LNB Bancorp, Inc. Reports Third Quarter 2013 Results

LNB Bancorp, Inc. (NASDAQ:LNBB) (“LNB” or the “Company”) today reported financial results for the third quarter 2013. Net income available to common shareholders was $1.4 million, or $0.15 per common share, compared to $1.2 million, or $0.15 per common share, for the year-ago quarter. Net income available to common shareholders for the first nine months of 2013 was $4.0 million, or $0.44 per share, compared to $3.5 million, or $0.44 per share, in the same period in 2012.

Noninterest expense was $8.3 million for the third quarter of 2013 compared with $8.7 million in the same period of 2012, a decrease of 4.3%.

“Even in this slowly improving economy, we showed nice improvement in earnings growth, primarily due to expense management and improving credit quality,” stated Daniel E. Klimas, president and chief executive officer. “Revenue growth is key to our future success. We’re looking to expand current relationships as well as focus on targeted new lines of business,” added Klimas.

The Company continued to make progress on improving credit quality as non-performing assets at the end of the third quarter of 2013 declined by $8.3 million from the third quarter of 2012. The ratio of non-performing assets to total assets at September 30, 2013 was 2.14%, down from 2.84% at September 30, 2012. The provision for loan losses was $950,000 in the third quarter of 2013, down $925,000 from the 2012 third quarter, reflecting the Company’s improvement in credit quality. Net charge-offs were $974,000 for the third quarter of 2013, or 0.44% of average loans (annualized), compared to $1.6 million, or 0.72% of average loans (annualized), in the third quarter of 2012.

Noninterest income was $2.5 million for the third quarter of 2013 compared to $3.0 million for the prior-year third quarter. Noninterest income for the first nine months of 2013 was $8.9 million, up $499,000, or 6%, from the same nine month period in 2012. During the quarter, the mortgage refinance market slowed as interest rates rose. Fluctuating interest rates caused a decline in the market value of the derivatives associated with our mortgage activities; this loss of $273,000 is reflected in other income.

Operating revenue, including net interest income on a fully tax equivalent basis (“FTE”) plus noninterest income from operations, was $11.4 million for the third quarter of 2013, which was down $1.1 million, or 9.1%, from the third quarter of the prior year. The net interest margin (FTE) for the third quarter of 2013 was 3.13%, a decline of 7 basis points compared to the second quarter 2013, and a decline of 33 basis points from the 2012 third quarter.

“We’re excited to announce a new strategic effort to drive revenue and loan balance growth. During the quarter we opened a new loan office in Columbus, Ohio focusing on business loans utilizing Small Business Administration (SBA) programs,” stated Daniel E. Klimas. The newly created team of three experienced lenders and an underwriter will uncover commercial loan opportunities for medical offices, veterinarians, dental practices and funeral homes over a nine state area.

Total assets at September 30, 2013 were $1.21 billion, up $3.7 million, or 0.3%, from September 30, 2012. Total deposits at September 30, 2013 were $1.03 billion, up $10.5 million, or 1.0%, from September 30, 2012. All regulatory ratios continue to exceed the threshold for “well capitalized” designation. Tangible common equity ratio improved by 67 basis points to 6.46% compared to 5.79% in the third quarter in 2012.

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. 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, 2013 At December 31, 2012
(unaudited)
(Dollars in thousands except share amounts)
ASSETS
Cash and due from banks $ 25,816 $ 24,139
Federal funds sold and interest bearing deposits in banks   21,274     6,520  
Cash and cash equivalents 47,090 30,659
Securities available for sale, at fair value 215,290 203,763
Restricted stock 5,741 5,741
Loans held for sale 2,110 7,634
Loans:
Portfolio loans 891,300 882,548
Allowance for loan losses   (17,791 )   (17,637 )
Net loans   873,509     864,911  
Bank premises and equipment, net 8,322 8,721
Other real estate owned 951 1,366
Bank owned life insurance 19,122 18,611
Goodwill, net 21,582 21,582
Intangible assets, net 492 594
Accrued interest receivable 3,750 3,726
Other assets   12,543     10,946  
Total Assets $ 1,210,502   $ 1,178,254  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-bearing $ 139,871 $ 139,894
Savings, money market and interest-bearing demand 391,558 377,287
Certificates of deposit   500,816     482,411  
Total deposits   1,032,245     999,592  
Short-term borrowings 1,643 1,115
Federal Home Loan Bank advances 46,658 46,508
Junior subordinated debentures 16,238 16,238
Accrued interest payable 804 882
Accrued taxes, expenses and other liabilities   4,953     3,775  
Total Liabilities   1,102,541     1,068,110  
Shareholders' Equity
Preferred stock, Series A Voting, no par value, authorized 150,000

shares at September 30, 2013 and December 31, 2012.
- -
Fixed rate cumulative preferred stock, Series B, no par value, $1,000 liquidation value, 9,147 shares authorized and issued at September 30, 2013 and 18,880 shares at December 31, 2012. 9,147 18,880
Discount on Series B preferred stock (25 ) (65 )
Common stock, par value $1 per share, authorized 15,000,000 shares,

issued shares 9,631,896 at September 30, 2013 and 8,272,548 at December 31, 2012.
9,632 8,273
Additional paid-in capital 47,740 39,141
Retained earnings 52,474 48,767
Accumulated other comprehensive income (loss) (4,915 ) 1,240
Treasury shares at cost, 328,194 shares at September 30, 2013 and at December 31, 2012   (6,092 )   (6,092 )
Total Shareholders' Equity   107,961     110,144  
Total Liabilities and Shareholders' Equity $ 1,210,502   $ 1,178,254  
 

Consolidated Statements of Income (unaudited)
 
  Three Months Ended

September 30,
  Three Months Ended

September 30,
  Nine Months Ended

September 30,
  Nine Months Ended

September 30,

2013

2012

2013

2012
(Dollars in thousands except share and per share amounts)
Interest Income
Loans $ 8,973 $ 9,995 $ 27,291 $ 30,238
Securities:
U.S. Government agencies and corporations 908 1,145 2,616 3,686
State and political subdivisions 301 289 887 867
Other debt and equity securities 115 69 337 210
Federal funds sold and short-term investments   7     8   23     27  
Total interest income 10,304 11,506 31,154 35,028
Interest Expense
Deposits 1,200 1,450 3,685 4,608
Federal Home Loan Bank advances 158 214 469 641
Short-term borrowings - - 1 -
Junior subordinated debenture   171     179   511     528  
Total interest expense   1,529     1,843   4,666     5,777  
Net Interest Income 8,775 9,663 26,488 29,251
Provision for Loan Losses   950     1,875   3,350     5,442  
Net interest income after provision for loan losses 7,825 7,788 23,138 23,809
Noninterest Income
Investment and trust services 363 375 1,178 1,190
Deposit service charges 923 994 2,608 2,858
Other service charges and fees 820 762 2,459 2,314
Income from bank owned life insurance 174 167 512 501
Other income (loss)   (218 )   214   335     614  
Total fees and other income 2,062 2,512 7,092 7,477
Securities gains, net - 46 178 46
Gains on sale of loans 374 364 1,617 916
Gain (loss) on sale of other assets, net   30     31   (17 )   (68 )
Total noninterest income 2,466 2,953 8,870 8,371
Noninterest Expense
Salaries and employee benefits 4,200 4,228 13,451 12,233
Furniture and equipment 1,076 1,434 3,159 3,704
Net occupancy 564 531 1,701 1,664
Professional fees 337 414 1,413 1,473
Marketing and public relations 300 312 938 954
Supplies, postage and freight 228 275 809 783
Telecommunications 164 191 501 536
Ohio Franchise tax 304 304 914 927
FDIC assessments 293 346 773 1,132
Other real estate owned 155 107 280 414
Loan and collection expense 268 394 1,030 1,051
Other expense   412     142   1,235     1,398  
Total noninterest expense   8,301     8,678   26,204     26,269  
Income before income tax expense 1,990 2,063 5,804 5,911
Income tax expense   471     538   1,349     1,443  
Net Income $ 1,519   $ 1,525 $ 4,455   $ 4,468  
Dividends and accretion on preferred stock   109     319   483     956  
Net Income Available to Common Shareholders $ 1,410   $ 1,206 $ 3,972   $ 3,512  
 
Net Income Per Common Share
Basic $ 0.15 $ 0.15 $ 0.44 $ 0.44
Diluted 0.15 0.15 0.44 0.44
Dividends declared 0.01 0.01 0.03 0.03
Average Common Shares Outstanding
Basic 9,303,702 7,944,354 8,940,213 7,937,781
Diluted 9,323,657 7,949,118 8,957,180 7,941,990
 

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   2013   2013   2013   2012   2012 2013   2012
Cash and Cash Equivalents $ 47,090 $ 49,534 $ 54,954 $ 30,659 $ 28,527 $ 47,090 $ 28,527
Securities 215,290 228,766 223,173 203,763 235,334 215,290 235,334
Restricted stock 5,741 5,741 5,741 5,741 5,741 5,741 5,741
Loans held for sale 2,110 3,423 6,250 7,634 3,380 2,110 3,380
Portfolio loans 891,300 882,896 889,931 882,548 885,715 891,300 885,715
Allowance for loan losses   17,791   17,815   17,806   17,637   17,587   17,791   17,587
Net loans 873,509 865,081 872,125 864,911 868,128 873,509 868,128
Other assets   66,762   65,701   68,940   65,546   65,668   66,762   65,668
Total assets $ 1,210,502 $ 1,218,246 $ 1,231,183 $ 1,178,254 $ 1,206,778 $ 1,210,502 $ 1,206,778
Total deposits 1,032,245 1,039,279 1,049,176 999,592 1,021,709 1,032,245 1,021,709
Other borrowings 64,539 64,704 64,684 63,861 64,720 64,539 64,720
Other liabilities   5,757   5,369   7,118   4,657   4,270   5,757   4,270
Total liabilities 1,102,541 1,109,352 1,120,978 1,068,110 1,090,699 1,102,541 1,090,699
Total shareholders' equity   107,961   108,894   110,205   110,144   116,079   107,961   116,079
Total liabilities and shareholders' equity $ 1,210,502 $ 1,218,246 $ 1,231,183 $ 1,178,254 $ 1,206,778 $ 1,210,502 $ 1,206,778
 
AVERAGE BALANCES
Assets:
Total assets $ 1,213,502 $ 1,233,694 $ 1,195,630 $ 1,198,845 $ 1,202,425 $ 1,214,339 $ 1,195,086
Earning assets* $ 1,130,695 $ 1,147,869 $ 1,113,292 1,124,703 1,128,665 1,130,682 1,115,116
Securities $ 222,229 $ 225,644 $ 207,791 224,876 233,153 218,900 227,508
Portfolio loans 883,321 882,499 884,893 883,228 876,818 883,565 865,462
Liabilities and shareholders' equity:
Total deposits $ 1,036,149 $ 1,053,952 $ 1,016,968 $ 1,013,808 $ 1,016,030 $ 1,035,760 $ 1,010,784
Interest bearing deposits $ 896,937 $ 914,652 $ 879,208 870,551 872,311 896,997 875,766
Interest bearing liabilities $ 961,636 $ 979,260 $ 943,566 935,239 939,268 961,554 940,976
Total shareholders' equity 108,025 110,619 110,416 116,573 115,666 109,678 115,036
 
INCOME STATEMENT
Total Interest Income $ 10,304 $ 10,576 $ 10,274 $ 10,920 $ 11,506 $ 31,154 $ 35,028
Total Interest Expense   1,529   1,567   1,570   1,732   1,843   4,666   5,777
Net interest income 8,775 9,009 8,704 9,188 9,663 26,488 29,251
Provision for loan losses 950 1,050 1,350 1,800 1,875 3,350 5,442
Other income 2,062 2,519 2,511 2,598 2,512 7,092 7,477
Net gain on sale of assets 404 553 821 778 441 1,778 894
Noninterest expense   8,301   8,622   9,281   8,634   8,678   26,204   26,269
Income before income taxes 1,990 2,409 1,405 2,130 2,063 5,804 5,911
Income tax expense   471   586   292   491   538   1,349   1,443
Net income 1,519 1,823 1,113 1,639 1,525 4,455 4,468
Preferred stock dividend and accretion   109   117   257   310   319   483   956
Net income available to common shareholders $ 1,410 $ 1,706 $ 856 $ 1,329 $ 1,206 $ 3,972 $ 3,512
Common cash dividend declared and paid $ 93 $ 93 $ 79 $ 79 $ 79 $ 265 $ 238
 
Net interest income-FTE (1) $ 8,934 $ 9,169 $ 8,860 $ 9,339 $ 9,808 $ 26,962 $ 29,711
Total Operating Revenue (4) $ 11,400 $ 12,241 $ 12,192 $ 12,715 $ 12,545 $ 35,832 $ 38,082
 

  Three Months Ended   Nine Months Ended
September 30,   June 30,   March 31,   December 31,   September 30, September 30,   September 30,
    2013   2013   2013   2012   2012 2013   2012
PER SHARE DATA
Basic net income per common share $ 0.15 $ 0.18 $ 0.10 $ 0.17 $ 0.15 $ 0.44 $ 0.44
Diluted net income per common share 0.15 0.18 0.10 0.17 0.15 0.44 0.44
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 10.62 10.36 10.87 11.50 11.45 10.62 11.45
Tangible book value per common shares outstanding** 8.25 8.35 8.49 8.70 8.65 8.25 8.65
Period-end common share market value 9.40 8.59 8.31 5.90 6.09 9.40 6.09
Market as a % of tangible book 113.93 % 102.90 % 97.93 % 67.82 % 70.39 % 113.93 % 70.39 %
Basic average common shares outstanding 9,303,702 9,303,702 8,201,120 7,944,354 7,944,354 8,940,213 7,937,781
Diluted average common shares outstanding 9,323,657 9,319,142 8,212,038 7,949,556 7,949,118 8,957,180 7,941,990
Common shares outstanding 9,303,702 9,303,702 9,303,702 7,944,354 7,944,354 9,303,702 7,944,354
 
KEY RATIOS
Return on average assets (2) 0.50 % 0.59 % 0.38 % 0.54 % 0.50 % 0.49 % 0.50 %
Return on average common equity (2) 5.58 % 6.61 % 4.09 % 5.59 % 5.25 % 5.43 % 5.19 %
Efficiency ratio 72.82 % 70.44 % 76.12 % 67.90 % 68.00 % 73.13 % 68.98 %
Noninterest expense to average assets (2) 2.71 % 2.80 % 3.15 % 2.87 % 2.87 % 2.89 % 2.94 %
Average equity to average assets 8.90 % 8.97 % 9.23 % 9.72 % 9.62 % 9.03 % 9.63 %
Net interest margin (FTE) (1) 3.13 % 3.20 % 3.23 % 3.30 % 3.46 % 3.19 % 3.56 %
Common stock dividend payout ratio 6.61 % 5.46 % 9.59 % 5.88 % 6.59 % 6.75 % 6.78 %
Common stock market capitalization $ 87,455 $ 79,919 $ 77,314 $ 46,872 $ 48,381 $ 87,455 $ 48,381
 
 
ASSET QUALITY
Allowance for Loan Losses
Allowance for loan losses, beginning of period $ 17,815 $ 17,806 $ 17,637 $ 17,587 $ 17,300 17,637 17,063
Provision for loan losses 950 1,050 1,350 1,800 1,875 3,350 5,442
Charge-offs 1,354 1,667 1,428 2,201 1,681 4,449 5,378
Recoveries   380     626     247     451     93     1,253     460  
Net charge-offs   974     1,041     1,181     1,750     1,588     3,196     4,918  
Allowance for loan losses, end of period $ 17,791   $ 17,815   $ 17,806   $ 17,637   $ 17,587   $ 17,791   $ 17,587  
 
Nonperforming Assets
Nonperforming loans $ 24,976 $ 26,605 $ 28,514 $ 27,796 $ 32,584 $ 24,976 $ 32,584
Other real estate owned   951     1,149     1,215     1,366     1,653     951     1,653  
Total nonperforming assets $ 25,927   $ 27,754   $ 29,729   $ 29,162   $ 34,237   $ 25,927   $ 34,237  
 
Ratios
Total nonperforming loans to total loans 2.80 % 3.01 % 3.20 % 3.15 % 3.68 % 2.80 % 3.68 %
Total nonperforming assets to total assets 2.14 % 2.28 % 2.41 % 2.48 % 2.84 % 2.14 % 2.84 %
Net charge-offs to average loans (2) 0.44 % 0.47 % 0.54 % 0.79 % 0.72 % 0.48 % 0.76 %
Provision for loan losses to average loans (2) 0.43 % 0.48 % 0.62 % 0.81 % 0.85 % 0.51 % 0.84 %
Allowance for loan losses to portfolio loans 2.00 % 2.02 % 2.00 % 2.00 % 1.99 % 2.00 % 1.99 %
Allowance to nonperforming loans 71.23 % 66.96 % 62.45 % 63.45 % 53.97 % 71.23 % 53.97 %
Allowance to nonperforming assets 68.62 % 64.19 % 59.89 % 60.48 % 51.37 % 68.62 % 51.37 %
 
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets** 6.46 % 6.49 % 6.53 % 5.98 % 5.79 % 6.46 % 5.73 %
Average equity to assets 8.90 % 8.97 % 9.23 % 9.72 % 9.62 % 9.03 % 9.63 %
Average equity to loans 12.23 % 12.53 % 12.48 % 13.20 % 13.19 % 12.41 % 13.29 %
Average loans to deposits 85.25 % 83.73 % 87.01 % 87.12 % 86.30 % 85.31 % 85.62 %
Tier 1 leverage ratio (3) 8.95 % 8.73 % 8.88 % 8.79 % 9.18 % 8.95 % 9.18 %
Tier 1 risk-based capital ratio (3) 12.40 % 11.36 % 11.11 % 11.21 % 11.71 % 12.40 % 11.71 %
Total risk-based capital ratio (3) 12.65 % 12.62 % 12.36 % 12.47 % 12.97 % 12.65 % 12.97 %
 
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized

(3) 9-30-13 ratio is estimated.
(4) Net interest income on a fully tax-equivalent basis ("FTE") plus noninterest income from operations
* Earning Assets includes Loans Held for Sale

** Non-GAAP measures.
 

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