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LNB Bancorp, Inc. Reports Earnings for the Third Quarter 2012

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LORAIN, Ohio--(BUSINESS WIRE)--

LNB Bancorp, Inc. (NASDAQ: LNBB) (“LNB” or the “Company”) today reported financial results for the quarter ended September 30, 2012. Net income was $1.53 million compared to $1.67 million for the third quarter of 2011, a decline of $147,000 or 8.79%. Net income available to common shareholders was $1.21 million, or $0.15 per common share, compared to $1.35 million, or $0.17 per common share, for the 2011 third quarter. For the first nine months of 2012, net income was $4.46 million, up $954,000 or 27%, from the first nine months of the prior year. Net income available to common shareholders for the first nine months of 2012 was $3.51 million, or $0.44 per common share; this compares to $2.56 million for the 2011 nine-month period, or $0.32 per common share, an increase of $0.12 per share, or 37.5%.

“We are particularly pleased with the continued progress that we are making in credit quality,” noted Daniel E. Klimas, president and chief executive officer of LNB Bancorp, Inc. “Non-performing assets have declined $2.3 million in the quarter and nearly $5 million year over year. The ratio of non-performing assets to total assets is 2.84% in the quarter, down from 3.35% a year ago.

“Loans have grown by $42.6 million since year-end 2011. This month, the U.S. Small Business Administration recognized Lorain National Bank for ranking 4th in the Cleveland metro area in small business SBA loan production over the last twelve months.

“We have participated in the resurgence in the automobile industry through our indirect lending activities, originating auto loans through dealers in Ohio, Indiana, Georgia, North Carolina, Kentucky and Tennessee. The auto loan portfolio has increased $21 million during the first nine months of 2012.”

Third Quarter Review

Net income for the 2012 third quarter declined by $147,000 from the year-ago quarter but increased $88,000 from the preceding quarter. Improvement in asset quality has more than offset the impact of declining interest rates, resulting in a 27% improvement in net income for the first nine months of 2012 compared to the year-earlier nine months.

Operating revenue, including net interest income on a fully tax-equivalent basis ("FTE") plus noninterest income from operations, was $12.5 million for the third quarter of 2012, a decline of $100,000 compared to the third quarter of 2011. Stronger loan sales this quarter offset declining net interest income; and while loan sales were stronger, the Company still achieved $47 million of growth in average earning assets year over year. Net interest income on a tax-equivalent basis (FTE) in the quarter was $9.6 million, down $600,000, or 6.0%, from the 2011 third quarter. The net interest margin (FTE) for the full nine months of 2012 was 3.53%, a decline of fifteen basis points from the 2011 nine-month period.

Excluding gains of $46,000 and $7,000 from securities sales in the third quarter of 2012 and 2011 respectively, noninterest income from recurring operations was $3.0 million for the third quarter of 2012 compared to $2.5 million for the year-ago third quarter, an increase of 17.8%. Strong mortgage and auto loan originations and sales accounted for the majority of fee income growth, up $183,000, or double the level of gains in the 2011 third quarter.

For the third quarter of 2012, noninterest expense was $8.5 million compared to $8.3 million for the year-ago quarter. On a pretax, tax­ equivalent basis, pre-provision core earnings* for the third quarter were $3.94 million, down 7.8%, from the third quarter of 2011.

Total assets were $1.2 billion as of September 30, 2012, up 3.1% since September 30, 2011. Portfolio loans increased 5.7% during the same 12-month period, to $885.7 million. Of the $48.2 million in total loan growth over the past twelve months, $42.6 million was booked since year-end 2011. Commercial lending was the primary contributor to recent loan growth, up $28.3 million since the beginning of the year.

Asset quality continues to improve. Nonperforming assets declined by $5 million, or 12.7%, over the past twelve months, to $34.2 million. LNB added $1.9 million to the loan loss reserve during the quarter. At quarter-end, the loan loss reserve was 1.99% of total portfolio loans compared to 2.13% for the year-ago third quarter and 1.99% for the second quarter of 2012.

All regulatory ratios continue to exceed the threshold for “well-capitalized.” Tangible common equity ratio improved by 13 basis points to 5.79% as a result of $3.5 million growth in common equity since September 30, 2011.

* Pre-provision core earnings is a non-GAAP financial measure that the Company's management believes is useful in analyzing the Company's underlying performance trends, particularly in periods of economic stress. Pre-provision core earnings is defined as income before income tax expense, adjusted to exclude the impact of provision for loan losses. Pre-provision core earnings is reconciled to the related GAAP financial measure in the “Reconciliation” table included after the consolidated financial statements and supplemental financial information included in this press release.

About LNB Bancorp, Inc.

LNB Bancorp, Inc. is a $1.2 billion bank holding company. Its major subsidiary, The Lorain National Bank, is a full-service commercial bank, specializing in commercial, personal banking services, residential mortgage lending and investment and trust services. The Lorain National Bank and its Morgan Bank division serve customers through 20 retail-banking locations and 28 ATMs in Lorain, Erie, Cuyahoga and Summit counties, as well as a loan production office in Solon, Ohio. North Coast Community Development Corporation is a wholly owned subsidiary of The Lorain National Bank. For more information about LNB Bancorp, Inc., and its related products and services or to view its filings with the Securities and Exchange Commission, visit us at http://www.4lnb.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Terms such as "will," "should," "plan," "intend," "expect," "continue," "believe," "anticipate" and "seek," as well as similar comments, are forward-looking in nature. Actual results and events may differ materially from those expressed or anticipated as a result of risks and uncertainties which include but are not limited to:

  • a worsening of economic conditions or slowing of any economic recovery, which could negatively impact, among other things, business activity and consumer spending and could lead to a lack of liquidity in the credit markets;
  • changes in the interest rate environment which could reduce anticipated or actual margins;
  • increases in interest rates or further weakening of economic conditions that could constrain borrowers' ability to repay outstanding loans or diminish the value of the collateral securing those loans;
  • market conditions or other events that could negatively affect the level or cost of funding, affecting the Company's ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth, and new business transactions at a reasonable cost, in a timely manner and without adverse consequences;
  • changes in political conditions or the legislative or regulatory environment, including new or heightened legal standards and regulatory requirements, practices or expectations, which may impede profitability or affect the Company's financial condition (such as, for example, the Dodd-Frank Act and rules and regulations that have been or may be promulgated under the Act);
  • persisting volatility and limited credit availability in the financial markets, particularly if market conditions limit the Company's ability to raise funding to the extent required by banking regulators or otherwise;
  • significant increases in competitive pressure in the banking and financial services industries, particularly in the geographic or business areas in which the Company conducts its operations;
  • limitations on the Company's ability to return capital to shareholders, including the ability to pay dividends, and the dilution of the Company's common shares that may result from, among other things, funding any repurchase or redemption of the Company's outstanding preferred stock;
  • adverse effects on the Company's ability to engage in routine funding transactions as a result of the actions and commercial soundness of other financial institutions;
  • general economic conditions becoming less favorable than expected, continued disruption in the housing markets and/or asset price deterioration, which have had and may continue to have a negative effect on the valuation of certain asset categories represented on the Company's balance sheet;
  • increases in deposit insurance premiums or assessments imposed on the Company by the FDIC;
  • a failure of the Company's operating systems or infrastructure, or those of its third-party vendors, that could disrupt its business;
  • risks that are not effectively identified or mitigated by the Company's risk management framework; and
  • difficulty attracting and/or retaining key executives and/or relationship managers at compensation levels necessary to maintain a competitive market position; as well as the risks and uncertainties described from time to time in the Company's reports as filed with the SEC.

The Company undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

           
 
CONSOLIDATED BALANCE SHEETS
 
At September 30, 2012 At December 31, 2011
(unaudited)
(Dollars in thousands except share amounts)
ASSETS
Cash and due from Banks $ 20,445 $ 34,323
Federal funds sold and interest bearing deposits in banks   8,082     6,324  
Cash and cash equivalents 28,527 40,647
Securities Available for sale, at fair value   235,334     226,012  
Total securities 235,334 226,012
Restricted stock 5,741 5,741
Loans held for sale 3,380 3,448
Loans:
Portfolio loans 885,715 843,088
Allowance for loan losses   (17,587 )   (17,063 )
Net loans   868,128     826,025  
Bank premises and equipment, net 8,954 8,968
Other real estate owned 1,653 1,687
Bank owned life insurance 18,370 17,868
Goodwill, net 21,582 21,582
Intangible assets, net 629 731
Accrued interest receivable 3,758 3,550
Other assets   10,573     12,163  
Total Assets $ 1,206,629   $ 1,168,422  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-bearing $ 143,085 $ 126,713
Savings, money market and interest-bearing demand 382,613 359,977
Certificates of deposit   496,011     504,390  
Total deposits   1,021,709     991,080  
Short-term borrowings 988 227
Federal Home Loan Bank advances 47,494 42,497
Junior subordinated debentures 16,238 16,238
Accrued interest payable 928 1,118
Accrued taxes, expenses and other liabilities   3,195     3,988  
Total Liabilities   1,090,552     1,055,148  
Shareholders' Equity

Preferred stock, Series A Voting, no par value, authorized 150,000 shares at September 30, 2012 and December 31, 2011.

- -
 
Fixed rate cumulative preferred stock, Series B, no par value, $1,000 liquidation value, 25,223 shares authorized and issued at September 30, 2012 and December 31, 2011. 25,223 25,223
Discount on Series B preferred stock (90 ) (101 )
Warrant to purchase common stock - 146
 

Common stock, par value $1 per share, authorized 15,000,000 shares, issued shares 8,272,548 at September 30, 2012 and 8,210,443 at December 31, 2011.

8,273 8,210
Additional paid-in capital 39,060 39,607
Retained earnings 47,353 44,080
Accumulated other comprehensive income 2,350 2,201
 
Treasury shares at cost, 328,194 shares at September 30, 2012 and at December 31, 2011 (6,092 ) (6,092 )
Total Shareholders' Equity   116,077     113,274  
Total Liabilities and Shareholders' Equity $ 1,206,629   $ 1,168,422  
 

 
Consolidated Statements of Income (unaudited)
 
       

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

2012   2011 2012   2011
(Dollars in thousands except share and per share amounts) (Dollars in thousands except share and per share amounts)
Interest Income
Loans $ 9,779 $ 10,692 $ 30,022 $ 31,731
Securities:
U.S. Government agencies and corporations 1,145 1,505 3,686 4,594
State and political subdivisions 289 257 867 770
Other debt and equity securities 69 67 210 210
Federal funds sold and short-term investments   8   15     27     38  
Total interest income 11,290 12,536 34,812 37,343
 
Interest Expense
Deposits 1,450 2,044 4,608 6,531
Federal Home Loan Bank advances 214 263 641 790
Short-term borrowings - - - 2
Junior subordinated debenture   179   170     528     511  
Total interest expense   1,843   2,477     5,777     7,834  
Net Interest Income 9,447 10,059 29,035 29,509
Provision for Loan Losses   1,875   2,100     5,442     7,545  
Net interest income after provision for loan losses 7,572 7,959 23,593 21,964
 
Noninterest Income
Investment and trust services 375 378 1,190 1,251
Deposit service charges 994 1,099 2,858 3,015
Other service charges and fees 842 769 2,394 2,494
Income from bank owned life insurance 167 175 501 524
Other income   214   66     614     186  
Total fees and other income 2,592 2,487 7,557 7,470
Securities gains, net 46 7 46 507
Gains on sale of loans 364 181 916 598
Gain (Loss) on sale of other assets, net   31   (133 )   (68 )   (158 )
Total noninterest income 3,033 2,542 8,451 8,417
 
Noninterest Expense
Salaries and employee benefits 4,131 3,986 12,136 12,149
Furniture and equipment 1,273 821 2,982 2,299
Net occupancy 531 569 1,664 1,769
Professional fees 414 450 1,473 1,381
Marketing and public relations 312 215 954 761
Supplies, postage and freight 317 265 825 826
Telecommunications 191 163 536 547
Ohio Franchise tax 304 303 927 899
FDIC assessments 346 396 1,132 1,369
Other real estate owned 107 144 414 941
Electronic banking expenses 121 236 682 668
Loan and collection expense 352 334 1,009 1,086
Other expense   144   447     1,400     1,345  
Total noninterest expense   8,542   8,329     26,133     26,040  
Income before income tax expense 2,063 2,172 5,911 4,341
Income tax expense   538   500     1,443     827  
Net Income $ 1,525 $ 1,672   $ 4,468   $ 3,514  
Dividends and accretion on preferred stock   319   319     956     956  
Net Income Available to Common Shareholders $ 1,206 $ 1,353   $ 3,512   $ 2,558  
 
Net Income Per Common Share
Basic $ 0.15 $ 0.17 $ 0.44 $ 0.32
Diluted 0.15 0.17 0.44 0.32
Dividends declared 0.01 0.01 0.03 0.03
Average Common Shares Outstanding
Basic 7,944,354 7,882,439 7,937,781 7,879,575
Diluted 7,949,118 7,882,439 7,941,990 7,879,575
 

 
LNB Bancorp, Inc.
Supplemental Financial Information
(Unaudited - Dollars in thousands except Share and Per Share Data)
 
                     
Three Months Ended Nine Months Ended
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
END OF PERIOD BALANCES         2012   2012   2012   2011   2011 2012   2011
Cash and Cash Equivalents $ 28,527 $ 56,619 $ 44,112 $ 40,647 $ 40,648 $ 28,527 $ 40,648
Securities 235,334 228,788 231,851 226,012 232,358 235,334 232,358
Restricted stock 5,741 5,741 5,741 5,741 5,741 5,741 5,741
Loans held for sale 3,380 1,207 4,462 3,448 4,069 3,380 4,069
Portfolio loans 885,715 867,459 862,220 843,088 837,492 885,715 837,492
Allowance for loan losses   17,587   17,300   17,115   17,063   17,845   17,587   17,845
Net loans 868,128 850,159 845,105 826,025 819,647 868,128 819,647
Other assets   65,519   65,431   67,823   66,549   67,820   65,519   67,820
Total assets $ 1,206,629 $ 1,207,945 $ 1,199,094 $ 1,168,422 $ 1,170,283 $ 1,206,629 $ 1,170,283
Total deposits 1,021,709 1,023,553 1,016,166 991,080 989,279 1,021,709 989,279
Other borrowings 64,720 64,560 64,628 58,962 64,107 64,720 64,107
Other liabilities   4,123   4,296   4,240   5,106   4,199   4,123   4,199
Total liabilities 1,090,552 1,092,409 1,085,034 1,055,148 1,057,585 1,090,552 1,057,585
Total shareholders' equity   116,077   115,537   114,061   113,274   112,698   116,077   112,698
Total liabilities and shareholders' equity $ 1,206,629 $ 1,207,945 $ 1,199,094 $ 1,168,422 $ 1,170,283 $ 1,206,629 $ 1,170,283
 
AVERAGE BALANCES
Assets:
Total assets $ 1,202,425 $ 1,206,297 $ 1,176,454 $ 1,168,340 $ 1,167,114 $ 1,195,086 $ 1,167,432
Earning assets* 1,128,665 1,122,918 1,093,618 1,082,438 1,081,696 1,115,117 1,086,414
Securities 233,153 226,476 222,832 224,778 232,252 227,508 237,394
Portfolio loans 876,817 866,909 856,364 833,811 835,090 865,462 820,644
Liabilities and shareholders' equity:
Total deposits $ 1,016,029 $ 1,022,428 $ 993,839 $ 991,105 $ 990,189 $ 1,010,784 $ 991,664
Interest bearing deposits 872,309 885,922 869,107 866,037 865,043 875,767 870,984
Interest bearing liabilities 939,268 950,647 933,033 925,530 925,041 940,977 930,786
Total shareholders' equity 115,666 115,281 114,156 112,925 112,678 115,036 111,433
 
INCOME STATEMENT
Total Interest Income $ 11,290 $ 11,845 $ 11,677 $ 12,006 $ 12,536 $ 34,812 $ 37,343
Total Interest Expense   1,843   1,912   2,022   2,274   2,477   5,777   7,834
Net interest income 9,447 9,933 9,655 9,732 10,059 29,035 29,509
Provision for loan losses 1,875 1,667 1,900 2,808 2,100 5,442 7,545
Other income 2,592 2,384 2,581 2,517 2,487 7,557 7,470
Net gain on sale of assets 441 159 294 481 55 894 947
Noninterest expense   8,542   9,047   8,544   8,104   8,329   26,133   26,040
Income before income taxes 2,063 1,762 2,086 1,818 2,172 5,911 4,341
Income tax expense   538   324   581   329   500   1,443   827
Net income 1,525 1,438 1,505 1,489 1,672 4,468 3,514
Preferred stock dividend and accretion   319   318   319   320   319   956   956
Net income available to common shareholders $ 1,206 $ 1,120 $ 1,186 $ 1,169 $ 1,353 $ 3,512 $ 2,558
Common cash dividend declared and paid $ 79 $ 79 $ 79 $ 79 $ 79 $ 238 $ 237
 
Net interest income-FTE (1) $ 9,592 $ 10,093 $ 9,806 $ 9,877 $ 10,203 $ 29,494 $ 29,909
Pre-provision core earnings 3,938 3,429 3,986 4,626 4,272 11,353 11,886
 

        Three Months Ended     Nine Months Ended
September 30,   June 30,   March 31,   December 31,   September 30, September 30,   September 30,
          2012   2012   2012   2011   2011 2012   2011
PER SHARE DATA
Basic net income per common share $ 0.15 $ 0.14 $ 0.15 $ 0.15 $ 0.17 $ 0.44 $ 0.32
Diluted net income per common share 0.15 0.14 0.15 0.15 0.17 0.44 0.32
Cash dividends per common share 0.01 0.01 0.01 0.01 0.01 0.03 0.03
Book value per common shares outstanding 11.45 11.38 11.19 11.18 11.11 11.45 11.11
Tangible book value per common shares outstanding** 8.65 8.58 8.39 8.35 8.28 8.65 8.28
Period-end common share market value 6.09 6.58 6.94 4.70 3.75 6.09 3.75
Market as a % of book 53.20 % 57.82 % 61.99 % 42.04 % 33.75 % 53.20 % 33.75 %
Basic average common shares outstanding 7,944,354 7,944,354 7,924,562 7,882,249 7,882,439 7,937,781 7,879,575
Diluted average common shares outstanding 7,949,118 7,950,539 7,925,368 7,882,249 7,882,439 7,941,990 7,879,575
Common shares outstanding 7,944,354 7,944,354 7,944,354 7,882,249 7,882,249 7,944,354 7,882,249
 
KEY RATIOS
Return on average assets (2) 0.50 % 0.48 % 0.51 % 0.51 % 0.57 % 0.50 % 0.40 %
Return on average common equity (2) 5.25 % 5.02 % 5.30 % 5.23 % 5.89 % 5.19 % 4.22 %
Efficiency ratio 67.66 % 71.60 % 67.38 % 62.94 % 65.35 % 68.87 % 67.94 %
Noninterest expense to average assets (2) 2.83 % 3.02 % 2.92 % 2.75 % 2.83 % 2.92 % 2.98 %
Average equity to average assets 9.62 % 9.56 % 9.70 % 9.67 % 9.65 % 9.63 % 9.55 %
Net interest margin (FTE) (1) 3.38 % 3.61 % 3.61 % 3.62 % 3.74 % 3.53 % 3.68 %
Common stock dividend payout ratio 6.59 % 7.10 % 6.68 % 6.74 % 5.83 % 6.78 % 9.24 %
Common stock market capitalization $ 48,381 $ 52,274 $ 55,134 $ 37,047 $ 29,558 $ 48,381 $ 29,558
 
ASSET QUALITY
Allowance for Loan Losses
Allowance for loan losses, beginning of period $ 17,300 $ 17,115 $ 17,063 $ 17,845

$

17,351

$

17,063

$

16,136
Provision for loan losses 1,875 1,667 1,900 2,808 2,100 5,442 7,545
Charge-offs 1,681 1,621 2,076 3,747 1,751 5,378 6,362
Recoveries           93       139       228       157       145     460       526  
Net charge-offs           1,588       1,482       1,848       3,590       1,606     4,918       5,836  
Allowance for loan losses, end of period         $ 17,587     $ 17,300     $ 17,115     $ 17,063     $ 17,845   $ 17,587     $ 17,845  
 
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets** 5.79 % 5.73 % 5.65 % 5.73 % 5.66 % 5.79 % 5.66 %
Average equity to assets 9.62 % 9.56 % 9.70 % 9.67 % 9.65 % 9.63 % 9.55 %
Average equity to loans 13.19 % 13.30 % 13.33 % 13.54 % 13.49 % 13.29 % 13.58 %
Average loans to deposits 86.30 % 84.79 % 86.17 % 84.13 % 84.34 % 85.62 % 82.75 %
Tier 1 leverage ratio (3) 9.17 % 8.78 % 8.87 % 8.80 % 8.87 % 9.17 % 8.49 %
Tier 1 risk-based capital ratio (3) 11.71 % 11.46 % 11.37 % 11.39 % 11.37 % 11.71 % 11.14 %
Total risk-based capital ratio (3) 12.97 % 13.97 % 13.94 % 14.01 % 13.94 % 12.97 % 13.84 %
 
Nonperforming Assets
Nonperforming loans $ 32,584 $ 34,993 $ 36,870 $ 34,471 $ 37,115 $ 32,584 $ 37,115
Other real estate owned           1,653       1,506       1,845       1,687       2,116     1,653       2,116  
Total nonperforming assets         $ 34,237     $ 36,499     $ 38,715     $ 36,158     $ 39,231   $ 34,237     $ 39,231  
 
Ratios
Total nonperforming loans to total loans 3.68 % 4.03 % 4.28 % 4.09 % 4.43 % 3.68 % 4.43 %
Total nonperforming assets to total assets 2.84 % 3.02 % 3.23 % 3.09 % 3.35 % 2.84 % 3.35 %
Net charge-offs to average loans (2) 0.72 % 0.69 % 0.87 % 1.71 % 0.76 % 0.76 % 0.95 %
Provision for loan losses to average loans (2) 0.85 % 0.77 % 0.89 % 1.34 % 1.00 % 0.84 % 1.23 %
Allowance for loan losses to portfolio loans 1.99 % 1.99 % 1.98 % 2.02 % 2.13 % 1.99 % 2.13 %
Allowance to nonperforming loans 53.97 % 49.44 % 46.42 % 49.50 % 48.08 % 53.97 % 48.08 %
Allowance to nonperforming assets 51.37 % 47.40 % 44.21 % 47.19 % 45.49 % 51.37 % 45.49 %
 
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized
(3) 9-30-12 ratio is estimated.
* Earning Assets includes Loans Held for Sale
* * Non-GAAP measures.
 

       
Reconciliation of Pre-Provision Core Earnings*
       

Three Months Ended
September 30,

Nine Months Ended
September 30,

 
2012 2011 2012 2011
 
Pre-provision Core Earnings* $ 3,938 $ 4,272 $ 11,353 $ 11,886
Provision for Loan Losses 1,875 2,100 5,442 7,545
Income before income tax expense $ 2,063 $ 2,172 $ 5,911 $ 4,341
 

* Pre-provision core earnings is a non-GAAP financial measure that the Company's management believes is useful in analyzing the Company's underlying performance trends, particularly in periods of economic stress. Pre-provision core earnings is defined as income before income tax expense, adjusted to exclude the impact of provision for loan losses.

LNB Bancorp, Inc.
Peter R. Catanese, Senior Vice President, 440-244-7126

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