LNB Bancorp, Inc. (NASDAQ: LNBB) today reported net income for the three months ended June 30, 2011 of $712,000. For the first six months of 2011 net income totaled $1,842,000 compared to $2,574,000 for the same period one year ago.

“The Company’s second quarter performance highlights some very positive trends,” said Daniel E. Klimas, president and chief executive officer of LNB Bancorp, Inc. “It was encouraging to see a marked improvement in core earnings and a significant decline in non-performing loans compared to year-end 2010. In addition, our continued focus on growing customer relationships and operational efficiencies resulted in healthy increases in both commercial and consumer loans and lower operating expenses for the quarter.”

Pre-provision core earnings* equaled $4,118,000 for the second quarter compared to $3,635,000 for the second quarter one year ago, an increase of 13.3 percent. For the first six months of 2011 pre-provision core earnings* totaled $7,614,000 compared to $7,372,000 for the first six months of 2010, an increase of 3.3 percent.

Portfolio loans at the end of the second quarter of 2011 totaled $830,312,000, a 4.4 percent increase from $795,451,000 at the end of the second quarter a year ago. Commercial loans grew 4.6 percent and consumer loans 14.3 percent over this period.

Noninterest expense was $8,522,000 for the second quarter of 2011, compared to $9,189,000 for the first quarter of 2011 and $9,150,000 for the fourth quarter of 2010.

At June 30, 2011 the Company’s non-performing loans totaled $37,954,000, or 4.57 percent of total loans, an improvement from $41,831,000, or 5.15 percent, at December 31, 2010. An increase in loan loss provision impacted net income for the quarter, said Klimas. “The increase was driven by a continued decline in the appraised value of properties and by write downs and charge-offs which we anticipate will position the Company to better dispose of problem assets.”

Net income available to common shareholders for the three months ended June 30, 2011 was $394,000, or $0.05 per diluted share, compared to net income of $925,000, or $0.12 per diluted share, for the same period a year ago. For the first quarter of 2011, net income available to common shareholders was $811,000, or $0.10 per diluted share.

Net income available to common shareholders for the six months ended June 30, 2011 was $1,205,000, or $0.15 per diluted share, compared to net income available to common shareholders of $1,937,000, or $0.26 per diluted share, for the same period a year ago.

Key Performance Measures

Net interest income on a fully tax equivalent basis for the second quarter of 2011 was $9,969,000, compared to $9,826,000 for the second quarter a year ago. The second quarter 2011 net interest margin on a fully tax-equivalent basis was 3.64 percent compared to 3.61 percent one year ago. For the first six months of 2011, net interest income on a fully tax equivalent basis totaled $19,707,000 compared to $19,728,000 for the same period one year ago. The continued lower interest rate environment has reduced the yield on the Company’s investment portfolio, which has negatively affected the net interest margin. For the first six months of 2011, the net interest margin on a fully tax-equivalent basis was 3.63 percent, compared to 3.65 percent one year ago.

The provision for loan losses for the quarter ended June 30, 2011 totaled $3,345,000 compared to $2,109,000 for the second quarter of 2010. The increase in the provision was largely the result of a continued decrease in commercial real estate valuations and continued write-downs of asset values. The provision for loan losses for the six month period ended June 30, 2011 totaled $5,445,000, compared to $4,218,000 for the same period of 2010.

Noninterest income in the second quarter totaled $2,804,000, compared to $2,896,000 for the second quarter of 2010. Gains on the sale of loans were up in the second quarter of 2011 compared to the same period one year ago. Trust income and service charges on deposits were down from a year ago, primarily due to the Company’s exit from the retail investment business a year ago and the service charges on deposits being negatively impacted by new federal regulations regarding certain bank overdraft fees and charges. Noninterest income in the six month period ended June 30, 2011 totaled $5,875,000, compared to $5,547,000 for the same period of 2010.

Noninterest expense was $8,522,000 for the second quarter of 2011, compared to $8,958,000 for the second quarter of 2010. The decrease was largely driven by reduced equipment expense, professional fees, FDIC assessments and loan and collection expense. Other real estate owned expenses increased, primarily as a result of further write-downs in valuations and costs related to the disposition of several properties. Noninterest expense was $17,711,000 for the first six months 2011, compared to $17,651,000 for the same period of 2010.

Portfolio loans at the end of the second quarter of 2011 totaled $830,312,000, a 4.4 percent increase from the $795,451,000 at the end of the second quarter a year ago. Total assets for the second quarter of 2011 ended at $1,157,344,000, up from $1,153,955,000 at the end of the second quarter of 2010. Total deposits were $982,037,000, up 0.84 percent from $973,890,000 at the end of the second quarter of 2010.

At June 30, 2011, the Company’s non-performing loans totaled $37,954,000, or 4.57 percent of total loans, an improvement from $41,831,000, or 5.15 percent, at December 31, 2010. The allowance for possible loan losses was $17,351,000 at June 30, 2011, compared to $16,136,000 at December 31, 2010, equaling 2.09 percent of total loans at June 30, 2011 compared to 1.99 percent at December 31, 2010.

The Company’s net charge-offs increased to $3,309,000 in the second quarter of 2011, compared to $1,857,000 a year ago and $921,000 for the first quarter of 2011. Net charge-offs to average loans for the quarter ending June 30, 2011 was 1.63 percent, compared to 0.94 percent one year ago and 2.48 percent at December 31, 2010.

* 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 primary wholly owned 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 Morgan Bank serve customers through 20 retail-banking locations and 30 ATMs in Lorain, Erie, Cuyahoga and Summit counties. 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:
  • asset price deterioration, which has had and may continue to have a negative effect on the valuation of certain asset categories represented on the Company's balance sheet;
  • general economic conditions, either nationally or regionally (especially in northeastern Ohio), becoming less favorable than expected resulting in, among other things, further deterioration in credit quality of assets;
  • increases in interest rates or further weakening economic conditions that could constrain borrowers' ability to repay outstanding loans or diminish the value of the collateral securing those loans;
  • significant increases in competitive pressure in the banking and financial services industries;
  • changes in the interest rate environment which could reduce anticipated or actual margins;
  • 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 Wall Street reform and Consumer Protection Act and rules and regulations that may be promulgated under the Act);
  • persisting volatility and limited credit availability in the financial markets, particularly if limitations on the Company's ability to raise funding to the extent required by banking regulators or otherwise or if initiatives undertaken by the U.S. government do not have the intended effect on the financial markets;
  • limitations on the Company's ability to return capital to shareholders and dilution of the Company's common shares that may result from the terms of the Capital Purchase Program ("CPP"), pursuant to which the Company issued securities to the United States Department of the Treasury (the "U.S. Treasury");
  • limitations on the Company's ability to pay dividends;
  • 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;
  • increases in deposit insurance premiums or assessments imposed on the Company by the FDIC;
  • difficulty attracting and/or retaining key executives and/or relationship managers at compensation levels necessary to maintain a competitive market position;
  • changes occurring in business conditions and inflation;
  • changes in technology;
  • changes in trade, monetary, fiscal and tax policies;
  • changes in the securities markets, in particular, continued disruption in the fixed income markets and adverse capital market conditions;
  • continued disruption in the housing markets and related conditions in the financial markets; and
  • changes in general economic conditions and competition in the geographic and business areas in which the Company conducts its operations; as well as the risks and uncertainties described from time to time in the Company's reports as filed with the Securities and Exchange Commission.
   

CONSOLIDATED BALANCE SHEETS
 
At June 30, 2011 At December 31, 2010
(unaudited)
(Dollars in thousands except share amounts)
ASSETS
Cash and due from Banks $ 26,463 $ 17,370
Federal funds sold and interest bearing deposits in banks   6,018     31,198  
Cash and cash equivalents 32,481 48,568
Securities available for sale, at fair value 231,025 221,725
Restricted stock 5,741 5,741
Loans held for sale 1,308 5,105
Loans:
Portfolio loans 830,312 812,579
Allowance for loan losses   (17,351 )   (16,136 )
Net loans   812,961     796,443  
Bank premises and equipment, net 9,206 9,645
Other real estate owned 2,277 3,119
Bank owned life insurance 17,495 17,146
Goodwill, net 21,582 21,582
Intangible assets, net 801 869
Accrued interest receivable 3,628 3,519
Other assets   18,839     19,075  
Total Assets $ 1,157,344   $ 1,152,537  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-bearing $ 130,210 $ 115,476
Savings, money market and interest-bearing demand 337,569 318,434
Certificates of deposit   514,258     544,616  
Total deposits   982,037     978,526  
Short-term borrowings 756 932
Federal Home Loan Bank advances 42,499 42,501
Junior subordinated debentures 16,238 16,238
Accrued interest payable 1,379 1,434
Accrued taxes, expenses and other liabilities   2,938     3,442  
Total Liabilities   1,045,847     1,043,073  
Shareholders' Equity

Preferred stock, Series A Voting, no par value, authorized 150,000 shares at June 30, 2011 and December 31, 2010.
- -
Fixed rate cumulative preferred stock, Series B, no par value, $1,000 liquidation value, 25,233 shares authorized and issued at June 30, 2011 and December 31, 2010. 25,223 25,223
Discount on Series B preferred stock (109 ) (116 )
Warrant to purchase common stock 146 146

Common stock, par value $1 per share, authorized 15,000,000 shares, issued shares 8,212,943 at June 30, 2011 and 8,172,943 at December 31, 2010.
8,213 8,173
Additional paid-in capital 39,507 39,455
Retained earnings 41,714 40,668
Accumulated other comprehensive income 2,895 2,007
Treasury shares at cost, 328,194 shares at June 30, 2011 and at December 31, 2010 (6,092 ) (6,092 )
Total Shareholders' Equity   111,497     109,464  
Total Liabilities and Shareholders' Equity $ 1,157,344   $ 1,152,537  
 

 
Consolidated Statements of Income (unaudited)
 
       

Three Months Ended June 30,
 

Six Months Ended June 30,
2011   2010 2011   2010
(Dollars in thousands except share and per share amounts) (Dollars in thousands except share and per share amounts)
Interest Income
Loans $ 10,523 $ 10,580 $ 21,039 $ 21,372
Securities:
U.S. Government agencies and corporations 1,612 2,070 3,089 4,206
State and political subdivisions 257 245 513 491
Trading securities - - - 49
Other debt and equity securities 71 69 143 130
Federal funds sold and short-term investments   9     11     23     20  
Total interest income 12,472 12,975 24,807 26,268
Interest Expense
Deposits 2,205 2,745 4,488 5,725
Federal Home Loan Bank advances 261 316 527 634
Short-term borrowings - 1 1 2
Junior subordinated debenture   170     216     341     431  
Total interest expense   2,636     3,278     5,357     6,792  
Net Interest Income 9,836 9,697 19,450 19,476
Provision for Loan Losses   3,345     2,109     5,445     4,218  
Net interest income after provision for loan losses 6,491 7,588 14,005 15,258
Noninterest Income
Investment and trust services 470 563 873 1,008
Deposit service charges 1,000 1,094 1,916 2,033
Other service charges and fees 819 826 1,725 1,620
Income from bank owned life insurance 175 173 349 344
Other income   41     69     120     162  
Total fees and other income 2,505 2,725 4,983 5,167
Securities gains, net 88 - 500 38
Gains on sale of loans 238 195 417 387
Loss on sale of other assets, net   (27 )   (24 )   (25 )   (45 )
Total noninterest income 2,804 2,896 5,875 5,547
Noninterest Expense
Salaries and employee benefits 4,072 3,911 8,163 7,829
Furniture and equipment 798 917 1,478 1,850
Net occupancy 588 581 1,200 1,196
Professional fees 445 595 931 1,148
Marketing and public relations 275 326 546 572
Supplies, postage and freight 289 302 561 644
Telecommunications 169 211 384 423
Ohio Franchise tax 298 281 596 562
FDIC assessments 399 557 973 1,085
Other real estate owned 207 71 797 152
Electronic banking expenses 223 238 432 422
Loan and collection expense 310 450 752 773
Other expense   449     518     898     995  
Total noninterest expense   8,522     8,958     17,711     17,651  
Income before income tax expense 773 1,526 2,169 3,154
Income tax expense   61     283     327     580  
Net Income $ 712   $ 1,243   $ 1,842   $ 2,574  
Dividends and accretion on preferred stock   318     318     637     637  
Net Income Available to Common Shareholders $ 394   $ 925   $ 1,205   $ 1,937  
 
Net Income Per Common Share
Basic $ 0.05 $ 0.12 $ 0.15 $ 0.26
Diluted 0.05 0.12 0.15 0.26
Dividends declared 0.01 0.01 0.02 0.02
Average Common Shares Outstanding
Basic 7,884,749 7,363,161 7,878,119 7,343,023
Diluted 7,884,934 7,363,161 7,878,224 7,343,023
 

         
LNB Bancorp, Inc.
Supplemental Financial Information
(Unaudited - Dollars in thousands except Share and Per Share Data)
 
Three Months Ended   Six Months Ended
June 30, March 31, June 30, June 30, June 30,
END OF PERIOD BALANCES   2011   2011   2010   2011   2010
Cash and Cash Equivalents $ 32,481 $ 64,393 $ 55,322 $ 32,481 $ 55,322
Securities 231,025 235,911 244,111 231,025 244,111
Restricted stock 5,741 5,741 5,741 5,741 5,741
Loans held for sale 1,308 5,261 1,528 1,308 1,528
Portfolio loans 830,312 810,629 795,451 830,312 795,451
Allowance for loan losses   17,351     17,315     19,435     17,351     19,435  
Net loans 812,961 793,314 776,016 812,961 776,016
Other assets   73,828     70,758     71,237     73,828     71,237  
Total assets $ 1,157,344   $ 1,175,378   $ 1,153,955   $ 1,157,344   $ 1,153,955  
Total deposits 982,037 1,001,099 973,890 982,037 973,890
Other borrowings 59,493 59,318 64,848 59,493 64,848
Other liabilities   4,317     4,913     8,078     4,317     8,078  
Total liabilities 1,045,847 1,065,330 1,046,816 1,045,847 1,046,816
Total shareholders' equity   111,497     110,049     107,139     111,497     107,139  
Total liabilities and shareholders' equity $ 1,157,344   $ 1,175,378   $ 1,153,955   $ 1,157,344   $ 1,153,955  
 
AVERAGE BALANCES
Assets:
Total assets $ 1,174,984 $ 1,160,851 $ 1,158,274 $ 1,167,951 $ 1,158,458
Earning assets 1,099,055 1,089,080 1,090,318 1,094,095 1,089,212
Securities 250,169 229,733 258,413 240,007 257,637
Portfolio loans 815,618 816,035 792,132 813,300 794,076
Liabilities and shareholders' equity:
Total deposits $ 998,303 $ 986,458 $ 980,917 $ 992,413 $ 980,285
Interest bearing deposits 877,572 870,396 868,694 874,003 868,545
Interest bearing liabilities 937,250 930,122 933,703 933,706 934,303
Total shareholders' equity 111,495 110,078 106,314 110,785 105,802
 
INCOME STATEMENT
Total Interest Income $ 12,472 $ 12,335 $ 12,975 $ 24,807 $ 26,268
Total Interest Expense   2,636     2,721     3,278     5,357     6,792  
Net interest income 9,836 9,614 9,697 19,450 19,476
Provision for loan losses 3,345 2,100 2,109 5,445 4,218
Other income 2,505 2,478 2,725 4,983 5,167
Net gain on sale of assets 299 593 171 892 380
Noninterest expense   8,522     9,189     8,958     17,711     17,651  
Income before income taxes 773 1,396 1,526 2,169 3,154
Income tax expense   61     266     283     327     580  
Net income 712 1,130 1,243 1,842 2,574
Preferred stock dividend and accretion   318     319     318     637     637  
Net income available to common shareholders $ 394   $ 811   $ 925   $ 1,205   $ 1,937  
Common cash dividend declared and paid $ 79   $ 79   $ 74   $ 158   $ 148  
 
Net interest income-FTE (1) $ 9,969 $ 9,739 $ 9,826 $ 19,707 $ 19,728
Pre-provision core earnings 4,118 3,496 3,635 7,614 7,372
 
PER SHARE DATA
Basic net income per common share $ 0.05 $ 0.10 $ 0.12 $ 0.15 $ 0.26
Diluted net income per common share 0.05 0.10 0.12 0.15 0.26
Cash dividends per common share 0.01 0.01 0.01 0.02 0.02
Book value per common shares outstanding 10.96 10.77 11.42 10.96 11.42
Period-end common share market value 5.72 5.69 5.04 5.72 4.31
Book value as a percent of market value 192 % 189 % 227 % 192 % 265 %
Basic average common shares outstanding 7,884,749 7,871,416 7,363,161 7,878,224 7,343,023
Diluted average common shares outstanding 7,884,934 7,871,432 7,363,161 7,878,224 7,343,023
Common shares outstanding 7,884,749 7,884,749 7,363,161 7,884,749 7,363,161
 
KEY RATIOS
Return on average assets (2) 0.24 % 0.39 % 0.43 % 0.32 % 0.45 %
Return on average common equity (2) 2.56 % 4.16 % 4.69 % 3.35 % 4.91 %
Efficiency ratio 66.72 % 71.73 % 70.41 % 69.23 % 69.84 %
Noninterest expense to average assets (2) 2.91 % 3.21 % 3.10 % 3.06 % 3.07 %
Average equity to average assets 9.49 % 9.48 % 9.18 % 9.49 % 9.13 %
Net interest margin 3.59 % 3.58 % 3.57 % 3.58 % 3.61 %
Net interest margin (FTE) (1) 3.64 % 3.63 % 3.61 % 3.63 % 3.65 %
Common stock dividend payout ratio 20.01 % 9.71 % 8.29 % 13.08 % 7.58 %
Common stock market capitalization $ 45,101 $ 44,864 $ 37,110 $ 45,101 $ 31,444
 
ASSET QUALITY
Allowance for Loan Losses
Allowance for loan losses, beginning of period $ 17,315 $ 16,136 $ 19,183 $ 16,136 $ 18,792
Provision for loan losses 3,345 2,100 2,109 5,445 4,218
Charge-offs 3,499 1,112 2,188 4,611 4,039
Recoveries     190       191       331       381       464  
Net charge-offs     3,309       921       1,857       4,230       3,575  
Allowance for loan losses, end of period   $ 17,351     $ 17,315     $ 19,435     $ 17,351     $ 19,435  
 
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets* 5.62 % 5.40 % 5.16 % 5.62 % 5.16 %
Average equity to assets 9.49 % 9.48 % 9.18 % 9.49 % 9.13 %
Average equity to loans 13.67 % 13.49 % 13.42 % 13.62 % 13.32 %
Average loans to deposits 81.70 % 82.72 % 80.75 % 81.95 % 81.00 %
 
Nonperforming Assets
Nonperforming loans $ 37,954 $ 37,808 $ 46,414 $ 37,954 $ 46,414
Other real estate owned     2,277       3,348       2,355       2,277       2,355  
Total nonperforming assets   $ 40,231     $ 41,156     $ 48,769     $ 40,231     $ 48,769  
 
Ratios
Total nonperforming loans to total loans 4.57 % 4.66 % 5.83 % 4.57 % 5.83 %
Total nonperforming assets to total assets 3.48 % 3.50 % 4.23 % 3.48 % 4.23 %
Net charge-offs to average loans (2) 1.63 % 0.46 % 0.94 % 1.05 % 0.91 %
Provision for loan losses to average loans (2) 1.64 % 1.04 % 1.07 % 1.35 % 1.07 %
Allowance for loan losses to portfolio loans 2.09 % 2.14 % 2.44 % 2.09 % 2.44 %
Allowance to nonperforming loans 45.72 % 45.80 % 41.87 % 45.72 % 41.87 %
Allowance to nonperforming assets 43.13 % 42.07 % 39.85 % 43.13 % 39.85 %
 
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized

* Tangible common equity to assets ratio is a non-GAAP measure.
 

         
Reconciliation of Pre-Provision Core Earnings*
 

Three Months Ended June 30,

Six Months Ended June 30,
2011 2010 2011 2010
 
Pre-provision Core Earnings* $ 4,118 $ 3,635 $ 7,614 $ 7,372
Provision for Loan Losses   3,345   2,109   5,445   4,218
Income before income tax expense $ 773 $ 1,526 $ 2,169 $ 3,154

 

* 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.

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