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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file
December 31, 1997 number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its Charter)
Ohio 34-1406303
(State of incorporation) (I.R.S. Employer Identification No.)
457 Broadway, Lorain, Ohio 44052-1769
(Address of principal executive offices) (Zip Code)
(440) 244 - 6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, Par Value $1.00 NASDAQ - OTC
Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at February 28, 1998 was approximately $79,596,000.
The number of shares of Registrant's Common Stock outstanding on
February 28, 1998 was 4,124,479.
Portions of the 1997 Annual Report to Stockholders of Registrant are
incorporated in Parts I, II, III and IV of this report. Portions of the
Proxy Statement of Registrant dated March 23, 1998 are incorporated in
Part III of this report.
1
LNB Bancorp, Inc.
Form 10-K Report
Table of Contents
1997
Page
PART I
Item 1 Business
a. General Development of Business 2
b. Financial Information About Industry
Segments 3
c. Description of LNB Bancorp, Inc.'s Business 3
d. Financial Information About Foreign and
Domestic Operations and Export Sales 6
e. Statistical Disclosure by Bank Holding
Companies 6
I. Distribution of Assets, Liabilities
and Shareholders' Equity: Interest Rates
and Interest Differential 7
II. Investment Portfolio 7
III. Loan Portfolio 9
IV. Summary of Loan Loss Experience 12
V. Deposits 14
VI. Return on Equity and Assets 15
VII. Short-Term Borrowings 16
Item 2 Properties 16
Item 3 Legal Proceedings 17
Item 4 Submission to Matters to a Vote of Shareholders 17
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 18
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
a. Quantitative and Qualitative Disclosures about
Market Risk 18
Item 8 Financial Statements and Supplementary Data 18
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners
and Management 19
Item 13 Certain Relationships and Related Transactions 20
PART IV
Item 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 21
SIGNATURES 22
EXHIBIT INDEX 24
2
PART 1
ITEM 1 - BUSINESS
a) GENERAL DEVELOPMENT OF BUSINESS
LNB Bancorp, Inc. (the Corporation), a bank holding company, was
incorporated on October 11, 1983 under the laws of the State of Ohio at
the direction of the Board of Directors of The Lorain National Bank (the
Bank), a national banking association, for the purpose of acquiring all
the outstanding common stock of the Bank. At a special meeting of the
shareholders of the Bank, held on February 28, 1984, the shareholders
approved the Plan of Reorganization, involving the merger of the Bank into
the Lorain Interim Association, a national banking corporation,
incorporated solely for the purpose of effecting the Reorganization Plan.
Lorain Interim was a wholly-owned subsidiary of the Corporation.
Upon the consummation of the merger on March 30, 1984, under the Plan of
Reorganization, the business of the Bank is conducted by the merged Bank
under the name "The Lorain National Bank". Each outstanding share of
common stock of the Bank, par value $2.50, was converted into one share of
the Bancorp stock, par value $2.50. A total of 904,570 shares of
corporate stock were issued at the effective date of the merger. On April
8, 1989, the shareholders of the Corporation approved a two-for-one stock
split, which reduced the par value to $1.25. On April 20, 1993, the
shareholders of the Corporation approved a five-for-four stock split,
which reduced the par value to $1.00.
On April 18, 1995, the Corporation's Shareholders approved an amendment to
the Articles of Incorporation to increase the authorized number of shares
of Common Stock from 4,000,000 to 5,000,000 and fix the par value of
Common Stock at $1.00 per share to allow for a five-for-four stock split.
On April 18, 1995, the Corporation's Board of Directors authorized a
five-for-four stock split in the form of a 25 percent stock dividend. The
stock split increased the number of shares outstanding by 802,692. Also,
Common Stock has been increased by $802,692 with an offsetting reduction
to additional capital to reflect the fixed $1.00 par value per share for
each additional share issued pursuant to the stock split.
On September 15, 1997, Lorain National Bank, Lorain, Ohio, purchased and
assumed $45.3 million in deposits and other liabilities of three branch
offices, located in Lorain County, from KeyBank National Association
(KeyBank), headquartered in Cleveland, Ohio. In addition to the deposits
assumed, Lorain National Bank also acquired approximately $26.6 million in
cash and $0.4 million in premises and equipment, and $18.3 million in
consumer and commercial loans. Two of the banking offices acquired by the
Lorain National Bank, located in Lorain County, are being operated as part
of the Bank's branch office network. The third branch office located at
383 Broadway, Lorain, Ohio was closed on November 14, 1997 and then
merged into our Main Office at 457 Broadway, Lorain, Ohio.
LNB Bancorp, Inc. has broader corporate powers than the Bank. These
corporate powers principally include the power to engage in certain
non-banking businesses closely related to banking, to own capital stock of
banks located in Ohio and certain other states and to own capital stock of
business corporations (other than banks) located within or outside Ohio.
The Corporation has no present plans to engage in any non-banking
activities or to acquire companies engaged in such activities.
3
b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Corporation and the Bank are engaged in commercial and retail banking.
Reference is hereby made to Item 1e., Statistical Disclosure by Bank
Holding Companies, and to Item 8 of this Form 10-K for financial
information pertaining to the Corporation's business.
c) DESCRIPTION OF LNB BANCORP, INC.'S BUSINESS
LNB Bancorp, Inc. is a $490 million locally owned one bank holding company
headquartered in Lorain, Ohio. The Bancorp's predecessor, The Lorain
National Bank, was formed as a result of the merger of The Lorain Banking
Company and The National Bank of Lorain on January 1, 1961. The Lorain
Banking Company was a state bank formed in 1905 and The National Bank of
Lorain was a national bank receiving its national charter in 1934. On
March 30, 1984, The Lorain National Bank became the wholly owned
subsidiary of LNB Bancorp, Inc.
The Lorain National Bank has twenty banking offices in Lorain, Elyria,
Amherst, Avon Lake, Oberlin, Olmsted Township, Vermilion and Westlake.
The Bank is a full service bank offering a wide range of commercial and
personal banking services including commercial loans, real estate loans,
construction loans, consumer loans, Small Business Administration loans,
Visa card and student loans. Other services offered include safe deposit
boxes, night depository, U. S. savings bonds, travelers' checks, money
orders, cashiers checks, bank-by-mail, automatic teller machine cash and
transaction services, debit cards, wire transfers, electronic funds
transfer, utility bill collections, notary public service, personal
computer based cash management services, 24 hour telephone banking with
bill paying service, discount brokerage services and other services
tailored for both individuals and businesses. The Bank's electronic data
processing department provides centralized electronic data processing
services to local financial intermediaries.
The Bank's residential mortgage lending activities consist primarily of
loans for purchasing personal residences, home equity loans, local lender
loans, or loans for commercial or consumer purposes secured by residential
mortgages. Consumer lending activities consist of traditional forms of
financing for automobile and personal loans.
The Bank's range of deposit services include checking accounts,Checkinvest
accounts, savings accounts, Holiday savings, money market accounts,
Fortune Fifty accounts(a Senior Citizen program), individual retirement
accounts, certificates of deposit, Keough plans, and overdraft protection.
Deposits of the Bank are insured by the Bank Insurance Fund administered
by the Federal Deposit Insurance Corporation.
The Trust and Investment Management Division of the Bank performs complete
trust administrative functions and offers agency and trust services and
Mutual funds investment products to individuals, partnerships,
corporations, institutions and municipalities.
The Bank is not dependent upon any one significant customer or specific
industry. The business of the Corporation is not seasonal to any material
degree.
In the opinion of management, LNB Bancorp, Inc. does not have exposure to
material costs associated with environmental hazardous waste clean up.
4
Competition
Lorain National Bank faces strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the
wide spread enactment of state laws that permit multi-bank holding
companies as well as the availability of nationwide interstate banking has
created a highly competitive environment for financial services providers.
Lorain National Bank competes with other national and state banks, savings
and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking companies and other
financial intermediaries operating in its market and elsewhere, many of
whom have substantially greater financial and managerial resources.
The Lorain National Bank competes with seven other banks and bank holding
companies operating in Lorain County which range in size from
approximately $490 million to over $116 billion in assets. Other
competition comes primarily from savings and loans, credit unions, and
other financial intermediaries operating in Lorain County and counties
adjacent to it. The Bank's market share of total deposits in Lorain County
in all types of financial institutions increased to 15.19% in 1997
compared to 12.77% in 1996. The increase in market share in Lorain County
is directly related to the Bank's purchase and assumption of three
KeyBank offices which included deposits of $45.3 million. Lorain National
Bank seeks to minimize the competitive effect of larger financial
institutions through a community banking approach that emphasizes direct
customer access to the Bank's president and other officers in an
environment conducive to friendly, informed and courteous services.
Management believes that Lorain National Bank is well positioned to
compete successfully in its respective primary market area. Competition
among financial institutions is based upon interest rates offered on
deposit accounts, interest rates charged on loans and other credit and
service charges, the quality and scope of the services rendered, the
convenience of the banking facilities and, in the case of loans to
commercial borrowers, relative lending limits. Management believes that
the commitment of Lorain National Bank to personal service, innovation and
involvement in their respective communities and primary market areas, as
well as their commitment to quality community banking service, are factors
that contribute to it's competitive advantage.
Supervision and Regulation
LNB Bancorp, Inc., as a bank holding company, is regulated under the Bank
Holding Company Act of 1956, as amended (the Act), and is subject to the
supervision and examination of the Board of Governors of the Federal
Reserve System (the Federal Reserve Board). The Act requires the prior
approval of the Federal Reserve Board for a bank holding company to
acquire or hold more than a 5% voting interest in any bank and restricts
interstate banking activities. On September 29. 1994, the Act was amended
by the Interstate Banking and Branch Efficiency Act of 1994 which
authorizes interstate bank acquisitions anywhere in the country, effective
one year after the date of enactment and interstate branching by
acquisition and consolidation, effective June 1, 1997 in those states that
have not opted out by that date.
The Act limits the business of bank holding companies to banking, managing
or controlling banks, performing certain servicing activities for
subsidiaries and engaging in such other activities as the Federal Reserve
Board may determine to be closely related to banking and a proper incident
thereto. The Act does not place territorial restrictions on the banking
5
subsidiaries of bank holding companies. LNB Bancorp, Inc.'s banking
subsidiary is subject to limitations with respect to intercompany loans
and investments.
A substantial portion of the Corporation's cash revenues is derived from
dividends paid by its subsidiary bank. These dividends are subject to
various legal and regulatory restrictions as summarized in Note(14) on
page 20 of the LNB Bancorp, Inc. 1997 Annual Report. This note is
incorporated herein by reference.
The Corporation and the Bank are subject to an extensive array of banking
laws and regulations that are intended primarily for the protection of the
customers and depositors of the Corporation's subsidiaries rather than
holders of the Corporation's securities. These laws and regulations
govern such areas as permissible activities, loans and investments, rates
of interest that can be charged on loans and reserves. The Corporation
and the Bank also are subject to general U.S. federal laws and regulations
and to the laws and regulations of the State of Ohio. Set forth below are
brief descriptions of selected laws and regulations applicable to the
Corporation and the Bank.
The Bank is subject to the provisions of the National Bank Act. The Bank
is subject to primary supervision, regulation and examination by the
Office of the Comptroller of the Currency (OCC). The Bank is also subject
to the rules and regulations of the Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation (FDIC). Under
the Act, as amended, and under Regulations of the Federal Reserve Board
pursuant thereto, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with
the extension of credit.
The Corporation and its subsidiary bank are also subject to the state
banking laws of Ohio. Ohio adopted nationwide reciprocal interstate
banking effective October, 1988. However, banking laws of other states
may restrict branching of banks to other counties within the state and
acquisitions or mergers involving banks and bank holding companies located
in other states.
Federal regulators adopted risk-based capital guidelines and leverage
standards for banks and bank holding companies. A discussion of the
impact of risk-based capital guidelines and leverage standards is
presented on page 20 of the LNB Bancorp, Inc. 1997 Annual Report and is
incorporated herein by reference.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA)
provides that a holding company and its controlled insured depository
institutions are liable for any loss incurred by the Federal Deposit
Insurance Corporation in connection with the default of any FDIC assisted
transaction involving an affiliated insured bank or savings association.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
covers an expanse of banking regulatory issues. FDICIA deals with the
recapitalization of the Bank Insurance Fund, with deposit insurance reform
including requiring the FDIC to establish a risk-based premium assessment
system with a number of other regulatory and supervisory matters. Under
current FDIC practices, the Bank will not be required to pay deposit
insurance premiums during 1997. However, The Bank will be required to
make payments for the servicing of obligations of the Financing
Corporation ("FICO") issued in connection with the resolution of savings
6
and loan associations, so long as such obligations remain outstanding.
Noncompliance to laws and regulations by bank holding companies and banks
can lead to monetary penalties and/or an increased level of supervision or
a combination of these two items. Management is not aware of any current
instances of noncompliance to laws and regulations and does not anticipate
any problems maintaining compliance on a prospective basis. Recent
regulatory inspections and examinations of the Bancorp and the Bank have
not disclosed any significant instances of noncompliance. The minor
instances of noncompliance detected during these inspections and
examinations were promptly corrected by management and no action was taken
by the regulators against the Corporation or the Bank.
The earnings and growth of LNB Bancorp, Inc. are affected not only by
general economic conditions, but also by the fiscal and monetary policies
of the federal government and its agencies, particularly the Federal
Reserve Board. Its policies influence the amount of bank loans and
deposits and the interest rates charged and paid thereon, and thus have an
effect on earnings. The nature of future monetary policies and the effect
of such policies on the future business and earnings of the Corporation
and its subsidiary bank cannot be predicted. The discussion of "Impacts
of Accounting and Regulatory Pronouncements" is incorporated herein by
reference to page 35 of the LNB Bancorp, Inc. 1997 Annual Report.
Employees
As of December 31, 1997, the Corporation and the Bank employed 234
full-time employees and 64 part-time employees. The Corporation is not a
party to any collective bargaining agreement. Management considers its
relationship with its employees to be very good. Employee benefits
programs are considered by management to be competitive with benefits
programs provided by other financial institutions and major employers
within the Bank's market area.
d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Corporation and the Bank do not have any offices located in foreign
countries and they have no foreign assets, liabilities or related income
and expense for the years presented.
e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following section contains certain financial disclosures related to
the Corporation as required under the Securities and Exchange
Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding
Companies", or a specific reference as to the location of the required
disclosures in the LNB Bancorp, Inc. 1997 Annual Report, portions of which
are incorporated in this Form 10-K by reference.
7
LNB BANCORP, INC.'S STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
A. & B. The average balance sheet information and the related analysis of
net interest income for the years ending December 31, 1997, 1996, and 1995
are included in the Condensed Consolidated Average Balance Sheets, within
Management's Discussion and Analysis found on page 29 of the LNB Bancorp,
Inc. 1997 Annual Report and is incorporated into this Item I by reference.
All interest is reported on a fully taxable equivalent basis. Nonaccruing
loans, for the purpose of the computations are included in the daily
average loan amounts outstanding. Loan fees are included in interest on
loans.
C. Tables setting forth the effect of volume and rate changes on interest
income and expense for the years ended December 31, 1997 and 1996 are
included in Rate/Volume Analysis of Net Interest Income within
Management's Discussion and Analysis found on page 29 of the LNB Bancorp,
Inc. 1997 Annual Report and is incorporated into this Item I by reference.
II. INVESTMENT PORTFOLIO
A. The carrying values of securities at year end are as follows:
December 31,
-----------------------------------
Amounts in Thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities $ 11,155 $ 14,380 $ 14,768
Securities of other U.S. Government
agencies and corporations 6,031
Equity securities 2,150 1,722 393
- -------------------------------------------------------------------------
Total securities available for sale 19,336 16,102 15,161
- -------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury securities 66,945 69,673 69,422
Securities of other U.S. Government
agencies and corporations 24,996 16,500 14,500
States and political subdivisions 4,097 2,685 5,483
- -------------------------------------------------------------------------
Total securities held to maturity 96,038 88,858 89,405
- -------------------------------------------------------------------------
Total securities $115,374 $104,960 $104,566
- -------------------------------------------------------------------------
8
B. MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Maturities of nonequity securities owned by the Corporation as of December
31, 1997 are presented below:
Maturing
----------------------------------------------------
Within From 1 to From 5 to After 10
(Amounts in Thousands) 1 year 5 years 10 years years Total
- -------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury
securities $ 9,059 $ 2,096 $ 0 $ 0 $ 11,155
U.S. Government agencies
and corporations 0 5,023 1,008 0 6,031
- -------------------------------------------------------------------------
Total securities
available for sale 9,059 7,119 1,008 0 17,186
- -------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury
securities 32,988 32,961 995 0 66,944
U.S. Government agencies
and corporations 0 18,994 6,002 0 24,996
States and political
subdivisions 972 1,869 285 972 4,098
- -------------------------------------------------------------------------
Total securities
held to maturity 33,960 53,824 7,282 972 96,038
- -------------------------------------------------------------------------
Total securities $43,019 $60,943 $ 8,290 $ 972 $113,224
- -------------------------------------------------------------------------
WEIGHTED-AVERAGE YIELD OF INVESTMENT SECURITIES
The weighted-average yield for each range of maturities of investment
securities is shown below as of December 31, 1997:
Maturing
-----------------------------------------------------
Within From 1 to From 5 to After 10
1 year 5 years 10 years years Total
- --------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury
securities 5.35% 6.33% - % - % 5.53%
U.S. Government agencies
and corporations - 6.19 6.74 - 6.28
- -------------------------------------------------------------------------
Total securities
available for sale 5.35 6.23 6.74 - 5.87
- -------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury
securities 5.80 6.60 7.96 - 6.20
U.S. Government agencies
and corporations - 6.26 6.94 - 6.42
States and political
subdivisions (1) 6.68 7.28 8.77 8.34 7.49
- -------------------------------------------------------------------------
Total securities
held to maturity 5.82 6.50 7.15 8.34 6.33
- -------------------------------------------------------------------------
Total securities 5.72% 6.47% 7.10% 8.34% 6.25%
9
- -------------------------------------------------------------------------
1) Yields on tax-exempt obligations are computed on a tax equivalent basis
based upon a 34% statutory Federal income tax rate.
C. Excluding those holdings of the securities portfolio in U.S. Treasury
Securities and U.S. Government Agencies and corporations, there were no
investments in securities of any one issuer which exceeded 10% of the
consolidated shareholders' equity of the Corporation at December 31, 1997.
III. LOAN PORTFOLIO
A. The following table summarized the distribution of the loan portfolio:
December 31,
---------------------------------------------------
(Amounts in Thousands) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------
Commercial $120,892 $113,170 $105,847 $104,209 $105,289
Mortgage 142,223 138,455 124,012 114,611 100,140
Installment 37,250 27,683 23,310 19,933 18,554
Consumer revolving
lines of credit 30,666 22,765 23,324 23,054 21,774
- --------------------------------------------------------------------------
TOTAL LOANS 331,031 302,073 276,493 261,807 245,757
Reserve for possible
loan losses (4,168) (4,116) (4,002) (3,832) (3,714)
- --------------------------------------------------------------------------
NET LOANS $326,863 $297,957 $272,491 $257,975 $242,043
==========================================================================
B. COMMERCIAL LOAN MATURITY AND REPRICING ANALYSIS
AS OF DECEMBER 31, 1997
(Amounts in Thousands) 1997
- ----------------------------------------------
Maturing in one year or less $ 22,709
Maturing after one year,
but within five years 20,758
Maturing beyond five years 77,425
- ----------------------------------------------
TOTAL COMMERCIAL LOANS $120,892
==============================================
Loans repricing beyond one year:
Fixed rate 8,304
Variable rate 89,879
- ----------------------------------------------
TOTAL $ 98,183
==============================================
10
C. RISK ELEMENTS
A summary of nonaccrual, restructured loans, other real estate owned,
accruing loans past due 90 days, and potential problem loans at December
31, follows:
(Amounts in Thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------
Nonaccrual loans:
Real estate loans $ 383 $ 641 $ 511 $ 318 $ 438
Commercial loans 42 114 221 0 420
Consumer loans 0 10 0 0 0
- -----------------------------------------------------------------
Total nonaccrual loans 425 765 732 318 858
Restructured loans 0 0 0 0 0
Other Real Estate owned 90 39 0 0 0
Total nonperforming
assets $ 515 $ 804 $ 732 $ 318 $ 858
- -----------------------------------------------------------------
Reserve for possible
loan losses to
nonperforming assets 809.3% 511.9% 546.7% 1,205.4% 432.8%
=================================================================
Accruing loans past due
90 days $ 461 $ 357 $ 725 $ 419 $ 407
Potential problem
loans 8,764 1,066 942 1,197 1,095
=================================================================
(1) The Corporation, through its subsidiary bank, grants commercial,
residential, and consumer loans to customers located primarily in the
northern Ohio counties of Lorain, Cuyahoga and Huron.
Nonperforming assets consist of nonaccrual loans and loans which have been
restructured, which are defined as follows:
Nonaccrual loans are loans which are 90 days past due and with respect
to which, in management's opinion, collection of interest is doubtful.
These loans no longer accrue interest and are accounted for on a cash
basis.
Loans are classified as restructured when, due to the deterioration of
a customer's financial ability, the original terms have been favorably
modified or either principal or interest has been forgiven.
The level of nonperforming assets remains at a relatively low level from
1993 through 1997. The ratio of the reserve for possible loan loss to
nonperforming assets decreased from 546.7% in 1995 to 511.9% in 1996 and
increased to 809.3% in 1997. The 1997 increase is the result of net
decreases in nonperforming loans in the amount of $289,000.
It is the Bank's policy to cease accruing interest on any loans where the
principal and/or interest remains unpaid for 90 days or more, unless the
loan is both well secured and in the process of collection. For the year
ending December 31, 1997, the interest income that would have been earned
on the nonaccrual loans in the loan portfolio would have been
approximately $43,000; however, the interest income actually earned and
reported as income in 1997 amounted to approximately $21,000.
11
In addition to the nonperforming assets classified above, the loan review
committee identifies accruing loans past due 90 days plus potential
problem loans. These loans are closely monitored by the loan review
committee to assess the borrowers' ability to comply with the terms of the
loans. Management's year-end review indicated that a charge to the reserve
for possible loan losses or classification to nonperforming status was not
warranted. Loans which are 90 days or more past due but continue to
accrue interest are loans which, in management's opinion, are well secured
and are in the process of collection.
(2) Potential Problem Loans - As shown in the table on page 10 of Form
10-K, at December 31, 1997, there are approximately $8,764,000 of loans
identified on management's watch list which includes both loans which
management has some doubt as to the borrowers' ability to comply with the
present repayment terms and loans which management is actively monitoring
due to changes in the borrowers financial condition. These loans and
their potential loss exposure have been considered in management's
analysis of the adequacy of the allowance for loan losses.
The increase in potential problem loans during 1997 is primarily due to
three large credits that the Bank is reviewing. Approximately $4,000,000
of the potential problem loan balance relates to extension of credit to a
company that has a significant amount of business activity in Southeast
Asia. The Bank is monitoring these credits as potential problem loans due
to the current economic situation in Southeast Asia. Another $2,100,000
in potential problem loans relates to credit extended to finance the
development of a single-family dwelling subdivision. These credits are
being monitored by Management as potential problem loans due to changes in
the borrowers ownership interest. However, Management does not anticipate
any charge-offs relative to these potential problem loans. Another
$1,500,000 of the potential problem loans relates to the extension of
credit to a recreational entertainment center. These credits are being
monitored by Management due to a decrease in net earnings. This decrease
in net earnings was caused primarily by bad weather conditions in the
spring and summer of 1997. The potential problem loans in 1993, 1994,
1995, and 1996 remained at a relatively constant level.
(3) Foreign Outstandings - There were no foreign loans outstandings at
December 31, 1997, 1996 or 1995.
(4) Loan Concentrations - Bank management reviews concentrations of credit
and other portfolio risk elements on a quarterly basis. Management is not
aware of any significant loans, group of loans or segments of the loan
portfolio, other than those reported in the schedule of nonperforming
loans, where there are serious doubts as to the ability of the borrower to
comply with the present loan repayment terms. No loans are outstanding
which would, if consolidated, be considered as a concentration of lending
in any particular industry or group of industries nor are there
significant amounts of loans made to agricultural or energy related
businesses.
Credit risk is managed through the bank's loan loss review policy which
provides loan department officers and the loan review committee with the
responsibility to manage loan quality. The Corporation's credit policies
are reviewed and modified on an ongoing basis in order to remain suitable
for the management of credit risks within the loan portfolio as conditions
change. At December 31, 1997, there were no significant concentrations of
credit risk in the loan portfolio.
12
The Corporation's credit policies and review procedures are intended to
minimize the risk and uncertainties inherent in lending. In following
these policies and procedures, management must rely upon estimates,
appraisals and evaluations of loans and the possibility that changes in
such estimates, appraisals and evaluations could occur quickly because of
changing economic conditions and the economic prospects of borrowers.
Also see Note (12) of the "Notes to Consolidated Financial Statements"
which appears on pages 18 and 19 of the LNB Bancorp, Inc. 1997 Annual
Report and is incorporated herein by reference.
(5) No material amount of loans that have been classified by regulatory
examiners as loss, substandard, doubtful, or special mention have been
excluded from the amounts disclosed as nonaccrual, past due 90 days or
more, restructured, or potential problem loans. Corporate management is
not aware of any current recommendations by regulatory authorities which,
if they were implemented, would have a material effect on the liquidity,
capital resources or operations of the Corporation or its subsidiary bank.
D. Other interest-bearing assets - As of December 31, 1997, there are no
other interest-bearing assets that would be required to be disclosed under
Item III C.1 or 2 if such assets were loans. The Corporation had $90,000
and $39,000 in Other Real Estate Owned at December 31, 1997, and 1996,
respectively.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes activity relating to the Reserve for
Possible Loan Losses:
December 31,
-------------------------------------------
(Amounts in Thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------
BALANCE AT BEGINNING
OF YEAR $ 4,116 $ 4,002 $ 3,832 $ 3,714 $ 3,406
Charge-offs:
Commercial (190) (296) (100) (190) (177)
Real Estate (359) (185) (209) (141) (222)
Consumer (300) (191) (140) (68) (116)
- ----------------------------------------------------------------------
Total charge-offs (849) (672) (449) (399) (515)
Recoveries:
Commercial 7 61 163 18 70
Real Estate 72 67 5 57 152
Consumer 72 58 51 42 101
- ----------------------------------------------------------------------
Total recoveries 151 186 219 117 323
- ----------------------------------------------------------------------
Net charge-offs (698) (486) (230) (282) (192)
- ----------------------------------------------------------------------
PROVISION FOR POSSIBLE
LOAN LOSSES 750 600 400 400 500
- ----------------------------------------------------------------------
BALANCE AT END OF YEAR $ 4,168 $4,116 $ 4,002 $ 3,832 $ 3,714
======================================================================
13
ANALYTICAL DATA
BALANCES:
Average total loans $315,215 $287,809 $272,011 $252,345 $237,671
Total loans at year
end 331,031 302,073 276,493 261,807 245,757
Net charge-offs 698 486 230 282 192
Provision for
possible loan
losses 750 600 400 400 500
Reserve for possible
loan losses at year
end 4,168 4,116 4,002 3,832 3,714
RATIOS:
Net charge-offs to:
Average total loans .22% 0.17% 0.08% 0.11% 0.08%
Total loans at year
end .21 0.16 0.08 0.11 0.08
Provision for possible
loan losses 93.07 81.00 57.50 70.50 38.40
Reserve for possible
loan losses 16.75 11.81 5.75 7.36 5.17
Reserve for possible
loan losses to:
Average total loans 1.32 1.43 1.47 1.52 1.56
Total loans at year
end 1.26 1.36 1.45 1.46 1.51
The higher amount of 1997 net charge-offs and the higher provision for
possible loan losses charge to expense resulted from increases in net
charge-offs of commercial and consumer loans. The decreasing trend in the
provision for possible loan losses charged to expense which occurred from
1993 through 1995 resulted from the influences of an improvement in the
local and national economy. The level of net charge-offs in 1998 is
expected to be about $600,000 during 1998.
The Bank's policy is to maintain the allowance for possible loan losses at
a level considered by management to be adequate for potential future
losses. The evaluation performed by the Loan Review Committee is based
upon a continuous review of delinquency trends; the amount of
nonperforming loans (nonaccrual, restructured, and other real estate
owned); loans past due 90 days or more and potential problem loans;
historical and present trends in loans charged-off; changes in the
composition and level of various loan categories; and current economic
conditions.
Net charge-offs (recoveries) by portfolio type which are summarized from
the analysis of the Reserve for Possible Loan Losses on page 12 of the
Form 10-K are presented in the following table:
(Amounts in Thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------
Commercial $183 $235 $(63) $172 $107
Real estate 287 118 204 84 70
Consumer 228 133 89 26 15
- ------------------------------------------------------------------
Total net charge-offs $698 $486 $230 $282 $192
==================================================================
14
Both the provision and the allowance are based on an analysis of
individual credits, prior and current loss experience, overall growth in
the portfolio, changes in portfolio mix, current economic conditions, and
other factors. Consumer and credit card loans are charged off within
industry norms, while commercial loans are evaluated individually. An
allocation of the ending reserve for possible loan losses by major type
follows:
(Amounts in Thousands) 1997 1996 1995 1994 1993
----------------------------------------------------------------
Commercial $2,404 $1,429 $1,597 $1,487 $1,036
Real estate 733 803 651 623 485
Consumer 515 381 363 348 313
Off-balance sheet risk 200 250 250 250 250
Unallocated 316 1,253 1,141 1,124 1,630
- ------------------------------------------------------------------
TOTAL $4,168 $4,116 $4,002 $3,832 $3,714
==================================================================
This allocation is made for analytical purposes. The total allowance is
available to absorb losses from any segment of the portfolio. The 1997,
1996 and 1995 provision for possible loan losses exceeded net charge-offs
by $52,000, $114,000 and $170,000 respectively. The allocated portion of
the reserve for possible loan losses has remained relatively consistent
during 1993 through 1996. The Bank allocates a portion of the reserve for
possible loan losses to off-balance sheet risks which consist primarily of
commitments to extend credit. The allocated portion of the reserve to
commercial and consumer loans increased in 1997 due to changes in credit
risk in those areas.
The following table shows the percentage of loans in each category to
total loans at year end:
1997 1996 1995 1994 1993
- -------------------------------------------------------------
Commercial 36.5% 37.5% 38.3% 39.8% 42.8%
Real estate 43.0 45.8 44.8 43.8 40.8
Consumer 20.5 16.7 16.9 16.4 16.4
------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
------------------------------------------
The loan portfolio mix has shifted during the past five years. Consumer
loans as a percent of total loans remained relatively constant from 1993
through 1996. During 1997 the commercial loans as a percentage of total
loans decreased by 1.0% and real estate loans decreased by 2.8% with a
corresponding increase in consumer loans by 3.8%. The 1997 shift in the
mix of the loan portfolio is a direct result of the acquisition of three
branch offices from KeyBank which included the acquisition of $17.4
million in consumer loans and $.9 million in commercial loans. During
1996, real estate loans increased by 1.0% with a related decrease in
commercial loans of .8% and consumer loans of .2%.
V. DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
15
The following table sets forth the classification of average deposits for
the indicated period.
December 31,
-------------------------------------
(Amounts in Thousands) 1997 1996 1995
- ----------------------------------------------------------------
Demand deposits $ 62,040 $ 58,989 $ 55,456
NOW accounts 48,913 45,983 44,646
Money market accounts 19,473 21,650 25,578
Savings deposits 96,708 92,570 91,845
Time deposits 158,789 139,028 128,977
- ----------------------------------------------------------------
Total $385,928 $358,220 $346,502
================================================================
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of
interest-bearing deposits for the periods indicated:
Years ended December 31,
----------------------------------------
1997 1996 1995
- ---------------------------------------------------------------
NOW accounts 1.50% 1.61% 1.89%
Money market accounts 2.14 1.95 2.10
Savings deposits 2.20 2.20 2.27
Time deposits 5.29 5.25 5.52
========================================
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000
or more, in thousands of dollars, at December 31, 1997.
Maturing within 3 months $ 17,449
After 3 but within 6 months 7,795
After 6 but within 12 months 7,449
After 12 months 3,858
- ----------------------------------------------
Total $ 36,551
==============================================
VI. RETURN ON EQUITY AND ASSETS
Information relating to key operating ratios for the years ended December
31, 1997, 1996, 1995, 1994 and 1993 is presented in the tabular form
below.
December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------
Return on average assets 1.41% 1.37% 1.21% 1.13% 1.08%
Return on average equity 14.51 13.70 12.72 12.16 11.90
Dividend payout ratio 45.26 44.28 43.47 42.98 42.81
Average equity to
average assets 9.71 10.01 9.55 9.31 9.11
Net interest margin 5.20 5.33 5.14 5.09 5.10
16
VII. SHORT-TERM BORROWINGS
Information relating to short-term borrowings for the years ended December
31, 1997, 1996 and 1995 appears on page 18 of the LNB Bancorp, Inc. 1997
Annual Report under footnote (10)"Short-Term Borrowings" and is
incorporated herein by reference.
17
ITEM 2 - PROPERTIES
THE LORAIN NATIONAL BANK
The principal executive offices are located at its Main Office, 457
Broadway, Lorain, Ohio. The Bank owns the land and buildings occupied by
the Main Office, twelve of its branch banking offices, the Branch
Administration Building, and the Computer Operations Center. The
remaining seven branch offices are subject to lease obligations with
various lessors and varying lease terms. There is no outstanding mortgage
debt on any of the properties which the bank owns. In January of 1997, the
Bank entered into two lease agreements to rent branch banking offices in
Cuyahoga County at The Renaissance and Westlake Village.
Listed below are the branches/customer service facilities of the Bank and
their locations:
Main Office 457 Broadway, Lorain
Vermilion Office 4455 Liberty Avenue, Vermilion
Amherst Office 1175 Cleveland Avenue, Amherst
Lake Avenue Office Lake Avenue & Route 254, Elyria
Avon Lake Office 240 Miller Road, Avon Lake
Kansas Avenue Office 1604 Kansas Avenue, Lorain
Sixth Street Drive-In Office 200 Sixth Street, Lorain
Pearl Avenue Office 2850 Pearl Avenue, Lorain
Oberlin Office 40 East College Street, Oberlin
West Park Drive Office 2130 West Park Drive, Lorain
Second Street Office 221 Second Street, Elyria
Cleveland Street Office 801 Cleveland Street, Elyria
Oberlin Avenue Office 3660 Oberlin Avenue, Lorain
Olmsted Township Office 27095 Bagley Road, Olmsted Township
Westlake Office 30210 Detroit Road, Westlake
Kendal at Oberlin Office 600 Kendal Drive, Oberlin
The Renaissance Office 26376 John Road, Olmsted Township
Westlake Village Office 28550 Westlake Village Drive, Westlake
Cooper Foster Park Road Office 1920 Cooper Foster Park Road, Lorain
Midway Mall Office 6395 Midway Mall, Elyria
Computer Operations Center 2130 West Park Drive, Lorain
Maintenance Building 2140 West Park Drive, Lorain
Purchasing Building 2150 West Park Drive, Lorain
Branch Administration Building 521 Broadway, Lorain
The Bank also owns automated teller machines and on-line teller terminals,
as well as computers and related equipment for use in its business. The
Corporate office facility is currently utilized at a level of 75%. The
remaining space will be utilized as the Bank continues to grow. The
Corporation considers its Corporate offices, branch offices and computer
operations center to be in good to excellent condition, well maintained
and are more than adequate to conduct the business of Banking.
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Corporation or its
subsidiary is a party to or which any of its property is subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1997 there were
no matters submitted to a vote of security holders.
18
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Common Stock Trading Ranges, Cash Dividends Declared information and
information relating to dividend restrictions appear on pages 1 and 20 of
the LNB Bancorp, Inc. 1997 Annual Report and are incorporated herein by
reference.
HOLDERS
The total number of shareholders was 2,066 as of February 28, 1998. Upon
the consummation of the Plan of Reorganization on March 30, 1984, the
Corporation became a one bank holding company and shareholders of the Bank
became shareholders of the Corporation, receiving one share of voting
Common Stock for each outstanding share of Common Stock of the Bank.
ITEM 6 - SELECTED FINANCIAL DATA
A Five Year Consolidated Financial Summary of selected financial data on
page 26 of the LNB Bancorp, Inc. 1997 Annual Report is incorporated herein
by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" is incorporated herein by reference
to pages 26 - 35 of the LNB Bancorp, Inc. 1997 Annual Report. Also, see
Item 8 - Financial Statements and Supplementary Data.
(a) Quantitative and Qualitztive Disclosures about Market Risk are
incorporated herein by reference to pages 32 - 34 of the LNB Bancorp,
Inc. 1997 Annual Report to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's Independent Auditor's Report and Consolidated Financial
Statements are listed below and are incorporated herein by reference to
the LNB Bancorp, Inc. 1997 Annual Report (Exhibit 13), pages 6 through 25.
The supplementary financial information specified by Item 302 of
Regulation S-K, selected quarterly financial data, is included on page 36
of the LNB Bancorp, Inc. 1997 Annual Report.
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income
for Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Report of Management
19
Independent Auditors' Report
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All Directors of the Bank, prior to the merger, became Directors of the
Bank and of the Corporation. The Officers of the Bank, prior to the
merger, became Officers of the Bank and certain Executive Officers became
Officers of the Corporation.
"Election of Directors" and "Director's Committees" on pages 3 through 5
of the Notice of Annual Meeting of Shareholders and Proxy Statement (dated
March 23, 1998)is incorporated herein by reference. Also, see the
additional information presented below which relates to Executive Officers
of the Corporation and/or the Bank.
BANK LNB BANCORP
PRINCIPAL OCCUPATION DIRECTOR DIRECTOR
NAME(AGE) DURING PAST 5 YEARS SINCE SINCE
Mitchell J. Fallis Vice President and (Not a Director)
(43) Chief Accounting Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Gregory D. Friedman Senior Vice President, (Not a Director)
(47) Chief Operating Officer and
Chief Financial Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Michael D. Ireland Senior Vice President, (Not a Director)
(51) LNB Bancorp, Inc. and
The Lorain National Bank
Sandra L. Dubell Vice President and (Not a Director)
(52) Chief Lending Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Emma N. Mason Senior Vice President, (Not a Director)
(60) LNB Bancorp, Inc. and
The Lorain National Bank
James H. Weber Senior Vice President, (Not a Director)
(51) LNB Bancorp, Inc. and
The Lorain National Bank
ITEM 11 - EXECUTIVE COMPENSATION
The information contained on pages 7 through 12 of the Notice of Annual
Meeting of Shareholders and Proxy Statement (dated March 23, 1998) is
incorporated herein by reference.
20
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 15 of the Notice of Annual Meeting of
Shareholders and Proxy Statement (dated March 23, 1998), relating to
"Compliance with Section 16(A) of the Securities Exchange Act" is
incorporated herein by reference.
The information contained on pages 13 and 14 of the Notice of Annual
Meeting of Shareholders and Proxy Statement (dated March 23, 1998),
relating to "Beneficial Ownership of Shares" is incorporated herein by
reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on pages 6, 7 and 14 of the Notice of Annual
Meeting of Shareholders and Proxy Statement (dated March 23, 1998) is
incorporated herein by reference.
Analysis of Loans to Related Parties:
The information contained in Note (6) "Transactions with Related Parties"
on page 16 of the LNB Bancorp, Inc. 1997 Annual Report is incorporated
herein by reference.
21
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following Consolidated Financial Statements and related Notes to
Consolidated Financial Statements, together with the Independent Auditors'
Report, KPMG Peat Marwick LLP, dated January 27, 1998, appear on pages 6
through 25 of the LNB Bancorp, Inc. 1997 Annual Report and are
incorporated herein by reference:
(1) Financial Statements
Consolidated Balance Sheets
December 31, 1997 and 1996
Consolidated Statements of Income for Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for Years
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements for Years
Ended December 31, 1997, 1996 and 1995
Report of Management
Independent Auditors' Report
(2) Financial Statement Schedules
Financial statement schedules are omitted as they are not
required or are not applicable or because the required
information is included in the consolidated financial statements
or notes thereto.
(3) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page 23
of this Form 10-K.
(b) Reports on Form 8-K
On October 3, 1997, LNB Bancorp, Inc. filed a Form 8-K with the Securities
and Exchange Commission pursuant to the purchase and assumption of certain
assets and liabilities from KeyBank, National Association, (KeyBank)
Cleveland, Ohio. On September 15, 1997, LNB Bancorp, Inc. acting through
its wholly-owned subsidiary Lorain National Bank, acquired from KeyBank
certain assets and assumed certain deposits and other liabilities of three
KeyBank branch offices in Lorain County, Ohio. The acquisition was
effected through the purchase and assumption of certain assets and
liabilities of KeyBank by the Registrant, pursuant to a Branch Purchase
and Assumption Agreement dated as of April 10, 1997.
(c) Exhibits required by Item 601 Regulation S-K
22
Reference is made to the Exhibit Index which is found on page 24 of this
Form 10-K.
(d) See Item 14(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LNB Bancorp, Inc.
(Registrant)
By /s/ Thomas P. Ryan
------------------------
Thomas P. Ryan
Executive Vice President,
Secretary/Treasurer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
and on the dates indicated:
/s/ James L. Bardoner DIRECTOR March 24, 1998
- -----------------------
James L. Bardoner
/s/ Daniel P. Batista DIRECTOR March 24, 1998
- -----------------------
Daniel P. Batista
/s/ Robert M. Campana DIRECTOR March 24, 1998
- -----------------------
Robert M. Campana
/s/ Terry D. Goode DIRECTOR March 24, 1998
- -----------------------
Terry D. Goode
/s/ Wellsley O. Gray DIRECTOR March 24, 1998
- -----------------------
Wellsley O. Gray
/s/ David M. Koethe DIRECTOR March 24, 1998
- -----------------------
David M. Koethe
/s/ Benjamin G. Norton DIRECTOR March 24, 1998
- -----------------------
Benjamin G. Norton
/s/ Jeffrey F. Riddell DIRECTOR March 24, 1998
- -----------------------
Jeffrey F. Riddell
23
/s/ T. L. Smith, M.D. DIRECTOR March 24, 1998
- -----------------------
T. L. Smith, M.D.
/s/ Eugene M. Sofranko DIRECTOR March 24, 1998
- -----------------------
Eugene M. Sofranko
/s/ Paul T. Stack DIRECTOR March 24, 1998
- -----------------------
Paul T. Stack
ABSENT - EXCUSED DIRECTOR March 24, 1998
- -----------------------
Leo Weingarten
/s/ Stanley G. Pijor CHAIRMAN OF THE March 24, 1998
- ----------------------- BOARD AND DIRECTOR
Stanley G. Pijor
PRESIDENT, CHIEF March 24, 1998
/s/ James F. Kidd EXECUTIVE OFFICER
- ----------------------- AND DIRECTOR
James F. Kidd
SENIOR VICE
/s/ Gregory D. Friedman PRESIDENT, March 24, 1998
- ----------------------- CHIEF FINANCIAL
Gregory D. Friedman OFFICER AND CHIEF
OPERATING OFFICER
/s/ Mitchell J. Fallis VICE PRESIDENT AND March 24, 1998
- ----------------------- CHIEF ACCOUNTING
Mitchell J. Fallis OFFICER
24
LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K
Reference Page
Number Exhibit Number
(3) LNB Bancorp, Inc. Articles of Incorporation and Code of N/A
Regulations (amended). Previously, filed as Exhibit (3)
to Annual Report Form 10-K (Commission File no.0-13203)
for the year ended December 31, 1985, and incorporated
herein by reference.
(10) Material Contracts
(a) Supplemental Retirement Agreement by and between N/A
James F. Kidd and the Lorain National Bank dated July 30,
1996. Previously filed as Exhibit (99.1) to Form 10-K
(Commission File no. 0-13203) filed October 3, 1997, and
incoporated herein by reference.
(b)Supplemental Retirement Agreement by and between N/A
James F. Kidd and The Lorain National Bank dated July 30,
1996. Previously filed as Exhibit (10a) to Quarterly
Report on Form 10-Q (Commission File no.0-13203) for the
quarter ended June 30, 1996, and incorporated herein by
reference.
(c)Supplemental Retirement Agreement by and between N/A
Thomas P. Ryan and The Lorain National Bank dated July 30,
1996. Previously filed as Exhibit(10b) to Quarterly
Report on Form 10-Q (Commission File no. 0-13203) for
the quarter ended June 30, 1996, and incorporated
herein by reference.
(d)Supplemental Retirement Agreement by and between N/A
Gregory D. Friedman and The Lorain National Bank dated
July 30, 1996. Previously filed as Exhibit (10.c) to
Quarterly Report on Form 10-Q (Commission File no.
0-13203) for the quarter ended June 30, 1996, and
incorporated herein by reference.
(e)Employment Agreement by and between James F. Kidd N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated September 11, 1995. Previously filed as Exhibit
(10a) to Quarterly Report on Form 10-Q (Commission File
no. 0-13203) for the quarter ended September 30, 1995,
and incorporated herein by reference.
(f)Employment Agreement by and between Thomas P. Ryan N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated September 11, 1995. Previously filed as Exhibit
(10b) to Quarterly Report on Form 10-Q (Commission File
no. 0-13203) for the quarter ended September 30, 1995,
and incorporated herein by reference.
25
S-K
Reference Page
Number Exhibit Number
(g)Consultant Agreement by and between Lorain National N/A
Bank, LNB Bancorp, Inc. and Stanley G. Pijor dated
March 15, 1994. Previously filed as Exhibit (10) to
Annual Report Form 10-K (Commission File no. 0-13203)
for the year ended December 31, 1993 and incorporated
herein by reference.
(h)Supplemental Retirement Agreement by and between N/A
Stanley G. Pijor and The Lorain National Bank dated
December 31, 1987. Previously filed as Exhibit (10)
to Annual Report on Form 10-K (Commission File no.
0-13203) for the year ended December 31, 1987, and
incorporated herein by reference.
(i)Employment Agreement by and between Lorain National N/A
Bank, LNB Bancorp, Inc. and Stanley G. Pijor dated
December 31, 1987. Previously filed as Exhibit (10) to
Annual Report Form 10-K (Commission File no. 0-13203)
for the year ended December 31, 1987 and incorporated
herein by reference.
(j)The Lorain National Bank 1985 Incentive Stock Option N/A
Plan. Previously filed as Exhibit (10) to Annual Report
on Form 10-K (Commission File no. 0-13203) for the year
ended December 31, 1985, and incorporated herein by
reference.
(11) Computation of Shares Used for Earnings Per Share N/A
Calculation.
(13) LNB Bancorp, Inc. 1997 Annual Report to Shareholders. N/A
(21) Subsidiary of LNB Bancorp, Inc. N/A
(22) Notice of Annual Meeting to Shareholders and Proxy N/A
Statement (dated March 23, 1998).
(23) Consent of Independent Accountants. N/A
(27) Financial Data Schedule. N/A
(99.1) Annual report on Form 11-K of The Lorain National Bank N/A
Employee Stock Ownership Plan (registration number
33-65034) for the plan year ended December 31, 1997 to
be filed as an amendment to this annual report on Form 10-K.
(99.2) Annual report on Form 11-K of The Lorain National Bank N/A
Stock Purchase Plan (registration number 33-65034) for
the plan year ended December 31, 1997 to be filed as an
amendment to this annual report on Form 10-K.
26
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1997)
S - K Reference Number (11)
Computation of Shares Used for Earnings
Per Share Calculation.
Years Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
Weighted-Average Shares
Outstanding 4,168,322 4,128,459 4,101,825
Common Stock Equivalents
(Stock Options) 10,477 10,269 19,222
----------- ----------- -----------
4,178,799 4,138,728 4,121,047
=========== =========== ===========
27
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1997)
S - K Reference Number (13)
LNB Bancorp, Inc. 1997 Annual Report
to Shareholders.
28
COVER DESCRIPTION
3/4 Page
1997 annual report
LNB BANCORP, INC.
"Familiar faces...
Friendly places"
Among 15 assorted
photographs
29
Inside front cover
3/4 Page
Shareholder Information
CORPORATE HEADQUARTERS
If you need to contact the Corporate headquarters
of LNB Bancorp, Inc., call or write to:
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1739
(440) 244-6000
NOTICE OF ANNUAL MEETING
The 1998 Annual Meeting of Shareholders of LNB
Bancorp, Inc. will be held at 10:00 a.m. on
Tuesday, April 21, 1998 at The Lorain National
Bank, 521 Broadway, Lorain, Ohio.
ANNUAL AND QUARTERLY REPORTS
AND FORM 10-K
Copies of the LNB Bancorp, Inc.'s Annual or
Quarterly Reports or the Annual Report on Form
10-K, as filed with the Securities and Exchange
Commission, will be furnished to shareholders
upon written request to:
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1739
STOCK TRANSFER AGENT
AND REGISTRAR
Shareholders requesting information about their stock
holdings should call or write to:
Registrar and Transfer Company
Investor Relations Department
10 Commerce Drive
Cranford, New Jersey 07016-9982
(800) 368-5948
COMMON STOCK INFORMATION
The common stock of LNB Bancorp, Inc. is traded
on the over-the-counter market under the symbol
LNBB. The stock is listed as "LNB Bancorp" in the
newspapers. LNB Bancorp, Inc.'s CUSIP is
502100 10 0.
30
MARKET MAKERS IN
LNB BANCORP, INC. STOCK
Akin Investment Services Group, Elyria, Ohio
Everen Securities, Inc., Lorain, Ohio
McDonald & Company Securities, Inc., Elyria,
Sandusky and Cleveland, Ohio
Mid-Ohio Securities Corp., Elyria, Ohio
National Securities Corp., Lorain, Ohio
The Ohio Company, Lorain and Cleveland, Ohio
CASH DIVIDENDS
Subject to approval of the Board of Directors, cash
dividends are paid on LNB Bancorp, Inc.'s
common stock on or about the first day of January,
April, July, and October. Since 1988, LNB
Bancorp, Inc. has increased its declared dividend in
the third quarter and declared EXTRA dividends
in the fourth quarter.
DIVIDEND REINVESTMENT AND CASH
STOCK PURCHASE PLAN
LNB Bancorp, Inc. shareholders who wish to apply
quarterly cash dividends, or optional cash payments
toward the purchase of additional LNB Bancorp, Inc.
common stock, may take advantage of a dividend
reinvestment plan available through The Registrar and
Transfer Company. Inquiries or requests for a
description of the dividend reinvestment plan should
be made to:
Registrar and Transfer Company
Dividend Reinvestment Plans
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948
Photo Credits
We'd like to thank the Lorain County Visitors
Bureau and Terry Jonasson of Photo Imagery,
Elyria for the use of their photographs on the cover
and throughout the pages of this report.
31
Half Page Insert
Our Mission
The Mission of Lorain National Bank is to be a profitable,
responsible, independent business that provides extraordinary
service to our customers and community, while maximizing
shareholder value and creating a high-quality and challenging
work environment for our employees.
Our Vision
Lorain National Bank's vision is to become recognized as the
most progressive and dynamic, independent provider of
financial services in our market.
Bottom of insert:
Familiar faces...
Friendly places
32
Half Page insert
Table of Contents
Shareholder Information . . . . . . . . . . . . . . . . IFC
Financial Highlights . . . . . . . . . . . . . . . . . . . 1
Common Stock Trading Ranges and
Cash Dividends Declared . . . . . . . . . . . . . . . . 1
Corporate Profile . . . . . . . . . . . . . . . . . . . . 1
Message to Our Shareholders . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets . . . . . . . . . . . . . . . 8
Consolidated Statements of Income . . . . . . . . . . . . 9
Consolidated Statements of Cash Flows . . . . . . . . . .10
Consolidated Statements of Shareholders' Equity . . . . .11
Notes to Consolidated Financial Statements . . . . . . . .12
Report of Management . . . . . . . . . . . . . . . . . . .25
Independent Auditors' Report . . . . . . . . . . . . . . .25
Five Year Consolidated Financial Summary . . . . . . . . .26
Management's Discussion and Analysis . . . . . . . . . . .27
Selected Quarterly Financial Data . . . . . . . . . . . .36
Banking Offices & ATMs . . . . . . . . . . . . . . . . . .37
Directors and Officers of LNB Bancorp, Inc.. . . . . . . .38
Directors Emeritus of Lorain National Bank . . . . . . . .38
Officers of Lorain National Bank . . . . . . . . . . . . .39
Earnings and Dividend Performance . . .. . . . . . . . . .40
33
Financial Highlights
DECEMBER 31, 1997 1996 1987
- ----------------------------------------------------------------------
BANK OFFICES 20 16 16
BANK OFFICERS AND STAFF 298 285 288
SHAREHOLDERS 2,066 2,028 1,415
TOTAL ASSETS $490,217,000 $438,243,000 $284,535,000
TOTAL DEPOSITS $410,655,000 $366,380,000 $244,895,000
NET LOANS $326,863,000 $297,957,000 $168,069,000
----------------------------------------------
TOTAL CAPITAL $ 44,985,000 $ 44,198,000 $ 21,180,000
----------------------------------------------
NET INCOME $ 6,482,000 $ 5,852,000 $ 2,562,000
----------------------------------------------
CASH DIVIDENDS DECLARED $ 2,934,000 $ 2,591,000 $ 867,000
----------------------------------------------
SHARES OUTSTANDING 4,124,379 4,221,304 3,878,709
----------------------------------------------
Shares outstanding have been adjusted for five-for-four stock splits in
1995 and 1993, a two-for-one stock split in 1989 and stock dividends.
Common Stock Trading Ranges and Cash Dividends Declared
1997 1996
--------------------------------------------------------
Bid Price Bid Price
--------------------------------------------------------
Dividend Dividend
High Low Amount High Low Amount
------- ------ --------- ------- ------ --------
First Quarter $29.75 $29.00 $.16 $28.75 $27.75 $.13
Second Quarter 29.75 29.00 .16 28.00 27.75 .14
Third Quarter 29.75 28.75 .17 28.50 28.00 .16
Fourth Quarter 28.75 27.50 .22 29.00 28.50 .19
The shares of common stock, par value $1.00 per share, of LNB Bancorp,
Inc. are traded on the over-the-counter market primarily through
registered brokers in the Corporation's service area. The above bid prices
represent quotations between dealers without adjustments for retail
markups, markdowns or commissions and may not represent actual
transactions.
Dividend amounts have been adjusted for the 2% stock dividend on April 15,
1997 and April 16, 1996.
Corporate Profile
LNB Bancorp, Inc. is a $490 million locally owned one bank holding company
headquartered in Lorain, Ohio. The Bancorp's predecessor, The Lorain
National Bank, was formed as a result of the merger of The Lorain Banking
Company and The National Bank of Lorain on January 1, 1961. The Lorain
Banking Company was a state bank formed in 1905 and The National Bank of
Lorain was a national bank receiving its national charter in 1934. On
March 30, 1984, The Lorain National Bank became the wholly owned
subsidiary of LNB Bancorp, Inc. Lorain National Bank is a member of the
Federal Reserve Bank of Cleveland, a voluntary member of the Federal Home
Loan Bank of Cincinnati, with its deposits insured by the Federal Deposit
Insurance Corporation.
34
The Lorain National Bank has 20 bank offices and 27 ATM's in Lorain,
Elyria, Amherst, Avon Lake, Oberlin, Olmsted Township, Vermilion, and
Westlake which offer a wide range of commercial and personal banking
services. The major services include checking, savings and time deposits,
personal, mortgage, student and commercial loans, home equity loans, Small
Business Administration Loans, credit cards, an ATM network, and trust and
investment management services. The Lorain National Bank is an Equal
Employment Opportunity/Affirmative Action Employer and an Equal Housing
Lender.
Logos for Federal Deposit Insurance Corporation, Federal Home Loan Bank
System and Equal Housing Lender
END PUBLISHED PAGE 1
354
Top right column black and white photograph of James F. Kidd, President
and Chief Executive Officer
Message to Shareholders
We're pleased to announce that LNB Bancorp, Inc. and its subsidiary, The
Lorain National Bank experienced another excellent year of operation,
thanks to the support of our four publics - our shareholders, customers,
employees and the communities we serve. Since this time a year ago, we
have recorded increases in all significant areas of financial performance,
including our 16th consecutive year of earnings growth, and record high
cash dividends paid to our shareholders.
A People Business
We're successful because we realize that banking is more than bricks and
mortar, more than debits and credits and more than rules and regulations.
We're responding to the demands of a changing marketplace where the
predominant baby boomers are 10 to 15 years away from retirement. We're
operating in an interest rate environment which challenges us to offer
savings and investment alternatives not previously considered. We're
competing with new competitors in a changing business.
What hasn't changed is the fact that we're still a people business. We
have a core of nearly 300 hard-working employees who understand that no
matter how good our products are, they're even better when delivered on a
personal level.
Serving individuals, whether they are consumers or business customers,
is what we do well. At no time in our history has that position in the
marketplace been more clear than it is today.
Alone in a Crowd
A year ago in this space, we talked about the drastic drop in the number
of community banks. That pace has only quickened. The competition for
quality loans is still here; the cost of business continues to rise and
the size and nature of our competition is still changing. In order to
remain successful, we have become flexible - a "niche bank" of sorts. We
know we can't be all things to all people - but we can offer virtually any
service a big bank can do on an individual basis.
Today, the financial services landscape is changing and consumers are
paying for those changes in higher fees and less service. We think public
sentiment about "bigger being better" is shifting back toward value. It
is our contention that value lies in quality products and services with
delivery that exceeds customer expectations. Bigger is not always better.
Lorain National is now the only locally owned, independent commercial
bank serving Lorain County. As such, we will have an opportunity to
strengthen our mission to become recognized as the most progressive and
dynamic independent provider of financial services in our area. We will
continue to open new doors throughout the county, including those of our
newest office in the Village of LaGrange at mid-year 1998.
To support our new growth, we dedicated significant funding and human
resources to education and training programs in 1997. On average, every
bank employee participated in three or more programs last year to enhance
service skills and to improve technical capabilities. We view our
employees as significant assets and we enrich our investment in them each
year with rewarding education and training opportunities whenever
possible.
Preparedness
When we're not busy training, we're investing in planning and
technology. Because today's customers expect faster service through more
36
delivery channels, we're seeking new solutions to expand our services in
an efficient manner. The answer lies in well-conceived planning and good
use of technology.
One of the greatest technological challenges facing all businesses will
be the modification of computer software and hardware to accommodate the
coming of the year 2000. Virtually all businesses and individuals who use
computers will be confronted with a dilemma at midnight, December 31,1999,
if they are not prepared. Without modification, computers could assume
the new year is 1900 once again.
END PUBLISHED PAGE 2
37
Top right column black and white picture of Stanley G. Pijor, Chairman of
the Board
This year, we assembled a strategic task force to review our systems to
insure year 2000 compliance. All major vendors and suppliers to the bank
are being examined to make sure they are year 2000 compliant. During
1998, we will begin testing and validating that these systems are year
2000 compliant. The project completion date for the year 2000 compliance
is slated for June, 1999 to insure that we can welcome the new millennium
without concern.
Financial Performance
In 1997 we posted our 16th consecutive year of increased earnings, as
net income increased by 10.8% over 1996, reaching $6,482,000. Earnings
per share also increased to $1.56 for 1997 compared to $1.39 for 1996.
The graphs on page 40 depict our consolidated earnings and dividends over
the past 10 years.
Dividends declared per share amounted to $.71 in 1997 compared to $.62
in 1996. Total cash dividends in 1997, including the EXTRA dividend
declared by the Board of Directors in November, rose to nearly $2,934,000.
In each of the last 10 years, an increase in the regular cash dividend
has been approved. The cash dividends declared in 1997 represent a 238%
increase over 1987, when $867,000 in cash dividends were declared.
Other financial highlights as of December 31, 1997 include an increase
in net loans to $326.9 million, up $28.9 million from 1996 and an increase
in total deposits to $410.7 million, up $44.3 million from 1996.
Total assets of LNB Bancorp, Inc. reached $490.2 million, which
represents a increase of $52.0 million over 1996. The return on average
assets of LNB Bancorp, Inc. rose from 1.37% in 1996 to 1.41% in 1997.
Total shareholders' equity increased $45.0 million at December 31, 1997.
The ratio of total shareholders' equity to total assets was 9.2% at
December 31, 1997. LNB Bancorp, Inc. and its subsidiary, Lorain National
Bank, significantly exceed all current regulatory capital guidelines.
In Memoriam
It is with great sadness that we acknowledge the passing of James H.
Riddell, a member of the Lorain National Bank and LNB Bancorp, Inc. boards
of directors for a combined 25 years. We are grateful to Mr. Riddell for
his many years of faithful service as Director and Director Emeritus. He
will be greatly missed.
TOTAL ASSETS millions of dollars
(A Total Assets graph follows in printed version with assets on the x-axis
and years 1993 through 1997 on the y-axis. The graph is a vertical bar
graph. The co-ordinates, by year, which are presented in the table below
are plotted on the previously described grid.)
NET LOANS millions of dollars
(A Net Loans graph follows in printed version with loans on the x-axis and
years 1993 through 1997 on the y-axis. The graph is a vertical bar graph.
The co-ordinates, by year, which are presented in the table below are
plotted on the reviously described grid.)
38
Total Assets Net Loans
Year Millions of Dollars Millions of Dollars
1997 $490.2 $326.9
1996 $438.2 $298.0
1995 $421.6 $272.5
1994 $394.9 $258.0
1993 $379.6 $242.0
END PUBLISHED PAGE 3
39
1997 Highlights
The acquisition of three KeyBank branch officers proved to be our most
challenging activity in 1997. Along with the former KeyBank branch staff,
we welcomed more than 5,000 new customers to the bank. Additionally, we
acquired more than $45 million in deposits and $18 million in loans. The
highly successful operation, which began in April and culminated in
September, drew upon resources from all areas of the bank.
New product literature and highly personalized attention to the
conversion of former Key accounts was critical to the acquisition's
success. An outstanding effort on the part of our branch and operations
staff paid dividends in the form of a relatively smooth transition for our
new customers.
Loan demand remained strong in 1997. Excluding former KeyBank loans,
nearly $50.4 million in new commercial loans were booked, $29.1 million in
mortgage loans and another $20.1 million in consumer loans were approved.
Mortgage interest rates, which fell to a 20-year low, fueled a new wave
of refinancing in 1997. Nationally, the median price for existing homes
increased 6.2% from December 1996 to December 1997, according to the
National Association of Realtors.
Our commercial specialty, small business lending, experienced solid
growth last year. Lorain National led all area U.S. Small Business
Administration (SBA) lenders in a record SBA lending year. More than $7.3
million in SBA loans were established in Lorain County and 40% of those
were originated by Lorain National. According to the SBA, 83 jobs were
created as a result of SBA lending in Lorain County.
The Trust & Investment Management Division continued to grow with $248
million in assets under management, which represents an increase of 24.0%
in 1997, over the year-end 1996 position. Direct revenues for the
division in 1997 increased 18.1%. The division added a mutual funds
program in 1997, designed to attract a broad spectrum of investors. The
consistent, strong investment performance of portfolios managed by the
Department has resulted in the addition of new monies into equity
portfolios and attracted the attention of investment consultants. By
increasing the use of technology and continuously raising standards, we
continue to excel in meeting our client's investment objectives and
providing high quality personalized service.
In 1997, we upgraded our primary computer software five times to stay
current with industry standards. Additionally, we increased the number of
personal computers throughout the bank and supplied staff with
state-of-the-art software and training. Every branch office and
department is now connected by a computer-driven communications web which
enables our staff to relay information quickly and serve our customers
promptly.
Our delivery systems continued to broaden and deepen in 1997. We
acquired additional branch offices from KeyBank; completely renovated our
Kansas Avenue office in Lorain and laid the groundwork for our new branch
office in the Village of LaGrange in July 1998. We celebrated 10 years of
service to our Westlake customers with a highly successful diamond
giveaway promotion in October.
TOTAL DEPOSITS millions of dollars
(A Total Deposits graph follows in printed version with deposits on the
x-axis and years 1993 through 1997 on the y-axis. The graph is a vertical
bar graph. The co-ordinates, by year, which are presented in the table
below are plotted on the previously described grid.)
DIVIDENDS PER SHARE cents
(A Dividends Per Share graph follows in printed version with loans on the
x-axis and years 1993 through 1997 on the y-axis. The graph is a vertical
40
bar graph. The co-ordinates, by year, which are presented in the table
below are plotted on the previously described grid.)
Total Deposits Dividend Per Share
Year Millions of Dollars Cents
1997 $410.7 $0.71
1996 $366.4 $0.62
1995 $353.3 $0.52
1994 $335.2 $0.46
1993 $321.0 $0.42
*Adjusted for stock dividends and splits
END PUBLISHED PAGE 4
41
We installed a new automated teller machine on Lorain's east side and
added several additional phone lines to accommodate traffic coming into
our rapidly-growing TeleBanker 24-hour banking system.
Our product mix also expanded in 1997 with the addition of a telephone
bill payment feature called Telepay; a bundled checking product called
First Choice Checking for those with bankwide balances greater than
$10,000 and a broader range of terms for selected certificates of deposit.
A surprise product for 1997, the Access Check Card, experienced enormous
growth in transaction volume and revenues. The redesigned debit card,
formerly known as the MoneyMate Plus Card, increased in popularity
throughout the year thanks in large part to heightened consumer awareness.
The Access Check Card functions like a credit card but draws funds
directly from the user's checking account.
In 1997, we took steps to improve the efficiencies of shareholder
transactions by outsourcing stock registrar and transfer work. We also
implemented a new Dividend Reinvestment Program which will allow many of
our shareholders to roll their dividends into the purchase of additional
shares as our stock grows. Approximately 30% of our shareholders have
already requested this new service.
In 1998, we will continue to evaluate current product offerings and
investigate new delivery channels and distribution sites as they become
available.
Looking Forward
We are still enjoying a relatively healthy local economy, despite the
employment reduction at the Lorain Ford Motor assembly plant. The absence
of the Thunderbird and Cougar line in Lorain has not and will not impact
the community as severely as it might have five or 10 years ago. The
reason - growth in non auto-related industries and the foresight by area
businesses to diversify.
Unemployment has remained relatively low. According to the Ohio Bureau
of Employment Services, there were fewer than 6,900 workers without jobs
in Lorain County as of October, including those no longer employed by
Ford. By county standards, that is a fairly favorable statistic,
considering we've weathered unemployment as high as 24% in years passed.
Our community has proven that it is resilient. No longer will one or
two industries dictate our local employment. Many light manufacturing
plants and small businesses are flourishing in Lorain County. The cost of
doing business here is still relatively low compared to the Cleveland
market and we can expect continued growth.
We're encouraged by the entrepreneurial spirit of our local businesses.
Their ownership and employees continue to raise the quality of life for
our neighbors throughout the community.
In closing, we thank you for your support of our activities and look
forward to an exciting 1998.
/s/James F. Kidd /s/Stanley G. Pijor
James F. Kidd Stanley G. Pijor
President and Chairman of the Board
Chief Executive Officer
Five assorted photographs
END PUBLISHED PAGE 5
420
Financials
This photo of the Washington Avenue Falls in Elyria entitled "Veiled
Stones" courtesy of Terry Jonasson, Photo Imagery, Elyria
END PUBLISHED PAGE 6
43
Report to Shareholders
Photo of Washington Avenue Falls
END PUBLISHED PAGE 7
43
Consolidated Balance Sheets
December 31, 1997 1996
-------------------------------------------------------------------------
ASSETS:
Cash and due from banks (note 3) $ 24,273,000 $ 18,890,000
Federal funds sold and other interest-
bearing instruments 134,000 103,000
Securities (note 5):
Securities available for sale 19,336,000 16,102,000
Investment securities held to maturity 96,038,000 88,858,000
----------------------------
Total securities
(Market value $116,197,000 and
$105,639,000, respectively) 115,374,000 104,960,000
----------------------------
Loans (notes 6 and 7):
Portfolio loans 319,666,000 290,133,000
Loans available for sale 11,365,000 11,940,000
----------------------------
Total loans 331,031,000 302,073,000
Reserve for possible loan losses (4,168,000) (4,116,000)
----------------------------
Net loans 326,863,000 297,957,000
----------------------------
Bank premises and equipment, net (note 8) 11,321,000 10,893,000
Intangible assets (note 4) 5,114,000 -0-
Accrued interest receivable 3,155,000 2,721,000
Other assets 3,983,000 2,719,000
----------------------------
TOTAL ASSETS $490,217,000 $438,243,000
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits (note 9):
Demand and other noninterest-bearing
deposits $ 68,565,000 $ 63,802,000
Savings and passbook accounts 172,936,000 159,589,000
Time deposits 169,154,000 142,989,000
----------------------------
Total deposits 410,655,000 366,380,000
----------------------------
Securities sold under repurchase
agreements and other short-term
borrowings (note 10) 28,950,000 23,386,000
Federal Home Loan Bank advances (note 11) 2,045,000 1,095,000
Accrued interest payable 1,379,000 1,263,000
Accrued taxes, expenses and other
liabilities (notes 13 and 16) 2,203,000 1,921,000
----------------------------
Total liabilities 445,232,000 394,045,000
----------------------------
45
Shareholders' equity: (note 14)
Common stock, $1.00 par: Shares authorized 5,000,000
Shares issued 4,222,375 and 4,138,533,
respectively and
Shares outstanding 4,124,379 and 4,138,533,
respectively (notes 17, 18 and 19) 4,222,000 4,138,000
Additional capital 22,599,000 20,178,000
Retained earnings (note 15) 20,937,000 19,873,000
Net unrealized gain on securities
available for sale, net of tax 70,000 9,000
Treasury stock at cost, 97,996 and -0-
shares, respectively (2,843,000) -0-
----------------------------
Total shareholders' equity 44,985,000 44,198,000
----------------------------
Commitments and contingencies (notes 8 and 12)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $490,217,000 $438,243,000
----------------------------
See accompanying notes to consolidated financial statements
END PUBLISHED PAGE 8
46
Consolidated Statements of Income
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans:
Taxable $ 28,223,000 $ 25,851,000 $ 24,752,000
Tax exempt 49,000 59,000 75,000
Interest and dividends on
securities:
U.S. Treasury securities 5,157,000 5,107,000 5,104,000
U.S. Government agencies
and corporations 1,299,000 949,000 408,000
States and political
subdivisions 150,000 228,000 452,000
Other debt and equity
securities 134,000 93,000 20,000
Interest on Federal funds
sold and other interest
bearing instruments 144,000 183,000 300,000
--------------------------------------------
TOTAL INTEREST INCOME 35,156,000 32,470,000 31,111,000
INTEREST EXPENSE:
Interest on deposits:
Time certificates of
$100,000 and over 2,285,000 1,875,000 1,847,000
Other deposits 9,398,000 8,630,000 8,681,000
Interest on securities sold
under repurchase agreements
and other short-term
borrowings 1,131,000 954,000 1,107,000
Interest on Federal Home Loan
Bank advances 78,000 -0- -0-
Other interest 98,000 19,000 1,000
--------------------------------------------
TOTAL INTEREST EXPENSE 12,990,000 11,478,000 11,636,000
--------------------------------------------
NET INTEREST INCOME 22,166,000 20,992,000 19,475,000
Provision for possible
loan losses (note 7) 750,000 600,000 400,000
--------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 21,416,000 20,392,000 19,075,000
--------------------------------------------
OTHER INCOME:
Trust and Investment Management
division income 1,293,000 1,095,000 1,038,000
Service charges on deposit
accounts 2,143,000 1,903,000 1,360,000
Other service charges,
exchanges and fees 2,316,000 1,870,000 1,849,000
Gains (losses) on sales of
securities (note 5) -0- (1,000) -0-
Other operating income 51,000 58,000 40,000
--------------------------------------------
TOTAL OTHER INCOME 5,803,000 4,925,000 4,287,000
47
OTHER EXPENSES:
Salaries and employee benefits
(notes 16, 17, 18 and 19) 8,652,000 8,134,000 7,926,000
Net occupancy expense of
premises (note 8) 1,274,000 1,224,000 1,211,000
Furniture and equipment
expenses (note 8) 2,290,000 2,045,000 1,895,000
Supplies and postage 967,000 971,000 904,000
FDIC deposit insurance
premium 47,000 2,000 385,000
Ohio franchise tax 483,000 554,000 508,000
Other operating expenses 3,674,000 3,635,000 3,194,000
--------------------------------------------
TOTAL OTHER EXPENSES 17,387,000 16,565,000 16,023,000
--------------------------------------------
INCOME BEFORE FEDERAL
INCOME TAXES 9,832,000 8,752,000 7,339,000
--------------------------------------------
FEDERAL INCOME TAXES (note 13):
Current 3,329,000 2,763,000 2,111,000
Deferred 21,000 137,000 225,000
--------------------------------------------
TOTAL FEDERAL INCOME TAXES 3,350,000 2,900,000 2,336,000
--------------------------------------------
NET INCOME $ 6,482,000 $ 5,852,000 $ 5,003,000
--------------------------------------------
BASIC EARNINGS PER SHARE
(note 2) $ 1.56 $ 1.39 $ 1.20
--------------------------------------------
DILUTIVE EARNINGS PER SHARE
(note 2) $ 1.55 $ 1.39 $ 1.19
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 9
48
Consolidated Statements of Cash Flows
Years ended December 31, 1997 1996 1995
-------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Interest received $ 34,741,000 $ 32,561,000 $ 30,734,000
Other income received 5,762,000 4,970,000 4,245,000
Interest paid (12,874,000) (11,465,000) (11,254,000)
Cash paid for salaries
and employee benefits (8,580,000) (8,015,000) (7,832,000)
Net occupancy expense of
premises paid (950,000) (935,000) (901,000)
Furniture and equipment
expenses paid (818,000) (787,000) (733,000)
Cash paid for supplies and
postage (967,000) (971,000) (904,000)
Cash paid for other
operating expenses (5,135,000) (3,829,000) (4,354,000)
Federal income taxes paid (3,176,000) (2,974,000) (1,956,000)
--------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,003,000 8,555,000 7,045,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities 21,906,000 30,006,000 45,799,000
Proceeds from maturities of
securities available for sale 5,475,000 7,764,000 2,953,000
Proceeds from sales of securities
available for sale -0- 1,999,000 -0-
Purchases of investment
securities (29,319,000) (29,405,000) (45,914,000)
Purchases of securities
available for sale (8,511,000) (10,743,000) (7,702,000)
Net (increase) decrease in
credit card loans 43,000 (132,000) (119,000)
Net (increase) in long-term
loans (30,077,000) (26,214,000) (14,969,000)
Purchases of bank premises,
equipment and intangible
assets (7,280,000) (1,407,000) (2,276,000)
Proceeds from sales of
bank premises and equipment 20,000 55,000 -0-
--------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (47,743,000) (28,077,000) (22,228,000)
49
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and other
noninterest-bearing deposits 4,763,000 3,639,000 3,067,000
Net increase (decrease) in savings
and passbook deposits 13,347,000 142,000 (11,648,000)
Net increase in time deposits 26,165,000 9,144,000 26,817,000
Net increase (decrease)
in securities sold under repurchase agreements and other
short-term borrowings 3,364,000 (762,000) 4,997,000
Proceeds from Federal Home
Loan Bank advances 950,000 1,095,000 -0-
Proceeds from line of credit 2,400,000 -0- -0-
Cash paid on line of credit (200,000) -0- -0-
Purchase of Treasury Stock (2,843,000) -0- -0-
Proceeds from exercise of
stock options 21,000 179,000 278,000
Dividends paid (2,813,000) (2,452,000) (2,073,000)
--------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 45,154,000 10,985,000 21,438,000
--------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 5,414,000 (8,537,000) 6,255,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 18,993,000 27,530,000 21,275,000
--------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 24,407,000 $ 18,993,000 $ 27,530,000
--------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET INCOME $ 6,482,000 $ 5,852,000 $ 5,003,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,660,000 1,547,000 1,473,000
Amortization of deferred loan
fees and costs, net 378,000 280,000 173,000
Provision for possible
loan losses 750,000 600,000 400,000
Decrease in deferred
Federal income taxes 21,000 137,000 157,000
Amortization of Intangible
Assets 136,000 -0- -0-
(Increase) decrease in accrued
interest receivable (434,000) 43,000 (373,000)
(Increase) decrease in
other assets (1,177,000) 302,000 (188,000)
Increase in accrued
interest payable 116,000 13,000 382,000
Increase (decrease) in accrued
taxes, expenses and
other liabilities 8,000 34,000 (424,000)
Others, net 63,000 (253,000) 442,000
--------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $8,003,000 $8,555,000 $7,045,000
--------------------------------------------
See accompanying notes to consolidated financial statements.
END PUBLISHED PAGE 10
50
Consolidated Statements of Shareholders' Equity
Net Unrealized
Gains (Loss)
Years Ended on Securities
December 31, 1997 Common Additional Retained Available
1996 and 1995 Stock Capital Earnings for Sale
-------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1994 $3,200,000 $18,415,000 $16,028,000 $(132,000)
---------------------------------------------------------
Net income -0- -0- 5,003,000 -0-
Cash dividends declared,
$.54 per share -0- -0- (2,175,000) -0-
Issuance of 36,601
shares of common stock
under stock option
plans 36,000 242,000 -0- -0-
Issuance of 802,692
shares of common stock
with a fixed par value
of $1, under a five-for
-four stock split 803,000 (803,000) -0- -0-
Change in unrealized
gain (loss) on
securities available
for sale, net of tax -0- -0- -0- 174,000
-----------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 $4,039,000 $17,854,000 $18,856,000 $ 42,000
-----------------------------------------------------------
Years Ended Total
December 31, 1997 Treasury Shareholders'
1996 and 1995 Stock Equity
- -------------------------------------------------
BALANCE AT
DECEMBER 31,
1994 -0- $37,511,000
----------------------------------
Net income -0- 5,003,000
Cash dividends declared,
$.54 per share -0- (2,175,000)
Issuance of 36,601
shares of common
stock under stock
option plans -0- 278,000
Issuance of 802,692
shares of common
stock with a fixed
par value of $1,
under a five-for-four
stock split -0- -0-
Change in unrealized
gain (loss) on
securities available
for sale, net of tax -0- 174,000
--------------------------------
BALANCE AT
DECEMBER 31, 1995 -0- $40,791,000
- -----------------------------------------------------------
51
Net Unrealized
Gains (Loss)
Years Ended on Securities
December 31, 1997 Common Additional Retained Available
1996 and 1995 Stock Capital Earnings for Sale
- -------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 $4,039,000 $17,854,000 $18,856,000 $ 42,000
-----------------------------------------------------------
Net income -0- -0- 5,852,000 -0-
Cash dividends declared,
$.63 per share -0- -0- (2,591,000) -0-
Issuance of 18,307
shares of common
stock under stock
option plans 18,000 161,000 -0- -0-
Market value of
stock issued in
payment of 2%
stock dividend,
80,879 shares 81,000 2,163,000 (2,244,000) -0-
Change in unrealized
gain(loss) on securities
available for
sale, net of tax -0- -0- -0- (33,000)
-----------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 $4,138,000 $20,178,000 $19,873,000 $ 9,000
-----------------------------------------------------------
Years Ended Total
December 31, 1997 Treasury Shareholders'
1996 and 1995 Stock Equity
- -------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 -0- $40,791,000
-----------------------------------
Net income -0- 5,852,000
Cash dividends
declared,
$.63 per share -0- (2,591,000)
Issuance of 18,307
shares of common
stock under stock
option plans -0- 179,000
Market value of
stock issued in
payment of 2%
stock dividend,
80,879 shares -0- -0-
Change in unrealized
gain(loss) on securities
available for
sale, net of tax -0- (33,000)
--------------------------------
BALANCE AT
DECEMBER 31, 1996 -0- $44,198,000
----------------------------------
52
Net Unrealized
Gains (Loss)
Years Ended on Securities
December 31, 1997 Common Additional Retained Available
1996 and 1995 Stock Capital Earnings for Sale
- -------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 $4,138,000 $20,178,000 $19,873,000 $ 9,000
-----------------------------------------------------------
Net income -0- -0- 6,482,000 -0-
Cash dividends declared,
$.71 per share -0- -0- (2,934,000) -0-
Issuance of 1,052
shares of common
stock under stock
option plans 1,000 20,000 -0- -0-
Market value of
stock issued in payment of 2%
stock dividend,
82,790 shares 83,000 2,401,000 (2,484,000) -0-
Purchase of 97,996 shares
Treasury Stock -0- -0- -0- -0-
Change in unrealized
gain(loss) on securities
available for
sale, net of tax -0- -0- -0- 61,000
-----------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 $4,222,000 $22,599,000 $20,937,000 $ 70,000
-----------------------------------------------------------
Years Ended Total
December 31, 1997 Treasury Shareholders'
1996 and 1995 Stock Equity
- -------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 -0- $44,198,000
----------------------------------
Net income -0- 6,482,000
Cash dividends declared,
$.71 per share -0- (2,934,000)
Issuance of 1,052
shares of common
stock under stock
option plans -0- 21,000
Market value of
stock issued in payment of 2%
stock dividend,
82,790 shares -0- -0-
Purchase of 97,996 shares
Treasury Stock (2,843,000) (2,843,000)
Change in unrealized
gain(loss) on securities
available for
sale, net of tax -0- 61,000
-------------------------------
BALANCE AT
DECEMBER 31, 1997 $(2,843,000) $44,985,000
--------------------------------
See accompanying notes to consolidated financial statements.
53
Five assorted photographs
END PUBLISHED PAGE 11
54
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies:
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of LNB Bancorp,
Inc. (the Corporation) and its wholly owned subsidiary, The Lorain
National Bank (the Bank). All material intercompany transactions and
balances have been eliminated in consolidation.
(b) Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and that affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(c) Industry Segment Information:
The Corporation's activities are considered to be a single industry
segment for financial reporting purposes. LNB Bancorp, Inc. is a bank
holding company engaged in the business of commercial and retail banking
and trust and investment management services, with operations conducted
through its main office and branches located throughout Lorain and western
Cuyahoga Counties of Ohio. Lorain and western Cuyahoga Counties provide
the source for substantially all of the Bank's deposit, loan and trust
activities. The majority of the Bank's income is derived from a diverse
base of commercial, mortgage and retail lending activities and
investments.
(d) Cash and Cash Equivalents:
For purposes of reporting in the Consolidated Statements of Cash Flows,
cash and cash equivalents include currency on hand, amounts due from
banks, Federal funds sold, and securities purchased under resale
agreements. Generally, Federal funds sold and securities purchased under
resale agreements are for one day periods.
(e) Securities:
Debt and equity securities are classified as held to maturity, trading, or
available for sale. Investment securities which are classified as being
held to maturity are stated at cost. Securities are adjusted for
amortization of premiums and accretion of discounts using the interest
method. Securities available for sale are carried at fair value with
unrealized gains and losses included as a separate component of
shareholders' equity, net of tax. Gains or losses on dispositions are
based on net proceeds and the carrying value of securities sold, using the
specific identification method. The Bank does not maintain a trading
account.
(f) Loans Available for Sale:
The Bank has identified certain commercial and student loans which may be
sold prior to maturity. These loans are carried at the lower of amortized
cost (carrying value) or estimated market value, determined on an
aggregate basis for each type of loan available for sale.
55
(g) Reserve for Possible Loan Losses:
Under GAAP, a loan is considered impaired, based on current information
and events, if it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired
loans is generally based on the present value of the expected future cash
flows discounted at the loans initial effective interest rate, except that
all collateral-dependent loans are measured for impairment based on the
fair value of the collateral. If the loan valuation is less than the
recorded value of the loan, an impairment reserve must be established for
the difference. The impairment reserve is established by either an
allocation of the reserve for possible loan losses or by a provision for
ossible loan losses, depending upon the adequacy of the reserve for
possible loan losses.
The provision for possible loan losses is determined based on Management's
evaluation of the loan portfolio and the adequacy of the reserve for
possible loan losses under current economic conditions and such other
factors which, in management's judgement, deserve current recognition.
(h) Bank Premises and Equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed
generally on the straight-line method over the estimated useful lives of
the assets.
(i) Intangible Assets:
Intangible assets arise from branch acquisitions and include Goodwill and
Core Deposit Intangibles. Goodwill is the excess of purchase price over
identified net assets in branch acquisitions. Core Deposit Intangibles
represent the value of depositor relationships purchased. Goodwill is
being amortized using the straight-line method over a period of fifteen
years. Core Deposit Intangibles are being amortized using an accelerated
method over a period of ten years for 1997 branch acquisitions. Goodwill
and Core Deposit Intangibles are reviewed for possible impairment, for
events or changes in circumstances that indicate the carrying amount of
the asset may not be recoverable, and written down if necessary.
(j) Other Real Estate Owned:
Other real estate owned is carried in other assets on the Balance Sheet at
fair value, net of estimated costs to sell, not to exceed the cost of
property acquired through foreclosure.
(k) Additional Capital and Retained Earnings:
The additional capital account includes amounts received in excess of par
value of common stock sold and amounts voluntarily transferred from
etained earnings. In the case of stock dividends, the Corporation
transfers the market value of shares issued from retained earnings to the
common stock and additional capital accounts.
END PUBLISHED PAGE 12
56
(1) Summary of Significant Accounting Policies (continued)
(l) Interest and Fees on Loans:
Interest income on loans is accrued on the principal balances of loans
outstanding on a "simple interest" basis. The Bank's policy is to cease
accruing interest on any loans where the principal and/or interest remains
unpaid for 90 days or more, unless the loan is both well secured and in
the process of collection. Loan origination fees and certain direct
origination costs are deferred and amortized over the contractual lives of
the related loans using the interest method.
(m) Trust and Investment Management Division Assets and Income:
Property held by the Corporation in fiduciary or agency capacity for its
customers is not included in the accompanying financial statements, as
such items are not assets of the Corporation. Income from the Trust and
Investment Management Division is reported on an accrual basis.
(n) Interest on Deposit Accounts:
Interest on deposit accounts is accrued and charged to expense monthly and
is paid or credited in accordance with the terms of the respective
accounts.
(o) Federal Income Taxes:
The Corporation and its wholly owned subsidiary file a consolidated
federal income tax return. The Corporation provides for federal income
taxes as required by Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes". Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be removed or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(p) Reclassifications:
Certain 1995 and 1996 amounts have been reclassified to conform to the
1997 presentation.
(q) Employee Stock Ownership Plan and Stock Purchase Plan:
These two qualified defined contribution plans are accounted for under the
provisions of Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions".
(r) Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities:
Effective January 1, 1997, the Corporation adopted the provisions of SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," not deferred by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125."
The adoption of SFAS No. 125 did not impact the Corporation's financial
condition or results of operations.
(2) Earnings Share Data:
Earnings per common and common equivalent shares (stock options) have been
computed using the weighted average number of shares outstanding during
each period after giving consideration to the dilutive effect of incentive
57
stock options, a two percent stock dividend in 1997 and 1996 and a
five-for-four stock split in 1995.
The Corporation adopted SFAS No. 128 "Earnings Per Share" on January 1,
1997. This Statement specifies the computation, presentation and
disclosure requirements for earnings per share, for entities with publicly
held common stock or potential common stock. In accordance with SFAS No.
128, earnings per share is calculated as follows:
For the Years ended December 31,
1997
- --------------------------------------------------------------------------
Weighted Earnings
Net Average Per
Income Shares Share
-----------------------------------------
Income before extraordinary
item and accounting change $6,482,000
-----------------------------------------
Basic EPS
Income available to common
stockholders $6,482,000 4,168,322 $1.56
Effect of Dilutive Securities
Incentive Stock Options 10,477
-----------------------------------------
Dilutive EPS
Income available to common
stockholders and assumed
conversions $6,482,000 4,178,799 $1.55
-----------------------------------------
For the Years ended December 31,
1996
- -------------------------------------------------------------------------
Weighted Earnings
Net Average Per
Income Shares Share
-----------------------------------------
Income before extraordinary
item and accounting change $5,852,000
-----------------------------------------
Basic EPS
Income available to common
stockholders $5,852,000 4,211,028 $1.39
Effect of Dilutive Securities
Incentive Stock Options 10,475
-----------------------------------------
Dilutive EPS
Income available to common
stockholders and assumed
conversions $5,852,000 4,221,503 $1.39
-----------------------------------------
58
For the Years ended December 31,
1995
- -------------------------------------------------------------------------
Weighted Earnings
Net Average Per
Income Shares Share
-----------------------------------------
Income before extraordinary
item and accounting change $5,003,000
-----------------------------------------
Basic EPS
Income available to common
stockholders $5,003,000 4,183,862 $1.20
Effect of Dilutive Securities
Incentive Stock Options 19,606
-----------------------------------------
Dilutive EPS
Income available to common
stockholders and assumed
conversions $5,003,000 4,203,468 $1.19
-----------------------------------------
END PUBLISHED PAGE 13
59
(3) Cash and Due From Banks:
In order to meet deposit reserve requirements, the Bank is required to
maintain cash on hand and reserve balances at the Federal Reserve Bank.
Cash and due from banks included approximately $6,951,000 and $6,252,000
at December 31, 1997 and 1996, respectively, to meet these deposit reserve
requirements.
The average balances maintained in cash on hand and in reserve balances at
the Federal Reserve Bank to meet deposit reserve requirements approximated
$6,959,000 and $6,271,000, during 1997 and 1996 respectively.
(4) Acquisition and Intangible Assets:
On September 15, 1997, Lorain National Bank acquired three branch offices
on Lorain County, Ohio from KeyBank, National Association (KeyBank),
headquartered in Cleveland, Ohio. The transaction included the
acquisition of approximately $45,000,000 in deposits, $18,000,000 in
personal and commercial loans, as well as certain property and equipment.
The transaction was accounted for as a branch purchase and accordingly the
acquired assets and liabilities were recorded at their fair values on the
acquisition date. The effect of the KeyBank acquisition is included in
the results of operation prospectively from the date of the acquisition.
The intangible assets arising from the KeyBank branch acquisition and
included in the accompanying Consolidated Balance Sheets are summarized as
follows at December 31, net of accumulated amortization:
1997
----------
Goodwill $3,883,000
Core deposit intangible $1,231,000
----------
Total intangible assets $5,114,000
==========
Amortization expense for intangible assets totaled $136,000 in 1997.
(5) Securities:
The amortized cost, gross unrealized gains and losses and fair values of
securities at December 31, 1997 and 1996 follow:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1997 Cost Gains Losses Value
- --------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities $ 11,154,000 $ 26,000 $ (25,000) $11,155,000
U.S. Government
agencies and
corporations 6,003,000 28,000 -0- 6,031,000
Equity securities 2,072,000 78,000 -0- 2,150,000
--------------------------------------------------
Total securities
available for sale 19,229,000 132,000 (25,000) 19,336,000
--------------------------------------------------
60
Investment securities
held-to-maturity:
U.S. Treasury securities 66,945,000 679,000 (37,000) 67,587,000
U.S. Government agencies
and corporations 24,996,000 122,000 (17,000) 25,101,000
States and political
subdivisions 4,097,000 82,000 (6,000) 4,173,000
---------------------------------------------------
Total investment
securities held-
to-maturity 96,038,000 883,000 (60,000) 96,861,000
-----------------------------------------------------
Total securities $115,267,000 $1,015,000 $ (85,000) $116,197,000
-----------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------
Securities available
for sale:
U.S. Treasury
securities $ 14,424,000 $ 32,000 $(76,000) $14,380,000
Equity securities 1,665,000 57,000 -0- 1,722,000
--------------------------------------------------
Total securities
available for sale 16,089,000 89,000 (76,000) 16,102,000
--------------------------------------------------
Investment securities
held-to-maturity:
U.S. Treasury securities 69,673,000 783,000 (126,000) 70,330,000
U.S.Government agencies
and corporations 16,500,000 39,000 (93,000) 16,446,000
States and political
subdivisions 2,685,000 79,000 (3,000) 2,761,000
---------------------------------------------------
Total investment
securities held-
to-maturity 88,858,000 901,000 (222,000) 89,537,000
-----------------------------------------------------
Total securities $104,947,000 $ 990,000 $(298,000) $105,639,000
-----------------------------------------------------
END PUBLISHED PAGE 14
61
(5) Securities (continued):
The amortized cost, fair values and yields of debt securities by
contractual maturity date at December 31, 1997 follow:
Fully-Tax
Amortized Fair Equivalent
December 31, 1997 Cost Value Yield
-------------------------------------------------------------------------
Securities available for sale:
Due within 1 year $ 9,076,000 $ 9,059,000 5.35%
After 1 but within 5 years 7,081,000 7,119,000 6.23
After 5 but within 10 years 1,000,000 1,008,000 6.74
Equity securities 2,072,000 2,150,000 6.46
-------------------------------------------
Total 19,229,000 19,336,000 5.87
-------------------------------------------
Investment securities held-to-maturity:
Due within 1 year 33,960,000 33,973,000 5.82
After 1 but within 5 years 53,824,000 54,409,000 6.50
After 5 but within 10 years 7,282,000 7,504,000 7.15
After 10 years 972,000 975,000 8.34
-------------------------------------------
96,038,000 96,861,000 6.33
-------------------------------------------
Total $115,267,000 $116,197,000 6.25%
===========================================
There were no sales of securities in 1997 and 1995. Proceeds from the
sale of securities during 1996 were $1,999,000 resulting in gross realized
gains of $-0- and realized losses of $1,000. All other redemptions
during these three years were in the form of proceeds at maturity or calls
by the issuers of debt. The carrying value of securities pledged to
secure trust, public deposits, securities sold under repurchase
agreements, line of credit, and for other purposes required by law
amounted to $104,445,000 and $94,173,000 at December 31, 1997 and 1996,
respectively.
The fair value of securities is based on quoted market prices, where
available. If quoted market prices are not available, fair value is
estimated using the quoted market prices of comparable instruments. At
December 31, 1997 the securities portfolio contained approximately
$3,364,000 in non-rated securities of state and political subdivisions.
Based upon yield, term to maturity and market risk, the valuation service
estimated the fair value of these securities to be $3,702,000. The
majority of these non-rated securities are short-term debt issues of local
political subdivisions. Management has reviewed these non-rated
securities and has determined that there is no impairment to their value
as of December 31, 1997.
Five assorted photographs
END PUBLISHED PAGE 15
62
(6) Transactions with Related Parties:
The Corporation, through its subsidiary Bank, makes loans to its officers,
directors and their affiliates. These loans are made with substantially
the same terms and conditions as transactions with nonrelated parties. An
analysis of loans outstanding to related parties follows:
Years ended December 31, 1997 1996
-------------------------------------------------------------------------
Aggregate amount beginning of year $3,884,000 $2,907,000
Additions (deductions):
New loans 974,000 1,271,000
Repayments (1,070,000) (1,342,000)
Changes in directors and officers
and/or their affiliations, net 2,619,000 1,048,000
-------------------------------
Aggregate amount end of year $6,407,000 $3,884,000
-------------------------------
(7) Loans and Reserve for Possible Loan Losses:
Loan balances at December 31, 1997 and 1996 are summarized as follows:
December 31, 1997 1996
- --------------------------------------------------------------------------
Real estate loans (includes loans secured primarily by real estate only):
Construction and land development $ 27,018,000 $ 26,188,000
One to four family residential 173,169,000 153,178,000
Multi-family residential 9,803,000 10,062,000
Non-farm non-residential properties 66,040,000 63,292,000
Commercial and industrial loans 21,697,000 19,055,000
Personal loans to individuals:
Auto, single payment and installment 27,067,000 23,631,000
Credit card and related plans 5,152,000 5,195,000
Obligations of states and political subdivisions 685,000 842,000
All other loans 400,000 630,000
------------------------------------
TOTAL LOANS 331,031,000 302,073,000
Reserve for possible loan losses (4,168,000) (4,116,000)
------------------------------------
NET LOANS $326,863,000 $297,957,000
------------------------------------
Activity in the reserve for possible loan losses for 1997, 1996 and 1995
is summarized as follows:
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
Balance at beginning of year $4,116,000 $4,002,000 $3,832,000
Provision for possible loan losses 750,000 600,000 400,000
Loans charged-off (849,000) (672,000) (449,000)
Recoveries on loans previously
charged-off 151,000 186,000 219,000
--------------------------------------------
BALANCE AT END OF YEAR $4,168,000 $4,116,000 $4,002,000
--------------------------------------------
At December 31, 1997 and 1996, $11,365,000 and $11,940,000 of commercial
and student loans were available for sale in the secondary market. No
provision for possible loan loss on the carrying value of these loans was
necessary at December 31, 1997 and 1996. The market value of loans
63
available for sale equaled or exceeded its carrying value. At December
31, 1997, the Bank had firm commitments for the sale of approximately
$559,000 of these loans.
Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" and No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure" were adopted
on January 1, 1995.
Information required under SFAS No. 114 and SFAS No. 118 is as follows:
Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------
Year-end impaired loans with no
allowance for loan losses allocated $ -0- $305,000 $814,000
Year-end impaired loans with
allowance for loan losses allocated -0- 911,000 699,000
Amount of the allowance allocated -0- 152,000 239,000
Average of impaired loans during
the year 820,000 983,000 910,000
Interest income recognized during
impairment 43,000 66,000 103,000
Cash-basis interest income recognized 21,000 7,000 24,000
- -------------------------------------------------------------------------
END PUBLISHED PAGE 16
64
(8) Bank Premises and Equipment:
Bank premises and equipment are summarized as follows:
December 31, 1997 1996
-------------------------------------------------------------------------
Land $ 1,941,000 $ 1,941,000
Buildings 9,490,000 9,159,000
Equipment and furniture 12,192,000 11,462,000
Leasehold improvements 532,000 311,000
---------------------------------------------
24,155,000 22,873,000
---------------------------------------------
Less accumulated depreciation
and amortization 12,834,000 11,980,000
---------------------------------------------
TOTAL $11,321,000 $10,893,000
---------------------------------------------
Depreciation and amortization of Bank premises and equipment charged to
other expense amounted to $1,446,000 in 1997, $1,332,000 in 1996 and
$1,299,000 in 1995.
Amortization of purchased software charged to other operating expenses
amounted to $213,000 in 1997, $215,000 in 1996 and $174,000 in 1995.
At December 31, 1997, the Bank was obligated to pay rental commitments
under noncancelable operating leases on branch offices and certain
equipment as follows:
Year Ending Branch
December 31, Offices Equipment
-----------------------------------------------------------
1998 $126,000 $46,000
1999 120,000 12,000
2000 106,000 12,000
2001 105,000 12,000
2002 and thereafter 220,000 12,000
------------------------
Total $677,000 $94,000
Rentals paid under leases on branch offices and equipment, respectively,
amounted to $85,000 and $45,000 in 1997, $101,000 and $54,000 in 1996 and
$115,000 and $68,000 in 1995.
(9) Deposits:
Deposit balances at December 31, 1997 and 1996 are summarized as follows:
December 31, 1997 1996
- --------------------------------------------------------------------------
Demand and other noninterest-
bearing deposits:
Individuals, partnerships
and corporations $ 58,511,000 $ 54,899,000
U.S. Government 379,000 693,000
States and political subdivisions 4,779,000 4,411,000
Certified, official, travelers
checks and other 4,896,000 3,799,000
-----------------------------------
65
Total demand and other noninterest-
bearing deposits 68,565,000 63,802,000
-----------------------------------
Savings and passbook accounts:
Individuals and non-profit organizations 155,972,000 141,978,000
Corporations and profit organizations 16,964,000 17,611,000
-----------------------------------
Total savings and passbook accounts 172,936,000 159,589,000
-----------------------------------
Time deposits:
Individuals, partnerships and
corporations 150,900,000 116,364,000
States and political subdivisions 18,254,000 26,625,000
------------------------------------
Total time deposits 169,154,000 142,989,000
------------------------------------
TOTAL DEPOSITS $410,655,000 $366,380,000
------------------------------------
The aggregate amount of certificates of deposit in denominations of
$100,000 or more amounted to $36,551,000 and $38,333,000 at December 31,
1997 and 1996, respectively.
The maturity distribution of time certificates of deposit as of December
31, 1997 and 1996 follows:
After 3 After 6
Months Months
Within 3 But Within But Within
Months 6 Months 1 Year
-------------------------------------------------------------------------
December 31, 1997 $53,785,000 $33,634,000 $44,134,000
------------------------------------------------------------------------
December 31, 1996 $60,553,000 $23,053,000 $25,110,000
-------------------------------------------------------------------------
After 1 After 2
Year But Years But
Within Within
2 Years 5 Years Total
-------------------------------------------------------------------------
December 31, 1997 $20,747,000 $16,854,000 $169,154,000
-------------------------------------------------------------------------
December 31, 1996 $22,707,000 $11,566,000 $142,989,000
-------------------------------------------------------------------------
END PUBLISHED PAGE 17
66
(10) Short-Term Borrowings:
Information relating to short-term borrowings for the years ended December
31, 1997 and 1996 follows:
December 31, 1997 1996 1995
- --------------------------------------------------------------------------
Securities sold under repurchase agreements and other short-term
borrowings
At December 31:
Outstanding $26,750,000 $23,386,000 $24,148,000
Interest rate 6.03% 4.22% 4.98%
Average for the period:
Outstanding $23,885,000 $21,465,000 $22,864,000
Interest rate 4.74% 4.75% 4.85%
Maximum month-end outstanding $36,938,000 $34,076,000 $29,121,000
Line of credit
At December 31
Outstanding $ 2,200,000 N/A N/A
Interest rate 6.40% N/A N/A
Average for the period:
Outstanding $ 1,422,000 N/A N/A
Interest rate 6.51% N/A N/A
Maximum month-end outstanding $ 2,400,000 N/A N/A
- --------------------------------------------------------------------------
In May of 1997, the Corporation obtained a $4,100,000 line of credit from
a commercial bank to fund the purchase of Treasury Stock. The interest
rate was based upon the current Eurodollar rate plus fifty basis points
and is adjustable every six months. Interest is payable on a quarterly
basis.
The outstanding balance of the line is collateralized with $3,000,000 of
U.S. Treasury securities. The line of credit expires in May of 1998 and
is renewable.
(11) Federal Home Loan Bank Advances:
Lorain National Bank is a voluntary member of the Federal Home Loan Bank
of Cincinnati (FHLB). Advances from the FHLB with maturities and fixed
interest rates thereon at December 31, 1997 and 1996 are as follows:
Maturity Interest Rate 1997 1996
---------------------------------------------------------------
2001 6.85% $ 360,000 $ 360,000
2001 6.25% 735,000 735,000
2002 6.31% 950,000 -0-
---------------------------
Total $2,045,000 $1,095,000
---------------------------
The Bank maintains a $15,000,000 line of credit with the FHLB which
matures on September 10, 1998.
At December 31, 1997, pledged as collateral for FHLB advances were all of
the shares of FHLB stock owned by the Bank, with a carrying value of
$1,722,000, and qualified mortgage loans totaling $3,068,000. At December
31, 1997, Lorain National Bank was approved for $34,450,000 of FHLB
advances, based upon the carrying value of FHLB stock owned by the Bank.
67
(12) Commitments, Credit Risk, and Contingencies:
In the normal course of business, the Bank enters into commitments with
off-balance sheet risk to meet the financing needs of its customers. These
instruments are currently limited to commitments to extend credit and
standby letters of credit. Commitments to extend credit involve elements
of credit risk and interest rate risk in excess of the amount recognized
in the consolidated balance sheets. The Bank's exposure to credit loss in
the event of nonperformance by the other party to the commitment is
represented by the contractual amount of the commitment. The Bank uses the
same credit policies in making commitments as it does for on-balance sheet
instruments. Interest rate risk on commitments to extend credit results
from the possibility that interest rates may have moved unfavorably from
the position of the Bank since the time the commitment was made.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of 60 to 120 days or
other termination clauses and may require payment of a fee. Since some of
the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
END PUBLISHED PAGE 18
67
(12) Commitments, Credit Risk, and Contingencies continued:
The Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained by the Bank upon extension of
credit is based on management's credit evaluation of the applicant.
Collateral held is generally single-family residential real estate, and
commercial real estate. Substantially all of the obligation to extend
credit are variable rate commitments. The Corporation's maximum potential
obligation to extend credit for financial instruments with off-balance
sheet risk at December 31, 1997 and 1996 was:
1997 1996
-------------------------------
Commitments to extend credit $49,487,000 $44,518,000
Credit card arrangements 17,394,000 17,380,000
Standby letters of credit 1,825,000 1,686,000
-------------------------------
Total $68,706,000 $63,584,000
-------------------------------
Most of the Bank's business activity is with customers located within the
Bank's defined market area. As of December 31, 1997, the Bank had no
significant concentrations of credit risk in its loan portfolio. The Bank
also has no exposure to highly leveraged transactions and no foreign
credits in its loan portfolio.
The nature of the Corporation's business results in a certain amount of
litigation. Management, after reviewing with counsel all actions and
proceedings pending against or involving LNB Bancorp, Inc. and Lorain
National Bank, considers that the aggregate liability or loss, if any,
resulting from them will not be material to the Corporation's financial
position.
(13) Federal Income Taxes:
The following presents a reconciliation of the total Federal income taxes
as shown on the Consolidated Statements of Income with that which would be
computed by applying the statutory Federal tax rate of 34 percent to
income before Federal income taxes.
Years ended December 31, 1997 1996 1995
-------------------------------------------------------------------------
Computed "expected" tax expense $3,343,000 $2,976,000 $2,495,000
Increase (reduction) in income
taxes resulting from:
Tax exempt interest on
obligations of states
and political subdivisions (60,000) (89,000) (162,000)
Other, net 67,000 13,000 3,000
---------------------------------------------
TOTAL FEDERAL INCOME TAXES $3,350,000 $2,900,000 $2,336,000
---------------------------------------------
At December 31, 1997 and 1996, the net deferred Federal tax assets were
$675,000, and $712,000, respectively of which $(43,000) and $(27,000) of
deferred tax (liability), respectively, is included in unrealized gain on
securities available for sale. Net deferred Federal tax assets are
included in Other assets on the Consolidated Balance Sheets. Management
69
believes that it is more likely than not that the deferred Federal tax
assets will be realized. The tax effects of temporary differences that
give rise to significant portions of the deferred Federal tax assets and
deferred Federal tax liabilities are presented below.
December 31, 1997 1996
- -------------------------------------------------------------------------
Deferred Federal tax assets:
Reserve for possible loan losses $ 974,000 $ 956,000
Deferred compensation 177,000 127,000
Accrued vacation payable 131,000 135,000
Intangible Asset Amortization 6,000 -0-
Other, net 7,000 2,000
------------------------------------
Total deferred Federal tax assets 1,295,000 1,220,000
Deferred Federal tax liabilities:
Bank premises and equipment depreciation (361,000) (265,000)
Deferred charges (114,000) (168,000)
FHLB stock dividends (63,000) (25,000)
Unrealized gain on securities available for sale (43,000) (27,000)
Prepaid pension expense (11,000) (15,000)
Accrued loan fees and costs (28,000) (8,000)
-------------------------------------
Total deferred Federal tax liabilities (620,000) (508,000)
-------------------------------------
NET DEFERRED FEDERAL TAX ASSETS $ 675,000 $ 712,000
-------------------------------------
END PUBLISHED PAGE 19
70
(14) Shareholders' Equity and Regulatory Capital:
On April 15, 1997, the Corporation distributed a 2% stock dividend
recorded at the per share fair market value at the declaration date. As a
result of the stock dividend, common stock issued increased by 82,790
shares.
On May 20, 1997, the Board of Directors authorized the repurchase of up to
100,000 shares of common stock. The repurchased shares will be used
primarily for qualified employee benefit plans, incentive stock option
plans, stock dividends and other Corporate purposes. LNB Bancorp Inc.
purchased 97,996 shares of stock under this plan during the year ended
December 31, 1997. During 1997, no shares were issued out of Treasury
Stock.
The Board of Directors adopted a dividend reinvestment plan on November
18, 1997. The plan allows shareholders to elect to use their quarterly
cash dividends to purchase shares of LNB Bancorp, Inc. common stock.
Additionally, cash can be contributed directly to the plan for the
purchase of shares of common stock with a quarterly limit of $5,000.
Dividends paid by the Bank are the primary source of funds available to
the Corporation for payment of dividends to shareholders and for other
working capital needs. The payment of dividends by the Bank to the
Corporation is subject to restrictions by the Office of the Comptroller of
Currency. These restrictions generally limit dividends to the current and
prior two year's retained earnings. At December 31, 1997, approximately
$1,193,000 of the Bank's retained earnings were available for dividends to
the Corporation. In addition to these restrictions, as a practical matter,
dividend payments cannot reduce regulatory capital levels below the
Corporation's regulatory capital requirements and minimum regulatory
guidelines. These restrictions do not presently limit the Corporation from
paying normal dividends.
The Corporation and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk
weightings, and other factors, and the regulators can lower
classifications in certain cases. Failure to meet various capital
requirements can initiate regulatory action that could have a direct
material effect on the consolidated financial statements.
The prompt corrective action regulations provide for five categories which
in declining order are: "well capitalized", "adequately capitalized",
undercapitalized", "significantly undercapitalized", and "critically
undercapitalized." To be considered "well capitalized", an institution
must generally have a leverage capital ratio of at least 5 percent, a Tier
I risk-based capital ratio of at least 6 percent, and a total risk-based
capital ratio of at least 10 percent. At December 31, 1997, and 1996, the
capital ratios for the Corporation and its wholly owned subsidiary, Lorain
National Bank, exceeded the above ratios required to be "well
capitalized". The "well capitalized" status affords the Bank the ability
to operate with the greatest flexibility under current laws and
regulations.
As of March 31, 1997, the most recent notification from the Comptroller of
71
the Currency categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. There are no conditions
or events since that notification that Management believes have changed
the Bank's category. An analysis of the Corporation's and Bank's
risk-based capital position at December 31, 1997 and 1996 and regulatory
capital requirements follows:
Analysis of Lorain National Bank and LNB Bancorp, Inc.'s Regulatory
Capital and Regulatory Capital Requirements
Minimum Required Minimum Required
Actual To Be Well Capitalized Capital
- --------------------------------------------------------------------------
(amounts in thousands)
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------
1997
Total capital (to risk weighted assets)
Consolidated
$43,529 14.34% $30,391 10.0% $24,313 8.0%
Bank $40,788 13.81% $29,631 10.0% $23,704 8.0%
Tier 1 capital (to risk weighted assets)
Consolidated
$39,801 13.11% $18,235 6.0% $12,157 4.0%
Bank $29,090 9.85% $17,778 6.0% $11,852 4.0%
Tier 1 capital (to average assets)
Consolidated
$39,801 8.65% $15,196 5.0% $12,157 4.0%
Bank $29,090 6.39% $14,815 5.0% $11,852 4.0%
1996
Total capital (to risk weighted assets)
Consolidated
$47,462 18.18% $26,186 10.0% $20,949 8.0%
Bank $42,216 16.70% $25,375 10.0% $20,300 8.0%
Tier 1 capital (to risk weighted assets)
Consolidated
$44,189 16.93% $15,711 6.0% $10,474 4.0%
Bank $31,044 12.28% $15,225 6.0% $10,150 4.0%
Tier 1 capital (to average assets)
Consolidated
$44,189 10.36% $13,093 5.0% $10,474 4.0%
Bank $31,044 7.38% $12,687 5.0% $10,150 4.0%
END PUBLISHED PAGE 20
72
(15)Parent Company:
Substantially all of the retained earnings of the Corporation represent
undistributed net income of its subsidiary.
Condensed financial information of LNB Bancorp, Inc. (Parent Company only)
is as follows:
Condensed Balance Sheets
ASSETS:
December 31, 1997 1996
- --------------------------------------------------------------------------
Cash $ 948,000 $ 831,000
Interest bearing instruments 134,000 103,000
Investment in subsidiary
at equity in underlying
value of its net assets 34,287,000 31,097,000
Securities available for sale 4,638,000 4,864,000
Equity securities 7,000 -0-
Notes receivable - subsidiary 8,000,000 8,000,000
Accrued interest receivable 110,000 66,000
Other assets 4,000 23,000
-----------------------------------
Totals $48,128,000 $44,984,000
-----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
December 31, 1997 1996
- --------------------------------------------------------------------------
Dividends payable $ 907,000 $ 786,000
Other liabilities 36,000 -0-
Line of credit 2,200,000 -0-
Shareholders' equity:
Common stock, $1.00 par 4,222,000 4,138,000
Additional capital 22,599,000 20,178,000
Retained earnings 20,937,000 19,873,000
Net unrealized gain on securities
available for sale, net of tax 70,000 9,000
Treasury stock at cost (2,843,000) -0-
-----------------------------------
Total shareholders' equity 44,985,000 44,198,000
-----------------------------------
Totals $48,128 000 $44,984,000
-----------------------------------
Condensed Statements of Income
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
INCOME:
Cash dividends from subsidiary $ 2,934,000 $10,509,000 $2,094,000
Interest and other income 807,000 258,000 235,000
----------------------------------------------
3,741,000 10,767,000 2,329,000
EXPENSES:
Other expenses 218,000 70,000 92,000
----------------------------------------------
73
Income before Federal income
taxes and equity in undistributed
net income of subsidiary 3,523,000 10,697,000 2,237,000
Federal income tax expense 201,000 63,000 49,000
Equity in undistributed net
income of subsidiary (1) 3,160,000 (4,782,000) 2,815,000
----------------------------------------------
NET INCOME $ 6,482,000 $5,852,000 $5,003,000
----------------------------------------------
(1) Amount in parentheses represents the excess of dividends declared over
net income of subsidiary.
Condensed Statements of Cash Flows
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from subsidiary $ 2,934,000 $10,509,000 $2,094,000
Other, net 399,000 107,000 77,000
---------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,333,000 10,616,000 2,171,000
---------------------------------------------
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES:
Proceeds from maturities of
securities available for sale 467,000 965,000 -0-
Proceeds from maturities of
investment securities -0- -0- 470,000
Purchases of securities
available for sale (217,000) (1,127,000) (1,034,000)
Cash paid on line of credit (200,000) -0- -0-
Advance to subsidiary -0- (8,000,000) -0-
Proceeds from line of credit 2,400,000 -0- -0-
Purchase of Treasury Stock (2,843.000) -0- -0-
Proceeds from exercise of
stock options 21,000 179,000 278,000
Dividends paid (2,813,000) (2,452,000) (2,073,000)
---------------------------------------------
NET CASH USED IN INVESTING
AND FINANCING ACTIVITIES ( 3,815,000) (10,435,000) (2,359,000)
--------------------------------------------
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS 148,000 181,000 (188,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 934,000 753,000 941,000
---------------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 1,082,000 $ 934,000 $ 753,000
---------------------------------------------
END OF PUBLISHED PAGE 21
74
(16) Retirement Plan:
The Bank maintains a non-contributory defined benefit pension plan
covering substantially all of its employees. In general, benefits are
based on years of service and the employee's level of compensation. The
Bank's policy is to fund the pension plan according to the requirements of
the Employee Retirement Income Security Act of 1974 (ERISA).
The net periodic pension costs charged to other expenses amounted to
$39,000 in 1997, $55,000 in 1996 and $92,000 in 1995. At December 31, 1997
there were 273 participants in the plan. An analysis of net periodic
pension cost for 1997, 1996 and 1995 is presented below.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.50% and 5.50%, respectively for 1997
and was 6.50% and 5.00%, respectively for 1996 and 1995. The expected
long-term rate of return on assets was 8.50% for 1997, 1996 and 1995.
An analysis which sets forth the plan's funded status and prepaid
(accrued) pension liability as reported in the Corporations financial
statements at December 31, 1997 and 1996 is also presented below.
Components of Net Periodic
Pension Cost: 1997 1996 1995
- -------------------------------------------------------------------------
Service cost $ 278,000 $ 257,000 $ 184,000
Interest cost of projected
benefit obligation 469,000 435,000 466,000
Actual return on plan assets (1,626,000) (1,097,000) (1,410,000)
Net total of other components 918,000 460,000 852,000
---------------------------------------------
Net periodic pension cost $ 39,000 $ 55,000 $ 92,000
---------------------------------------------
Actuarial Present Value of Benefit Obligations: 1997 1996
- --------------------------------------------------------------------------
Accumulated benefit obligations including
vested benefits of $(5,550,000) in 1997
and $(5,433,000) in 1996 $(5,518,000) $(5,455,000)
-----------------------------------
Projected benefit obligation $(7,951,000) $(7,025,000)
Plan assets at market value, primarily
U. S. Government securities and
investments in bond and equity funds 8,772,000 7,666,000
-----------------------------------
Plan assets in excess of projected
benefit obligations 821,000 641,000
Unrecognized net (gains) losses
subsequent to transition (472,000) (220,000)
Unrecognized prior service cost (260,000) (294,000)
Unrecognized net assets, being recognized
over employees' average remaining
service life (56,000) (87,000)
-----------------------------------
Prepaid (accrued) pension liability $ 33,000 $ 40,000
-----------------------------------
75
(17) Stock Option Plan:
The Corporation applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" to account for stock option
plans and, accordingly, no compensation cost has been recognized for its
incentive stock options in the financial statements. There were no stock
options granted or available for granting under any of the Corporation's
Incentive Stock Option Plans during 1997, 1996 and 1995. Additionally, no
stock-based compensation, as defined by the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), was generated under any of the Corporation's
other stock-based benefit plans during the same period. Therefore the
Corporation has no additional compensation to report under SFAS No. 123,
for the years ended December 31, 1997, 1996 and 1995.
The Corporation's shareholders approved incentive stock option plans on
April 6, 1982 and April 16, 1985 for all officers at or above the position
of Vice President or equivalent. Under each plan, 50,000 shares of stock
were originally reserved. Options may be granted at fair market value at
the date of the grant and, accordingly, no charges are reflected in
salaries and employee benefits expense due to the granting of stock
options. The excess of the option price over the par value of the shares
purchased through the exercise of stock options is credited to additional
capital. Options granted under the plans may not be outstanding for
periods exceeding 10 years from date of grant.
There were no new options granted or forfeitures in the three year period
ended December 31, 1997. All stock option shares granted are vested.
Stock options exercised were 1,071, 18,307 and 36,601 shares in 1997,
1996 and 1995, respectively.
An analysis of the status of the stock option plans as of December 31,
1997 follows:
Plan Year 1985 1982
----------------------------------------------------------------
Options outstanding:
Total 17,032 9,961
Vested 17,032 9,961
Options available
for granting -0- -0-
Exercise price $19.60 $14.64
-----------------------------------------------------------------
END PUBLISHED PAGE 22
76
(18) Employee Stock Ownership Plan:
The Lorain National Bank Employee Stock Ownership Plan (ESOP) is a
non-contributory plan that covers substantially all employees.
Contributions by the Bank to the ESOP are discretionary and subject to
approval by the Board of Directors. Contributions are expensed in the year
in which they are approved and totaled $400,000, $400,000 and $360,000 in
1997, 1996, and 1995, respectively. At December 31, 1997 there were 263
participants in the plan.
Under the terms of the ESOP agreement, Corporation common stock is to be
the plan's primary investment. Therefore, it is anticipated that the ESOP
will acquire additional Corporation common stock, at fair market value, in
future years.
Transactions by the ESOP, relating to activity in the Corporation's common
stock, are summarized below:
Years ended December 31, 1997 1996 1995
-------------------------------------------------------------------------
Cash dividend income $ 89,000 $ 62,000 $ 44,000
Stock dividend/split
shares 2,226 1,865 13,845
Shares purchased 20,628 22,542 18,958
Shares distributed 2,307 4,246 3,420
Year end holdings:
Shares 127,557 107,010 86,849
Market value $3,540,000 $3,103,000 $2,388,000
As a percentage of
total plan assets 89.7% 86.0% 68.6%
- --------------------------------------------------------------------------
(19) Stock Purchase Plan:
The Bank maintains a voluntary Stock Purchase Plan. Under provisions of
the plan, a participating employee can contribute up to 6% of their
compensation. The Bank then makes a contribution equal to 50% of each
participant's contribution. The plan uses the contributions to purchase
Corporation common stock at fair market value. The common stock is
distributed to plan participants, under provisions of the plan, based upon
the participant's cumulative prorata share of plan assets.
The Bank's 50% matching contributions are expensed in the year in which
the associated participant contributions are made and totaled $123,000,
$110,000 and $105,000 in 1997, 1996 and 1995, respectively. At December
31, 1997, there were 219 participants in the plan.
77
Transactions by the Stock Purchase Plan, relating to the activity in the
Corporation's common stock are summarized below:
Years ended December 31, 1997 1996 1995
-------------------------------------------------------------------------
Cash dividend income $ 88,000 $ 76,000 $ 66,000
Stock dividend/split
shares 2,467 2,427 25,537
Shares purchased 11,893 19,447 5,552
Shares distributed 17,288 13,394 21,238
Year end holdings:
Shares 124,822 127,750 119,270
Market value $3,465,000 $3,705,000 $3,280,000
As a percentage of
total plan assets 99.1% 99.8% 90.8%
-------------------------------------------------------------------------
(20) Recent Accounting and Regulatory Pronouncements:
The Financial Accounting Standards Board, the Federal government and
Federal regulators have issued several pronouncements and legislation
which are or will be impacting the Corporation. These pronouncements are
briefly discussed on page 35 of this report.
Five assorted photographs
END PUBLISHED PAGE 23
78
(21) Estimated Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures about Fair Value of Financial Instruments", requires that the
Corporation disclose estimated fair values for its financial instruments.
Fair value estimates, methods, and assumptions are set forth below for the
Corporation's financial instruments.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and due from banks and Federal funds sold and other interest bearing
instruments and Accrued interest, accounts receivable and other financial
assets:
For these short-term financial instruments, the carrying value is a
reasonable estimate of fair value.
Securities:
The fair value of securities is based on quoted market prices, where
available. If quoted market prices are not available, fair value is
estimated using the quoted market prices of comparable instruments.
Portfolio loans, net and loans available for sale, net:
For variable rate loans with interest rates that may be adjusted on a
quarterly, or more frequent basis, the carrying amount is a reasonable
estimate of fair market value. The fair value of other types of loans is
estimated by discounting future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
Deposits:
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, money market, checking and
NOW accounts, is equal to the amount payable on demand as of December 31,
for each year presented. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of
similar remaining maturities. For variable rate certificates of deposit,
the carrying amount is a reasonable estimate of fair value.
Securities sold under repurchase agreements and other short-term
borrowings and Accrued interest payable and other financial liabilities:
For these short term financial instruments, the carrying value is a
reasonable estimate of fair value.
Federal Home Loan Bank advances:
The fair value of these long-term financial instruments is estimated by
discounting future cash flows using current FHLB rates for the remaining
term to maturity.
Commitments to extend credit and standby letters of credit:
The difference between the notional amount and the estimated fair value of
these commitments is not material.
Limitations:
Estimates of fair value are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and, therefore, cannot
79
be determined with precision. Changes in assumptions could significantly
affect the estimates. Estimates of fair value are based on existing
on-and-off balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of assets
and liabilities that are not considered financial instruments. For
example, the Bank has a substantial trust division that contributes net
fee income annually. The Trust Division is not considered a financial
instrument and its value has not been incorporated into the fair value
estimates. Other significant assets and liabilities that are not
considered financial instruments include property, plant, and equipment
and deferred tax liabilities. In addition, it is not practicable for the
Corporation to estimate the tax ramifications related to the realization
of the unrealized gains and losses and they have not been reflected in any
of the estimates of fair value. The impact of these tax ramifications can
have a significant effect on estimates of fair value.
The estimated fair values of the Corporation's financial instruments at
December 31, 1997 and 1996 are summarized as follows:
December 31, 1997 1996
-------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------------------------------------------------------------------------
Financial assets:
Cash and due from banks and Federal
funds sold and other
interest bearing $ 24,407,000 $ 24,407,000 $ 18,993,000 $ 18,993,000
instruments ============ ============ ============ ============
Securities $115,374,000 $116,197,000 $104,960,000 $105,639,000
============ ============ ============ ============
Portfolio loans,
net $315,498,000 $315,746,000 $286,017,000 $285,977,000
============ ============ ============ ============
Loans available
for sale, net $ 11,365,000 $ 11,365,000 $ 11,940,000 $ 11,940,000
============ ============ ============ ============
Accrued interest, accounts receivable
and other financial
assets $ 5,819,000 $ 5,819,000 $ 3,965,000 $ 3,965,000
============ ============ ============ ============
Financial liabilities:
Deposits:
Demand deposits, savings accounts
and money market
deposits $241,501,000 $241,501,000 $223,391,000 $223,391,000
Certificates of 169,154,000 169,838,000 142,989,000 143,569,000
deposit ------------ ------------ ------------ ------------
Total deposits $410,655,000 $411,339,000 $366,380,000 $366,960,000
============ ============ ============ ============
Securities sold under repurchase agree-
ments and other short-term
borrowings $ 28,950,000 $ 28,950,000 $ 23,386,000 $ 23,386,000
============ ============ ============ ============
Federal Home Loan
Bank advances $ 2,045,000 $ 2,057,000 $ 1,095,000 $ 1,103,000
============ ============ ============ ============
80
Accrued interest payable and
other financial $ 3,167,000 $ 3,167,000 $ 2,849,000 $ 2,849,000
liabilities ============ ============ ============ ============
END PUBLISHED PAGE 24
81
Report of Management
To The Shareholders of LNB Bancorp, Inc. January 26, 1998
The integrity of the financial statements and other financial
information contained in this Annual Report is the responsibility of the
management of LNB Bancorp, Inc. Such financial information has been
prepared in accordance with generally accepted accounting principles,
based on the best estimates and judgement of management.
LNB Bancorp, Inc. maintains an internal control structure designed to
provide reasonable assurance that transactions are executed and recorded
in accordance with management's authorizations, that assets are properly
safeguarded, that financial information is objective and reliable and that
compliance with laws and regulations is maintained. Because of the
inherent limitations in any system of internal control there can be no
absolute assurance that errors or irregularities will not occur.
Nevertheless, management believes that the internal control structure and
related control procedures provide reasonable assurance that the
objectives cited above are being attained.
The internal control structure includes the careful delineation of
functions, the proper selection and training of staff, the communication
of policies and procedures consistent with the highest standards of
business conduct and the maintenance of an internal audit function that
independently evaluates and formally reports on the adequacy and
effectiveness of the system.
The Audit Committee of the Board of Directors is composed entirely of
outside directors who are independent of management and meets periodically
with both internal and independent auditors to review the results and
recommendations of their audits. The Committee selects the independent
auditor with approval by the shareholders.
The accounting firm of KPMG Peat Marwick LLP has been engaged by LNB
Bancorp, Inc. to audit its financial statements and their report follows.
/s/ James F. Kidd /s/ Gregory D. Friedman
James F. Kidd Gregory D. Friedman
President and Senior Vice President,
Chief Executive Officer Chief Operating Officer and
Chief Financial Officer
82
Independent Auditors' Report
The Board of Directors
LNB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of LNB
Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, cash flows and shareholders'
equity for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LNB
Bancorp, Inc. and subsidiary at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
January 27, 1998
END PUBLISHED PAGE 25
83
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1997 1996 1995
- --------------------------------------------------------------------------
Total interest income $35,156,000 $32,470,000 $31,111,000
Total interest expense 12,990,000 11,478,000 11,636,000
---------------------------------------------
Net interest income 22,166,000 20,992,000 19,475,000
Provision for possible
loan losses 750,000 600,000 400,000
Other income 5,803,000 4,926,000 4,287,000
Gains (losses) from sales
of securities -0- (1,000) -0-
Other expense 17,387,000 16,565,000 16,023,000
---------------------------------------------
Income before Federal
income taxes 9,832,000 8,752,000 7,339,000
Federal income taxes 3,350,000 2,900,000 2,336,000
---------------------------------------------
NET INCOME $ 6,482,000 $ 5,852,000 $ 5,003,000
---------------------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31,
1997 1996 1995
- --------------------------------------------------------------------------
Cash and cash equivalents $ 24,407,000 $ 18,993,000 $ 27,530,000
Securities 115,374,000 104,960,000 104,566,000
Net loans 326,863,000 297,957,000 272,491,000
Other assets 23,573,000 16,333,000 17,016,000
---------------------------------------------
TOTAL ASSETS $490,217,000 $438,243,000 $421,603,000
---------------------------------------------
Total deposits $410,655,000 $366,380,000 $353,455,000
Other borrowings 30,995,000 24,481,000 24,148,000
Other liabilities 3,582,000 3,184,000 3,209,000
---------------------------------------------
Total liabilities 445,232,000 394,045,000 380,812,000
---------------------------------------------
Total shareholders' equity 44,985,000 44,198,000 40,791,000
---------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $490,217,000 $438,243,000 $421,603,000
---------------------------------------------
PER SHARE DATA
1997 1996 1995
- --------------------------------------------------------------------------
Basic earnings(2) $ 1.56 $ 1.39 $ 1.20
Cash dividends(1) $ .71 $ .62 $ .52
Book value per share(1) $10.91 $10.47 $ 9.71
Cash dividends declared $2,934,000 $2,591,000 $2,175,000
Shares outstanding at end
of year(1) 4,124,379 4,221,304 4,202,537
- --------------------------------------------------------------------------
84
FINANCIAL RATIOS
1997 1996 1995
- --------------------------------------------------------------------------
Net interest margin(3) 5.20% 5.33% 5.14%
Return on assets(4) 1.41 1.37 1.21
Return on shareholders' equity(4) 14.51 13.70 12.72
Shareholders' equity to assets(4) 9.71 10.01 9.55
Cash dividends to net income 45.26 44.28 43.47
Gross loans to deposits 80.61 82.45 78.23
Allowance for loan losses to
total loans 1.26 1.36 1.45
Non-performing loans to total loans .27 .37 .53
Net loans to equity 7.27 6.74 6.68
Deposits to equity 9.13 8.29 8.67
- --------------------------------------------------------------------------
Five Year Consolidated Financial Summary
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31,
1994 1993
- --------------------------------------------------------------------------
Total interest income $26,830,000 $25,892,000
Total interest expense 8,572,000 8,540,000
------------------------------
Net interest income 18,258,000 17,352,000
Provision for possible
loan losses 400,000 500,000
Other income 4,064,000 3,818,000
Gains (losses) from sales
of securities 70,000 191,000
Other expense 15,679,000 15,017,000
------------------------------
Income before Federal
income taxes 6,313,000 5,844,000
Federal income taxes 1,881,000 1,815,000
------------------------------
NET INCOME $ 4,432,000 $ 4,029,000
------------------------------
CONDENSED BALANCE SHEETS - DECEMBER 31, 1994 1993
- --------------------------------------------------------------------------
Cash and cash equivalents $ 21,275,000 $ 21,276,000
Securities 99,524,000 103,086,000
Net loans 257,975,000 242,043,000
Other assets 16,081,000 13,211,000
------------------------------
TOTAL ASSETS $394,855,000 $379,616,000
------------------------------
Total deposits $335,219,000 $321,012,000
Other borrowings 19,171,000 19,400,000
Other liabilities 2,954,000 4,144,000
------------------------------
Total liabilities 357,344,000 344,556,000
------------------------------
Total shareholders' equity 37,511,000 35,060,000
------------------------------
85
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $394,855,000 $379,616,000
------------------------------
PER SHARE DATA 1994 1993
- --------------------------------------------------------------------------
Basic earnings(2) $ 1.05 $ .96
Cash dividends(1) $ .46 $ .42
Book value per share(1) $ 9.01 $ 8.45
Cash dividends declared $1,905,000 $1,725,000
Shares outstanding at end of year(1) 4,161,670 4,149,490
- --------------------------------------------------------------------------
FINANCIAL RATIOS
1994 1993
- --------------------------------------------------------------------------
Net interest margin(3) 5.09% 5.10%
Return on assets(4) 1.13 1.08
Return on shareholders' equity(4) 12.16 11.90
Shareholders' equity to assets(4) 9.31 9.11
Cash dividends to net income 42.98 42.81
Gross loans to deposits 78.10 76.56
Allowance for loan losses to total loans 1.46 1.51
Non-performing loans to total loans .29 .52
Net loans to equity 6.88 6.90
Deposits to equity 9.47 9.16
-------------------------------------------------------------------------
(1) All share and per share data have been adjusted to reflect the 2
percent stock dividend in 1997 and 1996, the five-for-four stock split in
1995 and 1993, and the 3 percent stock dividend in 1994.
(2) Basic earnings per share is computed using the weighted average number
of shares outstanding during each year.
(3) Tax Equivalent Basis.
(4) Ratios based on average annual balances.
END PUBLISHED PAGE 26
86
Management's Discussion & Analysis
Introduction:
The following is management's discussion and analysis of the financial
condition and results of operations of LNB Bancorp, Inc. (the
Corporation). It is intended to amplify certain financial information
regarding LNB Bancorp, Inc. and should be read in conjunction with the
Consolidated Financial Statements, related Notes, and other financial
information and discussions included in the 1997 Annual Report to
Shareholders.
On September 15, 1997, Lorain National Bank (the Bank), a wholly-owned
subsidiary of LNB Bancorp, Inc., Lorain, Ohio, purchased and assumed $45.3
million in deposits and other liabilities of three branch offices, located
in Lorain County, from KeyBank National Association (KeyBank),
headquartered in Cleveland, Ohio. In addition to the deposits assumed,
Lorain National Bank also acquired approximately $26.6 million in cash and
$0.4 million in premises and equipment, and $18.3 million in consumer and
commercial loans. Two of the banking offices acquired by the Lorain
National Bank, located in Lorain County, are being operated as part of the
Bank's branch office network. The third branch office located at 383
Broadway, Lorain, Ohio was closed on November 14, 1997 and then merged
into our Main Office at 457 Broadway, Lorain, Ohio. Management believes
that the purchase will enhance the Bank's long-term profitability and has
projected a positive impact on net income of approximately $450,000 for
the 1998 fiscal year.
Forward-Looking Statements:
When used in this Annual Report, the words or phrases "will likely
result", "are expected to","will continue","is anticipated", "estimate",
"projected" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties including changes in economic conditions in the
Corporation's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Corporation's
market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Corporation wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of
the date made. The Corporation wishes to advise readers that the factors
listed above could affect the Corporation's financial performance and
could cause the Corporation's actual results for future periods to differ
materially from any opinions or statements expressed with respect to
future periods in any current statements.
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 events or circumstances
after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Earnings Summary:
LNB Bancorp, Inc.'s consolidated 1997 net income reached a record high
of $6,482,000, compared to $5,852,000 in 1996 and $5,003,000 in 1995. Net
income for 1997 and 1996 was favorably affected by an increase in net
interest income and increased noninterest income. Net income in 1997, 1996
and 1995 was favorably affected by reductions in FDIC Deposit Insurance
Premiums.
Basic earnings per share totaled $1.56 for 1997 compared to $1.39 for
1996 and $1.20 for 1995. Prior period earnings per share data have been
87
restated to reflect the 2% stock dividend in 1997 and 1996 and the
five-for-four stock split in 1995. The return on assets, a measure of
profitability, increased to 1.41% in 1997 from 1.37% in 1996 and 1.21% in
1995. Return on average shareholders' equity measures how profitable the
shareholders' invested capital is employed. Return on average equity was
14.51% for 1997 compared to 13.70% and 12.72% in 1996 and 1995.
EARNINGS PER SHARE dollars
(An Earnings Per Share graph follows in printed version with earnings
percent on the x-axis and years 1993 through 1997 on the y-axis. The
graph is a vertical bar graph. The co-ordinates, by year, which are
presented in the table below are plotted on the previously described
grid.)
RETURN ON ASSETS percent
(A Return On Assets graph follows in printed version with return percent
on the x-axis and years 1993 through 1997 on the y-axis. The graph is a
vertical bar graph. The co-ordinates, by year, which are presented in the
table below are plotted on the previously described grid.)
RETURN ON EQUITY percent
(A Return On Equity graph follows in printed version with return percent
on the x-axis and years 1993 through 1997 on the y-axis. The graph is a
vertical bar graph. The co-ordinates, by year, which are presented in the
table below are plotted on the previously described grid.)
Earnings Per Share Return on Assets Return on Equity
Year Dollars Percent Percent
1997 $1.56 1.41% 14.52%
1996 $1.39 1.37% 13.70%
1995 $1.20 1.21% 12.72%
1994 $1.05 1.13% 12.16%
1993 $0.96 1.08% 11.90%
*Adjusted for stock dividends and splits
END PUBLISHED PAGE 27
88
Net Interest Income:
Net interest income, the difference between interest and loan fee income
on earnings assets and the interest paid on deposits and borrowed funds,is
the principal source of earnings for the Corporation. Throughout this
discussion net interest income is presented on a fully taxable equivalent
(FTE) basis which restates interest on tax-exempt securities and loans as
if such interest was subject to federal income tax at the statutory rate.
Net interest income is affected by market interest rates on both earning
assets and interest bearing liabilities, the level of earning assets being
funded by interest bearing liabilities, non-interest bearing liabilities
and shareholders' equity and the growth in earning assets. In addition,
net interest income is affected not only by management's asset/liability
strategies to alter the volume and mix of earning assets and sources of
funds, but also such external factors as economic conditions and credit
demand. A summary of the impacts of volume and rate changes on the
Corporation's net interest income is presented on the next page. Changes
in net interest income result from changes in both rate and volume. Volume
refers to the impact of net changes in the balances of earning assets and
interest-bearing liabilities. Rate refers to the impact of net changes in
interest rates.
Net interest income (FTE) in 1997 increased by $1,136,000 from
$21,100,000 in 1996 to $22,236,000 in 1997. This increase was affected by
increases in the volume of interest-bearing assets and liabilities plus
increases in market interest rates. The cost of funds increased from 3.58%
in 1996 to 3.71% in 1997, or a total of 13 basis points. During the same
period, the yield on earning assets increased 1 basis point to 8.24% in
1997, compared to 8.23% in 1996, resulting in a decrease in the net yield
on earning assets by 12 basis points in 1997. The increase in net interest
income resulted from increases in the volume of earning assets, which were
greater than the increases in the volume of interest-bearing liabilities.
Thus, net interest income increased from 1996 to 1997 from increases in
volumes, which was partially offset by changes in rates. Net interest
income (FTE) increased by $1,426,000 in 1996 from $19,674,000 in 1995 to
$21,100,000 in 1996. Net interest income in 1996 was affected by
increases in the volume of interest-bearing assets and liabilities plus
increases in market interest rates. The cost of funds decreased from 3.71%
in 1995 to 3.58% in 1996, or a total of 13 basis points. During the same
period, the yield on earning assets increased 4 basis points to 8.23% in
1996, compared to 8.19% in 1995, resulting in an increase in the net yield
on earning assets by 17 basis points in 1996.
The net yield on earning assets in 1997 was 5.20% compared to 5.33% in
1996 and 5.14% in 1995. This relatively constant yield reflects the fact
that the Corporations's portfolio of earning assets and interest bearing
liabilities are well matched and that Corporate management is responsive
to the impacts of competition and regulation.
Results from Operations:
The Corporation's primary source of interest income is from loans. The
relationship of loan income to total interest income, on a fully-tax
equivalent basis, was relatively constant, increasing from 79.6% in 1996
to 80.3% in 1997.
Interest and dividends on securities and Federal funds sold, as a
percentage of total interest income, on a fully-tax equivalent basis,
decreased from 20.4% in 1996 to 19.7% in 1997. This decrease results from
a lower growth rate in the average balance in the security portfolio and
Federal funds from 1996 to 1997, as compared to the growth rate of the
loan portfolio from 1996 through 1997.
The cost of interest bearing liabilities in 1997 was $12,990,000
89
compared to $11,478,000 and $11,636,000 in 1996 and 1995, respectively.
The unfavorable impact of increases in rates plus increases in volume
caused interest expense to increase from 1996 through 1997. The favorable
impact of decreases in deposit rates plus increases in volume caused
interest expense to decrease from 1995 to 1996. Repricing of interest
bearing liabilities from 1995 through 1996 resulted in a significant net
favorable change in interest expense in 1996.
Total other income in 1997 increased to $5,803,000 compared to
$4,925,000 in 1996 for an increase of $878,000. This increase results from
increases from Trust Division income of $198,000, increases in service
charges on deposit accounts of $240,000, and increases in other service
charges of $446,000. The increase in service charges is due, in part, to
reevaluating the assessment of transaction account charges. The increase
in other charges is the result of pricing increases in credit card and
merchant fees and ATM fees. Total other income in 1996 increased by
$638,000 to $4,925,000 as compared to 1995. This increase resulted from
increases in Trust division income of $57,000 and service charges of
$543,000.
Total other expenses increased 5.0% in 1997 compared to 1996 after a
3.4% increase for 1996 compared to 1995. A significant portion of the
increases in 1997 and 1996 were the result of the effects of inflation on
salaries and benefits plus increases in furniture and equipment expenses.
Total other expenses in 1997 also increased due to the impact of the cost
of acquisition of KeyBank branches. Total other expenses in 1996 were
also affected by decreases in FDIC Deposit Insurance Premiums.
The effective tax rate of the Corporation was 34.1%, 33.1%, and 31.8% in
1997, 1996, and 1995, respectively. The increase in the effective tax
rate in 1997 and 1996 was primarily due to lower levels of tax-exempt
interest income. A detailed analysis of Federal income taxes is presented
on page 19.
The Corporation's Consolidated Statements of Income reflect the effects
of inflation. Since interest rates, loan demand and deposit levels are
related to inflation, the resulting changes in interest sensitive assets
and liabilities are reflected in net interest income. Similarly,
operating expenses such as salaries, rents and maintenance are affected by
inflation. The only major
END PUBLISHED PAGE 28
90
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) Interest Rate and Interest Differential
December 31, 1997
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
--------------------------------------------
ASSETS:
Securities $106,938 $ 6,590 6.16%
Securities-tax exempt 2,922 200 6.84
Federal funds sold and other
interest-bearing instruments 2,579 145 5.62
Commercial loans 116,289 11,162 9.60
Commercial loans - tax exempt 760 68 8.95
Mortgage loans 141,642 11,158 7.88
Consumer loans 56,524 5,903 10.44
----------------------------------------------
TOTAL EARNING ASSETS 427,654 35,226 8.24%
----------------------------------------------
Reserve for possible loan losses (4,217)
Cash and due from banks 18,195
Other assets 18,635
----------------------------------------------
TOTAL ASSETS $460,267
-----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit $158,789 $ 8,402 5.29%
Savings deposits 96,708 2,130 2.20
Interest-bearing demand 68,386 1,151 1.68
Short-term borrowings 25,307 1,224 4.84
Long-term borrowings 1,225 83 6.78
----------------------------------------------
TOTAL INTEREST- 350,415 12,990 3.71%
BEARING LIABILITIES --------------------------------------------
Noninterest-bearing deposits 62,040
Other liabilities 3,124
Shareholders' equity 44,688
---------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $460,267
---------------------------------------------
NET INTEREST INCOME (FTE) $22,236
Taxable equivalent adjustment (70)
---------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $22,166
---------------------------------------------
NET YIELD ON EARNING ASSETS 5.20%
---------------------------------------------
91
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) Interest Rate and Interest Differential
December 31, 1996
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
----------------------------------------------
ASSETS:
Securities $ 98,661 $ 6,056 6.14%
Securities-tax exempt 4,312 313 7.26
Federal funds sold and other
interest-bearing instruments 4,916 276 5.61
Commercial loans 108,750 10,327 9.50
Commercial loans-tax exempt 929 82 8.83
Mortgage loans 130,026 10,369 7.97
Consumer loans 48,104 5,155 10.72
----------------------------------------------
TOTAL EARNING ASSETS 395,698 32,578 8.23%
----------------------------------------------
Reserve for possible loan losses (4,043)
Cash and due from banks 17,794
Other assets 17,173
----------------------------------------------
TOTAL ASSETS $426,622
----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit $139,028 $ 7,302 5.25%
Savings deposits 92,570 2,041 2.20
Interest-bearing demand 67,633 1,162 1.72
Short-term borrowings 21,465 954 4.47
Long-term borrowings 291 19 6.53
----------------------------------------------
TOTAL INTEREST- 320,987 11,478 3.58%
BEARING LIABILITIES
----------------------------------------------
Noninterest-bearing deposits 58,989
Other liabilities 3,944
Shareholders' equity 42,702
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $426,622
----------------------------------------------
NET INTEREST INCOME(FTE) $21,100
Taxable equivalent adjustment (108)
----------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $20,992
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.33%
----------------------------------------------
92
Condensed Consolidated Average Balance Sheets
Fully-Tax Equivalent (FTE) Interest Rate and Interest Differential
December 31, 1995
- --------------------------------------------------------------------------
(Dollars in Thousands) Balance Interest Rate
----------------------------------------------
ASSETS:
Securities $ 97,242 $ 5,532 5.69%
Securities-tax exempt 8,025 623 7.76
Federal funds sold and other
interest-bearing instruments 5,143 300 5.83
Commercial loans 105,277 10,233 9.72
Commercial loans - tax exempt 1,094 103 9.41
Mortgage loans 120,788 9,638 7.98
Consumer loans 44,852 4,881 10.88
----------------------------------------------
TOTAL EARNING ASSETS 382,421 31,310 8.19%
----------------------------------------------
Reserve for possible loan losses (3,956)
Cash and due from banks 16,277
Other assets 17,060
----------------------------------------------
89
TOTAL ASSETS $411,802
----------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Certificates of deposit $127,013 $ 7,013 5.52%
Savings deposits 93,809 2,133 2.27
Interest-bearing demand 70,224 1,383 1.97
Short-term borrowings 22,864 1,107 4.84
Long-term borrowings -0- -0- -0-
----------------------------------------------
TOTAL INTEREST- 313,910 11,636 3.71%
BEARING LIABILITIES
---------------------------------------------
Noninterest-bearing deposits 55,456
Other liabilities 3,113
Shareholders' equity 39,323
----------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $411,802
----------------------------------------------
NET INTEREST INCOME (FTE) $19,674
Taxable equivalent adjustment (199)
----------------------------------------------
NET INTEREST INCOME PER
FINANCIAL STATEMENTS $19,475
----------------------------------------------
NET YIELD ON EARNING ASSETS 5.14%
----------------------------------------------
93
Rate/Volume Analysis of Net Interest Income
Fully-Tax Equivalent
Years ended December 31, 1997 and 1996
-------------------------------------------------------------------------
Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities $ 508 $ 26 $ 534
Securities-tax exempt (101) (12) (113)
Federal funds sold and other interest
bearing instruments (131) -0- (131)
Commercial loans 716 119 835
Commercial loans-tax exempt (15) 1 (14)
Mortgage loans 926 (137) 789
Consumer loans 902 (154) 748
---------------------------------------------
TOTAL INTEREST INCOME 2,805 (157) 2,648
---------------------------------------------
Certificates of deposit 1,038 62 1,100
Savings deposits 91 (2) 89
Interest-bearing demand 13 (24) (11)
Short-term borrowings 171 99 270
Long-term borrowings 61 3 64
---------------------------------------------
TOTAL INTEREST EXPENSE 1,374 138 1,512
---------------------------------------------
NET INTEREST INCOME $ 1,431 $ (295) $ 1,136
---------------------------------------------
94
Rate/Volume Analysis of Net Interest Income
Fully-Tax Equivalent
Years ended December 31, 1996 and 1995
- -------------------------------------------------------------------------
(Dollars in Thousands) Increase (Decrease) In
Interest Income/Expense
---------------------------------------------
Volume Rate Total
---------------------------------------------
Securities $ 81 $ 443 $ 524
Securities-tax exempt (288) (22) (310)
Federal funds sold and other interest
bearing instruments (13) (11) (24)
Commercial loans 338 (244) 94
Commercial loans-tax exempt (16) (5) (21)
Mortgage loans 737 (6) 731
Consumer loans 354 (80) 274
---------------------------------------------
TOTAL INTEREST INCOME 1,193 75 1,268
---------------------------------------------
Certificates of deposit 663 (374) 289
Savings deposits (28) (64) (92)
Interest-bearing demand (51) (170) (221)
Short-term borrowings (68) (85) (153)
Long-term borrowings -0- 19 19
---------------------------------------------
TOTAL INTEREST EXPENSE 516 (674) (158)
---------------------------------------------
NET INTEREST INCOME $ 677 $ 749 $ 1,426
---------------------------------------------
END PUBLISHED PAGE 29
95
Results from Operations (continued):
expense items which do not reflect inflation are depreciation and
amortization as these expenses are based on original purchase costs.
Selected quarterly financial data for 1997, 1996 and 1995 is presented
on page 36. There were no significant intra-quarter fluctuations except
for fourth quarter increases in the provision for possible loan losses in
1996 and 1997. Total interest income and total interest expense increased
in the fourth quarter of 1997 due to the September 15, 1997 acquisition of
loans and deposits from Key Bank. The increase in other income reflects
the realization of annual Trust Division billings which are based on
year-end market values.
Provision and Reserve for Possible Loan Losses:
The reserve for possible loan losses is maintained by management at a
level considered adequate to cover possible losses. The amount of the
provision for possible loan losses charged to operating expenses is the
amount necessary, in the opinion of management, to maintain the reserve
for possible loan losses at an adequate level. Management determines the
adequacy of the reserve based on past experience, changes in portfolio
size and mix, relative quality of the loan portfolio and the rate of loan
growth, assessments of current and future economic conditions, information
about specific borrower situations, including their financial position and
collateral values, and other factors and estimates, which are subject to
change over time. While management's periodic analysis of the reserve for
possible loan losses may dictate portions of the reserve be allocated to
specific problem loans, the entire amount is available for any loan
charge-offs that may occur.
The reserve for possible loan losses on December 31, 1997, was
$4,168,000, or 1.26% of outstanding loans, compared to $4,116,000, or
1.36% at year-end 1996. The provision for possible loan losses charged
to operating expense was $750,000 and $600,000 in 1997 and 1996,
respectively. In addition to meeting management's expectations for
adequacy, this level of funding for the reserve also kept the Bank's ratio
of the reserve as a percentage of outstanding loans comparable to that of
banks of similar size, loan portfolio size and mix and credit
philosophies.
Net charge-offs for 1997 were $698,000, as compared to $486,000 for
1996, while net charge-offs as a percentage of average loans outstanding
for 1997 was 0.22%, compared to 0.17% for 1996.
Non-performing loans at year-end 1997 were $886,000 compared to
$1,122,000 at year-end 1996. Non-performing loans consist of loans past
due 90 days or more and loans which have been placed on non-accrual
status. As of December 31, 1997, 41% of non-performing loans were
Commercial Loans, 5% were personal loans and 54% were Residential Mortgage
Loans. This compares to 63% for commercial loans and 37% for mortgage
loans at year-end 1996. Non-performing loans did not have a material
impact on interest income during 1997, 1996 or 1995. The overall quality
of the loan portfolio remains high, as the ratio of non-performing loans
to total loans decreased from 0.37% at year-end 1996 to 0.27% at year-end
1997.
The Corporation's credit policies are reviewed and modified on an
ongoing basis in order to remain suitable for management of credit risks
within the loan portfolio as conditions change. At December 31, 1997,
there were no significant concentrations of credit risk in the loan
portfolio. Additional information regarding the loan portfolio is
presented on page 16.
Financial Condition:
The earning assets mix has changed considerably from December 31, 1996
96
to December 31, 1997. During this period, gross loans increased by
$28,958,000 and securities increased by $10,414,000. Increases in loans
are primarily funded by growth in deposits, current retained earnings, and
reductions in cash and due from banks. The economy showed good growth
during 1997 which stimulated loan demand.
The maturity distribution of debt securities which appears on page 15 of
this report, indicates that $103,962,000, or 91.8%, of debt securities
mature within the next five year period with $43,032,000, or 38.0%
maturing during 1998. At the close of 1997 and 1996 there were no
significant differences between the book and fair values of the debt
securities portfolio. The fair value of the debt securities portfolio
exceeded its amortized cost by $852,000 or 0.7%, at the close of 1997.
Total deposits held by the Corporation increased $44,275,000 during 1997
compared to an increase of $12,925,000 during 1996. Interest-bearing
deposits represented 83.3% and 82.6% of total deposits at December 31,
1997 and 1996, respectively. Noninterest-bearing deposits increased by
$4,763,000 while interest-bearing deposits increased by $39,512,000 during
1997. During 1996, noninterest-bearing deposits increased by $3,639,000
while interest-bearing deposits increased by $9,286,000. In both 1997 and
1996, as long-term deposits matured and new funds were deposited, these
funds were primarily placed in short-term deposits.
Total other borrowings, primarily repurchase agreements, increased by
$5,564,000 during 1997, following a decrease of $762,000 in 1996. Due to
the volatility of customer repurchase agreements all funds generated by
repurchase agreement activity enter the Bank's earning assets as
short-term investments.
END PUBLISHED PAGE 30
97
Capital Resources:
Total shareholder's equity was $44,985,000 at December 31, 1997 compared
to $44,198,000 at December 31, 1996, an increase of $787,000, or 1.8%.
This increase was primarily attributable to net income of $6,482,000, less
dividends declared to shareholders of $2,934,000, less the purchase of
97,996 shares of Treasury Stock at a cost of $2,843,000. The book value
per share of common stock was $10.91 at year-end 1997 compared to $10.47
at year-end 1996, a 2.0% increase, adjusted for the April 15, 1997, 2%
stock dividend.
Cash dividends declared on the common stock of LNB Bancorp, Inc. during
the year ended December 31, 1997 totaled $2,934,000 or $.71 per share.
This compared to $2,591,000, or $.62 per share for the year ended
December 31, 1996. In addition to the regular fourth quarter dividend of
$.17 per share, an EXTRA cash dividend of $.05 per share was declared by
the Board of Directors. The 1997 dividends per share represent an increase
of 17.0% over the cash dividend declared in 1996. Dividends declared in
1997 represented a payout ratio of 45.3% of net income compared to 44.3%
in 1996. In addition to cash dividends declared in 1997, the Board of
Directors approved a 2% stock dividend to its shareholders which was paid
on April 15, 1997.
As discussed in Note 14 to the Consolidated Financial Statements, the
Corporation's primary source of funds for the payment of dividends is its
Bank subsidiary. During December of 1996, the Bank paid an additional
$8,000,000 in dividends to the Corporation in order for it to have
sufficient equity capital to take advantage of future acquisition
opportunities and to pay future dividends. In order for the Bank to fund
its balance sheet and remain well capitalized, the Corporation and the
Bank entered into a subordinated debt agreement on December 30, 1996 for
$8,000,000, payable on January 1, 2007 at an interest rate of 6.80%. The
Bank, which is limited by regulation as to the amount of a dividend which
can be paid, remains within these regulatory restrictions.
Under regulations issued by the Federal Reserve Board and the Office of
the Comptroller of the Currency, bank holding companies and banks are
required to maintain certain minimum capital ratios in order to be
considered "well capitalized." These guidelines require a minimum total
risk-based capital ratio of 10%, a Tier 1 capital ratio of 6% and leverage
ratio of 5%. All of the Corporation's assets, which include various
risk-weighted percentages of assets on the balance sheet, as well as
off-balance sheet exposures of unused commitments and letters of credit,
are expressed as a percentage of risk-adjusted assets and compared to its
capital. Tier 1 capital consists of shareholders' equity, exclusive of net
unrealized gain (loss) on securities available for sale. Total risk-based
capital consists of shareholders' equity, exclusive of net gain (loss) on
securities available for sale, plus the allowable portion of the reserve
for possible loan losses and subordinated debt. The allowance included in
total risk-based capital cannot exceed 1.25% of risk-weighted assets. As
of December 31, 1997, LNB Bancorp, Inc. had a total risk-based capital
ratio of 14.34%, with a Tier 1 capital ratio of 13.11% compared to 18.18%
and 16.93%, respectively, at December 31, 1996. Both of these risk-based
capital ratios are well above minimum regulatory requirements. In addition
to risk-based capital, a leverage ratio test must also be met. This ratio
evaluates capital adequacy on the basis of Tier 1 capital-to-total average
assets (unadjusted for risk). On December 31, 1997, LNB Bancorp, Inc.'s
leverage ratio was 8.65%, which substantially exceeds the Corporation's
minimum regulatory requirement. For additional information on the
Corporation and Bank's capital ratios, refer to Note 14, Shareholders
Equity on page 20.
On an ongoing basis the Corporation analyzes acquisition opportunities
in markets which are adjacent to or within the Corporation's current
98
geographical market. Corporate management believes that its current
capital resources are sufficient to support any foreseeable acquisition
activity. The Corporation also retains a portion of the net income it
earns to accommodate current operational and regulatory capital
requirements and to fund future growth opportunities. A part of future
growth depends upon capital expenditure programs. Capital expenditures of
approximately $2,500,000 are projected for 1998, including the cost of
opening a new full service banking office in the Village of LaGrange.
TOTAL SHAREHOLDERS' EQUITY millions of dollars
(A Total Shareholders' Equity graph follows in printed version with total
equity on the x-axis and years 1993 through 1997 on the y-axis. The graph
is a vertical bar graph. The co-ordinates, by year, which are presented
in the table below are plotted on the previously described grid.)
AVERAGE EQUITY TO AVERAGE ASSETS percent
(An Average Equity to Average Assets graph follows in printed version with
average equity on the x-axis and years 1993 through 1997 on the y-axis.
The graph is a vertical bar graph. The co-ordinates, by year, which are
presented in the table below are plotted on the previously described
grid.)
BOOK VALUE PER SHARE dollars
(A Book Value Per Share graph follows in printed version with book value
on the x-axis and years 1993 through 1997 on the y-axis. The graph is a
vertical bar graph. The co-ordinates, by year, which are presented in the
table below are plotted on the previously described grid.)
Total Shareholders' Average Equity to Book Value
Equity Average Assets Per Share
Year Millions of Dollars Percent Dollars
1997 $45.0 9.71% $10.91
1996 $44.2 10.01% $10.47
1995 $40.8 9.55% $ 9.71
1994 $37.5 9.31% $ 9.01
1993 $35.1 9.11% $ 8.45
*Adjusted for stock dividends and splits
END PUBLISHED PAGE 31
99
Asset/Liability Management:
The mission of the Asset/Liability Management Committee of Lorain
National Bank is to effectively monitor and manage the Bank's exposure to
interest rate risk, liquidity risk, and repricing risk and thereby provide
the Bank with a stable net interest margin. Asset/liability management is
the measurement and analysis of the Bank's exposure to changes in the
interest rate environment. The Bank is subject to interest rate risk to
the extent its liabilities reprice more rapidly than its assets. The Bank
manages this risk on a continuing basis through the use of a number of
objectives and strategies as an ongoing part of its strategic financial
plan.
The Bank's Asset/Liability Management Committee, which includes
executive and senior management representatives, meets monthly. Objectives
include monitoring and methods of managing the rate sensitivity and
repricing characteristics of the balance sheet components consistent with
maintaining acceptable levels of net interest income. The Bank's asset and
liability management program defined by the Board of Directors is designed
to minimize the impact of significant changes in interest rates on net
interest income. Strategies include attempting to market variable-rate
loans, growth in the consumer loan portfolio which tend to have shorter
terms to maturity, match fixed rate commercial loans with Federal Home
Loan Bank advances, and utilizing deposit promotions in an effort to
extend the term to maturity of its liabilities.
Management may, at times place greater emphasis on maximizing net
interest margin rather than merely concentrating on interest rate risk
depending on the relationship between short-and long-term interest rates,
market conditions and consumer preference. Management believes that
increased net income resulting from a moderate contrast between the
maturity of its assets and liabilities can provide high enough returns to
justify the increased risk exposure during periods of stable interest
rates. The Corporation's net yield on earning assets was 5.20% and 5.33%
for the years ended December 31, 1997 and 1996, respectively. The
Asset/Liability Management Committee has established limits on the amount
of its interest rate risk exposure, however, there can be no assurance
that management's efforts to limit interest rate risk will be successful.
One measure of exposure to interest rate risk is interest rate
sensitivity gap analysis. The Bank uses interest rate sensitivity gap
analysis to monitor the relationship between the maturity and repricing of
its interest-earning assets and interest-bearing liabilities, while
maintaining an acceptable interest rate spread. Interest rate sensitivity
gap is defined as the difference between the amount of interest-earning
assets maturing or repricing within a specific time period and the amount
of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of
interest-rate-sensitive assets exceeds the amount of the
interest-rate-sensitive liabilities, and is considered negative when the
amount of interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period of rising
interest rates, with all factors held constant, a negative gap would
adversely affect net interest income; while a positive gap would result in
an increase in net interest income. Conversely, during a period of
falling interest rates, with all factors held constant, a negative gap
would result in an increase in net interest income, while a positive gap
would negatively affect net interest income. Management's goal is to
maintain a reasonable balance between exposure to interest rate
fluctuations and earnings.
The Corporation's one year gap was 4.88% at December 31, 1997, 1.35% at
December 31, 1996 and 3.15% at December 31, 1995. The increased level of
interest rate risk at December 31, 1997 compared to December 31, 1996,
100
measured under gap analysis, was due to an increase in assets maturing or
otherwise repricing in one year or less totaling $42,194,000 (due to an
increase in loans and securities repricing during that period) partially
offset by an increase in liabilities maturing or otherwise repricing in
one year or less totaling $25,981,000 (due primarily to an increase in
certificates of deposit and short-term borrowings during that period). The
reduced level of interest rate risk at December 31, 1996 compared to
December 31, 1995, measured under gap analysis, was due to an increase in
liabilities maturing or otherwise repricing in one year or less totaling
$846,000. The December 31, 1996 increase in liabilities maturing in one
year or less was more than offset by a decrease in assets maturing or
otherwise repricing during the same period totaling $5,681,000 (due to an
increase in loans repricing offset by a decrease in securities repricing
during that period). The table on the page 33 sets forth the repricing
dates of the Corporation's interest earning assets and interest-bearing
liabilities at December 31, 1997 and the interest rate sensitivity "gap"
percentages at the dates indicated.
END PUBLISHED PAGE 32
101
Gap Analysis (Dollars in Thousands)
- --------------------------------------------------------------------------
Expected Maturity/Repricing Date
1998 1999 2000 2001
- --------------------------------------------------------------------------
Fixed rate commercial, mortgage and
consumer loans $25,260 $ 8,718 $ 6,462 $ 4,618
Weighted average yield 9.34% 9.47% 9.42% 9.37%
Variable rate commercial
and consumer loans 103,349 23 352
Weighted average yield 9.74% 10.25% 10.25%
Semi-variable mortgage loans(1) 44,817 26,792 8,442 24,768
Weighted average yield 7.76% 7.36% 7.82% 7.25%
Variable rate consumer loans 27,857 125 104 26
Weighted average yield 10.55% 8.58% 8.83% 9.30%
Other semi-variable rate loans(1) 4,991 830 733 331
Weighted average yield 8.15% 8.60% 8.31% 7.87%
Securities and other(2) 44,876 24,171 25,070 2,510
Weighted average yield 5.67% 6.47% 5.87% 5.47%
- --------------------------------------------------------------------------
Total interest-earning assets 251,150 60,659 51,163 32,253
- --------------------------------------------------------------------------
Certificates of deposit 131,513 20,789 7,416 9,122
Weighted average yield 5.19% 5.79% 5.89% 6.06%
Savings deposits 39,640 39,640 19,821
Weighted average yield 2.22% 2.22% 2.22%
Interest-bearing demand 29,354 29,354 15,127
Weighted average yield 1.61% 1.61% 1.61%
Short-term borrowings 28,950
Weighted average yield 4.89%
Long-term borrowings 1,095
Weighted average yield 6.62%
- -------------------------------------------------------------------------
Total interest-bearing liabilities 229,457 89,783 42,364 10,217
- -------------------------------------------------------------------------
Interest-earning assets less
Interest-bearing liabilities 21,693 (29,124) 8,799 22,036
Cumulative interest-rate
sensitive gap 21,693 (7,431) 1,368 23,404
Cumulative interest-rate gap as a
percentage of total earning assets at
December 31, 1997 4.88%
Cumulative interest-rate gap as a
percentage of total earning assets at
December 31, 1996 1.35%
Cumulative interest-rate gap as a
percentage of total earning assets at
December 31, 1995 3.15%
- --------------------------------------------------------------------------
102
Gap Analysis (Dollars in Thousands)
- -------------------------------------------------------------------------
Expected Maturity/Repricing Date Fair
2002 Thereafter Total Value(3)
- --------------------------------------------------------------------------
Fixed rate commercial, mortgage and
consumer loans $ 2,219 $ 7,928 $55,205 $54,621
Weighted average yield 9.07% 8.36% 9.22%
Variable rate commercial
and consumer loans 103,724 103,724
Weighted average yield 9.74%
Semi-variable mortgage loans(1) 17,995 132,814 132,447
Weighted average yield 7.54% 7.56%
Variable rate consumer loans 57 28,169 28,169
Weighted average yield 10.59% 10.53%
Other semi-variable rate loans(1) 310 1,816 9,011 9,050
Weighted average yield 7.89% 7.76% 8.10%
Securities and other(2) 9,192 9,689 115,508 116,331
Weighted average yield 6.37% 6.82% 6.03%
- -------------------------------------------------------------------------
Total interest-earning assets 29,773 19,433 444,431 444,342
- -------------------------------------------------------------------------
Certificates of deposit 263 51 169,154 169,838
Weighted average yield 5.63% 7.98% 5.34%
Savings deposits 99,101 99,101
Weighted average yield 2.22%
Interest-bearing demand 73,835 73,835
Weighted average yield 1.61%
Short-term borrowings 28,950 28,950
Weighted average yield 4.89%
Long-term borrowings 950 2,045 2,057
Weighted average yield 6.31% 6.44%
- --------------------------------------------------------------------------
Total interest-bearing liabilities 1,213 51 373,085 373,781
- -------------------------------------------------------------------------
Interest-earning assets less
Interest-bearing liabilities 28,560 19,382 71,346
Cumulative interest-
rate sensitive gap 51,964 71,346
(1)Semi-variable mortgage loans include mortgages in which the loan is
fixed for the first three or five years pf the loan and its interest rate
is adjustable thereafter.
(2)Securities available for sale are shown at amortized cost.
(3)Fair value of loans are gross of deferred fees and allowance for loan
losses.
END PUBLISHED PAGE 33
103
Liquidity Management:
Liquidity measures a corporation's ability to generate cash or otherwise
obtain funds at reasonable prices to fund commitments to borrowers as well
as the demands of depositors and debt holders. Principal internal sources
of liquidity for the Corporation and the Bank are cash and cash
equivalents, Federal funds sold, and the maturity structures of investment
securities and portfolio loans. Securities and loans available for sale
provide another source of liquidity through the cash flows of these
interest-bearing assets as they mature or are sold.
On December 31, 1997, cash and cash equivalents equaled $24,407,000 or
5.0% of total assets. The change in cash and cash equivalents is shown in
the Consolidated Statement of Cash Flows on page 10 and arises from
operating, investing and financing activities.
The adjustments to reconcile 1997 net income to net cash provided by
operating activities primarily consists of depreciation and amortization
of $1,796,000 and a provision for possible loan losses of $750,000. These
items represent expenses included in net income which do not represent an
expenditure or receipt of cash.
The cash flows from investing activities relate primarily to securities,
loans and purchases of capital assets. Net cash used in investing
activities was $47,743,000. Cash used in investing activities resulted
from net increases in securities of $10,499,000. Cash used in investing
activities included net loan increases of $30,034,000 and purchases of
capital and intangible assets of $7,280,000.
Net cash provided by financing activities was $45,154,000. Cash
provided by financing activities included increases in deposits of
$44,275,000, increases in securities sold under repurchase agreements and
other short-term borrowings of $3,364,000, Federal Home Loan Bank advances
of $950,000, line of credit advances of $2,400,000 and proceeds from stock
options exercised of $21,000. Cash used by financing activities primarily
included the purchase of Treasury Stock in the amount of $2,843,000 and
dividends paid of $2,813,000. These cash flows resulted in a $5,414,000
increase in cash and cash equivalents from December 31, 1996 to December 31,
1997.
The Corporation can obtain additional liquidity from off-balance sheet
sources which include the purchase of Federal funds from correspondent
banks and borrowing from the Federal Reserve Bank's discount window. At
year-end, the Bank had available Federal funds facilities in excess of
$10,800,000 at three correspondent banks. Additionally, the Bank has a
$15,000,000 cash management advance line of credit with the Federal Home
Loan Bank of Cincinnati. The internal and external sources of funds for
liquidity, in the opinion of management, satisfy the liquidity needs of
the Corporation and the Bank.
Five assorted photographs
END PUBLISHED PAGE 34
104
Impacts of Accounting and Regulatory Pronouncements:
Corporate management is not aware of any proposed regulations or current
recommendations by regulatory authorities which, if they were implemented,
would have a material effect on the liquidity, capital resources, or
operations of the Corporation. However, the potential impact of certain
accounting and regulatory pronouncements warrant further discussion.
Financial Accounting Standards Board:
The Financial Accounting Standards Board (FASB) has issued:
SFAS No. 130, "Reporting Comprehensive Income"
Implementation date by the Corporation:
January 1, 1998
Impact on the Corporation: This Statement provides accounting and
reporting standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Corporate management believes that
adoption of SFAS No. 130 will not have a significant impact on net income,
but will increase reporting requirements.
SFAS No. 131, "Disclosures about segments of an Enterprise and Related
Information"
Implementation date by the Corporation:
January 1, 1998
Impact on the Corporation: This Statement provides accounting and
reporting standards for the way public business are to report information
about operating segments in annual financial statements and requires those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. Corporate management believes that adoption of
SFAS No. 131 will not have a significant impact on net income but will
increase disclosure requirements.
All other applicable Statements of Financial Accounting Standards that
have been issued and have effective dates impacting 1997 and prior years
financial statements have been adopted by the Corporation. Corporate
management believes there are no Statements of Financial Accounting
Standards which have been issued and have implementation dates in the
future which will materially impact the financial statements of future
years. However, there is the issue of year 2000 compliance that warrants
discussion.
Year 2000 Issue:
Several of the Corporation's and Bank's regulators including the
Security and Exchange Commission, Federal Reserve Board, and the Office of
the Comptroller of Currency have issued guidance relative to the
management and disclosures for year 2000 issues. A discussion of the year
2000 issue as it relates to the Corporation, the Bank and their customers,
suppliers and vendors follows.
The Corporation has formed a strategic task force to perform a
comprehensive review of its computer systems to identify the systems that
could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the
result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Corporation's programs that
have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000.
The Corporation has notified its commercial customers of the year 2000
105
issue and is in contact with its' suppliers and third party vendors.
The Corporation expects to incur internal staff costs, consulting, and
other expenses to identify, correct or reprogram, and test the systems for
the year 2000 compliance issue. The Corporation estimates that compliance
costs for the year 2000 issue from 1997 through 1999 will not exceed
$100,000, while 1997 compliance expenses totaled $5,000. The Corporation
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. Accordingly, the Corporation does not expect that
year 2000 compliance costs to be expensed over the next two years to have
a material effect on the financial position, liquidity or results of
operation.
To date, the Corporation is in the process of obtaining formal
notifications from all of its major vendors and suppliers that their
systems are year 2000 compliant. During 1998, the Corporation will begin
testing and validating that these systems are year 2000 compliant. The
project completion date for the year 2000 issue is slated for June, 1999.
This "Year 2000 Computer Problem" creates risk for the Corporation from
unforeseen problems in its own computer systems and from third parties
with whom the Corporation deals on financial transactions. Such failures
of the Corporation, and/or third parties' computer systems could have a
material impact on the Corporation's ability to conduct its business, and
especially to process and account for the transfer of funds
electronically.
END PUBLISHED PAGE 35
106
Selected Quarterly Financial Data
Consolidated quarterly financial and per share data for the years ended
December 31, 1997, 1996 and 1995 are summarized as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Totals
- --------------------------------------------------------------------------
Total 1997 $8,256,000 $8,594,000 $8,900,000 $9,406,000 $35,156,000
interest 1996 7,892,000 8,032,000 8,187,000 8,359,000 32,470,000
income 1995 7,346,000 7,789,000 7,900,000 8,076,000 31,111,000
- --------------------------------------------------------------------------
Total 1997 2,999,000 3,157,000 3,302,000 3,532,000 12,990,000
interest 1996 2,878,000 2,770,000 2,890,000 2,940,000 11,478,000
expense 1995 2,716,000 2,992,000 2,932,000 2,996,000 11,636,000
- --------------------------------------------------------------------------
Net 1997 5,257,000 5,437,000 5,598,000 5,874,000 22,166,000
interest 1996 5,014,000 5,262,000 5,297,000 5,419,000 20,992,000
income 1995 4,630,000 4,797,000 4,968,000 5,080,000 19,475,000
- --------------------------------------------------------------------------
Provision 1997 125,000 125,000 125,000 375,000 750,000
for 1996 125,000 175,000 125,000 175,000 600,000
possible 1995 100,000 100,000 100,000 100,000 400,000
loan losses
- --------------------------------------------------------------------------
Net 1997 5,132,000 5,312,000 5,473,000 5,499,000 21,416,000
interest 1996 4,889,000 5,087,000 5,172,000 5,244,000 20,392,000
income 1995 4,530,000 4,697,000 4,868,000 4,980,000 19,075,000
after provision for possible loan losses
- --------------------------------------------------------------------------
Other 1997 1,293,000 1,399,000 1,544,000 1,567,000 5,803,000
income 1996 1,221,000 1,227,000 1,254,000 1,223,000 4,925,000
1995 1,078,000 1,005,000 1,089,000 1,115,000 4,287,000
- --------------------------------------------------------------------------
Other 1997 4,900,000 5,116,000 5,357,000 5,364,000 20,737,000
expenses 1996 4,784,000 4,863,000 4,923,000 4,895,000 19,465,000
includinge 1995 4,521,000 4,524,000 4,648,000 4,666,000 18,359,000
Federal income taxes
- --------------------------------------------------------------------------
Net income 1997 1,525,000 1,595,000 1,660,000 1,702,000 6,482,000
1996 1,326,000 1,451,000 1,503,000 1,572,000 5,852,000
1995 1,087,000 1,178,000 1,309,000 1,429,000 5,003,000
- --------------------------------------------------------------------------
Basic 1997 .37 .38 .40 .41 1.56
Earnings 1996 .32 .35 .35 .37 1.39
Per share 1995 .26 .28 .32 .34 1.20
(2)
- --------------------------------------------------------------------------
Dividends 1997 .16 .16 .17 .22 .71
Paid Per 1996 .13 .14 .16 .19 .62
Share (1) 1995 .12 .12 .13 .15 .52
- --------------------------------------------------------------------------
(1) All share and per share data have been adjusted to reflect the 2
percent stock dividend in 1997 and 1996, and the five-for-four stock split
in 1995.
(2) Basic earnings per share is computed using the weighted average number
of shares outstanding during each year.
END PUBLISHED PAGE 36
107
Banking Offices & ATMs
ATM service available wherever you see this symbol
Lorain banking offices
Main Office
457 Broadway
Lorain, Ohio 44052
244-7185
Sixth Street Drive-In Office
200 Sixth Street
Lorain, Ohio 44052
244-7242
Kansas Avenue Office
1604 Kansas Avenue
Lorain, Ohio 44052
288-9151
Oberlin Avenue Office
3660 Oberlin Avenue
Lorain, Ohio 44053
282-9196
Cooper-Foster Park Road Office
1920 Cooper-Foster Park Rd
Lorain, Ohio 44053
282-1252
Pearl Avenue Office
2850 Pearl Avenue
Lorain, Ohio 44055
277-1103
Lake Avenue Office
42935 N. Ridge Road
Elyria Township, Ohio 44035
233-7196
West Park Drive Office
2130 West Park Drive
Lorain, Ohio 44053
989-3131
Amherst banking office
Amherst Office
1175 Cleveland Avenue
Amherst, Ohio
988-4423
Avon Lake banking office
Avon Lake Office
240 Miller Road
Avon Lake, Ohio 44012
933-2186
108
Elyria banking offices
Second Street Office
221 Second Street
Elyria, Ohio 44035
323-4621
Cleveland Street Office
801 Cleveland Street
Elyria, Ohio 44035
365-8397
Midway Mall Office
6395 Midway Mall Blvd.
Elyria, Ohio 44035
324-6530
Oberlin banking offices
Oberlin Office
40 E College Street
Oberlin, Ohio 44074
775-1361
Kendal at Oberlin Office
600 Kendal Drive
Oberlin, Ohio 44074
774-5400
Olmsted Township
banking offices
Olmsted Township Office
27095 Bagley Road
Olmsted Township, Ohio 44138
235-4600
The Renaissance Office
26376 John Road
Olmsted Township, Ohio 44138
427-0041
Vermilion banking office
Vermilion Office
4455 E. Liberty Avenue
Vermilion, Ohio 44089
967-3124
Westlake banking offices
Crossings of Westlake Office
30210 Detroit Road
Westlake, Ohio 44145
892-9696
Westlake Village Office
28550 Westlake Village Drive
Westlake, Ohio 44145
808-0229
109
Other offices
Executive Offices
457 Broadway
Lorain, Ohio 44052
244-7123
Administration
457 Broadway
Lorain, Ohio 44052
244-7253
Operations
2130 West Park Drive
Lorain, Ohio 44053
989-3315
Human Resources
2130 West Park Drive
Lorain, Ohio 44053
989-3139
Marketing
457 Broadway
Lorain, Ohio 44052
244-7332
Purchasing
2150 West Park Drive
Lorain, Ohio 44053
989-3260
All other departments &
information not listed
Lorain
244-6000
1-800-860-1007
Elyria/Cleveland
236-5047
Community-based automated
teller machine locations
Captain Larry's Marathon
1317 State Route 60
Vermilion, Ohio
Convenient Food Mart
5375 West Erie Avenue
Lorain, Ohio
Gateway Plaza Convenient
3451 Colorado Avenue
Lorain, Ohio
Lakeland Medical Center
3700 Kolbe Road
Lorain, Ohio
110
Lorain County
Community College
1005 N. Abbe Road
Elyria, Ohio
Lorain Plaza
Shopping Center
1147 Meister Road
Lorain, Ohio
Lowe's Home
Improvement Warehouse
620 Midway Boulevard
Elyria, Ohio
Midway Mall Food Court
Midway Mall
Elyria, Ohio
END PUBLISHED PAGE 37
111
Directors and Officers of LNB Bancorp, Inc.
Directors
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James L. Bardoner
Retired, Former President
Dorn Industries, Inc.
Daniel P. Batista
Attorney/Partner
Cook & Batista Co., L.P.A.
Robert M. Campana
Managing Director
P.C. Campana, Inc.
Terry D. Goode
Vice President
Lorain County Title Company
Wellsley O. Gray
Retired
James F. Kidd
President and
Chief Executive Officer
LNB Bancorp, Inc. and
Lorain National Bank
David M. Koethe
Chairman of the Board
The Lorain Printing Company
Benjamin G. Norton
Employee and Community
Relations Manager
RELTEC Corporation
Jeffrey F. Riddell
President
Consumers Builders Supply Company
President and
Chief Executive Officer,
Consumeracq, Inc.
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
LNB Bancorp, Inc.
Executive Vice President
and Secretary
Lorain National Bank
112
T. L. Smith, M.D.
Retired Physician
Eugene M. Sofranko
President and
Chief Executive Officer
Lorain Glass Company, Inc.
Paul T. Stack
Retired
Leo Weingarten
Retired
Officers
Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank
James F. Kidd
President and
Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
Sandra L. Dubell
Senior Vice President and
Chief Lending Officer
Gregory D. Friedman
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Michael D. Ireland
Senior Vice President
Emma N. Mason
Senior Vice President
James H. Weber
Senior Vice President
Mitchell J. Fallis
Vice President and
Chief Accounting Officer
Directors Emeritus of Lorain National Bank
Don A. Sanborn
Retired
END PUBLISHED PAGE 38
113
Officers of Lorain National Bank
Executive Officers
James F. Kidd
President and
Chief Executive Officer
Thomas P. Ryan
Executive Vice President
and Secretary
Gregory D. Friedman
Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
Senior Officers
Sandra L. Dubell
Senior Vice President and
Chief Lending Officer
Michael D. Ireland
Senior Vice President
Operations
Emma N. Mason
Senior Vice President
Trust and Investment
Management
James H. Weber
Senior Vice President
Marketing
Branch and Trust Officers
Branch Administration
Debra R. Brown
Vice President
Teresa E. George
Assistant Vice President
Branch Officers
Main Office & 6th
Street Drive-In Office
Keith H. Kapanke
Assistant Vice President
Amherst Office
G. Dale Rosenkranz
Vice President
114
Avon Lake Office
Charles A. DeAngelis
Assistant Vice President
Cleveland Street Office
Timothy J. Gallagher
Vice President
Cooper-Foster Park
Road Office
Linda Buehner
Assistant Vice President
Kansas Avenue Office
Connie Sklarek
Assistant Cashier
Lake Avenue Office
Christine M. Weber
Assistant Vice President
Midway Mall Office
Carrie Hartman
Assistant Vice President
Kimberly S. Plzak
Assistant Vice President
Carol Snyder
Branch Staff Officer &
Assistant Branch Manager
Oberlin Avenue Office
Jennifer M. Nickolls
Assistant Vice President
Oberlin Office & Kendal
at Oberlin Office
Marilyn R. Krasienko
Assistant Vice President
Olmsted Township
Office & The
Renaissance Office
Diana L. Schmittgen
Assistant Vice President
Pearl Avenue Office
Patricia A. Wolanczyk
Assistant Cashier
Second Street Office
James E. Schmittgen
Vice President
Vermilion Office
Robert B. White
Vice President
115
West Park Drive Office
Rita M. Hoyt
Branch Manager
The Crossings of
Westlake Office &
Westlake Village Office
Susan M. Neiding
Vice President
Trust and Investment Management
Edward J. Baker
Vice President
Gerald S. Falcon
Vice President
Brian D. Morgan
Vice President
Patrick E. Sheridan
Vice President
Jodi L. Penwell
Assistant Trust Officer
Carol A. Cavanaugh
Assistant Employee
Benefits Officer
Loan Officers
Commercial Loans
John A. Funderburg
Vice President
Denise M. Kosakowski
Vice President
Ellen M. Walsh
Vice President
Kenneth P. Wayton
Vice President
Consumer Loans
Bruce Diso
Vice President
Robert D. Asik
Consumer Loan Officer
Kelly A. Dunfee
Assistant Cashier
116
Credit Card Loans
Frances V. Lesniak
Vice President
Jeanne Maschari
Assistant Vice President
Mortgage Loans
Edwin F. Klenz
Vice President
Joel A. Krueck
Assistant Vice President
and CRA Officer
Loan Services
Cynthia M. Marks
Assistant Cashier
Joan M. Raymond
Assistant Vice President
Joyce L. Wasela
Commercial Loans
Operation and Support Officers
Accounting
Mitchell J. Fallis
Vice President and
Chief Accounting Officer
Mary L. Kapanke
Fiscal Operations Officer
Auditing
Gary E. Sedlak
Vice President, Auditor
and Compliance Officer
Randy E. Lottman
Assistant Vice President
and E.D.P. Auditor
Daniel P. Dudziak
Senior Staff Auditor
Cash Management
Patricia L. Cole
Assistant Cashier
117
Computer
Administration
David P. Krebs
Vice President
Deposit Services
Donna J. Phillips
Assistant Vice President
E.D.P. Services
Larry R. Johnson
Vice President
Larry A. Hill
Assistant Vice President
Human Resources
Carol A. Mesko
Assistant Vice President
Teresa E. Kreger
Employment Officer
Maintenance
Robert J. Witkowski
Maintenance Officer
Marketing
Steven F. Cooper
Vice President
Debra L. Temerario
Marketing Operations
Officer
Purchasing
Susan I. Tuttle
Assistant Cashier
Security
James E. Long
Assistant Vice President
Training
Marianne Kocak
Assistant Vice President
END PUBLISHED PAGE 39
118
Earnings and Dividend Performance
10 Year Earnings History
(10 Year Earnings History graph follows in printed version with years 1988
through 1997 on the X-axis and earnings on the Y-axis in $2,500,000.00
increments ranging from $0 to $7,500,000.00. The graph is a horizontal
bar graph. The co-ordinates, by year, which are presented in the table
below are plotted on the previously described grid along with an
accompanying legend for identification purposes.)
The graph above depicts the earnings history of LNB Bancorp, Inc. from
1988 through 1997.
The Corporation's management team is proud of its record of continuously
increasing profits over this ten year period.
Return on Average Assets
(Return on Average Assets graph follows in printed version with years 1988
through 1997 on the X-axis and percentages on the Y-axis in 0.40%
increments ranging from 0.40% to 1.60%. The graph is a horizontal bar
graph. The co-ordinates, by year, which are presented in the table below
are plotted on the previously described grid along with an accompanying
legend for identification purposes.)
The graph above depicts the return on average assets of LNB Bancorp, Inc.
from 1988 through 1997.
Senior Management has worked diligently to bring about the rapid increase
in this performance ratio over the past five years.
Cumulative Cash Dividends Declared
Total Cash Dividends Declared 1988 - 1997: $1,625.00
(Cumulative Cash Dividends Declared graph follows in printed version with
years 1988 through 1997 on the X-axis and Dividends Declared on the Y-axis
in $600.00 increments ranging from $0 to $1,800.00. The graph is
horizontal bar graph. The co-ordinates, by year, which are presented in
the table below are plotted on the previously described grid along with an
accompanying legend for identification purposes.)
For the information of our shareholders, the above graph reflects a 10
year chronological record of dividend performance following a hypothetical
purchase of 100 shares of LNB Bancorp, Inc., stock without further
reinvestment. Over the 10 year period, our hypothetical shareholder would
have benefited from the cumulative cash dividends declared on the stock in
the amount of $1,625.00.
119
The data points used to plot the three (3) graphs previously described
follows:
NET INCOME RETURN ON CUMULATIVE CASH
YEAR IN THOUSANDS AVERAGE ASSETS DIVIDENDS DECLARED
1997 $6,480,000.00 1.41% $1,625.00
1996 $5,852,000.00 1.37% $1,359.00
1995 $5,003,000.00 1.21% $1,137.00
1994 $4,432,000.00 1.13% $ 932.00
1993 $4,029,000.00 1.08% $ 759.00
1992 $3,826,000.00 1.07% $ 602.00
1991 $3,512,000.00 1.02% $ 459.00
1990 $3,343,000.00 1.01% $ 329.00
1989 $3,217,000.00 1.03% $ 210.00
1988 $2,881,000.00 0.98% $ 101.00
END PUBLISHED PAGE 40
120
HALF PAGE INSERT FRONT SIDE
Please detach postage-paid card(s) and return through U.S. Mail or to a
Lorain National Bank office near you.
Card on left-hand side reads as follows:
To:
James F. Kidd
President and Chief Executive Officer
LNB Bancorp, Inc.
457 Broadway, Lorain Ohio 44052
Yes, I am interested in acquiring LNB Bancorp, Inc. stock and would like
to be contacted by a stock broker when a stock purchase opportunity
arises.
Name_________________________
Address______________________
City____State____Zip______Phone________
Number of Shares Requested__________
Card on right-hand side reads as follows:
To:
Thomas P. Ryan
Executive Vice President and Secretary/Treasurer
LNB Bancorp, Inc.
457 Broadway, Lorain, Ohio 44052
Yes, I am interested in obtaining information on LNB Bancorp, Inc.'s
Dividend Reinvestment and Cash Stock Purchase Plan.
Name_________________________
Address______________________
City____State____Zip______Phone________
HALF PAGE INSERT BACK SIDE
Two postage paid postcards
Card on left-hand side reads as follows:
Lorain National Bank
Attn: Thomas P. Ryan
457 Broadway
Lorain Oh 44052-9986
Card on right-hand side reads as follows:
Lorain National Bank
Attn: James F. Kidd
457 Broadway
Lorain Oh 44052-9986
121
COVER DESCRIPTION
Inside Back Cover
Bottom right
Familiar faces...
Friendly places
END OF INSIDE BACK COVER
Outside back cover
White background
LNB
Bancorp, Inc.
Dark green lettering
END OF PUBLISHED LNB BANCORP, INC. 1997 ANNUAL REPORT
122
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1997)
S - K Reference Number (21)
Corporate Organization Structure
..............................
. LNB Bancorp, Inc. .
. One Bank Holding Company .
. an Ohio Corporation (1) .
..............................
.
.
.............................
. The Lorain National Bank .
. Wholly-Owned Subsidiary .
. an Ohio Corporation (1) .
.............................
.
.
.................................
. LNB Financial Services, Inc. .
. Wholly-Owned Subsidiary .
. an Ohio Corporation (1) .
. (inactive) .
.................................
(1) The physical location and legal mailing address
for all entities is:
457 Broadway
Lorain, Ohio 44052
123
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1997)
S - K Reference Number (22)
Notice of Annual Meeting to shareholders and
Proxy Statement (dated March 23, 1998).
124
LNB BANCORP, INC.
LORAIN, OHIO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
LNB BANCORP, INC. March 23, 1998
The Annual Meeting of Shareholders of LNB Bancorp, Inc. will be held at
521 Broadway, Lorain, Ohio 44052, on Tuesday, April 21, 1998, at 10:00
a.m.,Eastern Daylight Savings Time, for the purpose of considering and
voting upon the following matters as more fully described in the Proxy
Statement.
PROPOSALS:
1. ELECTION OF DIRECTORS - To elect five (5) directors to hold
office until their term expires (April 17, 2001) or until their
successors are elected and qualified.
2. OTHER BUSINESS - To transact such other business as may properly
come before the meeting.
Shareholders of record at the close of business on March 9, 1998 will be
entitled to vote the number of shares held of record in their names on
that date. The transfer books will not be closed.
We urge you to sign and return the enclosed proxy as promptly as
possible, whether or not you plan to attend the meeting in person. This
proxy may be revoked prior to its exercise.
By Order of the Board of Directors
/s/ Thomas P. Ryan
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED
PROXY FORM(S) WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. A
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
-1-
125
THIS PAGE LEFT INTENTIONALLY BLANK
-2-
126
LNB BANCORP, INC.
457 BROADWAY
LORAIN, OHIO 44052
PROXY STATEMENT
MARCH 23, 1998
This proxy solicitation is made on behalf of the Board of Directors of
LNB Bancorp, Inc., (hereinafter called the "Corporation") being a One Bank
Holding Company owning all of the stock of The Lorain National Bank
(hereinafter called the "Bank"). As of this date, the number of shares of
Common Stock outstanding and entitled to vote at the Annual Meeting of
Shareholders to be held on April 21, 1998, is 4,124,479. Only those
shareholders of record at the close of business on March 9, 1998 shall be
entitled to vote. This proxy may be revoked prior to its exercise. The
cost of this solicitation is being paid by the Corporation.
VOTING
Each shareholder shall be entitled to one vote for each share of stock
standing in their name on the books of the Corporation. No holder of
shares of any class shall have the right to vote cumulatively in the
election of directors.
Shares held in accounts by the Bank's Trust and Investment Management
Division will be voted by the trustee in accordance with written
instructions from account administrators or account plan participants, and
where no instructions are received, as the trustee deems proper.
Shares of Common Stock represented by proxies in the accompanying form
which are properly executed and returned to the Corporation will be voted
at the Annual Meeting of Shareholders in accordance with the shareholders'
instruction contained in such proxies. Where no such instructions are
given, the shares will be voted for the election of directors as described
herein, and at the discretion of the proxy holders on such other matters
as may come before the meeting. The Board of Directors has no reason to
believe that any of the nominees will be unable to serve as a director. In
the event, however, of the death or unavailability of any nominee or
nominees, the proxy to that extent will be voted for such other person or
persons as the Board of Directors may recommend.
The results of votes taken at the Annual Meeting will be disclosed in
the Corporation's First Quarterly Report for 1998 on Form 10-Q, as filed
with the Securities and Exchange Commission (SEC). The disclosure will
include for each proposal, the number of votes for, the number of votes
against and the number of abstentions. In addition, the disclosure will
set forth the number of votes received by each candidate running for a
directorship and the percentage of these votes as to the total shares
outstanding.
ELECTION OF DIRECTORS
Article III of the Code of Regulations of the Corporation provides that
directors are to be divided into three (3) classes. Each class serves a
term of three (3) years, or until their respective successors are elected
and qualified. In that the term of office for five (5) members of the
present Board of Directors will expire on April 21, 1998, the management
has nominated the hereinafter named five (5) individuals for election to
serve until April 17, 2001, or until their successors are elected and
qualified.
The affirmative vote of the holders of at least a majority of a quorum
is required in order to elect each director. Under the Code of Regulations
127
of the Corporation, a quorum is constituted by the presence, in person or
by proxy, of a majority of the voting power of the Corporation.
-3-
128
Other nominations may be made only in accordance with the notice
procedures set forth in Article III of the Code of Regulations of the
Corporation. The procedure states that nominations for election to the
Board of Directors may be made by the Board of Directors or by any
shareholder of any outstanding class of capital stock of the Corporation
entitled to vote for the election of directors. Nominations, other than
those made by or on behalf of the existing management of the Corporation,
shall be made in writing and shall be delivered or mailed to the President
of the Corporation not less than fourteen (14) days nor more than fifty
(50) days prior to any meeting of shareholders called for the election of
directors, provided however, that if less than twenty-one (21) days notice
of the meeting is given to shareholders, such nomination shall be mailed
or delivered to the President of the Corporation no later than the close
of business on the seventh (7th) day following the day on which the notice
of the meeting was mailed. Such notification shall contain the following
information as to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c)the total number of shares of capital stock of
the Corporation that will be voted for each proposed nominee; (d) the name
and resident address of the notifying shareholder; and (e) the number of
shares of capital stock of the Corporation owned by the notifying
shareholder. Nominations not made in accordance herewith may, at his
discretion, be disregarded by the Chairman of the meeting, and upon his
instructions, the vote teller may disregard all votes cast for each such
nominee.
Unless otherwise instructed, it is the intention of the persons named in
the proxy to vote for the election of the following five(5) nominees:
1) Daniel P. Batista
2) David M. Koethe
3) Stanley G. Pijor
4) Eugene M. Sofranko
5) Leo Weingarten
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
NOMINEE.
The following individuals are directors whose term of office is
scheduled to expire on April 20, 1999:
1) James L. Bardoner
2) Terry D. Goode
3) Wellsley O. Gray
4) Benjamin G. Norton
5) T.L. Smith, M.D.
The following individuals are directors whose term of office is
scheduled to expire on April 18, 2000:
1) Robert M. Campana
2) James F. Kidd
3) Jeffrey F. Riddell
4) Thomas P. Ryan
5) Paul T. Stack
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129
DIRECTOR'S COMMITTEES
The Bank has six (6) standing committees upon which members of the Board
of Directors serve. They are:
1) The Audit Committee 4) The Pension/Fringe Benefit Committee
2) The Executive Committee 5) The Incentive Stock Option Committee
3) The Trust Committee 6) The Compensation Committee
Membership of each of these committees is indicated by footnote on page 7.
The Audit Committee met three (3) times during the last fiscal year. It
establishes policies for the administration of the Bank's Audit Division.
The Executive Committee met thirteen (13) times during the last fiscal
year. This committee is authorized to approve matters relating to loans,
the purchase of bills, notes, and other evidence of debt. The Trust
Committee reviews the various trusts accepted by the Bank's Trust and
Investment Management Division. It held six (6) meetings during the last
fiscal year. The Pension/Fringe Benefit Committee reviews indirect
compensation of officers and employees. It did not meet during the last
fiscal year. The Incentive Stock Option Committee determines who will
receive stock options and the number of shares to be granted under the
terms of the Incentive Stock Option Plan. The actions of the Incentive
Stock Option Committee are subject to the approval of the Compensation
Committee. It did not meet during the last fiscal year. The Compensation
Committee meets to review all officers' salaries. It held one (1) meeting
during the last fiscal year. The Bank has no designated Nominating
Committee. Nominees for the Board of Directors are determined by a vote
of the total Board of Directors.
The Bank held thirteen (13) Board of Directors meetings during the last
fiscal year. Of the directors who served during 1997, Leo Weingarten
attended fewer than 75% of the total number of meetings of the Board of
Directors and all committee meetings of which the aforementioned director
was a member.
The Corporation held thirteen (13) Board of Directors meetings during
the last fiscal year. Of the directors who served during 1997, Leo
Weingarten attended fewer than 75% of the total of thirteen (13) meetings
held.
DIRECTOR'S COMPENSATION
Each outside director of the Bank is entitled to receive an annual
retainer fee of $2,500. Bank officers, who are also directors of the
Bank, do not receive an annual retainer fee.
All of the directors of the Corporation are also directors of the Bank.
A director's fee of $500 is paid to outside directors for each meeting
attended. Directors, who are also officers of the Corporation, receive a
fee of $250 for their attendance at the Corporation's board meetings and
receive no director's fees for their attendance at the meetings of the
Bank's board.
Mr. Stanley G. Pijor entered into a Consulting Agreement (The Agreement)
with the Bank and the Corporation dated March 15, 1994. The Agreement
provides that Mr. Pijor shall receive a consulting fee of $85,000 each
year for a period of five (5) years commencing January 1, 1996. The
Agreement also stipulates that Mr. Pijor will be provided with an automobile
and will be reimbursed for reasonable expenses relative to his
duties as a consultant during the term of the Agreement. Termination of
the Agreement (by either party) would not prejudice Mr. Pijor's right to
receive the benefits referred to above for a period of up to two (2)
years.
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130
LORAIN
NATIONAL
BANK LNB BANCORP,
PRINCIPAL OCCUPATION DIRECTOR INC. DIRECTOR
NAME AND AGE FOR THE PAST FIVE YEARS SINCE SINCE
JAMES L. BARDONER RETIRED, FORMER PRESIDENT 1974 1983
Age 79 Dorn Industries, Inc.
(1-2-4-5-6) (Manufacturing Company)
DANIEL P. BATISTA ATTORNEY/PARTNER 1976 1983
Age 63 Cook & Batista Co.,L.P.A.(A)
(2-3-5-6)
ROBERT M. CAMPANA MANAGING DIRECTOR 1996 1996
Age 38 P.C.Campana, Inc.
(3)
TERRY D. GOODE VICE PRESIDENT 1997 1997
Age 43 Lorain County Title Company
(1)
WELLSLEY O. GRAY RETIRED 1973 1983
Age 64
(1-3)
JAMES F. KIDD PRESIDENT AND 1989 1989
Age 58 CHIEF EXECUTIVE OFFICER
(2-3-4) LNB Bancorp, Inc. and
The Lorain National Bank
DAVID M. KOETHE CHAIRMAN OF THE BOARD 1975 1983
Age 62 The Lorain Printing Company(B)
(2-3-4-5-6)
BENJAMIN G. NORTON EMPLOYEE AND 1983 1983
Age 58 COMMUNITY RELATIONS MANAGER
(3-7) RELTEC Corporation
STANLEY G. PIJOR CHAIRMAN OF THE BOARD 1969 1983
Age 67 LNB Bancorp, Inc. and
(2-3-4-6) The Lorain National Bank
JEFFREY F. RIDDELL PRESIDENT 1995 1995
Age 46 Consumers Builders Supply Company
(1) PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Consumeracq, Inc.
THOMAS P. RYAN EXECUTIVE VICE PRESIDENT 1989 1989
Age 59 AND SECRETARY/TREASURER
LNB Bancorp, Inc.
EXECUTIVE VICE PRESIDENT
AND SECRETARY
The Lorain National Bank
-6-
131
LORAIN
NATIONAL
BANK LNB BANCORP,
PRINCIPAL OCCUPATION DIRECTOR INC. DIRECTOR
NAME AND AGE FOR THE PAST FIVE YEARS SINCE SINCE
T.L. SMITH, M.D RETIRED PHYSICIAN 1968 1983
Age 84
(1-2-4-5-6)
EUGENE M. SOFRANKO PRESIDENT AND CHIEF 1974 1983
Age 67 EXECUTIVE OFFICER
(1-2-4-5-6) Lorain Glass Company, Inc.
PAUL T. STACK RETIRED 1974 1983
Age 68
(1-2-3-6)
LEO WEINGARTEN RETIRED 1964 1983
Age 78
(2-4-5-6)
(1) Member of Audit Committee (5) Member of Incentive Stock Option
(2) Member of Executive Committee Committee
(3) Member of Trust Committee (6) Member of Compensation Committee
(4) Member of Pension/Fringe Benefit(7) Alternate Member of Executive
Committee and Compensation Committees
(A) The Bank has retained the law firm of Cook & Batista Co., L.P.A. as
legal counsel for the last several years. During the last fiscal
year, The Lorain National Bank has paid to Cook & Batista, Co.,
L.P.A. an amount of $130,982. It is anticipated that this
relationship will continue during the current fiscal year.
(B) During the last fiscal year, The Lorain National Bank has paid to
The Lorain Printing Company an amount of $128,007 for printing
services and supplies. It is anticipated that such business
relationship will continue during the current fiscal year.
(C) Mr. Pijor entered into a Consulting Agreement with the Bank dated
March 15, 1994. The agreement provides that Mr. Pijor receive a
consulting fee of $85,000 each year for a period of five (5) years
commencing on January 1, 1996. The Agreement also stipulates that
Mr. Pijor will be provided with an automobile and will be reimbursed
for reasonable expenses relative to his duties as a consultant
during the term of the Agreement. Termination of the Agreement (by
either party) would not prejudice Mr. Pijor's rights to receive the
benefits referred to above for a period of up to two (2) years. Mr.
Pijor was also a party to a Supplemental Retirement Agreement
entered into with the Bank on December 31, 1987. Under the terms of
this Agreement, Mr. Pijor shall receive an annual supplemental
retirement benefit in the amount of $50,000 for a period on ten (10)
years. The payment of these supplemental retirement benefits
commenced in January of 1996.
-7-
132
EXECUTIVE COMPENSATION
LNB Bancorp, Inc. did not pay any separate compensation, other than
Corporation director fees, to its executive officers during 1997, 1996,
and 1995. All executive compensation was paid by Lorain National Bank.
The information which follows discloses the annual and long term
compensation for services in all capacities to the Corporation and the
Bank for the fiscal years ended December 31, 1997, 1996 and 1995, for all
persons who were, during 1997, (i) the chief executive officer and (ii)
the other most highly compensated officers of the Bank who made in excess
of $100,000 during 1997 (the Named Executive Officers).
SUMMARY COMPENSATION TABLE
The named executive officers disclosure requirements affect the Chief
Executive Officer and those executive officers earning more than $100,000
in salary and bonuses. In 1997, 1996 and 1995, Mr. James F. Kidd,
President and Chief Executive Officer, and Mr. Thomas P. Ryan, Executive
Vice President and Secretary/Treasurer, met the criteria for disclosure.
In 1997, Mr. Gregory D. Friedman, Senior Vice President, Chief Operating
Officer and Chief Financial Officer, and Mrs. Emma N. Mason, Senior Vice
President, met the criteria for disclosure.
The following table discloses the annual salary, bonuses and all other
compensation awards and payouts for services in all capacities to the
Corporation and the Bank for the fiscal years ended December 31, 1997,
1996 and 1995.
Compensation (1)
-----------------------------------------------
Annual
Name and -------------------------------- All
Principal Position Year Salary Bonuses Other (2)
----------------------------------------------------------------------
James F. Kidd 1997 $180,962 $42,000 $22,441
President and 1996 $151,154 $32,500 $20,600
Chief Executive Officer 1995 $124,000 $15,000 $18,427
Thomas P. Ryan 1997 $109,250 $16,350 $18,752
Executive Vice President 1996 $104,050 $15,375 $18,755
and Secretary/Treasurer 1995 $ 99,375 $15,000 $15,693
Gregory D. Friedman 1997 $ 91,021 $13,365 $11,078
Senior Vice President
Chief Operating Officer and
Chief Financial Officer
Emma N. Mason 1997 $ 89,185 $13,350 $12,870
Senior Vice President
(1) The aggregate of Other Annual Compensation is less than 10% of the
total of annual salary and bonus for all individuals for all years
presented and therefore is not required to be reported under the
SEC rules.
(2) All Other Compensation consisted of the following:
James F. Kidd: 1997 1996 1995
Contribution, in Mr. Kidd's behalf to:
The Bank's Stock Purchase Plan $ 4,800 $ 4,500 $ 4,176
The Bank's Employee Stock Ownership Plan $11,141 $10,925 $10,236
Mr. Kidd's Supplemental Life Insurance $ 2,250 $ 2,250 $ 2,239
Corporation director's fees $ 4,250 $ 2,925 $ 1,775
-8-
134
Thomas P. Ryan: 1997 1996 1995
Contribution, in Mr. Ryan's behalf to:
The Bank's Stock Purchase Plan $ 3,768 $ 3,583 $ 3,431
The Bank's Employee Stock Ownership Plan $ 8,746 $ 8,698 $ 8,518
Mr. Ryan's Supplemental Life Insurance $ 2,238 $ 2,079 $ 1,969
Corporation director's fees $ 4,000 $ 2,700 $ 1,775
Anniversary Stock Award $ 0 $ 1,695 $ 0
Gregory D. Friedman: 1997
Contribution, in Mr. Friedman's behalf to:
The Bank's Stock Purchase Plan $ 3,132
The Bank's Employee Stock Ownership Plan $ 7,269
Mr. Friedman's Supplemental Life
Insurance $ 677
Emma N. Mason: 1997
Contribution, in Mrs. Mason's behalf to:
The Bank's Stock Purchase Plan $ 3,076
The Bank's Employee Stock Ownership Plan $ 7,140
Mrs. Mason's Supplemental Life Insurance $ 2,654
OPTION GRANTS TABLE (last fiscal year)
There were no stock options granted by the Corporation or the Bank in
1997.
LONG TERM INCENTIVE PLAN AWARD TABLE (last fiscal year)
There were no long term incentive plans or plan awards in 1997.
OPTION EXERCISES AND YEAR END VALUE TABLE (last fiscal year)
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE(1)
Value of
Number of Unexercised
Unexercised In-the-Money
Option Option
Shares Shares Shares
Acquired Value at FY-End(#) at FY-End ($)
on Realized Exercisable/ Exercisable/
Name Exercise(#) ($)(2) Unexercisable Unexercisable(2)
- --------------------------------------------------------------------------
James F. Kidd 0 $0 2143/0 $17,475/$0
Thomas P. Ryan 0 $0 2143/0 $17,475/$0
Gregory D. Friedman 0 $0 2985/0 $30,843/$0
Emma N. Mason 0 $0 0/0 $0/$0
(1) All amounts reflect the 2% stock dividend in April of 1997.
(2) Market value of underlying securities at exercise date or year end, as
the case may be, minus the exercise or price of "in-the-money" options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of: James L. Bardoner, Daniel P.
Batista, David M. Koethe, Stanley G. Pijor, T.L. Smith, Eugene M.
Sofranko, Paul T. Stack and Leo Weingarten. Mr. Batista is a shareholder
of the law firm of Cook and Batista Co., L.P.A., which performs legal
services for the Bank. During 1997, the Bank paid to Cook and Batista
Co., L.P.A. legal fees in the amount of $130,982. The amount of Mr.
135
Batista's interest in such fees cannot be practicably determined. Mr.
Koethe is the Chairman of The Board of The Lorain Printing Company.
During 1997, the Bank paid to The Lorain Printing Company
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136
an amount of $128,007 for printing services and supplies. The amount of
Mr. Koethe's interest in such payments cannot be practicably determined.
Mr. Stanley G. Pijor entered into a Consulting Agreement with the Bank
dated March 5, 1994. The agreement provides that Mr. Pijor shall receive a
consulting fee of $85,000 each year for a period of five (5) years,
commencing on January 1, 1996. The Agreement also stipulates that Mr.
Pijor will be provided with an automobile and will be reimbursed for
reasonable expenses relative to his duties as a consultant during the term
of the Agreement. Mr. Pijor was also a party to a Supplemental Retirement
Agreement entered into with the Bank on December 31, 1987. Under the
terms of this Supplemental Retirement Agreement, Mr. Pijor shall receive
supplemental retirement benefits in the amount of $50,000 per year, for a
period of ten (10) years. The payment of these supplemental retirement
benefits commenced in January of 1996.
COMPENSATION COMMITTEE REPORT
The Lorain National Bank's Compensation Committee has the responsibility
of evaluating and recommending to the Board of Directors, for its
approval, the amount of compensation, including salary, bonus, and other
benefits, for all officers of the Bank, including the named Executive
Officers and the Chief Executive Officer.
It is the philosophy and policy of the Compensation Committee to
establish a compensation program for Bank officers to attract, motivate
and retain a highly qualified management team. The criteria used to
determine the recommended compensation of Bank officers includes their
level of responsibility, performance, experience, the Committee's judgment
as to the past performance and expected further contribution. A
comparison to the industry peer group as well as national and regional
surveys are also used. In addition, Mr. James F. Kidd, as the Bank's
Chief Executive Officer, evaluates the performance of the other officers
and presents his evaluations and salary recommendations for all officers,
other than himself, to the Compensation Committee. The Committee is also
advised by independent compensation consultants, concerning compensation
of Bank officers. Based upon the foregoing, the Compensation Committee
prepares a report on recommended base salaries for all officers. In
addition, in some cases, the Compensation Committee recommends bonuses for
certain officers of the Bank, based upon the attainment of preestablished
performance goals. The recommendations of the Compensation Committee
regarding base salaries and bonuses for all officers are subject to
approval by the Board of Directors.
As to the Chief Executive Officer, Mr. James F. Kidd's compensation,
including salary, bonus, and other benefits is also based upon a
recommendation of the Compensation Committee, which is then approved by
the Board of Directors. The factors and criteria considered by the
Compensation Committee included the pay level for CEOs of comparable
banks, the financial performance of the Bank, and the individual
performance and leadership of Mr. Kidd. Based upon the foregoing, and
based upon the attainment of preestablished performance goals established
by the Compensation Committee, the Compensation Committee recommended a
base salary and bonus for Mr. Kidd for 1997, in the amounts set forth in
the Summary Compensation Table, which amounts were approved by the Board
of Directors.
The members of the Compensation Committee are:
James L. Bardoner T.L. Smith, M.D.
Daniel P. Batista Eugene M. Sofranko
David M. Koethe Paul T. Stack
Stanley G. Pijor Leo Weingarten
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EMPLOYMENT AGREEMENTS
As of September 1, 1995, Mr. James F. Kidd entered into an Employment
Agreement with LNB Bancorp, Inc. and The Lorain National Bank. The
Agreement provides for Mr. Kidd's employment until he reaches the age of
65 as President. Mr. Kidd shall be compensated at the initial rate of One
Hundred and Twenty Four Thousand Dollars ($124,000) with an annual
compensation review each year thereafter. Mr. Kidd will continue to
receive his present fringe benefits and such additional benefits as are
set forth in the Bank's Employee Benefit Program. If the Agreement is
terminated earlier, other than for just cause, or by Mr. Kidd, then he
will be entitled to the salary and benefits described above for a period
of up to two (2) years.
As of September 1, 1995, Mr. Thomas P. Ryan entered into an Employment
Agreement with LNB Bancorp, Inc. and The Lorain National Bank. The Agreement
provides for Mr. Ryan's employment until he reaches the age of
65 as Executive Vice President. Mr. Ryan shall be compensated at the
initial rate of Ninety Seven Thousand Five Hundred Dollars ($97,500) with
an annual compensation review each year thereafter. Mr. Ryan will
continue to receive his present fringe benefits and such additional
benefits as are set forth in the Bank's Employee Benefit Program. If the
Agreement is terminated earlier, other than for just cause, or by Mr.
Ryan, then he will be entitled to the salary and benefits described above
for a period of up to two (2) years.
PENSION PLAN
The Bank sponsors The Lorain National Bank Retirement Pension Plan (the
Plan) covering substantially all employees of the Bank. An employee is
eligibleto participate on January 1 or July 1 after the attainment of age
twenty-one (21) and completion of one year of service, as defined in the
Plan. The Bank's 1997 contribution to the Plan was $31,981. The amount of
contributions with respect to a specific person is not and cannot readily
be calculated on an individual basis.
Participants are eligible for normal retirement upon reaching age
sixty-five (65). Annual benefit payments are determined as a percentage
for the five (5) consecutive plan years that yield the highest average
salary. Participants in the Plan prior to January 1, 1989 will have
annual benefit payments reduced if they have less than fifteen (15) years
of continuous employment upon retirement.
Participants who join the Plan after January 1, 1989 will have benefit
payments reduced if they have less than twenty-five (25) years of
continuous employment upon retirement. The normal form of benefit payment
is a joint and survivor annuity. Benefits become fully vested after a
participant has completed five (5) years of service. The Plan also
provides for the payment of early retirement, death, disability, and
deferred vested benefits in the form of a lump sum distribution, or
monthly annuity.
Annual benefit payments under the provisions of the Plan are computed by
a formula, the factors of which include annual compensation, years of
service and the social security taxable wage base.
The Plan was amended, effective January 1, 1995, to allow the payment of
accrued benefits in the form of a lump sum distribution upon retirement at
normal retirement age. The estimated present value of the accrued benefit
using the Plan's actuarial equivalence assumptions for the Named Executive
Officers ranged from $384,000 to $397,000 as of December 31, 1997.
Assuming the participant selects the benefit payable in a ten (10) year
Certain and Life Annuity at normal retirement date, the following table
reflects annual benefits payable to the employee based upon average annual
compensation levels and twenty-five (25) years of service.
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Employee's Annual Estimated Pension
Final Average Payments Assuming Minimum of
Annual Compensation 25 Years of Service
$250,000* $81,238
200,000* 81,238
160,000 81,238
100,000 48,988
*The current annual compensation limit with respect to determining an
employee's annual pension payment is currently limited by the Internal
Revenue Code to $160,000. The Plan reflects the annual compensation limit
and this results in a maximum annual pension payment of $81,238.
Therefore, an employee's annual estimated pension payment for final
average compensation levels of $160,000 and above remains at the $81,238
level. Pension benefits accrued prior to 1995 are grand fathered, if
their calculated benefit is greater than $81,238. These pension payments
do not reflect any additional retirement benefits which the employee may
receive in the form of Social Security and other forms of supplemental
retirement benefits. Messrs. James F. Kidd, Thomas P.Ryan and Gregory D.
Friedman have thirty-three (33), thirty-six (36) and twelve (12) credited
years of service respectively, under the provisions of the Plan. Mrs.
Emma N. Mason has nineteen (19) credited years of service under the
provisions of the Plan.
Benefit payments under the provisions of the Plan are computed using
formulas, the factors of which include annual compensation, years of
service, social security taxable wage base, and, in the case of a lump sum
distribution, current interest rates are also taken into consideration.
On July 30, 1996, the Bank entered into Supplemental Retirement
Agreements (SRA) with Mr. James F. Kidd, Mr. Thomas P. Ryan and Mr.
Gregory D. Friedman. The purpose of the SRA is to provide supplemental
retirement benefits to Messrs. Kidd, Ryan and Friedman in addition to the
benefits provided by the Bank's qualified retirement plan, to assist the
Bank in retaining their services through their normal retirement dates.
The SRA provides for payments, monthly or annually, at Messrs. Kidd,
Ryan and Friedman's election, in the event of: (a) normal retirement;
**(b)reduced supplemental retirement benefits in the event of early
retirement; (c)disability prior to retirement; (d) death; or (e) discharge
"without cause."
Under the terms of their SRA, Messrs. Kidd, Ryan and Friedman will
receive supplemental retirement benefits for a period of ten (10) years.
The full benefit amount is equal to seventy percent (70%) of the
compensation paid in the final year of employment, minus the Bank's
pension benefit and Social Security benefits. Messrs. Kidd, Ryan and
Friedman are entitled to the full benefit amount if they retire on their
normal retirement date;** 75% of the full benefit amount if they retire at
age 64; 50% of the full benefit amount if they retire at age 63; 25% of
the full benefit amount if they retire at age 62; and no SRA benefit if
they retire prior to age 62.
In the event of disability prior to retirement, the disabled individual
would receive their full SRA benefit amount beginning at age 65. In the
event of death prior to retirement, after meeting the eligibility and
employment requirements, the applicable benefit (based upon the decedent's
age) is payable to his designated beneficiary. In the event of discharge
"without cause", the discharged individual would receive their full SRA
benefit amount, as if he retired at age 65, commencing at the recipient's
discretion.
The SRA is a non-qualified defined benefit agreement. As of December
31, 1997, the monthly benefits that would be paid at normal retirement
age, would be $10,133, $2,276 and $7,397 for Messrs. Kidd, Ryan and
Friedman respectively.
**Mr. Kidd's normal retirement date is November 1, 2004
**Mr. Ryan's normal retirement date is April 1, 2003
**Mr. Friedman's normal retirement date is August 1, 2015
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140
PERFORMANCE GRAPH
The graph which follows compares the five (5) year cumulative total
return from investing $100 on December 31, 1992 in each of LNB Bancorp,
Inc. common stock, the Standard & Poor's 500 Index (S&P 500 Index) of
companies and the National Association of Securities Dealers Association
Quotation System Bank Index (NASDAQ Bank Index) of companies, with
dividends assumed to be reinvested when received.
Comparison of Five Year Cumulative Total Return*
AMONG LNB BANCORP, INC, THE S&P 500 INDEX AND NASDAQ BANK INDEX
(PERFORMANCE GRAPH FOLLOWS IN PRINTED VERSION WITH YEARS 1992 THROUGH
1997 ON THE X-AXIS AND CUMULATIVE INVESTMENT ON THE Y-AXIS IN $100
INCREMENTS RANGING FROM $0 TO $400. THE CO-ORDINATES, BY YEAR, WHICH
ARE PRESENTED IN THE TABLE BELOW ARE PLOTTED ON THE PREVIOUSLY
DESCRIBED GRID ALONG WITH AN ACCOMPANYING LEGEND FOR IDENTIFICATION
PURPOSES.)
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT
OF DIVIDENDS.
DECEMBER 31,
- --------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------
LNB Bancorp, Inc. $100 $124 $150 $176 $192 $192
- --------------------------------------------------------------------------
S&P 500 Index $100 $110 $112 $153 $189 $252
- --------------------------------------------------------------------------
NASDAQ Bank Index $100 $114 $114 $169 $223 $377
- --------------------------------------------------------------------------
BENEFICIAL OWNERSHIP OF SHARES
The following table reflects as of December 31, 1997, any person known
to the Corporation to be the beneficial owner of more than five percent
(5%) of any class of the Corporation's voting securities, consisting of
common stock only, as well as the total number of shares of common stock
beneficially owned by each director, nominee, and the director and
executive officers of the Corporation as a group.
Five Percent Beneficial Ownership
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership Class
Standen and Co. as nominee for
The Lorain National Bank 669,494(1) 16.20%
457 Broadway
Lorain, Ohio 44052
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(1) The Bank, a wholly owned subsidiary of LNB Bancorp, Inc. (a U. S.
Corporation) disclaims beneficial ownership of all shares. The shares
were held by the Bank in various accounts administered by it, as
fiduciary, for the benefit of beneficiaries, donors, or principals of
such accounts. The Bank, as fiduciary, had (a) sole power to vote
87,971 shares; (b) sole investment power to purchase/sell, but no
power to vote on 258,255 shares; (c)shared investment power with sole
power to vote with respect to 37,173 shares; and (d) no investment
power and no power to vote on 286,095 shares. Shares of the
Corporation held by the Bank in various fiduciary capacities will be
voted only in accordance with directions, approvals or instructions
where called by the governing instruments or by law, and in the
absence of special factors affecting any individual account, will be
voted in accordance with management's recommendations where the Bank
as fiduciary has authority to determine the manner of voting.
BENEFICIAL OWNERSHIP OF MANAGEMENT (As of December 31, 1997)
Sole Shared Total Amount
Investment and Investment and of Beneficial Percent
Name Voting Power Voting Power Ownership of Class
James L. Bardoner 8,492 621 9,113 .22%
Daniel P. Batista 23,318 45,363 68,681 1.67%
Robert M. Campana 4,369 0 4,369 .11%
Terry D. Goode 14,454 2,402 16,856 .41%
Wellsley O. Gray 5,816 3,294 9,110 .22%
James F. Kidd 48,715 0 48,715 1.18%
David M. Koethe 53,500 183 53,683 1.30%
Benjamin G. Norton 44,953 46,370 91,323 2.22%
Stanley G. Pijor 57,518 32,982 90,500 2.19%
Jeffrey F. Riddell 15,516 27,278 42,794 1.04%
Thomas P. Ryan 32,592 1,268 33,860 .82%
T. L. Smith, M.D. 11,901 9,110 21,011 .51%
Eugene M. Sofranko 6,960 22,379 29,339 .71%
Paul T. Stack 9,028 1,275 10,303 .25%
Leo Weingarten 103,153 8,688 111,841 2.71%
Executive Officers
who are not
Directors 84,285 392 84,677 2.05%
------- -------- ------- ------
All Directors and
Executive Officers
as a Group 524,570 201,605 726,175 17.61%
======= ======== ======= ======
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Some of the directors of the Corporation and the companies with which
they are associated, are customers of and had banking transactions with
the Bank in the ordinary course of the Bank's business during 1997.
Loans and commitments to loans included in such transactions were made
on substantially the same terms, including interest rates and
collateral, as were those prevailing at the time for comparable
transactions with other persons, and in the opinion of the management of
the Bank, do not involve more than a normal risk of collectibility
or present other unfavorable features.
-14-
142
PRINCIPAL ACCOUNTANTS
The independent accounting firm of KPMG Peat Marwick LLP has served as
the principal accountants for the Bank since 1972. A representative of the
firm will be present at the Annual Meeting and will be available to
respond to questions.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholder action at
the Corporation's Annual Meeting consistent with the regulations of the
Securities and Exchange Commission. For proposals to be considered for
inclusion in the Proxy Statement for the 1999 Annual Meeting, they must be
received by the Corporation no later than December 1, 1998. Such
proposals should be directed to LNB Bancorp, Inc., Attention: Shareholder
Relations, 457 Broadway, Lorain, Ohio 44052.
OTHER BUSINESS
Management is not aware of any other matter which may be presented for
action at the meeting other than the matters set forth herein. Should any
matter other than those set forth herein be presented for a vote of the
shareholders, the proxy in the enclosed form directs the persons voting
such proxy to vote in accordance with their judgement.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the Corporation's
officers and directors to file reports of ownership and changes of
ownership of the Corporation's registered securities on Forms 3, 4 and 5
with the Securities and Exchange Commission (SEC).
The Corporation believes that all officers and directors complied with
all filing requirements applicable to them with respect to transactions
during fiscal year 1997.
ANNUAL REPORT
A copy of the Corporation's Annual Report has been mailed to
shareholders prior to the meeting. The Annual Report is not intended to
be part of this Proxy Statement. A report of the operations of the
Corporation and the Bank for the fiscal year ended December 31, 1997 will
be presented at the meeting. A copy of the Corporation's Annual Report on
Form 10-K under the Securities Exchange Act of 1934 is available to
shareholders without charge upon request to Thomas P. Ryan, Executive Vice
President and Secretary/Treasurer, LNB Bancorp, Inc., 457 Broadway,
Lorain, Ohio 44052-1739.
By Order of the Board of Directors
/s/ Thomas P. Ryan
Thomas P. Ryan
Executive Vice President
and Secretary/Treasurer
-15-
145
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE LNB BANCORP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 21, 1998
The undersigned hereby appoints James L. Bardoner, Daniel P. Batista and
David M. Koethe, and each of them, with the power of substitution, proxies
and agents of the undersigned to vote at the Annual Meeting of
Shareholders of LNB Bancorp, Inc. (the "Bank"), to be held at The Lorain
National Bank, 457 Broadway, Lorain, Ohio 44052 on April 21, 1998, at
10:00 a.m., and at any adjournment thereof, all shares of common stock of
the Corporation which the undersigned would be entitled to vote if
personnaly present for the following matters.
The Board of Directors recommends a vote FOR each of the following:
1. ELECTION OF DIRECTORS for a three-year term expiring in 2001 (except
as marked to the contrary below):
For [ ] Withhold [ ] For All Except [ ]
Daniel P. Batista, David M. Koethe, Stanley G. Pijor, Eugene M.
Sofranko and Leo Weingarten
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
mark "For All Except" and write that (those) nominee's name(s) in the
space provided below.
_________________________________________________________________
2. To transact such other business as properly may come before the
meeting. In their discretion, the proxies are authorized to vote upon
such other business as properly may come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this
proxy will be voted FOR Proposal 1. The undersigned acknowledges receipt
of the Notice of Annual Meeting of Shareholders and the related Proxy
Statement.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
an authorized person.
Please be sure to sign and date this Proxy in the box below.
Date [ ]
[ ]
Shareholder sign above Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope
provided.
LNB BANCORP, INC.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
144
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1997)
S - K Reference Number (23)
Consent of Independent Accountants.
145
EXHIBIT 23
Consent of Independent Accountants
The Board of Directors
LNB Bancorp, Inc.
We consent to incorporation by reference in the registration statements
No.33-64034 on Form S-8 and No. 333-43441 on Form S-3 of LNB Bancorp, Inc.
of our report dated January 27, 1998, relating to the consolidated balance
sheets of LNB Bancorp, Inc. and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the three-year
period ended December 31, 1997, which report appears in the December 31,
1997 annual report on Form 10-K of LNB Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
Cleveland, Ohio
March 27, 1998
146
LNB Bancorp, Inc.
Exhibit to Form 10 - K
(for the fiscal year ended December 31, 1997)
S - K Reference Number (27)
Financial Data Schedule