##### Table of Contents



Form 10-Q SECURITIES AND EXCHANGE COMMISSION  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934  OR  o
  Commission file number: 0-13203   Ohio
(State of Incorporation)
    
    34-1406303
(I.R.S. Employer Identification No.)
 457 Broadway, Lorain, Ohio
(Address of principal executive offices)
    
    44052 - 1769
(Zip Code)
 (440) 244-6000
Registrants telephone number, including area code Not Applicable
(Former: name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such
requirements for the past 90 days. YES  x NO o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) YES x NO o Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Outstanding at November 5, 2004: 6,641,155 shares
Class of Common Stock: $1.00 par value




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LNB Bancorp, Inc.
Table of Contents Part
I. Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets  September 30, 2004 and December 31, 2003Consolidated Statements of Income  Three and nine months ended September 30, 2004 and 2003Consolidated Statements of Cash Flows  Nine months ended
September 30, 2004 and 2003Consolidated
Statements of Changes in Shareholders Equity  Nine months ended September 30, 2004 and 2003Notes to Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures About Market RiskItem 4.
    
    Controls and ProceduresPart II. Other InformationItem 1.
    
    Legal ProceedingsItem 2.
    
    Changes in Securities and Use of ProceedsItem 3.
    
    Defaults Upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    Exhibits and Reports on Form 8-KSignaturesCertificationsEX-31(A) CertificationEX-31(B) CertificationEX-32(A) CertificationEX-32(B) Certification
  2




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##### Table of Contents



LNB Bancorp, Inc. 
 
 September 30,
    
    December 31,(Dollars in thousands)
    
    2004
    
    2003Assets:Cash and due from banks
    
    $
    24,362
    
    
    $
    24,646Federal funds sold and short-term investments
    
    
    7,787
    
    
    
    3,103Securities:Available for sale, at fair value
    
    
    139,010
    
    
    
    143,459Held to maturity, at cost (fair value of $4,952 in 2003)
    
    
    
    
    
    
    4,789Other investments and equity stock
    
    
    3,993
    
    
    
    3,879Total securities
    
    
    143,003
    
    
    
    152,127Loans:Portfolio loans
    
    
    560,537
    
    
    
    528,096Loans held for sale
    
    
    5,521
    
    
    
    6,215Total loans
    
    
    566,058
    
    
    
    534,311Allowance for loan losses
    
    
    (7,351
    )
    
    
    (7,730
    )Net loans
    
    
    558,707
    
    
    
    526,581Bank owned life insurance
    
    
    13,179
    
    
    
    12,702Bank premises and equipment, net
    
    
    11,750
    
    
    
    11,009Intangible assets
    
    
    3,471
    
    
    
    3,245Accrued interest receivable
    
    
    2,785
    
    
    
    2,818Other assets
    
    
    5,625
    
    
    
    4,401Foreclosed assets
    
    
    125
    
    
    
    589Total Assets
    
    $
    770,794
    
    
    $
    741,221Liabilities and Shareholders Equity:Deposits:Demand and other noninterest-bearing deposits
    
    $
    95,379
    
    
    $
    86,693Savings, market access and passbook accounts
    
    
    272,655
    
    
    
    277,197Certificates of deposit
    
    
    234,357
    
    
    
    217,454Total deposits
    
    
    602,391
    
    
    
    581,344Securities sold under repurchase agreements
and other short-term borrowings
    
    
    15,410
    
    
    
    15,023Federal Home Loan Bank advances
    
    
    77,299
    
    
    
    71,540Accrued interest payable
    
    
    1,005
    
    
    
    875Accrued taxes, expenses and other liabilities
    
    
    4,080
    
    
    
    4,304Total liabilities
    
    
    700,185
    
    
    
    673,086Shareholders Equity:Common stock, $1.00 par: Shares
authorized 15,000,000, Shares issued
6,766,867 Shares outstanding 6,641,155 in 2004 and 6,617,618 in 2003, respectively
    
    
    6,767
    
    
    
    6,767Additional
paid-in capital
    
    
    26,243
    
    
    
    26,243Retained earnings
    
    
    41,321
    
    
    
    38,714Accumulated other comprehensive income
    
    
    (1,292
    )
    
    
    (704
    )Treasury stock at cost, 125,712 and 149,249
shares, respectively
    
    
    (2,430
    )
    
    
    (2,885
    )Total Shareholders Equity
    
    
    70,609
    
    
    
    68,135Commitments and contingenciesTotal Liabilities and Shareholders Equity
    
    $
    770,794
    
    
    $
    741,221
 See accompanying notes to the unaudited consolidated financial statements. 3




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##### Table of Contents



LNB Bancorp, Inc. 
 
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,(Dollars in thousands, except per share amounts)
    
    2004
    
    2003
    
    2004
    
    2003Interest Income:Interest and fees on loans
    
    $
    8,335
    
    
    $
    8,264
    
    
    $
    24,041
    
    
    $
    24,774Interest and dividends on securities:U.S. Government agencies and corporations
    
    
    946
    
    
    
    899
    
    
    
    2,832
    
    
    
    3,217States and political subdivisions
    
    
    102
    
    
    
    153
    
    
    
    375
    
    
    
    465Other debt and equity securities
    
    
    75
    
    
    
    73
    
    
    
    220
    
    
    
    224Interest on Federal funds sold and other
interest-bearing
    
    
    24
    
    
    
    11
    
    
    
    57
    
    
    
    32Total interest income
    
    
    9,482
    
    
    
    9,400
    
    
    
    27,525
    
    
    
    28,712Interest Expense:Interest on deposits :Time certificates of $100,000 and over
    
    
    336
    
    
    
    349
    
    
    
    990
    
    
    
    1,109Other deposits
    
    
    1,377
    
    
    
    1,340
    
    
    
    3,944
    
    
    
    4,514Interest on securities sold under agreements
to repurchase and other short-term borrowings
    
    
    61
    
    
    
    42
    
    
    
    153
    
    
    
    157Interest on Federal Home Loan Bank advances
    
    
    536
    
    
    
    455
    
    
    
    1,515
    
    
    
    1,284Total interest expense
    
    
    2,310
    
    
    
    2,186
    
    
    
    6,602
    
    
    
    7,064Net Interest Income
    
    
    7,172
    
    
    
    7,214
    
    
    
    20,923
    
    
    
    21,648Provision for Loan Losses
    
    
    399
    
    
    
    991
    
    
    
    1,349
    
    
    
    2,125Net Interest Income after Provision for Loan Losses
    
    
    6,773
    
    
    
    6,223
    
    
    
    19,574
    
    
    
    19,523Noninterest Income:Service charges on deposits accounts
    
    
    1,131
    
    
    
    1,153
    
    
    
    3,146
    
    
    
    3,208Electronic banking fees
    
    
    614
    
    
    
    637
    
    
    
    1,888
    
    
    
    1,945Investment, Trust and Brokerage income
    
    
    539
    
    
    
    486
    
    
    
    1,611
    
    
    
    1,340Gain on sale of VISA credit card portfolio
    
    
    
    
    
    
    820
    
    
    
    
    
    
    
    820Gain (loss) on sale of securities
    
    
    158
    
    
    
    (1
    )
    
    
    381
    
    
    
    449Income from investment in life insurance
    
    
    157
    
    
    
    173
    
    
    
    477
    
    
    
    550Other service charges, and fees
    
    
    39
    
    
    
    83
    
    
    
    280
    
    
    
    316Gain on sale of loans
    
    
    17
    
    
    
    54
    
    
    
    100
    
    
    
    195Gain on sale of building
    
    
    285
    
    
    
    
    
    
    
    285
    
    
    
    0Other noninterest income
    
    
    36
    
    
    
    102
    
    
    
    260
    
    
    
    241Total Noninterest Income
    
    
    2,976
    
    
    
    3,507
    
    
    
    8,428
    
    
    
    9,064Noninterest Expenses:Salaries and employee benefits
    
    
    3,223
    
    
    
    3,388
    
    
    
    9,168
    
    
    
    9,436Net occupancy expenses
    
    
    407
    
    
    
    371
    
    
    
    1,190
    
    
    
    1,160Furniture and equipment expenses
    
    
    717
    
    
    
    647
    
    
    
    2,046
    
    
    
    1,807Credit card-related expenses
    
    
    350
    
    
    
    344
    
    
    
    1,075
    
    
    
    980Supplies and postage
    
    
    421
    
    
    
    316
    
    
    
    930
    
    
    
    854Professional services
    
    
    306
    
    
    
    249
    
    
    
    840
    
    
    
    1,073Marketing and advertising
    
    
    264
    
    
    
    179
    
    
    
    757
    
    
    
    584Ohio franchise tax
    
    
    181
    
    
    
    180
    
    
    
    549
    
    
    
    542Other noninterest expenses
    
    
    895
    
    
    
    716
    
    
    
    2,463
    
    
    
    2,175Total Noninterest Expenses
    
    
    6,764
    
    
    
    6,390
    
    
    
    19,018
    
    
    
    18,611Income Before Income Taxes
    
    
    2,985
    
    
    
    3,340
    
    
    
    8,984
    
    
    
    9,976Income Taxes
    
    
    911
    
    
    
    985
    
    
    
    2,674
    
    
    
    3,106Net Income
    
    $
    2,074
    
    
    $
    2,355
    
    
    $
    6,310
    
    
    $
    6,870Net Income Available to Common Shareholders:Basic Earnings Per Share
    
    $
    .31
    
    
    $
    .36
    
    
    $
    .95
    
    
    $
    1.04Diluted Earnings Per Share
    
    $
    .31
    
    
    $
    .36
    
    
    $
    .95
    
    
    $
    1.04
 See accompanying notes to the unaudited consolidated financial statements. 4




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##### Table of Contents



LNB Bancorp, Inc. 
 
 For the Nine Month Periods Ended(Dollars in thousands)
    
    September 30, 2004
    
    September 30, 2003Cash Flows from Operating Activities:Net Income
    
    $
    6,310
    
    
    $
    6,870Adjustments to reconcile net income to net cash provided by
(used in) in operating activities:Provision for loan losses
    
    
    1,349
    
    
    
    2,125Depreciation and amortization
    
    
    2,124
    
    
    
    1,857Securities gains, net
    
    
    (381
    )
    
    
    (449
    )Proceeds from loan sales
    
    
    2,858
    
    
    
    23,767Net gain from loan sales
    
    
    (100
    )
    
    
    (195
    )Net gain from sale of other assets
    
    
    (296
    )
    
    
    (820
    )Net decrease in mortgage loans held for sale
    
    
    444
    
    
    
    (23,767
    )Net increases in other assets
    
    
    (1,658
    )
    
    
    (516
    )Net decreases in other liabilities
    
    
    1,029
    
    
    
    (1,939
    )Other, net
    
    
    (1,161
    )
    
    
    (711
    )Net Cash Provided by Operating Activities
    
    
    10,518
    
    
    
    6,222Cash Flows from Investing Activities:Proceeds from maturities of securities held to maturity
    
    
    989
    
    
    
    7,600Proceeds from sales and maturities of securities available
for sale
    
    
    10,300
    
    
    
    123,935Purchases of securities available for sale
    
    
    (2,051
    )
    
    
    (138,465
    )Purchase of FHLB Stock
    
    
    (114
    )
    
    
    (105
    )Net increase in loans made to customers
    
    
    (36,814
    )
    
    
    (31,623
    )Purchases and proceeds of bank premises and equipment
    
    
    (1,962
    )
    
    
    (935
    )Cash paid for acquisition
of Mortgage One
    
    
    (350
    )
    
    
    Net Cash Used in Investing Activities
    
    
    (30,002
    )
    
    
    (39,593
    )Cash Flows from Financing Activities:Net increase in demand and other noninterest-bearing deposits
    
    
    8,686
    
    
    
    6,236Net decrease in savings, market access and passbook deposits
    
    
    (4,542
    )
    
    
    (3,205
    )Net increase in certificates of deposit
    
    
    16,903
    
    
    
    2,006Net increase (decrease) in securities sold under
repurchase agreements and other short-term borrowings
    
    
    387
    
    
    
    (679
    )Proceeds from Federal Home Loan Bank Advances
    
    
    103,000
    
    
    
    262,095Repayment of Federal Home Loan Bank Advances
    
    
    (97,241
    )
    
    
    (224,595
    )Cash paid in lieu of fractional shares related to
three-for-two stock split
    
    
    
    
    
    
    (13
    )Issuance of Common Stock under stock option plans
    
    
    
    
    
    
    56Proceeds from the exercise of stock options plans
    
    
    334Issuance of Treasury Stock under employee benefit plans
    
    
    
    
    
    
    13Dividends paid
    
    
    (3,643
    )
    
    
    (3,434
    )Net Cash Provided by Financing Activities
    
    
    23,884
    
    
    
    38,480Net Increase in Cash and Cash Equivalents
    
    
    4,400
    
    
    
    5,109Cash and Cash Equivalents at Beginning of Year
    
    
    27,749
    
    
    
    26,832Cash and Cash Equivalents at End of period
    
    $
    32,149
    
    
    $
    31,941Supplemental disclosure of cash flow information:Interest paid
    
    $
    6,602
    
    
    $
    7,104Income taxes paid
    
    
    2,305
    
    
    
    3,270Non cash items:Transfer of loans to other real estate
    
    
    125
    
    
    
    589
 See accompanying notes to the unaudited consolidated financial statements. 5




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##### Table of Contents



LNB Bancorp, Inc. 
 
 Additional
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    TotalCommon
    
    Paid In
    
    Retained
    
    Comprehensive
    
    Treasury
    
    ShareholdersStock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Stock
    
    equityBalance at
January 1, 2003
    
    $
    4,501
    
    
    $
    28,319
    
    
    $
    35,639
    
    
    $
    1,054
    
    
    $
    (2,900
    )
    
    $
    66,613Add (deduct)Net income for period
    
    
    
    
    
    
    
    
    
    
    6,870
    
    
    
    
    
    
    
    
    
    
    
    6,870Change in net
unrealized losses on
securities available
for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,595
    )
    
    
    
    
    
    
    (1,595
    )Total Comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,275Issuance of common
stock under stock
option plans
    
    
    5
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Issuance of treasury
stock under employee
benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    13Dividends declared 
Common ($.34 per
share)
    
    
    
    
    
    
    
    
    
    
    (3,368
    )
    
    
    
    
    
    
    
    
    
    
    (3,368
    )Issuance of 2,250,210
shares of common
under 3 for 2 stock
split
    
    
    2,250
    
    
    
    (2,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Payment of cash in
lieu of fractional
shares issued under
three-for-two stock
split
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    (13
    )Balance at
September 30, 2003
    
    $
    6,756
    
    
    $
    26,120
    
    
    $
    39,128
    
    
    $
    (541
    )
    
    $
    (2,887
    )
    
    $
    68,576
 Additional
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    TotalCommon
    
    Paid In
    
    Retained
    
    Comprehensive
    
    Treasury
    
    ShareholdersStock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    Stock
    
    equityBalance at
January 1, 2004
    
    $
    6,767
    
    
    $
    26,243
    
    
    $
    38,714
    
    
    $
    (704
    )
    
    $
    (2,885
    )
    
    $
    68,135Add (deduct)Net income for period
    
    
    
    
    
    
    
    
    
    
    6,310
    
    
    
    
    
    
    
    
    
    
    
    6,310Change in net
unrealized losses on
securities available
for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (588
    )
    
    
    
    
    
    
    (588
    )Total Comprehensive
Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,722Issuance of Treasury
stock under stock
option agreements
    
    
    
    
    
    
    
    
    
    
    (121
    )
    
    
    
    
    
    
    454
    
    
    
    333Issuance of treasury
stock under employee
benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Dividends declared 
Common ($.36 per
share)
    
    
    
    
    
    
    
    
    
    
    (3,582
    )
    
    
    
    
    
    
    
    
    
    
    (3,582
    )Balance at
September 30, 2004
    
    $
    6,767
    
    
    $
    26,243
    
    
    $
    41,321
    
    
    $
    (1,292
    )
    
    $
    (2,430
    )
    
    $
    70,609
 See accompanying notes to the unaudited consolidated financial statements. 6




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##### Table of Contents



LNB Bancorp, Inc. 
  1. Basis of Presentation These consolidated financial statements include the accounts of LNB Bancorp,
Inc. (the Parent Company) and its wholly-owned subsidiaries, Lorain National
Bank (the Bank) and Charleston Insurance Agency, Inc. Charleston Title
Agency, LLC, a 49%-owned subsidiary, is accounted for under the equity method.
The term the Corporation refers to LNB Bancorp, Inc. and its wholly-owned
subsidiaries, The Lorain National Bank and Charleston Insurance Agency, Inc.,
and a 49% interest in Charleston Title Agency, LLC. All significant
inter-company balances and transactions have been eliminated in consolidation.
Also included is the Banks wholly-owned subsidiary, North Coast Community
Development Corporation (NCCDC) and LNB Mortgage LLC, the mortgage company
acquired during the third quarter of 2004. All dollar amounts in this report
are reported in thousands of dollars, except per share amounts. Management believes that these unaudited consolidated interim financial
statements reflect all adjustments of a normal recurring nature and disclosures
that are necessary for a fair presentation of the results for the interim
periods presented. Certain items have been reclassified to conform to the
current presentation including the cash flow statement, which is now being
reported using the indirect method instead of the direct method previously
used. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. The
LNB Bancorps 2003 Annual Report to Shareholders (Form 10-K) should be read in
conjunction with these statements. 7




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##### Table of Contents



2. Earnings Per Share Data Earnings per share data for the three and nine month periods ended September
30, 2004 and 2003 are calculated as follows. All amounts have been restated
after the stock split in 2003. For the Three Months Ended September 30, 2004Income (Numerator)
    
    Shares
    
    Per Share(Dollars in Thousands)
    
    (Denominator)
    
    AmountNet Income
    
    $
    2,074Basic EPS  Income
available to common
shareholders
    
    $
    2,074
    
    
    
    6,641,095
    
    
    $
    .31Effect of Dilutive
Securities 
Incentive Stock
Options
    
    
    -0-
    
    
    
    614Diluted EPS 
Income available to
common shareholders
and assumed
conversions
    
    $
    2,074
    
    
    
    6,641,709
    
    
    $
    .31
 For the Three Months Ended September 30, 2003Income (Numerator)
    
    Shares
    
    Per Share(Dollars in Thousands)
    
    (Denominator)
    
    AmountNet Income
    
    $
    2,355Basic EPS  Income
available to common
shareholders
    
    $
    2,355
    
    
    
    6,606,234
    
    
    $
    .36Effect of Dilutive
Securities Incentive Stock
Options
    
    
    -0-
    
    
    
    16,068Diluted EPS 
Income available to
common shareholders
and assumed
conversions
    
    $
    2,355
    
    
    
    6,622,302
    
    
    $
    .36
 For the Nine Months Ended September 30, 2004Income (Numerator)
    
    Shares
    
    Per Share(Dollars in Thousands)
    
    (Denominator)
    
    AmountNet Income
    
    $
    6,310Basic EPS  Income
available to common
shareholders
    
    $
    6,310
    
    
    
    6,628,097
    
    
    $
    .95Effect of Dilutive
Securities Incentive Stock
Options
    
    
    -0-
    
    
    
    1,006Diluted EPS 
Income available to
common shareholders
and assumed
conversions
    
    $
    6,310
    
    
    
    6,629,103
    
    
    $
    .95
 For the Nine Months Ended September 30, 2003Income (Numerator)
    
    Shares
    
    Per Share(Dollars in Thousands)
    
    (Denominator)
    
    AmountNet Income
    
    $
    6,870Basic EPS  Income
available to common
shareholders
    
    $
    6,870
    
    
    
    6,604,024
    
    
    $
    1.04Effect of Dilutive
Securities 
Incentive Stock
Options
    
    
    -0-
    
    
    
    15,332Diluted EPS 
Income available to
common shareholders
and assumed
conversions
    
    $
    6,870
    
    
    
    6,619,356
    
    
    $
    1.04
 8




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##### Table of Contents



3. Critical Accounting Policies and New Accounting and Regulatory
Pronouncements Critical Accounting Policies The Corporation maintains critical accounting policies for the allowance for
loan losses, classification and evaluation of securities valuation and a
deferred tax asset valuation reserve. Refer to notes 1,5,7 and 12 of the Notes
to Consolidated Financial Statements for additional information incorporated by
reference to the 2003 Annual Report to Shareholders on Form 10-K. Impacts of Accounting and Regulatory Pronouncements: Corporate 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 financial position, results of operations or liquidity of the Corporation.
However, the potential impact of certain accounting and regulatory
pronouncements are discussed below. Financial Accounting Standards Board: The Financial Accounting Standards Board (FASB) has issued: SFAS No. 132(Revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. This Statement
expands upon the existing disclosure requirements as prescribed under the
original SFAS No. 132 by requiring more details about pension plan assets,
benefit obligations, cash flows, benefit costs and related information. SFAS
No. 132® also requires companies to disclose various elements of pension and
postretirement benefit costs in interim-period financial statements beginning
after December 15, 2003. This Statement is effective for financial statements
with fiscal years ending after December 15, 2003. The Corporation adopted the
additional year-end disclosure requirements under SFAS No. 132® during the
fourth quarter of 2003 and the interim-period financial statement disclosure
requirements starting in the first quarter of 2004. Its adoption did not have a
material impact on our financial position, results of operation, or liquidity.
SFAS No. 132® disclosures are included in Note 5. 9




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##### Table of Contents



FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest
Entities. and FASB Interpretation No. 46R (FIN No. 46®), Consolidation of
Variable Interest Entities an interpretation of ARB 51 (revised December
2003) In January 2003, the FASB issued Interpretation No. 46 (FIN No. 46),
Consolidation of Variable Interest Entities. This Interpretation clarifies
the application of ARB No. 51, Consolidated Financial Statements, for certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated support from
other parties. This Interpretation requires variable interest entities (VIEs)
to be consolidated by the primary beneficiary which represents the enterprise
that will absorb the majority of the VIEs expected losses if they occur,
receive a majority of the VIEs residual returns if they occur, or both.
Qualifying Special Purpose Entities (QSPE) are exempt from the consolidation
requirements of FIN No. 46. This Interpretation was effective for VIEs created
after January 31, 2003 and for VIEs in which an enterprise obtains an interest
after that date. In December 2003, the FASB issued Interpretation No. (46R)
(FIN No. 46®), Consolidation of Variable Interest Entities  an
interpretation of ARB 51 (revised December 2003), which replaces FIN No. 46.
FIN No. 46® was primarily issued to clarify the required accounting for
interests in VIEs. Additionally, this Interpretation exempts certain entities
from its requirements and provides for special effective dates for enterprises
that have fully or partially applied FIN No. 46 ® as of December 24, 2003.
Application of FIN No. 46® is required in financial statements of public
enterprises that have interests in structures that are commonly referred to as
special-purpose entities, or SPEs, for periods ending after December 15, 2003.
Application by public enterprises, other than small business issuers, for all
other types of VIEs (i.e., non-SPEs) is required in financial statements for
periods ending after March 15, 2004. The Corporation had no variable interest
entities and therefore, the interpretation of FIN No. 46® had no impact on
the financial position, results of operations or liquidity. Other Statements of Financial Accounting Standards All other applicable Statements of Financial Accounting Standards that have
been issued and have effective dates impacting 2004 and prior years financial
statements were adopted by the Corporation. Corporate management believes there
are no Statements of Financial Accounting Standards, which have been issued and
have implementation dates in the future that will materially impact the
financial statements of future years. Significant actions by the Federal
government and its agencies, affecting the financial institutions industry in
general, are currently having and will continue to have an impact on the
Corporation. A discussion of these actions follows: 10




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##### Table of Contents



SEC Staff Accounting Bulletin: No. 105, Application of Accounting Principles
to Loan Commitments In March 2004, the SEC issued Staff Accounting Bulletin No. 105 Application of
Accounting Principles to Loan Commitments. This Staff Accounting Bulletin
summarizes the views of the SEC staff regarding the application of generally
accepted accounting principles to loan commitments accounted for as derivative
instruments, a loan committed at a specified rate, but funded later.
Presently, the Corporation does not make loan commitments that will be funded
at a later date, and therefore, the SEC Staff Accounting Bulletin had no impact
on the Corporations financial position, results of operations or liquidity. FASB Exposure Draft Proposed Statement of Financial Accounting Standard  Fair
Value Measurement On June 23, 2004, The Financial Accounting Standards Board released an exposure
draft Proposed Statement of Financial Accounting Standard  Fair Value
Measurement. This proposed standard related to the application of methods for
measuring the fair value of assets and liabilities and related expanded
disclosure requirements. This proposal, in final form, is expected to become
effective for fiscal years ending after June 15, 2005. When adopted, this
proposed standard is not expected to have a material impact the financial
position, results of operations or liquidity of the Corporation. AICPA Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer This statement of position addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investors initial investment in loans or debt securities (loans) acquired in a
transfer if those differences are attributable, at least in part, to credit
quality. The key principle of SOP 03-3 is the prohibition on the carrying
over or creation of an allowance for loan losses when initially accounting for
the purchase of an impaired loan. The price that the purchaser is willing to
pay for an impaired loan reflects the purchasers estimate of the credit losses
over the life of the loan. In the AICPAs view, using a loan loss allowance to
address the collectibility of the cash flow that the purchaser does not expect
to receive and, therefore, was not willing to pay for would not properly
reflect the substance of the loan purchase. Thus, the AICPA concluded that the
loan loss allowances recorded by the purchaser of the impaired loan should
reflect only those losses incurred by the purchaser after the acquisition and
not losses incurred by the seller of the loan prior to the sale. Presently, the Corporation does not purchase impaired loans, and therefore, the
AICPA Statement of Position (SOP) 03-3 had no impact on the Corporations
financial position, results of operation or liquidity. EITF No. 03-01 The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments In June 2004, the Emerging Issues Task Force (EITF) issued EITF No. 03-01,
The Meaning of Other-Than-Temporary Impairment and its Application to Certain
Investments. Based on the guidance available at the present time, this
pronouncement did not have any material effect on the fair value disclosure of
securities available for sale. 11




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##### Table of Contents



4. Common Stock On February 25, 2003, the Board of Directors of LNB Bancorp, Inc. declared a
three-for-two split of common stock. Shareholders received one additional
common share for every two shares owned on the stock-split record date of March
10, 2003. Shareholders participating in the Bancorps dividend reinvestment
plan, LNBB Direct (the Plan), were issued fractional shares. Shareholders not
participating in the Plan were issued cash in lieu of fractional shares. For
additional information see Form 8-K filed on February 25, 2003. Prior year
share and per share data were restated to reflect this stock-split. On February 17, 2004, the Board of Directors of LNB Bancorp, Inc. declared a
first quarter cash dividend of $.18 per share payable April 1, 2004, to
shareholders of record on March 15, 2004. This represents a 5.9 percent
increase from last years first quarter cash dividend of $.17 per share. On May 18, 2004, the Board of Directors of LNB Bancorp, Inc. declared a second
quarter cash dividend of $.18 per share payable in July 1, 2004, to
shareholders of record on June 14, 2004. This represents a 5.9 percentage
increase from last years second quarter cash dividend of $.17 per share. On September 28, 2004, the Board of Directors of LNB Bancorp, Inc. declared a
third quarter cash dividend of $.18 per share payable on October 1, 2004, to
shareholders of record on September 14, 2004. This represents a 5.9 percentage
increase from last years third quarter cash dividend of $.17 per share. 5. Stock-Based Compensation The FASB issued SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. SFAS No. 148 provides guidance on how to transition
from the intrinsic value method of accounting for stock-based employee
compensation under APB No. 25 to SFAS No. 123s fair value method for
accounting, if a company so elects. In accordance with the transitional
guidance of SFAS No. 148, the fair value method of accounting for stock options
should be applied prospectively to awards granted subsequent to January 1,
2003. As permitted, options granted prior to January 1, 2003, will continue to
be accounted for under APB Opinion 25, and the pro forma impact of accounting
for these options at fair value will continue to be disclosed in the notes to
the consolidated financial statements. The Corporation issued 10,000 new stock
options during August 2004, which were immediately vested. All stock options
issued during prior periods are 100% vested at September 30, 2004 and 2003.
The Corporation accounts for these stock options per guidance provided by SFAS
No. 123 and accordingly did not report any impact on net income. 12




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##### Table of Contents



6. Retirement Pension Plan The Banks non-contributory defined benefit pension plan (the Plan) covers
substantially all of its employees. Effective December 31, 2002, the benefits
under the Plan were frozen and no additional benefits were accrued after
December 31, 2002. The net periodic pension cost charged to salaries and benefits expense in the
consolidated statements of income amounted to $18 and $56 for the third
quarter and nine month periods ended September 30, 2004. This compares to $29
and $87 for the same periods in 2003. For the Three Month Periods
    
    For the Nine Month PeriodsEnded
    
    EndedComponents of Net Periodic Pension Cost
    
    September 30,
    
    September 30,
    
    September 30,
    
    September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    112
    
    
    $
    119
    
    
    $
    338
    
    
    $
    358Interest cost
    
    
    (94
    )
    
    
    (95
    )
    
    
    (282
    )
    
    
    (286
    )Loss recognized due to settlement
    
    
    0
    
    
    
    5
    
    
    
    0
    
    
    
    15Net Periodic Pension Cost
    
    $
    18
    
    
    $
    29
    
    
    $
    56
    
    
    $
    87
 7. Contingent Liabilities, Guarantees, Commitments and Related Party
Transactions Litigation In the ordinary course of business the Corporation is subject to legal actions
that involve claims of monetary relief. Based on information presently known,
management does not believe there are any legal actions or proceedings to which
the Corporation or any of its subsidiaries are a party, will have a material
impact on the financial position, results of operations or liquidity of the
Corporation. Commitments Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of any conditions in the contract. Substantially all
these commitments are variable rate. Most of the Banks activities are in its
defined market area. There is no exposure to high leveraged transactions or
foreign credits. Since many of these commitments expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash-flow requirements. 13




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##### Table of Contents



8. Acquisition On September 2, 2004, LNB Bancorp, Inc. issued a press release on Form 8-K
announcing the completion of the acquisition of Mortgage One Services, Inc., an
Ohio corporation specializing in mortgage originations. This transaction closed
on August 31, 2004 and the new entity has been incorporated as LNB Mortgage
LLC. It is conducting business under the trademark name Mortgage One Banc. LNB
Mortgage LLC is operated as a wholly-owned subsidiary of Lorain National Bank.
This transaction has been accounted for as a purchase of assets and assumption
of certain liabilities of Mortgage One Services, Inc. The Bank paid $350,000
for this company and the assets purchased are predominately the furniture and
fixtures of Mortgage One Services, Inc. and intangibles. LNB Mortgage LLC.
assumed the remaining term of a lease on the one location of Mortgage One
Services, Inc. As part of this transaction, Lorain National Bank has entered
into an Employment Contract with the President of Mortgage One Banc, to
continue in his current role. The consolidated financial statements include the
operations of LNB Mortgage LLC since the date of acquisition. 14




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##### Table of Contents



Part I 
 Item 2  Managements Discussion and Analysis of
Financial Condition and Results of Operations The following is managements discussion and analysis of certain significant
factors that affected the Corporations financial condition and results of
operations during the periods included in the Consolidated Financial Statements
which are part of this filing. Certain statements contained herein are not based on historical facts and are
forward-looking statements. Forward-looking statements which are based on
various assumptions (some of which are beyond the Corporations control), may
be identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as may, will, believe, expect,
estimate, anticipate, continue, or similar terms or variations of those
terms, or the negative of these terms. Actual results could differ materially
from those set forth in forward-looking statements, due to a variety of
factors, including, but not limited to, those related to the economic
environment, particularly in the market areas in which the Corporation
operates, competitive products and pricing, fiscal and monetary policies of the
U.S. Government, changes in government regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management, asset/liability management, the financial
and securities markets and the availability of and costs associated with
sources of liquidity. The Corporation does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements. Introduction LNB Bancorp, Inc. is the financial holding company for Lorain National Bank.
The Corporation is headquartered in Lorain, Ohio and serves its customers
through 20 retail banking centers and 23 ATMs in three counties in northern
Ohio. The bank operates one loan production office in Westlake, Ohio. As
disclosed in the Corporations 2003 Annual Report on Form 10-K, two new offices
opened in 2004, one in Avon, Ohio and the other in Avon Lake, Ohio. In July
2004, the branch office in Westlake, Ohio was closed and reopened as a loan
production office. The most material current trend for this quarter is the
growth in loans and deposits. Net loans grew to a record level as the quality
of the loans improves. Total deposits have continued to increase since the
first quarter of the year, with growth in both non interest bearing deposits
and time deposits. The primary source of the Corporations revenue is net
interest income and it is beginning to show improvement as evidenced during the
third quarter, due to the improved loan growth, and higher interest rates. 15




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##### Table of Contents



Results of Operations (Dollars in Thousands) Net income for the third quarter of 2004 was $2,074, a decrease of $281 from
$2,355 reported in the same period in 2003. Basic and diluted earnings per
common share for the third quarter of 2004 were $.31, as compared to $.36 for
the same period in 2003. Net income for the first nine months of 2004 was
$6,310, a decrease of $560 from $6,870 reported in the same period in 2003.
Basic and diluted earnings per common share for the first nine months of 2004
were $.95, as compared to $1.04 for the same period in 2003. Return on average assets (ROAA) and return on average equity (ROAE) were 1.09%
and 11.87%, respectively, for the third quarter of 2004, as compared to 1.24%
and 13.65% for the same period in 2003. ROAA and ROAE were 1.12% and 12.22%,
respectively, for
the nine month period ended September 30, 2004, as compared to 1.25% and 13.52%
for the same period in 2003. Table 1 containing selected operating data follows: Table 1  Operating Data Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,(Dollars in thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Net Interest Income
    
    $
    7,172
    
    
    $
    7,214
    
    
    $
    20,923
    
    
    $
    21,648Provision for Loan Losses
    
    
    399
    
    
    
    991
    
    
    
    1,349
    
    
    
    2,125Noninterest Income
    
    
    2,976
    
    
    
    3,343
    
    
    
    8,428
    
    
    
    8,514Noninterest Expenses
    
    
    6,764
    
    
    
    6,226
    
    
    
    19,018
    
    
    
    18,061Net Income
    
    $
    2,074
    
    
    $
    2,355
    
    
    $
    6,310
    
    
    $
    6,870Basic earnings per share
    
    $
    .31
    
    
    $
    .36
    
    
    $
    .95
    
    
    $
    1.04Diluted earnings per share
    
    $
    .31
    
    
    $
    .36
    
    
    $
    .95
    
    
    $
    1.04Cash dividends per Common share
    
    $
    .18
    
    
    $
    .17
    
    
    $
    .54
    
    
    $
    .51Dividend Payout Ratio
    
    
    57.62
    %
    
    
    47.69
    %
    
    
    56.77
    %
    
    
    49.0
    %ROAA
    
    
    1.09
    %
    
    
    1.24
    %
    
    
    1.12
    %
    
    
    1.25
    %ROAE
    
    
    11.87
    %
    
    
    13.65
    %
    
    
    12.22
    %
    
    
    13.52
    %Net interest margin
    
    
    4.04
    %
    
    
    4.12
    %
    
    
    4.00
    %
    
    
    4.28
    %Efficiency ratio
    
    
    66.49
    %
    
    
    57.03
    %
    
    
    64.41
    %
    
    
    59.46
    %
 16




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##### Table of Contents



Net Interest Income Net interest income is the difference between the interest and dividend income
earned on our loans and investments and interest expense on our deposits and
borrowings. Net interest income is affected by a number of factors including
the level, pricing and maturity of interest earning assets and interest bearing
liabilities, interest rate fluctuations and asset quality in general, as well
as general economic conditions and regulatory policies. Net interest income is
the most significant component of the Corporations earnings, and its balance
sheet is structured to produce better net interest income performance when
rates rise. Net interest income for the third quarter of 2004 was $7,172 a decrease of $42
or .6% from $7,214 in the third quarter of 2003. The net interest margin for
the three month period ending September 30, 2004 was 4.04% as compared to 4.12%
for the same period in 2003. For the past three years the Companys net
interest margin has been compressed by the rapidly falling interest rates
followed by a period of stable, but historically low interest rates. Net
interest income has been also impacted by a slowing of asset growth as the
local economy continues to slowly recover from recession. Both of these factors
began to change in the third quarter, as the Federal Reserve Bank increased
interest rates and loan growth improved during September 2004. Average earning assets were $707.9 million during the third quarter of 2004,
compared to average earning assets of $702.1 for the third quarter of 2003.
This is an increase of $5.8 million or .8%. Average loans experienced renewed
growth of 3.1% for the quarter ended 2004 as compared to the same time period
in 2003. Loan growth was particularly strong in the commercial, home equity and
purchased consumer loan categories. The acquisition of LNB Mortgage LLC, is
expected to improve the mortgage loans origination activity as all mortgage
activity of the Corporation will be conducted by this subsidiary, but the
majority of originations will be sold in the secondary market. Average
interest bearing deposits were $499.1 million for the third quarter of 2004,
compared to $490.5 million from the third quarter of 2003, an increase of $8.6
million, or 1.7%. Time deposit growth of $5.9 million, or 2.8%, for the quarter
ended 2004 versus the same time period in 2003, accounted for the bulk of the
average interest bearing deposit growth. Time deposits account for 43.6% of
interest bearing deposits, and averaged $217.5 million for the quarter ended
September 30, 2004. 17




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##### Table of Contents



Table 2 presents the components of the Corporations net interest income for
the three month periods ended September 30, 2004 and 2003. Net interest income
is discussed and presented on a on a tax equivalent basis, recognizing that
interest on certain loans and securities is not taxed for Federal income tax
purposes. The interest earned on these tax-exempt assets is adjusted to a
pretax-equivalent amount based upon the marginal Federal income tax rate of
35%. Tax equivalent adjustment to net interest income was $27 for the third
quarter of 2004. Non-accrual loans of $124 are included in the average
balances. Table 2  Components of net interest income Three Months Ended September 30, 2004
    
    Three Months Ended September 30, 2003Interest
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    Income/
    
    
    
    
    
    Average
    
    Income/(Dollars in thousands)
    
    Balance
    
    Expense
    
    Rate
    
    Balance
    
    Expense
    
    RateAssets:Earning assets:Fed funds sold and interest bearing
deposits with banks
    
    $
    690
    
    
    $
    24
    
    
    
    .92
    %
    
    $
    3,368
    
    
    $
    11
    
    
    
    1.18
    %Securities
    
    
    150,868
    
    
    
    1,123
    
    
    
    3.05
    
    
    
    162,932
    
    
    
    1,125
    
    
    
    2.92Gross loans
    
    
    556,401
    
    
    
    8,335
    
    
    
    5.96
    
    
    
    535,809
    
    
    
    8,264
    
    
    
    6.12Total earning assets
    
    
    707,960
    
    
    
    9,482
    
    
    
    5.34
    
    
    
    702,108
    
    
    
    9,400
    
    
    
    5.35Noninterest assets
    
    
    49,545
    
    
    
    
    
    
    
    
    
    
    
    51,768Total assets
    
    
    757,505
    
    
    
    
    
    
    
    
    
    
    
    753,876Liabilities
and Shareholders EquityInterest bearing liabilities:Transaction deposits
    
    
    175,284
    
    
    
    365
    
    
    
    .83
    
    
    
    181,672
    
    
    
    251
    
    
    
    .55Savings deposits
    
    
    106,238
    
    
    
    79
    
    
    
    .30
    
    
    
    97,203
    
    
    
    75
    
    
    
    .31Time deposits
    
    
    217,528
    
    
    
    1,268
    
    
    
    2.32
    
    
    
    211,670
    
    
    
    1,363
    
    
    
    2.55Total interest bearing deposits
    
    
    499,050
    
    
    
    1,712
    
    
    
    1.36
    
    
    
    490,545
    
    
    
    1,689
    
    
    
    1.37Short-term borrowings
    
    
    18,998
    
    
    
    61
    
    
    
    1.21
    
    
    
    19,340
    
    
    
    38
    
    
    
    .78FHLB advances
    
    
    77,331
    
    
    
    536
    
    
    
    2.78
    
    
    
    75,273
    
    
    
    459
    
    
    
    2.42Total interest bearing liabilities
    
    
    595,379
    
    
    
    2,310
    
    
    
    1.54
    
    
    
    585,158
    
    
    
    2,186
    
    
    
    1.48Noninterest bearing liabilities
    
    
    92,628
    
    
    
    
    
    
    
    
    
    
    
    100,273Shareholders equity
    
    
    69,497
    
    
    
    
    
    
    
    
    
    
    
    68,445Total liabilities and equity
    
    $
    757,505
    
    
    
    
    
    
    
    
    
    
    $
    753,876Net interest income (tax equivalent)
    
    
    
    
    
    $
    7,198
    
    
    
    
    
    
    
    
    
    
    $
    7,285Net interest spread (tax equivalent)
    
    
    
    
    
    
    
    
    
    
    3.80
    %
    
    
    
    
    
    
    
    
    
    
    3.87
    %Net interest margin (tax equivalent)
    
    
    
    
    
    
    
    
    
    
    4.04
    %
    
    
    
    
    
    
    
    
    
    
    4.12
    %
 18




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##### Table of Contents



The Corporations net interest income for the nine months ended September 30,
2004 was $20,923, a decrease of $725, or 3.4% from $21,648 during the same
period in 2003. The net interest margin for the nine month period ended
September 30, 2004 was 4.00% as compared to 4.28% for the same period in 2003.
The impact of the prolonged declining interest rate environment can be seen in
the overall yield on earning assets of 5.25% for the first nine months of 2004,
a decline of 41 basis points from 5.66% compared to the same period in 2003.
Earning asset yields continue to be impacted by competitive market pressures,
but the negative impact of prepayments has slowed and higher interest rates
have begun to improve the net interest margin trends. This can be seen in the
third quarter net interest margin of 4.04% as compared to the full year result
of 4.00%. The low interest rate environment, in addition to compressing asset
yields has also impacted the cost of funding. This can be seen in the average
rate on interest bearing liabilities, which was 1.49% for the first nine months
of 2004 compared to 1.65% for the first nine months of 2003. Although this is a
16 basis point decrease from the rate paid on interest bearing deposits and
purchased funds in the first nine months of 2003, it represents less than half
the yield decline that was experienced by the earnings assets being funded by
these sources. Prior to recent Federal Reserve actions to raise the Federal
Funds rate, the impact of practical rate floors on savings and transaction
accounts, and a noticeable rise in market rates on deposit accounts in
anticipation of Federal Reserve Bank actions, had been depressing the net
interest margin. These funding cost factors have eased and the asset yields
began to quickly recover in September. The impact of the slow economic recovery in the local market can still be seen
in the nine month comparisons. For the nine month period ended September 30,
2004, average earning assets were $705.1 million as compared to $683.5 million
of the same period in 2003. This is an increase of 3.2%, or about half the
historical annual growth rate experienced by the Corporation. The Corporation
believes that the improving economy and the associated asset growth, combined
with increasing interest rates and slower prepayment rates, have begun to
improve both net interest income and net interest margin performance. 19




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##### Table of Contents



Table 3 presents the components of the Corporations net interest income for
the nine month periods ended September 30, 2004 and 2003. Net interest income
is discussed and presented on a on a tax equivalent basis, recognizing that
interest on certain loans and securities is not taxed for Federal income tax
purposes. The interest earned on these tax-exempt assets is adjusted to a
pretax-equivalent amount based upon the marginal Federal income tax rate of
35%. Tax equivalent adjustment to net interest income was $176 for the nine
months ended September 30, 2004. Non-accrual loans of 5,576 are included in the
average balances. Table 3  Components of net interest income Nine Months Ended September 30, 2004
    
    Nine Months Ended September 30, 2003Interest
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    Income/
    
    
    
    
    
    Average
    
    Income/(Dollars in thousands)
    
    Balance
    
    Expense
    
    Rate
    
    Balance
    
    Expense
    
    RateAssets:Earning assets:Fed funds sold and interest bearing
deposits with banks
    
    $
    4,180
    
    
    $
    57
    
    
    
    1.57
    %
    
    $
    3,277
    
    
    $
    32
    
    
    
    1.26
    %Securities
    
    
    155,511
    
    
    
    3,427
    
    
    
    3.10
    
    
    
    158,842
    
    
    
    3,906
    
    
    
    3.46Gross loans
    
    
    545,428
    
    
    
    24,041
    
    
    
    5.89
    
    
    
    521,368
    
    
    
    24,774
    
    
    
    6.35Total earning assets
    
    
    705,119
    
    
    
    27,525
    
    
    
    5.25
    
    
    
    683,487
    
    
    
    28,921
    
    
    
    5.66Non interest earning assets
    
    
    49,150
    
    
    
    
    
    
    
    
    
    
    
    51,071Total assets
    
    
    754,269
    
    
    
    
    
    
    
    
    
    
    
    734,558Liabilities and Shareholders EquityInterest bearing liabilities:Transaction deposits
    
    
    173,705
    
    
    
    891
    
    
    
    .69
    
    
    
    179,242
    
    
    
    1,031
    
    
    
    .77Savings deposits
    
    
    106,194
    
    
    
    241
    
    
    
    .30
    
    
    
    99,491
    
    
    
    283
    
    
    
    .38Time deposits
    
    
    214,507
    
    
    
    3,802
    
    
    
    2.37
    
    
    
    213,346
    
    
    
    4,309
    
    
    
    2.70Total interest bearing deposits
    
    
    494,406
    
    
    
    4,934
    
    
    
    1.33
    
    
    
    492,079
    
    
    
    5,623
    
    
    
    1.53Short-term borrowings
    
    
    18,980
    
    
    
    153
    
    
    
    .99
    
    
    
    17,985
    
    
    
    157
    
    
    
    1.07FHLB advances
    
    
    77,485
    
    
    
    1,515
    
    
    
    2.63
    
    
    
    61,991
    
    
    
    1,284
    
    
    
    2.80Total interest bearing liabilities
    
    
    590,871
    
    
    
    6,602
    
    
    
    1.49
    
    
    
    572,055
    
    
    
    7,064
    
    
    
    1.65Non interest bearing liabilities
    
    
    94,402
    
    
    
    
    
    
    
    
    
    
    
    94,554Shareholders equity
    
    
    68,995
    
    
    
    
    
    
    
    
    
    
    
    67,949Total liabilities and equity
    
    $
    754,269
    
    
    
    
    
    
    
    
    
    
    $
    734,558Net interest income (tax equivalent)
    
    
    
    
    
    $
    21,098
    
    
    
    
    
    
    
    
    
    
    $
    21,857Net interest spread (tax equivalent)
    
    
    
    
    
    
    
    
    
    
    3.76
    %
    
    
    
    
    
    
    
    
    
    
    4.01
    %Net interest margin (tax equivalent)
    
    
    
    
    
    
    
    
    
    
    4.00
    %
    
    
    
    
    
    
    
    
    
    
    4.28
    %
 20




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##### Table of Contents



Provision for Loan Losses The provision for loan losses represents the charge to income necessary to
adjust the allowance for loan losses to an amount that represents managements
assessment of the estimated probable credit losses inherent in the
Corporations loan portfolio which have been incurred at the balance sheet
date. The provision for loan losses decreased $592 or 59.7% to $399 in the
third quarter of 2004 compared to $991 in the third quarter of 2003. The
provision for loan losses for the nine month period ended September 30, 2004
was $1,349 as compared to $2,125 for the same period in 2003. This represents a
$776 reduction or 36.5%. The provision for loan losses is influenced by not
only the level of non performing assets but also by the Corporations level of
classified assets and historical loan losses. During the past year the level of
non performing loans have stabilized and classified loans have declined.
The final result of this cycle
is that charge-offs that were recorded in 2004 were a significant component of the increased
2003 provision for loan losses and are presented in Table 4. The table below is a
summary of the Corporations loan loss experience for the three and nine months
ended September 30, 2004 and 2003. Table 4  Allowance for loan losses For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Balance at beginning of period
    
    $
    7,989
    
    
    $
    7,105
    
    
    $
    7,730
    
    
    $
    6,653Charge-offs:Commercial
    
    
    886
    
    
    
    440
    
    
    
    1,309
    
    
    
    814Real estate
    
    
    9
    
    
    
    0
    
    
    
    21
    
    
    
    0Consumer
    
    
    191
    
    
    
    112
    
    
    
    556
    
    
    
    585Total charge-offs
    
    
    1,086
    
    
    
    552
    
    
    
    1,886
    
    
    
    1,398Recoveries:Commercial
    
    
    16
    
    
    
    54
    
    
    
    44
    
    
    
    82Real estate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Consumer
    
    
    33
    
    
    
    44
    
    
    
    114
    
    
    
    180Total recoveries
    
    
    49
    
    
    
    98
    
    
    
    158
    
    
    
    262Net charge-offs
    
    
    1,037
    
    
    
    454
    
    
    
    1,728
    
    
    
    1,136Provision for loan losses
    
    
    399
    
    
    
    991
    
    
    
    1,349
    
    
    
    2,125Allowance for loan losses
    
    $
    7,351
    
    
    $
    7,642
    
    
    $
    7,351
    
    
    $
    7,642
 For more information see sections titled Non-performing Assets and Allowance
for Loan Losses. 21




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##### Table of Contents



Noninterest Income Management views noninterest income as composed of core and non-core
components. In general, core components include service charges on deposit
accounts, electronic banking fees, investment, trust and brokerage income,
income from investment in life insurance, and other banking fees. Non-core
components include asset sales. Noninterest income for the third quarter of
2004 was $2,976, a decrease of $531 or 15.1% from $3,507 for the same quarter
of 2003. Core components totaled $2,516, a decrease of $118 or 4.5% from $2,634 for the
same quarter of 2003. Investment, Trust and Brokerage Income has been
particularly strong in 2004 and during the third quarter this revenue totaled
$539, an increase of 10.9% from $486 during the same period in 2003. Account
growth, fee adjustments and the improving financial markets all contributed to
this increase. Offsetting a portion of this were slight declines in service
charges on deposit accounts, electronic banking fees and income from investment
in life insurance. Service charges on deposit accounts are typically composed
of about 70% overdraft and return item charges. This 70% is sensitive to
general economic conditions. With the local economy somewhat weak the level of
economic activity is reflected in less transaction volume. This has a direct
impact on the level of these fees. Electronic banking fees are driven by
transaction volume and by the fees received from the processor. Transaction
volume has been impacted by the local economy but has still been increasing,
therefore management attributes this revenue weakness to a reduction in the
per-item interchange fees that are earned from VISA. The Income from investment
in life insurance is earned on the Corporations investment in Bank Owned Life
Insurance. This is a long-term investment and the earnings are related to the
level of interest rates. The income on this investment reflects the
historically low rate environment. Non-core components totaled $460 in the third quarter of 2004, a $413 decline
from $873, or 47.3%, in the third quarter of 2003 due in part to the 2003 sale
of the Corporations VISA credit card portfolio in which an $820 gain was
recognized in the third quarter. In 2004 the Corporation sold the Avon Lake
office building that had been vacated when the new Avon Lake office was opened
earlier this year. The gain on this sale was $285. Also impacting the current
quarter was Gain on sale of securities which totaled $158 as compared to a loss
of $(1) in the same period last year. The securities sales were exclusively
related to the liquidation of most of the non-rated municipal bond portfolio of
the Corporation. Noninterest income for the first nine months of 2004 was $8,428, a decrease of
$636 or 7.0% from $9,064 for the same period in 2003. Core components totaled $7,662, an increase of $62 or .8% from $7,600 for the
same nine month period in 2003. The same factors that describe the third
quarter performance are generally applicable to the nine month period
comparison. Investment, trust and brokerage income has been very strong, while
other components of fee income have been down slightly on a year-over-year
comparison. Non-core components totaled $766 for the nine months ended September 30, 2004,
a decline of $698 from the same period in 2003. The same general factors that
explain the third quarter performance explain this change. 22




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##### Table of Contents



Noninterest Expense Noninterest expense for the third quarter of 2004 was $6,764, an increase of
$374 or 5.9%, from $6,390 reported for the same quarter of 2003. With the
exception of Salaries and employee benefits all categories of expenses
contributed to this increase. The largest increases were in net occupancy
expenses and furniture and equipment expense which reflect the two new offices,
as well as expenses related to necessary repairs to the main office and the
operations center, and the continuing network upgrade project. Professional
services were $306 for the third quarter of 2004, an increase of $57 from $249
during the same period last year. Legal fees are down from 2003 levels, but
costs related to compliance are up due to SOX 404 and similar regulations. The
efficiency ratio was 65.0% for the third quarter of 2004, up from 57.9% for the
same quarter last year. Higher quarterly noninterest expenses and slightly
lower revenue contributed to this result. Noninterest expense for the nine month period ended September 30, 2004 was
$19,018, an increase of $407 or 2.2%, from $18,611 reported for the same period
of 2003. The same trends in the expense components highlighted in the quarter
over quarter comparison are present in the nine month comparison. The
Corporation expects that professional services related to audit and compliance
will continue to trend up, while net occupancy and furniture and equipment
expenses should begin to moderate. Income Taxes The provision for income taxes for the third quarter and first nine months of
2004 were $911 and $2,674 respectively. This represents reductions from $985
and $3,106 for the same periods in 2003. These reductions are attributable to
lower pretax income and the impact of North Coast Community Development
Corporation (NCCDC) activities that have begun to generate tax credits in 2004. North Coast Community Development Corporation is a subsidiary of Lorain
National Bank. It was formed in late 2002 as a Community Development
Corporation (CDC) in order to make investments in low income census tracts and
to apply for the related Federal tax credits made available to such CDCs.
NCCDC was awarded tax credits in late 2003 for investments up to $9 million. In 2004, despite the weak local economy, NCCDC was capitalized for $4.5
million, and at September 30, 2004 had approved several qualified investments
and thereby have generated tax credits in 2004. The impact of these credits
reduced the Corporations effective tax rate to 29.5% for the three month
period ended September 30, 2004 as compared to 30.5% for the same period in
2003. The effective tax rate for the nine month period ended September 30, 2004
was 29.8% a decrease from 31.1% for the same period in 2003. 23




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##### Table of Contents



Financial Condition (Dollars in thousands) At September 30, 2004, total assets were $770,794, an increase of $29,573 from
December 31, 2003. This increase is attributable to increases in loans of
$32,126. This growth in loans was funded by sales from the securities portfolio
and by increased borrowings, including Federal Home Loan Bank advances, of $5.8
million or 8.1%. During the quarter all held to maturity securities
were moved to the available for sale category. The transfer brings
the securities portfolio more in line with its primary purpose of
providing liquidity. Total
deposits increased 3.6% or $21.1 million, to $602,391 at September 30, 2004
when compared to December 31, 2003. This increase in deposits was primarily due
to growth in non interest bearing deposits and time deposits. Shareholders
equity totaled $70,609 at September 30, 2004, increasing $2,474 from December
31, 2003. Net retained earnings (net income less cash dividends) for the nine
months ended September 30, 2004 totaled $2,728. Accumulated other comprehensive
income (loss) was $(1,292), which represents a change from December 31, 2003 of
$588. This was due to a decrease in the market value of securities available
for sale. The net effect of the issuance of Treasury stock under stock option
plans was $334. Components of the Loan Portfolio Loans are generally reported at the principal amount outstanding, net of
unearned income. Loans held for sale are valued on an aggregate basis at the
lower of carrying amount or fair value. Interest income is recognized on the
accrual basis. Loan origination fees, certain direct costs, and unearned
discounts are deferred and amortized into interest income as an adjustment to
the yield over the term of the loan. Loan commitment fees are generally
deferred and amortized into fee income on a straight-line basis over the
commitment period. Other credit related fees, including letter and line of
credit fees are recognized as fee income when earned. Table 5 presents the components of total loans at September 30, 2004, December
31, 2003 and September 30, 2003. Table 5  Loan Portfolio September 30,
    
    December 31,
    
    September 30,(Dollars in thousands)
    
    2004
    
    2003
    
    2003Commercial
    
    $
    325,570
    
    
    $
    297,468
    
    
    $
    297,656Mortgage
    
    
    103,039
    
    
    
    113,649
    
    
    
    117,952Installment
    
    
    70,332
    
    
    
    59,217
    
    
    
    62,864Home Equity
    
    
    61,596
    
    
    
    57,762
    
    
    
    55,215Loans held for sale
    
    
    5,521
    
    
    
    6,215
    
    
    
    6,497Total loans
    
    $
    566,058
    
    
    $
    534,311
    
    
    $
    540,184
 24




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##### Table of Contents



Nonperforming Assets The level of nonperforming assets at September 30, 2004 is down $42 from the
level at December 31, 2003, and down $347 from the level at June 30, 2004.
Management believes nonperforming assets are well collateralized. Table 6
presents the level of nonperforming assets and respective ratios at the end of
the last five calendar quarters. Commercial loans secured by real estate are designated as non-performing when
either principal or interest payments are 90 days or more past due, terms are
renegotiated below market level, or when an individual analysis of a borrowers
credit worthiness indicates a credit should be placed on nonperforming status. Consumer loans are subject to mandatory charge-off at a specific delinquency
date and except for residential real estate loans, are not classified as
nonperforming prior to being charge-off. Closed-end consumer loans, which
include installment and student loans are generally charged-off in full no
later than 120 days past due. Table 6  Nonperforming Assets September30,
    
    June 30,
    
    March 31,
    
    December 31,
    
    September,30(Dollars in thousands)
    
    2004
    
    2004
    
    2004
    
    2003
    
    2003Nonperforming Assets:Non-accrual loans
    
    $
    5,576
    
    
    $
    5,452
    
    
    $
    5,234
    
    
    $
    5,154
    
    
    $
    3,481Restructured loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other foreclosed assets
    
    
    125
    
    
    
    596
    
    
    
    662
    
    
    
    589
    
    
    
    589Total Nonperforming Assets
    
    $
    5,701
    
    
    $
    6,048
    
    
    $
    5,896
    
    
    $
    5,743
    
    
    $
    4,070Allowance for loan losses to
total nonperforming assets
    
    
    128.9
    %
    
    
    132.1
    %
    
    
    160.0
    %
    
    
    150.0
    %
    
    
    187.8
    %Nonperforming loans to total loans
    
    
    .99
    %
    
    
    .99
    %
    
    
    .96
    %
    
    
    .95
    %
    
    
    .64
    %Allowance for loan losses to
nonperforming loans
    
    
    131.8
    %
    
    
    146.5
    %
    
    
    149.3
    %
    
    
    149.9
    %
    
    
    219.5
    %Accruing loans past due 90 days
    
    $
    1
    
    
    $
    281
    
    
    $
    0
    
    
    $
    46
    
    
    $
    25
 Classified
loans which are performing but have concerns regarding the ability of
the borrower to comply with present loan repayment terms, excluding nonperforming loans,
approximated $20,321, $22,836, $23,242 and $21,747 at September 30, 2004, June
30, 2004, March 31, 2004 and December 31, 2003, respectively, and are being
closely monitored by management and the Board of Directors. The amounts include
results from a loan-by-loan evaluation of loans classified as special
mention, substandard and doubtful, but are not included in the
nonperforming loan category. The classification of these loans, however, does
not imply that management expects losses on each of these loans, but believes
that a higher level of scrutiny is prudent under the circumstances. These loans
require close monitoring despite the fact that they are currently performing.
Such classifications relate to specific concerns relating to each individual
borrower and do not relate to any concentrated risk elements common to all
loans in this group. 25




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##### Table of Contents



Non-accrual loans increased slightly to $5,576, from $5,452 at June 30, 2004
and $5,154 at December 31, 2003. Nearly all non-accrual loans are secured by
real estate or
commercial real estate. As of September 30, 2004, the Corporation did not have
any loan concentrations which exceeded 10% of total loans. The Corporation maintains an allowance for loan losses at a level adequate to
absorb managements estimate of probable losses inherent in the loan portfolio.
The allowance is comprised of a general reserve, a specific reserve for
identified problem loans and an unallocated reserve. The general reserve is
determined by applying estimated loss factors to the credit exposures from
outstanding loans. For construction, commercial and commercial real estate
loans, loss factors are applied based on internal risk grades of these loans.
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 revision on a quarterly basis,
along with other factors affecting the collectibility of the loan portfolio.
Specific reserves are established for all classified loans, where management
has determined that, due to identified significant conditions, the probability
that a loss has been incurred exceeds the general reserve loss factor
determination for those loans. The unallocated reserve recognizes the
estimation of risk associated with the allocated general and specific reserves
and incorporates managements evaluation of existing conditions that are not
included in the allocated reserve determinations. These conditions are reviewed
quarterly by management and include general economic conditions, credit quality
trends, and internal loan review and regulatory examination findings. 26




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##### Table of Contents



Sources of Funds Management considers its interest sensitivity profile when deciding on the
sources of funds to use to fund assets. See Item 3. Quantitative and
Qualitative Disclosures About Market Risk of this form 10-Q regarding further
information on our interest rate risk profile Liquidity Management of liquidity is of growing importance to the banking industry. The
liquidity of a financial institution reflects its ability to meet loan
requests, to accommodate possible outflows in deposits and to take advantage of
interest rate market opportunities. The ability of a financial institution to
meet its current financial obligations is a function of balance sheet
structure, the ability to liquidate assets, and the availability of alternative
sources of funds. In addition to maintaining a stable core deposit base, the Corporations
banking subsidiary maintains adequate liquidity primarily through the use of
investment securities and unused borrowing capacity. At September 30, 2004,
securities and other short-term investments with maturities of one year or less
totaled $52,595. In addition, the mortgage-backed securities provide an
estimated cash flow of $18,330 over a twelve-month time horizon. The Bank is a
member of the Federal Home Loan Bank of Cincinnati (FHLB). The FHLB provides a
reliable source of funds to support asset growth in excess of deposit growth.
As of September 30, 2004, the Bank had total credit availability with the FHLB
of $ 78,058, of which $77,299 was outstanding. The Bank also maintains
borrowing capacity at the Federal Reserve Bank of Cleveland. At September 30,
2004, there were no borrowings on this borrowing base of $17,574. The Bank also
maintains Federal funds lines of credit with correspondents totaling $47,750.
There were no outstanding balances on these lines as of September 30, 2004. Since the Corporation is a financial holding company and does not conduct
operations, its only sources of operating liquidity are borrowings from outside
sources and dividends paid to it by the Bank. For the Bank, regulatory approval
is required in order to pay dividends in excess of the subsidiarys earnings
retained for the current year plus retained
net profits for the prior two years. As a result of these restrictions,
dividends that could be paid to the Corporation by its bank subsidiary, without
prior regulatory approval, were limited to $10,749 at September 30, 2004. Asset/Liability Management Closely related to liquidity management is the management of interest-earning
assets and interest-bearing liabilities. LNB Bancorp manages its rate
sensitivity position to avoid wide swings in net interest margins and to
minimize risk due to changes in interest rates. At September 30, 2004, The
Corporations gap position, the difference between the dollar value of interest
rate sensitive assets and interest rate sensitive liabilities, was positive for
three, six and twelve month periods. Earnings-at-risk simulation indicates that
the Corporation will experience net interest income improvement as rates rise.
See also Item. 3, Quantitative and Qualitative Disclosures About Market Risk. 27




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##### Table of Contents



Regulatory Capital The Corporation continues to maintain a strong capital position. Total
shareholders equity was $70,609, at September 30, 2004, an increase of $2,474,
or 3.6% from December 31, 2003. This increase resulted primarily from $6,310 of
net income generated for the nine months ended September 30, 2004 less cash
dividends payable to shareholders of $3,582. The change in intermediate term
interest rates experienced in the first nine months of 2004 has caused a
decrease in the fair value of available for sale securities which resulted in a
decrease in shareholders equity within accumulated other comprehensive income
of $1,292 for the nine months ended September 30, 2004. As of September 30,
2004, the Corporation held 125,712 shares of common stock as treasury stock at
a cost of $2,430. This change in treasury stock during the first nine months of
2004 is attributable to shares issued pursuant to employee benefit plans and
stock option plans. The Corporation and the Bank continue to monitor growth to stay within the
constraints established by the regulatory authorities. Under Federal banking
regulations, at September 30, 2004 and December 31, 2003, the Corporation and
Bank maintained capital ratios consistent with guidelines to be deemed
well-capitalized. These capital positions for the Corporation are presented in
Table 7. Table 7  Capital Ratios September 30,
    
    December 31,
    
    Minimum Well-2004
    
    2003
    
    capitalized RatioLeverage Ratio
    
    
    8.00
    %
    
    
    8.92
    %
    
    
    5.00
    %Tier I Risk based Ratio
    
    
    9.69
    %
    
    
    11.32
    %
    
    
    6.00
    %Total Capital Ratio
    
    
    11.50
    %
    
    
    12.57
    %
    
    
    10.00
    %
 The Corporation regularly evaluates acquisition opportunities and conducts due
diligence activities in connection with possible acquisitions in markets near
or within the Corporations current geographic market. As a result,
acquisition discussions and, in some cases negotiations, take place and future
acquisitions could occur. Corporate management believes that the Corporations
current capital resources are sufficient to support any foreseeable acquisition
activity. 28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk that a financial institutions earnings and capital, or
its ability to meet its business objectives, will be adversely affected by
movements in market rates or prices such as interest rates, foreign exchange
rates, equity prices, credit spreads and/or commodity prices. Within the
Corporation, the dominant market risk exposure is changes
in interest rates. The negative effects of this exposure are felt through the
net interest margin, mortgage banking revenues and the market value of various
assets and liabilities. The Corporation manages market risk through its Asset/Liability Committee
(ALCO) at the consolidated level. This committee monitors interest rate risk
through sensitivity analysis, whereby it measures potential changes in future
earnings that may result from one or more hypothetical changes in interest
rates. This analysis is performed by estimating the expected cash flows of the
Corporations financial instruments using interest rates in effect at September
30, 2004. For the net interest income estimates, the hypothetical rates are
applied to the financial instruments based on the assumed cash flows. The
Corporation applied these interest rate shocks to its financial instruments in
300, 200 and 100 basis point increasing rate scenarios. Scenarios testing 300,
200 and 100 basis points decreases in rates were not measured due to the low
probability of such declines. Table 8 presents the potential ratio of the Corporations interest rate
sensitive assets (i.e. assets that will mature or reprice within a specific
time period) divided by its interest rate sensitive liabilities (i.e.
liabilities that will mature or reprice within a specific time period),
commonly referred to as the interest rate sensitivity gap or gap, for the
current period and the cumulative position at three, six and twelve month time
periods. Table 8  Interest Rate Sensitivity (Cumulative) (Dollars in thousands)
    
    Current
    
    3 months
    
    6 months
    
    12 monthsRate Sensitive Assets (RSA)
    
    $
    399,682
    
    
    $
    408,630
    
    
    $
    417,247
    
    
    $
    428,653Rate Sensitive Liabilities (RSL)
    
    
    344,591
    
    
    
    333,492
    
    
    
    352,760
    
    
    
    382,861Net GAP Position (RSA/RSL)
    
    
    55,092
    
    
    
    75,138
    
    
    
    64,487
    
    
    
    45,792Cumulative GAP
    
    
    116
    %
    
    
    121
    %
    
    
    121
    %
    
    
    118
    %
 29




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##### Table of Contents



Table 9 presents an analysis of the potential sensitivity of the Corporations
net interest income to sudden and sustained 300, 200 and 100 basis point
changes in market rates. The net interest income presented in each interest
rate scenario represents the potential net interest income result for the next
twelve months. Table 9  Earnings at Risk +300 basis(Dollars in thousands)
    
    Base Case
    
    +100 basis points
    
    +200 basis points
    
    pointsNet Interest Income
    
    $
    30,770
    
    
    
    +$809
    
    
    
    +$1,546
    
    
    
    +$2,287
 ALCO is aggressively managing the Corporations risk to net interest income in
response to a protracted rising interest rate environment. The preceding
analysis is based on numerous assumptions, including relative levels of
market interest rates, loan prepayments and reactions of depositors to changes
in interest rates, and should not be relied upon as being indicative of actual
results. Further, the analysis does not necessarily contemplate all actions the
Corporation may undertake in response to changes in interest rates. 
 Item 4. Controls and Procedures The Corporation carried out an evaluation under the supervision and with the
participation of the Corporations management, including the Corporations
President and Chief Executive Officer and Executive Vice President and Chief
Financial Officer, of the effectiveness of the design and operation of the
Corporations disclosure controls and procedures as of September 30, 2004,
pursuant to SEC rule 13a-15. Based upon that evaluation, the President and
Chief Executive Officer and Executive Vice President and Chief Financial
Officer concluded that as of September 30, 2004, the Corporations disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Corporation (including its consolidated
subsidiaries) required to be included in the Corporations periodic SEC
filings. There was no significant change made in the Corporations internal control over
financial reporting that occurred during the Corporations third quarter ended
September 30, 2004, that was materially affecting, or is reasonably likely to
materially affect, the Corporations internal control over financial reporting. 30




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Not Applicable 
 Item 2. Changes in Securities and Use of Proceeds Issuer Purchases of Equity Securities (d) Maximum Number(a) Total
    
    (b)
    
    (c) Total Number of
    
    (or Approximate DollarNumber of
    
    Average
    
    Shares (or Units)
    
    Value) of Shares (orShares (or
    
    Price Paid
    
    Purchased as Part of
    
    Units) that May Yet BeUnits)
    
    per Share
    
    Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased
    
    (or Unit)
    
    Plans or Programs
    
    Plans or ProgramsJanuary 1, 2004 -
January 31, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AFebruary 1, 2004 -
February 29, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AMarch 31, 2004 -
March 31, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AApril 1,
2004 -
April 30, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AMay 1, 2004 - May
31, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AJune 1, 2004 - June
30, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AJuly 1, 2004 - July
31, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/AAugust 1, 2004 - August 31, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/ASeptember 1, 2004 - September 30, 2004
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/ATotal
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    
    N/A
 LNB Bancorp, Inc does not have any common stock repurchase plans, either
publicly announced or non-publicly announced. 
 Item 3. Defaults Upon Senior Securities Not applicable. 
 Item 4. Submission of Matters to a Vote of Security Holders Not applicable 
 Item 5. Other Information Not applicable. 31




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K (a) Exhibits pursuant to item 601 (a) of regulation S-K is part of this report.
Please see the section after the report on Form 8-K for detailed information. (b) Reports on Form 8-K July 22, 2004 - LNB Bancorp, Inc. published and released its 2nd Quarter 2004
Report to Shareholders and issued a press release announcing 2nd Quarter 2004
Earnings dated July 22, 2004. April 20, 2004 - LNB Bancorp, Inc. published and released its 1st Quarter 2004
Report to Shareholders and issued a press release announcing 1st Quarter 2004
Earnings dated April 20, 2004. April 20, 2004 - LNB Bancorp, Inc. published and issued a press release
announcing Lorain National Bank to Acquire Mortgage One Banc to Expand Market
Presence in Consumer Mortgage Lending. May 19, 2004  LNB Bancorp, Inc. filed an 8-K report regarding a settlement of
a civil action against the Company, which was filed by the Securities and
Exchange Commission in the United States District Court for the Northern
District of Ohio. May 20, 2004  LNB Bancorp, Inc. issued a press release dated May 19, 2004,
announcing the issuance of cash dividend of $.18 per share for the second
quarter of 2004. This common stock dividend is payable in July 1, 2004 to
shareholders of record on June 14, 2004. July 6, 2004  LNB Bancorp, Inc. issued a press release announcing the signing
of a definitive agreement to acquire Mortgage One Banc dated July 2, 2004. July 22, 2004  LNB Bancorp, Inc. published and released its 2nd Quarter 2004
Report to Shareholders and issued a press release announcing 2nd Quarter 2004
Earnings dated July 21, 2004. September 1, 2004  LNB Bancorp, Inc. published a press release announcing the
completion of the acquisition of Mortgage One Banc. October 20, 2004  LNB Bancorp, Inc. published and released its 3rd Quarter
2004 press release announcing 3rd Quarter 2004 Earnings dated October 19, 2004. 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized. LNB BANCORP, INC.(Registrant)Date: November 8, 2004
    
    /s/ Terry M. WhiteTerry M. WhiteChief Financial Officer
 32




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##### Table of Contents



LNB Bancorp, Inc. 
   S-KReference
    
    
    
    PageNumber
    
    Exhibit
    
    Number(2)
    
    Asset Purchase Agreement dated July 1, 2004, between
and among LNB Mortgage LLC, an Ohio limited
liability company, The Lorain National Bank, a
national bank, and Mortgage One Services, Inc., an
Ohio corporation as previously filed as Exhibit (2) to
registrants 10-Q for the Quarter ended June 30, 2004,
filed with the Commission on August 9, 2004.(3.1)
    
    LNB Bancorp, Inc. Second Amended Articles of
Incorporation. Previously filed under Item 6,
Exhibit (3)(i) to Quarterly Report on Form 10-Q
(Commission File No. 0-13202) for the quarter ended
September 30, 2000, filed November 14, 2000 and
incorporated herein by reference.
    
    N/A(3.2)
    
    LNB Bancorp, Inc. Amended Code of Regulations.
Previously filed under Item 7, Exhibit 3 to Form 8-K
(Commission File No. 0-13203) filed January 4, 2001
and incorporated herein by reference.
    
    N/A(4)
    
    Instruments Defining the Rights of Security Holders.
(See Exhibits 3.1 and 3.2)
    
    N/A(10)
    
    Asset Purchase Agreement dated July 1, 2004, between
and among LNB Mortgage LLC, an Ohio limited
liability company, The Lorain National Bank, a
national bank, and Mortgage One Services, Inc., an
Ohio corporation as previously filed as Exhibit (2) to
registrants 10-Q for the Quarter ended June 30, 2004,
filed with the Commission on August 9, 2004.
    
    N/A(31(a))
    
    Chief Executive Officer Sarbanes-Oxley Act 302
Certification dated November 5, 2004 for LNB
Bancorp, Inc.s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004.(31(b))
    
    Chief Financial Officer Sarbanes-Oxley Act 302
Certification dated November 5, 2004 for LNB
Bancorp, Inc.s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004.(32(a))
    
    Certification pursuant to 18 U.S.C. section 1350, as
enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.(32(b))
    
    Certification pursuant to 18 U.S.C. section 1350, as
enacted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
 33