1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation)
000-13203 34-1406303
(Commission File Number) (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
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such
requirements for the past 90 days.
YES X NO
Indicate by check mark whether the registrant is an accelerated filer (as
Defined in Exchange Act Rule 12b-2)
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
2
Outstanding at August 14, 2003: 6,606,020 shares
Class of Common Stock: $1.00 par value
3
LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended June 30, 2003
Part I - Financial Information
Item 1 - Financial Statements
Interim financial information required by Rule 10-01 of
Regulation S-X is included in this Form 10-Q as referenced below:
Page Number
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Income 6
Condensed Consolidated Statements of Cash Flows 10
Notes to the Condensed Consolidated Financial Statements 13
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 21
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 30
Item 4 - Controls and Procedures 30
Part II - Other Information
Item 1 - Legal Proceedings 31
Item 2 - Changes in Securities 31
Item 3 - Defaults Upon Senior Securities 31
Item 4 - Submission of Matters to a Vote of
Security Holders 31
Item 5 - Other Information 32
Item 6 - Exhibits and Reports on Form 8-K 32
Signatures 33
Exhibit Index 34
Certifications 35
4
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JUNE 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 2003 2002
------------- -------------
(Unaudited) (See Note 1)
ASSETS:
Cash and due from banks $ 27,377,000 $ 23,602,000
Federal funds sold and short-term
investments 3,081,000 3,224,000
Securities:
Available for sale, at fair value 157,925,000 137,909,000
Held to maturity, at cost (fair value
$4,253,000 and $10,903,000, respectively) 4,061,000 10,654,000
Federal Home Loan Bank and Federal Reserve
Bank and other equity stock, at cost 3,807,000 3,738,000
-------------- -------------
Total Securities 165,793,000 152,301,000
------------- -------------
Loans:
Portfolio loans 515,385,000 500,551,000
Loans available for sale 11,838,000 8,999,000
------------- -------------
Total Loans 527,223,000 509,550,000
Reserve for loan losses (7,105,000) (6,653,000)
------------- -------------
Net loans 520,118,000 502,897,000
------------- -------------
Bank owned life insurance 12,307,000 11,930,000
Bank premises and equipment, net 10,449,000 10,748,000
Intangible assets 3,301,000 3,358,000
Accrued interest receivable 2,927,000 3,045,000
Other assets 7,143,000 4,272,000
Foreclosed assets 589,000 22,000
------------- -------------
TOTAL ASSETS $753,085,000 $715,399,000
============= =============
STATEMENT CONTINUED ON NEXT PAGE
5
STATEMENT CONTINUED FROM PREVIOUS PAGE
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand and other noninterest-bearing
deposits $ 99,146,000 $ 80,879,000
Savings, Market Access and passbook
accounts 279,402,000 280,616,000
Certificates of deposit 213,082,000 204,632,000
------------- -------------
Total deposits 591,630,000 566,127,000
------------- -------------
Securities sold under repurchase
agreements and other short-term
borrowings 17,080,000 26,866,000
Federal Home Loan Bank advances 69,425,000 48,925,000
Accrued interest payable 978,000 983,000
Accrued taxes, expenses, and
other liabilities 5,381,000 5,885,000
------------- -------------
TOTAL LIABILITIES 684,494,000 648,786,000
------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value: Shares
authorized 1,000,000, and shares
outstanding, none
Common stock $1.00 par: Shares authorized
15,000,000 Shares issued 6,755,653 and
4,501,232, respectively and Shares
outstanding 6,606,020 and 4,401,232
respectively 6,755,000 4,501,000
Additional capital 26,116,000 28,319,000
Retained earnings 37,933,000 35,639,000
Accumulated other comprehensive income 679,000 1,054,000
Treasury stock at cost, 149,633 and
100,000 shares, respectively (2,892,000) (2,900,000)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 68,591,000 66,613,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $753,085,000 $715,399,000
============= =============
See notes to unaudited condensed consolidated financial statements.
6
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME (UNAUDITED) ------------------------
2003 2002
INTEREST INCOME ------------------------
Interest and fees on loans $16,510,000 $17,027,000
Interest and dividends on securities:
U.S. Treasury securities -0- 7,000
U.S. Government agencies and corporations 2,318,000 3,060,000
States and political subdivision 312,000 275,000
Other debt and equity securities 151,000 242,000
Interest on Federal funds sold and other
interest-bearing instruments 21,000 52,000
----------- -----------
TOTAL INTEREST INCOME 19,312,000 20,663,000
----------- -----------
INTEREST EXPENSE:
Interest on Deposits:
Time certificates of $100,000 and over 760,000 629,000
Other deposits 3,174,000 4,547,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 115,000 244,000
Interest on Federal Home Loan Bank advances 829,000 861,000
----------- -----------
TOTAL INTEREST EXPENSE 4,878,000 6,281,000
----------- -----------
NET INTEREST INCOME 14,434,000 14,382,000
Provision for loan losses 1,134,000 1,125,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 13,300,000 13,257,000
----------- -----------
NONINTEREST INCOME:
Investment and Trust Services Division income 854,000 1,043,000
Service charges on deposit accounts 2,055,000 1,910,000
Other service charges, exchanges and fees 1,541,000 1,595,000
Gains on sales of loans 141,000 45,000
Gains on sales of securities 450,000 540,000
Other operating income 130,000 172,000
----------- -----------
TOTAL NONINTEREST INCOME 5,171,000 5,305,000
----------- -----------
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
NONINTEREST EXPENSES:
Salaries and employee benefits 5,671,000 5,762,000
Furniture and equipment expense 1,160,000 1,088,000
Net occupancy expense of premises 789,000 745,000
Card related expenses 636,000 648,000
Supplies and postage 538,000 533,000
Outside services 824,000 668,000
Marketing and public relations 405,000 552,000
Ohio franchise tax 362,000 228,000
Other operating expenses 1,450,000 1,760,000
------------ -----------
TOTAL NONINTEREST EXPENSES 11,835,000 11,984,000
------------ -----------
INCOME BEFORE INCOME TAXES 6,636,000 6,578,000
INCOME TAXES 2,121,000 2,149,000
------------ -----------
NET INCOME $ 4,515,000 $ 4,429,000
============ ===========
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .68 $ .67
====== ======
DILUTED EARNINGS PER SHARE $ .68 $ .67
====== ======
DIVIDENDS DECLARED PER SHARE $ .34 $ .33
====== ======
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THREE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF INCOME (UNAUDITED) ------------------------
2003 2002
INTEREST INCOME -----------------------
Interest and fees on loans $ 8,308,000 $ 8,655,000
Interest and dividends on securities:
U.S. Treasury securities -0- 1,000
U.S. Government agencies and corporations 1,080,000 1,525,000
States and political subdivisions 157,000 141,000
Other debt and equity securities 72,000 119,000
Interest on Federal funds sold and other
interest-bearing instruments 9,000 33,000
----------- -----------
TOTAL INTEREST INCOME 9,626,000 10,474,000
----------- -----------
INTEREST EXPENSE:
Interest on Deposits:
Time certificates of $100,000 and over 385,000 331,000
Other deposits 1,498,000 2,271,000
Interest on securities sold under
repurchase agreements and other
short-term borrowings 47,000 93,000
Interest on Federal Home Loan Bank advances 422,000 480,000
----------- -----------
TOTAL INTEREST EXPENSE 2,352,000 3,175,000
----------- -----------
NET INTEREST INCOME 7,274,000 7,299,000
Provision for loan losses 570,000 525,000
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 6,704,000 6,774,000
----------- -----------
NONINTEREST INCOME:
Investment and Trust Services Division income 400,000 468,000
Service charges on deposit accounts 1,109,000 994,000
Other services charges, exchanges and fees 754,000 864,000
Gains on sales of loan 79,000 11,000
Gains on sales of securities 247,000 265,000
Other operating income 76,000 65,000
----------- -----------
TOTAL NONINTEREST INCOME 2,665,000 2,667,000
----------- -----------
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
NONINTEREST EXPENSES:
Salaries and employee benefits 2,707,000 2,845,000
Furniture and equipment expense 611,000 557,000
Net occupancy expense of premises 377,000 364,000
Card related expenses 344,000 265,000
Supplies and postage 256,000 257,000
Outside services 606,000 415,000
Marketing and public relations 165,000 265,000
Ohio franchise tax 181,000 167,000
Other operating expenses 642,000 921,000
------------ ------------
TOTAL NONINTEREST EXPENSES 5,889,000 6,056,000
------------ ------------
INCOME BEFORE INCOME TAXES 3,480,000 3,385,000
INCOME TAXES 1,156,000 1,104,000
------------ ------------
NET INCOME $ 2,324,000 $ 2,281,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .35 $ .35
====== ======
DILUTED EARNINGS PER SHARE $ .35 $ .35
====== ======
DIVIDENDS DECLARED PER SHARE $ .17 $ .17
====== ======
See notes to unaudited condensed consolidated financial statements.
10
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SIX MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS JUNE 30,
OF CASH FLOWS (UNAUDITED) -------------------------
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES: -------------------------
Interest received $19,758,000 $21,188,000
Other income received 4,596,000 4,622,000
Interest paid (4,883,000) (6,298,000)
Cash paid for salaries and
employee benefits (6,472,000) (5,524,000)
Net occupancy expense of premises paid (754,000) (593,000)
Furniture and equipment expenses paid (531,000) (454,000)
Cash paid for supplies and postage (538,000) (533,000)
Cash paid for other operating expenses (7,289,000) (3,345,000)
Federal income taxes paid (1,900,000) (2,378,000)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,987,000 6,685,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
held to maturity 6,587,000 5,800,000
Proceeds from sales and maturities of
securities available for sale 96,975,000 45,030,000
Proceeds from sales of loans 12,065,000 8,669,000
Purchases of securities held to maturity -0- (600,000)
Purchases of securities available
for sale (117,138,000) (58,571,000)
Decrease in loans available for sale 1,135,000 3,591,000
Net (increase) in loans made to customers (30,920,000) (34,668,000)
Purchases of bank premises and equipment
and intangible assets (501,000) (901,000)
Proceeds from sales of bank premises,
and equipment 51,000 26,000
Purchases of BOLI -0- -0-
Proceeds from liquidation of other
foreclosed assets 22,000 42,000
Purchases of other foreclosed assets (589,000) (86,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (32,313,000) (31,668,000)
----------- -----------
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and
other noninterest-bearing deposits 18,267,000 (3,126,000)
Net increase (decrease) in savings and
passbook deposits (1,214,000) 17,485,000
Net increase in certificates of deposit 8,450,000 20,885,000
Net (decrease) in securities sold
under repurchase agreements and other
short-term borrowings (9,786,000) (26,537,000)
Proceeds from Federal Home Loan
Bank advances 160,235,000 35,830,000
Payment on Federal Home Loan Bank advances (139,735,000) (17,300,000)
Cash paid in lieu of fractional shares
related to three-for-two stock split (13,000) -0-
Proceeds from exercise of stock options 51,000 1,000
(Purchase) Redemption of Treasury Stock 8,000 -0-
Dividends paid (2,311,000) (2,244,000)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 33,952,000 24,994,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,626,000 11,000
CASH AND CASH EQUIVALENTS AT BEGINNING 26,832,000 31,505,000
OF YEAR ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $30,458,000 $31,516,000
=========== ===========
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 4,515,000 $ 4,342,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments & loans (591,000) 585,000
Depreciation and amortization 788,000 786,000
Amortization of intangible assets 56,000 188,000
Amortization of premium on investment
securities 597,000 115,000
Amortization of deferred loan fees
and costs, net (283,000) (81,000)
Provision for loan losses 1,134,000 1,125,000
Increase in CSV - BOLI (377,000) -0-
Decrease in accrued interest
receivable 118,000 331,000
(Increase) in other assets (2,851,000) (288,000)
(Decrease) in accrued interest payable (5,000) (17,000)
Increase (decrease) in accrued taxes,
expenses and other liabilities (439,000) (274,000)
Others, net (675,000) (127,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,987,000 $ 6,685,000
=========== ===========
See notes to unaudited condensed consolidated financial statements.
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FORM 10-Q LNB Bancorp, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTRODUCTION
The following areas of discussion pertain to the unaudited condensed
consolidated balance sheets of LNB Bancorp, Inc. (The Parent Company) and its
wholly-owned subsidiaries, Lorain National Bank (The Bank), Charleston
Insurance Agency, Inc., North Coast Community Development Corporation and a
49% interest in Charleston Title Insurance Agency, LLC., at June 30, 2003,
compared to December 31, 2002 and the related unaudited condensed
consolidated statements of income for the three and six months ended June 30,
2003 and the related unaudited condensed consolidated statements of cash
flows for the six months ended June 30, 2003 compared to the same periods in
2002. The term "the Corporation" refers to LNB Bancorp, Inc. and its wholly-
owned subsidiaries. It is the intent of this discussion to provide the
reader with a more thorough understanding of the unaudited condensed
consolidated financial statements and should be read in conjunction with the
Corporation's December 31, 2002 Annual Report to Shareholders.
LNB Bancorp, Inc. is not aware of any trends, events, or uncertainties that
might have a material effect on the soundness of operations; neither is LNB
Bancorp, Inc. aware of any proposed recommendations by regulatory authorities
which would have a similar effect if implemented.
BASIS OF PRESENTATION
The unaudited condensed consolidated balance sheet as of June 30, 2003, the
unaudited condensed consolidated statements of income for the three and six
months ended June 30, 2003 and 2002 and the unaudited condensed consolidated
statements of cash flows for the six months ended June 30, 2003 are prepared
in accordance with accounting principles generally accepted in the United
States of America. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. The above mentioned statements reflect all adjustments
which are, in the opinion of Management, necessary for a fair presentation of
the financial position and the results of operations for the interim periods
presented. All such adjustments are normal and recurring in nature.
The consolidated balance sheet at December 31, 2002 has been taken from the
audited financial statements and condensed. The results of operations for
the period ended June 30, 2003 are not necessarily indicative of the
14
operating results for the full year.
All 2002 financial statements and related per-share amounts herein have been
restated to reflect the adoption of Statement of Financial Accounting
Standards (SFAS) No. 147 "Acquisitions of Certain Financial Institutions" and
SFAS No. 142 "Goodwill and Other Intangible Assets" as related to
intangibles. Per-share amounts have also been adjusted to reflect a two-
percent stock dividend on July 2, 2002, and a three-for two stock split on
March 14, 2003.
COMMON STOCK
On February 25, 2003, the Board of Directors of LNB Bancorp, Inc. declared a
three-for-two split of common stock. Shareholders received one additional
common share for every two shares owned on the stock-split record date of
March 10, 2003. Shareholders participating in the Bancorp's dividend
reinvestment plan, LNBB Direct (the Plan), were issued fractional shares.
Shareholders not participating in the Plan were issued cash in lieu of
fractional shares. For additional information see Form 8-K filed on February
25, 2003.
RESERVE FOR LOAN LOSSES
Because some loans may not be repaid in full, a reserve for loan losses is
recorded. This reserve is increased by provisions charged to earnings and
is reduced by loan charge-offs, net of recoveries. Estimating the risk of
loss on any loan is necessarily subjective. Accordingly, the reserve is
maintained by Management at a level considered adequate to cover loan losses
that are currently anticipated based on Management's evaluation of several
key factors including information about specific borrower situations, their
financial position and collateral values, current economic conditions,
changes in the mix and levels of the various types of loans, past charge-off
experience and other pertinent information. The reserve for loan losses is
based on estimates using currently available information, and ultimate
losses may vary from current estimates due to changes in circumstances.
These estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in the periods in which they become
known. While Management may periodically allocate portions of the reserve for
specific problem situations, the entire reserve is available for any charge-
offs that may occur. Charge-offs are made against the reserve for loan
losses when Management concludes that it is probable that all or a portion of
a loan is uncollectible. After a loan is charged-off, collection efforts
continue and future recoveries may occur.
A loan is considered impaired, based on current information and events, if
it is probable that the Bank will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the
loan agreement. The measurement of impaired loans is generally based on the
present value of the expected future cash flows discounted at the loan's
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initial effective interest rate, except that all collateral-dependent loans
are measured for impairment based on the fair value of the collateral. If
the loan valuation is less than the recorded value of the loan, an impairment
reserve 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.
RECLASSIFICATIONS
Certain 2002 amounts have been reclassified to conform to 2003 presentation.
16
2. EARNINGS PER SHARE DATA
Earnings per share for the six and three months ended June 30, 2003 and 2002
are calculated as follows:
For the 6 Months ended June 30, 2003
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $4,515,000
Basic EPS
Income available to
common shareholders $4,515,000 6,602,924 $ .68
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 18,008
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $4,515,000 6,620,932 $ .68
========== ========= =====
For the 6 Months ended June 30, 2002
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $4,429,000
Basic EPS
Income available to
common shareholders $4,429,000 6,601,548 $ .67
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 4,082
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $4,429,000 6,605,630 $ .67
========== ========= =====
17
For the 3 Months ended June 30, 2003
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $2,324,000
Basic EPS
Income available to
common shareholders $2,324,000 6,603,920 $ .35
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 20,343
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,324,000 6,624,263 $ .35
========== ========= =====
For the 3 Months ended June 30, 2002
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income $2,281,000
Basic EPS
Income available to
common shareholders $2,281,000 6,601,548 $ .35
=====
Effect of Dilutive Securities
Incentive Stock Options -0- 5,210
---------- ---------
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,281,000 6,606,758 $ .35
========== ========= =====
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Earnings per share as reported and pro forma information for the six and
three months ended June 30, 2003 and 2002 are as follows:
Six Months Ended
June 30,
2003 2002
-------------- --------------
As reported net income available
to common shareholders $4,515,000 $4,429,000
Less: stock-based compensation
expense determined under fair
fair value method, net of tax -0- (17,000)
-------------- --------------
Pro forma net income $4,515,000 $4,412,000
============== ==============
As reported earnings per share $.68 $.67
Pro forma earnings per share $.68 $.67
As reported per diluted earnings share $.68 $.67
Pro forma earnings per diluted share $.68 $.67
Three Months Ended
June 30,
2003 2002
-------------- --------------
As reported net income available
to common shareholders $2,324,000 $2,281,000
Less: stock-based compensation
expense determined under fair
fair value method, net of tax -0- -0-
-------------- --------------
Pro forma net income $2,324,000 $2,281,000
============== ==============
As reported earnings per share $.35 $.35
Pro forma earnings per share $.35 $.35
As reported per diluted earnings share $.35 $.35
Pro forma earnings per diluted share $.35 $.35
19
3. COMPREHENSIVE INCOME
The Corporation's comprehensive income for the six months ended
June 30, 2003 and 2002 are as follows:
For the six months ended June 30,
2003 2002
---------------------------------
Net income $4,515,000 $4,429,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of
$(193,000) and $(63,000) (375,000) (125,000)
----------- -----------
Comprehensive Income $4,140,000 $4,304,000
Disclosure of Reclassification Amount
Unrealized holding gains (losses)
arising during the period
net of tax (credit) $ (78,000) $ 230,000
Less reclassification adjustment
for gains included in net income
net of tax of $153,000 and
$184,000 297,000 355,000
----------- -----------
Change in unrealized gain on
securities available for sale,
net of (credit) $ (375,000) $ (125,000)
=========== ===========
The Corporation's comprehensive income for the three months ended June
30, 2003 and 2002 are as follows:
20
For the three months ended June 30,
2003 2002
-----------------------------------
Net income $2,324,000 $2,281,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of
$(28,000) and $351,000 (55,000) 682,000
----------- ------------
Comprehensive Income $2,269,000 $2,963,000
Disclosure of Reclassification Amount
Unrealized holding gains arising
during the period
net of tax $ 108,000 $ 856,000
Less reclassification adjustment
for gains included in net income
net of tax of $84,000 and
$90,000 163,000 174,000
----------- -----------
Change in unrealized gain on
securities available for sale,
net of tax (credit) $ (55,000) $ 682,000
=========== ===========
4. CRITICAL ACCOUNTING POLICIES
The Corporation maintains critical accounting policies for reserve for loan
losses, classification and evaluation of securities and a deferred tax asset
valuation allowance. Refer to notes 1, 5, 7 and 12 of Notes to Consolidated
Financial Statements of the 2002 Annual Report to Shareholders for the year
ended December 31, 2002 for additional information incorporated by reference.
21
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
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.
FINANCIAL CONDITION
Total assets of the Corporation increased $37,686,000 during the first half
of 2003, to $753,085,000. This growth was funded by increases in demand
deposits, savings deposits, certificates of deposit, Federal Home Loan
Bank advances and Shareholders' equity.
Total earning assets increased 4.6% to $696,097,000 at June 30, 2003 from
$665,075,000 at December 31, 2002. The ratio of earning assets to total
assets decreased from 92.97% at December 31, 2002 to 92.43% at June 30,
2003. The loan to deposit ratio has decreased from 90.01% at 2002 year-end
to 89.11% at June 30, 2003. Federal funds sold and other interest bearing
investments decreased by $143,000 during the first six months of 2003.
Total securities increased $13,429,000 ending the first half at $165,793,000.
Gross unrealized gains and (losses) in the securities portfolio were
approximately $1,694,000 and $(324,000), respectively, at June 30, 2003. The
increase in the fair value of the securities portfolio is due to market
interest rate fluctuations.
22
Net loans increased $17,221,000 during the first half to $520,118,000 at
June 30, 2003. This increase was a result of good loan demand in our
market. Commercial and consumer loan growth was particularly strong,
showing first half increases of $27,607,000 and $4,400,000, respectively.
Mortgage loans decreased by $13,591,000, during the first half of 2003.
The consumer loan portfolio has increased because of increases in indirect
automobile credits and home equity lines of credit while mortgages decreased
primarily due to loan payoffs and fixed rate refinancings which were sold on
the secondary market.
The reserve for loan losses ended the quarter at $7,105,000 supported by a
provision for loan losses of $1,134,000, recoveries of $165,000 and loan
charge-offs of $847,000. The reserve for loan losses as a percentage of
ending loans was 1.31% and 1.35% at December 31, 2002 and June 30, 2003,
respectively. Corporate management believes that the reserve for loan losses
at June 30, 2003 remains at an appropriate level. The ratio of the reserve
for loan losses to nonperforming assets decreased to 222.1% as of June 30,
2003 compared to 352.9% at December 31, 2002. Also, Corporate management
believes that the current level of the reserve for loan losses is adequate
based upon quantitative analysis of identified risks and analysis of
historical trends, and probable losses inherent in the loan portfolio at June
30, 2003.
Nonperforming assets at June 30, 2003 totaled $3,198,000, up from $2,319,000
at March 31, 2003. The second quarter increase in nonperforming assets of
$879,000 resulted from loans being brought current in the amount of $796,000,
loans charged-off in the amount of $35,000, liquidations of nonaccrual loans
of $414,000, increases in nonaccrual loans of $1,531,000 and increases in
foreclosed assets of $589,000.
The level of nonperforming assets increased by $1,313,000 during the first
half of 2003. This increase is the result of an increase in nonaccrual
loans of $290,000 as well as by an increase in other foreclosed assets owned
in the amount of $589,000. The increase in nonaccrual loans is due to
decreases in nonaccrual principal balances of $1,295,000 which have been paid
off or brought current, loans charged-off in the amount of $293,000,
liquidations of nonaccrual loans of $414,000 and increases in nonaccrual
principal balances of $2,744,000 which includes 14 commercial loan credits of
$1,422,000 and 34 small consumer loan credits. The increase in foreclosed
assets resulted from the acquisition of four commercial properties in the
amount of $589,000. Corporate management is monitoring the increasing trends
in nonperforming and nonaccrual loans and is taking proactive action with the
related borrowers in order to manage the potential impact of these trends
with respect to the Bank's reserve and provision for loan losses.
23
The table below presents the level of nonperforming assets at the end of
the last four calendar quarters.
Amounts in thousands 06/30/03 03/31/03 12/31/02 09/30/02
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $2,609 $2,319 $1,863 $2,222
Restructured 0 0 0 0
Other Foreclosed Assets 589 0 22 56
------ ------ ------ ------
Total Nonperforming Assets $3,198 $2,319 $1,885 $2,278
====== ====== ====== ======
Reserve for loan losses
to total nonperforming
assets 222.1% 289.0% 352.9% 287.8%
====== ====== ====== ======
Accruing loans past due
90 days $ 14 $ 62 $ 45 $ 48
====== ====== ====== ======
Potential problem loans are those loans identified on management's watch list
in which Management has some doubt as to the borrower's ability to comply
with the present repayment terms and loans which Management is actively
monitoring due to changes in the borrower's financial condition. At June 30,
2003, potential problem loans totaled $15,859,000, an increase of $310,000
from the December 31, 2002 balance.
The Corporation's credit policies are reviewed and modified on an ongoing
basis in order to remain suitable for the management of credit risk within
the loan portfolio as conditions change. At June 30, 2003 there are no
significant concentrations of credit in the loan portfolio.
The Corporation had outstanding loan and credit commitments to make loans
totaling $149,299,000 and $140,685,000 at June 30, 2003 and December 31,
2002, respectively. The increase in outstanding loan commitments results in
part from an increase in the unused portion of home equity lines of credits
from a home equity loan sale program during the past twelve months.
Commercial loan demand increased in the second quarter of 2003 as seasonal
weather conditions improved and the construction season began. Consumer loan
demand increased in the second quarter as demand for home improvement and
automobile loans increased.
Total deposits increased $25,503,000 during the first half to $591,630,000.
Noninterest-bearing deposits increased to $99,146,000, at June 30, 2003 for
an increase of $18,267,000, while interest-bearing deposits increased to
$492,484,000 for an increase of $7,236,000. Federal funds purchased and
securities sold under agreements to repurchase decreased $9,786,000 during
the first half mainly due to increases in Federal Home Loan Bank advances of
$20,500,000. Since customer repurchase agreements balances are volatile
24
on a daily basis, most funds generated by repurchase activity enter the
Corporation's earning assets as short-term investments.
LIQUIDITY
Liquidity measures a corporation's ability to generate cash or otherwise
obtain funds at reasonable prices to fund commitments to borrowers as well as
the demand of depositors and debt holders. Principal internal sources of
liquidity for the Corporation and the Bank are cash and cash equivalents,
Federal funds sold, and the maturity structures of securities and portfolio
loans. Securities and loans available for sale provide another source of
liquidity through the cash flows of these interest-bearing assets as they
mature or are sold.
The Corporation continues to maintain a liquid position in order to take
advantage of interest rate fluctuations. As of June 30, 2003, short-term
securities with maturities of one year or less totaled $4,377,000,
which represented 2.6% of total securities. Adding cash and due from banks of
$27,377,000, and Federal Funds sold and other interest bearing instruments of
$3,081,000, total liquid assets represented 4.6% of total assets. The Bank
has established short-term lines of credit at correspondent banks, the
Federal Home Loan Bank and the Federal Reserve Bank of Cleveland in the
amounts of $24,000,000, $40,000,000 and $34,000,000, respectively, with
credit available in the amounts of $24,000,000, $11,000,000 and $34,000,000,
respectively. Additional sources of liquidity at June 30, 2003 could be
provided by available unused Federal Home Loan Bank long-term advances of
$39,000,000 collateralized by qualified mortgages.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity increased to $68,591,000, at June 30, 2003. The increase
resulted primarily from $4,515,000 of net income generated from the first
half of operations less a cash dividend declared to shareholders of
$2,246,000. The change in interest rates experienced in the first half of
2003 has caused a decrease in the overall fair value of available for sale
securities which resulted in a decrease in accumulated other comprehensive
income of $375,000 for the six months ended June 30, 2003. As of June 30,
2003, LNB Bancorp, Inc. held 149,663 shares of common stock as treasury
stock at a cost of $2,892,000.
The Corporation and the Bank continue to monitor growth to stay within the
Constraints established by the regulatory authorities. Under Federal banking
regulations, an institution is deemed to be well-capitalized if it has a
Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk-based
Total capital ratio of 10.00 percent or greater and a leverage ratio of 5.00
percent or greater. The Corporation's and the Bank's risk-based capital and
leverage ratios along with the ratios required to be adequately capitalized
have exceeded the ratios for well-capitalized financial institutions for all
25
periods presented above. The Corporation's capital and leverage ratios as of
June 30, 2002 and 2001 follow together with those ratios required for the
Corporation to be considered adequately capitalized.
June 30,
---------------------
2003 2002
------ ------
Tier I capital ratio 11.38% 12.57%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 12.63% 13.77%
Required total capital ratio 8.00% 8.00%
Leverage ratio 8.96% 9.58%
Required leverage ratio 3.00% 3.00%
The Corporation regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisition in markets
near or within the Corporation's current geographic market. As a result,
acquisition discussions and, in some cases, take place and future
acquisitions could occur. Corporate management believes that its current
capital resources and the sources of additional capital that are available
are sufficient to support any foreseeable acquisition activity.
RESULTS OF OPERATIONS
Earnings for the six months ended June 30, 2003 were higher than a year ago
because of the impact of higher net interest income that was offset, to a
degree, by a slightly higher loan loss provision and lower noninterest income
and noninterest expenses.
Increases in net interest income were fueled by increases in commercial and
consumer loan growth coupled with decreases in rates paid on interest
bearing liabilities. The softening of the economy and its related impact on
credit plus increased commercial loan delinquencies resulted in the recording
of slightly higher levels of loan loss provision in the first half of 2003,
compared with the same period in 2002. The decreases in noninterest income
resulted primarily from lower Investment and Trust Services income and gains
on sales of investments offset by increases in fees and service charges and
increases in gains on sales of loans. Decreases in noninterest expenses
resulted from lower salaries and employee benefits, marketing expenses and
other noninterest expenses offset by increases in outside services.
The net interest margin for the six months ended June 30, 2003 decreased
27 basis points to 4.31% compared to 4.58% for the same period one year ago.
The net interest margin for the second quarter of 2003 was 4.29% compared
to 4.53% for the second quarter of 2002.
Interest and fees on loans for the first half of 2003 decreased $517,000
when compared to the first half of 2002. Decreased loan income resulted from
the impact of increases in the average loan portfolio balance for the first
26
half of 2003 by $24,290,000 to $514,028,000 as compared to the first half of
2002 offset by decreases in interest rates. Interest and dividends on
securities was $2,781,000 for the first half of 2003 for a decrease of
$803,000 over the same period in 2002. Decreased investment income resulted
from the impact of increases in the average investment portfolio balance for
the first half of 2003 of $18,717,000 to $156,763,000 as compared
to the first half of 2002, offset by decreases in interest rates for 2003
compared with 2002. Interest and dividends on securities represented 14.4% of
total interest income at June 30, 2003 compared to 17.3% at June 30, 2002.
Interest on Federal funds sold and short-term investments was $21,000 and
$52,000 at June 30, 2003 and 2002,respectively.
Total interest expense decreased by $1,403,000 when compared to the first
half of 2002. The interest expense decrease resulted from decreases in
deposit account interest of $1,242,000 and a decrease in interest expense
on repurchase agreements and other short-term borrowings of $129,000 and
decreases in interest expense on Federal Home Loan Bank advances
of $32,000. Also, total interest expense for the first half of 2003 was
impacted by decreases in interest rates paid on savings accounts,
checkinvest, market access accounts, certificate of deposit accounts and
repurchase agreements when compared to the first half of 2002.
Total noninterest income decreased by $134,000 when compared to the first
half of 2002. This decrease resulted from lower Investment and Trust
Services income of $189,000 and gains on sales of securities of $90,000
combined with decreases in income from service charges of $91,000 and
decreases in other operating income of $42,000.
The Corporation continuously monitors noninterest expenses for greater
profitability. The entire staff is geared to improving productivity at all
levels. Noninterest expense for the six months ended June 30, 2003 was
$11,835,000, 1.2% lower than the first six months of 2002. This decrease
was due primarily to lower salaries and employee benefits and marketing
expenses offset in part by higher occupancy expense, outside services,
furniture and equipment expenses and Ohio Franchise Tax.
The effective tax rate decreased slightly from 32.6% during the first half of
2002 to 31.9% during the first half of 2003. The decrease in the effective
tax rate is due primarily to the increases in tax exempt interest income to
total interest income.
Net income was $4,515,000 and $4,429,000 for the six months ended June 30,
2003 and 2002, respectively. Net income per basic and diluted share was $.68
and $.67 for the six months ended June 30, 2003 and 2002 respectively, after
giving effect for the three-for-two stock split on March 14, 2003 and the two
percent stock dividend paid on July 1, 2002. The annualized return on
average assets for the 2003 first half was 1.26 percent compared with 2002's
1.23 percent. The annualized return on average shareholders' equity for the
first half was 13.45 percent compared with 13.15 percent last year.
27
SECOND QUARTER INFORMATION
Interest and fees on loans for the second quarter of 2003 decreased $347,000
when compared to the second quarter of 2002. Decreased loan income resulted
from the impact of increases in the average loan portfolio balance for the
second quarter of 2003 as compared to the second quarter of 2002 offset by
decreases in interest rates. Interest and dividends on securities was
$1,309,000 for the second quarter of 2003 for a decrease of $477,000 over the
same period in 2002. Decreased investment income resulted from the impact of
increases in the average securities portfolio balance for the second quarter
of 2003 as compared to the second quarter of 2002, offset by decreases in
interest rates for 2003 compared with 2002. Interest on Federal funds sold
and short-term investments was $9,000 and $33,000 for the second quarter of
2003 and 2002, respectively.
Total interest expense for the second quarter of 2003 decreased by $823,000
when compared to the second quarter of 2002. The interest expense decrease
resulted from lower deposit account interest of $719,000, interest expense
from repurchase agreements and other short-term borrowings of $46,000 and
lower interest expense from Federal Home Loan Bank advances of $58,000.
Also, total interest expense for the second quarter of 2003 was impacted by
decreases in interest rates paid on savings accounts, checkinvest, market
access accounts, certificate of deposit accounts and repurchase agreements
when compared to the second quarter of 2002.
Total noninterest income decreased by $2,000 when compared to the second
quarter of 2002. This decrease resulted from increases in service charges of
$115,000, gains on sales of loans of $68,000 and other operating income of
$11,000 offset by decreases in income from Investment and Trust Services
income of $68,000, gains on sales of securities of $18,000 and decreases in
other service charges, and exchanges and fees totaling $110,000.
Noninterest expense for the three months ended June 30, 2003 was $5,889,000,
3.8% lower than the second quarter of 2002. This decrease was due primarily
to lower salaries and employee benefits, marketing expenses and other
operating expenses.
28
On March 15, 2003, LNB Bancorp, Inc.'s wholly-owned subsidiary, North Coast
Community Development Corporation was selected by the United States
Department of the Treasury to receive $9 million in tax credit allocations
under the New Markets Tax Credit program. This tax credit did not impact the
first or second quarters provisions for federal income taxes, but its
anticipated impact, for the remainder of 2003, is to lessen the provision for
federal taxes to an undetermined degree.
IMPACTS OF ACCOUNTING AND REGULATORY PRONOUNCEMENTS
Corporate management is not aware of any current recommendations by the
Financial Accounting Standards Board or by regulatory authorities which, if
they were implemented, would have a material effect on the liquidity, capital
resources or operations of the Corporation. However, the potential impact of
certain accounting and regulatory pronouncements warrant further discussion.
Statement of Financial Accounting Standards No. 149: "Amendment of Statement
133 on Derivative Instruments and Hedging Activities"
This Statement amends Statement 133 for certain decisions made by the Board
as part of the Derivatives Implementation Group (DIG) process. For those
amendments that relate to Statement 133 implementation guidance, the specific
Statement 133 Implementations Issue necessitating the amendment is
identified. If the amendment relates to a cleared issue, the clearance date
also is noted. The Statement also amends Statement 133 to incorporate
clarifications of the definition of a derivative. This Statement contains
amendments relating to FASB Concepts Statement No. 7, "Using Cash Flow
Information and Present Value in Accounting Measurements," and FASB
Statements No. 65, "Accounting for Certain Mortgage Banking Activities,"
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases," No. 95,
"Statement of Cash Flows," and No. 126, "Exemption from Certain Required
Disclosures about Financial Instruments for Certain Nonpublic Entities."
The provisions of SFAS No. 149 became effective for the Corporation for
contracts entered into or modified after June 30, 2003. The Corporation will
adopt SFAS No. 149 during the third quarter of 2003 and its adoption is not
expected to have a material impact on our financial position, results of
operations, or liquidity.
FASB Interpretation No. 46 (FIN No. 46):"Consolidation of Variable Interest
Entities"
In January 2003, the FASB issued FIN No. 46 "Consolidation of Variable
Interest Entities." The objective of this Interpretation is to provide
guidance on how to identify a variable interest entity (VIE) and determine
when the assets, liabilities, noncontrolling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interests in an entity will need
to consolidate the entity if the company's interest in the VIE is such that
29
the company will absorb a majority of the VIE's expected losses and/or
receive a majority of the entity's expected residual returns, if they occur.
The provisions of this Interpretation became effective upon issuance. As of
December 31, 2002, the Corporation had no variable interest entities. The
Corporation has determined that the Interpretation will have no impact on
financial position, results of operations, or liquidity, as it applies to
other areas within the Corporation.
Statement of Financial Accounting Standards No. 150 (SFAS No. 150):
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity"
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No.
150 provides guidance on how an issuer classifies and measures in its
statement of financial position the following financial instruments with
characteristics of both liabilities and equity: mandatory redeemable shares,
put options, and forward purchase contracts and obligations that can be
settled with shares. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of
the issuer. The provisions of SFAS No. 150 became effective for financial
instruments entered into or modified after May 31, 2003, and otherwise shall
be effective at the beginning of the first interim period beginning after
June 15, 2003. The Corporation has reviewed the provisions of SFAS No. 150
believes its adoption will not have any impact on our financial position,
results of operations, or liquidity.
30
PART I - OTHER INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market indices such as interest rates, foreign exchange
rates and equity prices. The Corporation's principal market risk exposure is
interest rate risk, with no material impact on earnings from changes in
foreign exchange rates or equity prices. There have been no material changes
in the asset and liability mix of the Corporation since December 31, 2002,
which would impact the Corporation's level of market risk.
Interest rate risk is the exposure to changes in market interest rates.
Interest rate sensitivity is the relationship between market interest rates
and net interest income due to the repricing characteristics of assets and
liabilities. The Corporation monitors the interest rate sensitivity of its
on - and - off balance sheet positions by examining its near-term sensitivity
and its longer term gap position. Corporate management has determined that
there have been no significant changes in the Corporation's interest rate
risk profile since December 31, 2002.
ITEM 4 - CONTROLS AND PROCEDURES
The Corporation carried out an evaluation, under the supervision and with the
participation of the Corporation's management, including the Corporation's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Corporation's disclosure controls and
procedures as of June 30, 2003, pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, the Chief Executive Office and Chief Financial Officer
concluded that the Corporation's disclosure controls and procedures were
effective as of June 30, 2003, in timely alerting them to material
information relating to the Corporation (including its consolidated
subsidiaries) required to be included in the Corporation's periodic SEC
filings.
There was no change in the Corporation's internal control over financial
reporting that occurred during the Corporation's fiscal quarter ended June
30, 2003, that has materially affected, or is reasonably likely to materially
affect, the Corporation's internal control over financial reporting.
31
Part II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None
ITEM 2 - Changes in Securities
None
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
(a) LNB Bancorp Inc.'s 2003 Annual Meeting of Shareholders
was held on April 15, 2003 .
(b) Proxies were solicited by LNB Bancorp Inc.'s management
pursuant to Regulation 14 under the Securities Exchange
Act of 1934, there was no solicitation in opposition to
management's nominees for election to the board of
directors as listed in the proxy statement, and all
such nominees were elected to the classes in the proxy
statement pursuant to the vote of the shareholders.
(c) Other matters voted upon
(1)Election of directors to serve as Class II Directors
until April 18, 2006 Annual Meeting of Shareholders as
follows:
FOR WITHHELD
Robert M. Campana 3,666,927.94 35,749.10
Lee C. Howley 3,684,658.96 17,990.33
James F. Kidd 3,632,780.96 69,868.33
Jeffrey F. Riddell 3,684,365.96 18,284.33
The total number of shares of LNB Bancorp, Inc. Common Stock,
$1.00 par value, outstanding as of March 3, 2003, the record
date of the Annual Meeting was 4,401,232.
32
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this report:
EXHIBIT NO. EXHIBIT
3.1 LNB Bancorp, Inc. Second Amended Articles of
Incorporation (Incorporated by reference to
the quarterly report on Form 10-Q filed on
November 14, 2000.)
3.2 LNB Bancorp, Inc. Amended Code of Regulations.
(Incorporated by reference to the current report
on Form 8-K filed on January 4, 2001.)
4. Instruments Defining the Rights of Security
Holders. (See Exhibits 3.1 and 3.2)
31.(a) Certification - Gary C. Smith
31.(b) Certification - Gregory D. Friedman
32.(a) Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
32.(b) Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
April 15, 2003 - LNB Bancorp, Inc. published and released its
1st Quarter 2003 Report to Shareholders and issued a press
release announcing 1st Quarter 2003 Earnings dated April 15,
2003.
May 20, 2003 - LNB Bancorp, Inc. issued a press release
announcing a second-quarter cash dividend of $0.17 with a
record date of June 16, 2003 and a payable date of July 1, 2003.
Also, see the Exhibit Index which is found on the next page
of this Form.
33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LNB BANCORP, INC.
(registrant)
Date: August 14, 2003 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman, CPA
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
LNB BANCORP, INC.
(registrant)
Date: August 14, 2003 /s/ Mitchell J. Fallis
_________________________
Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer
34
LNB Bancorp, Inc.
Form 10-Q
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
EXHIBIT NO. PAGE DESCRIPTION
3.1 NA LNB Bancorp, Inc. Second Amended Articles of
Incorporation (Incorporated by reference to
the quarterly report on Form 10-Q filed on
November 14, 2000.)
3.2 NA LNB Bancorp, Inc. Amended Code of Regulations.
(Incorporated by reference to the current report
on Form 8-K filed on January 4, 2001.)
4. NA Instruments Defining the Rights of Security
Holders. (See Exhibits 3.1 and 3.2)
31.(a) 35 Certification - Gary C. Smith
31.(b) 37 Certification - Gregory D. Friedman
32.(a) 39 Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
32.(b) 40 Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
35 Exhibit 31.(a)
Certifications
I, Gary C. Smith, President and Chief Executive Officer of LNB Bancorp,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of LNB Bancorp,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) (THIS PARAGRAPH INTENTIONALLY LEFT BLANK.)
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
36
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date August 14, 2003
______________________
By /s/Gary C. Smith
______________________
Gary C. Smith, President and Chief Executive Officer
37 Exhibit 31.(b)
I, Gregory D. Friedman, CPA, Executive Vice President, Chief Financial
Officer and Corporate Secretary of LNB Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of LNB Bancorp,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) (THIS PARAGRAPH INTENTINNALY LEFT BLANK)
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
38
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date August 14, 2003
____________________________
By /s/Gregory D. Friedman
____________________________
Gregory D. Friedman, CPA, Executive Vice President, Chief Financial
Officer and Corporate Secretary
39
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 2003)
Exhibit Number (32.(a))
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LNB Bancorp, Inc. (the
"Corporation") on Form 10-Q for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gary C. Smith, President and Chief Executive Officer of the Corporation,
certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Gary C. Smith
Gary C. Smith
President and
Chief Executive Officer
August 14, 2003
40
LNB Bancorp, Inc.
Exhibit to Form 10 - Q
(For the six months ended June 30, 2003)
Exhibit Number (32.(b))
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LNB Bancorp, Inc. (the
"Corporation") on Form 10-Q for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gregory D. Friedman, Executive Vice President, Chief Financial Officer and
Corporate Secretary of the Corporation, certify, pursuant to 18 U.S.C.
Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Gregory D. Friedman
Gregory D. Friedman, CPA
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
August 14, 2003