LNB Bancorp Reports Third Quarter 2011 Results

LNB Bancorp, Inc. (NASDAQ: LNBB) today reported net income of $1,672,000 for the three months ended September 30, 2011 compared to $2,730,000 for the same period in 2010. The three months ended September 30, 2010 included a one-time after tax gain of $1,459,000 on the extinguishment of debt related to the exchange of trust preferred securities for common shares. Excluding the one-time gain, net income for the third quarter of 2011 of $1,672,000 is up from $1,271,000 for the third quarter of 2010.

“We are encouraged by another strong quarter of solid core earnings performance in a continuing slow growth economy,” said Daniel E. Klimas, President and Chief Executive Officer of LNB Bancorp. “Additionally, expense management continues to be a high priority. Noninterest expense was $8,329,000, down 5 percent from the third quarter of 2010.”

Pre-provision core earnings* equaled $4,272,000 for the third quarter of 2011 compared to $3,438,000 for the third quarter one year ago, an increase of 24.3 percent. For the first nine months of 2011, pre-provision core earnings* totaled $11,886,000 compared to $10,810,000 for the first nine months of 2010.

“In the third quarter, asset quality showed significant improvement from a year ago which is testimony to our aggressive asset management strategy,” said Klimas. Nonperforming assets decreased by $6.5 million from the third quarter 2010 level. At September 30, 2011 non-performing loans totaled $37,115,000, or 4.43 percent of total loans, compared to $43,574,000, or 5.47 percent of total loans at the same time one year ago.

Net income available to common shareholders for the three months ended September 30, 2011 was $1,353,000, or $0.17 per diluted share, compared with a net income available to common shareholders of $2,410,000, or $0.32 per diluted share for the same period a year ago.

Net income for the nine months of 2011 totaled $3,514,000 compared to $5,304,000 for the same period one year ago. Net income available to common shareholders for the nine months ended September 30, 2011 of $2,558,000, or $0.32 per diluted share, compared with a net income available to common shareholders of $4,347,000, or $0.59 per diluted share for the same period a year ago.

The after tax gain in 2010 of $1,459,000 on the extinguishment of debt related to the exchange of trust preferred securities for common shares in the third quarter of 2010 equaled $0.19 per share and $0.20 per share for the three months and nine months ended September 30, 2010, respectively.

Key Performance Measures

Net interest income on a fully taxable equivalent basis (“FTE”) for the third quarter of 2011 was $10,203,000 compared with $9,498,000 for the third quarter a year ago. For the first nine months of 2011, net interest income FTE was $29,909,000, compared to $29,226,000 for the same period in 2010. The net interest margin FTE for the third quarter of 2011 was 3.74 percent, an improvement from 3.49 percent for the third quarter of 2010.

Noninterest income for the third quarter of 2011 was $2,542,000, compared with $5,044,000 for the same quarter a year ago. The 2010 noninterest income included a $2,210,000 gain from the exchange of trust preferred securities. For the first nine months of 2011, noninterest income was $8,417,000 compared to $10,591,000 for the nine-month period a year ago.

Expense management efforts continue to show results. Noninterest expense was $8,329,000, down from $8,768,000 in the third quarter a year ago. Noninterest expense for the first nine months of 2011 was $26,040,000, down from $26,419,000 for the first nine months of 2010.

The provision for loan losses totaled $2,100,000 for the quarter ended September 30, 2011, down from $3,345,000 for the second quarter this year and essentially unchanged from $2,076,000 in the third quarter of 2010. For the nine-month 2011 period, the provision for loan losses was $7,545,000, compared with $6,294,000 for the first nine months of 2010.

Overall loan demand is improving as total loans ended the quarter at $837,492,000 up slightly from $830,312,000 at the end of the second quarter of 2011, but up 5.2 percent from $795,909,000 at the end of the third quarter of 2010. Total assets for the third quarter 2011 ended at $1,170,283,000 compared to $1,156,602,000 at the end of the third quarter of 2010. Total deposits were $989,279,000 at the end of the third quarter of 2011, compared to $979,031,000 at the end of the same quarter of 2010.

The Company continues to work through asset quality challenges amid a difficult economy. At September 30, 2011, the Company’s non-performing assets totaled $39,231,000, or 3.35 percent of total assets, compared to $40,231,000, or 3.48 percent of total assets, at June 30, 2011 and $45,780,000 or 3.96 percent at September 30, 2010.

The allowance for possible loan losses is $17,845,000 at September 30, 2011, up from $17,351,000 at June 30, 2011 and $17,197,000 at September 30, 2010. The allowance to total loans at September 30, 2011 equaled 2.13 percent, up from 2.09 percent at the end of the second quarter of 2011 and down from the 2.16 percent at September 30, 2010.

Net charge-offs to average loans for the quarter ending September 30, 2011 was 0.76 percent compared to 1.63 percent at June 30, 2011 and 2.14 percent one year ago.

* 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 and the gain on extinguishment of debt. 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 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:
  • 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 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 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;
  • 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;
  • 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;
  • 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 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, 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, particularly in light of the recent consolidation of competing financial institutions; 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 September 30, 2011 At December 31, 2010
(unaudited)
(Dollars in thousands except share amounts)
ASSETS
Cash and due from Banks $ 34,682 $ 17,370
Federal funds sold and interest-bearing deposits in banks   5,966     31,198  
Cash and cash equivalents 40,648 48,568
Securities available for sale, at fair value 232,358 221,725
Restricted stock 5,741 5,741
Loans held for sale 4,069 5,105
Loans:
Portfolio loans 837,492 812,579
Allowance for loan losses   (17,845 )   (16,136 )
Net loans   819,647     796,443  
Bank premises and equipment, net 9,105 9,645
Other real estate owned 2,116 3,119
Bank owned life insurance 17,670 17,146
Goodwill, net 21,582 21,582
Intangible assets, net 766 869
Accrued interest receivable 3,667 3,519
Other assets   12,914     19,075  
Total Assets $ 1,170,283   $ 1,152,537  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-bearing $ 121,402 $ 115,476
Savings, money market and interest-bearing demand 352,089 318,434
Certificates of deposit   515,788     544,616  
Total deposits   989,279     978,526  
Short-term borrowings 371 932
Federal Home Loan Bank advances 47,498 42,501
Junior subordinated debentures 16,238 16,238
Accrued interest payable 1,271 1,434
Accrued taxes, expenses and other liabilities   2,928     3,442  
Total Liabilities   1,057,585     1,043,073  
Shareholders' Equity

Preferred stock, Series A Voting, no par value, authorized 150,000 shares atSeptember 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 September 30, 2011 and December 31, 2010.
25,223 25,223
Discount on Series B preferred stock (105 ) (116 )
Warrant to purchase common stock 146 146

Common stock, par value $1 per share, authorized 15,000,000 shares,issued shares 8,210,443 at September 30, 2011 and 8,172,943 at December 31, 2010.
8,210 8,173
Additional paid-in capital 39,559 39,455
Retained earnings 42,989 40,668
Accumulated other comprehensive income 2,768 2,007
 
Treasury shares at cost, 328,194 shares at September 30, 2011 and at December 31, 2010 (6,092 ) (6,092 )
Total Shareholders' Equity   112,698     109,464  
Total Liabilities and Shareholders' Equity $ 1,170,283   $ 1,152,537  
 

 
Consolidated Statements of Income (unaudited)
 
  Three Months Ended

September 30,
    Nine Months Ended

September 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 $ 10,692 $ 10,740 $ 31,731 $ 32,112
Securities:
U.S. Government agencies and corporations 1,505 1,395 4,594 5,601
State and political subdivisions 257 246 770 737
Trading securities - - - 49
Other debt and equity securities 67 72 210 202
Federal funds sold and short-term investments   15     10     38     30  
Total interest income 12,536 12,463 37,343 38,731
 
Interest Expense
Deposits 2,044 2,554 6,531 8,279
Federal Home Loan Bank advances 263 319 790 953
Short-term borrowings - 1 2 3
Junior subordinated debenture   170     217     511     648  
Total interest expense   2,477     3,091     7,834     9,883  
Net Interest Income 10,059 9,372 29,509 28,848
Provision for Loan Losses   2,100     2,076     7,545     6,294  
Net interest income after provision for loan losses 7,959 7,296 21,964 22,554
 
Noninterest Income
Investment and trust services 378 403 1,251 1,411
Deposit service charges 1,099 1,146 3,015 3,179
Other service charges and fees 769 792 2,494 2,412
Income from bank owned life insurance 175 171 524 515
Other income   66     86     186     248  
Total fees and other income 2,487 2,598 7,470 7,765
Securities gains, net 7 - 507 38
Gains on sale of loans 181 264 598 651
Loss on sale of other assets, net (133 ) (28 ) (158 ) (73 )
Gain on extinguishment of debt   -     2,210     -     2,210  
Total noninterest income 2,542 5,044 8,417 10,591
 
Noninterest Expense
Salaries and employee benefits 3,986 3,898 12,149 11,727
Furniture and equipment 821 866 2,299 2,716
Net occupancy 569 579 1,769 1,775
Professional fees 450 538 1,381 1,686
Marketing and public relations 215 256 761 828
Supplies, postage and freight 265 292 826 936
Telecommunications 163 200 547 623
Ohio Franchise tax 303 274 899 836
FDIC assessments 396 568 1,369 1,653
Other real estate owned 144 95 941 247
Electronic banking expenses 236 237 668 659
Loan and collection expense 334 433 1,086 1,206
Other expense   447     532     1,345     1,527  
Total noninterest expense   8,329     8,768     26,040     26,419  
Income before income tax expense 2,172 3,572 4,341 6,726
Income tax expense   500     842     827     1,422  
Net Income $ 1,672   $ 2,730   $ 3,514   $ 5,304  
Dividends and accretion on preferred stock   319     320     956     957  
Net Income Available to Common Shareholders $ 1,353   $ 2,410   $ 2,558   $ 4,347  
 
Net Income Per Common Share
Basic $ 0.17 $ 0.32 $ 0.32 $ 0.59
Diluted 0.17 0.32 0.32 0.59
Dividends declared 0.01 0.01 0.03 0.03
Average Common Shares Outstanding
Basic 7,882,439 7,514,935 7,879,575 7,400,957
Diluted 7,882,439 7,514,935 7,879,575 7,400,957
 

           
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, September 30, September 30, September 30,
END OF PERIOD BALANCES   2011   2011   2010     2011   2010
Cash and Cash Equivalents $ 40,648 $ 32,481 $ 83,074 $ 40,648 $ 83,074
Securities 232,358 231,025 215,267 232,358 215,267
Restricted stock 5,741 5,741 5,741 5,741 5,741
Loans held for sale 4,069 1,308 4,676 4,069 4,676
Portfolio loans 837,492 830,312 795,909 837,492 795,909
Allowance for loan losses   17,845     17,351     17,197     17,845     17,197  
Net loans 819,647 812,961 778,712 819,647 778,712
Other assets   67,820     73,828     69,132     67,820     69,132  
Total assets $ 1,170,283   $ 1,157,344   $ 1,156,602   $ 1,170,283   $ 1,156,602  
Total deposits 989,279 982,037 979,031 989,279 979,031
Other borrowings 64,107 59,493 60,231 64,107 60,231
Other liabilities   4,199     4,317     5,997     4,199     5,997  
Total liabilities 1,057,585 1,045,847 1,045,259 1,057,585 1,045,259
Total shareholders' equity   112,698     111,497     111,343     112,698     111,343  
Total liabilities and shareholders' equity $ 1,170,283   $ 1,157,344   $ 1,156,602   $ 1,170,283   $ 1,156,602  
 
AVERAGE BALANCES
Assets:
Total assets $ 1,167,114 $ 1,174,984 $ 1,150,184 $ 1,167,432 $ 1,155,702
Earning assets* 1,081,696 1,099,055 1,081,034 1,086,414 1,086,456
Securities 232,252 250,169 242,172 237,394 248,720
Portfolio loans 835,090 815,618 799,784 820,644 796,000
Liabilities and shareholders' equity:
Total deposits $ 990,189 $ 998,303 $ 971,560 $ 991,664 $ 977,344
Interest bearing deposits 865,043 877,572 856,734 870,984 864,565
Interest bearing liabilities 925,041 937,250 920,300 930,786 929,584
Total shareholders' equity 112,678 111,495 108,872 111,433 106,836
 
INCOME STATEMENT
Total Interest Income $ 12,536 $ 12,472 $ 12,463 $ 37,343 $ 38,731
Total Interest Expense   2,477     2,636     3,091     7,834     9,883  
Net interest income 10,059 9,836 9,372 29,509 28,848
Provision for loan losses 2,100 3,345 2,076 7,545 6,294
Other income 2,487 2,505 2,598 7,470 7,765
Net gain on sale of assets 55 299 236 947 616
Gain on extinguishment of debt - - 2,210 - 2,210
Noninterest expense   8,329     8,522     8,768     26,040     26,419  
Income before income taxes 2,172 773 3,572 4,341 6,726
Income tax expense   500     61     842     827     1,422  
Net income 1,672 712 2,730 3,514 5,304
Preferred stock dividend and accretion   319     318     320     956     957  
Net income available to common shareholders $ 1,353   $ 394   $ 2,410   $ 2,558   $ 4,347  
Common cash dividend declared and paid $ 79   $ 79   $ 78   $ 237   $ 225  
 
Net interest income-FTE (1) $ 10,203 $ 9,969 $ 9,498 $ 29,909 $ 29,226
Pre-provision core earnings 4,272 4,118 3,438 11,886 10,810
 
PER SHARE DATA
Basic net income per common share $ 0.17 $ 0.05 $ 0.32 $ 0.32 $ 0.59
Diluted net income per common share 0.17 0.05 0.32 0.32 0.59
Cash dividends per common share 0.01 0.01 0.01 0.03 0.03
Book value per common shares outstanding 11.11 10.96 11.02 11.11 11.02
Period-end common share market value 3.75 5.72 4.62 3.75 4.62
Book value as a percent of market value 296 % 192 % 239 % 296 % 239 %
Basic average common shares outstanding 7,882,439 7,884,749 7,514,935 7,879,575 7,400,957
Diluted average common shares outstanding 7,882,439 7,884,934 7,514,935 7,879,575 7,400,957
Common shares outstanding 7,882,249 7,884,749 7,825,395 7,882,249 7,825,395
 
KEY RATIOS
Return on average assets (2) 0.57 % 0.24 % 0.94 % 0.40 % 0.61 %
Return on average common equity (2) 5.89 % 2.56 % 9.95 % 4.22 % 6.64 %
Efficiency ratio 65.35 % 66.72 % 71.10 % 67.94 % 70.25 %
Noninterest expense to average assets (2) 2.83 % 2.91 % 3.02 % 2.98 % 3.06 %
Average equity to average assets 9.65 % 9.49 % 9.47 % 9.55 % 9.24 %
Net interest margin (FTE) (1) 3.74 % 3.64 % 3.49 % 3.68 % 3.60 %
Common stock dividend payout ratio 5.83 % 20.01 % 3.12 % 9.24 % 5.11 %
Common stock market capitalization $ 29,558 $ 45,101 $ 36,153 $ 29,558 $ 36,153
 
ASSET QUALITY
Allowance for Loan Losses
Allowance for loan losses, beginning of period $ 17,351 $ 17,315 $ 19,435 $ 16,136 $ 18,792
Provision for loan losses 2,100 3,345 2,076 7,545 6,294
Charge-offs 1,751 3,499 4,460 6,362 8,499
Recoveries     145       190       146         526       610  
Net charge-offs     1,606       3,309       4,314         5,836       7,889  
Allowance for loan losses, end of period   $ 17,845     $ 17,351     $ 17,197       $ 17,845     $ 17,197  
 
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets** 5.66 % 5.62 % 5.60 % 5.66 % 5.60 %
Average equity to assets 9.65 % 9.49 % 9.47 % 9.55 % 9.24 %
Average equity to loans 13.49 % 13.67 % 13.61 % 13.58 % 13.42 %
Average loans to deposits 84.34 % 81.70 % 82.32 % 82.75 % 81.45 %
 
Nonperforming Assets
Nonperforming loans $ 37,115 $ 37,954 $ 43,574 $ 37,115 $ 43,574
Other real estate owned     2,116       2,277       2,206         2,116       2,206  
Total nonperforming assets   $ 39,231     $ 40,231     $ 45,780       $ 39,231     $ 45,780  
 
Ratios
Total nonperforming loans to total loans 4.43 % 4.57 % 5.47 % 4.43 % 5.47 %
Total nonperforming assets to total assets 3.35 % 3.48 % 3.96 % 3.35 % 3.96 %
Net charge-offs to average loans (2) 0.76 % 1.63 % 2.14 % 0.95 % 1.33 %
Provision for loan losses to average loans (2) 1.00 % 1.64 % 1.03 % 1.23 % 1.06 %
Allowance for loan losses to portfolio loans 2.13 % 2.09 % 2.16 % 2.13 % 2.16 %
Allowance to nonperforming loans 48.08 % 45.72 % 39.47 % 48.08 % 39.47 %
Allowance to nonperforming assets 45.49 % 43.13 % 37.56 % 45.49 % 37.56 %
 
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized
 
* Earnings Assets includes Loans Held For Sale
** Tangible common equity to assets ratio is a non-GAAP measure.
 

 
Reconciliation of Pre-Provision Core Earnings*
         
Three Months Ended

September 30,
Nine Months Ended

September 30,
 
2011 2010 2011 2010
 
Pre-provision Core Earnings* $ 4,272 $ 3,438 $ 11,886 $ 10,810
Gain on extinguishment of debt - (2,210 ) - (2,210 )
Provision for Loan Losses   2,100   2,076     7,545   6,294  
Income before income tax expense $ 2,172 $ 3,572   $ 4,341 $ 6,726  
 
 
* 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 and the gain on extinguishment of debt.

Copyright Business Wire 2010

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