LNB Bancorp, Inc. (NASDAQ: LNBB) (“LNB” or the “Company”) today reported financial results for the second quarter 2014. Net income available to common shareholders was $2.0 million, or $0.21 per common share, compared to $1.7 million, or $0.18 per common share, for the year ago quarter. For the first six months of 2014, net income available to common shareholders was $3.6 million, or $0.37 per common share, compared to $2.6 million, or $0.29 per common share for the first six months of last year.

Operating revenue, including net interest income on a fully tax-equivalent basis ("FTE") plus noninterest income from operations, was $12.6 million for the second quarter of 2014, an increase of $406,000, or 3.3%, from the second quarter of the prior year. The net interest margin (FTE) for the second quarter of 2014 was 3.27%, an increase of seven basis points from the 2013 second quarter.

“Overall, we are very pleased with the second quarter results. We’ve seen solid loan growth, improved credit quality and margin improvement,” stated Daniel E. Klimas, president and chief executive officer.

Gain on the sale of loans was $890,000 for the quarter, compared to $587,000 for the second quarter of 2013. This increase is primarily due to the gain on the sale of SBA (Small Business Administration) loans, offsetting a decline in mortgage lending activities.

Loan balances grew by 2.8% compared to the second quarter of 2013, led by the consumer loan and indirect auto loan portfolios. Indirect auto loan production reached $41.0 million during the quarter, driven by auto industry sales growth during the period.

The Company continued to make progress on improving credit quality as non-performing assets declined $6.8 million from the same quarter in 2013. The ratio of non-performing assets to total assets at June 30, 2014 was 1.69%, down from 2.28% at June 30, 2013.

The provision for loan losses was $893,000 in the second quarter of 2014, down $157,000 from the 2013 second quarter, reflecting the Company’s improvement in credit quality. Net charge-offs were $960,000 for the second quarter of 2014, or 0.42% of average loans (annualized), compared to $1.0 million, or 0.47% of average loans (annualized), in the second quarter of 2013. “The credit quality indicators continue to improve, resulting in a lower provision for the second quarter,” stated Klimas.

Noninterest income was $3.3 million for the second quarter of 2014 compared to $3.1 million for the prior-year second quarter. This year-over-year increase was driven primarily by gains on the sale of loans.

Noninterest expense was $8.8 million for the second quarter of 2014 compared with $8.6 million for the second quarter of 2013, an increase of 2.0%. Salaries and benefit costs were higher due to additions of staff in revenue producing areas, while professional fees were lower in the second quarter of 2014, as professional fees for last year’s second quarter included the cost associated with retiring the Company’s preferred shares. Noninterest expense as of June 30, 2014 totaled $17.7 million, a $246,000 decrease from June 30, 2013.

The Company continues to maintain capital levels in excess of the regulatory requirements to be categorized as “well capitalized” with a total risk-based capital ratio of 12.41%, Tier 1 leverage ratio of 8.77% and tangible common equity to tangible assets of 7.29% at June 30, 2014.

Total assets at June 30, 2014 were $1.24 billion, up $18.6 million, or 1.5%, from a year ago. Total deposits at June 30, 2014 were $1.05 billion, up $9.7 million, or 1.0%, from June 30, 2013.

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, any capital-raising or acquisition activities of the Company; 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 June 30, 2014 At December 31, 2013
(unaudited)
(Dollars in thousands except share amounts)
ASSETS
Cash and due from Banks $ 40,968 $ 36,717
Federal funds sold and interest bearing deposits in banks   6,827     15,555  
Cash and cash equivalents 47,795 52,272
Securities Available for sale, at fair value   219,422     216,122  
Total securities 219,422 216,122
Restricted stock 5,741 5,741
Loans held for sale 2,856 4,483
Loans:
Portfolio loans 907,365 902,299
Allowance for loan losses   (17,430 )   (17,505 )
Net loans   889,935     884,794  
Bank premises and equipment, net 7,901 8,198
Other real estate owned 1,016 579
Bank owned life insurance 19,704 19,362
Goodwill, net 21,582 21,582
Intangible assets, net 390 457
Accrued interest receivable 3,572 3,621
Other assets   16,928     13,046  
Total Assets $ 1,236,842   $ 1,230,257  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand and other noninterest-bearing $ 161,580 $ 148,961
Savings, money market and interest-bearing demand 411,559 393,778
Certificates of deposit   475,799     502,850  
Total deposits   1,048,938     1,045,589  
Short-term borrowings 3,362 4,576
Federal Home Loan Bank advances 46,813 46,708
Junior subordinated debentures 16,238 16,238
Accrued interest payable 688 789
Accrued taxes, expenses and other liabilities   10,315     4,901  
Total Liabilities   1,126,354     1,118,801  
Shareholders' Equity

Preferred stock, Series A Voting, no par value, authorized 150,000 shares at June 30, 2014 and December 31, 2013.
- -

Fixed rate cumulative preferred stock, Series B, no par value, $1,000 liquidation value, no shares were issued at June 30, 2014 and 7,689 shares authorized and issued at December 31, 2013
- 7,689
Discount on Series B preferred stock - (19 )

Common stock, par value $1 per share, authorized 15,000,000 shares, issued shares 10,001,717 at June 30, 2014 and 10,001,717 at December 31, 2013
10,002 10,002
Additional paid-in capital 51,229 51,098
Retained earnings 57,367 53,966
Accumulated other comprehensive income (1,933 ) (5,188 )
Treasury shares at cost, 336,745 shares at June 30, 2014 and 328,194 at December 31, 2013   (6,177 )   (6,092 )
Total Shareholders' Equity   110,488     111,456  
Total Liabilities and Shareholders' Equity $ 1,236,842   $ 1,230,257  
 

Consolidated Statements of Income (unaudited)
       

Three Months Ended

June 30,
Three Months Ended

June 30,
Six Months Ended

June 30,
Six Months Ended

June 30,

2014

2013

2014

2013
(Dollars in thousands except share and per share amounts)
Interest Income
Loans $ 9,188 $ 9,264 $ 18,116 $ 18,318
Securities:
U.S. Government agencies and corporations 1,040 867 2,068 1,708
State and political subdivisions 310 298 613 586
Other debt and equity securities 67 138 184 222
Federal funds sold and short-term investments   7     9     24     16  
Total interest income 10,612 10,576 21,005 20,850
 
Interest Expense
Deposits 1,023 1,236 2,105 2,485
Federal Home Loan Bank advances 157 157 312 311
Short-term borrowings 27 - 53 1
Junior subordinated debenture   169     174     338     340  
Total interest expense   1,376     1,567     2,808     3,137  
Net Interest Income 9,236 9,009 18,197 17,713
Provision for Loan Losses   893     1,050     1,793     2,400  
Net interest income after provision for loan losses 8,343 7,959 16,404 15,313
 
Noninterest Income
Investment and trust services 456 440 856 815
Deposit service charges 849 869 1,619 1,685
Other service charges and fees 738 808 1,491 1,639
Income from bank owned life insurance 173 170 342 338
Other income   106     232     257     553  
Total fees and other income 2,322 2,519 4,565 5,030
Securities gains (losses), net (5 ) - (5 ) 178
Gains on sale of loans 890 587 1,593 1,243
Gains (loss) on sale of other assets, net   44     (34 )   10     (47 )
Total noninterest income 3,251 3,072 6,163 6,404
 
Noninterest Expense
Salaries and employee benefits 4,510 4,224 9,105 9,251
Furniture and equipment 1,177 1,134 2,325 2,083
Net occupancy 603 549 1,216 1,137
Professional fees 426 586 920 1,076
Marketing and public relations 390 349 790 638
Supplies, postage and freight 218 274 432 581
Telecommunications 162 175 313 337
Ohio Franchise tax 223 302 447 610
Intangible asset amortization 34 33 67 67
FDIC assessments 261 238 533 480
Other real estate owned 37 48 61 125
Loan and collection expense 372 374 670 762
Other expense   385     336     778     756  
Total noninterest expense   8,798     8,622     17,657     17,903  
Income before income tax expense 2,796 2,409 4,910 3,814
Income tax expense   773     586     1,281     878  
Net Income $ 2,023   $ 1,823   $ 3,629   $ 2,936  
Dividends and accretion on preferred stock   -     117     35     374  
Net Income Available to Common Shareholders $ 2,023   $ 1,706   $ 3,594   $ 2,562  
 
Net Income Per Common Share
Basic $ 0.21 $ 0.18 $ 0.37 $ 0.29
Diluted 0.21 0.18 0.37 0.29
Dividends declared 0.01 0.01 0.02 0.02
Average Common Shares Outstanding
Basic 9,664,972 9,303,702 9,666,626 8,755,457
Diluted 9,682,444 9,223,678 9,683,634 8,659,122
 

LNB Bancorp, Inc.
Supplemental Financial Information
(Unaudited - Dollars in thousands except Share and Per Share Data)
           
Three Months Ended Six Months Ended
END OF PERIOD BALANCES  

June 30,2014

March 31,2014

December 31,2013

June 30,2013

June 30,2014

June 30,2013
Cash and Cash Equivalents $ 47,795 $ 68,241 $ 52,272 $ 49,534 $ 47,795 $ 49,534
Securities 219,422 217,510 216,122 228,766 219,422 228,766
Restricted stock 5,741 5,741 5,741 5,741 5,741 5,741
Loans held for sale 2,856 1,811 4,483 3,423 2,856 3,423
Portfolio loans 907,365 910,189 902,299 882,896 907,365 882,896
Allowance for loan losses   17,430   17,497   17,505   17,815   17,430   17,815
Net loans 889,935 892,692 884,794 865,081 889,935 865,081
Other assets   71,093   69,398   66,845   65,701   71,093   65,701
Total assets $ 1,236,842 $ 1,255,393 $ 1,230,257 $ 1,218,246 $ 1,236,842 $ 1,218,246
Total deposits 1,048,938 1,076,851 1,045,589 1,039,279 1,048,938 1,039,279
Other borrowings 66,413 66,723 67,522 64,704 66,413 64,704
Other liabilities   11,003   4,705   5,690   5,369   11,003   5,369
Total liabilities 1,126,354 1,148,279 1,118,801 1,109,352 1,126,354 1,109,352
Total shareholders' equity   110,488   107,114   111,456   108,894   110,488   108,894
Total liabilities and shareholders' equity $ 1,236,842 $ 1,255,393 $ 1,230,257 $ 1,218,246 $ 1,236,842 $ 1,218,246
 
AVERAGE BALANCES
Assets:
Total assets $ 1,236,203 $ 1,234,380 $ 1,221,830 $ 1,233,694 $ 1,235,296 $ 1,214,767
Earning assets* $ 1,154,063 $ 1,150,500 1,137,943 1,147,869 1,152,291 1,130,676
Securities $ 223,198 $ 217,753 214,860 225,644 220,491 217,207
Portfolio loans 907,851 906,843 899,899 882,499 907,350 883,689
Liabilities and shareholders' equity: -
Total deposits $ 1,056,144 $ 1,055,980 $ 1,041,763 $ 1,053,952 $ 1,056,062 $ 1,035,562
Interest bearing deposits 905,838 910,340 891,589 914,652 908,076 897,028
Interest bearing liabilities 972,784 978,073 956,866 979,260 975,414 961,512
Total shareholders' equity 108,624 106,681 109,814 110,619 107,657 110,518
 
INCOME STATEMENT
Total Interest Income $ 10,612 $ 10,393 $ 10,525 $ 10,576 $ 21,005 $ 20,850
Total Interest Expense   1,376   1,432   1,490   1,567   2,808   3,137
Net interest income 9,236 8,961 9,035 9,009 18,197 17,713
Provision for loan losses 893 900 1,025 1,050 1,793 2,400
Other income 2,322 2,243 2,524 2,519 4,565 5,030
Net gain on sale of assets 929 669 732 553 1,598 1,374
Noninterest expense   8,798   8,859   8,983   8,622   17,657   17,903
Income before income taxes 2,796 2,114 2,283 2,409 4,910 3,814
Income tax expense   773   508   577   586   1,281   878
Net income 2,023 1,606 1,706 1,823 3,629 2,936
Preferred stock dividend and accretion   -   35   163   117   35   374
Net income available to common shareholders $ 2,023 $ 1,571 $ 1,543 $ 1,706 $ 3,594 $ 2,562
Common cash dividend declared and paid $ 97 $ 97 $ 93 $ 93 $ 194 $ 172
 
Net interest income-FTE (1) $ 9,396 $ 9,117 $ 9,192 $ 9,169 $ 18,513 $ 18,029
Total Operating Revenue (4) $ 12,647 $ 12,029 $ 12,448 $ 12,241 $ 24,676 $ 24,433
 

  Three Months Ended   Six Months Ended
June 30,   March 31,   December 31,   June 30, June 30,   June 30,
    2014 2014 2013 2013 2014 2013
PER SHARE DATA
Basic net income per common share $ 0.21 $ 0.16 $ 0.16 $ 0.18 $ 0.37 $ 0.29
Diluted net income per common share 0.21 0.16 0.16 0.18 0.37 0.29
Cash dividends per common share 0.01 0.01 0.01 0.01 0.02 0.02
Book value per common shares outstanding 11.43 11.08 10.73 10.36 11.43 10.36
Tangible book value per common shares outstanding** 9.49 8.81 8.45 8.35 9.49 8.06
Period-end common share market value 12.18 11.42 10.03 8.59 12.18 8.59
Market as a % of tangible book 128.36 % 129.69 % 118.69 % 102.90 % 128.36 % 106.58 %
Basic average common shares outstanding 9,664,972 9,668,297 9,379,355 9,303,702 9,666,626 8,755,457
Diluted average common shares outstanding 9,682,444 9,705,432 9,404,651 9,319,142 9,683,634 8,769,291
Common shares outstanding 9,664,972 9,664,972 9,673,523 9,631,896 9,664,972 9,631,896
 
KEY RATIOS
Return on average assets (ROA) (2) 0.66 % 0.53 % 0.55 % 0.59 % 0.59 % 0.49 %
Return on average common equity (ROE) (2) 7.47 % 6.11 % 6.16 % 6.61 % 6.80 % 5.36 %
Efficiency ratio 69.57 % 73.65 % 72.16 % 70.44 % 71.56 % 73.27 %
Noninterest expense to average assets (2) 2.85 % 2.91 % 2.92 % 2.80 % 2.88 % 2.97 %
Net interest margin (FTE) (1) 3.27 % 3.21 % 3.20 % 3.20 % 3.24 % 3.22 %
Common stock dividend payout ratio 4.79 % 6.18 % 6.10 % 5.46 % 5.38 % 6.83 %
Common stock market capitalization $ 117,719 $ 110,374 $ 97,025 $ 82,738 $ 117,719 $ 82,738
 
 
ASSET QUALITY
Allowance for Loan Losses
Allowance for loan losses, beginning of period $ 17,497 $ 17,505 $ 17,791 $ 17,806 17,505 17,637
Provision for loan losses 893 900 1,025 1,050 1,793 2,400
Charge-offs 1,033 998 1,570 1,667 2,032 3,095
Recoveries   73     90     259     626     164     873  
Net charge-offs   960     908     1,311     1,041     1,868     2,222  
Allowance for loan losses, end of period $ 17,430   $ 17,497   $ 17,505   $ 17,815   $ 17,430   $ 17,815  
 
Nonperforming Assets
Nonperforming loans $ 19,907 $ 20,918 $ 21,986 $ 26,605 $ 19,907 $ 26,605
Other real estate owned   1,016     979     579     1,149     1,016     1,149  
Total nonperforming assets $ 20,923   $ 21,897   $ 22,565   $ 27,754   $ 20,923   $ 27,754  
 
Ratios
Total nonperforming loans to total loans 2.19 % 2.30 % 2.44 % 3.01 % 2.19 % 3.01 %
Total nonperforming assets to total assets 1.69 % 1.74 % 1.83 % 2.28 % 1.69 % 2.28 %
Net charge-offs to average loans (2) 0.42 % 0.41 % 0.58 % 0.47 % 0.42 % 0.51 %
Provision for loan losses to average loans (2) 0.39 % 0.40 % 0.45 % 0.48 % 0.40 % 0.55 %
Allowance for loan losses to portfolio loans 1.92 % 1.92 % 1.94 % 2.02 % 1.92 % 2.02 %
Allowance to nonperforming loans 87.56 % 83.65 % 79.62 % 66.96 % 87.56 % 66.96 %
Allowance to nonperforming assets 83.31 % 79.91 % 77.58 % 64.19 % 83.31 % 64.19 %
 
CAPITAL & LIQUIDITY
Period-end tangible common equity to assets** 7.29 % 6.90 % 6.77 % 6.49 % 7.29 % 6.49 %
Average equity to assets 8.79 % 8.64 % 8.99 % 8.97 % 8.72 % 9.10 %
Average equity to loans 11.96 % 11.76 % 12.20 % 12.53 % 11.86 % 12.51 %
Average loans to deposits 85.96 % 85.88 % 86.38 % 83.73 % 85.92 % 85.33 %
Tier 1 leverage ratio (3) 8.77 % 8.61 % 9.22 % 8.73 % 8.77 % 8.73 %
Tier 1 risk-based capital ratio (3) 11.17 % 10.90 % 11.63 % 11.36 % 11.17 % 11.36 %
Total risk-based capital ratio (3) 12.43 % 12.15 % 12.89 % 12.62 % 12.43 % 12.62 %
 
(1) FTE -- fully tax equivalent at 34% tax rate
(2) Annualized
(3) 6-30-14 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.

**Non-GAAP Financial Measures - Statements included in this press release include non-GAAP financial measures. The Corporations use of these non-GAAP financial measures, includes the period-end tangible common equity to assets ratio, in their analysis of the company's performance. Period-end tangible common equity excludes preferred stock as well as goodwill and other intangible assets, net, from total stockholders' equity. Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Corporation. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider Corporation’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

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