LNB Bancorp, Inc. Reports Fourth Quarter And Full Year 2011 Results

LNB Bancorp, Inc. (NASDAQ: LNBB) (“LNB” or the “Company”) today reported financial results for the fourth quarter and full year ended December 31, 2011. For the fourth quarter of 2011, net income was $1.49 million compared to $61,000 for the fourth quarter of 2010. Net income available to common shareholders was $1.17 million, or $0.15 per common share, compared to a loss of $(258,000), or $(0.03) per common share, for the prior-year fourth quarter.

“We are pleased to report another year of improved operating performance,” said Daniel E. Klimas, president and chief executive officer of LNB Bancorp. “Our revenue is stable and well-diversified, while operating expenses have continued to decline. The fourth quarter results, in particular, reflect the significant progress we’ve made in nearly every expense category, reducing expenses over $1 million compared to the year-ago fourth quarter.

“Loans grew nearly four percent during 2011 in a market where growth remains a challenge. We have continued our solid performance in commercial lending; recently, Crain’s Cleveland Business cited Lorain National Bank as one of Northeast Ohio’s Top Ten Small Business (SBA) lenders. On the consumer side, our auto loan portfolio grew by $30 million during 2011, both through local markets as well as accessing higher growth markets in other parts of the country. We believe our multi-state expansion of indirect auto lending should enable us to sustain our revenue growth.”

Net income for the year ended December 31, 2011 was $5.0 million compared with net income of $5.37 million for 2010. Net income for 2010 included a one-time gain of $2.2 million related to the extinguishment of debt which increased 2010 after-tax income by $1.46 million, or $0.19 per share. Excluding this gain, net income for 2010 was $3.91 million. Net income available to common shareholders totaled $3.73 million or $0.47 per common share for 2011, compared to $4.09 million, or $0.55 per common share, for 2010.

Fourth Quarter Review

LNB reported pre-provision core earnings* for the 2011 fourth quarter of $4.63 million, up $830,000 or 21.9 percent from the $3.80 million reported for the year-ago fourth quarter. Improved expense control was the primary driver; in particular, credit administration and OREO expense declined $500,000 year over year.

Fourth quarter 2011 net interest income (fully-tax equivalent or “FTE”) totaled $9.88 million, substantially unchanged from the prior-year fourth quarter. The Company’s net interest margin (FTE) for the fourth quarter of 2011 was 3.62 percent, a decline of 12 basis points from the 3.74 percent reported for the third quarter of 2011, but higher by three basis points than the year-ago quarter.

Noninterest income was $3.0 million for the fourth quarter of 2011 compared to $3.2 million for the fourth quarter of 2010, a decline of 5.9 percent. Noninterest expense was $8.10 million for the fourth quarter of 2011 compared with $9.15 million for the fourth quarter of 2010, a decline of 11.5 percent.

The provision for loan losses was $2.8 million in the fourth quarter of 2011, down $1.1 million from the 2010 fourth quarter, reflecting the lower level of nonperforming assets. Net charge-offs were $3.6 million for the fourth quarter of 2011 or 1.71 percent of average loans (annualized) compared to $5.0 million, or 2.48 percent annualized, in the fourth quarter of 2010.

Full year 2011 Review

LNB reported pre-provision core earnings* for the full year 2011 of $16.5 million, up $1.9 million or 13.0 percent from the $14.6 million of pre-provision core earnings reported for 2010.

Net interest income on a fully tax-equivalent basis (FTE) for 2011 was $39.8 million compared to $39.1 million for 2010, a 1.8 percent gain resulting primarily from the combined impact of a seven basis point improvement in the net interest margin (FTE) and a 0.8 percent decline in average earning assets. The net interest margin averaged 3.67 percent for 2011 compared to 3.60 percent in 2010.

Noninterest income for 2011 was $11.4 million compared to $13.78 million for 2010. However, noninterest income was favorably impacted in 2010 by a $2.2 million gain from the extinguishment of debt related to the Company’s exchange of trust preferred securities for common shares during the third quarter of 2010; excluding this one-time gain, noninterest income for 2011 declined by $152,000, or 1.3 percent.

Noninterest expense was $34.1 million for 2011, down 4.0 percent from the $35.6 million reported for 2010. “Expense management continues to be a major focus for LNB, as evidenced by our efficiency ratio which has improved from 70.2 percent for 2010 to 66.6 percent for 2011,” said Klimas.

Total assets at December 31, 2011 were $1.17 billion, substantially unchanged from year-end 2010. Portfolio loans grew $30.5 million to $843.1 million at December 31, 2011, an increase of 3.75 percent since year-end 2010. Total deposits at December 31, 2011 were $991.1 million compared with $978.5 million at 2010 year-end; noninterest-bearing demand deposits increased by $11.2 million, or 9.7 percent, during 2011.

The Company continues to aggressively manage credit quality. During 2011, nonperforming assets declined by $8.8 million, or 19.6 percent, to $36.2 million. At year-end 2011, nonperforming assets comprised 3.09 percent of total assets compared to $44.9 million, or 3.90 percent, of total assets at year-end 2010.

Net charge-offs were $9.4 million for 2011, or 1.14 percent of average loans, compared to $12.9 million in 2010, or 1.62 percent of average loans. “We have continued to make steady progress managing our problem loans. Being a community bank means working with our customers through difficult times and often leads to a longer workout process,” said Klimas.

The allowance for possible loan losses was $17.1 million at December 31, 2011, or 2.02 percent of total loans, compared to $16.1 million at December 31, 2010, or 1.99 percent of total loans. For the year 2011, the provision for loan losses was $10.35 million compared to the 2010 provision for loan losses of $10.22 million.

* 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 the 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, located in Hudson Ohio, serve customers through 20 retail-banking locations and 29 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: uncertain economic conditions, resulting in slow recoveries of business activity and consumer spending and 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 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 ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, fund asset growth, 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 Wall Street reform and Consumer Protection Act and rules and regulations that may be promulgated under the Act); significant increases in competitive pressure in the banking and financial services industries; 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; 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; 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; 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; 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, 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.

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 December 31, 2011 At December 31, 2010
(unaudited)
(Dollars in thousands except share amounts)
ASSETS
Cash and due from Banks $ 34,323 $ 17,370
Federal funds sold and interest-bearing deposits in banks   6,324     31,198  
Cash and cash equivalents 40,647 48,568
Securities available for sale, at fair value 226,012 221,725
Restricted stock 5,741 5,741
Loans held for sale 3,448 5,105
Loans:
Portfolio loans 843,088 812,579
Allowance for loan losses   (17,063 )   (16,136 )
Net loans   826,025     796,443  
Bank premises and equipment, net 8,968 9,645
Other real estate owned 1,687 3,119
Bank owned life insurance 17,868 17,146
Goodwill, net 21,582 21,582
Intangible assets, net 732 869
Accrued interest receivable 3,550 3,519
Other assets   12,162     19,075  
Total Assets $ 1,168,422   $ 1,152,537  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-bearing $ 126,713 $ 115,476
Savings, money market and interest-bearing demand 359,977 318,434
Certificates of deposit   504,390     544,616  
Total deposits   991,080     978,526  
Short-term borrowings 227 932
Federal Home Loan Bank advances 42,497 42,501
Junior subordinated debentures 16,238 16,238
Accrued interest payable 1,118 1,434
Accrued taxes, expenses and other liabilities   3,988     3,442  
Total Liabilities   1,055,148     1,043,073  
Shareholders' Equity

Preferred stock, Series A Voting, no par value, authorized 150,000 shares at December 31, 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 December 31, 2011 and December 31, 2010. 25,223 25,223
Discount on Series B preferred stock (101 ) (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 December 31, 2011 and 8,172,943 at December 31, 2010.
8,210 8,173
Additional paid-in capital 39,607 39,455
Retained earnings 44,080 40,668
Accumulated other comprehensive income 2,201 2,007
Treasury shares at cost, 328,194 shares at December 31, 2011 and at December 31, 2010 (6,092 ) (6,092 )
Total Shareholders' Equity   113,274     109,464  
Total Liabilities and Shareholders' Equity $ 1,168,422   $ 1,152,537  
 

       
Consolidated Statements of Income (unaudited)
 
 

Three Months EndedDecember 31,
 

Twelve Months EndedDecember 31,
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 $ 10,402 $ 10,738 $ 42,133 $ 42,850
Securities:
U.S. Government agencies and corporations 1,253 1,570 5,847 7,171
State and political subdivisions 265 250 1,035 987
Trading securities - - - 49
Other debt and equity securities 67 67 277 269
Federal funds sold and short-term investments   19     16     57     46  
Total interest income 12,006 12,641 49,349 51,372
 
Interest Expense
Deposits 1,836 2,430 8,367 10,709
Federal Home Loan Bank advances 263 319 1,053 1,272
Short-term borrowings - 1 2 4
Junior subordinated debenture   175     131     686     779  
Total interest expense   2,274     2,881     10,108     12,764  
Net Interest Income 9,732 9,760 39,241 38,608
Provision for Loan Losses   2,808     3,931     10,353     10,225  
Net interest income after provision for loan losses 6,924 5,829 28,888 28,383
 
Noninterest Income
Investment and trust services 359 386 1,610 1,797
Deposit service charges 1,064 1,068 4,079 4,247
Other service charges and fees 752 796 3,246 3,208
Income from bank owned life insurance 198 194 722 709
Other income   144     81     330     329  
Total fees and other income 2,517 2,525 9,987 10,290
Securities gains, net 325 355 832 393
Gains on sale of loans 291 349 889 1,000
Loss on sale of other assets, net (135 ) (43 ) (293 ) (116 )
Gain on extinguishment of debt   -     -     -     2,210  
Total noninterest income 2,998 3,186 11,415 13,777
 
Noninterest Expense
Salaries and employee benefits 3,795 4,127 15,944 15,854
Furniture and equipment 789 834 3,088 3,550
Net occupancy 541 580 2,310 2,355
Professional fees 473 496 1,854 2,182
Marketing and public relations 241 237 1,002 1,065
Supplies, postage and freight 281 289 1,107 1,225
Telecommunications 180 179 727 802
Ohio Franchise tax 399 277 1,298 1,113
FDIC assessments 380 588 1,749 2,241
Other real estate owned 80 350 1,021 597
Electronic banking expenses 231 214 899 873
Loan and collection expense 278 509 1,364 1,715
Other expense   436     470     1,781     1,997  
Total noninterest expense   8,104     9,150     34,144     35,569  
Income (loss) before income tax expense 1,818 (135 ) 6,159 6,591
Income tax expense (benefit)   329     (196 )   1,156     1,226  
Net Income $ 1,489   $ 61   $ 5,003   $ 5,365  
Dividends and accretion on preferred stock   320     319     1,276     1,276  
Net Income (Loss) Available to Common Shareholders $ 1,169   $ (258 ) $ 3,727   $ 4,089  
 
Net Income (Loss) Per Common Share
Basic $ 0.15 $ (0.03 ) $ 0.47 $ 0.55
Diluted 0.15 (0.03 ) 0.47 0.55
Dividends declared 0.01 0.01 0.04 0.04
Average Common Shares Outstanding
Basic 7,882,249 7,838,228 7,880,249 7,511,173
Diluted 7,882,249 7,838,228 7,880,249 7,511,173
 

         
LNB Bancorp, Inc.
Supplemental Financial Information
(Unaudited - Dollars in thousands except Share and Per Share Data)
 
Three Months Ended Twelve Months Ended
December 31, September 30, December 31, December 31, December 31,
END OF PERIOD BALANCES   2011   2011   2010     2011   2010
Cash and Cash Equivalents $ 40,647 $ 40,648 $ 48,568 $ 40,647 $ 48,568
Securities 226,012 232,358 221,725 226,012 221,725
Restricted stock 5,741 5,741 5,741 5,741 5,741
Loans held for sale 3,448 4,069 5,105 3,448 5,105
Portfolio loans 843,088 837,492 812,579 843,088 812,579
Allowance for loan losses   17,063     17,845     16,136     17,063     16,136  
Net loans 826,025 819,647 796,443 826,025 796,443
Other assets   66,549     67,820     74,955     66,549     74,955  
Total assets $ 1,168,422   $ 1,170,283   $ 1,152,537   $ 1,168,422   $ 1,152,537  
Total deposits 991,080 989,279 978,526 991,080 978,526
Other borrowings 58,962 64,107 59,671 58,962 59,671
Other liabilities   5,106     4,199     4,876     5,106     4,876  
Total liabilities 1,055,148 1,057,585 1,043,073 1,055,148 1,043,073
Total shareholders' equity   113,274     112,698     109,464     113,274     109,464  
Total liabilities and shareholders' equity $ 1,168,422   $ 1,170,283   $ 1,152,537   $ 1,168,422   $ 1,152,537  
 
AVERAGE BALANCES
Assets:
Total assets $ 1,168,340 $ 1,167,114 $ 1,160,122 $ 1,167,661 $ 1,156,720
Earning assets* 1,082,438 1,081,696 1,091,067 1,085,412 1,087,618
Securities 224,778 226,511 234,613 229,920 245,165
Portfolio loans 833,811 835,090 799,367 823,962 796,849
Liabilities and shareholders' equity:
Total deposits $ 991,105 $ 990,189 $ 984,182 $ 991,523 $ 979,067
Interest bearing deposits 866,037 865,043 871,372 869,737 866,280
Interest bearing liabilities 925,530 925,041 932,047 929,461 930,205
Total shareholders' equity 112,925 112,678 110,697 111,809 107,809
 
INCOME STATEMENT
Total Interest Income $ 12,006 $ 12,536 $ 12,641 $ 49,349 $ 51,372
Total Interest Expense   2,274     2,477     2,881     10,108     12,764  
Net interest income 9,732 10,059 9,760 39,241 38,608
Provision for loan losses 2,808 2,100 3,931 10,353 10,225
Other income 2,517 2,487 2,525 9,987 10,290
Net gain on sale of assets 481 55 661 1,428 1,277
Gain on extinguishment of debt - - - - 2,210
Noninterest expense   8,104     8,329     9,150     34,144     35,569  
Income (loss) before income taxes 1,818 2,172 (135 ) 6,159 6,591
Income tax expense (benefit)   329     500     (196 )   1,156     1,226  
Net income 1,489 1,672 61 5,003 5,365
Preferred stock dividend and accretion   320     319     319     1,276     1,276  
Net income (loss) available to common shareholders $ 1,169   $ 1,353   $ (258 ) $ 3,727   $ 4,089  
Common cash dividend declared and paid $ 79   $ 79   $ 78   $ 316   $ 304  
 
Net interest income-FTE (1) $ 9,877 $ 10,203 $ 9,886 $ 39,833 $ 39,112
Pre-provision core earnings 4,626 4,272 3,796 16,512 14,606
 
PER SHARE DATA
Basic net income per common share $ 0.15 $ 0.17 $ (0.03 ) $ 0.47 $ 0.55
Diluted net income per common share 0.15 0.17 (0.03 ) 0.47 0.55
Cash dividends per common share 0.01 0.01 0.01 0.04 0.04
Book value per common shares outstanding 11.18 11.11 10.75 11.18 10.75
Tangible book value per common shares outstanding** 8.35 8.28 7.89 8.35 7.89
Period-end common share market value 4.70 3.75 4.97 4.70 4.97
Basic average common shares outstanding 7,882,249 7,882,439 7,838,228 7,880,249 7,511,173
Diluted average common shares outstanding 7,882,249 7,882,439 7,838,228 7,880,249 7,511,173
Common shares outstanding 7,882,249 7,882,249 7,844,749 7,882,249 7,844,749
 
KEY RATIOS
Return on average assets (2) 0.51 % 0.57 % 0.02 % 0.43 % 0.46 %
Return on average common equity (2) 5.23 % 5.89 % 0.22 % 4.47 % 4.98 %
Efficiency ratio 62.94 % 65.35 % 70.00 % 66.63 % 70.18 %
Noninterest expense to average assets (2) 2.75 % 2.83 % 3.13 % 2.92 % 3.07 %
Average equity to average assets 9.67 % 9.65 % 9.54 % 9.58 % 9.32 %
Net interest margin (FTE) (1) 3.62 % 3.74 % 3.59 % 3.67 % 3.60 %
Common stock dividend payout ratio 6.74 % 5.83 % -30.38 % 8.46 % 7.28 %
Common stock market capitalization $ 37,047 $ 29,558 $ 38,988 $ 37,047 $ 38,988
 
ASSET QUALITY
Allowance for Loan Losses
Allowance for loan losses, beginning of period $ 17,845 $ 17,351 $ 17,197 $ 16,136 $ 18,792
Provision for loan losses 2,808 2,100 3,931 10,353 10,225
Charge-offs 3,747 1,751 5,128 10,109 13,627
Recoveries     157       145       135         683       745  
Net charge-offs     3,590       1,606       4,993         9,426       12,882  
Allowance for loan losses, end of period   $ 17,063     $ 17,845     $ 16,135       $ 17,063     $ 16,135  
 
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets** 5.73 % 5.66 % 5.48 % 5.73 % 5.48 %
Average equity to assets 9.67 % 9.65 % 9.54 % 9.58 % 9.32 %
Average equity to loans 13.54 % 13.49 % 13.85 % 13.57 % 13.53 %
Average loans to deposits 84.13 % 84.34 % 81.22 % 83.10 % 81.39 %
Tier 1 leverage ratio 8.80 % 8.71 % 8.44 % 8.80 % 8.44 %
Tier 1 risk-based capital ratio 11.39 % 11.29 % 11.04 % 11.39 % 11.04 %
Total risk-based capital ratio 14.01 % 13.94 % 13.82 % 14.01 % 13.82 %
 
Nonperforming Assets
Nonperforming loans $ 34,471 $ 37,115 $ 41,830 $ 34,471 $ 41,830
Other real estate owned     1,687       2,116       3,119         1,687       3,119  
Total nonperforming assets   $ 36,158     $ 39,231     $ 44,949       $ 36,158     $ 44,949  
 
Ratios
Total nonperforming loans to total loans 4.09 % 4.43 % 5.15 % 4.09 % 5.15 %
Total nonperforming assets to total assets 3.09 % 3.35 % 3.90 % 3.09 % 3.90 %
Net charge-offs to average loans (2) 1.71 % 0.76 % 2.48 % 1.14 % 1.62 %
Provision for loan losses to average loans (2) 1.34 % 1.00 % 1.95 % 1.26 % 1.28 %
Allowance for loan losses to portfolio loans 2.02 % 2.13 % 1.99 % 2.02 % 1.99 %
Allowance to nonperforming loans 49.50 % 48.08 % 38.58 % 49.50 % 38.58 %
Allowance to nonperforming assets 47.19 % 45.49 % 35.90 % 47.19 % 35.90 %
 
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized
* Earnings Assets includes Loans Held For Sale
** Non-GAAP measure.
 

         
Reconciliation of Pre-Provision Core Earnings*
 

Three Months EndedDecember 31,

Twelve Months EndedDecember 31,
2011 2010 2011 2010
 
Pre-provision Core Earnings* $ 4,626 $ 3,796 $ 16,512 $ 14,606
Gain on extinguishment of debt - - - (2,210 )
Provision for Loan Losses   2,808   3,931     10,353   10,225  
Income (loss) before income tax expense $ 1,818 $ (135 ) $ 6,159 $ 6,591  
 
 
* 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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