1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 November 13, 2003: 6,607,562 shares
Class of Common Stock: $1.00 par value
3 LNB Bancorp, Inc.
Quarterly Report on Form 10-Q
Quarter Ended September 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(s)
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 31
Item 4 - Controls and Procedures 31
Part II - Other Information
Item 1 - Legal Proceedings 32
Item 2 - Changes in Securities 32
Item 3 - Defaults upon Senior Securities 32
Item 4 - Submission of matters to a Vote of
Security Holders 32
Item 5 - Other Information 32
Item 6 - Exhibits and reports on Form 8-K 32
Signatures 33
Exhibit Index 34
4
FORM 10-Q LNB BANCORP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SEPTEMBER 30, DECEMBER 31,
CONDENSED CONSOLIDATED BALANCE SHEETS 2003 2002
------------- -------------
(Unaudited)
ASSETS:
Cash and due from banks $ 28,860,000 $ 23,608,000
Federal funds sold and short-term
investments 3,081,000 3,224,000
Securities:
Available for sale, at fair value 151,697,000 137,909,000
Held to maturity, at cost (fair value
$3,129,000 and $10,903,000, respectively) 2,981,000 10,648,000
Federal Home Loan Bank and Federal Reserve
Bank and other equity stock, at cost 3,843,000 3,738,000
------------- -------------
Total Securities 158,521,000 152,295,000
------------- -------------
Loans:
Portfolio loans 533,687,000 500,551,000
Loans available for sale 6,497,000 8,999,000
------------- -------------
Total loans 540,184,000 509,550,000
Reserve for loan losses (7,642,000) (6,653,000)
------------- -------------
Net loans 532,542,000 502,897,000
------------- -------------
Bank owned life insurance 12,480,000 11,930,000
Bank premises and equipment, net 10,587,000 10,748,000
Intangible assets 3,273,000 3,358,000
Accrued interest receivable 2,943,000 3,045,000
Other assets 4,340,000 4,272,000
Foreclosed assets 589,000 22,000
------------- -------------
TOTAL ASSETS $757,216,000 $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 $ 87,115,000 $ 80,879,000
Savings, Market Access and passbook
accounts 277,411,000 280,616,000
Certificates of deposit 206,638,000 204,632,000
------------- -------------
Total deposits 571,164,000 566,127,000
------------- -------------
Securities sold under repurchase agreements
and other short-term borrowings 26,187,000 26,866,000
Federal Home Loan Bank advances 86,425,000 48,925,000
Accrued interest payable 943,000 983,000
Accrued taxes, expenses and
other liabilities 3,921,000 5,885,000
------------- -------------
TOTAL LIABILITIES 688,640,000 648,786,000
------------- -------------
SHAREHOLDER'S 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 6,755,953 and
4,501,032, respectively and Shares
outstanding 6,606,616 and 4,401,032
respectively 6,756,000 4,501,000
Additional capital 26,120,000 28,319,000
Retained earnings 39,128,000 35,639,000
Accumulated other comprehensive income (loss) (541,000) 1,054,000
Treasury stock at cost, 149,337 and
100,000 shares, respectively (2,887,000) (2,900,000)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 68,576,000 66,613,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $757,216,000 $715,399,000
============= =============
See notes to unaudited condensed consolidated financial statements.
6
FORM 10-Q LNB BANCORP, INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF INCOME (UNAUDITED) -------------------------
2003 2002
INTEREST INCOME: ------------ ------------
Interest and fees on loans $24,774,000 $25,672,000
Interest and dividends on securities:
U.S. Treasury securities -0- 7,000
U.S. Government agencies and corporations 3,217,000 4,557,000
States and political subdivisions 465,000 427,000
Other debt and equity securities 224,000 340,000
Interest on Federal funds sold and other
interest-bearing instruments 32,000 75,000
------------ ------------
TOTAL INTEREST INCOME 28,712,000 31,078,000
------------ ------------
INTEREST EXPENSE:
Interest on Deposits:
Time certificates of $100,000 and over 1,109,000 1,011,000
Other deposits 4,514,000 6,666,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 157,000 364,000
Interest on Federal Home Loan Bank advances 1,284,000 1,312,000
------------ ------------
TOTAL INTEREST EXPENSE 7,064,000 9,353,000
------------ ------------
NET INTEREST INCOME 21,648,000 21,725,000
Provision for loan losses 2,125,000 1,725,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 19,523,000 20,000,000
------------ ------------
NONINTEREST INCOME:
Investment and Trust Services Division income 1,305,000 1,485,000
Service charges on deposit accounts 3,208,000 3,016,000
Other service charges, exchanges and fees 2,296,000 2,468,000
Gain on sale of VISA credit card portfolio 820,000 -0-
Gain on sales of loans 195,000 56,000
Gain on sales of securities 449,000 600,000
Other operating income 241,000 248,000
------------ ------------
TOTAL NONINTEREST INCOME 8,514,000 7,873,000
STATEMENT CONTINUED ON NEXT PAGE
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STATEMENT CONTINUED FROM PREVIOUS PAGE
NONINTERST EXPENSES:
Salaries and employee benefits 8,886,000 8,470,000
Furniture and equipment expenses 1,807,000 1,628,000
Net occupancy expense of premises 1,160,000 1,113,000
Card related expenses 980,000 992,000
Supplies and postage 783,000 769,000
Outside services 1,073,000 917,000
Marketing and public relations 584,000 828,000
Ohio franchise tax 542,000 385,000
Other operating expenses 2,246,000 2,761,000
------------ ------------
TOTAL NONINTEREST EXPENSES 18,061,000 17,863,000
------------ ------------
INCOME BEFORE INCOME TAXES 9,976,000 10,010,000
INCOME TAXES 3,106,000 3,205,000
------------ ------------
NET INCOME $ 6,870,000 $ 6,805,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ 1.04 $ 1.03
====== ======
DILUTED EARNINGS PER SHARE $ 1.04 $ 1.03
====== ======
DIVIDENDS DECLARED PER SHARE $ .51 $ .50
====== ======
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 SEPTEMBER 30,
OF INCOME (UNAUDITED) --------------------------
2003 2002
INTEREST INCOME ------------ ------------
Interest and fees on loans $ 8,264,000 $ 8,645,000
Interest and dividends on securities:
U.S. Treasury securities -0- -0-
U.S. Government agencies and corporations 899,000 1,497,000
States and political subdivisions 153,000 152,000
Other debt and equity securities 73,000 98,000
Interest on Federal funds sold and other
interest-bearing instruments 11,000 23,000
------------ ------------
TOTAL INTEREST INCOME 9,400,000 10,415,000
------------ ------------
INTEREST EXPENSE:
Interest on Deposits:
Time certificates of $100,000 and over 349,000 382,000
Other deposits 1,340,000 2,119,000
Interest on securities sold under repurchase
agreements and other short-term borrowings 42,000 120,000
Interest on Federal Home Loan Bank advances 455,000 451,000
------------ ------------
TOTAL INTEREST EXPENSE 2,186,000 3,072,000
------------ ------------
NET INTEREST INCOME 7,214,000 7,343,000
Provision for loan losses 991,000 600,000
NET INTEREST INCOME AFTER PROVISION ------------ ------------
FOR LOAN LOSSES 6,223,000 6,743,000
------------ ------------
NONINTEREST INCOME:
Investment and Trust Services Division income 451,000 442,000
Service charges on deposit accounts 1,153,000 1,106,000
Other service charges, exchanges and fees 755,000 873,000
Gain on sale of VISA credit card portfolio 820,000 -0-
Gain on sales of loans 54,000 11,000
Gain (loss) on sale of securities (1,000) 60,000
Other operating income 111,000 76,000
------------ ------------
TOTAL NONINTEREST INCOME 3,343,000 2,568,000
STATEMENT CONTINUED ON NEXT PAGE
9
STATEMENT CONTINUED FROM PREVIOUS PAGE
NONINTEREST EXPENSES:
Salaries and employee benefits 3,215,000 2,708,000
Furniture and equipment expenses 647,000 540,000
Net occupancy expense of premises 371,000 368,000
Card related expenses 344,000 344,000
Supplies and postage 245,000 236,000
Outside services 249,000 249,000
Marketing and public relations 179,000 276,000
Ohio franchise tax 180,000 157,000
Other operating expenses 796,000 1,001,000
------------ ------------
TOTAL NONINTEREST EXPENSES 6,226,000 5,879,000
------------ ------------
INCOME BEFORE INCOME TAXES 3,340,000 3,432,000
INCOME TAXES 985,000 1,056,000
------------ ------------
NET INCOME $ 2,355,000 $ 2,376,000
============ ============
PER SHARE DATA:
BASIC EARNINGS PER SHARE $ .36 $ .36
====== ======
DILUTED EARNINGS PER SHARE $ .36 $ .36
====== ======
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
NINE MONTHS ENDED
CONDENSED CONSOLIDATED STATEMENTS SEPTEMBER 30,
OF CASH FLOWS (UNAUDITED) -------------------------
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ------------
Interest received $29,451,000 $31,848,000
Other income received 7,289,000 7,146,000
Interest paid (7,104,000) (9,428,000)
Cash paid for salaries and
employee benefits (9,998,000) (8,145,000)
Originations of loans available for sale (23,767,000) (12,702,000)
Proceeds from sales of loans
available for sale 23,767,000 9,714,000
Gain on sale of loans available for sale (195,000) (56,000)
Net occupancy expense of premises paid (923,000) (885,000)
Furniture and equipment expenses paid (887,000) (691,000)
Cash paid for supplies and postage (783,000) (769,000)
Cash paid for other operating expenses (7,358,000) (5,476,000)
Federal income taxes paid (3,270,000) (3,382,000)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,222,000 7,174,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
held to maturity 7,660,000 5,859,000
Proceeds from sales and maturities of
securities available for sale 123,929,000 66,611,000
Purchase of securities held to maturity -0- (640,000)
Purchase of securities available
for sale (138,465,000) (88,828,000)
Net (increase) in loans made to customers (31,193,000) (21,728,000)
Purchases of bank premises and equipment (1,021,000) (1,402,000)
Proceeds from sales of bank premises and
equipment 64,000 47,000
Purchases of BOLI -0- (10,413,000)
Proceeds from liquidation of other
foreclosed assets 22,000 152,000
Purchases of other foreclosed assets (589,000) (86,000)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (39,593,000) (50,428,000)
------------ -----------
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 6,236,000 (314,000)
Net increase (decrease)in savings and
passbook deposits (3,205,000) 20,331,000
Net increase in certificates of deposit 2,006,000 29,314,000
Net (decrease) in securities sold
under repurchase agreements and other
short-term borrowings (679,000) (22,591,000)
Proceeds from Federal Home Loan
Bank advances 262,095,000 35,830,000
Payment on Federal Home Loan Bank advances (224,595,000) (19,800,000)
Cash paid in lieu of fractional shares
related to three-for-two stock split (13,000) -0-
Proceeds from exercise of stock options 56,000 33,000
(Purchase) redemption of Treasury Stock 13,000 -0-
Dividends paid (3,434,000) (3,344,000)
NET CASH PROVIDED BY FINANCING ------------ -----------
ACTIVITIES 38,480,000 39,459,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,109,000 (3,795,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 26,832,000 31,505,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $31,941,000 $27,710,000
============ ============
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 $6,870,000 $6,805,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments & loans (449,000) 568,000
Gain on sale of VISA portfolio (820,000) -0-
Depreciation and amortization 1,157,000 1,165,000
Amortization of intangible assets 85,000 94,000
Amortization of premium on investment
securities 997,000 267,000
Amortization of deferred loan fees
and costs, net (382,000) (191,000)
Originations of loans available for sale (23,767,000) (12,702,000)
Proceeds from sales of loans
available for sale 23,767,000 9,714,000
Gain on sale of loans held for sale (195,000) (56,000)
Provision for loan losses 2,125,000 1,725,000
Increase in CSV - BOLI (550,000) (278,000)
Decrease in accrued interest receivable 102,000 470,000
(Increase) in other assets (68,000) (111,000)
(Decrease) in accrued interest payable (40,000) (75,000)
Increase in accrued taxes,
expenses and other liabilities (1,899,000) (98,000)
Other, net (711,000) (123,000)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,222,000 $ 7,174,000
============ ============
See notes to unaudited condensed consolidated financial statements.
13
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), and
Charleston Insurance Agency, Inc., North Coast Community Development
Corporation and a 49% interest in Charleston Title Agency, LLC., at September
30, 2003, compared to December 31, 2002 and the related unaudited condensed
consolidated statements of income for the three and nine months ended
September 30, 2003 compared to the three and nine months ended September 30,
2002 and the related unaudited condensed consolidated statements of cash
flows for the nine months ended September 30, 2003 compared to the same
periods in 2002. The term "the Corporation" refers to LNB Bancorp, Inc. and
its 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 September 30, 2003,
the unaudited condensed consolidated statements of income for the three and
nine months ended September 30, 2003 and 2002 and the unaudited condensed
consolidated statements of cash flows for the nine months ended September 30,
2003 and 2002 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 adjustments are normal and recurring in
nature.
The consolidated balance sheet at December 31, 2002 has been taken from the
14
audited financial statements and condensed. The results of operations for
the three months and nine months ended September 30, 2003 are not necessarily
indicative of the 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
15
agreement. The measurement of impaired loans is generally based on the
present value of the expected future cash flows discounted at the loan's
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 the 2003
presentation.
16
2. EARNINGS PER SHARE
Earnings per share is calculated as follows:
For the 9 Months ended September 30, 2003
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $6,870,000
Basic EPS
Income available to
common shareholders $6,870,000 6,604,024 $1.04
Effect of Dilutive Securities
Incentive Stock Options -0- 15,332 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $6,870,000 6,619,356 $1.04
========== ========= =====
For the 9 Months ended September 30, 2002
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $6,805,000
Basic EPS
Income available to
common shareholders $6,805,000 6,601,548 $1.03
Effect of Dilutive Securities
Incentive Stock Options -0- 5,028 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $6,805,000 6,606,576 $1.03
========== ========= =====
17
For the 3 Months ended September 30, 2003
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $2,355,000
Basic EPS
Income available to
common shareholders $2,355,000 6,606,234 $ .36
Effect of Dilutive Securities
Incentive Stock Options -0- 16,068 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,355,000 6,622,302 $ .36
========== ========= =====
For the 3 Months ended September 30, 2002
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net Income $2,376,000
Basic EPS
Income available to
common shareholders $2,376,000 6,601,548 $ .36
Effect of Dilutive Securities
Incentive Stock Options -0- 7,983 -0-
---------- --------- -----
Diluted EPS
Income available to common
shareholders + assumed
conversions $2,376,000 6,609,531 $ .36
========== ========= =====
18
Earnings per share as reported and pro forma information for the nine and
three months ended September 30, 2003 and 2002 are as follows:
Nine Months Ended
September 30,
2003 2002
-------------- --------------
As reported net income available
to common shareholders $6,870,000 $6,805,000
Less: stock-based compensation
expense determined under fair
fair value method, net of tax -0- (17,000)
-------------- --------------
Pro forma net income $6,870,000 $6,791,000
============== ==============
As reported earnings per share $1.04 $1.03
Pro forma earnings per share $1.04 $1.03
As reported earnings per diluted share $1.04 $1.03
Pro forma earnings per diluted share $1.04 $1.03
Three Months Ended
September 30,
2003 2002
-------------- --------------
As reported net income available
to common shareholders $2,355,000 $2,376,000
Less: stock-based compensation
expense determined under fair
fair value method, net of tax -0- -0-
-------------- --------------
Pro forma net income $2,355,000 $2,376,000
============== ==============
As reported earnings per share $.36 $.36
Pro forma earnings per share $.36 $.36
As reported earnings per diluted share $.36 $.36
Pro forma earnings per diluted share $.36 $.36
19
3. COMPREHENSIVE INCOME
The Corporation's comprehensive income for the nine months ended
September 30, 2003 and 2002 are as follows:
For the nine months ended September 30,
2003 2002
--------------------------------
Net income $ 6,870,000 $ 6,805,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of $(822,000)
and $88,000 (1,595,000) 170,000
------------ ------------
Comprehensive Income $ 5,275,000 $ 6,975,000
============ ============
Disclosure of Reclassification Amount
Unrealized holding gains (loss)
arising during the period,
net of tax $(1,299,000) $ 566,000
Less reclassification adjustment
for gains included in net income,
net of tax of $153,000 and
$204,000 296,000 396,000
------------ ------------
Change in unrealized gain (loss)
on securities available for
sale, net of tax $(1,595,000) $ 170,000
============ ============
The Corporation's comprehensive income for the three months ended
September 30, 2003 and 2002 are as follows:
For the three months ended September 30
2003 2002
------------------------------------
Net income $ 2,355,000 $ 2,376,000
Other comprehensive income:
Change in unrealized gain on
securities available for sale,
net of tax (credit) of $628,000
and $150,000 (1,220,000) 292,000
------------ ------------
Comprehensive Income $ 1,135,000 $ 2,668,000
============ ============
20
Disclosure of Reclassification Amount
Unrealized holding gains (loss)
arising during the period,
net of tax $(1,221,000) $ 332,000
Less reclassification adjustment
for gains included in net income,
net of tax of $-0- and
$20,000 (1,000) 40,000
------------ -------------
Change in unrealized gain (loss)
on securities available for
sale, net of tax $(1,220,000) $ 292,000
============ =============
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 of 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 $41,817,000 during the first nine
months of 2003, to $757,216,000. This growth was funded by increases in
demand, savings, public fund certificates of deposit and Checkinvest
deposit accounts and Federal Home Loan Bank advances.
Total earning assets increased 5.5% to $701,786,000 at September 30, 2003
from December 31, 2002. The ratio of earning assets to total assets
decreased from 92.97% at December 31, 2002 to 92.68% at September 30, 2003.
The loan to deposit ratio has increased from 90.01% at 2002 year-end to
94.58% at September 30, 2003.
Federal funds sold and short-term investments decreased by $143,000 during
the first nine months of 2003. Total securities increased $6,220,000 ending
the third quarter at $158,521,000. Gross unrealized gains and (losses) in
the securities portfolio were approximately $856,000 and ($1,458,000),
respectively at September 30, 2003. The decrease in the fair value of the
securities portfolio is due to increases in intermediate and long-term
22
interest rates during 2003.
Net loans grew by $29,645,000 during the first nine months to $532,542,000 at
September 30, 2003 for a 5.9% growth rate. Commercial and consumer loan
growth was particularly strong due to local market loan demands, showing nine
month increases of $44,202,000 and $9,885,000, respectively. Mortgage loans
decreased by $23,453,000 during the first nine months of 2003. The consumer
loan portfolio has increased because of purchased consumer loans of
$7,480,000 and increases in home equity lines of credit offset in part by the
sale of the VISA credit card portfolio in the amount of $4,356,000.
Mortgages decreased due to refinancing and sales of mortgage loans on the
secondary market.
The reserve for loan losses was $7,642,000 at September 30, 2003.
Activity for the nine months ended September 30, 2003 included provision for
loan losses of $2,125,000, recoveries of $262,000 and loan charge-offs of
$1,398,000. The Corporation recorded a higher level of loan loss provision
during the first nine months of 2003 versus the comparable year-ago period,
attributable to the impact on credit quality caused by the softening economy
and changes in loan mix. The reserve for loan losses as a percentage of
ending loans was 1.41% and 1.31% at September 30, 2003 and December 31, 2002,
respectively. Corporate management believes that the reserve for loan losses
as a percentage of loans at September 30, 2003 remains at an appropriate
level. The ratio of the reserve for loan losses to nonperforming assets
remained at an adequate level even though decreasing to 187.8% at September
30, 2003, from 352.9% at December 30, 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
September 30, 2003.
Nonperforming assets at September 30, 2003 totaled $4,070,000, up from
$3,198,000 at June 30, 2003. The third quarter increase in nonperforming
assets of $872,000 resulted from loans being paid off or brought current in
the amount of $1,028,000, loans charged-off in the amount of $400,000,
liquidation of nonaccrual loans of $34,000 and increases in nonaccrual loans
of $2,334,000. The increase in nonaccrual loans in the third quarter of 2003
was due primarily to seven commercial loan customers, sixteen consumer loan
customers and one mortgage loan customer.
The level of nonperforming assets increased by $2,185,000 during the first
nine months of 2003. This increase is the result of an increase in
nonaccrual loans of $1,618,000 and increases in other foreclosed assets in
the amount of $567,000. The increase in other foreclosed assets results from
the acquisition of four commercial properties in the amount of $589,000 less
liquidations of repossessed vehicles of $22,000. The increase in nonaccrual
loans is due to decreases in nonaccrual principal balances of $2,323,000
which have been paid off or brought current, loans charged-off in the amount
of $693,000, liquidation of nonaccrual loans of $448,000 and increases in
23
nonaccrual principal balances of $5,082,000. The increase in nonaccrual
loans in the first nine months of 2003 was due primarily to twenty-one
commercial loan customers, one mortgage loan customer and fifty personal loan
customers. Management does not believe that this increase in non-accrual
loans is indicative of a failing local economy and that this change did not
result from any change in underwriting standards.
The level of nonperforming assets at September 30, 2003 remains at relatively
low levels and Corporate management believes nonperforming assets are well
collateralized. The table below presents the level of nonperforming assets
at the end of the last four calendar quarters.
Amounts in thousands 09/30/03 06/30/03 03/31/03 12/31/02
-------- -------- -------- --------
Nonperforming Assets:
Nonaccrual $3,481 $2,609 $2,319 $1,863
Restructured 0 0 0 0
Other Foreclosed Assets 589 589 0 22
-------- -------- -------- --------
Total Nonperforming Assets $4,070 $3,198 $2,319 $1,885
======== ======== ======== ========
Reserve for loan losses
to total nonperforming
assets 187.8% 222.1% 289.0% 352.9%
======== ======== ======== ========
Accruing loans past due 90 days $ 25 $ 14 $ 62 $ 45
======== ======== ======== ========
Potential problem loans are those loans identified on management's watch list
in which Management has some doubt as to the borrower's ability to comply
with the present repayment terms and loans which Management is actively
monitoring due to changes in the borrower's financial condition. At September
30, 2003, potential problem loans totaled $18,746,000, an increase of
$3,197,000 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 September 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 $113,592,000 and $140,685,000 at September 30, 2003 and December
31, 2002, respectively. The decrease in outstanding loan commitments results
from a decrease in unused credit card lines resulting from the sale of the
VISA credit card portfolio offset in part by an increase in the unused
portion of home equity lines of credits from home equity loan promotions in
the second and third quarters of 2003. Mortgage and commercial construction
loan demand increased in the second and third quarters of 2003 as seasonal
weather conditions improved and the construction season moved forward.
24
Consumer loan demand increased during 2003 as demand for home improvements
and automobile loans increased.
Total deposits increased $5,037,000 during the first nine months to
$571,164,000. Noninterest-bearing deposits increased to $87,115,000, at
September 30, 2003 for an increase of $6,236,000, while interest-bearing
deposits decreased to $484,049,000 for a decrease of $1,199,000. Federal
funds purchased and securities sold under agreements to repurchase decreased
$679,000 during the first nine months of 2003 due to decreases in federal
funds purchased. Since customer repurchase agreements balances are volatile
on a daily basis, most funds generated by repurchase activity enter the
Corporation's earning assets as short-term investments. Federal Home Loan
Bank advances grew by $37,500,000 as a result of the Corporation funding
asset growth with short-term low interest advances.
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 September 30, 2003, short-
term security investments with maturities of one year or less totaled
$3,382,000 which represented 2.1% of total securities. Adding cash
and due from banks of $28,860,000 and Federal Funds sold and other interest
bearing instruments of $3,081,000, total liquid assets represented 4.7% of
total assets. The Corporation's subsidiary 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 $23,000,000, $40,000,000
and $34,119,000, respectively, with credit available in the amounts of
$16,000,000, $10,000,000 and $34,119,000, respectively. Additional sources
of liquidity at September 30, 2003 could be provided by available unused
Federal Home Loan Bank long-term advances of $12,200,000 collateralized by
qualified mortgages.
CAPITAL RESOURCES
LNB Bancorp, Inc. continues to maintain a strong capital position. Total
shareholders' equity reached an all time high of $68,576,000, at September
30, 2003, an increase of $1,963,000, or 2.9% from December 31, 2002. The
increase resulted primarily from $6,870,000 of net income generated from the
first nine months of operations less cash dividends payable to shareholders
of $3,369,000. The change in interest rates experienced in the first three
25
quarters of 2003 has caused a decrease in the fair value of available for
sale securities which resulted in a decrease in shareholders' equity within
accumulated other comprehensive income of $1,595,000 for the nine months
ended September 30, 2003. As of September 30, 2003, LNB Bancorp, Inc.
held 149,337 shares of common stock as treasury stock at a cost of
$2,887,000.
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 a well-capitalized financial institution for all
periods presented. The Corporation's capital and leverage ratios as of
September 30, 2002 and December 31, 2001 follow together with those ratios
required for the Corporation to be considered adequately capitalized .
September 30, December 31,
2003 2002
------ ------
Tier I capital ratio 11.34% 12.57%
Required Tier I capital ratio 4.00% 4.00%
Total capital ratio 12.66% 13.77%
Required total capital ratio 8.00% 8.00%
Leverage ratio 8.76% 9.58%
Required leverage ratio 3.00% 4.00%
The Corporation regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisitions in markets
near or within the Corporation's current geographic market. As a result,
acquisition discussions and, in some cases negotiations, take place and
future acquisitions could occur. Corporate management believes that the
Corporation's current capital resources are sufficient to support any
foreseeable acquisition activity.
RESULTS OF OPERATIONS
Earnings for the nine months ended September 30, 2003 were higher than a year
ago because of higher noninterest income, offset in part by a slightly lower
net interest income and higher loan loss provision and noninterest expenses.
Decreases in yields on investments and loans more than offset increases in
the volume of earning assets - resulting in a slight decrease in 2003
interest income. The downward repricing of interest-bearing liabilities more
than offset increases in volume and contributed to a decrease in interest
expense. The increase in noninterest income results primarily from increases
in fees and service charges on deposit accounts and increases in gains on
26
sales of loans and gains on sale of the credit card portfolio offset in part
by decreases in Investment and Trust Services Division income and decreases
in gains on sales of securities.
Increases in noninterest expenses resulted from increases in salaries and
employee benefits, furniture and equipment expense, and outside services
offset in part by decreases in marketing expenses. The softening of the
economy and its related impact on credit plus the increase in the loan growth
resulted in the recording of higher levels of loan loss provision for the
first nine months of 2003, compared with the same period in 2002.
The net interest margin for the nine months ended September 30, 2003
decreased 34 basis points to 4.26% compared to 4.60% for the same period one
year ago. The net interest margin for the third quarter of 2003 was 4.10%
compared to 4.54% for the third quarter of 2002.
Interest and fees on loans was $24,774,000 for the first nine months of 2003
for a decrease of $898,000 when compared to the first nine months of 2002.
Decreased loan income resulted from the net of increases in the loan
portfolio of $30,634,000 for the first nine months of 2003 were more than
offset by decreases in interest rates during 2003. Interest and dividends on
securities was $3,906,000 for the first nine months of 2003 for a decrease of
$1,425,000 over the same period in 2002. Decreased security income resulted
from increases in the volume of securities which were more than offset by
decreases in yields on those securities. Interest and dividends on securities
represented 13.6% of total interest income at September 30, 2003 compared to
17.2% at September 30, 2002. Interest on Federal funds sold and short-term
investments was $31,000 at September 30, 2003 compared to $33,000 at
September 30, 2002. The decrease resulted from decreases in the average
balances invested in these forms of financial instruments plus decreases in
interest rates.
The softening of the economy and its related impact on credit plus the
increase in the loan growth resulted in the recording of higher levels of
loan loss provision for the first nine months of 2003, compared with the same
period in 2002.
Total interest expense decreased by $2,289,000 when compared to the first
nine months of 2002. The interest expense decrease resulted from a decrease
in interest expense on deposits of $2,054,000 and repurchase agreement
interest of $207,000, offset by decreases in Federal Home Loan Bank advances
of $28,000. Also, total interest expense for the first nine months of 2003
was impacted by a net decrease in interest bearing deposits of $1,199,000,
and by decreases in interest rates paid on savings, Checkinvest, Market
Access, certificate of deposit accounts, Federal Home Loan Bank advances and
repurchase agreements when compared to the first nine months of 2002.
Total noninterest income increased by $641,000 when compared to the first
nine months of 2002. This increase resulted primarily from increases in
27
gains on the sale of the credit card portfolio of $820,000, increases in
gains on sales of loans of $139,000 plus increases in service charges on
deposit accounts of $192,000 offset by decreases in other service charges,
exchanges and fees of $172,000, decreases in gains on sales of securities of
$151,000 and Investment and Trust Services Division Income of $180,000. The
increase in service charges on deposit accounts is due, in part, to
management's reevaluating the assessment process of transaction account
charges plus increases in the volume of accounts that do not assess service
charges. Other operating income decreased by $7,000.
The Corporation continuously monitors noninterest expenses for greater
profitability. The entire staff is geared to improving productivity at all
levels. Noninterest expense for the nine months ended September 30, 2003 was
$18,061,000, 1.11% above the first nine months of 2002. This increase was due
primarily to increases in salaries and benefits, furniture and equipment
expense and Ohio franchise tax offset in part by decreases in outside
services and marketing expenses.
The effective tax rate declined to 31.1% from 32.0% during the first
nine months of 2003 and 2002, respectively. The rate decrease is due
primarily to increases in tax exempt income to total interest income.
Net income was $6,870,000 and $6,805,000 for the nine months ended September
30, 2003 and 2002, respectively. Net income per basic and diluted share was
$1.04 and $1.03 for the nine months ended September 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.
THIRD QUARTER INFORMATION
Interest and fees on loans for the third quarter of 2003 decreased $381,000
when compared to the third quarter of 2002. Decreased loan income resulted
from the impact of increases in the average loan portfolio balance for the
third quarter of 2003 as compared to the third quarter of 2002 which were
more than offset by decreases in interest rates. Interest and dividends on
securities was $1,125,000 for the third quarter of 2003 for a decrease of
$622,000 over the same period in 2002. Decreased investment income resulted
from the impact of increases in the average securities portfolio balance for
the third quarter of 2003 as compared to the third quarter of 2002, which
were more than offset by decreases in interest rates for 2003 compared with
2002. Interest on Federal funds sold and short-term investments was $11,000
and $23,000 for the third quarter of 2003 and 2002, respectively.
Total interest expense for the third quarter of 2003 decreased by $886,000
when compared to the third quarter of 2002. The interest expense decrease
resulted from decreases in deposit account interest of $812,000 and a
decrease in interest expense from repurchase agreements and other short-term
borrowings of $78,000, offset by increases in interest expense from Federal
Home Loan Bank advances of $4,000. Also, total interest expense for the
28
third quarter of 2003 was impacted by decreases in interest rates paid on
savings accounts, checkinvest, market access accounts, certificate of deposit
accounts, Federal Home Loan Bank advances and repurchase agreements when
compared to the third quarter of 2002.
The softening of the economy and its related impact on credit plus the
increase in the loan growth resulted in the recording of higher levels of
loan loss provision for the third quarter of 2003, compared with the same
period in 2002.
Total noninterest income increased by $775,000 when compared to the third
quarter of 2002. This increase resulted primarily from increases in service
charges of $47,000, gains on the sale of the VISA credit card portfolio of
$820,000, increases in gains on sales of loans of $43,000, increases in other
operating income of $35,000 and increases in income from Investment and Trust
Services Division income of $9,000 offset in part by decreases in other
service charges, and exchanges and fees of $118,000 and decreases in gains on
sales of securities of $61,000.
Noninterest expense for the three months ended September 30, 2003 was
$6,226,000, 5.9% above the same period in 2002. This increase was due
primarily to increases in salaries and employee benefits, and furniture and
equipment expenses offset in part by decreases in outside services
and marketing expenses. Salaries and employee benefits increased during the
third quarter of 2003 from increased 401(K) employer matched contributions
plus a one time charge for severance pay for one employee.
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. LNB Bancorp, Inc. receives certain
tax credits in proportion to loans made by North Coast Community Development
Corporation. It is anticipated that North Coast Community Development
Corporation will begin operations late in the fourth quarter of 2003. This
tax credit will not significantly impact the provisions for federal income
taxes during 2003.
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
29
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
adopted SFAS No. 149 during the third quarter of 2003 and its adoption did
not 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
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
30
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, except for certain provisions which have been deferred. The
Corporation adopted SFAS No. 150 and its adoption did not have any impact on
our financial position, results of operations, or liquidity.
31
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 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 September 30, 2003, pursuant to SEC rule 13a-15. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Corporation's disclosure controls and procedures were
effective as of September 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
September 30, 2003, that has materially affected, or is reasonably likely to
materially affect, the Corporation's internal control over financial
reporting.
32
Part II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None
ITEM 2 - Changes in Securities
None
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Submission of Matters to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K:
(a) 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 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, above)
31.(a) Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
31.(b) Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
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.
33
(b) Reports on Form 8-K
July 10, 2003 - LNB Bancorp, Inc. issued a press release
announcing its addition to the Russell 2000 Index, dated July 10,
2003.
July 22, 2003 - LNB Bancorp, Inc. published and released its
2nd Quarter 2003 Report to Shareholders and issued a press
release reporting financial results for the first half of 2003,
dated July 22, 2003.
July 31, 2003 - LNB Bancorp, Inc. issued a press release
announcing being named to the Plain Dealer 100, dated July 31,
2003.
August 19, 2003 - LNB Bancorp, Inc. issued a press release
announcing a third-quarter cash dividend of $0.17 with a
record date of September 15, 2003 and a payable date of October
1, 2003.
August 21, 2003 - LNB Bancorp, Inc. issued a press release
announcing its ranking prominently in the U. S. Bankers survey,
dated August 21, 2003.
Also, see the Exhibit Index which is found on the next page
of this Form.
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: November 14, 2003 /s/ Gregory D. Friedman
_________________________
Gregory D. Friedman, CPA
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
Date: November 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) 34 Certification - Gary C. Smith
31.(b) 36 Certification - Gregory D. Friedman
32.(a) 38 Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
32.(b) 39 Certification pursuant to 18 U.S.C. section 1350,
as enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.