Add
LNBB to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| LNBB > SEC Filings for LNBB > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
• 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 Corporation's financial condition;
• persisting volatility and limited credit availability in the financial markets, particularly if The Emergency Economic Stabilization Act of 2008 ("EESA"), the American Recovery and Reinvestment Act of 2009, the Financial Stability Plan announced on February 10, 2009, by the Secretary of the U.S. Treasury, in coordination with other financial institution regulators, and other initiatives undertaken by the U.S. government do not have the intended effect on the financial markets;
• limitations on the Corporation's ability to return capital to shareholders and dilution of the Corporation's common shares that may result from the terms of the Capital Purchase Program ("CPP"), pursuant to which the Corporation issued securities to the United States Department of the Treasury (the "U.S. Treasury");
• 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 Corporation's ability to engage in routine funding transactions as a result of the actions and commercial soundness of other financial institutions;
• general economic conditions, either nationally or regionally (especially in northeastern Ohio), becoming less favorable than expected resulting in, among other things, a deterioration in credit quality of assets;
• increases in deposit insurance premiums or assessments imposed on the Corporation 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 Corporation 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 Corporation's reports as filed with the Securities and Exchange Commission.
Critical Accounting Policies and Estimates The Corporation's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Corporation follows general practices within the banking industry and application of these principles requires Management to make assumptions, estimates and judgments that affect the financial statements and accompanying notes. These assumptions, estimates and judgments are based on information available as of the date of the financial statements.
The most significant accounting policies followed by the Corporation are
presented in Note 1 to the Consolidated Financial Statements contained within
this Form 10-Q. These policies are fundamental to the understanding of results
of operation and financial conditions.
The accounting policies considered to be critical by Management are as follows:
Allowance for Loan Losses
The allowance for loan losses is an amount that Management believes will be
adequate to absorb probable credit losses inherent in the loan portfolio taking
into consideration such factors as past loss experience, changes in the nature
and volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, and current economic conditions that affect the
borrower's ability to pay. Determination of the allowance is subjective in
nature. Loan losses are charged off against the allowance when Management
believes that the full collectibility of the loan is unlikely. Recoveries of
amounts previously charged-off are credited to the allowance.
A loan is considered impaired when it is probable that not all principal and
interest amounts will be collected according to the loan contract. Residential
mortgage, installment and other consumer loans are evaluated collectively for
impairment. Individual commercial loans exceeding size thresholds established by
Management are evaluated for impairment. Impaired loans are written down by the
establishment of a specific allowance where necessary. The fair value of all
loans currently evaluated for impairment is collateral-dependent and therefore
the fair value is determined by the fair value of the underlying collateral.
The Corporation maintains the allowance for loan losses at a level adequate to
absorb Management's estimate of probable credit losses inherent in the loan
portfolio. The allowance is comprised of a general allowance, a specific
allowance for identified problem loans and an unallocated allowance representing
estimations pursuant to either SFAS No. 5 "Accounting for Contingencies", or
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan."
The general allowance is determined by applying estimated loss factors to the
credit exposures from outstanding loans. For commercial and commercial real
estate loans, loss factors are applied based on internal risk grades of these
loans. Many factors are considered when these grades are assigned to individual
loans such as current and past delinquency, financial statements of the
borrower, current net realizable value of collateral and the general economic
environment and specific economic trends affecting the portfolio. For
residential real estate, installment and other loans, loss factors are applied
on a portfolio basis. Loss factors are based on the Corporation's historical
loss experience and are reviewed for appropriateness on a quarterly basis, along
with other factors affecting the collectability of the loan portfolio.
Specific allowances are established for all classified loans when Management has
determined that, due to identified significant conditions, it is probable that a
loss has been incurred that exceeds the general allowance loss factor from these
loans. The unallocated allowance recognizes the estimation risk associated with
the allocated general and specific allowances and incorporates Management's
evaluation of existing conditions that are not included in the allocated
allowance determinations. These conditions are reviewed quarterly by Management
and include general economic conditions, credit quality trends and internal loan
review and regulatory examination findings.
Management believes that it uses the best information available to determine the
adequacy of the allowance for loan losses. However, future adjustments to the
allowance may be necessary and the results of operations could be significantly
and adversely affected if circumstances differ substantially from the
assumptions used in making the determinations.
Income Taxes
The Corporation's income tax expense and related current and deferred tax assets
and liabilities are presented as prescribed in SFAS No. 109 "Accounting for
Income Taxes". SFAS No. 109 requires the periodic review and adjustment of tax
assets and liabilities based on many assumptions. These assumptions include
predictions as to the
Corporation's future profitability, as well as potential changes in tax laws
that could impact the deductibility of certain income and expense items. Since
financial results could be significantly different than these estimates, future
adjustments may be necessary to tax expense and related balance sheet accounts.
New Accounting Pronouncements
Management is not aware of any proposed regulations or current recommendations
by the Financial Accounting Standards Board or by regulatory authorities, which,
if they were implemented, would have a material effect on the liquidity, capital
resources, or operations of the Corporation. Recent accounting pronouncements
are discussed in Note 1 to the Consolidated Financial Statements contained
within this Form 10-Q.
Summary of Earnings (Dollars in thousands except per share data)
Net income was $1,317 for the first quarter of 2009. Net income available to
common shareholders was $1,018 and earnings per diluted common share for the
first quarter of 2009 were $0.14. This compares to net income of $1,447 or $.20
per diluted common share for the first quarter of 2008. First quarter 2009 net
interest income totaled $8,898, compared to $7,520 for the first quarter of
2008.
The first quarter of 2009 continued the momentum in increased net interest
income and net interest margin on a linked quarter basis and over the same
period last year amid continued extreme economic challenges. First quarter 2009
net interest margin (FTE) increased 14 basis points on a linked quarter basis
and 24 basis points over the first quarter of 2008. While commercial loans
experienced some slowing during the first quarter of 2009, consumer loans
remained solid, particularly in indirect loans and home equity lines of credit.
The origination of mortgage loans reached historic levels for the Corporation
during the first quarter of 2009 with a record number of refinances. The
majority of mortgage loans are being sold to Freddie Mac rather than being added
to the Corporation's loan portfolio. The Corporation experienced a significant
increase in deposits during the first quarter of 2009, particularly in consumer
and public time deposits, while continuing to be less dependent on other
non-core funding alternatives.
With the ongoing economic decline, the Corporation continued to be negatively
impacted by credit quality issues. The Corporation remains aggressive in
managing these issues. While net charge offs were double the amount charged off
for the fourth quarter of 2008, a large amount of this had been anticipated and
provisioned for during last year. It is not yet clear whether the levels of net
charge-offs experienced in the first quarter are indicative of what can be
expected for the full year 2009.
Noninterest income was both negatively and positively impacted by the current
economic conditions during the first quarter of 2009. Trust and brokerage fees,
which are dependent on the performance of the stock market, declined during the
first quarter of 2009. While the first quarter of the year is historically a low
service fee quarter, service charge and fee income for the first quarter of 2009
was lower than usual. Management feels this is likely due to consumer reaction
to the economy, reluctance to spend and emphasis on savings. Gains on the sale
of mortgage loans, which averaged $25 per month during 2008, averaged over
double that amount on a monthly basis during the first quarter of 2009 as a
result of the record number of refinances.
The Corporation remains extremely diligent in its efforts to reduce noninterest
expense. The efficiency ratio, which measures the relationship of noninterest
expense to total revenue, decreased from 77.83% for the first quarter of 2008 to
70.39% for the first quarter of 2009.
Results of Operations
Net Interest Income
Net interest income is the difference between interest income earned on
interest-earning assets and the interest expense paid on interest-bearing
liabilities. Net interest income is the Corporation's principal source of
revenue, accounting for 75.70% of the Corporation's revenues for the three
months ended March 31, 2009. The amount of net interest income is affected by
changes in the volume and mix of earning assets and interest-bearing
liabilities, the level of rates earned or paid on those assets and liabilities
and the amount of loan fees earned. The Corporation reviews net interest income
on a fully taxable equivalent basis, which presents interest income with an
adjustment for tax-exempt interest income on an equivalent pre-tax basis
assuming a 34% statutory Federal tax rate. These rates may differ from the
Corporation's actual effective tax rate. The net interest margin is net interest
income as a percentage of average earning assets.
Three Months Ended March 31, 2009 versus Three Months Ended March 31, 2008
Net interest income, before provision for loan losses, was $8,898 for the first
quarter 2009 as compared to $7,520 during the same quarter 2008. Adjusting for
tax-exempt income, consolidated net interest income, before provision for loan
losses, for the first quarter 2009 and 2008 was $9,019 and $7,615, respectively.
The net interest margin, determined by dividing tax equivalent net interest
income by average earning assets, was 3.33% for the three months ended March 31,
2009 compared to 3.09% for the three months ended March 31, 2008.
Average earning assets for the first quarter of 2009 were $1,099,310. This was
an increase of $110,934 or 11.22% over the same quarter last year. The yield on
average earning assets was 5.40% in the first quarter of 2009 as compared to
6.17% for the same period last year. The yield on average portfolio loans during
the first quarter of 2009 was 5.84%. This was 81 basis points lower than that of
the first quarter of 2008 at 6.65%. Interest income from securities was $3,002
(FTE) for the three months ended March 31, 2009, as compared to $2,561 during
the first quarter of 2008. The yield on average securities was 4.75% and 4.59%
for these periods, respectively. The cost of interest-bearing liabilities was
2.37% during the first quarter of 2009 as compared to 3.44% during the same
period in 2008. The average cost of trust preferred securities was 4.99% for the
first quarter of 2009, compared to 6.56% for the first quarter of 2008. One half
of the securities were issued at a fixed rate of 6.64% and the other at LIBOR
plus 1.48%.
Table 1 displays the components of net interest income for the three months
ended March 31, 2009 and 2008. Rates are computed on a tax equivalent basis and
nonaccrual loans are included in the average loan balances.
Table 1: Condensed Consolidated Average Balance Sheets
Interest, Rate, and Rate/ Volume differentials are stated on a Fully-Tax
Equivalent (FTE) Basis.
Three Months Ended March 31,
2009 2008
Average Average
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Assets:
U.S. Govt agencies and
corporations and
restricted stock $ 228,377 $ 2,665 4.73 % $ 203,393 $ 2,327 4.60 %
State and political
subdivisions 22,595 337 6.04 15,435 234 6.08
Federal funds sold and
short-term investments 40,649 14 0.14 7,212 48 2.51
Commercial loans 447,048 6,425 5.83 436,421 7,319 6.73
Real estate mortgage
loans 95,044 1,437 6.13 100,564 1,485 5.92
Home equity lines of
credit 102,128 1,010 4.01 81,567 1,178 5.79
Installment loans 163,469 2,757 6.84 143,784 2,617 7.30
Total Earning Assets $ 1,099,310 $ 14,645 5.40 % $ 988,376 $ 15,208 6.17 %
Allowance for loan loss (11,565 ) (7,913 )
Cash and due from banks 19,052 24,473
Bank owned life
insurance 15,801 15,564
Other assets 47,297 42,704
Total Assets $ 1,169,895 $ 1,063,204
Liabilities and
Shareholders' Equity
Consumer time deposits $ 470,027 $ 3,840 3.13 % $ 364,150 $ 4,157 4.58 %
Public time deposits 83,911 613 2.96 65,429 738 4.52
Brokered time deposits 12,485 132 4.28 23,637 317 5.38
Money market accounts 94,854 157 3.31 123,593 827 2.68
Savings deposits 78,325 52 0.27 82,032 144 0.70
Interest-bearing demand 119,768 108 0.37 118,100 326 1.11
Short-term borrowings 28,096 36 0.52 26,080 174 2.65
FHLB advances 52,800 432 3.32 60,250 570 3.79
Trust preferred
securities 20,752 256 4.99 20,798 340 6.56
Total Interest-Bearing
Liabilities $ 961,018 $ 5,626 2.37 % $ 884,069 $ 7,593 3.44 %
Noninterest-bearing
deposits 90,454 84,914
Other liabilities 10,718 10,296
Shareholders' Equity 107,705 83,925
Total Liabilities and
Shareholders' Equity $ 1,169,895 $ 1,063,204
Net interest Income
(FTE) $ 9,019 3.33 % $ 7,615 3.09 %
Taxable Equivalent
Adjustment (121 ) (0.05 ) (95 ) (0.04 )
Net Interest Income Per
Financial Statements $ 8,898 $ 7,520
Net Yield on Earning
Assets 3.28 % 3.05 %
|
Rate/Volume
Net interest income may also be analyzed by comparing the volume and rate
components of interest income and interest expense. Table 2 is an analysis of
the changes in interest income and expense between the quarters ended March 31,
2009 and March 31, 2008. Changes that are not due solely to either a change in
volume or a change in
rate have been allocated proportionally to both changes due to volume and rate. The table is presented on a fully tax-equivalent basis. Table 2: Rate/Volume Analysis of Net Interest Income (FTE)
Three Months Ended March 31,
Increase (Decrease) in Interest Income/Expense
in 2009 over 2008
Volume Rate Total
(Dollars in thousands)
U.S. Govt agencies and corporations and restricted
stock $ 270 $ 68 $ 338
State and political subdivisions 106 (3 ) 103
Federal funds sold and short-term investments 2 (36 ) (34 )
Commercial loans 159 (1,053 ) (894 )
Real estate mortgage loans (105 ) 57 (48 )
Home equity lines of credit 137 (305 ) (168 )
Installment loans 336 (196 ) 140
Total Interest Income 905 (1,468 ) (563 )
Consumer time deposits 445 (762 ) (317 )
Public time deposits 89 (214 ) (125 )
Brokered time deposits (146 ) (39 ) (185 )
Money market accounts (61 ) (609 ) (670 )
Savings deposits (3 ) (89 ) (92 )
Interest bearing demand 2 (220 ) (218 )
Short-term borrowings 2 (140 ) (138 )
FHLB advances (68 ) (70 ) (138 )
Trust preferred securities - (84 ) (84 )
Total Interest Expense 260 (2,227 ) (1,967 )
Net Interest Income (FTE) $ 645 $ 759 $ 1,404
|
Consolidated net interest income (FTE) for the first quarter 2009 and 2008 was $9,019 and $7,615, respectively. Interest income for the first quarter of 2009 decreased $563 in comparison to the same period in 2008. This decrease is attributable to $1,468 decrease attributed to rate, offset by an increase of $905 attributed to volume. For the same period, interest expense decreased $1,967, with the decrease being attributable to a $2,227 decrease attributed to rate, offset by an increase attributed to volume of $260. Overall, while balance sheet growth contributed $645 to net interest income (FTE), the spread between interest income and interest expense rate of $759 had a more significant contribution to the overall net interest income (FTE) increase of $1,404.
Noninterest Income
Table 3: Details on Noninterest Income
Three Months Ended March 31,
2009 2008
(Dollars in thousands)
Investment and trust services $ 350 $ 532
Deposit service charges 1,026 1,111
Electronic banking fees 637 644
Income from bank owned life insurance 162 183
Other income 83 599
Total fees and other income 2,258 3,069
Gain on sale of securities 337 214
Gain on sale of loans 254 187
Gains (losses) on sale of other assets 8 (136 )
Total noninterest income $ 2,857 $ 3,334
|
Three Months Ended March 31, 2009 as compared to the Three Months Ended
March 31, 2008
Noninterest income for the three months ended March 31, 2009 was $2,857, a
decrease of $477, or 14.31%, over the same period 2008. Deposit service charges
and fees from electronic banking decreased $92, or 5.24%, as compared to the
same period last year. This decrease was primarily the result of a decline in
overdrafts experienced by the Corporation during the first quarter of 2009.
Total gains recorded during the first quarter of 2009 increased $334 over the
first quarter of 2008. Of this increase, $67 of the increase was from the sale
of loans, and $123 was attributable to securities. Bank owned property sale and
valuation adjustments, as properties were reappraised, resulted in a loss of
$136 during the first quarter of 2008. Other income for the first quarter of
2008 also included $460 received in a partial redemption of stock issued to
membership institutions by VISA as a result of its initial public offering of
shares.
Noninterest Expense
Table 4: Details on Noninterest Expense
Three Months Ended March 31,
2009 2008
(Dollars in thousands)
. . .
|
|
|