##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number: 0-13203
 LNB Bancorp, Inc.
  Ohio
    
    34-1406303(State of Incorporation)
    
    (I.R.S. Employer Identification No.)457 Broadway, Lorain, Ohio
    
    44052  1769(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-accelerated Filer o
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##### 



Part I  Financial InformationItem 1. Financial Statements.Consolidated Balance Sheets
September 30, 2007 (unaudited) and December 31, 2006Consolidated Statements of Income (unaudited)
For the three and nine months ended September 30, 2007 and September 30, 2006Consolidated Statements of Changes in Shareholders Equity (unaudited)
For the nine months ended September 30, 2007 and September 30, 2006Consolidated Statements of Cash Flows (unaudited)
For the nine months ended September 30, 2007 and September 30, 2006Notes to the Consolidated Financial Statements (unaudited)Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.Item 3. Quantitative and Qualitative Disclosures about Market Risk.Item 4. Controls and Procedures.Part II  Other InformationItem 1A. Risk Factors.Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Item 6. Exhibits.EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



Consolidated Balance Sheets
 September 30, 2007
    
    
    December 31, 2006(unaudited)(Dollars in thousands except share amounts)ASSETSCash and due from Banks
    
    $
    23,887
    
    
    $
    29,122Federal funds sold and short-term investments
    
    
    500
    
    
    
    Securities:Trading securities
    
    
    32,000
    
    
    
    Available for sale, at fair value
    
    
    167,524
    
    
    
    155,810Federal Home Loan Bank and Federal Reserve Stock
    
    
    4,537
    
    
    
    3,248Total securities
    
    
    204,061
    
    
    
    159,058Loans:Loans held for sale
    
    
    2,703
    
    
    
    Portfolio loans
    
    
    728,624
    
    
    
    628,333Allowance for loan losses
    
    
    (7,951
    )
    
    
    (7,300
    )Net loans
    
    
    723,376
    
    
    
    621,033Bank premises and equipment, net
    
    
    13,647
    
    
    
    12,599Other real estate owned
    
    
    3,053
    
    
    
    1,289Bank owned life insurance
    
    
    15,286
    
    
    
    14,755Goodwill and intangible assets, net
    
    
    23,492
    
    
    
    3,157Accrued interest receivable
    
    
    4,279
    
    
    
    3,939Other assets
    
    
    7,616
    
    
    
    6,146Total Assets
    
    $
    1,019,197
    
    
    $
    851,098LIABILITIES AND SHAREHOLDERS EQUITYDepositsDemand and other noninterest-bearing
    
    $
    87,218
    
    
    $
    91,216Savings, money market and interest-bearing demand
    
    
    360,107
    
    
    
    278,401Certificates of deposit
    
    
    386,998
    
    
    
    347,644Total deposits
    
    
    834,323
    
    
    
    717,261Short-term borrowings
    
    
    28,039
    
    
    
    22,163Federal Home Loan Bank advances
    
    
    45,206
    
    
    
    35,086Junior subordinated debentures
    
    
    20,620
    
    
    
    Accrued interest payable
    
    
    4,190
    
    
    
    3,698Accrued taxes, expenses and other liabilities
    
    
    5,479
    
    
    
    4,193Total Liabilities
    
    
    937,857
    
    
    
    782,401Shareholders EquityCommon stock, par value $1 per share, authorized 15,000,000 shares,
issued 7,623,857 shares at September 30, 2007 and
6,771,867 at December 31, 2006
    
    
    7,624
    
    
    
    6,772Additional paid-in capital
    
    
    37,691
    
    
    
    26,382Retained earnings
    
    
    42,597
    
    
    
    43,728Accumulated other comprehensive loss
    
    
    (480
    )
    
    
    (2,093
    )Treasury shares at cost, 328,194 shares at September 30, 2007
and December 31, 2006
    
    
    (6,092
    )
    
    
    (6,092
    )Total Shareholders Equity
    
    
    81,340
    
    
    
    68,697Total Liabilities and Shareholders Equity
    
    $
    1,019,197
    
    
    $
    851,098
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



Consolidated Statements of Income (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands except share and per share amounts)Interest IncomeLoans
    
    $
    13,437
    
    
    $
    11,164
    
    
    $
    36,610
    
    
    $
    31,690Securities:U.S. Government agencies and corporations
    
    
    2,148
    
    
    
    1,488
    
    
    
    5,310
    
    
    
    4,249State and political subdivisions
    
    
    157
    
    
    
    124
    
    
    
    443
    
    
    
    330Other debt and equity securities
    
    
    78
    
    
    
    49
    
    
    
    204
    
    
    
    150Federal funds sold and short-term investments
    
    
    51
    
    
    
    10
    
    
    
    338
    
    
    
    73Total interest income
    
    
    15,871
    
    
    
    12,835
    
    
    
    42,905
    
    
    
    36,492Interest ExpenseDeposits:Certificates of deposit, $100 and over
    
    
    2,278
    
    
    
    1,864
    
    
    
    6,576
    
    
    
    4,818Other deposits
    
    
    4,427
    
    
    
    2,913
    
    
    
    11,860
    
    
    
    8,073Federal Home Loan Bank advances
    
    
    635
    
    
    
    492
    
    
    
    1,235
    
    
    
    1,227Short-term borrowings
    
    
    347
    
    
    
    246
    
    
    
    812
    
    
    
    655Other interest expense
    
    
    356
    
    
    
    
    
    
    
    567
    
    
    
    Total interest expense
    
    
    8,043
    
    
    
    5,515
    
    
    
    21,050
    
    
    
    14,773Net Interest Income
    
    
    7,828
    
    
    
    7,320
    
    
    
    21,855
    
    
    
    21,719Provision for Loan Losses
    
    
    441
    
    
    
    600
    
    
    
    1,677
    
    
    
    915Net interest income after provision for loan losses
    
    
    7,387
    
    
    
    6,720
    
    
    
    20,178
    
    
    
    20,804Noninterest IncomeInvestment and trust services
    
    
    547
    
    
    
    482
    
    
    
    1,593
    
    
    
    1,537Deposit service charges
    
    
    1,239
    
    
    
    1,224
    
    
    
    3,457
    
    
    
    3,334Other service charges and fees
    
    
    605
    
    
    
    504
    
    
    
    1,706
    
    
    
    1,444Income from bank owned life insurance
    
    
    182
    
    
    
    187
    
    
    
    531
    
    
    
    474Other income
    
    
    128
    
    
    
    56
    
    
    
    273
    
    
    
    160Total fees and other income
    
    
    2,701
    
    
    
    2,453
    
    
    
    7,560
    
    
    
    6,949Securities gains, net
    
    
    2
    
    
    
    
    
    
    
    261
    
    
    
    Gains on sale of loans
    
    
    277
    
    
    
    
    
    
    
    546
    
    
    
    Gains (losses) on sale of other assets, net
    
    
    24
    
    
    
    
    
    
    
    59
    
    
    
    2Total noninterest income
    
    
    3,004
    
    
    
    2,453
    
    
    
    8,426
    
    
    
    6,951Noninterest ExpenseSalaries and employee benefits
    
    
    4,104
    
    
    
    3,770
    
    
    
    11,862
    
    
    
    10,986Furniture and equipment
    
    
    952
    
    
    
    737
    
    
    
    2,566
    
    
    
    2,227Net occupancy
    
    
    593
    
    
    
    484
    
    
    
    1,683
    
    
    
    1,413Outside services
    
    
    488
    
    
    
    406
    
    
    
    1,317
    
    
    
    1,260Marketing and public relations
    
    
    321
    
    
    
    311
    
    
    
    936
    
    
    
    1,069Supplies, postage and freight
    
    
    353
    
    
    
    311
    
    
    
    986
    
    
    
    912Telecommunications
    
    
    232
    
    
    
    207
    
    
    
    623
    
    
    
    577Ohio Franchise tax
    
    
    188
    
    
    
    207
    
    
    
    604
    
    
    
    636Other real estate owned
    
    
    58
    
    
    
    28
    
    
    
    305
    
    
    
    59Electronic banking expenses
    
    
    150
    
    
    
    160
    
    
    
    593
    
    
    
    466Other charge-offs and losses
    
    
    192
    
    
    
    131
    
    
    
    387
    
    
    
    291Loan and collection expense
    
    
    236
    
    
    
    212
    
    
    
    644
    
    
    
    620Other expense
    
    
    467
    
    
    
    315
    
    
    
    1,195
    
    
    
    1,163Total noninterest expense
    
    
    8,334
    
    
    
    7,279
    
    
    
    23,701
    
    
    
    21,679Income before income tax expense
    
    
    2,057
    
    
    
    1,894
    
    
    
    4,903
    
    
    
    6,076Income tax expense
    
    
    384
    
    
    
    475
    
    
    
    1,059
    
    
    
    1,570Net Income
    
    $
    1,673
    
    
    $
    1,419
    
    
    $
    3,844
    
    
    $
    4,506Net Income Per Common ShareBasic
    
    $
    0.23
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.70Diluted
    
    
    0.23
    
    
    
    0.22
    
    
    
    0.56
    
    
    
    0.70Dividends declared
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.54
    
    
    
    0.54Average Common Shares OutstandingBasic
    
    
    7,295,663
    
    
    
    6,450,086
    
    
    
    6,889,953
    
    
    
    6,468,032Diluted
    
    
    7,295,663
    
    
    
    6,450,235
    
    
    
    6,889,953
    
    
    
    6,468,291
 See accompanying notes to consolidated financial statements
 4




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##### Table of Contents



Consolidated Statements of Shareholders Equity (unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Total(Dollars in thousands except share and per share amounts)Balance, January 1, 2006
    
    $
    6,772
    
    
    $
    26,334
    
    
    $
    42,945
    
    
    $
    (2,996
    )
    
    $
    (4,649
    )
    
    $
    68,406Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    4,506
    
    
    
    
    
    
    
    
    
    
    
    4,506Other comprehensive income, net of tax:Change in unrealized gains and losses on
securities, net of reclassification
adjustment of $119 for gains on sale of
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    551
    
    
    
    
    
    
    
    551Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,057Share-based compensation income
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Purchase of 42,500 shares of Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,443
    )
    
    
    (1,443
    )Common dividends declared, $.36 per share
    
    
    
    
    
    
    
    
    
    
    (3,485
    )
    
    
    
    
    
    
    
    
    
    
    (3,485
    )Balance, September 30, 2006
    
    $
    6,772
    
    
    $
    26,370
    
    
    $
    43,966
    
    
    $
    (2,445
    )
    
    $
    (6,092
    )
    
    $
    68,571Balance, January 1, 2007
    
    $
    6,772
    
    
    $
    26,382
    
    
    $
    43,728
    
    
    $
    (2,093
    )
    
    $
    (6,092
    )
    
    $
    68,697Cumulative affect of adoption of SFAS 159
    
    
    
    
    
    
    
    
    
    
    (1,192)      1,192
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    3,844Other comprehensive income, net of tax:Change in unrealized gains and losses on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    421Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,265Share-based compensation income
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Issuance of 851,990 shares of common stock
    
    
    852
    
    
    
    11,272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,124Common dividends declared, $.54 per share
    
    
    
    
    
    
    
    
    
    
    (3,783
    )
    
    
    
    
    
    
    
    
    
    
    (3,783
    )Balance, September 30, 2007
    
    $
    7,624
    
    
    $
    37,691
    
    
    $
    42,597
    
    
    $
    (480
    )
    
    $
    (6,092
    )
    
    $
    81,340
 See accompanying notes to consolidated financial statements
 5




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##### Table of Contents



Consolidated Statements of Cash Flows (unaudited)
 Nine Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Operating ActivitiesNet income
    
    $
    3,844
    
    
    $
    4,506Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    1,677
    
    
    
    915Depreciation and amortization
    
    
    1,292
    
    
    
    1,227Amortization of premiums and discounts
    
    
    (28
    )
    
    
    232Amortization of intangibles
    
    
    208
    
    
    
    120Amortization of deferred loan fees
    
    
    297
    
    
    
    279Federal deferred income tax expense (benefit)
    
    
    582
    
    
    
    121Net gain from loan sales
    
    
    (546
    )
    
    
    Securities gains, net
    
    
    (261
    )
    
    
    Share-based compensation expense, net of tax
    
    
    37
    
    
    
    36Net loss on sale of other assets
    
    
    (59
    )
    
    
    Net increase in accrued interest receivable and other assets
    
    
    (5,976
    )
    
    
    (2,886
    )Net decrease in accrued interest payable, taxes and other liabilities
    
    
    1,715
    
    
    
    141Net cash provided by operating activities
    
    
    2,782
    
    
    
    4,691Investing ActivitiesPurchase of available-for-sale securities
    
    
    (94,174
    )
    
    
    (29,005
    )Proceeds from maturities of available-for-sale securities
    
    
    35,428
    
    
    
    20,989Purchase of trading securities
    
    
    (31,582
    )
    
    
    Proceeds from sale of trading securities
    
    
    47,632
    
    
    
    Purchase of Federal Home Loan Bank Stock
    
    
    (495
    )
    
    
    (129
    )Redemption of Federal Home Loan Bank Stock
    
    
    
    
    
    
    570Purchase of Federal Reserve Bank Stock
    
    
    (794
    )
    
    
    Acquisition, net of cash and cash equivalents acquired
    
    
    (4,912
    )
    
    
    Net increase in loans made to customers
    
    
    (79,912
    )
    
    
    (22,022
    )Proceeds from the sale of other real estate owned
    
    
    561
    
    
    
    1,097Purchase of bank premises and equipment
    
    
    (1,735
    )
    
    
    (1,979
    )Net cash used in investing activities
    
    
    (129,983
    )
    
    
    (30,479
    )Financing ActivitiesNet decrease in demand and other noninterest-bearing
    
    
    (13,345
    )
    
    
    (7,459
    )Net increase in savings, money market and interest-bearing demand
    
    
    26,443
    
    
    
    12,302Net increase in certificates of deposit
    
    
    2,095
    
    
    
    43,430Net increase (decrease) in short-term borrowings
    
    
    4,156
    
    
    
    (14,641
    )Proceeds from loan sales
    
    
    68,160
    
    
    
    Proceeds from Federal Home Loan Bank advances
    
    
    213,450
    
    
    
    91,000Repayment of Federal Home Loan Bank advances
    
    
    (207,454
    )
    
    
    (94,808
    )Proceeds from issuance of junior subordinated debentures
    
    
    20,620
    
    
    
    Issuance of stock in acquisition
    
    
    12,124
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (1,443
    )Dividends paid
    
    
    (3,783
    )
    
    
    (3,485
    )Net cash provided by financing activities
    
    
    122,466
    
    
    
    24,896Net decrease in cash and cash equivalents
    
    
    (4,735
    )
    
    
    (892
    )Cash and cash equivalents, January 1
    
    
    29,122
    
    
    
    23,923Cash and cash equivalents, September 30
    
    $
    24,387
    
    
    $
    23,031Supplemental cash flow informationInterest paid
    
    $
    20,558
    
    
    $
    14,825Income taxes paid
    
    
    1,968
    
    
    
    2,768Transfer of loans to other real estate owned
    
    
    2,372
    
    
    
    2,395
 See accompanying notes to consolidated financial statements
 6




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
 (1) Summary of Significant Accounting Policies
 Basis of Presentation
  Use of Estimates
  Segment Information
  Statement of Cash Flows
  Securities
  7




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##### Table of Contents



Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) Stock
  Loans
     Allowance for Loan Losses
   8




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##### Table of Contents



Bank Premises and Equipment
  Goodwill and Core Deposit Intangibles
   Other Real Estate Owned
  Investment and Trust Services Assets and Income
  Income Taxes
  Comprehensive Income
  Stock-Based Compensation
  9




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(2) Earnings Per Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands except per share amounts)Weighted average shares outstanding used in Basic
Earnings per Share
    
    
    7,295,663
    
    
    
    6,450,086
    
    
    
    6,889,953
    
    
    
    6,468,032Dilutive effect of incentive stock options
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    259Weighted average shares outstanding used in
Diluted Earnings Per Share
    
    
    7,295,663
    
    
    
    6,450,235
    
    
    
    6,889,953
    
    
    
    6,468,291Net Income
    
    $
    1,673
    
    
    $
    1,419
    
    
    $
    3,844
    
    
    $
    4,506Basic Earnings Per Share
    
    $
    0.23
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.70Diluted Earnings Per Share
    
    $
    0.23
    
    
    $
    0.22
    
    
    $
    0.56
    
    
    $
    0.70
  (3) Cash and Due from Banks
  (4) Goodwill and Intangible Assets
   10




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##### Table of Contents



(Dollars in thousands)Cash
    
    $
    20,652Loans, net of reserve for loan losses
    
    
    92,019Bank premises and equipment, net
    
    
    731Acquisition Intangibles
    
    
    19,999Deposits
    
    
    101,870Short Term Borrowings
    
    
    1,720FHLB Borrowings
    
    
    4,124
  Consolidated Pro forma Statement of Income (unaudited)
 Nine Months Ended September 30, 2007(Dollars in thousands except per share amounts)Total interest income
    
    $
    45,478Total interest expense
    
    
    22,508Net Interest Income
    
    
    22,970Provision for Loan Losses
    
    
    1,992Net interest income after provision for loan losses
    
    
    20,978Noninterest Income
    
    
    8,566Noninterest Expense
    
    
    26,990Income before income tax expense
    
    
    2,554Income tax expense
    
    
    370Net Income
    
    $
    2,184Net Income Per Common ShareBasic
    
    $
    0.32Diluted
    
    $
    0.32
   September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Core deposit intangibles
    
    $
    2,655
    
    
    $
    1,288Less: accumulated amortization
    
    
    1,341
    
    
    
    1,209Carrying value of core deposit intangibles
    
    $
    1,314
    
    
    $
    79
 11




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##### Table of Contents



September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Goodwill
    
    $
    21,459
    
    
    $
    2,827Loan servicing rights
    
    
    719
    
    
    
    251Core deposit intangibles
    
    
    1,314
    
    
    
    79Total goodwill and intangible assets
    
    $
    23,492
    
    
    $
    3,157
 (5) Securities
  At September 30, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    152,031
    
    
    $
    493
    
    
    $
    (637
    )
    
    $
    151,887State and political subdivisions
    
    
    15,266
    
    
    
    217
    
    
    
    (68
    )
    
    
    15,415Equity and other securities
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    222Federal Home Loan Bank and Federal Reserve
Bank stock
    
    
    4,537
    
    
    
    
    
    
    
    
    
    
    
    4,537Total Securities
    
    $
    172,056
    
    
    $
    710
    
    
    $
    (705
    )
    
    $
    172,061
 At December 31, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    146,632
    
    
    $
    25
    
    
    $
    (2,736
    )
    
    $
    143,921State and political subdivisions
    
    
    11,494
    
    
    
    308
    
    
    
    (35
    )
    
    
    11,767Equity securities
    
    
    52
    
    
    
    70
    
    
    
    
    
    
    
    122Federal Home Loan Bank and Federal Reserve
Bank stock
    
    
    3,248
    
    
    
    
    
    
    
    
    
    
    
    3,248Total Securities
    
    $
    161,426
    
    
    $
    403
    
    
    $
    (2,771
    )
    
    $
    159,058
   12




---



##### Table of Contents



At September 30, 2007Aggregate Unrealized Gains
    
    
    Aggregate Unrealized Lossesrecorded to income for the
    
    
    recorded to income for thequarter ended
    
    
    quarter ended
    
    
    FairCost
    
    
    September 30, 2007
    
    
    September 30, 2007
    
    
    Value(Dollars in thousands)Trading Securities
    
    $
    32,000
    
    
    $
    
    
    
    $
    
    
    
    $
    32,000
 (6) Loans and Allowance for Loan Losses
  September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Loans Held for Sale, at lower of cost or fair value:Real estate mortgage loans held for sale
    
    $
    319
    
    
    $
    Installment loans held for sale
    
    
    2,384
    
    
    
    Total Loans Held for Sale
    
    $
    2,703
    
    
    $
    Portfolio Loans:Commercial
    
    $
    407,415
    
    
    $
    374,055Real estate mortgage
    
    
    101,916
    
    
    
    99,182Home equity lines of credit
    
    
    78,611
    
    
    
    70,028Installment
    
    
    140,682
    
    
    
    85,068Total Portfolio Loans
    
    
    728,624
    
    
    
    628,333Allowance for loan losses
    
    
    (7,951
    )
    
    
    (7,300
    )Net Loans
    
    $
    720,673
    
    
    $
    621,033
  September 30, 2007
    
    
    September 30, 2006(Dollars in thousands)Balance at the beginning of period
    
    $
    7,300
    
    
    $
    6,622Provision for loan losses
    
    
    1,677
    
    
    
    915Allowance from merger
    
    
    1,098Loans charged-off
    
    
    (2,520
    )
    
    
    (1,613
    )Recoveries on loans previously charged-off
    
    
    396
    
    
    
    380Balance at end of period
    
    $
    7,951
    
    
    $
    6,304
  (7) Stock Options and Stock Appreciation Rights
  13




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##### Table of Contents



Year Issued2005
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2007
    
    
    2007
    
    
    2006Type
    
    Option
    
    
    
    
    
    Option
    
    
    
    
    
    Option
    
    
    
    
    
    Option
    
    Option
    
    SAR'sNumber of Options
    
    
    2,500
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    30,000Strike Price
    
    $
    16.50
    
    
    
    
    
    
    $
    19.17
    
    
    
    
    
    
    $
    19.10
    
    
    
    
    
    
    $
    16.00
    
    
    $
    15.35
    
    
    $
    19.00Number of Options Vested
    
    
    2,500
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assumptions:Risk free interest rate
    
    
    4.50
    %
    
    
    
    
    
    
    3.92
    %
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    4.73
    %
    
    
    4.72
    %
    
    
    4.26
    %Dividend yield
    
    
    4.36
    %
    
    
    
    
    
    
    3.76
    %
    
    
    
    
    
    
    3.77
    %
    
    
    
    
    
    
    4.50
    %
    
    
    4.69
    %
    
    
    4.87
    %Volatility
    
    
    18.48
    %
    
    
    
    
    
    
    17.30
    %
    
    
    
    
    
    
    17.66
    %
    
    
    
    
    
    
    16.52
    %
    
    
    15.33
    %
    
    
    15.84
    %Expected Life  years
    
    
    6
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    6
    
    
    
    5.43
  Weighted AverageExerciseShares
    
    
    Price per ShareOptions outstanding, December 31, 2006
    
    
    62,500
    
    
    $
    19.03Granted
    
    
    50,000
    
    
    
    15.74Exercised
    
    
    
    
    
    
    Forfeited, expired or cancelled
    
    
    
    
    
    
    Options outstanding, September 30, 2007
    
    
    112,500
    
    
    $
    17.57Options vested and exercisable, September 30, 2007
    
    
    32,500
    
    
    $
    18.94
 (8) Deposits
  September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Demand and other noninterest-bearing
    
    $
    87,218
    
    
    $
    91,216Interest checking
    
    
    114,618
    
    
    
    88,541Savings
    
    
    80,900
    
    
    
    80,086Money market accounts
    
    
    131,450
    
    
    
    109,774Consumer time deposits
    
    
    320,043
    
    
    
    225,947Public time deposits
    
    
    72,473
    
    
    
    56,604Brokered time deposits
    
    
    27,621
    
    
    
    65,093Total deposits
    
    $
    834,323
    
    
    $
    717,261
   14




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##### Table of Contents



After
    
    
    After12 months but
    
    
    36 months butWithin 12
    
    
    within 36
    
    
    within 60
    
    
    Aftermonths
    
    
    months
    
    
    months
    
    
    5 years
    
    
    Total(Dollars in thousands)Consumer time deposits
    
    $
    277,470
    
    
    $
    38,647
    
    
    $
    3,926
    
    
    $
    
    
    
    $
    320,043Public time deposits
    
    
    67,900
    
    
    
    4,573
    
    
    
    
    
    
    
    
    
    
    
    72,473Brokered time deposits
    
    
    25,131
    
    
    
    2,490
    
    
    
    
    
    
    
    
    
    
    
    27,621Total time deposits
    
    $
    370,501
    
    
    $
    45,710
    
    
    $
    3,926
    
    
    $
    
    
    
    $
    420,137
 (9) Short-Term Borrowings
   September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Securities sold under agreements to repurchase
    
    $
    28,039
    
    
    $
    20,663Federal funds purchased
    
    
    
    
    
    
    1,500Total short-term borrowings
    
    $
    28,039
    
    
    $
    22,163
 (10) Federal Home Loan Bank Advances
  15




---



##### Table of Contents



September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)FHLB advance - 2.95%, due January 30, 2007
    
    $
    
    
    
    $
    10,000FHLB advance - variable, due November 2, 2007
    
    
    11,000FHLB advance - variable, due November 21, 2007
    
    
    5,000FHLB advance - 3.55%, due November 21, 2007
    
    
    5,000
    
    
    
    5,000FHLB advance - 3.33%, due February 8, 2008
    
    
    5,000
    
    
    
    5,000FHLB advance - 4.47%, due April 11, 2008
    
    
    350
    
    
    
    FHLB advance - 4.99% due November 28, 2008
    
    
    5,000
    
    
    $
    5,000FHLB advance - 5.07%, due December 12, 2008
    
    
    500
    
    
    
    FHLB advance - 3.36%, due March 27, 2009
    
    
    10,000
    
    
    
    10,000FHLB advance - 4.67%, due April 10, 2009
    
    
    350
    
    
    
    FHLB advance - 5.00%, due December 14, 2009
    
    
    500
    
    
    $
    FHLB advance - 3.55%, due January 1, 2014
    
    
    77
    
    
    
    86FHLB advance - 4.76%, due July 6, 2015
    
    
    2,500
    
    
    $
    Valuation adjustments on FHLB advances
    
    
    (71
    )
    
    
    Total FHLB advances
    
    $
    45,206
    
    
    $
    35,086
 Valuation adjustments are to adjust FHLB advances to fair market value in the acquisition of Morgan Bank NA as of May 10, 2007
 (11) Trust Preferred Securities
    (12) Commitments, Credit Risk, and Contingencies
  16




---



##### Table of Contents



Amount(Dollars in thousands)Commitments to extend credit
    
    $
    121,995Home equity lines of credit
    
    
    74,307Standby letters of credit
    
    
    6,979Total
    
    $
    203,281
 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction
    17




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##### Table of Contents



Forward-Looking Statements
  
    
    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;
    
    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;
    
    changes occurring in business conditions and inflation;
    
    changes in technology;
    
    changes in monetary and tax policies;
    
    changes in the securities markets;
    
    changes in economic conditions and competition in the geographic and business areas
in which the Corporation conducts its operations; 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;
    
    customer reaction to and unforeseen complications with respect to the Corporations
integration of acquisitions;
    
    difficulties in realizing expected cost savings from acquisitions; and
    
    difficulties associated with data conversions in acquisitions.
 Critical Accounting Policies and Estimates
    
    
    Allowance for loan losses
  18




---



##### Table of Contents




    
    Income Taxes
  New Accounting Pronouncements
  19




---



##### Table of Contents



FASB Statement No. 159 The Fair Value Option for Financial Assets and Financial Liabilities
  FASB Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132R
  FASB Statement No. 156, Accounting for Servicing of Financial Assets, an Amendment of FAS
140.
  FASB Statement No. 157, Fair Value Measurements
 20




---



##### Table of Contents



Summary of Earnings (Dollars in thousands except per share data)
    21




---



##### Table of Contents



Results of Operations
 Net Interest Income
  Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006
   Nine Months Ended September 30, 2007 versus Nine Months Ended September 30, 2006
  22




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##### Table of Contents



23




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##### Table of Contents



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 September 30,2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and
corporations
    
    $
    181,369
    
    
    $
    2,226
    
    
    
    4.87
    %
    
    $
    152,385
    
    
    $
    1,537
    
    
    
    4.00
    %State and political subdivisions
    
    
    14,757
    
    
    
    227
    
    
    
    6.10
    %
    
    
    11,425
    
    
    
    179
    
    
    
    6.22
    %Federal funds sold and short-term
investments
    
    
    3,958
    
    
    
    51
    
    
    
    5.11
    %
    
    
    773
    
    
    
    10
    
    
    
    5.13
    %Commercial loans
    
    
    411,647
    
    
    
    7,939
    
    
    
    7.65
    %
    
    
    372,428
    
    
    
    7,354
    
    
    
    7.83
    %Real estate mortgage loans
    
    
    102,556
    
    
    
    1,581
    
    
    
    6.12
    %
    
    
    82,596
    
    
    
    1,288
    
    
    
    6.19
    %Home equity lines of credit
    
    
    77,885
    
    
    
    1,514
    
    
    
    7.71
    %
    
    
    66,211
    
    
    
    1,329
    
    
    
    7.96
    %Purchased installment loans
    
    
    33,048
    
    
    
    408
    
    
    
    4.90
    %
    
    
    40,962
    
    
    
    482
    
    
    
    4.67
    %Installment loans
    
    
    112,717
    
    
    
    2,024
    
    
    
    7.12
    %
    
    
    40,989
    
    
    
    741
    
    
    
    7.17
    %Total Earning Assets
    
    $
    937,937
    
    
    $
    15,970
    
    
    
    6.76
    %
    
    $
    767,769
    
    
    $
    12,920
    
    
    
    6.68
    %Allowance for loan loss
    
    
    (8,071
    )
    
    
    
    
    
    
    
    
    
    
    (6,343
    )Cash and due from banks
    
    
    20,479
    
    
    
    
    
    
    
    
    
    
    
    22,518Bank owned life insurance
    
    
    15,203
    
    
    
    
    
    
    
    
    
    
    
    14,382Other assets
    
    
    54,210
    
    
    
    
    
    
    
    
    
    
    
    27,489Total Assets
    
    $
    1,019,758
    
    
    
    
    
    
    
    
    
    
    $
    825,815Liabilities and Shareholders EquityInterest-bearing demand
    
    $
    113,358
    
    
    $
    355
    
    
    
    1.24
    %
    
    $
    86,973
    
    
    $
    183
    
    
    
    0.84
    %Savings deposits
    
    
    82,189
    
    
    
    156
    
    
    
    0.75
    %
    
    
    84,552
    
    
    
    71
    
    
    
    0.33
    %Money market accounts
    
    
    135,870
    
    
    
    1,269
    
    
    
    3.71
    %
    
    
    106,692
    
    
    
    913
    
    
    
    3.40
    %Consumer time deposits
    
    
    308,371
    
    
    
    3,682
    
    
    
    4.74
    %
    
    
    212,138
    
    
    
    2,248
    
    
    
    4.20
    %Brokered time deposits
    
    
    23,725
    
    
    
    319
    
    
    
    5.33
    %
    
    
    53,015
    
    
    
    619
    
    
    
    4.63
    %Public time deposits
    
    
    70,672
    
    
    
    924
    
    
    
    5.19
    %
    
    
    55,884
    
    
    
    742
    
    
    
    5.27
    %Short-term borrowings
    
    
    32,142
    
    
    
    347
    
    
    
    4.28
    %
    
    
    21,312
    
    
    
    247
    
    
    
    4.60
    %FHLB advances
    
    
    54,928
    
    
    
    635
    
    
    
    4.59
    %
    
    
    48,023
    
    
    
    492
    
    
    
    4.06
    %Trust preferred
    
    
    20,697
    
    
    
    355
    
    
    
    6.80
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Other
    
    
    
    
    
    
    1
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Total Interest-Bearing Liabilities
    
    $
    841,952
    
    
    $
    8,043
    
    
    
    3.79
    %
    
    $
    668,589
    
    
    $
    5,515
    
    
    
    3.27
    %Noninterest-bearing deposits
    
    
    86,393
    
    
    
    
    
    
    
    
    
    
    
    82,527Other liabilities
    
    
    9,449
    
    
    
    
    
    
    
    
    
    
    
    6,391Shareholders Equity
    
    
    81,964
    
    
    
    
    
    
    
    
    
    
    
    68,308Total Liabilities and
Shareholders Equity
    
    $
    1,019,758
    
    
    
    
    
    
    
    
    
    
    $
    825,815Net interest Income (FTE)
    
    
    
    
    
    $
    7,927
    
    
    
    3.35
    %
    
    
    
    
    
    $
    7,405
    
    
    
    3.83
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (99
    )
    
    
    -0.04
    %
    
    
    
    
    
    
    (85
    )
    
    
    -0.04
    %Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    7,828
    
    
    
    
    
    
    
    
    
    
    $
    7,320Net Yield on Earning Assets
    
    
    
    
    
    
    
    
    
    
    3.31
    %
    
    
    
    
    
    
    
    
    
    
    3.78
    %
 24




---



##### Table of Contents



Nine Months Ended September 30,2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    Interest
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and
corporations
    
    $
    155,646
    
    
    $
    5,514
    
    
    
    4.74
    %
    
    $
    151,548
    
    
    $
    4,399
    
    
    
    3.88
    %State and political subdivisions
    
    
    13,905
    
    
    
    640
    
    
    
    6.15
    %
    
    
    10,115
    
    
    
    477
    
    
    
    6.30
    %Federal funds sold and short-term
investments
    
    
    10,235
    
    
    
    338
    
    
    
    4.42
    %
    
    
    2,214
    
    
    
    73
    
    
    
    4.41
    %Commercial loans
    
    
    393,892
    
    
    
    22,123
    
    
    
    7.51
    %
    
    
    367,958
    
    
    
    20,880
    
    
    
    7.59
    %Real estate mortgage loans
    
    
    99,577
    
    
    
    4,572
    
    
    
    6.14
    %
    
    
    80,786
    
    
    
    3,722
    
    
    
    6.16
    %Home equity lines of credit
    
    
    74,178
    
    
    
    4,323
    
    
    
    7.79
    %
    
    
    66,063
    
    
    
    3,661
    
    
    
    7.41
    %Purchased installment loans
    
    
    37,077
    
    
    
    1,295
    
    
    
    4.67
    %
    
    
    39,913
    
    
    
    1,352
    
    
    
    4.53
    %Installment loans
    
    
    77,973
    
    
    
    4,382
    
    
    
    7.51
    %
    
    
    39,505
    
    
    
    2,108
    
    
    
    7.13
    %Total Earning Assets
    
    $
    862,483
    
    
    $
    43,187
    
    
    
    6.69
    %
    
    $
    758,102
    
    
    $
    36,672
    
    
    
    6.47
    %Allowance for loan loss
    
    
    (7,748
    )
    
    
    
    
    
    
    
    
    
    
    (6,514
    )Cash and due from banks
    
    
    21,479
    
    
    
    
    
    
    
    
    
    
    
    22,520Bank owned life insurance
    
    
    15,023
    
    
    
    
    
    
    
    
    
    
    
    14,229Other assets
    
    
    41,306
    
    
    
    
    
    
    
    
    
    
    
    25,510Total Assets
    
    $
    932,543
    
    
    
    
    
    
    
    
    
    
    $
    813,847Liabilities and Shareholders EquityInterest-bearing demand
    
    $
    100,330
    
    
    $
    840
    
    
    
    1.12
    %
    
    $
    83,757
    
    
    $
    440
    
    
    
    0.70
    %Savings deposits
    
    
    80,370
    
    
    
    325
    
    
    
    0.54
    %
    
    
    88,144
    
    
    
    226
    
    
    
    0.34
    %Money market accounts
    
    
    126,166
    
    
    
    3,477
    
    
    
    3.68
    %
    
    
    103,646
    
    
    
    2,430
    
    
    
    3.13
    %Consumer time deposits
    
    
    273,243
    
    
    
    9,573
    
    
    
    4.68
    %
    
    
    209,037
    
    
    
    6,182
    
    
    
    3.95
    %Brokered time deposits
    
    
    39,487
    
    
    
    1,531
    
    
    
    5.18
    %
    
    
    49,591
    
    
    
    1,572
    
    
    
    4.24
    %Public time deposits
    
    
    68,493
    
    
    
    2,697
    
    
    
    5.26
    %
    
    
    54,658
    
    
    
    2,041
    
    
    
    4.99
    %Short-term borrowings
    
    
    25,431
    
    
    
    812
    
    
    
    4.27
    %
    
    
    20,180
    
    
    
    655
    
    
    
    4.34
    %FHLB advances
    
    
    39,232
    
    
    
    1,235
    
    
    
    4.21
    %
    
    
    45,810
    
    
    
    1,227
    
    
    
    3.58
    %Trust preferred securities
    
    
    10,993
    
    
    
    560
    
    
    
    6.81
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Total Interest-Bearing Liabilities
    
    $
    763,745
    
    
    $
    21,050
    
    
    
    3.68
    %
    
    $
    654,823
    
    
    $
    14,773
    
    
    
    3.02
    %Noninterest-bearing deposits
    
    
    83,717
    
    
    
    
    
    
    
    
    
    
    
    84,520Other liabilities
    
    
    8,626
    
    
    
    
    
    
    
    
    
    
    
    6,057Shareholders Equity
    
    
    76,455
    
    
    
    
    
    
    
    
    
    
    
    68,447Total Liabilities and
Shareholders Equity
    
    $
    932,543
    
    
    
    
    
    
    
    
    
    
    $
    813,847Net interest Income (FTE)
    
    
    
    
    
    $
    22,137
    
    
    
    3.43
    %
    
    
    
    
    
    $
    21,899
    
    
    
    3.86
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (282
    )
    
    
    -0.04
    %
    
    
    
    
    
    
    (180
    )
    
    
    -0.03
    %Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    21,855
    
    
    
    
    
    
    
    
    
    
    $
    21,719Net Yield on Earning Assets
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.83
    %
 Rate/Volume
  25




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##### Table of Contents



Table 2: Rate/Volume Analysis of Net Interest Income (FTE)
 Three Months Ended September 30,Increase (Decrease) in Interest Income/Expense 2007 and 2006Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations
    
    $
    326
    
    
    $
    363
    
    
    $
    689State and political subdivisions
    
    
    52
    
    
    
    (4
    )
    
    
    48Federal funds sold and short-term investments
    
    
    41
    
    
    
    
    
    
    
    41Commercial loans
    
    
    783
    
    
    
    (198
    )
    
    
    585Real estate mortgage loans
    
    
    311
    
    
    
    (18
    )
    
    
    293Home equity lines of credit
    
    
    238
    
    
    
    (53
    )
    
    
    185Purchased installment loans
    
    
    (92
    )
    
    
    18
    
    
    
    (74
    )Installment loans
    
    
    1,294
    
    
    
    (11
    )
    
    
    1,283Total Interest Income
    
    
    2,953
    
    
    
    97
    
    
    
    3,050Interest-bearing demand
    
    
    71
    
    
    
    101
    
    
    
    172Savings deposits
    
    
    (5
    )
    
    
    90
    
    
    
    85Money market accounts
    
    
    256
    
    
    
    100
    
    
    
    356Consumer time deposits
    
    
    1,054
    
    
    
    381
    
    
    
    1,435Brokered time deposits
    
    
    (336
    )
    
    
    36
    
    
    
    (300
    )Public time deposits
    
    
    197
    
    
    
    (15
    )
    
    
    182Short-term borrowings
    
    
    128
    
    
    
    (28
    )
    
    
    100FHLB advances
    
    
    75
    
    
    
    68
    
    
    
    143Trust preferred securities and miscellaneous
    
    
    355
    
    
    
    
    
    
    
    355Total Interest Expense
    
    
    1,795
    
    
    
    733
    
    
    
    2,528Net Interest Income (FTE)
    
    $
    1,158
    
    
    $
    (636
    )
    
    $
    522
  26




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##### Table of Contents



Nine Months Ended September 30,Increase (Decrease) in Interest Income/Expense 2007 and 2006Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations
    
    $
    142
    
    
    $
    973
    
    
    $
    1,115State and political subdivisions
    
    
    179
    
    
    
    (16
    )
    
    
    163Federal funds sold and short-term investments
    
    
    264
    
    
    
    1
    
    
    
    265Commercial loans
    
    
    1,477
    
    
    
    (234
    )
    
    
    1,243Real estate mortgage loans
    
    
    866
    
    
    
    (16
    )
    
    
    850Home equity lines of credit
    
    
    458
    
    
    
    204
    
    
    
    662Purchased installment loans
    
    
    (94
    )
    
    
    37
    
    
    
    (57
    )Installment loans
    
    
    2,060
    
    
    
    214
    
    
    
    2,274Total Interest Income
    
    
    5,352
    
    
    
    1,163
    
    
    
    6,515Interest-bearing demand
    
    
    122
    
    
    
    271
    
    
    
    393Savings deposits
    
    
    (36
    )
    
    
    135
    
    
    
    99Money market accounts
    
    
    570
    
    
    
    477
    
    
    
    1,047Consumer time deposits
    
    
    2,039
    
    
    
    1,352
    
    
    
    3,391Brokered time deposits
    
    
    (143
    )
    
    
    102
    
    
    
    (41
    )Public time deposits
    
    
    522
    
    
    
    134
    
    
    
    656Short-term borrowings
    
    
    197
    
    
    
    (40
    )
    
    
    157FHLB advances
    
    
    99
    
    
    
    (91
    )
    
    
    8Trust preferred securities and miscellaneous
    
    
    567
    
    
    
    
    
    
    
    567Total Interest Expense
    
    
    3,937
    
    
    
    2,340
    
    
    
    6,277Net Interest Income (FTE)
    
    $
    1,415
    
    
    $
    (1,177
    )
    
    $
    238
  Noninterest Income
 Table 3: Details on Noninterest Income
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)
    
    
    (Dollars in thousands)Investment and trust services
    
    $
    547
    
    
    $
    482
    
    
    $
    1,593
    
    
    $
    1,537Deposit service charges
    
    
    1,239
    
    
    
    1,224
    
    
    
    3,457
    
    
    
    3,334Electronic banking fees
    
    
    605
    
    
    
    504
    
    
    
    1,706
    
    
    
    1,444Income from bank owned life insurance
    
    
    182
    
    
    
    187
    
    
    
    531
    
    
    
    474Other income
    
    
    128
    
    
    
    56
    
    
    
    273
    
    
    
    160Total fees and other income
    
    
    2,701
    
    
    
    2,453
    
    
    
    7,560
    
    
    
    6,949Securities gains, net
    
    
    2
    
    
    
    
    
    
    
    261
    
    
    
    -Gains on sale of loans
    
    
    277
    
    
    
    
    
    
    
    546
    
    
    
    -Gains (losses) on sale of other assets
    
    
    24
    
    
    
    
    
    
    
    59
    
    
    
    2Total noninterest income
    
    $
    3,004
    
    
    $
    2,453
    
    
    $
    8,426
    
    
    $
    6,951
 27




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##### Table of Contents



Three Months Ended September 30, 2007 as compared to the Three Months Ended September 30, 2006
  Nine Months Ended September 30, 2007 as compared to the Nine Months Ended September 30, 2006
  Noninterest Expense
 Table 4: Details on Noninterest Expense
 28




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)
    
    
    (Dollars in thousands)Salaries and employee benefits
    
    $
    4,104
    
    
    $
    3,770
    
    
    $
    11,862
    
    
    $
    10,986Furniture and equipment
    
    
    952
    
    
    
    737
    
    
    
    2,566
    
    
    
    2,227Net occupancy
    
    
    593
    
    
    
    484
    
    
    
    1,683
    
    
    
    1,413Outside services
    
    
    488
    
    
    
    406
    
    
    
    1,317
    
    
    
    1,260Marketing and public relations
    
    
    321
    
    
    
    311
    
    
    
    936
    
    
    
    1,069Supplies and postage
    
    
    353
    
    
    
    311
    
    
    
    986
    
    
    
    912Telecommunications
    
    
    232
    
    
    
    207
    
    
    
    623
    
    
    
    577Ohio Franchise tax
    
    
    188
    
    
    
    207
    
    
    
    604
    
    
    
    636Other real estate owned
    
    
    58
    
    
    
    28
    
    
    
    305
    
    
    
    59Electronic banking expense
    
    
    150
    
    
    
    160
    
    
    
    593
    
    
    
    466Other charge-offs and losses
    
    
    192
    
    
    
    131
    
    
    
    387
    
    
    
    291Loan and collection expense
    
    
    236
    
    
    
    212
    
    
    
    644
    
    
    
    620Other expense
    
    
    467
    
    
    
    315
    
    
    
    1,195
    
    
    
    1,163Total noninterest expense
    
    $
    8,334
    
    
    $
    7,279
    
    
    $
    23,701
    
    
    $
    21,679
 Three Months Ended September 30, 2007 as compared to the Three Months Ended September 30, 2006
      29




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##### Table of Contents



Nine Months Ended September 30, 2007 as compared to the Nine Months Ended September 30, 2006
     Income taxes
  Balance Sheet Analysis
 Overview
  30




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##### Table of Contents



Securities
  Loans
  Table 5: Details on Loan Balances
 September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Real estate loans (includes loans secured primarily by real estate only):Construction and land development
    
    $
    64,239
    
    
    $
    105,633One to four family residential
    
    
    214,621
    
    
    
    190,884Multi-family residential
    
    
    22,182
    
    
    
    21,754Non-farm non-residential properties
    
    
    261,345
    
    
    
    195,547Commercial and industrial loans
    
    
    54,688
    
    
    
    40,820Personal loans to individuals:Auto, single payment and installment
    
    
    108,463
    
    
    
    65,780All other loans
    
    
    5,789
    
    
    
    7,915Total loans
    
    
    731,327
    
    
    
    628,333Allowance for loan losses
    
    
    (7,951
    )
    
    
    (7,300
    )Net loans
    
    $
    723,376
    
    
    $
    621,033
  31




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##### Table of Contents



Deposits
 Table 6: Deposits
 Average Balances OutstandingFor the Nine Months Ended September 30,2007
    
    
    2006Average
    
    
    Percent of
    
    
    
    
    
    Average
    
    
    Percent ofBalance
    
    
    Deposits
    
    
    Rate
    
    
    Balance
    
    
    Deposits
    
    
    Rate(Dollars in thousands)Noninterest bearing demand
    
    $
    83,717
    
    
    
    10.85
    %
    
    
    0.00
    %
    
    $
    84,520
    
    
    
    12.55
    %
    
    
    0.00
    %Interest-bearing demand
    
    
    100,330
    
    
    
    13.00
    %
    
    
    1.11
    %
    
    
    83,757
    
    
    
    12.44
    %
    
    
    0.70
    %Savings deposits
    
    
    80,370
    
    
    
    10.41
    %
    
    
    0.54
    %
    
    
    88,144
    
    
    
    13.09
    %
    
    
    0.34
    %Money market accounts
    
    
    126,166
    
    
    
    16.35
    %
    
    
    3.68
    %
    
    
    103,646
    
    
    
    15.39
    %
    
    
    3.13
    %Consumer time deposits
    
    
    273,242
    
    
    
    35.40
    %
    
    
    4.68
    %
    
    
    209,037
    
    
    
    31.04
    %
    
    
    3.95
    %Brokered time deposits
    
    
    39,487
    
    
    
    5.12
    %
    
    
    5.18
    %
    
    
    49,591
    
    
    
    7.36
    %
    
    
    4.24
    %Public time deposits
    
    
    68,493
    
    
    
    8.87
    %
    
    
    5.26
    %
    
    
    54,658
    
    
    
    8.12
    %
    
    
    4.99
    %Total Deposits
    
    $
    771,805
    
    
    
    100.00
    %
    
    
    3.19
    %
    
    $
    673,353
    
    
    
    100.00
    %
    
    
    2.56
    %
  Borrowings
  32




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##### Table of Contents



Regulatory Capital
    
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
 RISK ELEMENTS
  33




---



##### Table of Contents



Credit Risk Management
  Nonperforming Assets, Delinquency and Potential Problem Loans
     34




---



##### Table of Contents



Table 8: Nonperforming Assets
 September 30,2007
    
    
    December 31, 2006(Dollars in thousands)Commercial loans
    
    $
    8,332
    
    
    $
    10,322Real estate mortgage
    
    
    2,045
    
    
    
    2,165Home equity lines of credit
    
    
    448
    
    
    
    168Installment loans
    
    
    117
    
    
    
    157Total nonperforming loans
    
    
    10,942
    
    
    
    12,812Other foreclosed assets
    
    
    3,053
    
    
    
    1,289Total nonperforming assets
    
    $
    13,995
    
    
    $
    14,101Nonperforming loans to total loans
    
    
    1.50
    %
    
    
    2.04
    %Nonperforming assets to total assets
    
    
    1.09
    %
    
    
    1.51
    %
 Provision and Allowance for Loan Losses
  35




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##### Table of Contents



Table 9: Analysis of Allowance for Loan Losses
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands)
    
    
    (Dollars in thousands)Balance at beginning of period
    
    $
    8,115
    
    
    $
    6,568
    
    
    $
    7,300
    
    
    $
    6,622Charge-offs:
    
    
    
    
    
    
    
    
    
    
    -Commercial
    
    
    (496
    )
    
    
    (675
    )
    
    
    (1,693
    )
    
    
    (884
    )Real estate mortgage
    
    
    (31
    )
    
    
    (92
    )
    
    
    (206
    )
    
    
    (133
    )Home equity lines of credit
    
    
    
    
    
    
    (26
    )
    
    
    (55
    )
    
    
    (51
    )Purchased installment
    
    
    (20
    )
    
    
    (5
    )
    
    
    (37
    )
    
    
    (56
    )Installment
    
    
    (222
    )
    
    
    (179
    )
    
    
    (348
    )
    
    
    (317
    )DDA overdrafts
    
    
    (73
    )
    
    
    (77
    )
    
    
    (181
    )
    
    
    (173
    )Total charge-offs
    
    
    (842
    )
    
    
    (1,054
    )
    
    
    (2,520
    )
    
    
    (1,614
    )Recoveries:Commercial
    
    
    107
    
    
    
    94
    
    
    
    140
    
    
    
    150Real estate mortgage
    
    
    6
    
    
    
    5
    
    
    
    7
    
    
    
    7Home equity lines of credit
    
    
    
    
    
    
    1
    
    
    
    25
    
    
    
    1Installment
    
    
    116
    
    
    
    78
    
    
    
    185
    
    
    
    128DDA overdrafts
    
    
    8
    
    
    
    12
    
    
    
    39
    
    
    
    95Total Recoveries
    
    
    237
    
    
    
    190
    
    
    
    396
    
    
    
    381Net Charge-offs
    
    
    (605
    )
    
    
    (864
    )
    
    
    (2,124
    )
    
    
    (1,233
    )Allowance from merger
    
    
    
    
    
    
    
    
    
    
    1,098
    
    
    
    Provision for loan losses
    
    
    441
    
    
    
    600
    
    
    
    1,677
    
    
    
    915Balance at end of period
    
    
    7,951
    
    
    $
    6,304
    
    
    $
    7,951
    
    
    $
    6,304
    Market Risk Management
  36




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##### Table of Contents



ITEM 4. Controls and Procedures
  37




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##### Table of Contents



Effect of Recent Acquisition
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
  38




---



##### Table of Contents



Item 6. Exhibits.
  39




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##### Table of Contents



SIGNATURES
  LNB BANCORP, INC.
(Registrant)Date: November 9, 2007
    /s/  Sharon L. ChurchillSharon L. ChurchillChief Financial Officer
(Duly Authorized Officer, and Principal
Financial Officer) 40




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##### Table of Contents



Exhibit10.1
    
    Change in Control Supplemental Executive Compensation Agreement
between LNB Bancorp, Inc. and David S. Harnett, dated August 8,
2007.10.2
    
    Form of Nonqualified Stock Option Agreement under the LNB Bancorp,
Inc. 2006 Stock Incentive Plan.31.1
    
    Chief Executive Officer Rule 13a -14(a)/15d -14(a) Certification.31.2
    
    Chief Financial Officer Rule 13a -14(a)/15d -14(a) Certification.32.1
    
    Certification pursuant to 18 U.S.C. section 1350, as enacted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification pursuant to 18 U.S.C. section 1350, as enacted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 41