such Change in
Control.
4.2 Obligation of Executive. In the event of a tender or
exchange offer, proxy contest, or the execution of any agreement which,
if consummated, would constitute a Change in Control, Executive agrees
(as a condition to receiving any payments and benefits hereunder) not to
voluntarily leave the employ of Employer (other than as a result of
Disability, Retirement or an event which would constitute Good Reason if
a Change in Control had occurred) until the Change in Control occurs or,
if earlier, such tender or exchange offer, proxy contest, or agreement
is terminated or abandoned.
4.3 Benefits Upon Termination of Employment. If during
the Termination Period Executive's employment with Employer terminates
pursuant to a Qualifying Termination, then Employer shall pay to
Executive the Supplemental Retirement Benefits commencing on Executive's
Normal Retirement Date and payable pursuant to Section 3.1; provided,
however, that Employer shall not be obligated under this Section 4.3 to
pay the Supplemental Retirement Benefits if Executive is entitled to or
is receiving the Supplemental Retirement Benefits under any other
Section of this Agreement.
4.4 Withholding Taxes. Employer shall withhold from all
payments due to Executive (or Executive's Designated Beneficiaries)
under this Agreement all taxes which, by applicable federal, state,
local or other law, Employer is required to withhold therefrom.
4.5 Reimbursement of Expenses. If any contest or dispute
shall arise under this Section 4 involving the alleged failure or
refusal of Employer to perform fully in accordance with the terms of
Section 4, Employer shall reimburse Executive for all reasonable legal
fees and expenses (if any) incurred by Executive with respect to such
contest or dispute, together with interest in an amount equal to the
prime rate of Lorain National Bank from time to time in effect (but, in
no event, higher than the legal rate permissible under applicable law),
such interest to accrue from the date Employer becomes obligated to pay
such fees and expenses through the date of payment thereof; provided,
however, that this Section 4.5 shall apply only if (and to the extent
that) Employer is held to have breached or violated its duties and
obligations hereunder to Executive.
4.6 Binding Agreement and Successors.
(a) This Section 4 shall not be terminated by any Business
Combination. In the event of any Business Combination, the provisions
51
of this Section 4 shall be binding upon the Surviving Corporation and
such Surviving Corporation shall be treated as Employer hereunder.
(b) Employer agrees that, in connection with any Business Combination,
Employer will cause any successor entity to Employer unconditionally to
assume (and, for any Parent Corporation in such Business Combination, to
guaranty), by written instrument delivered to Executive (or Executive's
Designated Beneficiaries), all of the obligations of Employer under this
Section 4. Failure of Employer to obtain such assumption or guaranty
prior to the effectiveness of any such Business Combination that
constitutes a Change in Control shall be a breach of this Agreement and
shall constitute Good Reason under this Section 4. For purposes of
implementing this Section 4.6(b), the date on which any such Business
Combination becomes effective shall be deemed the date Good Reason
occurs and shall be the Date of Termination, if so requested by
Executive.
(c) This Section 4 shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
4.7 Employment with Subsidiaries. For purposes of this
Section 4, any and all references to Executive's employment with
Employer shall be deemed to include Executive's employment by any
Subsidiary and, with respect to such employment by a Subsidiary, the
term "Employer" as used in this Section 4 shall be deemed to include any
Subsidiary which employs Executive.
5. Non-Alienation of Benefits.
The right of Executive, the Designated Beneficiaries or any
other person to the payment of benefits under this Agreement shall not
be assigned, transferred, pledged or encumbered, and any attempt to do
so shall be void.
6. Status of Rights to Benefits.
The rights of Executive and the Designated Beneficiaries to
any benefits under this Agreement shall be solely those of an unsecured
general creditor of Employer. Nothing contained in this Agreement and
no action taken pursuant to this Agreement shall create or be construed
to create a trust of any kind or a fiduciary relationship between
Employer and Executive or the Designated Beneficiaries. Any funds,
insurance contracts or other assets of Employer (whether or not
designated by Employer to provide the benefits contemplated herein)
shall at all times continue to remain a part of the general funds of
Employer and no person other than Employer shall have any interest in
such funds or assets.
7. General Provisions.
7.1 This Agreement shall not be deemed to constitute a
contract of employment between the Parties and no provisions hereof
shall restrict the right of Employer to terminate the Executive's
services or restrict the right of the Executive to terminate Executive's
52
services in accordance with the Employment Agreement.
7.2 The Board of Directors of Employer shall have the full
power and authority to interpret, construe and administer this
Agreement, and all actions taken by the Board of Directors of Employer
in good faith shall be binding and conclusive on all Parties and other
interested persons. No member of the Board of Directors of Employer
shall be liable to any person for any action taken or omitted in
connection with the interpretation or administration of this Agreement
unless attributable to said member's own willful misconduct or lack of
good faith.
7.3 This Agreement shall be binding upon and inure to the
benefit of Employer, its successors and assigns, and Executive and
Executive's Designated Beneficiaries, heirs, executors, administrators
and legal representatives.
7.4 This Agreement shall be construed in accordance with
and governed by the laws of the State of Ohio. All Parties hereby agree
that exclusive venue for all litigation arising under this Agreement
lies solely with the State Courts of Lorain County, Ohio, and each Party
hereby submits to the personal jurisdiction of such Lorain County State
Courts.
7.5 Except as otherwise expressly provided herein, this
Agreement represents the entire agreement among the Parties regarding
the subject matter hereof and all prior or contemporaneous written or
oral statements, negotiations, representations, arrangements and/or
agreements regarding the subject matter hereof (including, but not
limited to, a certain Supplemental Retirement Agreement dated July 30,
1999) are merged into and superseded by this Agreement. All Parties
acknowledge that there are no oral or other written understandings,
arrangements and/or agreements among the Parties relating to the subject
matter of this Agreement.
7.6 This Agreement may be amended only by a written
document signed by all Parties, which document must clearly indicate
that it constitutes an amendment to this specific Agreement and/or to a
specific provision or provisions herein.
7.7 No course of action by any Party and no refusal or
neglect of any Party to exercise any right granted under this Agreement
or to enforce compliance with any provision of this Agreement shall
constitute a waiver of any provision of or right under this Agreement,
unless such waiver is expressed in a written document which is clearly
designated as a waiver to a specific provision or provisions of this
Agreement and unless such document is signed by the waiving Party.
7.8 For purposes of this Agreement, the singular includes
the plural and vice-versa and the feminine, masculine and neuter include
each other.
7.9 All provisions of this Agreement are severable and
neither this Agreement nor any provision herein shall be affected by the
invalidity or inapplicability of any other provision of this Agreement.
53
IN WITNESS WHEREOF, Employer has caused this Agreement to be
executed by its duly authorized officers, and Executive has set
Executive's hand as of the date first above written.
In The Presence Of: THE LORAIN NATIONAL BANK
/s/Mary Ann Elmore By:Gary C. Smith
/s/Denise M. Harmych Title: President & CEO
LNB BANCORP, INC.
/s/Mary Ann Elmore By:Gary C. Smith
/s/Denise M. Harmych Title:President & CEO
"Employer"
/s/Mary Ann Elmore /s/Thomas P. Ryan
Thomas P. Ryan, Executive Vice President
and Secretary/Treasurer
/s/Denise M. Harmych
"Executive"
54
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (10c)
Supplemental Retirement Benefits Agreement by and between
Gregory D. Freidman and LNB Bancorp, Inc. and The Lorain
National Bank dated December 22, 2000.
55
SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT
FOR
GREGORY D. FRIEDMAN
Supplemental Retirement Benefits Agreement (the "Agreement"), made
as of this 22nd day of December, 2000, by and among LNB BANCORP, INC.
(an Ohio corporation) and THE LORAIN NATIONAL BANK (a national banking
association organized and existing under the laws of the United States),
which together with their respective successors and assigns are herein
collectively called "Employer", and GREGORY D. FRIEDMAN, hereinafter
called "Executive", is to EVIDENCE THAT:
WHEREAS Executive has rendered valuable services to Employer and
has performed Executive's duties in a capable and efficient manner and
has generated substantial growth and progress to Employer; and
WHEREAS Employer desires to retain the services of Executive and
acknowledges that, if Executive were to leave Employer's employment,
Employer could suffer a substantial financial loss; and
WHEREAS Employer desires to provide Executive with certain
supplemental retirement benefits (as defined in Section 3) in addition
to the retirement benefits provided to Executive under The Lorain
National Bank Retirement Pension Plan as restated on January 1, 1989
(herein called the "LNB Pension Plan"); and
WHEREAS Employer further desires to provide Executive with certain
benefits in the event of a "Change in Control" (as defined in Section
4); and
WHEREAS Executive is willing to continue in the employ of Employer
if Employer agrees to pay the benefits in accordance with the provisions
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Employer and Executive (herein collectively called the
"Parties") agree as follows:
1. Employment of Executive.
In accordance with Executive's employment agreement with
Employer (herein called the "Employment Agreement"), Executive shall
continue to perform duties for Employer in such senior executive
capacity as the Board of Directors of Employer may periodically
designate. Executive shall devote Executive's best efforts to the
performance of Executive's duties for Employer. Executive's employment
with Employer shall continue until terminated pursuant to the Employment
Agreement.
2. Compensation.
Executive shall be compensated for the performance of
Executive's duties in accordance with the Employment Agreement.
56
3. Supplemental Retirement Benefits.
3.1 Normal Retirement. If Executive remains in the
continuous employ of Employer pursuant to the Employment Agreement and
retires or is discharged by Employer (for any reason, with or without
cause) from active employment with Employer on or after age 65 (herein
called the "Normal Retirement Date"), Executive will be entitled to
receive such supplemental retirement benefits (herein called the
"Supplemental Retirement Benefits") which, when added to Executive's LNB
Pension Plan benefits and the social security benefits (to which
Executive is eligible on the date of Executive's employment
termination), would equal seventy percent (70%) of Executive's
Compensation (as defined herein). For purposes of this Agreement, the
term "Compensation" is limited to the largest annual base salary and the
largest annual bonuses paid to Executive by Employer and by any
Subsidiary (as defined in Section 4.1[i] of this Agreement) for the two
(2) full calendar years of employment immediately preceding the date of
Executive's employment termination as reflected on Executive's combined
W-2 Federal Income Tax Statements from Employer and from any Subsidiary
for such years. The Supplemental Retirement Benefit shall be payable by
Employer in one hundred twenty (120) equal monthly installments
commencing on the first day of the calendar month immediately following
the date of Executive's employment termination and continuing for one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter. Executive shall be under no obligation to
elect to receive Social Security benefits as a condition to entitlement
to the Supplemental Retirement Benefits. For purposes of this
Agreement, Executive's LNB Pension Plan benefits shall be calculated as
though payable as a single life annuity for Executive's life expectancy.
3.2 Early Retirement. If Executive remains in the
continuous employ of Employer pursuant to the Employment Agreement and
retires or is discharged by Employer (for any reason, with or without
cause) prior to the Normal Retirement Date but after attaining age 62
(herein called the "Early Retirement Date"), Executive shall be entitled
to receive an applicable percentage of the Supplemental Retirement
Benefits as follows:
Early Retirement Ages: Applicable Percentage:
62 25%
63 50%
64 75%
The Supplemental Retirement Benefits determined under this Section 3.2
shall be paid by Employer in one hundred twenty (120) equal monthly
installments, commencing on the first day of the calendar month after
the date of Executive's employment termination and continuing in one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter.
3.3 Disability. If Executive incurs a Disability (as
defined in this Section 3.3) while employed by Employer under the
Employment Agreement and prior to the Normal Retirement Date, Executive
will be entitled to receive the actuarial equivalent of the Supplemental
Retirement Benefits but payable by Employer commencing on the first day
57
of the calendar month immediately following the date Executive's
employment terminates because of such Disability and continuing for one
hundred nineteen (119) equal installments on the first day of each
calendar month thereafter. For purposes of this Agreement, the term
"Disability" shall mean physical or mental impairment which prevents
Executive from engaging in further employment by Employer under the
Employment Agreement as a senior executive on a full-time basis and
which, on the basis of medical evidence satisfactory to the Board of
Directors of Employer, is expected to continue for a period of at least
six (6) months.
3.4 Death. If Executive dies while receiving Supplemental
Retirement Benefits, any amounts due or remaining to be paid shall be
paid in the same manner to such beneficiary or beneficiaries (herein
called the "Designated Beneficiaries") as Executive may have designated
by filing with Employer a written notice in a form acceptable to
Employer. In the absence of any such designation, such unpaid amounts
shall be paid to Executive's surviving spouse or, if Executive has no
surviving spouse, to Executive's estate. If Executive dies prior to the
Normal Retirement Date while employed by Employer under the Employment
Agreement, Executive's Designated Beneficiaries will be entitled to
receive the actuarial equivalent of the Supplemental Retirement Benefit
but payable by Employer commencing on the first day of the calendar
month immediately following the date of Executive's death and continuing
for one hundred nineteen (119) equal installments on the first day of
each calendar month thereafter.
3.5 Discharge Without Cause. If Executive is discharged
without cause (as defined in this Section 3.5) at any time after the
date of this Agreement and before the Normal Retirement Date, Executive
shall be entitled to receive the actuarial equivalent of the
Supplemental Retirement Benefits but payable by Employer commencing on
the first day of the calendar month immediately following the date of
Executive's discharge and continuing in one hundred nineteen (119) equal
installments on the first day of each calendar month thereafter. For
purposes of this Agreement, the term "discharged without cause" shall
mean a termination of Executive's employment for any reason other than
Executive's commission of any material act of dishonesty during the
period of Executive's employment, or Executive's breach of any material
term of the Employment Agreement which (in the good faith opinion of the
Board of Directors of Employer) adversely affects the interests of
Employer, or Executive's conviction by a court (whose decision is final,
binding and not subject to appeal) of a felony committed during the
period of Executive's employment.
3.6 No Duplication of Benefits. Notwithstanding any
contrary provision in this Agreement, if Executive and Executive's
Designated Beneficiaries become entitled to the payment of the
Supplemental Retirement Benefits under any particular Section of this
Agreement, such persons shall not be entitled to additional Supplemental
Retirement Benefits under any other Section of this Agreement.
4. Change in Control Benefits.
4.1 Definitions. For purposes of solely this Section 4,
the following terms shall have the respective meanings set forth below:
58
(a) "Company" means LNB Bancorp, Inc. and its successors.
(b) "Cause" means any one or more of the following: (i) the willful
and continued failure of Executive to perform substantially Executive's
duties with Employer (other than any such failure resulting from
Executive's Disability as defined in Section 4.1(e) or any such failure
subsequent to Executive's being delivered a Notice of Termination
without Cause by Employer or after Executive's delivering a Notice of
Termination for Good Reason to Employer) after a written demand for
substantial performance is delivered to Executive by Employer's Board of
Directors which specifically identifies the manner in which the Board
believes that Executive has not substantially performed Executive's
duties and provides Executive with three (3) days to correct such
failure, or (ii) the willful engaging by Executive in illegal conduct or
gross misconduct which is injurious to Company or its Subsidiaries, or
(iii) the conviction of Executive of, or a plea by Executive of nolo
contendere to, a felony, or (iv) Executive's breach of or failure to
perform any material provision of the Employment Agreement (as defined
in Section 1) which, in the good faith opinion of Employer's Board of
Directors, adversely affects Employer's interests, or (v) Executive's
commission of a material act of dishonesty. For purposes of this
paragraph (b), no act or failure to act by Executive shall be considered
"willful" unless done or omitted to be done by Executive in bad faith
and without reasonable belief that Executive's action or omission was in
the best interests of Employer. Any act or failure to act based upon
authority given pursuant to a resolution duly adopted by Employer's
Board of Directors, based upon the advice of counsel for Employer, or
based upon the instructions of Employer's chief executive officer or
another senior officer of Employer shall be conclusively presumed to be
done, or omitted to be done, by Executive in good faith and in the best
interests of Employer.
(c) "Change in Control" means the occurrence of any one of the
following events:
(i) if individuals who, on the date of this Agreement, constitute
Company's Board of Directors (the "Incumbent Directors") cease for any
reason to constitute at least a majority of Company's Board of
Directors; provided, however, that: (A) any person becoming a director
subsequent to the date of this Agreement, whose election or nomination
for election was approved by a vote of at least two-thirds (2/3) of the
Incumbent Directors then on Company's Board of Directors (either by a
specific vote or by approval of the proxy statement of Company 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, and (B) no individual elected or
nominated as a director of Company initially as a result of an actual or
threatened election contest with respect to directors or any other
actual or threatened solicitation of proxies by or on behalf of any
person other than Company's Board of Directors shall be deemed to be an
Incumbent Director;
(ii) if 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
59
Exchange Act), directly or indirectly, of securities of Company
representing twenty percent (20%) or more of the combined voting power
of Company's then-outstanding securities eligible to vote for the
election of Company's Board of Directors (the "Company Voting
Securities"); provided, however, that the events described in this
paragraph (ii) shall not be deemed to be a Change in Control by virtue
of any of the following acquisitions: (A) by Company or any Subsidiary,
(B) by any employee benefit plan sponsored or maintained by Company or
any Subsidiary or by any employee stock benefit trust created by Company
or any Subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in clause (iii) of this paragraph
(c), below), (E) pursuant to any acquisition by Executive or any group
of persons including Executive (or any entity controlled by Executive or
by any group of persons including Executive), or (F) a transaction
(other than one described in clause (iii) of this paragraph (c), below)
in which Company Voting Securities are acquired from Company, if a
majority of the Incumbent Directors approves a resolution providing
expressly that the acquisition pursuant to this subparagraph (F) does
not constitute a Change in Control under this clause (ii);
(iii).upon the consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving Company or any of its
Subsidiaries that requires the approval of Company's shareholders,
whether for such transaction or the issuance of securities in the
transaction (a "Business Combination"), unless immediately following
such Business Combination: (A) more than fifty percent (50%) of the
total voting power of either (x) the corporation resulting from the
consummation of such Business Combination (the "Surviving Corporation")
or, if applicable, (y) the ultimate parent corporation that directly or
indirectly has beneficial ownership of one hundred percent (100%) of the
voting securities eligible to elect directors of the Surviving
Corporation (the "Parent Corporation") is represented by Company Voting
Securities that were outstanding immediately prior to such Business
Combination (or, if applicable, represented by shares into which such
Company 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 Company
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 twenty percent (20%) 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 (C) 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 of the execution
of the initial agreement providing for such Business Combination (any
Business Combination which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) if the shareholders of Company approve a plan of complete
60
liquidation or dissolution of Company or a sale of all or substantially
all of Company's assets but only if, pursuant to such liquidation or
sale, the assets of Company are transferred to an entity not owned
(directly or indirectly) by Company's shareholders.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any person acquires beneficial ownership of more
than twenty percent (20%) of Company Voting Securities as a result of
the acquisition of Company Voting Securities by Company which reduces
the number of Company Voting Securities outstanding; provided, however,
that if (after such acquisition by Company) such person becomes the
beneficial owner of additional Company Voting Securities that increases
the percentage of outstanding Company Voting Securities beneficially
owned by such person, a Change in Control shall then occur.
Notwithstanding anything in this Agreement to the contrary, if (A)
Executive's employment is terminated prior to a Change in Control for
reasons that would have constituted a Qualifying Termination if they had
occurred following a Change in Control, (B) Executive reasonably
demonstrates that such termination (or event constituting Good Reason)
was at the request of a third party who had indicated an intention or
taken steps reasonably calculated to effect a Change in Control, and (C)
a Change in Control involving such third party (or a party competing
with such third party to effectuate a Change in Control) does occur,
then (for purposes of this Agreement) the date immediately prior to the
date of such termination of employment (or event constituting Good
Reason) shall be treated as a Change in Control.
(d) "Date of Termination" means (1) the effective date on which
Executive's employment by Company and its Subsidiaries terminates as
specified in a prior written notice by Company, a Subsidiary or
Executive (as the case may be) to the other, or (2) if Executive's
employment by Company terminates by reason of death, the date of death
of Executive, or (3) if the Executive incurs a Disability (as defined in
Section 4.1(e)), the date of such Disability as determined by a
physician chosen by Company. For purposes of determining the timing of
payments and benefits to Executive under this Section 4, the date of the
actual Change in Control shall be treated as Executive's Date of
Termination.
(e) "Disability" means Executive's inability to perform Executive's
then-existing duties with Company or its Subsidiaries on a full-time
basis for at least one hundred eighty (180) consecutive days as a result
of Executive's incapacity due to physical or mental illness.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
(i) (A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in any
material and adverse respect with Executive's positions, duties,
responsibilities or status with Employer immediately prior to such
Change in Control (including any material and adverse diminution of such
duties or responsibilities), or (B) a material and adverse change in
Executive's titles or offices (including, if applicable, membership on
Employer's Board of Directors) with Employer as existing immediately
prior to such Change in Control;
61
(ii) (A) a reduction by Employer in Executive's rate of annual base
salary as in effect immediately prior to such Change in Control (or as
such annual base salary may be increased from time to time thereafter),
or (B) the failure by Employer to pay Executive an annual bonus in
respect of the year in which such Change in Control occurs or any
subsequent year in an amount greater than or equal to the annual bonus
earned for the year ended prior to the year in which such Change in
Control occurs;
(iii).any requirement of Employer that Executive: (A) be based anywhere
more than fifty (50) miles from the office where Executive is located at
the time of the Change in Control, or (B) travel on Employer business to
an extent substantially greater than the travel obligations of Executive
immediately prior to such Change in Control; or
(iv) the failure of Employer to: (A) continue in effect any material
employee benefit plan, compensation plan, welfare benefit plan or other
material fringe benefit plan in which Executive is participating
immediately prior to such Change in Control or the taking of any action
by Employer which would materially and adversely affect Executive's
participation in or reduce Executive's benefits under any such plan,
unless Executive is permitted to participate in other plans providing
Executive with substantially equivalent benefits in the aggregate, or
(B) provide Executive with paid vacation in accordance with the most
favorable vacation policies of Employer as in effect for Executive
immediately prior to such Change in Control, including the crediting of
all service for which Executive had been credited under such vacation
policies prior to the Change in Control.
Notwithstanding any contrary provision in this Agreement: (A) an
isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by Employer within ten (10) days after receipt of
notice thereof given by Executive shall not constitute Good Reason; and
(B) Executive's right to terminate employment for Good Reason shall not
be affected by Executive's Disability; and (C) Executive's continued
employment shall not constitute a consent to, or a waiver of rights with
respect to, any event or condition constituting Good Reason (provided,
however, that Executive must provide notice of termination of employment
within thirty (30) days following Executive's knowledge of an event
constituting Good Reason or such event shall not constitute Good Reason
under this Agreement).
(g) "Qualifying Termination" means a termination of Executive's
employment after a Change in Control (i) by Employer other than for
Cause, or (ii) by Executive for Good Reason. Termination of Executive's
employment on account of death, Disability (as defined in Section 4(e))
or Retirement shall not constitute a Qualifying Termination.
(h) "Retirement " means the termination of Executive's employment with
Employer: (A) on or after the first of the month coincident with or
next following Executive's attainment of age sixty-five (65), or (B) on
such later date as may be provided in a written agreement between
Employer and Executive.
(i) "Subsidiary" means any corporation or other entity in which
Company: (A) has a direct or indirect ownership interest of fifty
62
percent (50%) or more of the total combined voting power of the
then-outstanding securities or interests of such corporation or other
entity entitled to vote generally in the election of directors, or (B)
has the right to receive fifty percent (50%) or more of the distribution
of profits or fifty percent (50%) of the assets upon liquidation or
dissolution.
(j) "Termination Period" means the period of time beginning with a
Change in Control and ending two (2) years following such Change in
Control.
4.2 Obligation of Executive. In the event of a tender or
exchange offer, proxy contest, or the execution of any agreement which,
if consummated, would constitute a Change in Control, Executive agrees
(as a condition to receiving any payments and benefits hereunder) not to
voluntarily leave the employ of Employer (other than as a result of
Disability, Retirement or an event which would constitute Good Reason if
a Change in Control had occurred) until the Change in Control occurs or,
if earlier, such tender or exchange offer, proxy contest, or agreement
is terminated or abandoned.
4.3 Benefits Upon Termination of Employment. If during
the Termination Period Executive's employment with Employer terminates
pursuant to a Qualifying Termination, then Employer shall pay to
Executive the Supplemental Retirement Benefits commencing on Executive's
Normal Retirement Date and payable pursuant to Section 3.1; provided,
however, that Employer shall not be obligated under this Section 4.3 to
pay the Supplemental Retirement Benefits if Executive is entitled to or
is receiving the Supplemental Retirement Benefits under any other
Section of this Agreement.
4.4 Withholding Taxes. Employer shall withhold from all
payments due to Executive (or Executive's Designated Beneficiaries)
under this Agreement all taxes which, by applicable federal, state,
local or other law, Employer is required to withhold therefrom.
4.5 Reimbursement of Expenses. If any contest or dispute
shall arise under this Section 4 involving the alleged failure or
refusal of Employer to perform fully in accordance with the terms of
Section 4, Employer shall reimburse Executive for all reasonable legal
fees and expenses (if any) incurred by Executive with respect to such
contest or dispute, together with interest in an amount equal to the
prime rate of Lorain National Bank from time to time in effect (but, in
no event, higher than the legal rate permissible under applicable law),
such interest to accrue from the date Employer becomes obligated to pay
such fees and expenses through the date of payment thereof; provided,
however, that this Section 4.5 shall apply only if (and to the extent
that) Employer is held to have breached or violated its duties and
obligations hereunder to Executive.
4.6 Binding Agreement and Successors.
(a) This Section 4 shall not be terminated by any Business
Combination. In the event of any Business Combination, the provisions
of this Section 4 shall be binding upon the Surviving Corporation and
such Surviving Corporation shall be treated as Employer hereunder.
63
(b) Employer agrees that, in connection with any Business Combination,
Employer will cause any successor entity to Employer unconditionally to
assume (and, for any Parent Corporation in such Business Combination, to
guaranty), by written instrument delivered to Executive (or Executive's
Designated Beneficiaries), all of the obligations of Employer under this
Section 4. Failure of Employer to obtain such assumption or guaranty
prior to the effectiveness of any such Business Combination that
constitutes a Change in Control shall be a breach of this Agreement and
shall constitute Good Reason under this Section 4. For purposes of
implementing this Section 4.6(b), the date on which any such Business
Combination becomes effective shall be deemed the date Good Reason
occurs and shall be the Date of Termination, if so requested by
Executive.
(c) This Section 4 shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
4.7 Employment with Subsidiaries. For purposes of this
Section 4, any and all references to Executive's employment with
Employer shall be deemed to include Executive's employment by any
Subsidiary and, with respect to such employment by a Subsidiary, the
term "Employer" as used in this Section 4 shall be deemed to include any
Subsidiary which employs Executive.
5. Non-Alienation of Benefits.
The right of Executive, the Designated Beneficiaries or any
other person to the payment of benefits under this Agreement shall not
be assigned, transferred, pledged or encumbered, and any attempt to do
so shall be void.
6. Status of Rights to Benefits.
The rights of Executive and the Designated Beneficiaries to
any benefits under this Agreement shall be solely those of an unsecured
general creditor of Employer. Nothing contained in this Agreement and
no action taken pursuant to this Agreement shall create or be construed
to create a trust of any kind or a fiduciary relationship between
Employer and Executive or the Designated Beneficiaries. Any funds,
insurance contracts or other assets of Employer (whether or not
designated by Employer to provide the benefits contemplated herein)
shall at all times continue to remain a part of the general funds of
Employer and no person other than Employer shall have any interest in
such funds or assets.
7. General Provisions.
7.1 This Agreement shall not be deemed to constitute a
contract of employment between the Parties and no provisions hereof
shall restrict the right of Employer to terminate the Executive's
services or restrict the right of the Executive to terminate Executive's
services in accordance with the Employment Agreement.
64
7.2 The Board of Directors of Employer shall have the full
power and authority to interpret, construe and administer this
Agreement, and all actions taken by the Board of Directors of Employer
in good faith shall be binding and conclusive on all Parties and other
interested persons. No member of the Board of Directors of Employer
shall be liable to any person for any action taken or omitted in
connection with the interpretation or administration of this Agreement
unless attributable to said member's own willful misconduct or lack of
good faith.
7.3 This Agreement shall be binding upon and inure to the
benefit of Employer, its successors and assigns, and Executive and
Executive's Designated Beneficiaries, heirs, executors, administrators
and legal representatives.
7.4 This Agreement shall be construed in accordance with
and governed by the laws of the State of Ohio. All Parties hereby agree
that exclusive venue for all litigation arising under this Agreement
lies solely with the State Courts of Lorain County, Ohio, and each Party
hereby submits to the personal jurisdiction of such Lorain County State
Courts.
7.5 Except as otherwise expressly provided herein, this
Agreement represents the entire agreement among the Parties regarding
the subject matter hereof and all prior or contemporaneous written or
oral statements, negotiations, representations, arrangements and/or
agreements regarding the subject matter hereof (including, but not
limited to, a certain Supplemental Retirement Agreement dated July 31,
1996) are merged into and superseded by this Agreement. All Parties
acknowledge that there are no oral or other written understandings,
arrangements and/or agreements among the Parties relating to the subject
matter of this Agreement.
7.6 This Agreement may be amended only by a written
document signed by all Parties, which document must clearly indicate
that it constitutes an amendment to this specific Agreement and/or to a
specific provision or provisions herein.
7.7 No course of action by any Party and no refusal or
neglect of any Party to exercise any right granted under this Agreement
or to enforce compliance with any provision of this Agreement shall
constitute a waiver of any provision of or right under this Agreement,
unless such waiver is expressed in a written document which is clearly
designated as a waiver to a specific provision or provisions of this
Agreement and unless such document is signed by the waiving Party.
7.8 For purposes of this Agreement, the singular includes
the plural and vice-versa and the feminine, masculine and neuter include
each other.
7.9 All provisions of this Agreement are severable and
neither this Agreement nor any provision herein shall be affected by the
invalidity or inapplicability of any other provision of this Agreement.
IN WITNESS WHEREOF, Employer has caused this Agreement to be
65
executed by its duly authorized officers, and Executive has set
Executive's hand as of the date first above written.
In The Presence Of: THE LORAIN NATIONAL BANK
/s/Ann E. Koler By:/s/Gary C. Smith
/s/Mary Ann Elmore Title:President and Chief Executive
Officer
LNB BANCORP, INC.
/s/Ann E. Koler By:/s/Gary C. Smith
/s/Mary Ann Elmore Title:President and Chief Executive
Officer
"Employer"
/s/Ann E. Koler /s/Gregory D. Friedman
Gregory D. Friedman, Executive
Vice President and Chief Financial
Officer
/s/Mary Ann Elmore
"Executive"
66
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (10h)
Non-qualified Incentive Stock Option Agreement by and between
Gary C. Smith and LNB Bancorp, Inc. dated December 15, 2000.
67
NON-QUALIFIED INCENTIVE STOCK OPTION AGREEMENT
FOR
GARY C. SMITH
This agreement (the "Agreement"), entered into as of this 15th day of
December, 2000, by and between LNB BANCORP, INC., an Ohio corporation
(the "Company"), and GARY C. SMITH ("Employee"), is to EVIDENCE THAT, in
consideration of the mutual promises made herein and for other valuable
consideration (the receipt and sufficiency of which are hereby
acknowledged), Employee and Company (the "Parties") hereby agree as
follows:
1. Grant of Non-qualified Options. Subject to the terms and
conditions of this Agreement, Company hereby grants to Employee options
(the "Options") to purchase a total of five thousand (5,000) of
Company's common shares, One Dollar ($1.00) par value (the "Optional
Shares"), at an exercise price of Twenty-Two Dollars ($22.00) per share.
All Options granted hereunder are non-qualified.
2. Duration and Exercise of Options
2.1 Employee may exercise the Options at any time on or before the
expiration of ten (10) years after December 15, 2000 (the "Exercise
Period"); provided, however, that: (i) the Exercise Period shall be
reduced in the event of death, disability, retirement, or other
termination of Employee's employment in accordance with Section 2.4 of
this Agreement, and (ii) the Exercise Period may be extended by mutual
agreement of the Parties.
2.2 The exercise of any Option and the delivery of the Optioned
Shares shall be contingent upon Company's receipt of written notice
specifying the number of Optioned Shares to be purchased, accompanied by
the full purchase price in cash or (at the discretion of Company) in
whole or in part by common shares of the Company values at fair market
value (as determined by the Company's Board of Directors).
2.3 No Option may be exercised after termination of employment of
Employee except as provided in Section 2.4 of this Agreement.
2.4 Upon termination of Employee's employment with Company for any
reason (including, but not limited to, by retirement under a retirement
plan of Company), other than death, disability or Company's termination
for cause, the Exercise Period shall end upon the expiration of three
(3) months after the date of such employment termination. If Employee's
employment is terminated for cause (as determined by Company's Board of
Directors), all Employee's rights under this Agreement shall expire upon
such termination. Upon the death or disability (as determined by
Company's Board of Directors) of Employee during Employee's employment
with Company, the Exercise Period shall end upon the expiration of
twelve (12) months after the date of such death or disability. The
Board of Directors of Company shall determine, for purposes of this
Agreement, the reason for termination of Employee's employment and its
determination shall be binding and conclusive.
2.5 Options may be exercised in whole or in part but only with
respect to whole Optional Shares and a minimum of one hundred (100)
Optioned Share lots.
2.6 Company shall not be required to issue or deliver any
certificate for Optioned Shares upon the exercise of any of the Options
prior to: (i) completion of any registration or other qualification of
68
such Optioned Shares under any State or Federal law or ruling or
regulation of any governmental agency that Company, in its sole
discretion, determines is necessary or advisable, and (ii) the Board of
Directors of Company shall have been advised by counsel that all
applicable legal requirements pertaining to the Optioned Shares have
been satisfied.
3. Non-Transferability of Options. Without Company's prior written
approval, the Options shall not be transferable otherwise than by will
or by the law's of descent and distribution and may be exercised during
the Employee's lifetime only by the Employee.
4. Effect of Changes on Capital Structure. The Board of Directors of
Company make appropriate adjustments in the price of the Optioned Shares
and the number allotted or subject to allottment if there are any
changes in the outstanding common shares of Company by reason of share
dividends, share splits, reverse share splits, recapitalizations,
mergers or consolidations.
5. Authority to Withhold Tax. Employee hereby consents to the
withholding of such employment and other taxes as are required by law
and further agrees that, as a condition of exercise of the Options by
Employee, Company may, (if in its sole discretion Company determines
that such payroll withholding is impractical or insufficient) require
that Employee advance all or a portion of such taxes to Company.
6. Representations and Warranties of Employee.
6.1 Employee represents and warrants that Employee is a resident of
the State of Ohio, intends to remain a resident of Ohio, and is
acquiring the Options for investment purposes and not with the intention
of resale.
6.2 Employee represents and warrants that Employee and Employee's
representatives (if any): (i) have been provided with the opportunity to
obtain all financial and other information regarding Company, its
business and financial status, and the Options as requested by Employee,
and (ii) have been afforded the opportunity to ask questions regarding
Company, its business and financial status, and the Options and all such
questions have been answered to Employee's satisfaction; and (iii) are
experienced in business and financial matters of the type in which
Company is engaged and can evaluate the relative risks and merits of
Employee's financial participation in Company, and (iv) have been given
the opportunity to obtain independent legal and/or tax counsel regarding
all aspects of this Agreement and all transactions contemplated by this
Agreement.
6.3 Employee acknowledges and understands that: (i) no market
exists for the resale of the Options and Employee is acquiring the
Options as an investment and not for resale, transfer or other
disposition; and (ii) Employee's acquisition of the Options involves a
degree of risk and Employee is able to bear the loss of Employee's
entire financial investment in Company.
6.4 Employee further understands and acknowledges that none of the
Options has been registered under the Securities Act of 1933 (as
amended) or under any applicable State securities laws and that,
therefore, Employee may not sell, offer for sale, pledge, assign,
transfer or otherwise dispose of the options unless Employee complies
with all other provisions of this Agreement and:
(a) The Options are registered under the Securities Act of 1933
(as amended) and under any applicable State securities laws; or
(b) Company receives an opinion of legal counsel satisfactory
to Company that the proposed sale, offer or other disposition of the
69
Options does not require the registration of the Options under the
Securities Act of 1933 (as amended) or under any applicable State
securities laws.
7. Miscellaneous.
7.1 This agreement is signed and executed in the City of Lorain,
County of Lorain, State of Ohio, and Ohio's laws shall govern all
disputes, controversies, matters of interpretation and litigation
arising hereunder. Both Parties acknowledge and agree that, even if
Employee becomes a resident of another State, exclusive venue for any
disputes, controversies or litigation arising under this Agreement lies
solely and exclusively with the State Courts located within Lorain
County, Ohio and, further, agree to submit (jointly and individually) to
the personal jurisdiction of the State Courts located within Lorain
County, Ohio.
7.2 Except as otherwise expressly stated herein, this Agreement
constitutes the entire agreement between the Parties regarding the
Options and the Optioned Shares and all prior or contemporaneous written
or verbal negotiations, statements, understandings, representations,
arrangements, commitments and/or agreements regarding the subject matter
hereof are superseded by and merged into this Agreement. All Parties
acknowledge and agree that, except as expressly provided in this
Agreement, there are no additional written or verbal understandings,
arrangements, agreements or commitments regarding the subject matter of
this Agreement. Employee acknowledges that, as an inducement to sign
and comply with this Agreement, Employee has not relied upon any
promises, statements or representations of Company which are not
expressly stated in this Agreement.
7.3 For purposes of this Agreement, the singular includes the
plural and vice-versa and the masculine, feminine and neuter include
each other.
7.4 This Agreement may not be amended, altered or otherwise changed
in any manner other than through a written document clearly designated
as an amendment to this specific Agreement and signed by both Parties.
7.5 All provisions of this Agreement are severable and neither this
Agreement no any provision hereof shall be affected by the invalidity or
unenforceability of any other provision of this Agreement.
7.6 No course of action by any Party, and no refusal or neglect of
any Party to exercise any right hereunder or to enforce compliance with
the terms of this Agreement shall constitute a waiver of any provision
of or any right under this Agreement, unless such waiver is expressed in
a written document which is clearly designated as a waiver of a specific
provision of this Agreement and unless such document is signed by the
waiving Party.
7.7 The headings and captions designated in this Agreement are for
convenience only and shall not be used to enlarge, contract or otherwise
interpret any provisions of this Agreement.
7.8 This Agreement is binding upon both Parties and their
respective heirs, executors, administrators, successors and assigns.
70
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.
LNB BANCORP, INC.
By:/s/Gregory D. Friedman
"Company"
/s/Gary C. Smith
Gary C. Smith
"Employee"
71
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (11)
Statements re: Computation of Per Share Earnings.
The statements regarding the Computation of Per Share Earnings
is incorporated herein by reference to Footnote 2
"Earnings Per Share" on page 18 of the LNB Bancorp, Inc.
2000 Annual Report
72
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (13)
LNB Bancorp, Inc. 2000 Annual Report
to Shareholders.
73
COVER DESCRIPTION
Three photos of Ohio Reads volunteers with their students
2000 Annual Report
LNB BANCORP, INC.
74
Front of Cover Flap
Corporate Profile
LNB Bancorp, Inc. is a $622.1 million financial holding company
headquartered in Lorain, Ohio. The predecessor of LNB Bancorp, Inc.,
The Lorain National Bank, was formed as a result of the merger of The
Lorain Banking Company and The National Bank of Lorain on January 1,
1961. The Lorain Banking Company was a state chartered bank founded in
1905. The National Bank of Lorain was a national bank receiving its
national charter in 1934. On March 30, 1984, The Lorain National Bank
became the wholly owned subsidiary of LNB Bancorp, Inc.
LNB Bancorp, Inc. received its financial holding company status on March
13, 2000. In the second half of 2000, LNB Bancorp, Inc. formed a
wholly owned insurance subsidiary named Charleston Insurance Agency,
Inc., which will initially offer life, accident and health insurance and
fixed annuity products. Also, LNB Bancorp, Inc. entered into a joint
venture owning a 49 percent interest in a title company named Charleston
Title Insurance Agency, LLC offering traditional title services.
In the first quarter of 2001, Lorain National Bank entered into an
agreement with Raymond James Financial Services, Inc. for Raymond James
to offer brokerage services including stock, mutual funds and variable
annuity products at select Lorain National Bank offices.
The Lorain National Bank specializes in personal, mortgage, and small
business banking services along with investment management and trust
services. Lorain National Bank operates 21 retail branches and 29 ATMs
in the nine communities of Lorain, Elyria, Amherst, Avon Lake, LaGrange,
Oberlin, Olmsted Township, Vermilion, and Westlake located in Lorain,
eastern Erie, and western Cuyahoga counties. Lorain National Bank
offers products and services by telephone through its 24 hour Telebanker
and Telepay systems and provides product and service information on the
internet at www.4LNB.com. Lorain National Bank is a member of the
Federal Reserve Bank of Cleveland, a voluntary member of the Federal
Home Loan Bank of Cincinnati, with its deposits insured by the Federal
Deposit Insurance Corporation, an Equal Employment Opportunity,
Affirmative Action Employer and an Equal Housing Lender.
Our Vision
The vision of LNB Bancorp, Inc. is to become recognized as the most
progressive and dynamic, independent provider of financial services in
our market.
Our Mission
The mission of LNB Bancorp, Inc. is to be a profitable, responsible,
independent business that provides extraordinary service to our
customers and community, while maximizing shareholder value and creating
a high-quality and challenging work environment for our employees.
Logos for NASDAQ Listing, Federal Deposit Insurance Corporation, Federal
Home Loan Bank System and Equal Housing Lender
75
Back of Cover Flap
Table of Contents
Corporate and Investor Information. . . . . . . . . . . .IFC
LNB Bancorp, Inc. Common Stock
and Dividend Information . . . . . . . . . . . . . . . IFC
Consolidated Financial Highlights. . . . . . . . . . . . . 1
Message to Our Shareholders. . . . . . . . . . . . . . . . 2
Employee Pictorials. . . . . . . . . . . . . . . . . . . . 6
Consolidated Balance Sheets . . . . . . . . . . . . . . .12
Consolidated Statements of Income . . . . . . . . . . . .13
Consolidated Statements of Cash Flows . . . . . . . . . .14
Consolidated Statements of Shareholders' Equity . . . . .15
Notes to Consolidated Financial Statements . . . . . . . .16
Report of Management . . . . . . . . . . . . . . . . . . .32
Report of Independent Auditors . . . . . . . . . . . . . .32
Selected Unaudited Quarterly Financial Data . . . . . . .33
Five Year Consolidated Financial Summary . . . . . . . . .34
Management's Discussion & Analysis . . . . . . . . . . . .35
Directors and Officers of LNB Bancorp, Inc.. . . . . . . .44
Directors Emeritii of Lorain National Bank . . . . . . . .44
Directors and Officers of Charleston Insurance
Agency, Inc. . . . . . . . . . . . . . . . . . . . . . .44
Officers of Lorain National Bank . . . . . . . . . . . . .45
Banking Offices and ATMs . . . . . . . . . . . . . . . . .46
Investments and Trust Services . . . . . . . . . . . . . .47
Earnings, Dividend and Book Value
per Share Performance . . . . . . . . . . . . . . . . . .48
76
Corporate and Investor Information
Corporate Headquarters
If you need to contact the corporate headquarters of LNB Bancorp, Inc.,
call or write to:
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1739
(800) 860-1007
Annual Meeting
The 2001 Annual Meeting of Shareholders of LNB Bancorp, Inc. will be
held at 10:00 a.m., Eastern Daylight Savings Time, on Tuesday, April 17,
2001 at Lorain National Bank, 521 Broadway, Lorain, Ohio 44052.
Financial Publication Requests
Copies of the LNB Bancorp, Inc.'s Annual or Quarterly Reports or the
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, will be furnished to shareholders upon written request to:
Thomas P. Ryan
Executive Vice President and
Secretary/Treasurer
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1739
Independent Auditors
KPMG LLP
Once Cleveland Center
1375 East 9th Street, Suite 2600
Cleveland, Ohio 44114-1796
Quarterly Earnings Reporting
For 2001, LNB Bancorp, Inc.'s quarterly earnings are anticipated to be
announced on or about the fourth Tuesday of April, July, October 2001
and January 2002. Any investor desiring a copy of an earnings release
can obtain one by calling (800) 860-1007.
Stock Transfer Agent and Registrar
Shareholders that hold their shares in physical certification form and
have requests for information about their share balances, a change in
name or address, lost certificates, or other shareholder account
matters, should call or write:
Registrar and Transfer Company
Investor Relations Department
10 Commerce Drive
Cranford, New Jersey 07016-9982
(800) 368-5948
Dividend Reinvestment and Cash Stock Purchase Plan
LNB Bancorp, Inc. shareholders who wish to apply quarterly cash
dividends or optional cash payments toward the purchase of additional
LNB Bancorp, Inc. common stock may take advantage of a dividend
77
reinvestment plan available through Registrar and Transfer Company.
Inquiries or requests for a description of the dividend reinvestment
plan should be made to:
Registrar and Transfer Company
Dividend Reinvestment Plans
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948
Investor Relations
Analysts and investors seeking financial information about LNB Bancorp,
Inc. should call our Investor Relations Department at (440) 244-7317 or
(800) 860-1007. You may also request financial information on LNB
Bancorp, Inc. by completing the postage paid card titled "LNB Bancorp,
Inc. - Common Stock" located at the end of this Annual Report. Either
way, we would be happy to respond to your requests for information.
Information on LNB Bancorp, Inc.'s financial results and its
subsidiaries' products and services can be accessed on the Internet at
www.4LNB.com.
LNB Bancorp, Inc. Logo
78
Inside front cover
LNB Bancorp, Inc. Common Stock and Dividend Information
Common Stock Trading Ranges and Cash Dividends Declared
2000 1999
- ---------------------------------------------
Closing Price* Closing Price*
High Low High Low
- ---------------------------------------------
First Quarter $24.25 $18.75 $28.25 $25.25
Second Quarter 25.69 20.00 27.25 25.00
Third Quarter 21.47 18.00 26.25 23.25
Fourth Quarter 23.25 20.50 26.50 22.00
- ---------------------------------------------
*All closing prices and cash dividend amounts have been adjusted to
reflect the two percent stock dividend in 2000.
2000 1999
- -------------------------------------------------------------
Cash Cash
Dividend Dividend
Amount* Amount*
- -------------------------------------------------------------
First Quarter - regular . . . . .$ .24 $ .21
Second Quarter - regular. . . . . .24 .21
Third Quarter - regular . . . . . .25 .23
Fourth Quarter - regular. . . . . .25 .23
Fourth Quarter - EXTRA. . . . . . .02 .02
----- -----
Total Dividends . . . . . . . . .$1.00 $ .90
The shares of LNB Bancorp, Inc., common stock, par value $1.00 per
share, were traded in 1999 and early 2000 on the over-the-counter
bulletin board and on February 9, 2000, began trading on The Nasdaq
Stock Market under the symbol LNBB.
The above prices through February 8, 2000, represent the high and low
closing prices reported on the over-the-counter bulletin board - and as
of February 9, 2000, the high and low closing prices reported on The
Nasdaq Stock Market. All prices reflect inter-dealer prices without
markup, markdown or commission and may not necessarily represent actual
transactions. LNB Bancorp, Inc. common stock is traded under the ticker
symbol LNBB and listed in the newspapers as "LNB Bancorp". LNB
Bancorp's CUSIP is 502100 10 0.
As of December 31, 2000 LNB Bancorp Inc. had 2,165 shareholders of
record.
NASDAQ logo
17-YEAR CASH DIVIDEND DECLARED PER SHARE HISTORY
Dollars*
(A 17-year Cash Dividend Declared Per Share History graph with Dividends
Declared on the y-axis and years 1984 through 2000 on the x-axis. The
79
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.)
Year Dividends
2000 $1.00
1999 $ .90
1998 $ .84
1997 $ .70
1996 $ .60
1995 $ .51
1994 $ .45
1993 $ .41
1992 $ .37
1991 $ .34
1990 $ .31
1989 $ .28
1988 $ .25
1987 $ .22
1986 $ .21
1985 $ .20
1984 $ .19
Dividend Information
LNB Bancorp, Inc. has increased the cash dividend paid to shareholders
each year since becoming a Holding Company in 1984. LNB Bancorp, Inc.
has increased its quarterly cash dividend declared in the third quarter
of each year since 1988. In addition to the regular quarterly cash
dividends, the Board of Directors meets in the fourth quarter of each
year to determine whether to approve an EXTRA cash dividend. The EXTRA
cash dividend is discretionary and varies based on the Company's current
year and near-term profitability outlook.
Shareholders may reinvest their dividends and make optional cash
purchases of LNB Bancorp, Inc. common stock by participating in the
Dividend Reinvestment and Cash Stock Purchase Plan. Please see the card
insert at the end of this Annual Report to request more information.
Dividend Calendar
Cash dividends on common stock, if approved by the Board of Directors,
are customarily paid to shareholders as follows:
Record Dates:
March 12, June 11, Sept. 10, and Dec. 10, 2001
Dividend Payable Dates:
April 1, July 1, October 2, 2001 and January 2, 2002
LNB Bancorp, Inc. Common Stock Market Makers
Hill, Thompson, Magid & Company, Inc., Jersey City, New Jersey
McDonald Investments Inc., Cleveland, Ohio
Monroe Securities, Inc., Rochester, New York
Spear, Leeds and Kellogg, Jersey City, New Jersey
Sweney Cartwright and Company, Inc., Columbus, Ohio
80
Consolidated Financial Highlights
All dollar amounts presented in thousands, except per share data
1999 to 2000
DECEMBER 31, 2000 1999 % Change 1990
- ----------------------------------------------------------------------
FINANCIAL POSITION
Assets . . . . . . . . .$622,110 $599,611 3.8% $336,224
Investments. . . . . . . 127,101 123,319 3.1 82,498
Net loans. . . . . . . . 445,890 414,849 7.5 219,244
Deposits . . . . . . . . 496,091 456,831 8.6 285,907
Other borrowings . . . . 63,736 86,467 (26.3) 19,762
Shareholders' equity . . 56,525 51,053 10.7 27,858
-------------------------------------------
RESULTS FOR THE YEAR
Interest income. . . . .$ 46,645 $ 41,617 12.1% $ 31,046
Interest expense . . . . 19,209 15,593 23.2 15,968
Provision for loan losses 1,700 2,000 (15.0) 500
Net interest income. . . 27,436 26,024 5.4 15,078
Noninterest income . . . 8,370 8,098 3.4 3,548
Noninterest expense. . . 21,276 20,639 3.1 13,789
Income taxes . . . . . . 4,400 3,842 14.5 1,030
Net income . . . . . . . 8,430 7,641 10.3 3,343
Revenue. . . . . . . . . 35,806 34,122 4.9 18,662
-------------------------------------------
FINANCIAL RATIOS
Return on average assets 1.39% 1.33% 4.5% 1.01%
Return on average
shareholders' equity. . 15.83 15.29 3.5 12.54
Net interest margin. . . 4.85 4.88 (0.6) 5.11
Efficiency ratio . . . . 59.42 60.61 -2.0 70.52
------------------------------------------
PER SHARE DATA*
Basic earnings . . . . .$ 2.00 $ 1.81 10.5% $ 0.81
Diluted earnings . . . . 2.00 1.81 10.5 0.81
Cash dividends . . . . . 1.00 0.90 11.1 0.31
Book value (year-end). . 13.42 12.13 10.6 6.76
Market value (year-end). 21.81 20.16 8.2 13.11
-------------------------------------------
CORPORATE DATA
Bank offices . . . . . . 21 21 0.0% 16
Bank officers and staff. 298 303 (1.7) 297
Number of shareholders . 2,165 2,128 1.7 1,565
-------------------------------------------
*All per share data have been adjusted for five-for-four stock splits in
1995 and 1993 and stock dividends.
TOTAL ASSETS millions of dollars
(A Total Assets graph follows in printed version with assets on the
y-axis and years 1996 through 2000 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.)
81
TOTAL LOANS millions of dollars
(A Total Loans graph follows in printed version with loans on the y-axis
and years 1996 through 2000 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.)
NET INCOME millions of dollars
(A Net Income graph follows in printed version with income on the y-axis
and years 1996 through 2000 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 Assets Total Loans Net Income
Year Millions of Dollars Millions of Dollars Millions of Dollars
2000 $622.1 $445.9 $8,430
1999 $599.6 $419.5 $7,641
1998 $541.7 $369.9 $6,818
1997 $490.7 $331.0 $6,482
1996 $438.2 $302.1 $5,852
END PUBLISHED PAGE 1
82
Message To Our Shareholders
Top left column color photograph of Stanley G. Pijor, Chairman of the
Board
It's a pleasure to address you once again after the completion of
another successful year of operations. Thanks to your support and the
efforts of our staff, LNB Bancorp, Inc. and its subsidiary companies, is
a healthy, growing and viable organization. I am pleased to report the
following highlights of our financial performance for the year 2000.
19 Consecutive Years of Earnings Growth
We are proud to announce that we posted our 19th consecutive year of
record annual earnings. This is an achievement that is matched only by
a handful of other financial institutions in the United States. Year
2000 net income advanced 10.3 percent to $8,430,000 from 1999's
$7,641,000.
Earnings per basic and diluted share for 2000 reached $2.00 for the
first time in the history of LNB Bancorp, Inc., an increase of $.19, or
10.5 percent from 1999's $1.81. Per-share amounts for 1999 and 2000
have been adjusted to reflect the two percent stock dividend paid on
July 1, 2000. The return on average assets for 2000 improved to 1.39
percent from 1999's 1.33 percent. The return on average shareholders'
equity climbed 54 basis points to 15.83 percent for 2000 compared with
15.29 percent for 1999.
Contributing to the record performance were higher net interest income
and noninterest income and lower loan loss provision offset by slightly
higher noninterest expenses. Fueled by growth in commercial and
mortgage lending and home equity loans, net interest income rose 5.4
percent to $27,436,000. Excluding gains on sales of securities and
buildings, noninterest income grew by 5.4 percent for the year, driven
primarily by a 12.4 percent increase in Investment and Trust Services
Division income. Noninterest expenses grew by a modest 3.1 percent
during 2000. The graphs on page 48 depict our consolidated earnings,
dividends and book value per share for the past 10 years.
Cash dividends declared in 2000 eclipsed the $4-million mark for the
first time in the history of LNB Bancorp, Inc. Cash dividends declared
per share in 2000 increased $.10, or 11.1 percent, to $1.00 per share,
up from $0.90 per share last year. In each of the last 13 years, the
Board of Directors has approved an increase in the regular cash dividend
per share. Total cash dividends declared in 2000, including the $.02
EXTRA dividend declared by the Board of Directors in November, rose to
$4,191,000. Total 2000 cash dividends declared represents a 232.6
percent increase from 1990 when $1,260,000 in cash dividends were
declared. In addition to cash dividends declared, the Board also
approved a two percent stock dividend in July 2000.
At 2000 year-end, LNB Bancorp, Inc. achieved significant growth in
assets, loans, deposits, dividends and shareholders' equity from one
year ago while other borrowings decreased from one year ago. Total
assets climbed 3.8 percent to $622.1 million from $599.6 million, for an
increase of $22.5 million from one year ago. At 2000 year-end, earning
83
assets increased 5.3 percent to $581.4 million, for a $29.2 million
increase from one year ago.
19-YEAR BASIC EARNINGS PER SHARE HISTORY
Dollars*
(A 19-Year Basic Earnings Per Share History graph follows in printed
version with earnings on the y-axis and years 1982 through 2000 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
Year Per Share
2000 $2.00
1999 $1.82
1998 $1.62
1997 $1.54
1996 $1.36
1995 $1.17
1994 $1.04
1993 $ .95
1992 $ .91
1991 $ .84
1990 $ .81
1989 $ .79
1988 $ .72
1987 $ .65
1986 $ .61
1985 $ .58
1984 $ .53
1983 $ .52
1982 $ .39
*Adjusted for stock dividends and splits
END OF PUBLISHED PAGE 2
84
Top left column color photograph of Executive Officers, Kevin W. Nelson,
Gary C. Smith, Thomas P. Ryan and Gregory D. Friedman
During 2000, net loans rose 7.5 percent to $445.9 million from $414.9
million. Led by an 18.4 percent increase in its commercial loan
portfolio and increased mortgage loans, The Bancorp's loan growth was
partially offset by a planned reduction in indirect automobile lending.
Commercial loans experienced robust growth in 2000, fueled by a strong
economy. The commercial loan portfolio climbed to $186.9 million at
December 31, 2000, for an increase of $29.0 million or 18.4 percent from
one year ago. The number of new loans booked in 2000 was 587, amounting
to $95.3 million in new gross loans. The commercial loan growth in 2000
results from existing customers expanding their borrowings and new loan
customers.
During the first part of 2000, mortgage lending continued to benefit
from favorable interest rates and a strong national economy. Higher
mortgage rates and lower demand created less robust lending activity in
the second half of the year. Mortgage loans ended the 2000-year at
$157.6 million, up $4.8 million, or 3.1 percent from the 1999 year-end.
New mortgage loans booked during 2000 totaled $32.9 million on 258 new
loans.
Consumer loans decreased to $106.7 million at December 31, 2000, down
$2.1 million or 1.9 percent from one year ago. The number of new
consumer loans booked during 2000 was 2,533 for a total amount of $38.3
million. The decrease in Consumer loans was attributable to planned
decreases in our indirect automobile lending program offset in part by a
successful home equity loan campaign. We are optimistic that 2001 will
bring continued growth in our commercial, mortgage and consumer
portfolios from our existing and new customers.
Retail deposits climbed 8.6 percent to $496.1 million, at December 31,
2000, from $456.8 million, for an increase of $39.3 million from one
year ago. Increases in retail deposits were attributable to increases
in Market Access, CheckInvest, and public fund certificates of deposit
partially offset by decreases in savings and money market accounts.
Market Access accounts soared by $37.5 million or 217.1 percent to
$54.8 million at December 31, 2000, with public fund certificates of
deposit increasing $9.4 million or 65.3 percent and CheckInvest accounts
increasing by $3.7 million or 6.9 percent from one year ago. The
significant growth in the Market Access deposits resulted from a
successful deposit acquisition campaign during 2000.
The Bancorp's other borrowings decreased by $22.8 million to $63.7
million at December 31, 2000, for a decrease of 26.3 percent from one
year ago. Decreases in other borrowings were attributable to decreases
in repurchase agreements, short-term borrowings of Federal funds
purchased, and Federal Home Loan Bank advances of $1.7 million, $20.0
million, and $1.0 million, respectively, during 2000. Federal funds
purchased decreased $20.0 million during 2000, largely attributable to
reversing last year's cash and short-term investments buildup associated
with liquidity funding for Y2K.
Shareholders' equity reached an all-time high of $56.5 million at
85
December 31, 2000, an increase of $5.5 million, or 10.7 percent, from
one year ago. The book value per share climbed to $13.42 at December
31, 2000, compared with $12.13 per share at the end of last year.
Capital ratios remained strong during 2000, with average equity to
average assets of 8.8 percent. The 2000 year-end ratio of shareholders'
equity-to-assets remained strong, increasing to 9.1 percent from 8.5
percent one year ago. LNB Bancorp, Inc.'s 2000 year-end risk based Tier
1 and total capital ratios were strong at 11.88 percent and 13.06
percent, respectively. LNB Bancorp, Inc., and its subsidiary, Lorain
National Bank, exceed all applicable regulatory capital requirements.
Under Federal Deposit Insurance Corporation (FDIC) guidelines, Lorain
National Bank is categorized as "well capitalized" - the highest rating
category available.
/s/Stanley G. Pijor
- -------------------
Stanley G. Pijor
Chairman of the Board
END PUBLISHED PAGE 3
86
Message to Our Shareholders
Top left column color photograph of Gary C. Smith, President and Chief
Executive Officer
As LNB Bancorp, Inc. and its subsidiary companies enter 2001, I am very
optimistic about meeting the challenges that a new millennium brings.
Throughout our organization, I sense a heightened level of awareness
about who we are and what we mean to our market as a progressive and
dynamic financial services provider.
Emerging Products and Services
In late 1999, the U.S. Congress passed the Gramm, Leach Bliley Act, also
known as the Financial Modernization Act, which, among other things,
provided for the creation of financial holding companies. One of the
key purposes for doing so is to help level the playing field among
financial services providers of all types, including banks, stock
brokers, insurance underwriters and others.
Upon passage of the Act, LNB Bancorp, Inc. was one of the first
financial institutions of our size to request and receive approval to
become a financial holding company, allowing LNB Bancorp, Inc. to engage
in a variety of new business opportunities.
Among those opportunities are the sales of investment and insurance
products such as annuities, mutual funds, brokerage services and life
insurance to existing and new customers of the Bancorp's banking
subsidiary, Lorain National Bank.
As a growing financial holding company, we will continue to seek
complementary new business opportunities like those mentioned, to
increase shareholder value and further develop relationships with our
bank customers. These initiatives provide LNBB new sources of
noninterest income in a period of shrinking interest margins - it's a
great fit for us.
At mid-year of 2001, Lorain National will introduce Internet banking to
a broad new market as a natural progression in the evolution of
alternative delivery systems. Customers will be able to perform a
variety of banking transactions from the comfort of their homes or
offices. Our plan calls for a broadening of marketing efforts on the
Internet, including the participation in new ventures such as
SchoolOne.com, an online school communications website that allows for
regular dialog between parents and teachers via the Internet at a
growing number of schools in our area. SchoolOne.com is a fledgling
Internet company that recently set up operations in Lorain County.
Using a more traditional form of electronic media, we developed a series
of television commercials in the fall of 2000, the first of which will
begin running on broadcast and cable television during the first quarter
of 2001. Our commercials feature our true-to-life, high-quality
customer service, using many of our own employees on-camera.
87
Community Bank Model
We have spent a considerable amount of time and effort in the past year
enhancing our bank's role as one of the few remaining independent
community providers in northern Ohio. While other larger institutions
have focused on volume-based strategies, Lorain National is positioning
itself as a bank of choice among its four "publics": our shareholders,
customer, employees and communities.
Considering the wild swings that have occurred on Wall Street during the
past year, we feel we've done a very good job of enhancing shareholder
value. While many of the dot-coms of 2000 were skyrocketing in stock
price, LNBB continued on its successful course of long-term performance,
highlighted by its record 19th consecutive year of earnings growth.
Since then, several of the tech stocks have retreated significantly and
many are no longer with us.
END OF PUBLISHED PAGE 4
88
Top left column color photograph of Senior Vice Presidents Emma N.
Mason, Michael D. Ireland, James H. Weber, Debra R. Brown, Robert L. Cox
and Sandra L. Dubell
Our customers will continue to benefit from the diversification of our
product and service menu. Soon, customers will choose from new
alternative investment products, attractive retail banking products, and
a variety of investments and trust services. It is our goal to make LNB
Bancorp, Inc. and its subsidiaries "one-stop-shopping" places for all
financial service needs. There will be no need for customers to look
anywhere else for financial services.
Of course, our community bank model could not function without the
dedication and quality service provided by our staff. Our employees
have truly embraced the concept of maintaining high-quality service
while recognizing the need for increased sales. Their consultative
selling techniques help meet the financial needs of our customers while
providing the bank with all important fee-based noninterest income,
thereby creating a win-win scenario.
In addition to outstanding efforts inside the bank, our officers and
staff also devote a significant amount of time and energy to the
communities we serve. On the pages that follow, you will find the faces
of virtually all of our 290 employees, many of whom regularly volunteer
or maintain seats on area board of directors. In this special section
we'd like you to see some of the faces behind the scenes that make our
operation run so smoothly.
Privacy
While we have always held the matter of customer confidentiality and
information privacy in high regard, we are re-doubling our efforts in
2001 to guarantee the safe care of our customer records as mandated by
Federal regulators.
Due to the national increase in the use of consumer information of all
kinds by direct markets and third-party companies, Federal regulators
are mandating that all financial services providers must have a detailed
written privacy policy and procedure in place this year.
We have never sold or provided our customers' information to other
parties, nor would we consider doing so. We look forward to working
with our regulators to help protect vital customer information from
misuse by others.
An Exciting Year Ahead
I am truly excited about bringing new products and services to Lorain
National customers via our new Bancorp subsidiary business ventures.
Our success in 2000 was the tangible result of an unwavering commitment
to our vision - to be recognized as the most progressive, dynamic,
independent provider of financial services in our market.
We are optimistic about 2001, despite signs of a slowing national
economy. Locally, housing starts are steady and unemployment levels are
89
currently represented in very modest, single-digit numbers.
In closing, we wish to thank you for your continued support of our
activities and we look forward to an exciting 2001.
/s/Gary C. Smith
- ----------------
Gary C. Smith
President and
Chief Executive Officer
END PUBLISHED PAGE 5
90
Faces of LNBB
Two color photographs of LNB Bancorp, Inc. employees.
On this page and those that follow you will find the many faces of LNB
Bancorp, Inc. and its subsidiaries.
One of our organization's greatest strengths lies in the generosity and
selflessness of our officers and staff. Backed by the support of
Management, virtually all of our officers serve as directors, officers,
committee members or volunteers for dozens of civic groups and
non-profit agencies across three counties. The same can be said for the
majority of our front-line and clerical staff.
As a function of LNB Bancorp, Inc.'s mission, our people contribute
thousands of hours each year on company and personal time to help raise
quality-of-life standards for those around us. In addition, we
contributed more than $150,000 to charitable and non-profit
organizations throughout our market area in 2000.
END PUBLISHED PAGE 6
91
Two color photographs of LNB Bancorp, Inc. employees.
Though Lorain National Bank's philanthropy is far-reaching in scope,
each year it focuses on a few major civic projects in order to heighten
their immediate impact. One such project in 2000 was the Lorain County
Reads program.
Last year, Governor Robert Taft established Ohio Reads as a volunteer
tutorial program to assist school districts in improving the reading
abilities of children in need of remedial skills. LNB Bancorp, Inc.
Vice Chairman James F. Kidd accepted Taft's challenge on a local level
and assumed chairmanship of Lorain County Reads.
END PUBLISHED PAGE 7
92
Faces of LNBB
Two color photographs of Lorain National Bank employees.
Nearly 40 Lorain National volunteers spent at least on hour per week in
the classrooms of Meister Road and Lincoln Elementary schools in
compliance with the all-volunteer program. We'd like to offer special
thanks to Karen Mahan, Principal of Meister Road Elementary School, who
offered us space for a photograph of our volunteers and a handful of her
Lorain County Reads students. Our participation in the program made a
difference in the lives of our volunteers as well as those of the
children.
Despite past economic prosperity, there remains a segment of our
population that remains in need. Fortunately for them, Second Harvest
Food Bank of North Central Ohio, led by Executive Director Jim Kastro,
is working overtime to keep up with the demand.
END PUBLISHED PAGE 8
93
Two color photographs of Lorain National Bank employees.
On a regular basis, volunteers from across the county, including those
from Lorain National, donate their time on "Corporate Night" to help
sort and package food and other necessities so those less fortunate can
get a foothold on a better future.
In the wake of the Columbine High School tragedy, and other
firearms-related incidents involving children, Lorain National Bank's
timely KidSafe trigger lock program provided 4,500 free firearms trigger
locks to the general public last year on a "no questions asked" basis in
2000.
END PUBLISHED PAGE 9
94
Faces of LNBB
Two color photographs of Lorain National Bank employees.
In conjunction with its distribution partners - the Lorain County Urban
League, Lorain County Community Action Agency and the South Lorain
Community Development Corporation, the KidSafe program helped add some
measure of firearms safety for many. Contributions to the program can
still be made to our funding partner, the Community Foundation of
Greater Lorain County.
Taking neither a pro-gun or anti-gun political stance, Lorain National
and its community partners succeeded in placing at least 4,500 trigger
locks into the hands of residents who recognized their need.
END PUBLISHED PAGE 10
95
Two color photographs of Lorain National Bank employees.
Space does not permit us to list all of the agencies and organizations
we support with our contributions and employee involvement. However,
it's safe to say that the "faces of LNBB" can be seen volunteering
wherever you find one of our facilities.
These are just a few of the dozens of volunteer projects the people of
LNB remain involved with throughout the year in addition to taking care
of our customers.
END PUBLISHED PAGE 11
96
Consolidated Balance Sheets
December 31, 2000 1999
- ----------------------------------------------------------------------
ASSETS:
Cash and due from banks (note 3). . . . . .$ 22,011,000 $ 28,023,000
Federal funds sold and short-term
investments . . . . . . . . . . . . . . . 3,125,000 9,320,000
Securities (note 5):
Available for sale, at fair value . . . . 79,518,000 75,728,000
Held to maturity, at cost (fair value
$43,982,000 and $41,819,000,respectively) 44,431,000 44,642,000
Federal Home Loan Bank and Federal Reserve
Bank stock, at cost . . . . . . . . . . . 3,152,000 2,949,000
---------------------------
Total securities. . . . . . . . . . . . . . 127,101,000 123,319,000
---------------------------
Loans (notes 6,7 and 12):
Portfolio loans . . . . . . . . . . . . . 442,132,000 409,971,000
Loans available for sale. . . . . . . . . 9,008,000 9,545,000
---------------------------
Total loans . . . . . . . . . . . . . . . . 451,140,000 419,516,000
Reserve for loan losses . . . . . . . . . (5,250,000) (4,667,000)
---------------------------
Net loans . . . . . . . . . . . . . . . . . 445,890,000 414,849,000
---------------------------
Bank premises and equipment, net (note 8) . 11,251,000 11,253,000
Intangible assets (note 4). . . . . . . . . 3,847,000 4,245,000
Accrued interest receivable . . . . . . . . 4,694,000 4,057,000
Other assets (note 13). . . . . . . . . . . 4,093,000 4,449,000
Other foreclosed assets . . . . . . . . . . 98,000 96,000
---------------------------
TOTAL ASSETS. . . . . . . . . . . . . . . .$622,110,000 $599,611,000
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (note 9):
Demand and other noninterest-bearing
deposits. . . . . . . . . . . . . . . .$ 83,093,000 $ 80,654,000
Savings, Market Access
and passbook accounts . . . . . . . . . 219,618,000 191,928,000
Certificates of deposit . . . . . . . . . 193,380,000 184,249,000
---------------------------
Total deposits. . . . . . . . . . . . . . . 496,091,000 456,831,000
---------------------------
Securities sold under repurchase agreements
and other short-term borrowings (note 10) 39,391,000 52,122,000
Federal Home Loan Bank advances,
short-term (note 11). . . . . . . . . . . 16,095,000 15,000,000
Federal Home Loan Bank advances,
long-term (note 12) . . . . . . . . . . . 8,250,000 19,345,000
Accrued interest payable. . . . . . . . . . 1,901,000 1,510,000
Accrued taxes, expenses and other liabilities
(notes 13 and 17) . . . . . . . . . . . . 3,857,000 3,750,000
---------------------------
Total liabilities . . . . . . . . . . . . . 565,585,000 548,558,000
---------------------------
97
Shareholders' equity: (notes 14 and 15)
Preferred stock, no par value: Shares
authorized 1,000,000, and shares outstanding, none (note 14)
Common stock, $1.00 par: Shares authorized 15,000,000
Shares issued 4,313,047 and 4,227,161, respectively and
Shares outstanding 4,211,047 and 4,127,161,
respectively (notes 14, 18, 19 and 20) 4,313,000 4,227,000
Additional capital. . . . . . . . . . . . 24,336,000 22,685,000
Retained earnings (note 16) . . . . . . . 30,584,000 28,057,000
Accumulated other comprehensive
income(loss) . . . . . . . . . . . . . . 192,000 (1,016,000)
Treasury stock at cost, 100,000
and 100,000 shares, respectively . . . . (2,900,000) (2,900,000)
---------------------------
Total shareholders' equity 56,525,000 51,053,000
---------------------------
Commitments and contingencies (notes 8 and 21)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $622,110,000 $ 599,611,000
---------------------------
See accompanying notes to consolidated financial statements
END PUBLISHED PAGE 12
98
Consolidated Statements of Income
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans:
Taxable . . . . . . . . .$ 39,010,000 $ 34,034,000 $ 30,664,000
Tax exempt . . . . . . . . 18,000 26,000 42,000
Interest and dividends on
securities:
U.S. Treasury securities . 379,000 1,236,000 3,684,000
U.S. Government agencies
and corporations. . . . . 6,518,000 5,505,000 3,194,000
States and political
subdivisions. . . . . . . 249,000 220,000 204,000
Other debt and equity
securities. . . . . . . . 249,000 172,000 152,000
Interest on Federal funds
sold and other short-term
investments. . . . . . . . 222,000 424,000 238,000
------------------------------------------
TOTAL INTEREST INCOME. . . . . 46,645,000 41,617,000 38,178,000
INTEREST EXPENSE:
Interest on deposits:
Certificates of deposit,
$100,000 and over . . . . 3,058,000 2,580,000 2,327,000
Other deposits . . . . . . 12,941,000 10,254,000 10,196,000
Interest on securities sold under
repurchase agreements and other
short-term borrowings. . . 1,889,000 1,242,000 1,107,000
Interest on Federal Home Loan
Bank advances. . . . . . . 1,321,000 1,517,000 369,000
------------------------------------------
TOTAL INTEREST EXPENSE . . . . 19,209,000 15,593,000 13,999,000
------------------------------------------
NET INTEREST INCOME. . . . . . 27,436,000 26,024,000 24,179,000
Provision for loan
losses (note 7). . . . . . 1,700,000 2,000,000 2,725,000
------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES. . . . . . . 25,736,000 24,024,000 21,454,000
------------------------------------------
OTHER INCOME:
Investment and Trust Services
Division income. . . . . . 2,355,000 2,095,000 1,887,000
Service charges on deposit
accounts . . . . . . . . . 3,150,000 2,967,000 2,533,000
Other service charges,
exchanges and fees . . . . 2,804,000 2,798,000 2,515,000
Gains on sales of
securities (note 5). . . . -0- -0- 256,000
Gains on sales of bank premises
and equipment. . . . . . . 1,000 162,000 -0-
Other operating income . . . 60,000 76,000 62,000
------------------------------------------
TOTAL OTHER INCOME . . . . . . 8,370,000 8,098,000 7,253,000
99
OTHER EXPENSES:
Salaries and employee benefits
(notes 17, 18, 19 and 20) . 10,304,000 10,056,000 9,153,000
Net occupancy expense of
premises (note 8) . . . . . 1,576,000 1,521,000 1,359,000
Furniture and equipment
expenses (note 8) . . . . . 2,163,000 2,122,000 2,020,000
Supplies and postage . . . . 909,000 995,000 1,037,000
Ohio Franchise Tax . . . . . 553,000 573,000 467,000
Other operating expenses . . 5,771,000 5,372,000 4,825,000
------------------------------------------
TOTAL OTHER EXPENSES . . . . . 21,276,000 20,639,000 18,861,000
------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE. . . 12,830,000 11,483,000 9,846,000
------------------------------------------
INCOME TAXES (note 13) 4,400,000 3,842,000 3,291,000
------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING
PRINCIPLE. . . . . . . . . . 8,430,000 7,641,000 6,555,000
------------------------------------------
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF RELATED INCOME TAXES
OF $-0-,$-0- and $136,000(note 5) -0- -0- 263,000
------------------------------------------
NET INCOME . . . . . . . . . . $ 8,430,000 $ 7,641,000 $ 6,818,000
------------------------------------------
BASIC EARNINGS PER SHARE
(note 2)(1). . . . . . . . . $ 2.00 $ 1.81 $ 1.62
------------------------------------------
DILUTED EARNINGS PER SHARE
(note 2)(1). . . . . . . . . $ 2.00 $ 1.81 $ 1.62
------------------------------------------
DIVIDENDS DECLARED PER SHARE(1) $ 1.00 $ .90 $ .84
------------------------------------------
See accompanying notes to consolidated financial statements.
(1) All share and per share data have been adjusted to reflect the 2
percent stock dividend in 2000.
END PUBLISHED PAGE 13
100
Consolidated Statements of Cash Flows
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Interest received . . . . . . $45,978,000 $41,681,000 $38,031,000
Other income received . . . . 8,504,000 7,873,000 6,228,000
Interest paid . . . . . . . . (18,818,000) (15,570,000) (13,891,000)
Cash paid for salaries
and employee benefits. . . . (10,264,000) (10,013,000) (8,556,000)
Net occupancy expense of
premises paid. . . . . . . . (1,258,000) (1,184,000) (1,011,000)
Furniture and equipment
expenses paid. . . . . . . . (814,000) (847,000) (680,000)
Cash paid for supplies and
postage. . . . . . . . . . . (909,000) (995,000) (1,037,000)
Cash paid for other
operating expenses . . . . . (4,970,000) (5,521,000) (4,185,000)
Federal income taxes paid . . (4,499,000) (4,210,000) (3,869,000)
Proceeds from sales of
trading securities . . . . . -0- -0- 7,386,000
------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES. . . . . 12,950,000 11,214,000 18,416,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of
securities held to maturity. 730,000 689,000 23,447,000
Proceeds from maturities of
securities available for sale 13,001,000 26,000,000 29,891,000
Proceeds from sales of securities
available for sale -0- -0- 17,782,000
Purchases of securities
held to maturity . . . . . . (1,022,000) (8,162,000) (30,611,000)
Purchases of securities
available for sale (15,650,000) (25,203,000) (49,960,000)
Net (increase) in loans made
to customers . . . . . . . . (33,053,000) (50,326,000) (43,489,000)
Purchases of bank premises,
equipment and intangible
assets . . . . . . . . . . . (1,703,000) (1,876,000) (815,000)
Proceeds from sales of
bank premises and equipment. 23,000 164,000 4,000
Additions to other foreclosed
assets . . . . . . . . . . . (247,000) (96,000) -0-
Net proceeds from liquidations
of other foreclosed assets 296,000 1,400,000 -0-
------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES. . . . . . . . . . (37,625,000) (57,410,000) (53,751,000)
101
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)in demand
and other noninterest-
bearing deposits . . . . . . 2,439,0000 (4,904,000) 16,993,000
Net increase in savings,
Market Access and passbook
deposits . . . . . . . . . . 27,690,000 9,917,000 9,075,000
Net increase in certificates
of deposit . . . . . . . . . 9,131,000 7,970,000 7,125,000
Net increase (decrease) in securities sold
under repurchase agreements and other
short-term borrowings. . . . (21,731,000) 29,162,000 (3,790,000)
Proceeds from Federal Home
Loan Bank advances . . . . . 9,000,000 12,300,000 20,000,000
Cash paid on Federal Home
Loan Bank advances . . . . . (10,000,000) -0- -0-
Cash paid on line of credit . -0- -0- (2,200,000)
Purchase of treasury stock. . -0- -0- (57,000)
Proceeds from exercise of
stock options. . . . . . . . 25,000 87,000 4,000
Dividends paid. . . . . . . . (4,086,000) (3,794,000) (3,421,000)
------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES . . . . . . . . . 12,468,000 50,738,000 43,729,000
------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . (12,207,000) 4,542,000 8,394,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR. . . . . 37,343,000 32,801,000 24,407,000
------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR. . . . . . . . $25,136,000 $37,343,000 $32,801,000
------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET INCOME . . . . . . . . . . $ 8,430,000 $ 7,641,000 $ 6,818,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,667,000 1,612,000 1,688,000
Amortization of intangible
assets. . . . . . . . . . . 398,000 421,000 448,000
Amortization of deferred loan
fees and costs, net 312,000 (140,000) 1,244,000
Provision for loan losses. . 1,700,000 2,000,000 2,725,000
(Increase) in accrued
interest receivable . . . . (637,000) (372,000) (530,000)
Fair value of trading securities
transferred from held
to maturity . . . . . . . . -0- -0- 7,386,000
Others, net. . . . . . . . . 1,080,000 52,000 (1,363,000)
------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES. . . . . . . . . . $12,950,000 $11,214,000 $18,416,000
------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 16
102
Consolidated Statements of Shareholders' Equity
Accumulated
Years Ended Other
December 31, 2000 Common Additional Retained Comprehensive
1999 and 1998 Stock Capital Earnings Income(Loss)
- ------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 $4,222,000 $22,599,000 $20,937,000 $ 70,000
------------------------------------------------
Comprehensive income:
Net income . . . . . . -0- -0- 6,818,000 -0-
Change in unrealized
gain on securities
available for
sale, net of tax. . . -0- -0- -0- 471,000
Total comprehensive income
Cash dividends declared,
$.84 per share. . . . -0- -0- (3,545,000) -0-
Issuance of 200 shares
of common stock under
stock option plans. . 1,000 3,000 -0- -0-
Purchase of 2,004 shares
treasury stock . . . . -0- -0- -0- -0-
-------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 $4,223,000 $22,602,000 $24,210,000 $541,000
-------------------------------------------------
Years Ended Total
December 31, 2000 Treasury Shareholders'
1999 and 1998 Stock Equity
- --------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 (2,843,000) $44,985,000
---------------------------
Comprehensive income:
Net income -0- 6,818,000
Change in unrealized
gain on securities
available for
sale, net of tax. . . -0- 471,000
----------
Total comprehensive income 7,289,000
Cash dividends declared,
$.84 per share. . . . -0- (3,545,000)
Issuance of 200 shares
of common stock under
stock option plans. . -0- 4,000
Purchase of 2,004 shares
treasury stock. . . . (57,000) (57,000)
-------------------------------
BALANCE AT
DECEMBER 31, 1998 $(2,900,000) $48,676,000
-------------------------------
103
Accumulated
Years Ended Other
December 31, 2000 Common Additional Retained Comprehensive
1999 and 1998 Stock Capital Earnings Income
- ------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 $4,223,000 $22,602,000 $24,210,000 $ 541,000
------------------------------------------------
Comprehensive income:
Net income . . . . . . -0- -0- 7,641,000 -0-
Change in unrealized
(loss) on securities
available for
sale, net of tax. . . -0- -0- -0- (1,557,000)
Total comprehensive income
Cash dividends declared,
$.90 per share. . . . -0- -0- (3,794,000) -0-
Issuance of 200 shares
of common stock under
stock option plans. . 4,000 83,000 -0- -0-
------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 $4,227,000 $22,685,000 $28,057,000 $(1,016,000)
-------------------------------------------------
Years Ended Total
December 31, 2000 Treasury Shareholders'
1999 and 1998 Stock Equity
- -------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 (2,900,000) $48,676,000
----------------------------------
Comprehensive income:
Net income . . . . . . -0- 7,641,000
Change in unrealized
(loss) on securities
available for
sale, net of tax. . . -0- (1,557,000)
-----------
Total comprehensive income 6,084,000
Cash dividends declared,
$.90 per share. . . . -0- (3,794,000)
Issuance of 200 shares
of common stock under
stock option plans. . -0- 87,000
BALANCE AT ------------------------------
DECEMBER 31, 1999 $ (2,900,000) $51,053,000
------------------------------
104
Accumulated
Years Ended Other
December 31, 2000 Common Additional Retained Comprehensive
1999 and 1998 Stock Capital Earnings Income
- ------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 $4,227,000 $22,685,000 $28,057,000 $(1,016,000)
------------------------------------------------
Comprehensive income:
Net income. . . . . . . -0- -0- 8,430,000 -0-
Change in unrealized
gain on securities
available for
sale, net of tax . . . -0- -0- -0- 1,208,000
Total comprehensive income
Cash dividends declared,
$1.00 per share. . . . -0- -0- (4,191,000) -0-
Issuance of 1,324 shares
of common stock under
stock option plans . . 2,000 23,000 -0- -0-
Market value of stock
issued in payment of
2% stock dividend,
84,562 shares . . . . . 84,000 1,628,000 (1,712,000) -0-
BALANCE AT ------------------------------------------------
DECEMBER 31, 2000 $4,313,000 $24,336,000 $30,584,000 $ 192,000
------------------------------------------------
Years Ended Total
December 31, 2000 Treasury Shareholders'
1999 and 1998 Stock Equity
- -------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 (2,900,000) $51,053,000
----------------------------------
Comprehensive income:
Net income. . . . . . . -0- 8,430,000
Change in unrealized
gain on securities
available for
sale, net of tax . . . -0- 1,208,000
-----------
Total comprehensive income 9,638,000
Cash dividends declared,
$1.00 per share. . . . -0- (4,191,000)
Issuance of 1,324 shares
of common stock under
stock option plans . . -0- 25,000
Market value of stock
issued in payment of
2% stock dividend,
84,562 shares. . . . . -0- -0-
BALANCE AT ----------------------------------
DECEMBER 31, 2000 $ (2,900,000) $56,525,000
----------------------------------
See accompanying notes to consolidated financial statements.
All share and per share data have been adjusted to reflect the 2
105
percent stock dividend in 2000.
Disclosure of Reclassification Amount
The following discloses the reclassification adjustments for Accumulated
Other Comprehensive Income:
Years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------
Unrealized holding gains(losses)
arising during the year, net of tax. .$ 1,208,000 $(1,557,000) $640,000
Reclassification adjustment for gains
(losses) included in net income, net
of tax of $0, $0 and $87,000 for
2000, 1999 and 1998, respectively . . -0- -0- 169,000
---------------------------------
Change in unrealized gains(loss) on
securities available for sale, net
of tax . . . . . . . . . . . . . . . .$ 1,208,000 $(1,557,000) $471,000
---------------------------------
END PUBLISHED PAGE 15
106
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Summary of Significant Accounting Policies:
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of LNB
Bancorp, Inc. (the Parent Company) and its wholly owned subsidiaries,
The Lorain National Bank (the Bank) and Charleston Insurance Agency,
Inc. and a 49% interest in Charleston Title Insurance Agency, LLC. The
term "the Corporation" refers to LNB Bancorp, Inc. and its wholly owned
subsidiaries, The Lorain National Bank and Charleston Insurance Agency,
Inc., and a 49% interest in Charleston Title Insurance Agency, LLC. All
material intercompany transactions and balances have been eliminated
in consolidation.
(b) Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Areas involving the use of Management's estimates and assumptions
include the reserve for loan losses, the realization of deferred tax
assets, fair values of certain securities, the determination and
carrying value of impaired loans, the carrying value of loans available
for sale, the carrying value of other real estate, depreciation of
premises and equipment, the projected benefit obligation, the actuarial
present value of pension benefit obligations, net periodic pension
expense and accrued pension costs recognized in the Corporation's
financial statements. Estimates that are more susceptible to change in
the near term include the reserve for loan losses and the fair value of
certain securities.
(c) Industry Segment Information:
The Corporation's activities are considered to be a single industry
segment for financial reporting purposes. LNB Bancorp, Inc. is a
financial holding company engaged in the business of commercial and
retail banking, investment management and trust services, title
insurance, and insurance with operations conducted through its main
office and branches located throughout Lorain, eastern Erie and western
Cuyahoga Counties of Ohio. This market provides the source for
substantially all of the Bank's deposit, loan and trust activities and
title insurance and insurance activities. The majority of the Bank's
income is derived from a diverse base of commercial, mortgage and retail
lending activities and investments.
(d) Cash and Cash Equivalents:
For purposes of reporting in the Consolidated Statements of Cash Flows,
cash and cash equivalents include currency on hand, amounts due from
banks, Federal funds sold, and securities purchased under resale
agreements. Generally, Federal funds sold and securities purchased under
resale agreements are for one day periods.
107
(e) Securities:
Debt securities are classified as held to maturity, trading, or
available for sale. Securities which are classified as being held to
maturity are stated atamortized cost based on the Corporations's intent
and ability to hold until maturity. Securities are adjusted for
amortization of premiums and accretion of discounts using the interest
method. Securities available for sale are carried at fair value with
unrealized gains and losses, net of tax, included as a component of
accumulated other comprehensive income, net of tax. Securities
classified as trading are carried at fair value with unrealized gains
and losses included in earnings. Gains or losses on dispositions are
based on net proceeds and the carrying value of securities sold, using
the specific identification method. A decline in fair value of any
available for sale or held to maturity security below cost that is
deemed other than temporary is charged to earnings resulting in
establishment of a new cost basis for the security.
(f) Loans Available for Sale:
The Bank has identified certain mortgage, commercial and student loans
which may be sold prior to maturity. These loans are carried at the
lower of amortized cost or estimated fair value, determined on an
aggregate basis for each type of loan available for sale. Net
unrealized losses are recognized in a valuation allowance and by charges
to income.
(g) Reserve for Loan Losses:
Because some loans may not be repaid in full, a reserve for loan losses
is recorded. The 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 inherent in the loan portfolio 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.
END PUBLISHED PAGE 16
108
(1) Summary of Significant Accounting Policies (continued):
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
investment in the loan, an impairment reserve is 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. The
provision for loan losses is determined based on Management's evaluation
of the loan portfolio and the adequacy of the reserve for loan losses
under current economic conditions and such other factors which, in
Management's judgement, deserve current recognition.
(h) Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed generally on the straight-line method over the estimated useful
lives of the assets. Upon the sale or other disposition of assets, the
cost and related accumulated depreciation are retired and the resulting
gain or loss is recognized. Maintenance and repairs are charged to
expenses as incurred, while renewals and improvements are capitalized.
Software costs related to externally developed systems are capitalized
at cost less accumulated amortization. Amortization is computed on the
straight-line method over the estimated useful life.
(I) Intangible Assets:
Intangible assets arise from branch acquisitions and include Goodwill
and Core Deposit Intangibles. Goodwill is the excess of purchase price
over identified net assets in branch acquisitions. Core Deposit
Intangibles represent the value of depositor relationships purchased.
Goodwill is being amortized using the straight-line method over a period
of fifteen years. Core Deposit Intangibles are being amortized using an
accelerated method over a period of ten years. Goodwill and Core
Deposit Intangibles are reviewed for possible impairment, for events or
changes in circumstances that indicate the carrying amount of the asset
may not be recoverable, and written down if necessary.
(j) Other Foreclosed Assets:
Other foreclosed assets represents properties acquired through customer
loan default. The real estate and other tangible assets acquired
through foreclosure is carried in other foreclosed assets on the Balance
Sheet at fair value, net of estimated costs to sell, not to exceed the
cost of property acquired through foreclosure.
(k) Additional Capital and Retained Earnings:
The additional capital account includes amounts received in excess of
par value of common stock sold and amounts voluntarily transferred from
retained earnings. In the case of stock dividends, the Corporation
transfers the market value of shares issued from retained earnings to
the common stock and additional capital accounts.
109
(l) Interest and Fees on Loans:
Interest income on loans is accrued on the principal balances of loans
outstanding on a "simple interest" basis. The Bank's policy is to cease
accruing interest on any loans where the principal and/or interest is
past due for 90 days or more, unless the loan is both well secured and
in the process of collection. Loan origination fees and certain direct
origination costs are deferred and amortized over the contractual lives
of the related loans using the interest method.
(m) Investment and Trust Services Division's Assets and Income:
Property held by the Corporation in fiduciary or agency capacity for its
customers is not included in the accompanying financial statements, as
such items are not assets of the Corporation. Income from the Investment
and Trust Services Division is reported on an accrual basis.
(n) Interest on Deposit Accounts:
Interest on deposit accounts is accrued and charged to expense monthly
and is paid or credited in accordance with the terms of the respective
accounts.
(o) Income Taxes:
The Corporation and its wholly owned subsidiaries file a consolidated
Federal income tax return. The provision for income taxes is based upon
income in the financial statements, rather than amounts reported on the
Corporation's income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be removed or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
(p) Reclassifications:
Certain 1998 and 1999 amounts have been reclassified to conform to the
2000 presentation.
(q) Employee Stock Ownership Plan and Stock Purchase Plan:
These two qualified defined contribution plans are accounted for under
the provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions".
(r) Retirement Pension Plan:
The qualified defined benefit pension plan is accounted for under the
provisions of Statement of Financial Accounting Standards Co. 35
"Accounting and Reporting by Defined Benefit Pension Plans".
(s) Reporting Comprehensive Income:
Effective January 1, 1998, the Corporation adopted the provisions of
SFAS No. 130, "Reporting Comprehensive Income". 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
110
income as a separate component of shareholders' equity. The adoption of
SFAS No. 130 required the reclassification of prior years' financial
statements.
END PUBLISHED PAGE 17
111
(2) Earnings Per Share:
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding
during the year. Diluted earnings per share is computed based on the
weighted average number of shares outstanding plus the effects of
dilutive stock options outstanding during the year. The weighted
average number of shares outstanding and the earnings per share during
each year presented has been adjusted to reflect a two percent stock
dividend in 2000. Basic and diluted earnings per share is calculated as
follows:
For the Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Weighted average shares outstanding used in
Basic Earnings Per Share
calculation . . . . . . . . . . . 4,210,537 4,205,632 4,205,314
Dilutive effect of incentive
stock options . . . . . . . . . . 4,086 6,628 9,753
--------------------------------------
Weighted average shares outstanding used in
Diluted Earnings Per Share
calculation . . . . . . . . . . . 4,214,623 4,212,260 4,215,067
--------------------------------------
Net income from operations before
cumulative effect . . . . . . . .$8,430,000 $7,641,000 $6,555,000
Cumulative effect of a change in
accounting principle, net of tax. -0- -0- 263,000
--------------------------------------
NET INCOME . . . . . . . . . . . .$8,430,000 $7,641,000 $6,818,000
BASIC EARNINGS PER SHARE:
Net income from operations before
cumulative effect. . . . . . . . $2.00 $1.81 $1.56
Cumulative effect of a change in
accounting principle, net of tax 0.00 0.00 0.06
--------------------------------------
BASIC EARNINGS PER SHARE . . . . . $2.00 $1.81 $1.62
--------------------------------------
DILUTED EARNINGS PER SHARE:
Net income from operations before
cumulative effect. . . . . . . . $2.00 $1.81 $1.56
Cumulative effect of a change in
accounting principle, net of tax 0.00 0.00 0.06
--------------------------------------
DILUTED EARNINGS PER SHARE . . . . $2.00 $1.81 $1.62
--------------------------------------
(3) Cash and Due From Banks:
In order to meet deposit reserve requirements, the Bank is required to
maintain cash on hand and reserve balances at the Federal Reserve Bank.
Cash and due from banks included approximately $9,466,000 and $8,667,000
at December 31, 2000 and 1999, respectively, to meet these deposit
reserve requirements.
112
The average balances maintained in cash on hand and in reserve balances
at the Federal Reserve Bank to meet deposit reserve requirements
approximated $8,965,000 and $9,197,000, during 2000 and 1999,
respectively.
(4) Acquisition and Intangible Assets:
The intangible assets arising from the KeyBank branch acquisition and
included in the accompanying Consolidated Balance Sheets are summarized
as follows at December 31, net of accumulated amortization:
2000 1999
- -----------------------------------------------------------
Goodwill. . . . . . . . . . . $3,091,000 $3,355,000
Core deposit intangible . . . 756,000 890,000
-----------------------------
Total intangible assets . . . $3,847,000 $4,245,000
=============================
Amortization expense for intangible assets totaled $398,000, $421,000
and $448,000 in 2000, 1999 and 1998, respectively.
END PUBLISHED PAGE 18
113
(5) Securities:
The amortized cost, gross unrealized gains and losses and fair values of
securities at December 31, 2000 and 1999 follow:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2000 Cost Gains Losses Value
- ------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury
securities. . . . . . $ 2,079,000 $ 12,000 $ (1,000) $ 2,090,000
U.S. Government agencies
and corporations. . . 76,051,000 302,000 (220,000) 76,133,000
Equity securities. . . 1,096,000 199,000 -0- 1,295,000
-----------------------------------------------
Total securities
available for sale. . . 79,226,000 513,000 (221,000) 79,518,000
-----------------------------------------------
Securities held to maturity:
U.S.Government agencies
and corporations. . . 39,566,000 5,000 (449,000) 39,122,000
States and political
subdivisions. . . . . 4,865,000 63,000 (68,000) 4,860,000
-----------------------------------------------
Total securities held
to maturity . . . . . . 44,431,000 68,000 (517,000) 43,982,000
-----------------------------------------------
Federal Home Loan Bank and
Federal Reserve Bank stock 3,152,000 -0- -0- 3,152,000
-----------------------------------------------
Total securities . . . . $126,809,000 $581,000 $ (738,000) $126,652,000
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
- ------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury
securities. . . . . . $ 11,077,000 $ 14,000 $ (16,000) $ 11,075,000
U.S. Government agencies
and corporations. . . 66,106,000 -0- (1,622,000) 64,484,000
Equity securities. . . 86,000 83,000 -0- 169,000
------------------------------------------------
Total securities
available for sale. . . 77,269,000 97,000 (1,638,000) 75,728,000
------------------------------------------------
Securities held to maturity:
U.S.Government agencies
and corporations. . . 39,848,000 -0- (2,707,000) 37,141,000
States and political
subdivisions. . . . . 4,794,000 33,000 (149,000) 4,678,000
------------------------------------------------
Total securities held
to maturity . . . . . . 44,642,000 33,000 (2,856,000) 41,819,000
------------------------------------------------
114
Federal Home Loan Bank and
Federal Reserve Bank stock 2,949,000 -0- -0- 2,949,000
-----------------------------------------------
Total securities. . . . .$124,860,000 $130,000 $(4,494,000) $120,496,000
-----------------------------------------------
The amortized cost, fair values and yields of debt securities by
contractual maturity date at December 31, 2000 follow:
Fully-Tax
Amortized Fair Equivalent
December 31, 2000 Cost Value Yield
- ------------------------------------------------------------------------
Securities available for sale:
Due within 1 year. . . . . . .$ 11,996,000 $ 11,995,000 5.75%
After 1 but within 5 years . . 66,134,000 66,228,000 5.80
----------------------------------------
Total securities available . . . 78,130,000 78,223,000 5.79
for sale ----------------------------------------
Securities held to maturity:
Due within 1 year. . . . . . . 1,519,000 1,522,000 7.01
After 1 but within 5 years . . 5,605,000 5,593,000 6.17
After 5 but within 10 years. . 34,725,000 34,306,000 5.56
After 10 years . . . . . . . . 2,582,000 2,561,000 7.76
----------------------------------------
Total securities held to maturity 44,431,000 43,982,000 5.81
----------------------------------------
Total securities . . . . . . . .$122,561,000 $122,205,000 5.80%
----------------------------------------
END PUBLISHED PAGE 19
115
(5) Securities (continued):
There were no sales of securities in 2000 or 1999. During 1998,
proceeds from the sale of securities were $25,168,000 resulting in gross
realized gains of $655,000. All other redemptions during these three
years were in the form of proceeds at maturity or calls by the issuers
of debt. The carrying value of securities pledged to secure trust,
public deposits, securities sold under repurchase agreements, line of
credit, and for other purposes required by law amounted to $112,173,000
and $113,334,000 at December 31, 2000 and 1999, respectively.
The fair value of securities is based on quoted market prices, where
available. If quoted market prices are not available, fair value is
estimated using the quoted market prices of comparable instruments. The
securities portfolio contained approximately $2,261,000 and $2,343,000
in non-rated securities of state and political subdivisions at December
31, 2000 and 1999, respectively. Based upon yield, term to maturity and
market risk, the valuation service estimated the fair value of these
securities to be $2,288,000 and $2,380,000 at December 31, 2000 and
1999, respectively. The majority of these non-rated securities are
short-term debt issues of local political subdivisions. Management has
reviewed these non-rated securities and has determined that there is no
impairment to their value as of December 31, 2000 and 1999.
The Corporation adopted SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) on October 1, 1998.
The Corporation did not have any hedging activity or derivative
instruments prior to September 30, 1998. However, the Corporation
elected to reclassify approximately $7 million of held to maturity
securities to trading securities and approximately $41 million in held
to maturity securities to available for sale securities. The total
amount of securities transferred to trading securities were sold during
the quarter, resulting in a transition gain of $399,000, which is
recorded as a change in accounting principle in the Consolidated
Statements of Income. The above-mentioned security transfers from the
held to maturity category at the initial date of adoption shall not call
into question the Corporation's intent to hold other debt securities to
maturity in the future. The unrealized holding gain on held to maturity
securities transferred at the initial adoption of SFAS No. 133 was
reported as a transition adjustment to net income and Accumulated Other
Comprehensive Income. The cumulative effect of adoption of SFAS No. 133
is as follows:
116
Transfers of Debt Securities from the Held to Maturity to the Trading
and Available for Sale Categories as Part of the Transition to SFAS No.
133 as of October 1, 1998:
Before Transition Adjustment After Transition Adjustment
- ------------------------------------------------------------------------
Statement
Balance Sheet Balance Sheet of Income
- ------------------------------------------------------------------------
Carrying Fair Asset Stockholders' Gain
Amount Value (Liability) Equity (Loss)
- ------------------------------------------------------------------------
Transfer to the
trading category:
Debt security $ 6,987,000 $ 7,386,000 $ 7,386,000 N/A $399,000
Transfer to available
for sale category:
Debt security $40,979,000 $41,696,000 $41,696,000 N/A $-0-
Accumulated other
comprehensive
income N/A N/A N/A $473,000 $-0-
- ------------------------------------------------------------------------
END PUBLISHED PAGE 20
117
(6) Transactions with Related Parties:
The Corporation, through its subsidiary Bank, makes loans to its
officers, directors and their affiliates. These loans are made with
substantially the same terms and conditions as transactions with
non-related parties. An analysis of loans outstanding to related
parties follows:
Years ended December 31, 2000 1999
- ------------------------------------------------------------------------
Aggregate amount beginning of year. . . . . . $11,434,000 $ 4,495,000
Additions (deductions):
New loans . . . . . . . . . . . . . . . . . 3,805,000 7,237,000
Repayments. . . . . . . . . . . . . . . . . (1,418,000) (801,000)
Changes in directors and officers
and/or their affiliations, net . . . . . . 339,000 503,000
--------------------------
Aggregate amount end of year. . . . . . . . . $14,160,000 $11,434,000
---------------------------
(7) Loans and Reserve for Loan Losses:
Loan balances at December 31, 2000 and 1999 are summarized as follows:
December 31, 2000 1999
- ------------------------------------------------------------------------
Real estate loans (includes loans secured primarily by real estate
only):
Construction and land development. . . . . $ 36,030,000 $ 28,236,000
One to four family residential . . . . . . 199,869,000 189,672,000
Multi-family residential . . . . . . . . . 7,829,000 8,716,000
Non-farm non-residential properties. . . . 109,536,000 97,478,000
Commercial and industrial loans. . . . . . . 39,609,000 28,646,000
Personal loans to individuals:
Auto, single payment and installment . . . 52,462,000 60,683,000
Credit card and related plans. . . . . . . 5,216,000 5,111,000
Obligations of states and political subdivisions 196,000 349,000
All other loans. . . . . . . . . . . . . . . 393,000 625,000
---------------------------
TOTAL LOANS. . . . . . . . . . . . . . . . . 451,140,000 419,516,000
Reserve for loan losses . . . . . . . . . . (5,250,000) (4,667,000)
---------------------------
NET LOANS. . . . . . . . . . . . . . . . . . $445,890,000 $414,849,000
---------------------------
Activity in the reserve for loan losses for 2000, 1999 and 1998 is
summarized as follows:
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Balance at beginning of year. . $4,667,000 $3,483,000 $4,168,000
Provision for loan losses . . . 1,700,000 2,000,000 2,725,000
Loans charged-off . . . . . . . (1,333,000) (1,050,000) (3,591,000)
Recoveries on loans previously
charged-off. . . . . . . . . . 216,000 234,000 181,000
-----------------------------------------
BALANCE AT END OF YEAR. . . . . $5,250,000 $4,667,000 $3,483,000
-----------------------------------------
118
At December 31, 2000 and 1999, $9,008,000 and $9,545,000 respectively,
of mortgage, commercial and student loans were available for sale in the
secondary market. At December 31, 2000, the market value of commercial
and mortgage loans available for sale equaled or exceeded its carrying
value. At December 31, 2000, there were no student loans available for
sale. At December 31, 1999, the market value of commercial and student
loans available for sale equaled or exceeded their carrying value and
the carrying value of the only mortgage loan available for sale was
written down to its market value. At December 31, 2000, the Bank had
firm commitments for the sale of approximately $122,000 of mortgage
loans.
Information regarding impaired loans is as follows:
Years ended December 31 2000 1999 1998
- ------------------------------------------------------------------------
Year-end impaired loans
with no allowance for
loan losses allocated. . . . $ -0- $ -0- $ -0-
Year-end impaired loans
with allowance for loan
losses allocated . . . . . . 5,027,000 2,232,000 $2,089,000
Amount of the allowance
allocated. . . . . . . . . . 847,000 190,000 139,000
Average of impaired loans
during the year. . . . . . . 1,230,000 2,925,000 1,130,000
Interest income recognized
during impairment. . . . . . 72,000 283,000 82,000
Cash-basis interest income
recognized . . . . . . . . . -0- -0- 26,000
- ------------------------------------------------------------------------
END PUBLISHED PAGE 21
119
(8) Bank Premises, Equipment and Leases:
Bank premises and equipment are summarized as follows:
December 31, 2000 1999
- ------------------------------------------------------------------------
Land . . . . . . . . . . . . . . . . . . . . .$ 1,896,000 $ 1,896,000
Buildings. . . . . . . . . . . . . . . . . . . 9,243,000 9,194,000
Equipment. . . . . . . . . . . . . . . . . . . 16,750,000 15,250,000
Leasehold improvements . . . . . . . . . . . . 688,000 688,000
--------------------------
Total Costs. . . . . . . . . . . . . . . . . . 28,577,000 27,028,000
--------------------------
Less accumulated depreciation
and amortization. . . . . . . . . . . . . . . 17,326,000 15,775,000
--------------------------
TOTAL. . . . . . . . . . . . . . . . . . . . .$11,251,000 $11,253,000
--------------------------
Depreciation and amortization of Bank premises and equipment charged to
other expenses amounted to $1,440,000 in 2000, $1,407,000 in 1999 and
$1,472,000 in 1998. Amortization of purchased software charged to other
operating expenses amounted to $227,000 in 2000, $205,000 in 1999 and
$216,000 in 1998.
At December 31, 2000, the Bank was obligated to pay rental commitments
under noncancelable operating leases on branch offices and certain
equipment as follows:
Year Ending Branch
December 31, Offices Equipment
-----------------------------------------------------------
2001. . . . . . . . . . . . .$213,000 $ 4,000
2002. . . . . . . . . . . . . 190,000 -0-
2003. . . . . . . . . . . . . 175,000 -0-
2004. . . . . . . . . . . . . 64,000 -0-
2005. . . . . . . . . . . . . 48,000 -0-
2006 and thereafter . . . . . 84,000 -0-
---------------------------
Total. . . . . . . . . . . . .$774,000 $ 4,000
---------------------------
Rentals paid under leases on branch offices and equipment, respectively,
amounted to $265,000 and $4,000 in 2000, $265,000 and $10,000 in 1999
and $142,000 and $12,000 in 1998.
(9) Deposits:
Deposit balances at December 31, 2000 and 1999 are summarized as
follows:
December 31, 2000 1999
- ------------------------------------------------------------------------
Demand and other noninterest-bearing deposits:
Individuals, partnerships
and corporations. . . . . . . . . . . . . .$ 72,956,000 $ 68,049,000
U.S. Government. . . . . . . . . . . . . . . 144,000 170,000
120
States and political subdivisions. . . . . . 5,458,000 8,521,000
Certified, official, travelers
checks and other. . . . . . . . . . . . . . 4,535,000 3,914,000
--------------------------
Total demand and other noninterest-
bearing deposits. . . . . . . . . . . . . . . 83,093,000 80,654,000
--------------------------
Savings and passbook accounts:
Individuals and non-profit organizations . . 190,570,000 171,315,000
Corporations and profit organizations. . . . 29,048,000 20,613,000
--------------------------
Total savings and passbook accounts. . . . . . 219,618,000 191,928,000
--------------------------
Certificates of deposit:
Individuals, partnerships and
corporations . . . . . . . . . . . . . . . 169,544,000 169,791,000
States and political subdivisions. . . . . . 23,836,000 14,458,000
--------------------------
Total certificates of deposit. . . . . . . . . 193,380,000 184,249,000
--------------------------
TOTAL DEPOSITS . . . . . . . . . . . . . . . .$496,091,000 $456,831,000
--------------------------
The aggregate amount of certificates of deposit in denominations of
$100,000 or more amounted to $42,238,000 and $36,336,000 at December 31,
2000 and 1999, respectively.
The maturity distribution of time certificates of deposit as of December
31, 2000 and 1999 follows:
After 3 After 6
Months Months
Within 3 But Within But Within
Months 6 Months 1 Year
- ------------------------------------------------------------------------
December 31, 2000. . $64,404,000 $33,470,000 $51,909,000
---------------------------------------------------
December 31, 1999. . $61,248,000 $43,009,000 $38,935,000
---------------------------------------------------
After 1 After 2
Year But Years But
Within Within
2 Years 5 Years Total
- ------------------------------------------------------------------------
December 31, 2000. . $32,463,000 $11,134,000 $193,380,000
---------------------------------------------------
December 31, 1999. . $29,232,000 $11,825,000 $184,249,000
---------------------------------------------------
END PUBLISHED PAGE 22
121
(10) Securities Sold Under Repurchase Agreements and Other Short-Term
Borrowings:
Information relating to short-term borrowings for the years ended
December 31, 2000, 1999 and 1998 follows:
December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Securities sold under repurchase agreements and other short-term
borrowings
At December 31:
Outstanding. . . . . . . . .$39,391,000 $52,122,000 $22,960,000
Interest rate. . . . . . . . 5.41% 4.48% 3.80%
Average for the year:
Outstanding. . . . . . . . .$33,734,000 $28,892,000 $22,719,000
Interest rate. . . . . . . . 5.56% 4.27% 4.36%
Maximum month-end outstanding.$42,378,000 $52,122,000 $34,622,000
Line of credit
At December 31:
Outstanding. . . . . . . . .$ -0- $ -0- $ -0-
Interest rate. . . . . . . . N/A N/A N/A
Average for the year:
Outstanding. . . . . . . . .$ -0- $ -0- $ 1,688,000
Interest rate. . . . . . . . N/A N/A 6.46%
Maximum month-end outstanding.$ -0- $ -0- $ 2,200,000
- ------------------------------------------------------------------------
In May of 1997, the Corporation obtained a $4,100,000 line of credit
from a commercial bank to fund the purchase of treasury stock. The
interest rate was based upon the current Eurodollar rate plus fifty
basis points and was adjustable every six months. Interest was paid on
a quarterly basis.
When there were outstanding balances on the line of credit, they were
collateralized with U.S. Treasury securities or certificates of deposit.
The line of credit expired in May of 1999 and was not renewed. The Bank
maintains a $30,000,000 line of credit with the FHLB which matures on
September 7, 2001. At December 31, 2000, the Bank borrowed $9,000,000
under this line of credit while having credit available in the amount of
$21,000,000.
(11) Federal Home Loan Bank Advances, Short-Term:
Information relating to short-term Federal Home Loan Bank advances for
the years ended December 31, 2000, 1999 and 1998 follows:
December 31, 2000 1999 1998
- -----------------------------------------------------------------------
Federal Home Loan Bank advances, short-term
At December 31:
Outstanding. . . . . . . . . . .$16,095,000 $15,000,000 $-0-
Interest rate. . . . . . . . . . 4.88-6.85% 4.76-5.53% N/A
Average for the year:
Outstanding. . . . . . . . . . .$ 8,941,000 $ 6,693,000 $-0-
Interest rate. . . . . . . . . . 5.16% 5.45% N/A
Maximum month-end outstanding . . .$16,095,000 $15,000,000 $-0-
122
(12) Federal Home Loan Bank Advances, Long-Term:
Lorain National Bank is a voluntary member of the Federal Home Loan Bank
of Cincinnati (FHLB). Long-term advances from the FHLB with maturities
and fixed interest rates thereon at December 31, 2000 and 1999 are as
follows:
Maturity Interest Rate 1999 1998
---------------------------------------------------------------
2001 4.88-6.85%. . .$ -0- $11,095,000
2002 4.86-6.31%. . . 8,250,000 8,250,000
-------------------------
Total . . . . . . . .$ 8,250,000 $19,345,000
-------------------------
At December 31, 2000, pledged as collateral for FHLB advances were all
of the shares of FHLB stock owned by the Bank, and qualified mortgage
loans totaling $45,016,000. At December 31, 2000, Lorain National Bank
was approved for $57,748,000 of FHLB advances. The Bank is required to
own FHLB stock equal to 5% of the FHLB advances outstanding and owned
$2,887,600 at December 31, 2000. At December 31, 2000, the amount of
credit available to the Bank from the FHLB was $24,403,000. The Bank is
eligible to purchase additional FHLB stock, if needed, and thereby
increase the amount of credit available.
END PUBLISHED PAGE 23
123
(13) Income Taxes:
The annual provision for income taxes consists of the following:
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
INCOME TAXES
Federal Current. . . . . . . $4,743,000 $4,448,000 $3,083,000
Federal Deferred . . . . . . (348,000) (627,000) 192,000
State. . . . . . . . . . . . 5,000 21,000 16,000
Cumulative effect adjustment -0- -0- 136,000
------------------------------------------
TOTAL INCOME TAXES . . . . . . $4,400,000 $3,842,000 $3,427,000
------------------------------------------
The following presents a reconciliation of the total income taxes as
shown on the Consolidated Statements of Income with that which would be
computed by applying the statutory Federal tax rate of 35 percent to
income before income taxes.
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Computed "expected" tax
expense . . . . . . . . . . . $4,491,000 $4,019,000 $3,586,000
Increase (reduction) in income
taxes resulting from:
Tax exempt interest on
obligations of states
and political subdivisions (82,000) (76,000) (75,000)
State income taxes net of
Federal benefit. . . . . . 3,000 14,000 10,000
Other, net. . . . . . . . . (12,000) (115,000) (94,000)
------------------------------------------
TOTAL INCOME TAXES . . . . . . $4,400,000 $3,842,000 $3,427,000
------------------------------------------
Net deferred Federal tax assets are included in Other Assets on the
Consolidated Balance Sheets. Management believes that it is more likely
than not that the deferred Federal tax assets will be realized. The tax
effects of temporary differences that give rise to significant portions
of the deferred Federal tax assets and deferred Federal tax liabilities
are presented below.
December 31, 2000 1999
- -----------------------------------------------------------------------
Deferred Federal tax assets:
Reserve for loan losses . . . . . . . . . . . $1,608,000 $1,276,000
Deferred compensation . . . . . . . . . . . . 288,000 289,000
Accrued vacation payable. . . . . . . . . . . 159,000 165,000
Intangible asset amortization . . . . . . . . 80,000 64,000
Accrued pension payable . . . . . . . . . . . 88,000 56,000
Unrealized loss on securities available for sale -0- 523,000
Other, net. . . . . . . . . . . . . . . . . . 20,000 23,000
------------------------
Total deferred Federal tax assets . . . . . . . 2,243,000 2,396,000
124
Deferred Federal tax liabilities:
Bank premises and equipment depreciation. . . (315,000) (300,000)
Deferred charges. . . . . . . . . . . . . . . (79,000) (159,000)
FHLB stock dividends. . . . . . . . . . . . . (227,000) (158,000)
Unrealized gain on securities available for sale (99,000) -0-
Accrued loan fees and costs . . . . . . . . . (122,000) (103,000)
------------------------
Total deferred Federal tax liabilities. . . . . (842,000) (720,000)
------------------------
NET DEFERRED FEDERAL TAX ASSETS . . . . . . . . $1,401,000 $1,676,000
------------------------
END PUBLISHED PAGE 24
125
(14) Shareholders' Equity:
Preferred Stock
The Corporation is authorized to issue up to 1,000,000 shares of Voting
Preferred Stock, no par value. As of December 31, 2000, no such stock
had been issued. The Board of Directors of the Corporation is
authorized to provide for the issuance of one or more series of Voting
Preferred Stock and establish the dividend rate, dividend dates,
whether dividends are cumulative, liquidation prices, redemption rights
and prices, sinking fund requirements, conversion rights, and
restrictions on the issuance of any series of Voting Preferred Stock.
The Voting Preferred Stock may be issued with conversion rights to
common stock and may rank prior to the common stock in dividends,
liquidation preferences, or both.
Common Stock
The Corporation is authorized to issue up to 15,000,000 shares of common
stock. Common shares outstanding were 4,211,047 and 4,127,161 at
December 31, 2000, and December 31, 1999, respectively.
The Board of Directors of LNB Bancorp, Inc. declared a two percent stock
dividend, paid on July 1, 2000, to shareholders of record on June 12,
2000. The two percent stock dividend increased LNB Bancorp Inc.'s
common stock outstanding by 84,562 shares. Cash was issued in lieu of
fractional shares.
Common Stock Repurchase Plan and Treasury Stock
On May 20, 1997, the Board of Directors authorized the repurchase of up
to 102,000 shares of common stock. The repurchased shares will be used
primarily for qualified employee benefit plans, incentive stock option
plans, stock dividends and other Corporate purposes. At December 31,
2000, LNB Bancorp, Inc. held 102,000 shares of common stock as Treasury
Stock. LNB Bancorp, Inc. purchased 2,000 shares in 2000, 2,004 shares
in 1998 and 97,996 shares in 1997 under this plan for a total cost of
$2,940,000. During 2000, 1999 and 1998, no shares were issued out of
Treasury Stock.
Shareholder Rights Plan
On October 24, 2000, the Board of Directors of LNB Bancorp, Inc. adopted
a Shareholder Rights Plan. The rights plan is designed to prevent a
potential acquiror from exceeding a prescribed ownership level in LNB
Bancorp, Inc., other than in the context of a negotiated acquisition
involving the Board of Directors. If the prescribed level is exceeded,
the rights become exercisable and, following a limited period for the
Board of Directors to redeem the rights, allow shareholders, other than
the potential acquiror that triggered the exercise of the rights, to
purchase Preferred Share Units of the Corporation having characteristics
comparable to the Corporation's Common Shares, at 50% of market value.
This would likely dramatically dilute the potential acquiror's ownership
level and voting power, making an acquisition of the Corporation without
prior Board approval prohibitively expensive.
126
The Shareholder Rights Plan provided for the distribution of one
Preferred Share Purchase Right as a dividend on each outstanding LNB
Bancorp, Inc. Common Share held as of the close of business on November
6, 2000. One Preferred Share Purchase Right will also be distributed
for each Common Share issued after November 6, 2000. Each right
entitles the registered holder to purchase from LNB Bancorp, Inc. Units
of a new series of Voting Preferred Shares, no par value, at 50 percent
of market value, if a person or group acquires 15 percent or more of LNB
Bancorp, Inc.'s Common Shares. Each Unit of the new Preferred Shares
has terms designed to make it the economic equivalent of one Common
Share. A complete description of the distribution, exercise, and terms
of the rights are set forth in a Shareholder Rights Agreement dated
October 24, 2000 between LNB Bancorp, Inc. and Registrar and Transfer
Company as Rights Agent. The Shareholder Rights Agreement was filed
with the Securities and Exchange Commission in a Form 8-A Filing on
November 6, 2000.
Dividends
Total cash dividends declared per share for 2000 increased $.10, or
11.1 percent, to $1.00 per share, up from $.90 per share in 1999. Total
cash dividends declared in 2000, including the $.02 EXTRA dividend
declared by the Board of Directors in November, rose to $4,191,000. In
each of the last 13 years, the Board of Directors has approved an
increase in the regular cash dividend, with the 2000 dividend
representing a 232.6% increase from 1990 when $1,260,000 in total cash
dividends were declared.
In February 2001, the Corporation announced that the Board of Directors
raised the 2001 first quarter cash dividend declared on common stock by
$.01 to $.25 per share. This represents an increase of 4.2% from last
year's first-quarter dividend of $.24 per share.
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 2000 and 1999. During 2000 and
1999, stock for the dividend reinvestment plan was purchased in the open
market at the current market price.
Dividend Restrictions
Dividends paid by the Bank are the primary source of funds available to
the Corporation for payment of dividends to shareholders and for other
working capital needs. The payment of dividends by the Bank to the
Corporation is subject to restrictions by the Office of the Comptroller
127
of Currency. These restrictions generally limit dividends to the current
and prior two year's retained earnings. At December 31, 2000,
approximately $10,857,000 of the Bank's retained earnings were available
for dividends to the Corporation. In addition to these restrictions, as
a practical matter, dividend payments cannot reduce regulatory capital
levels below the Corporation's regulatory capital requirements and
minimum regulatory guidelines. These restrictions do not presently limit
the Corporation from paying normal dividends.
END PUBLISHED PAGE 25
128
(15) Regulatory Capital:
The Corporation and the Bank are subject to risk-based capital
guidelines issued by the Board of Governors of the Federal Reserve Board
and the Office of Comptroller of Currency. These guidelines are used to
evaluate capital adequacy and include required minimums as discussed
below. The Corporation and the Bank are subject to an array of banking,
Federal Deposit Insurance Corporation, U.S. Federal, and State of Ohio
laws and regulations, including the FDIC Improvement Act. The FDIC
Improvement Act established five capital categories ranging from "well
capitalized" to "critically undercapitalized". These five capital
categories are used by the Federal Deposit Insurance Corporation to
determine prompt corrective action and an institution's semi-annual FDIC
deposit insurance premium assessments.
Capital adequacy guidelines and prompt corrective action regulations
involve quantitative measures of assets, liabilities, and certain
off-balance sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings,
and other factors, and the regulators can lower classifications in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the
consolidated financial statements.
The prompt corrective action regulations provide for five categories
which in declining order are: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically undercapitalized." To be considered "well capitalized", an
institution must generally have a leverage capital ratio of at least 5
percent, a Tier 1 risk-based capital ratio of at least 6 percent, and a
total risk-based capital ratio of at least 10 percent.
The Corporation continued to maintain a strong capital position during
2000. Total capital (Tier 1 and Tier 2) amounted to $57.6 million at
December 31, 2000, representing 13.06% of net risk-adjusted assets
compared with $52.5 million and 12.84%, respectively, at December 31,
1999. Tier 1 capital of $52.5 million at year-end 2000 represented
11.88% of risk weighted assets, compared with $47.8 million and 11.70%
at year-end 1999.
At December 31, 2000 and 1999, the capital ratios for the Corporation
and its wholly owned subsidiary, Lorain National Bank, exceeded the
above ratios required to be "well capitalized". The "well capitalized"
status affords the Bank the ability to operate with the greatest
flexibility under current laws and regulations. The Comptroller of the
Currency's most recent notification, with an examination date of
September 30, 1999, categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. There are no
conditions or events since that notification that Management believes
have changed the Bank's category.
129
Analysis of Lorain National Bank and LNB Bancorp, Inc.'s Regulatory
Capital and Regulatory Capital Requirements
Minimum Required Minimum Required
December 31 Actual To Be Well Capitalized Capital
- ------------------------------------------------------------------------
(amounts in thousands)
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------
2000 Total capital (to risk weighted assets)
Consolidated. .$57,637 13.06% $44,194 10.0% $35,355 8.0%
Bank. . . . . .$54,464 12.34% $44,127 10.0% $35,302 8.0%
2000 Tier 1 capital (to risk weighted assets)
Consolidated. .$52,486 11.88% $26,516 6.0% $17,677 4.0%
Bank. . . . . .$45,214 10.24% $26,476 6.0% $17,651 4.0%
2000 Tier 1 capital (to average assets)
Consolidated. .$52,387 8.68% $30,183 5.0% $24,146 4.0%
Bank. . . . . .$45,214 7.50% $30,156 5.0% $24,125 4.0%
1999 Total capital (to risk weighted assets)
Consolidated. .$52,491 12.84% $40,872 10.0% $32,698 8.0%
Bank. . . . . .$48,284 11.82% $40,807 10.0% $32,646 8.0%
1999 Tier 1 capital (to risk weighted assets)
Consolidated. .$47,824 11.70% $24,523 6.0% $16,349 4.0%
Bank. . . . . .$39,617 9.70% $24,484 6.0% $16,323 4.0%
1999 Tier 1 capital (to average assets)
Consolidated. .$47,824 8.36% $28,613 5.0% $22,891 4.0%
Bank. . . . . .$39,617 6.96% $28,446 5.0% $22,756 4.0%
END PUBLISHED PAGE 26
130
(16)Parent Company:
Substantially all of the retained earnings of the Corporation represent
undistributed net income of its subsidiary. Condensed financial
information of LNB Bancorp, Inc. (Parent Company only) is as follows:
Condensed Balance Sheets
December 31, 2000 1999
- ------------------------------------------------------------------------
ASSETS:
Cash. . . . . . . . . . . . . . . . . . . . .$ 1,177,000 $ 1,047,000
Short-term investments. . . . . . . . . . . . 3,125,000 3,070,000
Investment in subsidiaries
at equity in underlying
value of its net assets. . . . . . . . . . . 49,263,000 43,862,000
Securities available for sale . . . . . . . . 88,000 87,000
Note receivable - subsidiary. . . . . . . . . 4,000,000 4,000,000
Other assets. . . . . . . . . . . . . . . . . 25,000 46,000
---------------------------
Totals assets . . . . . . . . . . . . . . . .$57,678,000 $52,112,000
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities . . . . . . . . . . . . . . . . .$ 1,153,000 $ 1,059,000
Shareholders' equity. . . . . . . . . . . . . 56,525,000 51,053,000
---------------------------
Total liabilities and shareholders' equity. .$57,678,000 $52,112,000
---------------------------
Condensed Statements of Income
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
INCOME:
Cash dividends from subsidiary $ 4,191,000 $ 3,794,000 $ 3,381,000
Interest and other income. . . 445,000 663,000 773,000
------------------------------------------
4,636,000 4,457,000 4,154,000
EXPENSES:
Other expenses . . . . . . . . 334,000 238,000 240,000
------------------------------------------
Income before income taxes and
equity in undistributed
net income of subsidiary. . . 4,302,000 4,219,000 3,914,000
Income tax expense . . . . . . 55,000 159,000 189,000
Equity in undistributed net
income of subsidiary. . . . . 4,183,000 3,581,000 3,093,000
------------------------------------------
NET INCOME . . . . . . . . . . $ 8,430,000 $ 7,641,000 $ 6,818,000
------------------------------------------
131
Condensed Statements of Cash Flows
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from subsidiary. . . $ 4,191,000 $ 3,794,000 $ 3,381,000
Other, net . . . . . . . . . . 55,000 280,000 392,000
------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES. . . . . 4,246,000 4,074,000 3,773,000
------------------------------------------
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES:
Proceeds from maturities of
securities available for sale -0- -0- 4,569,000
Cash paid on line of credit. . -0- -0- (2,200,000)
Proceeds from subsidiary on
note receivable . . . . . . . -0- 4,000,000 -0-
Purchase of treasury stock . . -0- -0- (57,000)
Proceeds from exercise of
stock options . . . . . . . . 25,000 87,000 4,000
Dividends paid to subsidiary . -0- (4,000,000) -0-
Dividends paid to shareholders (4,086,000) (3,794,000) (3,421,000)
------------------------------------------
NET CASH USED IN INVESTING
AND FINANCING ACTIVITIES. . . (4,061,000) (3,707,000) (1,105,000)
------------------------------------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS . . 185,000 367,000 2,668,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . 4,117,000 3,750,000 1,082,000
------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR . . . . . . . . . $ 4,302,000 $ 4,117,000 $ 3,750,000
------------------------------------------
END PUBLISHED PAGE 27
132
(17) Retirement Pension Plan:
The Corporation adopted SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits" on January 1, 1998. The
Bank maintains a non-contributory defined benefit pension plan covering
substantially all of its employees. In general, benefits are based on
years of service and the employee's level of compensation. The Bank's
funding policy is to contribute annually an actuarially determined
amount to cover current service cost plus amortization of prior service
costs.
The net periodic pension costs charged to other expenses amounted to
$95,000 in 2000, $33,000 in 1999 and $163,000 in 1998. At December 31,
2000 there were 285 participants in the plan. The following table sets
forth the defined benefit pension plan's Change in Projected Benefit
Obligation and Change in Plan Assets and Funded Status including Prepaid
(Accrued) Liability for the years ended December 31, 2000, 1999 and
1998.
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Change in projected benefit obligations:
Projected benefit obligation
at beginning of year. . . .$ (9,672,000) $ (9,064,000) $ (7,952,000)
Service cost . . . . . . . . (474,000) (408,000) (408,000)
Interest cost. . . . . . . . (571,000) (553,000) (538,000)
Employer contributions . . . -0- -0- -0-
Actuarial gain(loss) . . . . (399,000) 2,000 (653,000)
Benefits paid. . . . . . . . 1,016,000 351,000 487,000
-------------------------------------------
Projected benefit obligation
at end of year. . . . . . .$(10,100,000) $ (9,672,000) $ (9,064,000)
-------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year . . . . .$ 11,704,000 $ 10,659,000 $ 8,773,000
Actual return on plan assets (587,000) 1,396,000 2,373,000
Employer contributions . . . -0- -0- -0-
Benefits and expenses paid . (1,016,000) (351,000) (487,000)
-------------------------------------------
Fair value of plan assets
at end of year. . . . . . .$ 10,101,000 $ 11,704,000 $ 10,659,000
-------------------------------------------
Funded status . . . . . . . .$ 1,000 $ 2,032,000 $ 1,595,000
Unrecognized net gain
subsequent to transition. . (103,000) (2,006,000) (1,476,000)
Unamortized prior service cost (156,000) (190,000) (225,000)
Unamortized net asset
at transition . . . . . . . -0- -0- (25,000)
-------------------------------------------
(Accrued) Pension Liability .$ (258,000) $ (164,000) $ (131,000)
-------------------------------------------
133
Net Periodic Pension Cost consisted of the following:
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Service cost. . . . . . . . . $ 474,000 $ 408,000 $ 408,000
Interest cost on projected
benefit obligation . . . . . 571,000 553,000 538,000
Expected return on plan assets (873,000) (838,000) (717,000)
Amortization of transition
net asset. . . . . . . . . . -0- (25,000) (31,000)
Amortization of unrecognized
prior service liability. . . (35,000) (35,000) (35,000)
Recognized actuarial
(gain) or loss . . . . . . . (42,000) (30,000) -0-
-------------------------------------------
Net periodic pension cost . . $ 95,000 $ 33,000 $ 163,000
-------------------------------------------
The principal actuarial assumptions used follows:
Weighted average discount rate 6.00% 5.95% 5.95%
-------------------------------------------
Expected long-term rate of
return on plan assets. . . . 8.00% 8.00% 8.00%
-------------------------------------------
Assumed rate of future
compensation increases . . . 5.25% 5.00% 5.00%
-------------------------------------------
END PUBLISHED PAGE 28
134
(18) Stock Option Plan:
The Corporation sponsors two qualified incentive stock option plans. In
2000, the Corporation entered into two nonqualified incentive stock
option agreements. Under the nonqualified incentive stock option
agreements, 12,500 shares were granted in 2000. The incentive stock
options must be exercised within 10 years from grant date and with 100%
vesting from grant date.
The Corporation applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" to account for stock option
plans and, accordingly, no compensation cost has been recognized for its
incentive stock options in the financial statements. There were no stock
options granted or available for granting under any of the Corporation's
qualified incentive stock option plans during 2000, 1999 and 1998. SFAS
No. 123, "Stock-Based Compensation," allows a company to recognize
stock-based compensation using a fair-value based method of accounting
if it so elects. The Corporation has elected not to adopt the
recognition provisions of SFAS No. 123.
The Corporation's shareholders approved incentive stock option plans on
April 6, 1982 and April 16, 1985 for all officers at or above the
position of Vice President or equivalent. Under each plan, 50,000 shares
of stock were originally reserved. Options were granted at fair market
value at the date of the grant and, accordingly, no charges are
reflected in salaries and employee benefits expense due to the granting
of stock options. The excess of the option price over the par value of
the shares purchased through the exercise of stock options is credited
to additional capital. Options granted under the plans may not be
outstanding for periods exceeding 10 years from date of grant.
There were no new options granted or forfeitures under the qualified
stock option plans during the three year period ended December 31, 2000.
All stock option shares granted are vested. Stock options exercised
were 1,324, 4,586 and 200 shares in 2000, 1999 and 1998, respectively.
An analysis of the qualified incentive stock option plans as of December
31, 2000 follows:
Plan Year 1985 1982
----------------------------------------------------------------
Options outstanding:
Total. . . . . . . . . . . . . . . . . .12,058 9,250
Vested . . . . . . . . . . . . . . . . .12,058 9,250
Options available
for granting . . . . . . . . . . . . . . -0- -0-
Exercise price . . . . . . . . . . . . . .$19.21 $14.35
---------------------
135
2000 1999 1998
--------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------------------------------------------------
Outstanding at
beginning of
year. . . . . . 32,207 $21.37 26,793 $17.79 26,993 $17.77
Granted. . . . . 12,500 26.80 10,000 30.00 0 0.00
Exercised. . . . (1,324) 18.01 (4,586) 19.28 (200) 14.64
Stock Dividend . 775 22.63 0 0.00 0 0 00
--------------------------------------------------------
Outstanding at end
of year . . . . 44,158 22.63 32,207 21.37 26,793 17.79
========================================================
Exercisable at end
of year . . . . 44,158 22.63 32,207 21.37 26,793 17.79
========================================================
Exercise prices for qualified and nonqualified options outstanding as of
December 31, 2000, ranged from $14.35 to $29.41. The weighted average
remaining contractual life of the nonqualified incentive stock option
agreement is 9.1 years. The weighted average remaining contractual life
of the 1982 and 1985 incentive stock option plans are 1 and 3 years,
respectively.
The fair value of each option granted is estimated on the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 2000: risk-free interest rate of
5.46% and 6.69%, dividend yield of 4.00%, volatility factors of the
expected market price of LNB Bancorp, Inc.'s common stock of 26.20%; and
a weighted average expected option life of 10 years. Weighted average
fair value of options granted during 2000 was $4.91 and $2.87.
The fair value of each option granted in 1999 is estimated on the date
of grant using a Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1999: risk-free interest
rate of 5.84%, dividend yield of 4.00%, volatility factors of the
expected market price of LNB Bancorp, Inc.'s common stock of 50.00%; and
a weighted average expected option life of 10 years. Weighted average
fair value of options granted during 1999 was $9.83.
Had compensation cost for the Corporation's stock-based compensation
plans been determined consistent with SFAS No. 123, net income and net
income per share would have been as summarized below. Additionally, no
stock-based compensation, as defined by the provisions of Statement of
Financial Accounting Standards No. 123, "Stock-Based Compensation" was
generated under any of the Corporation's stock-based benefit plans
during 1998.
136
Years ended December 31, 2000 1999
- ---------------------------------------------------------
Pro forma net income. . . . . . . $8,400,000 $7,576,000
Pro forma net income per share: .
Basic . . . . . . . . . . . . . $ 1.99 $ 1.84
Diluted . . . . . . . . . . . . $ 1.99 $ 1.83
------------------------
END PUBLISHED PAGE 29
137
(19) Employee Stock Ownership Plan:
The Lorain National Bank Employee Stock Ownership Plan (ESOP) is a
non-contributory plan that covers substantially all employees.
Contributions by the Bank to the ESOP are discretionary and subject to
approval by the Board of Directors. Contributions are expensed in the
year in which they are approved and totaled $450,000, $400,000 and
$200,000 in 2000, 1999, and 1998, respectively. At December 31, 2000
there were 288 participants in the plan. Under the terms of the ESOP
agreement, Corporation common stock is to be the plan's primary
investment.
Transactions by the ESOP, relating to activity in the Corporation's
common stock, are summarized below:
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Cash dividend income . . . .$ 148,000 $ 124,000 $ 113,000
Stock dividend shares. . . . 2,859 -0- -0-
Shares purchased . . . . . . 17,337 7,912 6,823
Shares distributed . . . . . 6,298 990 2,266
Year end holdings:
Shares . . . . . . . . . . 152,934 139,036 132,114
Market value . . . . . . .$3,336,000 $3,059,000 $3,666,000
As a percentage of
total plan assets. . . . 91.7% 89.0% 94.4%
- ------------------------------------------------------------------------
(20) Stock Purchase Plan:
The Bank sponsors The Lorain National Bank Stock Purchase Plan (the
Plan). Under provisions of the Plan, a participating employee can
contribute up to 6% of their compensation. The Bank then makes a
contribution equal to 50% of each participant's contribution. The Plan
uses the contributions to purchase Corporation common stock at fair
market value. The common stock is distributed to plan participants,
under provisions of the Plan, based upon the participant's cumulative
prorata share of plan assets.
The Bank's 50% matching contributions are expensed in the year in which
the associated participant contributions are made and totaled $137,000,
$134,000 and $127,000 in 2000, 1999 and 1998, respectively. At December
31, 2000, there were 228 participants in the Plan.
Transactions by the Stock Purchase Plan relating to the activity in the
Corporation's common stock are summarized below:
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Cash dividend income. . . . $ 120,000 $ 112,000 $ 104,000
Stock dividend shares . . . 2,238 -0- -0-
Shares purchased. . . . . . 19,504 16,046 8,028
Shares distributed/sold . . 23,463 6,979 15,557
Year end holdings:
Shares. . . . . . . . . . 124,639 126,360 117,293
Market value. . . . . . . $2,719,000 $2,780,000 $3,255,000
138
As a percentage of
total plan assets . . . 99.2% 94.4% 95.9%
- ------------------------------------------------------------------------
Lorain National Bank converted the Lorain National Bank Stock Purchase
Plan to the Lorain National Bank 401(k) Plan on January 1, 2001.
(21) Commitments, Credit Risk, and Contingencies:
In the normal course of business, the Bank enters into commitments with
off-balance sheet risk to meet the financing needs of its customers.
These instruments are currently limited to commitments to extend credit
and standby letters of credit. Commitments to extend credit involve
elements of credit risk and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The Bank's exposure to
credit loss in the event of nonperformance by the other party to the
commitment is represented by the contractual amount of the commitment.
The Bank uses the same credit policies in making commitments as it does
for on-balance sheet instruments. Interest rate risk on commitments to
extend credit results from the possibility that interest rates may have
moved unfavorably from the position of the Bank since the time the
commitment was made.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates of 60 to
120 days or other termination clauses and may require payment of a fee.
Since some of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
The Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained by the Bank upon extension of
credit is based on Management's credit evaluation of the applicant.
Collateral held is generally single-family residential real estate and
commercial real estate. Substantially all of the obligations to extend
credit are variable rate commitments.
The Bank's maximum potential obligation to extend credit for financial
instruments with off-balance sheet risk follows:
December 31, 2000 1999
- ----------------------------------------------------------------------
Commitments to extend credit. . . . $ 91,054,000 $ 82,402,000
Credit card arrangements. . . . . . 16,635,000 17,380,000
Standby letters of credit . . . . . 1,356,000 1,521,000
----------------------------------
Total. . . . . . . . . . . . . . $109,045,000 $101,303,000
----------------------------------
Most of the Bank's business activity is with customers located within
the Bank's defined market area. As of December 31, 2000, the Bank had no
significant concentrations of credit risk in its loan portfolio. The
Bank also has no exposure to highly leveraged transactions and no
foreign credits in its loan portfolio.
139
The nature of the Corporation's business results in litigation.
Management, after reviewing with counsel all actions and proceedings
pending against or involving LNB Bancorp, Inc. and Lorain National Bank,
considers that the aggregate liability or loss, if any, resulting from
them will not be material to the Corporation's financial position.
END PUBLISHED PAGE 30
140
(22) Estimated Fair Value of Financial Instruments:
The Corporation discloses estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set
forth below for the Corporation's financial instruments.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and due from banks and Federal funds sold and short-term
investments and Accrued interest, accounts receivable and other
financial assets:
For these short-term financial instruments, the carrying value is a
reasonable estimate of fair value.
Securities:
The fair value of securities is based on quoted market prices, where
available. If quoted market prices are not available, fair value is
estimated using the quoted market prices of comparable instruments.
Portfolio loans, net and loans available for sale, net:
For variable rate loans with interest rates that may be adjusted on a
quarterly, or more frequent basis, the carrying amount is a reasonable
estimate of fair market value. The fair value of other types of loans is
estimated by discounting future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
Deposits:
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, money market, checking and
NOW accounts, is equal to the amount payable on demand as of December
31, for each year presented. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities. For variable rate
certificates of deposit, the carrying amount is a reasonable estimate of
fair value.
Securities sold under repurchase agreements and other short-term
borrowings and Accrued interest payable and other financial liabilities:
For these short term financial instruments, the carrying value is a
reasonable estimate of fair value.
Federal Home Loan Bank advances:
The fair value of these long-term financial instruments is estimated by
discounting future cash flows using current FHLB rates for the remaining
term to maturity.
Commitments to extend credit and standby letters of credit:
The difference between the notional amount and the estimated fair value
of these commitments is not material.
Limitations:
Estimates of fair value are made at a specific point in time, based on
relevant market information and information about the financial
141
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
Estimates of fair value are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Bank has a
substantial Investment and Trust Services Division that contributes net
fee income annually. The Investment and Trust Services Division is not
considered a financial instrument and its value has not been
incorporated into the fair value estimates. Other significant assets
and liabilities that are not considered financial instruments include
property, plant, and equipment and deferred tax liabilities. In
addition, it is not practicable for the Corporation to estimate the tax
ramifications related to the realization of the unrealized gains and
losses and they have not been reflected in any of the estimates of fair
value. The impact of these tax ramifications can have a significant
effect on estimates of fair value.
The estimated fair values of the Corporation's financial instruments at
December 31, 2000 and 1999 are summarized as follows:
December 31, 2000 1999
- ------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
- ------------------------------------------------------------------------
Financial assets:
Cash and due from banks and Federal
funds sold and short-
term investments $ 25,136,000 $ 25,136,000 $ 37,343,000 $ 37,343,000
============ ============ ============ ============
Securities . . . .$127,101,000 $126,652,000 $123,319,000 $120,496,000
============ ============ ============ ============
Portfolio loans,
net . . . . . . .$436,882,000 $441,250,000 $405,304,000 $407,358,000
============ ============ ============ ============
Loans available
for sale, net . .$ 9,008,000 $ 9,008,000 $ 9,545,000 $ 9,825,000
============ ============ ============ ============
Accrued interest, accounts receivable
and other financial
assets. . . . . .$ 7,303,000 $ 7,303,000 $ 6,824,000 $ 6,824,000
============ ============ ============ ============
Financial liabilities:
Deposits:
Demand deposits, savings accounts
and money market
deposits. . . . .$302,711,000 $302,711,000 $272,582,000 $272,582,000
Certificates of
deposit . . . . . 193,380,000 193,382,000 184,249,000 185,051,000
------------ ------------ ------------ ------------
Total deposits. . .$496,091,000 $496,093,000 $456,831,000 $457,633,000
============ ============ ============ ============
142
Securities sold under repurchase agree-
ments and other short-term
borrowings . . . .$ 39,391,000 $ 39,391,000 $ 52,122,000 $ 52,122,000
============ ============ ============ ============
Federal Home Loan
Bank advances. . .$ 24,345,000 $ 24,235,000 $ 34,345,000 $ 33,402,000
============ ============ ============ ============
Accrued interest payable and
other financial
liabilities. . . .$ 5,054,000 $ 5,054,000 $ 3,930,000 $ 3,930,000
============ ============ ============ ============
END PUBLISHED PAGE 31
143
Report of Management
To The Shareholders of LNB Bancorp, Inc.
January 23, 2001
The Management of LNB Bancorp, Inc. is responsible for the preparation,
integrity, and fair representation of its financial statements presented
in this annual report. The financial statements have been prepared in
accordance with generally accepted accounting principles and, as such,
include amounts, some of which are based on judgments and estimates of
Management.
LNB Bancorp, Inc. maintains a system of internal control over financial
reporting designed to produce reliable financial statements. The system
contains self-monitoring mechanisms, and compliance is tested and
evaluated through an extensive program of internal audits. Actions are
taken to correct potential deficiencies as they are identified. Any
internal control system has inherent limitations, including the
possibility that controls can be circumvented or overridden. Further,
because of changes in conditions, internal control system effectiveness
may vary over time.
Management assessed the Corporation's internal control over financial
reporting presented in conformity with generally accepted accounting
principles as of December 31, 2000. Based on this assessment,
Management believes that, as of December 31, 2000, the Corporation
maintained effective internal control over financial reporting presented
in conformity with generally accepted accounting principles.
The Audit Committee of the Board of Directors is composed entirely of
outside directors who are independent of Management and meets
periodically with Management, internal auditors and independent auditors
to review audit plans and the results and recommendations of their
audits. The Audit Committee selects the independent auditor. KPMG LLP,
independent auditors, and the internal auditors have direct and
confidential access to the Audit Committee at all times to discuss the
results of their examinations.
The accounting firm of KPMG LLP has been engaged by LNB Bancorp, Inc. to
audit its financial statements and their report follows.
/s/ Gary C, Smith /s/ Gregory D. Friedman
Gary C. Smith Gregory D. Friedman
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Report of Independent Auditors
The Board of Directors
LNB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of LNB
Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, cash flows and shareholders'
144
equity for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LNB
Bancorp, Inc. and subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000, in conformity with
accounting principles, generally accepted in the United States of
America.
/s/ KPMG LLP
Cleveland, Ohio
January 23, 2001
END PUBLISHED PAGE 32
145
Selected Unaudited Quarterly Financial Data
Consolidated unaudited quarterly financial and per share data for the
years ended December 31, 2000, 1999 and 1998 are summarized as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Totals
- ------------------------------------------------------------------------
Total 2000$10,939,000 $11,521,000 $11,992,000 $12,193,000 $46,645,000
interest 1999 9,778,000 10,281,000 10,711,000 10,847,000 41,617,000
income 1998 9,126,000 9,377,000 9,830,000 9,845,000 38,178,000
- ------------------------------------------------------------------------
Total 2000 4,384,000 4,549,000 5,038,000 5,238,000 19,209,000
interest 1999 3,575,000 3,739,000 4,076,000 4,203,000 15,593,000
expense 1998 3,435,000 3,415,000 3,578,000 3,571,000 13,999,000
- ------------------------------------------------------------------------
Net 2000 6,555,000 6,972,000 6,954,000 6,955,000 27,436,000
interest 1999 6,203,000 6,542,000 6,635,000 6,644,000 26,024,000
income 1998 5,691,000 5,962,000 6,252,000 6,274,000 24,179,000
- ------------------------------------------------------------------------
Provision2000 300,000 300,000 650,000 450,000 1,700,000
for loan 1999 200,000 500,000 550,000 750,000 2,000,000
losses 1998 187,000 238,000 838,000 1,462,000 2,725,000
- ------------------------------------------------------------------------
Net 2000 6,255,000 6,672,000 6,304,000 6,505,000 25,736,000
interest 1999 6,003,000 6,042,000 6,085,000 5,894,000 24,024,000
income 1998 5,504,000 5,724,000 5,414,000 4,812,000 21,454,000
after provision for loan losses
- ------------------------------------------------------------------------
Other 2000 1,933,000 2,112,000 2,124,000 2,201,000 8,370,000
income 1999 1,750,000 2,261,000 2,052,000 2,035,000 8,098,000
1998 1,622,000 1,831,000 1,658,000 2,541,000 7,652,000
- ------------------------------------------------------------------------
Other 2000 5,200,000 5,540,000 5,137,000 5,399,000 21,276,000
expenses 1999 5,008,000 5,298,000 5,099,000 5,234,000 20,639,000
1998 4,582,000 4,909,000 4,314,000 5,056,000 18,861,000
- ------------------------------------------------------------------------
Income 2000 1,008,000 1,124,000 1,130,000 1,138,000 4,400,000
taxes 1999 912,000 1,042,000 1,047,000 841,000 3,842,000
1998 866,000 892,000 932,000 601,000 3,291,000
- ------------------------------------------------------------------------
Net 2000 $1,980,000 $2,120,000 $2,161,000 $2,169,000 $8,430,000
income 1999 1,833,000 1,963,000 1,991,000 1,854,000 7,641,000
1998 1,678,000 1,754,000 1,826,000 1,560,000 6,818,000
- ------------------------------------------------------------------------
Basic 2000 $ .48 $ .49 $ .51 $ .52 $2.00
earnings 1999 .43 .47 .47 .44 1.81
per 1998 .40 .41 .43 .38 1.62
share(1)
- ------------------------------------------------------------------------
Diluted 2000 $ .48 $ .49 $ .51 $ .52 $2.00
earnings 1999 .43 .47 .47 .44 1.81
per 1998 .40 .41 .43 .38 1.62
share(1)
- ------------------------------------------------------------------------
146
Dividends2000 $ .24 $ .24 $ .25 $ .27 $1.00
declared 1999 .21 .21 .23 .25 .90
per share1998 .19 .19 .21 .25 .84
(2)
- ------------------------------------------------------------------------
(1) Basic and Diluted earnings per share is computed using the weighted
average number of shares outstanding during each quarter and each year.
(2) All share and per share data have been adjusted to reflect the 2
percent stock dividend in 2000.
END PUBLISHED PAGE 33
147
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME AND CASH DIVIDENDS DECLARED - YEARS ENDED
DECEMBER 31,
2000 1999 1998
- ------------------------------------------------------------------------
Total interest income. . . . . $46,645,000 $41,617,000 $38,178,000
Total interest expense . . . . 19,209,000 15,593,000 13,999,000
------------------------------------------
Net interest income . . . . . 27,436,000 26,024,000 24,179,000
Provision for loan losses. . . 1,700,000 2,000,000 2,725,000
Other income . . . . . . . . . 8,369,000 7,936,000 6,997,000
Gains (losses) on sales
of assets . . . . . . . . . . 1,000 162,000 655,000
Other expenses . . . . . . . . 21,276,000 20,639,000 18,861,000
------------------------------------------
Income before income taxes . . 12,830,000 11,483,000 10,245,000
Income taxes . . . . . . . . . 4,400,000 3,842,000 3,427,000
------------------------------------------
Net income . . . . . . . . . . $ 8,430,000 $ 7,641,000 $ 6,818,000
------------------------------------------
Cash dividends declared. . . . $ 4,191,000 $ 3,794,000 $ 3,545,000
------------------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31,
2000 1999 1998
- ------------------------------------------------------------------------
Cash and cash equivalents . .$ 25,136,000 $ 37,343,000 $ 32,801,000
Securities . . . . . . . . . . 127,101,000 123,319,000 118,519,000
Net loans. . . . . . . . . . . 445,890,000 414,849,000 366,383,000
Other assets . . . . . . . . . 23,983,000 24,100,000 24,043,000
------------------------------------------
Total assets . . . . . . . . .$622,110,000 $599,611,000 $541,746,000
------------------------------------------
Total deposits . . . . . . . .$496,091,000 $456,831,000 $443,848,000
Other borrowings . . . . . . . 63,736,000 86,467,000 45,005,000
Other liabilities. . . . . . . 5,758,000 5,260,000 4,217,000
------------------------------------------
Total liabilities. . . . . . . 565,585,000 548,558,000 493,070,000
------------------------------------------
Total shareholders' equity . . 56,525,000 51,053,000 48,676,000
------------------------------------------
Total liabilities
and shareholders' equity. . .$622,110,000 $599,611,000 $541,746,000
------------------------------------------
PER SHARE DATA
2000 1999 1998
- ------------------------------------------------------------------------
Basic earnings(1). . . . . . . $ 2.00 $ 1.81 $ 1.62
Diluted earnings(1). . . . . . $ 2.00 $ 1.81 $ 1.62
Cash dividends(2). . . . . . . $ 1.00 $ .90 $ .84
Book value per share(2). . . . $13.42 $12.13 $11.58
Shares outstanding at end
of year(2). . . . . . . . . . 4,211,047 4,209,704 4,205,027
- ------------------------------------------------------------------------
148
FINANCIAL RATIOS
2000 1999 1998
- ------------------------------------------------------------------------
Net interest margin(3) . . . . 4.85% 4.88% 5.17%
Return on assets(4). . . . . . 1.39 1.33 1.34
Return on shareholders' equity(4) 15.83 15.29 14.46
Shareholders' equity to assets(4) 8.77 8.67 9.27
Cash dividends to net income . 49.72 49.65 52.00
Efficiency ratio(3). . . . . . 59.42 60.61 60.33
Gross loans to deposits. . . . 90.94 91.83 83.33
Reserve for loan losses to
total loans . . . . . . . . . 1.16 1.11 .94
Non-performing loans to total
loans . . . . . . . . . . . . .51 .33 .35
- ------------------------------------------------------------------------
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME AND CASH DIVIDEND DECLARED - YEARS ENDED
DECEMBER 31,
1997 1996
- ----------------------------------------------------------
Total interest income . . . . $35,156,000 $32,470,000
Total interest expense . . . . 12,990,000 11,478,000
---------------------------
Net interest income . . . . . 22,166,000 20,992,000
Provision for loan losses. . . 750,000 600,000
Other income . . . . . . . . . 5,803,000 4,926,000
Gains (losses) on sales
of assets . . . . . . . . . . -0- (1,000)
Other expenses . . . . . . . . 17,387,000 16,565,000
---------------------------
Income before income taxes . . 9,832,000 8,752,000
Income taxes . . . . . . . . . 3,350,000 2,900,000
---------------------------
Net income . . . . . . . . . . $ 6,482,000 $ 5,852,000
---------------------------
Cash dividends declared. . . . $ 2,934,000 $ 2,591,000
---------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31,
1997 1996
- ----------------------------------------------------------
Cash and cash equivalents. . .$ 24,407,000 $ 18,993,000
Securities . . . . . . . . . . 115,374,000 104,960,000
Net loans. . . . . . . . . . . 326,863,000 297,957,000
Other assets . . . . . . . . . 24,084,000 16,690,000
----------------------------
Total assets . . . . . . . . .$490,728,000 $438,600,000
----------------------------
Total deposits . . . . . . . .$410,655,000 $366,380,000
Other borrowings . . . . . . . 30,995,000 24,481,000
Other liabilities. . . . . . . 4,093,000 3,541,000
----------------------------
Total liabilities. . . . . . . 445,743,000 394,402,000
----------------------------
Total shareholders' equity . . 44,985,000 44,198,000
----------------------------
149
Total liabilities
and shareholders' equity. . .$490,728,000 $438,600,000
----------------------------
PER SHARE DATA
1997 1996
- ----------------------------------------------------------
Basic earnings(1). . . . . . . $ 1.53 $ 1.36
Diluted earnings(1). . . . . . $ 1.53 $ 1.36
Cash dividends(2). . . . . . . $ .70 $ .60
Book value per share(2). . . . $10.69 $10.26
Shares outstanding at end
of year(2). . . . . . . . . . 4,206,867 4,305,730
- -----------------------------------------------------------
FINANCIAL RATIOS
1997 1996
- -----------------------------------------------------------
Net interest margin(3) . . . . 5.20% 5.33%
Return on assets(4). . . . . . 1.41 1.37
Return on shareholders' equity(4) 14.51 13.70
Shareholders' equity to assets(4) 9.70 10.01
Cash dividends to net income . 45.26 44.28
Efficiency ratio(3). . . . . . 62.01 63.65
Gross loans to deposits. . . . 80.61 82.45
Reserve for loan losses to
total loans . . . . . . . . . 1.26 1.36
Non-performing loans to
total loans . . . . . . . . . .27 .37
- -----------------------------------------------------------
(1) Basic and diluted earnings per share is computed using the weighted
average number of shares outstanding during each year.
(2) All share and per share data has been adjusted to reflect the 2
percent stock dividend in 2000, 1997 and 1996.
(3) Tax Equivalent Basis.
(4) Ratios based on average annual balances.
END PUBLISHED PAGE 34
150
Management's Discussion & Analysis
Introduction:
The following is Management's discussion and analysis of the financial
condition and results of operations of LNB Bancorp, Inc. (the
Corporation). It is intended to amplify certain financial information
regarding LNB Bancorp, Inc. and should be read in conjunction with the
Consolidated Financial Statements, related Notes, and other financial
information and discussions included in the 2000 Annual Report to
Shareholders.
Forward-Looking Statements:
Certain statements contained herein are not based on historical facts
and are "forward-looking statements" within the meaning of Section 21A
of the Securities Exchange Act of 1934. Forward-looking statements
which are based on various assumptions (some of which are beyond the
Corporation's control), may be identified by reference to a future
period or periods, or by the use of forward-looking terminology, such as
"may," "will," "believe," "expect," "estimate," "anticipate,"
"continue," or similar terms or variations on those terms, or the
negative of these terms. Actual results could differ materially from
those set forth in forward-looking statements due to a variety of
factors, including, but not limited to, those related to the economic
environment, particularly in the market areas in which the company
operates, competitive products and pricing, fiscal and monetary policies
of the U. S. Government, changes in government regulations affecting
financial institutions, including regulatory fees and capital
requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management,
asset/liability management, the financial and securities markets and the
availability of and costs associated with sources of liquidity.
The Corporation does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of
such statements.
Earnings Summary:
LNB Bancorp, Inc. posted its nineteenth consecutive year of increased
earnings. LNB Bancorp, Inc.'s consolidated 2000 net income reached a
record high of $8,430,000, compared to $7,641,000 in 1999 and $6,818,000
in 1998. Net income for 2000, 1999 and 1998 was favorably affected by
an increase in net interest income and increased noninterest income
offset in part by higher operating expenses.
Basic earnings per share totaled $2.00 for 2000 compared to $1.81 for
1999 and $1.62 for 1998. Diluted earnings per share totaled $2.00 for
2000, compared to $1.81 for 1999 and $1.62 for 1998. Prior period
earnings per share data has been restated to reflect the 2% stock
dividend of July 1, 2000. The return on average assets, a measure of
profitability, increased to 1.39% in 2000 from 1.33% in 1999 and 1.34%
in 1998. Return on average shareholders' equity measures how profitable
151
the shareholders' invested capital is employed. Return on average
equity increased to 15.83% for 2000 compared to 15.29% and 14.46% in
1999 and 1998, respectively.
Net Interest Income:
Net interest income, the difference between interest and loan fee income
on earnings assets and the interest paid on deposits and borrowed funds,
is the principal source of earnings for the Corporation. Throughout
this discussion net interest income is presented on a fully taxable
equivalent (FTE) basis which restates interest on tax-exempt securities
and loans as if such interest was subject to federal income tax at the
statutory rate.
Net interest income is affected by market interest rates on both earning
assets and interest bearing liabilities, the level of earning assets
being funded by interest-bearing liabilities, noninterest-bearing
liabilities and shareholders' equity and the growth in earning assets.
In addition, net interest income is affected not only by Management's
asset/liability strategies to alter the volume and mix of earning assets
and sources of funds, but also such external factors as economic
conditions and credit demand.
A summary of the impacts of volume and rate changes on the Corporation's
net interest income is presented on page 37. Changes in net interest
income result from changes in both rate and volume. Volume refers to the
impact of net changes in the balances of earning assets and
interest-bearing liabilities. Rate refers to the impact of net changes
in interest rates.
Net interest income (FTE) in 2000 increased by $1,406,000 from
$26,116,000 in 1999 to $27,522,000 in 2000. This increase was affected
by increases in the volume of interest-bearing assets and liabilities
plus increases in market interest rates. The cost of funds increased
from 3.53% in 1999 to 4.11% in 2000, or a total of 58 basis points.
During the same period, the yield on earning assets increased 45 basis
points to 8.24% in 2000, compared to 7.79% in 1999, resulting in a
decrease in the net interest spread by 13 basis points in 2000. The
increase in net interest income during
BASIC EARNINGS PER SHARE Dollars*
(A Basic Earnings Per Share graph follows in printed version with basic
earnings on the y-axis and years 1996 through 2000 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.)
RETURN ON AVERAGE ASSETS percent
(A Return On Average Assets graph follows in printed version with return
percent on the y-axis and years 1996 through 2000 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.)
152
RETURN ON AVERAGE EQUITY percent
(A Return On Average Equity graph follows in printed version with return
percent on the y-axis and years 1996 through 2000 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 Return on Return on
Earnings Per Share Average Assets Average Equity
Year Dollars* Percent Percent
2000 $2.00 1.39% 15.83%
1999 $1.85 1.33% 15.29%
1998 $1.65 1.34% 14.46%
1997 $1.56 1.41% 14.51%
1996 $1.39 1.37% 13.70%
*Adjusted for stock dividends and splits
END PUBLISHED PAGE 35
153
Net Interest Income (continued):
2000 resulted from increases in the volume of earning assets, which were
greater than the increases in the volume of interest-bearing
liabilities, partially offset by increases in market rates on
interest-bearing liabilities which was greater than the increase in
market rates on interest-bearing assets.
Net interest income (FTE) in 1999 increased by $1,850,000 from
$24,266,000 in 1998 to $26,116,000 in 1999. This increase was affected
by increases in the volume of interest-bearing assets and liabilities
plus decreases in market interest rates. The cost of funds decreased
from 3.64% in 1998 to 3.53% in 1999, or a total of 11 basis points.
During the same period, the yield on earning assets decreased 36 basis
points to 7.79% in 1999, compared to 8.15% in 1998, resulting in a
decrease in the net interest spread by 25 basis points in 1999.
The net yield on earning assets in 2000 was 4.85% compared to 4.88% in
1999 and 5.17% in 1998. The slight decrease in the net yield on earning
assets during 2000 results primarily from increases in volume of loans
with market rates greater than in previous years and increases in the
volume and market rates of investment securities partially offset by
increases in volume and rates on certificate of deposits and interest-
bearing demand accounts. This relatively constant yield in 2000 and
1999 reflects the fact that the Corporation's portfolio of earning
assets and interest-bearing liabilities are well matched and that
Corporate management is responsive to the impacts of competition,
changes in market interest rates and regulation.
Results from Operations:
The Corporation's primary source of interest income is from loans. The
relationship of loan income to total interest income, on a fully-tax
equivalent basis, was 83.5% and 80.3% in 2000 and 1999, respectively.
Interest and dividends on securities and Federal funds sold, as a
percentage of total interest income, on a fully-tax equivalent basis,
was 16.5% and 19.7% in 2000 and 1999, respectively.
The cost of interest-bearing liabilities in 2000 was $19,209,000
compared to $15,584,000 and $13,999,000 in 1999 and 1998, respectively.
The unfavorable impact of increases in rates plus increases in volume
caused interest expense to increase from 1999 to 2000. The net
unfavorable impact of decreases in deposit rates plus increases in
volume caused interest expense to increase from 1998 to 1999. Decreases
in the average rates paid on savings accounts, certificates of deposit,
and long-term borrowings offset in part the 1999 increase in the cost of
interest-bearing liabilities due to volume increases.
Total other income, excluding gains on the sale of securities, grew 5.4%
in 2000 driven primarily by a 12.4 percent increase in Investment and
Trust Services Division Income. Total other income in 2000 increased to
$8,370,000 compared to $8,098,000 in 1999 for an increase of $272,000.
This increase results from increases from Investment and Trust Services
Division income of $260,000, increases in service charges on deposit
accounts of $183,000, decreases in gains on the sale of assets of
$161,000, and increases in other service charges of $6,000. The
154
increase in 2000 Investment and Trust Services Division income results
in part by the realization of increases in the volume of assets under
management. The increase in service charges on deposit accounts is due,
in part, to reevaluating the assessment of transaction account charges.
The increase in other service charges is the result of pricing increases
in credit card and merchant fees and ATM fees. Total other income in
1999 increased by $845,000 to $8,098,000 as compared to 1998. This
increase resulted from increases in Investment and Trust Services
Division income of $208,000 and service charges of $434,000 and other
service charges, commissions and fees of $283,000. The increase in 1999
Investment and Trust Services Division income results in part by the
realization of increases in the volume of assets under management. The
increase in service charges on deposit accounts is due, in part, to
reevaluating the assessment of transaction account charges. The
increase in other service charges is the result of pricing increases in
credit card and merchant fees and ATM fees.
The Corporation continuously monitors other expenses for greater
efficiency and profitability. The entire staff is geared to improve
efficiency and productivity at all levels. The Corporation has made
progress in this area as evidenced by improvement in the efficiency
ratio from 60.33% in 1998 to 60.62% in 1999 while decreasing 119 basis
points to 59.42% in 2000.
Total other expenses increased 3.1% in 2000 compared to 1999 after a
9.4% increase for 1999 compared to 1998. The 2000 increase in other
expenses resulted from increases in salaries and benefits, net occupancy
expenses, furniture and equipment expenses, credit card and merchant
expenses, and marketing expenses. The 1999 increase in other expenses
resulted from increases in salaries and benefits, net occupancy
expenses, furniture and equipment expenses, credit card and merchant
expenses, and certain one time loan collection expenses. Some of these
additional expenses arose from the relocation of our Second Street
office to Ely Square, Elyria in 1999.
The effective tax rate of the Corporation was 34.3%, 33.5%, and 33.4% in
2000, 1999, and 1998, respectively. The increase in the effective tax
rate in 2000 was primarily due to the decrease in tax-exempt interest
income and nondeductible stock issuance expenses. A detailed analysis
of income taxes is presented on page 24.
The Corporation's Consolidated Statements of Income reflect the effects
of inflation. Since interest rates, loan demand and deposit levels are
related to inflation, the resulting changes in interest sensitive assets
and liabilities are reflected in net interest income. Similarly,
operating expenses such as salaries, rents and maintenance are affected
by inflation. The only major expense items which do not reflect
inflation are depreciation and amortization, as these expenses are based
on original purchase costs.
Selected unaudited quarterly financial data for 2000, 1999 and 1998 is
presented on page 33. There were significant intra-quarter fluctuations
during the third and fourth quarters of 2000 and 1999 from increases in
the provision for loan losses. The increase in the provision for loan
losses in the third and fourth quarters of 2000 resulted from
155
anticipated charge-offs of indirect automobile lending and the Bank's
desire to rebuild the level of the reserve for loan losses. The 1999
second quarter increase in other income reflects gains on sales of
buildings and equipment of $162,000. The 1998 fourth quarter increase
in other income reflects gains on sales of securities of $256,000.
END PUBLISHED PAGE 36
156
Condensed Consolidated Average Balance Sheets
Interest, Rate, and Rate/Volume differentials are stated on a Fully-Tax
Equivalent (FTE) Basis
December 31, 2000
- ------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
ASSETS:
Securities. . . . . . . . . . . .$120,532 $ 7,146 5.93%
Securities-tax exempt . . . . . . 5,007 329 6.57%
Federal funds sold and
short-term investments . . . . . 3,887 222 5.72%
Commercial loans. . . . . . . . . 172,951 16,811 9.72%
Commercial loans-tax exempt . . . 267 24 8.99%
Mortgage loans. . . . . . . . . . 155,753 11,968 7.68%
Consumer loans. . . . . . . . . . 108,622 10,231 9.42%
---------------------------------------
TOTAL EARNING ASSETS . . . . . . 567,019 46,731 8.24%
---------------------------------------
Reserve for loan losses . . . . . (4,979)
Cash and due from banks . . . . . 21,589
Other assets. . . . . . . . . . . 23,876
---------------------------------------
TOTAL ASSETS . . . . . . . . . .$607,505
---------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit . . . . .$205,877 $11,256 5.47%
Savings deposits. . . . . . . . . 101,276 1,999 1.97%
Interest-bearing demand . . . . . 101,180 2,744 2.71%
Short-term borrowings . . . . . . 51,059 2,782 5.45%
Long-term borrowings. . . . . . . 8,250 428 5.19%
---------------------------------------
TOTAL INTEREST-
BEARING LIABILITIES.. . . . . 467,642 19,209 4.11%
---------------------------------------
Noninterest-bearing deposits. . . 81,221
Other liabilities . . . . . . . . 5,379
Shareholders' equity. . . . . . . 53,263
---------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY. . . . . .$607,505
---------------------------------------
NET INTEREST INCOME (FTE) . . . . $27,522
Taxable equivalent adjustment (86)
---------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS . . . . . . $27,436
---------------------------------------
NET YIELD ON EARNING ASSETS . . . 4.85%
---------------------------------------
157
Condensed Consolidated Average Balance Sheets
Interest, Rate, and Rate/Volume differentials are stated on a Fully-Tax
Equivalent (FTE) Basis
December 31, 1999
- ------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
ASSETS:
Securities. . . . . . . . . . . .$118,267 $ 6,913 5.85%
Securities-tax exempt . . . . . . 4,547 294 6.47%
Federal funds sold and
short-term investments . . . . . 8,796 424 4.82%
Commercial loans. . . . . . . . . 141,124 12,638 8.96%
Commercial loans-tax exempt . . . 430 35 8.14%
Mortgage loans. . . . . . . . . . 151,487 11,505 7.59%
Consumer loans. . . . . . . . . . 110,347 9,891 8.96%
---------------------------------------
TOTAL EARNING ASSETS . . . . . . 534,998 41,700 7.79%
---------------------------------------
Reserve for loan losses . . . . . (3,770)
Cash and due from banks . . . . . 22,709
Other assets. . . . . . . . . . . 22,576
---------------------------------------
TOTAL ASSETS . . . . . . . . . .$576,513
---------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit . . . . .$195,563 $ 9,397 4.81%
Savings deposits. . . . . . . . . 107,654 2,128 1.98%
Interest-bearing demand . . . . . 79,146 1,309 1.65%
Short-term borrowings . . . . . . 35,585 1,597 4.49%
Long-term borrowings. . . . . . . 22,911 1,153 5.03%
---------------------------------------
TOTAL INTEREST-
BEARING LIABILITIES. . . . . . . 440,859 15,584 3.53%
---------------------------------------
Noninterest-bearing deposits. . . 81,348
Other liabilities . . . . . . . . 4,326
Shareholders' equity. . . . . . . 49,980
---------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY. . . . . .$576,513
---------------------------------------
NET INTEREST INCOME (FTE) . . . . $26,116
Taxable equivalent adjustment . . (92)
---------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS . . . . . . $26,024
---------------------------------------
NET YIELD ON EARNING ASSETS . . . 4.88%
---------------------------------------
158
Condensed Consolidated Average Balance Sheets
Interest, Rate, and Rate/Volume differentials are stated on a Fully-Tax
Equivalent (FTE) Basis
December 31, 1998
- ------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
ASSETS:
Securities. . . . . . . . . . . .$114,839 $ 7,030 6.12%
Securities-tax exempt . . . . . . 4,066 274 6.74%
Federal funds sold and
short-term investments . . . . . 4,422 238 5.38%
Commercial loans. . . . . . . . . 124,415 11,555 9.29%
Commercial loans-tax exempt . . . 600 59 9.83%
Mortgage loans. . . . . . . . . . 144,393 11,307 7.83%
Consumer loans. . . . . . . . . . 76,753 7,802 10.17%
---------------------------------------
TOTAL EARNING ASSETS . . . . . . 469,488 38,265 8.15%
---------------------------------------
Reserve for loan losses . . . . . (4,514)
Cash and due from banks . . . . . 20,175
Other assets. . . . . . . . . . . 23,414
---------------------------------------
TOTAL ASSETS . . . . . . . . . .$508,563
---------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit . . . . .$178,989 $ 9,261 5.17%
Savings deposits. . . . . . . . . 103,863 2,236 2.15%
Interest-bearing demand . . . . . 70,509 1,026 1.46%
Short-term borrowings . . . . . . 24,407 991 4.06%
Long-term borrowings. . . . . . . 7,031 485 6.90%
---------------------------------------
TOTAL INTEREST-
BEARING LIABILITIES. . . . . . . 384,799 13,999 3.64%
---------------------------------------
Noninterest-bearing deposits. . . 72,575
Other liabilities . . . . . . . . 4,048
Shareholders' equity. . . . . . . 47,141
---------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY. . . . . .$508,563
---------------------------------------
NET INTEREST INCOME (FTE) . . . . $24,266
Taxable equivalent adjustment . . (87)
---------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS . . . . . . $24,179
---------------------------------------
NET YIELD ON EARNING ASSETS . . . 5.17%
---------------------------------------
159
Rate/Volume Analysis of Net Interest Income
Years ended December 31, 2000 and 1999
- -----------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities . . . . . . . . $ 132 $ 101 $ 233
Securities-tax exempt. . . 30 5 35
Federal funds sold and
short-term investments. . (250) 48 (202)
Commercial loans . . . . . 2,850 1,323 4,173
Commercial loans-tax exempt (13) 2 (11)
Mortgage loans . . . . . . 324 139 463
Consumer loans . . . . . . (155) 495 340
---------------------------------------------
TOTAL INTEREST INCOME . . 2,918 2,113 5,031
---------------------------------------------
Certificates of deposit. . 496 1,363 1,859
Savings deposits . . . . . (126) (3) (129)
Interest-bearing demand. . 364 1,071 1,435
Short-term borrowings. . . 694 491 1,185
Long-term borrowings . . . (738) 13 (725)
---------------------------------------------
TOTAL INTEREST EXPENSE. . 690 2,935 3,625
---------------------------------------------
NET INTEREST INCOME. . . . $2,228 $ (822) $1,406
---------------------------------------------
160
Years ended December 31, 1999 and 1998
- -----------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities . . . . . . . . $ 210 $ (327) $ (117)
Securities-tax exempt. . . 32 (12) 20
Federal funds sold and
short-term investments. . 223 (37) 186
Commercial loans . . . . . 1,552 (469) 1,083
Commercial loans-tax exempt (17) (7) (24)
Mortgage loans . . . . . . 556 (358) 198
Consumer loans . . . . . . 3,415 (1,326) 2,089
---------------------------------------------
TOTAL INTEREST INCOME . . 5,971 (2,536) 3,435
---------------------------------------------
Certificates of deposit. . 858 (722) 136
Savings deposits . . . . . 82 (190) (108)
Interest-bearing demand. . 126 157 283
Short-term borrowings. . . 454 152 606
Long-term borrowings . . . 1,095 (427) 668
---------------------------------------------
TOTAL INTEREST EXPENSE. . 2,615 (1,030) 1,585
---------------------------------------------
NET INTEREST INCOME. . . . $3,356 $(1,506) $1,850
---------------------------------------------
END PUBLISHED PAGE 37
161
Provision and Reserve for Loan Losses:
The reserve for loan losses is maintained by Management at a level
considered adequate to cover probable losses. The amount of the
provision for loan losses charged to operating expenses is the amount
necessary, in the opinion of Management, to maintain the reserve for
loan losses at an adequate level. Management determines the adequacy of
the reserve based on past experience, changes in portfolio size and mix,
relative quality of the loan portfolio and the rate of loan growth,
assessments of current and future economic conditions, information about
specific borrower situations, including their financial position and
collateral values, and other factors and estimates, which are subject to
change over time. While Management's periodic analysis of the reserve
for loan losses may dictate portions of the reserve be allocated to
specific problem loans, the entire amount is available for any loan
charge-offs that may occur.
The reserve for loan losses on December 31, 2000, was $5,250,000, or
1.16% of outstanding loans, compared to $4,667,000, or 1.11% at year-end
1999. The provision for loan losses charged to operating expense was
$1,700,000 and $2,000,000 in 2000 and 1999, respectively.
During the third and fourth quarters of 1998, a special provision for
loan losses of $1,800,000 was added to the reserve for loan losses. The
special provision was required because of a nonrecurring loan loss from
a single, but significant commercial loan relationship.
Net charge-offs for 2000 were $1,117,000, as compared to $816,000 for
1999, while net charge-offs as a percentage of average loans outstanding
for 2000 was 0.26%, compared to 0.20% for 1999. Net charge-offs for
1998 included a nonrecurring $3,200,000 loss from the above mentioned
single commercial loan relationship. The remaining balance due to the
Bank of $1,300,000 was reclassified from loans to other assets at the
end of 1998 when the Bank took the creditor's assets under management.
The assets were subsequently sold for $1,300,000 in January of 1999.
Non-performing loans at year-end 2000 were $2,315,000 compared to
$1,339,000 at year-end 1999. Non-performing loans consist of loans past
due 90 days or more and loans which have been placed on non-accrual
status and other foreclosed assets. As of December 31, 2000, 16% of
non-performing loans were commercial loans, 12% were personal loans and
71% were residential mortgage loans. This compares to 3% for commercial
loans, 29% for personal loans and 68% for mortgage loans at year-end
1999. Non-performing loans did not have a material impact on interest
income during 2000, 1999 or 1998. The overall quality of the loan
portfolio remains high, as the ratio of non-performing loans to total
loans remains at low levels of 0.33% at year-end 1999 and 0.51% at
year-end 2000.
The Corporation's credit policies are reviewed and modified on an
ongoing basis in order to remain suitable for management of credit risks
within the loan portfolio as conditions change. At December 31, 2000,
there were no significant concentrations of credit risk in the loan
portfolio. More information about the loan portfolio is presented on
page 21.
162
Financial Condition:
Total assets of the Corporation rose 3.8% to $622,110,000 for the year
ended December 31, 2000. The asset growth was funded by increases in
deposits and Federal Home Loan Bank advances. Total earning assets
increased 5.3% to $581,366,000 at year end 2000 from 1999's
$552,115,000. The ratio of earning assets to total assets increased
from 92.1% at December 31, 1999 to 93.5% at December 31, 2000. The loan
to deposit ratio has decreased from 91.8% at 1999 year-end to 90.9% at
December 31, 2000. During 2000, Federal funds sold and other short-term
investments decreased by $6,195,000 to $3,125,000. Securities rose
$3,782,000 to $127,101,000, and gross loans grew by $31,624,000 to
$451,140,000.
The maturity distribution of debt securities which appears on page 19 of
this report, indicates that $85,254,000, or 69.9%, of debt securities
mature within the next five year period with $13,515,000, or 11.0%
maturing during 2001. At the close of 2000, there were no significant
differences between the book and fair values of the debt securities
portfolio. The fair value of the debt securities portfolio exceeded
its amortized cost by $356,000 or .3%, at the close of 2000. At the end
of 1999, the fair market value of the securities debt portfolio was less
than the book value due to an increase in short-and-mid-term interest
rates from the beginning of 1999 to its close. The fair value of the
debt securities portfolio was less than its cost by $4,364,000 or 3.6%,
at the close of 1999.
During the 2000 year, net loans rose 7.5 percent to $445,890,000 from
$414,849,000. Commercial loan growth was robust, accounting for 91.6
percent of total loan growth, mortgage loan growth accounted for 15.0
percent and consumer loan had negative growth of 6.6 percent, of total
loan growth for 2000. The substantial commercial loan growth was the
result of the Bank's increased focus on commercial lending.
Complementing this internal initiative was the strong economy, which
stimulated new commercial loan demand as well as prompting existing
customers to expand their borrowings. The growth in mortgage loans was
spurred by a healthy economy. The decrease in consumer loans results
from a planned decrease in indirect automobile lending.
Total deposits held by the Corporation increased $39,260,000 during 2000
compared to an increase of $12,983,000 during 1999. Interest-bearing
deposits represented 83.2% and 82.3% of total deposits at December 31,
2000 and 1999, respectively. Noninterest-bearing deposits increased by
$2,439,000 while interest-bearing deposits increased by $36,821,000
during 2000. Increases in balances of Market Access accounts,
CheckInvest and public fund certificates of deposit accounted for the
deposit increase. Market Access accounts soared by $37.5 million or
217 percent to $54.8 million at December 31, 2000. The significant
growth in Market Access deposits results from a deposit acquisition
campaign during 2000. During 1999, noninterest-bearing deposits
increased by $4,904,000 while interest-bearing deposits increased by
$17,887,000. In both 2000 and 1999, as long-term deposits matured and
new funds were deposited, these funds were primarily placed in
short-term deposits.
Securities sold under repurchase agreements and other short-term
163
borrowings include repurchase agreements and Federal funds purchased.
These balances decreased by $21,731,000 during 2000, following an
increase of $29,162,000 in 1999. Due to the volatility of customer
repurchase agreements all funds generated by repurchase agreement
activity enter the Bank's earning assets as short-term investments.
Federal Home Loan Bank advances decreased by $10,000,000 to $24,345,000
at December 31, 2000.
END PUBLISHED PAGE 38
164
Capital Resources:
Shareholder's equity reached an all-time high of $56,525,000 at December
31, 2000 compared to $51,053,000 at December 31, 1999, an increase of
$5,472,000, or 10.7%. This increase was primarily attributable to net
income of $8,430,000, less dividends declared to shareholders of
$4,191,000, less the change in unrealized gain on securities available
for sale in the amount of $1,208,000. The book value per share of
common stock climbed to $13.42 at year-end 2000 compared to $12.13 per
share at year-end 1999, a 10.6% increase. Capital ratios remained
strong during 2000, with average equity to average assets of 8.8%. The
return on average shareholders equity during 2000 climbed to 15.83%,
from $15.29% and 14.46% during 1999 and 1998, respectively.
As discussed in Note 14 to the Consolidated Financial Statements, the
Corporation's primary source of funds for the payment of dividends is
its Bank subsidiary. During December of 1996, the Bank paid an
additional $8,000,000 in dividends to the Corporation in order for it to
have sufficient equity capital to take advantage of future acquisition
opportunities and to pay future dividends. In order for the Bank to fund
its balance sheet and remain well capitalized, the Corporation and the
Bank entered into a subordinated debt agreement on December 30, 1996 for
$8,000,000, payable on January 1, 2007 at an interest rate of 6.80%. In
December 1999, The Bank paid off $4,000,000 of its subordinated debt to
the Corporation. Subsequently, the Corporation paid dividends to the
Bank of $4,000,000.
Under regulations issued by the Federal Reserve Board and the Office of
the Comptroller of the Currency, bank holding companies and banks are
required to maintain certain minimum capital ratios in order to be
considered "well capitalized." These guidelines require a minimum total
risk-based capital ratio of 10%, a Tier 1 capital ratio of 6% and
leverage ratio of 5%. All of the Corporation's assets, which include
various risk-weighted percentages of assets on the balance sheet, as
well as off-balance sheet exposures of unused commitments and letters of
credit, are expressed as a percentage of risk-adjusted assets and
compared to its capital. Tier 1 capital consists of shareholders'
equity, exclusive of net unrealized gain (loss) on securities available
for sale. Total risk-based capital consists of shareholders' equity,
exclusive of net gain (loss) on securities available for sale, plus the
allowable portion of the reserve for loan losses and subordinated debt.
The allowance included in total risk-based capital cannot exceed 1.25%
of risk-weighted assets. As of December 31, 2000, LNB Bancorp, Inc. had
a total risk-based capital ratio of 13.06%, with a Tier 1 capital ratio
of 11.88% compared to 12.84% and 11.70%, respectively, at December 31,
1999. Both of these risk-based capital ratios are well above minimum
regulatory requirements. In addition to risk-based capital, a leverage
ratio test must also be met. This ratio evaluates capital adequacy on
the basis of Tier 1 capital-to-total average assets (unadjusted for
risk). On December 31, 2000, LNB Bancorp, Inc.'s leverage ratio was
8.68%, which substantially exceeds the Corporation's minimum regulatory
requirement. For additional information on the Corporation and Bank's
capital ratios, refer to Note 15, Regulatory Capital on page 26.
On an ongoing basis the Corporation analyzes acquisition opportunities
in markets which are adjacent to or within the Corporation's current
165
geographical market. Corporate management believes that its current
capital resources are sufficient to support any foreseeable acquisition
activity. The Corporation also retains a portion of the net income it
earns to accommodate current operational and regulatory capital
requirements and to fund future growth opportunities. A part of future
growth depends upon capital expenditure programs. Capital expenditures
of approximately $2,700,000 are projected for 2001.
TOTAL SHAREHOLDERS' EQUITY millions of dollars
(A Total Shareholders' Equity graph follows in printed version with
total equity on the y-axis and years 1996 through 2000 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.)
AVERAGE EQUITY TO AVERAGE ASSETS percent
(An Average Equity to Average Assets graph follows in printed version
with average equity on the y-axis and years 1996 through 2000 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.)
BOOK VALUE PER SHARE dollars*
(A Book Value Per Share graph follows in printed version with book value
on the y-axis and years 1996 through 2000 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' Average Equity to Book Value
Equity Average Assets Per Share
Year Millions of Dollars Percent Dollars*
2000 $56.5 8.77% $13.42
1999 $51.1 8.67% $12.13
1998 $48.7 9.27% $11.58
1997 $45.0 9.70% $10.69
1996 $44.2 10.00% $10.26
*Adjusted for stock dividends and splits
END PUBLISHED PAGE 39
166
Quantitative and Qualitative Disclosures about 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. 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.
The mission of the Asset/Liability Management Committee of Lorain
National Bank is to effectively monitor and manage the Bank's exposure
to interest rate risk, liquidity risk, and repricing risk and thereby
provide the Bank with a stable net interest margin. Asset/liability
management is the measurement and analysis of the Bank's exposure to
changes in the interest rate environment. The Bank is subject to
interest rate risk to the extent its liabilities reprice more rapidly
than its assets. The Bank manages this risk on a continuing basis
through the use of a number of objectives and strategies as an ongoing
part of its strategic financial plan.
The Bank's Asset/Liability Management Committee, which includes
executive and senior management representatives, meets monthly.
Objectives include monitoring and methods of managing the rate
sensitivity and repricing characteristics of the balance sheet
components consistent with maintaining acceptable levels of net interest
income. The Bank's asset and liability management program defined by the
Board of Directors is designed to minimize the impact of significant
changes in interest rates on net interest income. Strategies include
attempting to market variable-rate loans, growth in the consumer loan
portfolio which tend to have shorter terms to maturity, match fixed rate
commercial loans with Federal Home Loan Bank advances, and utilizing
deposit promotions in an effort to extend the term to maturity of its
liabilities.
Management may, at times, place greater emphasis on maximizing net
interest margin rather than merely concentrating on interest rate risk
depending on the relationship between short-and long-term interest
rates, market conditions and consumer preference. Management believes
that increased net income resulting from a moderate contrast between the
maturity of its assets and liabilities can provide high enough returns
to justify the increased risk exposure during periods of stable interest
rates. The effectiveness of Management's administration of the
Asset/Liability function is demonstrated by the Corporation's
consistently high net yield on earning assets. The Corporation's net
yield on earning assets remains at the high levels of 4.85% and 4.88%
for the years ended December 31, 2000 and 1999, respectively. The
Asset/Liability Management Committee has established limits on the
amount of its interest rate risk exposure, however, there can be no
assurance that Management's efforts to limit interest rate risk will be
successful.
167
One measure of exposure to interest rate risk is interest rate
sensitivity gap analysis. The Bank uses interest rate sensitivity gap
analysis to monitor the relationship between the maturity and repricing
of its interest-earning assets and interest-bearing liabilities, while
maintaining an acceptable interest rate spread. Interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities maturing or
repricing within that time period. A gap is considered positive when the
amount of interest-rate-sensitive assets exceeds the amount of the
interest-rate-sensitive liabilities, and is considered negative when the
amount of interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period of rising
interest rates, with all factors held constant, a negative gap would
adversely affect net interest income, while a positive gap would result
in an increase in net interest income. Conversely, during a period of
falling interest rates, with all factors held constant, a negative gap
would result in an increase in net interest income, while a positive gap
would negatively affect net interest income. Management's goal is to
maintain a reasonable balance between exposure to interest rate
fluctuations and earnings.
The Corporation's one year gap was 5.83% at December 31, 2000, (2.81)%
at December 31, 1999 and 4.22% at December 31, 1998. The increase in
the Corporation's one year gap at December 31, 2000 compared to December
31, 1999, was due to an increase in assets maturing or otherwise
repricing in one year or less totaling $54,514,000 (due to increases in
loans and in securities repricing during that period) offset by an
increase in liabilities maturing or otherwise repricing in one year or
less totaling $7,987,000 (due primarily to increases in certificates of
deposit and interest-bearing demand deposits offset by decreases in
savings deposits and sort-term borrowings during that period). The
decrease in the Corporation's one year gap at December 31, 1999 compared
to December 31, 1998 was due to a decrease in assets maturing or
otherwise repricing in one year or less totaling $24,080,000 (due to an
increase in loans and securities repricing during that period) partially
offset by an increase in liabilities maturing or otherwise repricing in
one year or less totaling $59,933,000 (due primarily to an increase in
certificates of deposit and short-term borrowings during that period).
Corporate management does not anticipate any significant changes in the
Corporation's market risk or interest rate risk profiles in 2000. The
table on the page 41 sets forth the repricing dates of the Corporation's
interest-earning assets and interest-bearing liabilities at December 31,
2000 and the interest rate sensitivity "gap" percentages at the dates
indicated.
END PUBLISHED PAGE 40
168
Gap Analysis (Dollars in Thousands)
Expected Maturity/Repricing Date
2001 2002 2003 2004
- ------------------------------------------------------------------------
Commercial loans . . . . . . . . .$178,096 $ 1,159 $ 1,241 $ 4,006
Weighted average yield . . . . . . 9.86% 8.02% 7.85% 7.40%
Mortgage loans(1). . . . . . . . . 60,299 21,310 29,534 24,847
Weighted average yield . . . . . . 7.96% 7.65% 6.76% 7.01%
Consumer loans . . . . . . . . . . 23,149 18,005 13,417 7,842
Weighted average yield . . . . . . 9.30% 8.00% 8.40% 9.23%
Home equity lines of credit. . . . 31,661 -0- -0- -0-
Weighted average yield . . . . . . 9.94% 0.00% 0.00% 0.00%
Credit Card loans. . . . . . . . . 5,215 -0- -0- -0-
Weighted average yield . . . . . . 14.73% 0.00% 0.00% 0.00%
Securities and other(2). . . . . . 27,939 22,333 29,254 9,978
Weighted average yield . . . . . . 6.20% 6.30% 6.03% 5.71%
--------------------------------------
Total interest-earning assets . . 326,359 62,807 73,446 46,673
--------------------------------------
Certificates of deposit. . . . . . 151,740 30,505 6,913 3,817
Weighted average yield . . . . . . 5.73% 6.25% 5.28% 6.03%
Savings deposits . . . . . . . . . 38,380 38,380 19,190 -0-
Weighted average yield . . . . . . 2.00% 2.00% 2.00% 0.00%
Interest-bearing demand. . . . . . 49,467 49,467 24,734 -0-
Weighted average yield . . . . . . 2.93% 2.93% 2.93% 0.00%
Short-term borrowings. . . . . . . 39,391 -0- -0- -0-
Weighted average yield . . . . . . 5.69% 0.00% 0.00% 0.00%
Federal Home Loan Bank advances. . 16,095 8,250 -0- -0-
Weighted average yield . . . . . . 6.25% 5.18% 0.00% 0.00%
--------------------------------------
Total interest-bearing liabilities 295,073 126,602 50,837 3,817
--------------------------------------
Interest-earning assets less
Interest-bearing liabilities. . . 31,286 (63,795) 22,609 42,856
--------------------------------------
Cumulative interest-rate
sensitive gap . . . . . . . . . .$ 31,286 $(32,509) $ (9,900) $ 32,956
--------------------------------------
Cumulative interest-rate gap as a
percentage of total earning assets at
December 31, 2000 5.38%
Cumulative interest-rate gap as a
percentage of total earning assets at
December 31, 1999 (2.81)%
Cumulative interest-rate gap as a
percentage of total earning assets at
December 31, 1998 4.22%
--------------------------------------
Gap Analysis (Dollars in Thousands)
Expected Maturity/Repricing Date Fair
2005 Thereafter Total Value(3)
- ------------------------------------------------------------------------
Commercial loans . . . . . . . . .$ 375 $ 1,989 $186,866 $186,206
Weighted average yield . . . . . . 6.89% 7.49% 9.75%
Mortgage loans(1). . . . . . . . . 17,351 4,234 157,575 157,040
Weighted average yield . . . . . . 7.90% 7.25% 7.25%
169
Consumer loans . . . . . . . . . . 3,125 4,285 69,823 70,119
Weighted average yield . . . . . . 9.34% 8.86% 8.76%
Home equity lines of credit. . . . -0- -0- 31,661 31,678
Weighted average yield . . . . . . 0.00% 0.00% 9.94%
Credit Card loans. . . . . . . . . -0- -0- 5,215 5,215
Weighted average yield . . . . . . 0.00% 0.00% 14.73%
Securities and other(2). . . . . . 7,535 32,979 130,018 129,861
Weighted average yield . . . . . . 6.37% 5.52% 6.09%
--------------------------------------
Total interest-earning assets . . 28,386 43,487 581,158 580,119
--------------------------------------
Certificates of deposit. . . . . . 392 13 193,380 193,382
Weighted average yield . . . . . . 6.57% 6.82% 5.76%
Savings deposits . . . . . . . . . -0- -0- 95,950 95,950
Weighted average yield . . . . . . 0.00% 0.00% 2.00%
Interest-bearing demand. . . . . . -0- -0- 123,668 123,668
Weighted average yield . . . . . . 0.00% 0.00% 2.93%
Short-term borrowings. . . . . . . -0- -0- 39,391 39,391
Weighted average yield . . . . . . 0.00% 0.00% 5.60%
Federal Home Loan Bank advances. . -0- -0- 24,345 24,345
Weighted average yield . . . . . . 0.00% 0.00% 5.45%
--------------------------------------
Total interest-bearing liabilities 392 13 476,734 476,626
--------------------------------------
Interest-earning assets less
Interest-bearing liabilities. . . 27,994 43,474 104,424
----------------------------
Cumulative interest-
rate sensitive gap. . . . . . . .$60,950 $104,424
----------------------------
(1)Mortgage loans include mortgages in which the loan is fixed for the
first three or five years of the loan and its interest rate is
adjustable thereafter.
(2)Securities available for sale are shown at amortized cost.
(3)Fair value of loans are gross of deferred fees and costs and
allowance for loan losses.
END PUBLISHED PAGE 41
170
Liquidity Management:
Liquidity measures a corporation's ability to generate cash or otherwise
obtain funds at reasonable prices to fund commitments to borrowers as
well as the demands of depositors and debt holders. Principal internal
sources of liquidity for the Corporation and the Bank are cash and cash
equivalents, Federal funds sold, and the maturity structures of
securities held to maturity 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.
On December 31, 2000, cash and cash equivalents equaled $25,136,000 or
4.0% of total assets. The change in cash and cash equivalents is shown
in the Consolidated Statement of Cash Flows on page 14 and arises from
operating, investing, and financing activities.
The adjustments to reconcile 2000 net income to net cash provided by
operating activities primarily consists of depreciation and amortization
of $1,667,000, amortization of intangible assets of $398,000,
amortization of deferred loan fees and costs of $312,000 and a provision
for loan losses of $1,700,000. These items represent expenses included
in net income which do not represent an expenditure or receipt of cash.
The cash flows from investing activities relate primarily to securities,
loans and purchases of capital assets. Net cash used in investing
activities was $37,625,000. Cash used in investing activities resulted
from the purchases in securities of $16,672,000 offset by proceeds from
maturities of securities of $13,731,000. Cash used in investing
activities included net loan increases of $33,053,000 and purchases of
capital assets of $1,703,000.
Net cash provided by financing activities was $12,468,000. Cash
provided by financing activities included increases in deposits of
$39,260,000, increases in securities sold under repurchase agreements
and other short-term borrowings of $21,731,000, proceeds from Federal
Home Loan Bank advances of $9,000,000 less cash paid on Federal Home
Loan Bank advances of $10,000,000 and proceeds from stock options
exercised of $25,000. Cash used by financing activities includes
dividends paid of $4,086,000. These cash flows resulted in a
$12,207,000 increase in cash and cash equivalents from December 31, 1999
to December 31, 2000.
The Corporation can obtain additional liquidity from off-balance sheet
sources which include the purchase of Federal funds from correspondent
banks and borrowing from the Federal Reserve Bank's discount window. At
December 31, 2000 the Bank had pledged as collateral $31,757,000 in
second mortgages with the Federal Reserve Bank of Cleveland to secure
advances and discounts up to $25,406,000. At year-end the Bank had no
borrowings from the Federal Reserve Bank of Cleveland. At year-end, the
Bank had approved Federal funds facilities of $18,000,000 at four
correspondent banks. At December 31, 2000, the Bank borrowed
$14,000,000 under these arrangements. Additionally, the Bank has a
$30,000,000 cash management advance line of credit with the Federal Home
Loan Bank of Cincinnati. At December 31, 2000 the Bank had borrowed
$9,000,000 from the Federal Home Loan Bank under this line of credit.
At December 31, 2000, the Bank had available credit at the Federal
171
Reserve Bank discount window of $25,406,000. The internal and external
sources of funds for liquidity, in the opinion of Management, satisfy
the liquidity needs of the Corporation and the Bank.
END PUBLISHED PAGE 42
172
Impacts of Accounting and Regulatory Pronouncements:
Corporate management is not aware of any proposed regulations or 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
Financial Accounting Standards Board:
The Financial Accounting Standards Board (FASB) has issued:
SFAS No. 140, "Accounting for transfers and servicing of Financial
Assets and Extinguishment of Liabilities"
Implementation date by the Corporation and Impact on the Corporation:
This Statement was issued in September 2000 and replaces SFAS No.
125. The guidance in SFAS Co. 140, while not changing most of the
guidance originally issued in SFAS No. 125, revises the
standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain additional
disclosures related to transferred assets. Certain provisions of
the statement related to the recognition, reclassification and
disclosure of collateral, as well as the disclosure of securitization
transactions, became effective for 2000 year-end reporting. Other
provisions related to the transfer and servicing of financial assets
and extinguishments of liabilities are effective for transactions
occurring after March 31, 2001. Adoption of SFAS No. 140 did not
have a significant impact on the financial position or results of
operations as historically, and at year end 2000 the Corporation did
not participate in securitizations.
All other applicable Statements of Financial Accounting Standards that
have been issued and have effective sates impacting 2000 and prior years
financial statements have been adopted by the Corporation. Corporate
management believes there are no Statements of Financial Accounting
Standards which have been issued and have implementation dates in the
future which will materially impact the financial statements of future
years.
Significant actions by the Federal government and its agencies,
affecting the financial institutions industry in general, are currently
having and will continue to have an impact on the Corporation. A
discussion of these actions follows:
"The Gramm,Leach Bliley Act of 1999":
The enactment of the Gramm,Leach Bliley Act of 1999 (the "GLB Act")
represents a pivotal point in the history of the financial services
industry. The GLB Act sweeps away large parts of a regulatory framework
that had its origins in the Depression Era of the 1930s. Effective
March 11, 2000, new opportunities were available for banks, other
depository institutions, insurance companies and securities firms to
enter into combinations that permit a single financial services
organization to offer customers a more complete array of financial
products and services. The GLB Act provides a new regulatory framework
173
for regulation through the financial holding company, which will have as
its umbrella regulator the Federal Reserve Board. Functional regulation
of the financial holding company's separately regulated subsidiaries
will be conducted by their primary functional regulator. The GLB Act
makes satisfactory or above Community Reinvestment Act compliance for
insured depository institutions and their financial holding companies
necessary in order for them to engage in new financial activities.
The GLB Act provides a federal right to privacy of non-public personal
information of individual customers. Specifically, Title V of GLB Act
requires financial institutions to issue privacy notices and provide
consumers with an opportunity to opt out of certain types of
information sharing. The FDIC developed and adopted a final regulation
with other financial institution regulators to implement the GLB Act
privacy provisions. Although the privacy rule's effective date is
November 13, 2000, compliance is not mandatory until July 1, 2001. LNB
Bancorp, Inc. and its wholly owned subsidiaries are diligently working
on developing the necessary notices, policies and procedures to
implement the privacy provisions. Corporate Management does not believe
that the adoption of these privacy provisions will have a significant
impact on the financial position or results of operation in 2001 and
beyond.
END PUBLISHED PAGE 43
174
Directors and Officers of LNB Bancorp, Inc.
Directors
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James F. Kidd
Vice Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
Daniel P. Batista
Chairman of the Board
Wickens, Herzer, Panza,
Cook & Batista L.P.A.
Robert M. Campana
Managing Director
P.C. Campana, Inc.
Terry D. Goode
Vice President
Lorain County
Title Company
Wellsley O. Gray
Retired
James R. Herrick
President
Liberty Auto Group, Inc.
David M. Koethe
Retired, former
Chairman of the Board
The Lorain Printing
Company
Benjamin G. Norton
Human Resource
Consultant
LTI Power Systems
Jeffrey F. Riddell
President and
Chief Executive Officer,
Consumeracq, Inc. and
Consumers Builders
Supply Co.
175
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
LNB Bancorp, Inc.
John W. Schaeffer, M.D.
President
North Ohio Heart
Center, Inc.
Gary C. Smith
President and
Chief Executive Officer
LNB Bancorp, Inc.
Eugene M. Sofranko
Chairman of the Board
Lorain Glass
Company, Inc.
Leo Weingarten
Retired
Officers
Stanley G. Pijor
Chairman of the Board
James F. Kidd
Vice Chairman of the Board
Gary C. Smith
President and
Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
Gregory D. Friedman, CPA
Executive Vice President and
Chief Financial Officer
Kevin W. Nelson
Executive Vice President
and Chief Operating Officer
Debra R. Brown
Senior Vice President
Robert L. Cox
Senior Vice President
Sandra L. Dubell
Senior Vice President
176
Michael D. Ireland
Senior Vice President
Emma N. Mason
Senior Vice President
James H. Weber
Senior Vice President
Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer
Directors Emeriti of Lorain National Bank
Directors
James L. Bardoner
Retired, Former President
Dorn Industries, Inc.
T.L. Smith, M.D.
Retired Physician
Paul T. Stack
Retired
Directors and Officers of Charleston Insurance Agency, Inc.
Directors
Gary C. Smith
Chairman of the Board
Charleston Insurance
Agency, Inc.
Thomas P. Ryan
President and
Chief Executive Officer
Charleston Insurance
Agency, Inc.
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James R. Herrick
President
Liberty Auto Group, Inc.
177
Jeffrey F. Riddell
President and
Chief Executive Officer
Consumeracq, Inc. and
Consumers Builders
Supply Co.
Officers
Gary C. Smith
Chairman of the Board
Thomas P. Ryan
President and
Chief Executive Officer
Gregory D. Friedman, CPA
Vice President and
Treasurer
Kevin W. Nelson
Secretary
END PUBLISHED PAGE 44
178
Officers of Lorain National Bank
Executive and Senior Officers
Gary C. Smith
President and
Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary
Gregory D. Friedman, CPA
Executive Vice President
and Chief Financial Officer
Kevin W. Nelson
Executive Vice President
and Chief Operating Officer
Debra R. Brown
Senior Vice President
Branch Administration
Robert L. Cox
Senior Vice President
Sales
Sandra L. Dubell
Senior Vice President and
Senior Lending Officer
Michael D. Ireland
Senior Vice President and
Senior Operations Officer
Emma N. Mason
Senior Vice President and
Senior Trust Officer
James H. Weber
Senior Vice President and
Senior Marketing Officer
Branch Officers
Teresa E. George
Vice President
Branch Administration
Main Office & Sixth
Street Drive-In Office
Keith H. Kapanke
Assistant Vice President
179
Amherst Office
G. Dale Rosenkranz
Vice President
Avon Lake Office
Charles A. DeAngelis
Vice President
Cleveland Street Office
Timothy J. Gallagher
Vice President
Cooper-Foster Park
Road Office
Linda Buehner
Assistant Vice President
Ely Square Office
James E. Schmittgen
Vice President
Kansas Avenue Office
Connie Sklarek
Assistant Cashier
Village of LaGrange Office
Carrie Hartman
Assistant Vice President
Lake Avenue Office
Christine M. Weber
Assistant Vice President
Midway Mall Office
Kimberly S. Plzak
Assistant Vice President
Oberlin Avenue Office
Jennifer M. Nickolls
Assistant Vice President
Oberlin & Kendal
at Oberlin Offices
Marilyn R. Krasienko
Assistant Vice President
Olmsted Township &
The Renaissance Offices
Diana L. Schmittgen
Assistant Vice President
Carol Snyder
Assistant Cashier
Pearl Avenue Office
Patricia A. Wolanczyk
Assistant Cashier
180
Vermilion Office
Robert B. White
Vice President
Barbara M. Beres-Clark
Assistant Branch Manager
West Park Drive Office
Rita M. Hoyt
Assistant Cashier
The Crossings of Westlake &
Westlake Village Offices
Susan M. Neiding
Vice President
Loan Officers
Commercial Loans
John A. Funderburg
Vice President
Lee C. Myers
Vice President
Ellen M. Walsh
Vice President
Kenneth P. Wayton
Vice President
Consumer Loans
Bruce Diso
Vice President
Robert D. Asik
Assistant Vice President
VISA/Electronic Banking
Jeanne Maschari
Vice President
Mortgage Loans
Edwin F. Klenz
Vice President
Joel A. Krueck
Vice President and
CRA Officer
Credit Analysis
Denise M. Kosakowski
Vice President
Collections
Kelly A. Dunfee
Assistant Cashier
181
Loan Review
Richard P. Vieritz
Vice President
Loan Services
Cynthia M. Marks
Assistant Cashier
Laura Campbell
Mortgage Loan
Administrative Officer
Joan M. Raymond
Assistant Vice President
Joyce L. Wasela
Assistant Cashier
Administration and Operations Officers
Accounting
Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer
Mary L. Scaff
Fiscal Operations Officer
Auditing
Randy E. Lottman
Assistant Vice President
and Auditor
Compliance
Donna Jean Phillips
Assistant Vice President
and Compliance Officer
Deposit Operations
Patricia L. Cole
Assistant Vice President
E.D.P. Services
Larry R. Johnson
Vice President
Larry A. Hill
Assistant Vice President
Human Resources
Carol A. Mesko
Vice President
Teresa E. Kreger
Assistant Cashier
182
Maintenance
Robert J. Witkowski
Maintenance Officer
Marketing
Steven F. Cooper
Vice President
Debra L. Temerario
Marketing Operations
Officer
Purchasing
Susan I. Tuttle
Assistant Vice President
Security
James E. Long
Assistant Vice President
Training
Marianne Kocak
Assistant Vice President
Investments and Trust Services Officers
Neal A. Conger
Vice President
Gerald S. Falcon
Vice President
David Nocjar
Vice President
Patrick E. Sheridan
Vice President
Jason Born
Investment Officer
Georgia Bour
Assistant Vice President
Carol A. Cavanaugh
Assistant Vice President
Thomas H. Eschke
Assistant Vice President
Trust Operations Officer
END PUBLISHED PAGE 45
183
Banking Offices & ATMs
ATM service available wherever you see this symbol**
Lorain Banking Offices
**Main Office
457 Broadway
Lorain, Ohio 44052
(440)244-7185
**Sixth Street Drive-In Office
200 Sixth Street
Lorain, Ohio 44052
(440)244-7242
**Cooper-Foster Park
Road Office
1920 Cooper-Foster Park Road
Lorain, Ohio 44053
(440)282-1252
**Kansas Avenue Office
1604 Kansas Avenue
Lorain, Ohio 44052
(440)288-9151
**Oberlin Avenue Office
3660 Oberlin Avenue
Lorain, Ohio 44053
(440)282-9196
**Pearl Avenue Office
2850 Pearl Avenue
Lorain, Ohio 44055
(440)277-1103
**West Park Drive Office
2130 West Park Drive
Lorain, Ohio 44053
(440))989-3131
Amherst Banking Office
**Amherst Office
1175 Cleveland Avenue
Amherst, Ohio 44001
(440)988-4423
Avon Lake Banking Office
**Avon Lake Office
240 Miller Road
Avon Lake, Ohio 44012
(440)933-2186
184
Elyria Banking Offices
**Ely Square Office
124 Middle Avenue
Elyria, Ohio 44035
(440)323-4621
**Cleveland Street Office
801 Cleveland Street
Elyria, Ohio 44035
(440)365-8397
**Lake Avenue Office
42935 North Ridge Road
Elyria Township, Ohio 44035
(440)233-7196
**Midway Mall Office
6395 Midway Mall Blvd.
Elyria, Ohio 44035
(440)324-6530
Village of LaGrange
Banking Office
**Village of LaGrange Office
546 North Center Street
Village of LaGrange,
Ohio 44050
(440)355-6734
Oberlin Banking Offices
**Kendal at Oberlin Office*
600 Kendal Drive
Oberlin, Ohio 44074
(440)774-5400
**Oberlin Office
40 East College Street
Oberlin, Ohio 44074
(440)775-1361
Olmsted Township
Banking Offices
**Olmsted Township Office
27095 Bagley Road
Olmsted Township, Ohio 44138
(440)235-4600
The Renaissance Office
26376 John Road
Olmsted Township, Ohio 44138
(440)427-0041
185
Vermilion Banking Office
**Vermilion Office
4455 East Liberty Avenue
Vermilion, Ohio 44089
(440)967-3124
Westlake Banking Offices
**Crossings of Westlake Office
30210 Detroit Road
Westlake, Ohio 44145
(440)892-9696
Westlake Village Office
28550 Westlake Village Drive
Westlake, Ohio 44145
(440)808-0229
ATMs
**Captain Larry's Marathon
1317 State Route 60
Vermilion, Ohio
**Dad's Sunoco
7580 Leavitt Road
State Route 58
Amherst, Ohio
**Fligner's Supermarket
1846 Broadway
Lorain, Ohio
**Gateway Plaza
3451 Colorado Avenue
Lorain, Ohio
**Lakeland Medical Center
3700 Kolbe Road
Lorain, Ohio
**Lorain County
Community College
1005 North Abbe Road
Elyria, Ohio
**Lowe's Home
Improvement Warehouse
620 Midway Boulevard
Elyria, Ohio
**Mobile ATM
2130 West Park Drive
Lorain, Ohio
186
Other Offices
Executive Offices
457 Broadway
Lorain, Ohio 44052
(440)244-7123
Branch Administration
457 Broadway
Lorain, Ohio 44052
(440)244-7253
Commercial, Consumer
and Mortgage Loans
457 Broadway
Lorain, Ohio 44052
(440)244-7220
(440)244-7272
(440)244-7216
VISA/Electronic Banking
2130 West Park Drive
Lorain, Ohio 44053
(440)989-3348
Customer Service
2130 West Park Drive
Lorain, Ohio 44053
(440)989-3348
(800)860-1007
Human Resources
2130 West Park Drive
Lorain, Ohio 44053
(440)989-3139
Operations
2130 West Park Drive
Lorain, Ohio 44053
(440)989-3315
Purchasing
2150 West Park Drive
Lorain, Ohio 44053
(440)989-3327
Investment and Trust Services
457 Broadway
Lorain, Ohio 44052
(440)244-7226
All Other Departments
& Information Not Listed
Telebanker (440)245-4562
Telebanker (800)610-9033
Toll Free (800)860-1007
Lorain (440)244-6000
187
Internet:www.4LNB.com
*Restricted to residents, their visitors and employees
END PUBLISHED PAGE 46
188
Investment and Trust Services
The Investment and Trust Services Division (the Division) continues to
grow and develop both the capabilities of its staff and the services
available to Lorain National Bank's customers. As a result of
consistent, high quality performance, this division contributed 28.1
percent of total noninterest income in 2000 to the Corporation. In
2000, the Investment and Trust Services Division income to the
Corporation increased 12.4 percent reaching a record $2,355,000.
The year 2000 was a time of preparing for the on-going growth of
business. Three highly trained and experienced trust officers were
added to the staff. With these additions, the Division now has five
officers who have served as Senior Trust Officers in both community
banks and larger regional banks. This means that Lorain National Bank's
customrs have the benefit of extensive fiduciary experience and
expertise.
Personal service is a high priority in the Investment and Trust Services
Division. All of the Trust Officers have experience in community banks
and understand the importance of keeping in close contact with our
clients. The support staff pay close attention to the accurate and
timely handling of all assets and transactions. They understand how
critical their work is to maintain high quality reports and service.
The Division has developed core specialty units within the Division to
prepare for on-going growth. The Personal Trust unit is chaired by Neal
Conger, with 35 years experience, and the Employee Benefits unit is
chaired by Jerry Falcon, with 27 years experience. Dave Nocjar, who has
25 years experience in trust and investment services, chairs the
Investment Unit. Tom Eschke, an 11-year employee of the department,
heads the Operations Unit. The tax compliance function is ably handled
by Tom and Georgia Bour, Personal Trust Officer, who has 15 years
experience in the trust and investment services businesses.
In addition to traditional investment and trust services, the Division
is able to offer complete retirement planning services to both
individuals and corporations. Prototype plans, participant record-
keeping and rollover Individual Retirement Accounts are just a part of
the services available. By continuing to develop relationships with
third party providers, we are well positioned to advise and provide a
wide range of modern investment products and services. For those
clients who so desire, portfolio information is available any time on
the bank's Internet web site at www.4LNB.com.
Personal service remains the hallmark of the Investment and Trust
Services Division. Each staff member is dedicated to meeting the needs
of our clients.
/s/Emma N. Mason
Emma N. Mason
Sr. Vice President and
Senior Trust Officer
INVESTMENT AND TRUST SERVICES FEE INCOME Thousands of dollars
(An Investment and Trust Services Fee Income graph follows in printed
189
version with fee income on the y-axis and years 1991 through 2000 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.)
Investment and Trust
Services Fee Income
Year Thousands of Dollars
2000 $2,355
1999 $2,095
1998 $1,887
1997 $1,293
1996 $1,095
1995 $1,038
1994 $ 916
1993 $ 825
1992 $ 756
1991 $ 645
END PUBLISHED PAGE 47
190
Earnings, Dividend and Book Value per Share Performance
- -----------------------
10 Year Annual Earnings 1991 through 2000
(10 Year Earnings History graph follows in printed version with years
1991 through 2000 on the y-axis and earnings on the x-axis in
$2,500,000.00 increments ranging from $0 to $10,000,000.00. The graph
is a horizontal bar graph. The co-ordinates, by year, which are
presented in the table below are plotted on the previously described
grid along with an accompanying legend for identification purposes.)
The graph above depicts the earnings history of LNB Bancorp, Inc. from
1991 through 2000. The Corporation's management team is proud of its
record of continuously increasing annual earnings over this ten year
period.
- ----------------------------------
Cumulative Cash Dividends Declared
Total Cash Dividends Declared 1991 - 2000: $1,110.01
(Cumulative Cash Dividends Declared graph follows in printed version
with years 1991 through 2000 on the y-axis and Dividends Declared on the
x-axis in $300.00 increments ranging from $0 to $1,200.00. The graph is
horizontal bar graph. The co-ordinates, by year, which are presented in
the table below are plotted on the previously described grid along with
an accompanying legend for identification purposes.)
For shareholder information, the above graph reflects a 10 year
chronological record of dividend performance following a hypothetical
purchase of 100 shares of LNB Bancorp, Inc., stock without further
reinvestment.
Over the 10 year period, our hypothetical shareholder would have
benefited from the cumulative cash dividends declared on the stock in
the amount of $1,110.01.
- --------------------
Book Value Per Share 1991 through 2000
(Book Value Per Share graph follows in printed version with years 1991
through 2000 on the y-axis and book values on the x-axis in $4.00
increments ranging from $0.00 to $16.00. The graph is a horizontal bar
graph. The co-ordinates, by year, which are presented in the table
below are plotted on the previously described grid along with an
accompanying legend for identification purposes.)
The graph above depicts the book value per share of LNB Bancorp, Inc.
from 1991 through 2000. Senior management has worked diligently to
cause the rapid increase in the book value per share over the past ten
years.
191
The data points used to plot the three (3) graphs previously described
follows:
NET INCOME CUMULATIVE CASH BOOK VALUE
YEAR IN THOUSANDS DIVIDENDS DECLARED PER SHARE
2000 $8,430,000.00 $1,110.01 $13.42
1999 $7,641,000.00 $ 929.01 $12.13
1998 $6,818,000.00 $ 766.17 $11.58
1997 $6,480,000.00 $ 613.95 $10.69
1996 $5,852,000.00 $ 488.28 $10.26
1995 $5,003,000.00 $ 378.66 $ 9.52
1994 $4,432,000.00 $ 286.32 $ 8.84
1993 $4,029,000.00 $ 204.12 $ 8.28
1992 $3,826,000.00 $ 129.64 $ 7.77
1991 $3,512,000.00 $ 61.80 $ 7.24
END PUBLISHED PAGE 48
192
THREE QUARTER PAGE INSERT FRONT SIDE
Please detach postage-paid card(s) and return through U.S. Mail or to a
Lorain National Bank office near you.
Top card reads as follows:
LNB Bancorp, Inc. - Dividend Reinvestment Plan
To: Thomas P. Ryan
Executive Vice President and Secretary/Treasurer
LNB Bancorp, Inc.
457 Broadway, Lorain, Ohio 44052
Yes, I am interested in obtaining information on LNB Bancorp, Inc.'s
Dividend Reinvestment and Cash Stock Purchase Plan.
Name_________________________
Address______________________
City____State____Zip______Phone________
Middle card reads as follows:
LNB Bancorp, Inc. - Common Stock
To: Gary C. Smith
President and Chief Executive Officer
LNB Bancorp, Inc.
457 Broadway, Lorain Ohio 44052
Yes, I am interested in learning more about the investment merits of LNB
Bancorp, Inc. common stock and would like to be contacted by a stock
broker.
Name_________________________
Address______________________
City____State____Zip______Phone________
Number of Shares Requested__________
Bottom card reads as follows:
2000 Annual Report Survey
Thank you for reading the 2000 LNB Bancorp, Inc. Annual Report. To help
us improve our ability to serve you, please complete the following
survey. The following grading scale should be used:
Excellent-5; Good-4; Fair-3; Poor-2; and, Very Poor-1.
- ------------------------------------------------------------------------
1. Please rate the sections of the Annual Report you found most helpful.
When evaluating, consider the overall quality, communication
effectiveness and readability of the section.
_____ Corporate Information
_____ Message to Shareholders
_____ Customer testimonials
_____ Financial Statements and Notes
_____ Stock and Dividend Information
_____ Management's Discussion and Analysis
_____ Earnings and Dividend Performance
193
2. Please rate the Annual Report on the following characteristics:
_____ Appearance/design
_____ Organization/ease of locating information
_____ Ease of Reading
_____ Use of Charts/graphs
_____ Use of Photographs
_____ Showing how LNB Bancorp, Inc. is positioned for the future
_____ Helping you understand LNB Bancorp, Inc.
3. Please give a rating for your overall impression of the Annual
Report._____
4. What information would you like to see in future Annual Reports?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
5. Please provide name & address
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Thank you for answering these questions.
THREE QUARTER PAGE INSERT BACK SIDE
Three postage paid postcards
Top card reads as follows:
Lorain National Bank
Attn: Thomas P. Ryan
457 Broadway
Lorain, Ohio 44052-9986
Middle card reads as follows:
Lorain National Bank
Attn: Gary C. Smith
457 Broadway
Lorain, Ohio 44052-9986
Bottom card reads as follows:
Lorain National Bank
Attn: Mitchell J. Fallis
457 Broadway
Lorain, Ohio 44052-9986
194
Inside Back Cover
END OF INSIDE BACK COVER
195
COVER DESCRIPTION
Outside back cover
White background
Blue stripe across the top of the page
LNB Bancorp, Inc. Logo
LNB
Bancorp, Inc.
Blue lettering
Mail: LNB Bancorp, Inc. 457 Broadway . Lorain, Ohio 44052-1739
E-Mail: emailservices@4LNB.com . Internet: www.4LNB.com
Telephone: (440) 244-6000 . Toll Free: (800) 860-1007
Telefax: (440) 244-4815
END OF PUBLISHED LNB BANCORP, INC. 2000 ANNUAL REPORT
196
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (21)
Corporate Organization Structure
..............................
. LNB Bancorp, Inc. .
. Financial Holding Company .
. an Ohio Corporation (1) .
..............................
.
.....................................................
. . .
.................. ............................. ......................
.Charleston Title. . The Lorain National Bank . .Charleston Insurance.
. Agency, LLC. . . Wholly-Owned Subsidiary . . Agency, Inc. .
. 49% Owned . . an Ohio Corporation (1) . . Wholly-owned .
. Ohio LLC (1) . ............................. . Subsidiary .
.................. . .Ohio Corporation(1) .
. ......................
.
.................................
. LNB Financial Services, Inc. .
. Wholly-Owned Subsidiary .
. an Ohio Corporation (1) .
. (dormant) .
.................................
(1) The physical location and legal mailing address
for all entities is:
457 Broadway
Lorain, Ohio 44052
197
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 2000)
S - K Reference Number (23)
Consent of Independent Accountants.
198
Exhibit 23
Consent of Independent Accountants
The Board of Directors
LNB Bancorp, Inc.:
We consent to incorporation by reference in the registration statements
No. 33-53210 on Form S-8 and No.33-64034 on Form S-8 and No. 333-43441
on Form S-3 of LNB Bancorp, Inc. of our report dated January 23, 2001,
relating to the consolidated balance sheets of LNB Bancorp, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, cash flows, and shareholders' equity
for each of the years in the three-year period ended December 31, 2000,
which report appears in the December 31, 2000 annual report on Form 10-K
of LNB Bancorp, Inc.
/s/ KPMG LLP
Cleveland, Ohio
March 29, 2001