##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-13203
 LNB Bancorp, Inc.
  Ohio
    
    34-1406303(State of Incorporation)
    
    (I.R.S. Employer Identification No.)457 Broadway, Lorain, Ohio
    
    44052-1769(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Part I  Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets March 31, 2011 (unaudited) and December 31, 2010
    
    
    3Consolidated Statements of Income (unaudited) for the three months ended
March 31, 2011 and March 31, 2010
    
    
    4Consolidated Statements of Shareholders Equity (unaudited) for the three
months ended March 31, 2011 and March 31, 2010
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 2011 and March 31, 2010
    
    
    6Notes to the Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    45Part II  Other Information
    
    
    45Item 1. Legal Proceedings
    
    
    45Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 6. Exhibits
    
    
    46EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 Consolidated Balance Sheets
 March 31, 2011
    
    
    December 31, 2010(unaudited)(Dollars in thousands except share amounts)ASSETSCash and due from banks (Note 3)
    
    $
    19,243
    
    
    $
    17,370Federal funds sold and short-term investments
    
    
    45,150
    
    
    
    30,850Cash and cash equivalents
    
    
    64,393
    
    
    
    48,220Interest-bearing deposits in
other banks
    
    
    348
    
    
    
    348Securities available for sale, at fair value (Note 5)
    
    
    235,563
    
    
    
    221,725Restricted stock
    
    
    5,741
    
    
    
    5,741Loans held for sale
    
    
    5,261
    
    
    
    5,105Loans: (Note 6)Portfolio loans
    
    
    810,629
    
    
    
    812,579Allowance for loan
losses (Note 6)
    
    
    (17,315
    )
    
    
    (16,136
    )Net loans
    
    
    793,314
    
    
    
    796,443Bank premises and equipment, net
    
    
    9,353
    
    
    
    9,645Other real estate owned
    
    
    3,348
    
    
    
    3,119Bank owned life insurance
    
    
    17,320
    
    
    
    17,146Goodwill, net (Note 4)
    
    
    21,582
    
    
    
    21,582Intangible assets, net (Note 4)
    
    
    835
    
    
    
    868Accrued interest receivable
    
    
    3,788
    
    
    
    3,519Other assets
    
    
    14,532
    
    
    
    19,076Total Assets
    
    $
    1,175,378
    
    
    $
    1,152,537LIABILITIES AND SHAREHOLDERS EQUITYDeposits (Note 7)Demand and other
noninterest-bearing
    
    $
    119,704
    
    
    $
    115,476Savings, money market and interest-bearing demand
    
    
    348,412
    
    
    
    318,434Certificates of deposit
    
    
    532,983
    
    
    
    544,616Total deposits
    
    
    1,001,099
    
    
    
    978,526Short-term borrowings (Note 8)
    
    
    580
    
    
    
    932Federal Home Loan Bank advances (Note 9)
    
    
    42,500
    
    
    
    42,501Junior subordinated debentures
(Note 10)
    
    
    16,238
    
    
    
    16,238Accrued interest payable
    
    
    1,450
    
    
    
    1,434Accrued taxes, expenses and other liabilities
    
    
    3,462
    
    
    
    3,442Total Liabilities
    
    
    1,065,329
    
    
    
    1,043,073Shareholders EquityPreferred stock, Series A Voting, no par value, authorized 150,000
shares, none issued at March 31, 2011 and
December 31, 2010.
    
    
    
    
    
    
    Preferred stock, Series B, no par value, $1,000 liquidation value,
25,223 shares
authorized and issued at March 31, 2011 and December 31, 2010.
    
    
    25,223
    
    
    
    25,223Discount on Series B
preferred stock
    
    
    (112
    )
    
    
    (116
    )Warrant to purchase common
stock
    
    
    146
    
    
    
    146Common stock, par value $1 per share, authorized 15,000,000 shares,
issued 8,212,943 shares at March 31, 2011  and 8,172,943 at December 31, 2010.
    
    
    8,213
    
    
    
    8,173Additional paid-in capital
    
    
    39,459
    
    
    
    39,455Retained earnings
    
    
    41,400
    
    
    
    40,668Accumulated other comprehensive income
    
    
    1,812
    
    
    
    2,007Treasury shares at cost, 328,194 shares at March 31, 2011
and at December 31,
2010
    
    
    (6,092
    )
    
    
    (6,092
    )Total Shareholders Equity
    
    
    110,049
    
    
    
    109,464Total Liabilities and
Shareholders Equity
    
    $
    1,175,378
    
    
    $
    1,152,537
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



Consolidated Statements of Income (unaudited)
 Three Months EndedMarch 31, 2011
    
    
    March 31, 2010(Dollars in thousands except share
    
    
    and per share amounts)Interest and Dividend IncomeLoans
    
    $
    10,516
    
    
    $
    10,792Securities:U.S. Government agencies and
corporations
    
    
    1,477
    
    
    
    2,136State and political subdivisions
    
    
    256
    
    
    
    246Trading securities
    
    
    
    
    
    
    49Other debt and equity securities
    
    
    72
    
    
    
    61Federal funds sold and short-term
investments
    
    
    14
    
    
    
    9Total interest and dividend income
    
    
    12,335
    
    
    
    13,293Interest ExpenseDeposits
    
    
    2,283
    
    
    
    2,980Federal Home Loan Bank advances
    
    
    266
    
    
    
    318Short-term borrowings
    
    
    1
    
    
    
    1Junior subordinated debentures
    
    
    171
    
    
    
    215Total interest expense
    
    
    2,721
    
    
    
    3,514Net Interest Income
    
    
    9,614
    
    
    
    9,779Provision for Loan Losses (Note 6)
    
    
    2,100
    
    
    
    2,109Net interest income after
provision for loan losses
    
    
    7,514
    
    
    
    7,670Noninterest IncomeInvestment and trust services
    
    
    403
    
    
    
    445Deposit service charges
    
    
    916
    
    
    
    939Other service charges and fees
    
    
    906
    
    
    
    794Income from bank owned life insurance
    
    
    174
    
    
    
    171Other income
    
    
    79
    
    
    
    93Total fees and other income
    
    
    2,478
    
    
    
    2,442Securities gains, net
    
    
    412
    
    
    
    38Gains on sale of loans
    
    
    179
    
    
    
    192Gains (losses) on sale of other
assets, net
    
    
    2
    
    
    
    (21
    )Total noninterest income
    
    
    3,071
    
    
    
    2,651Noninterest ExpenseSalaries and employee benefits
    
    
    4,091
    
    
    
    3,918Furniture and equipment
    
    
    680
    
    
    
    933Net occupancy
    
    
    612
    
    
    
    615Outside services
    
    
    486
    
    
    
    553Marketing and public relations
    
    
    271
    
    
    
    246Supplies, postage and freight
    
    
    272
    
    
    
    342Telecommunications
    
    
    215
    
    
    
    212Ohio franchise tax
    
    
    298
    
    
    
    281FDIC assessments
    
    
    574
    
    
    
    528Other real estate owned
    
    
    590
    
    
    
    81Electronic banking expenses
    
    
    209
    
    
    
    184Loan and collection expense
    
    
    442
    
    
    
    323Other expense
    
    
    449
    
    
    
    477Total noninterest expense
    
    
    9,189
    
    
    
    8,693Income before income tax expense
    
    
    1,396
    
    
    
    1,628Income tax expense
    
    
    266
    
    
    
    297Net Income
    
    $
    1,130
    
    
    $
    1,331Dividends and accretion on preferred
stock
    
    
    319
    
    
    
    319Net Income Available to Common
Shareholders
    
    $
    811
    
    
    $
    1,012Net Income Per Common Share (Note 2)Basic
    
    $
    0.10
    
    
    $
    0.14Diluted
    
    
    0.10
    
    
    
    0.14Dividends declared
    
    
    0.01
    
    
    
    0.01Average Common Shares OutstandingBasic
    
    
    7,871,416
    
    
    
    7,322,662Diluted
    
    
    7,871,432
    
    
    
    7,322,662
 See accompanying notes to consolidated financial statements
 4




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##### Table of Contents



Consolidated Statements of Shareholders Equity (unaudited)
 Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedStock
    
    
    Warrant to
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Other(Net of
    
    
    Purchase
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryDiscount)
    
    
    Common Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Total(Dollars in thousands except share and per share amounts)Balance, January 1, 2010
    
    $
    25,092
    
    
    $
    146
    
    
    $
    7,624
    
    
    $
    37,862
    
    
    $
    36,883
    
    
    $
    2,626
    
    
    $
    (6,092
    )
    
    $
    104,141Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,331
    
    
    
    
    
    
    
    
    
    
    
    1,331Other comprehensive
income, net of tax:Change in unrealized
gains and losses on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    285Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,616Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Restricted shares granted
(67,498 shares)
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred dividends and
accretion of discount
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319
    )
    
    
    
    
    
    
    
    
    
    
    (315
    )Common dividends declared,
$.01 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (74
    )Balance, March 31, 2010
    
    $
    25,096
    
    
    $
    146
    
    
    $
    7,691
    
    
    $
    37,808
    
    
    $
    37,821
    
    
    $
    2,911
    
    
    $
    (6,092
    )
    
    $
    105,381Balance, January 1, 2011
    
    $
    25,107
    
    
    $
    146
    
    
    $
    8,173
    
    
    $
    39,455
    
    
    $
    40,668
    
    
    $
    2,007
    
    
    $
    (6,092
    )
    
    $
    109,464Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,130
    
    
    
    
    
    
    
    
    
    
    
    1,130Other comprehensive
income, net of tax:Change in unrealized
gains and losses on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    (195
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Restricted shares granted
(40,000 shares)
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Preferred dividends and
accretion of discount
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319
    )
    
    
    
    
    
    
    
    
    
    
    (315
    )Common dividends declared,
$.01 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    (79
    )Balance, March 31, 2011
    
    $
    25,111
    
    
    $
    146
    
    
    $
    8,213
    
    
    $
    39,459
    
    
    $
    41,400
    
    
    $
    1,812
    
    
    $
    (6,092
    )
    
    $
    110,049
 See accompanying notes to consolidated financial statements
 5




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##### Table of Contents



Consolidated Statements of Cash Flows (unaudited)
 Three Months EndedMarch 31, 2011
    
    
    March 31, 2010(Dollars in thousands)Operating ActivitiesNet income
    
    $
    1,130
    
    
    $
    1,331Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    2,100
    
    
    
    2,109Depreciation and amortization
    
    
    310
    
    
    
    383Amortization of premiums and discounts
    
    
    337
    
    
    
    407Amortization of intangibles
    
    
    33
    
    
    
    34Amortization of loan servicing rights
    
    
    63
    
    
    
    73Amortization of deferred loan fees
    
    
    (98
    )
    
    
    (36
    )Federal deferred income tax expense (benefit)
    
    
    958
    
    
    
    (430
    )Securities gains, net
    
    
    (412
    )
    
    
    (38
    )Share-based compensation expense
    
    
    44
    
    
    
    13Loans originated for sale
    
    
    (21,859
    )
    
    
    (24,150
    )Proceeds from sales of loan originations
    
    
    20,468
    
    
    
    24,434Net gain from loan sales
    
    
    (179
    )
    
    
    (192
    )Net (gain) loss on sale of other assets
    
    
    (2
    )
    
    
    21Net decrease (increase) in accrued interest receivable and other assets
    
    
    2,357
    
    
    
    (71
    )Net increase in accrued interest payable, taxes and other liabilities
    
    
    36
    
    
    
    264Net cash provided by operating activities
    
    
    5,286
    
    
    
    4,152Investing ActivitiesProceeds
from sales of available-for-sale securities
    
    
    15,499
    
    
    
    4,170Proceeds from maturities and calls of available-for-sale securities
    
    
    11,202
    
    
    
    20,381Purchase of available-for-sale securities
    
    
    (40,761
    )
    
    
    (25,010
    )Change in interest-bearing deposits in other banks
    
    
    
    
    
    
    (1
    )Proceeds from sale of trading securities
    
    
    
    
    
    
    7,774Net decrease in loans made to customers
    
    
    2,184
    
    
    
    8,620Proceeds from the sale of other real estate owned
    
    
    954
    
    
    
    47Purchase of bank premises and equipment
    
    
    (18
    )
    
    
    (60
    )Net cash used in and provided by investing activities
    
    
    (10,940
    )
    
    
    15,921Financing ActivitiesNet increase (decrease) in demand and other noninterest-bearing
    
    
    4,228
    
    
    
    (6,609
    )Net increase (decrease) in savings, money market and interest-bearing demand
    
    
    29,978
    
    
    
    (334
    )Net increase (decrease) in certificates of deposit
    
    
    (11,633
    )
    
    
    14,562Net increase (decrease) in short-term borrowings
    
    
    (350
    )
    
    
    132Proceeds from Federal Home Loan Bank advances
    
    
    15,000
    
    
    
    30,000Payment of Federal Home Loan Bank advances
    
    
    (15,003
    )
    
    
    (30,001
    )Dividends paid
    
    
    (393
    )
    
    
    (389
    )Net cash provided by financing activities
    
    
    21,827
    
    
    
    7,361Net increase in cash and cash equivalents
    
    
    16,173
    
    
    
    27,434Cash and cash equivalents, January 1
    
    
    48,220
    
    
    
    26,933Cash and cash equivalents, March 31
    
    $
    64,393
    
    
    $
    54,367Supplemental cash flow informationInterest paid
    
    $
    2,705
    
    
    $
    3,638Income taxes paid
    
    
    
    
    
    
    Transfer of loans to other real estate owned
    
    
    1,563
    
    
    
    310
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##### Table of Contents



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




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##### Table of Contents



Restricted Stock
  Loans Held For Sale
  Loans
     8




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##### Table of Contents



Allowance for Loan Losses
   Servicing
  Bank Premises and Equipment
  Goodwill and Core Deposit Intangibles
 th
 Other Real Estate Owned
  9




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##### Table of Contents



Split-Dollar Life Insurance
  Investment and Trust Services Assets and Income
  Income Taxes
  Comprehensive Income
   Preferred Stock
   New Accounting Pronouncements
 ASC Topic 310: Disclosures about the Credit Quality of Financing Receivables and the Allowance for
Credit Losses.
 10




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##### Table of Contents



Allowance for Loan Losses,
 ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures About
Fair Value Measurements Estimated Fair Value of
Financial Instruments,
 Reclassification
  (2) Earnings Per Share
  Three Months Ended March 31,2011
    
    
    2010(Dollars in thousands except per share amounts)Weighted average shares outstanding used in Basic
Earnings per Common Share
    
    
    7,871,416
    
    
    
    7,322,662Dilutive effect of incentive stock options and
warrants
    
    
    16
    
    
    
    Weighted average shares outstanding used in
Diluted Earnings Per Common Share
    
    
    7,871,432
    
    
    
    7,322,662Net Income
    
    $
    1,130
    
    
    $
    1,331Dividends and accretion on preferred stock
    
    
    319
    
    
    
    319Income Available to Common Shareholders
    
    $
    811
    
    
    $
    1,012Basic Earnings Per Common Share
    
    $
    0.10
    
    
    $
    0.14Diluted Earnings Per Common Share
    
    $
    0.10
    
    
    $
    0.14
  (3) Cash and Due from Banks
  11




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##### Table of Contents



(4) Goodwill and Intangible Assets
   March 31, 2011
    
    

December 31, 2010(Dollars in thousands)Core deposit intangibles
    
    $
    1,367
    
    
    $
    1,367Less: accumulated amortization
    
    
    532
    
    
    
    499Carrying value of core deposit intangibles
    
    $
    835
    
    
    $
    868
 (5) Securities
  At March 31, 2011Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    58,885
    
    
    $
    132
    
    
    $
    (546
    )
    
    $
    58,471Mortgage backed securities
    
    
    106,219
    
    
    
    3,890
    
    
    
    (51
    )
    
    
    110,058Collateralized mortgage obligations
    
    
    40,845
    
    
    
    1,054
    
    
    
    
    
    
    
    41,899State and political subdivisions
    
    
    24,639
    
    
    
    702
    
    
    
    (206
    )
    
    
    25,135Total securities available for sale
    
    $
    230,588
    
    
    $
    5,778
    
    
    $
    (803
    )
    
    $
    235,563
 At December 31, 2010Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    56,239
    
    
    $
    511
    
    
    $
    (682
    )
    
    $
    56,068Mortgage backed securities
    
    
    91,793
    
    
    
    4,128
    
    
    
    (30
    )
    
    
    95,891Collateralized mortgage obligations
    
    
    44,297
    
    
    
    1,249
    
    
    
    (27
    )
    
    
    45,519State and political subdivisions
    
    
    24,125
    
    
    
    522
    
    
    
    (400
    )
    
    
    24,247Total securities available for sale
    
    $
    216,454
    
    
    $
    6,410
    
    
    $
    (1,139
    )
    
    $
    221,725
  12




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##### Table of Contents



At March 31, 2011(Dollars in thousands)Amortized
    
    
    FairCost
    
    
    ValueSecurities available for sale:Due in one year or less
    
    $
    
    
    
    $
    Due from one year to five years
    
    
    36,129
    
    
    
    36,000Due from five years to ten years
    
    
    18,264
    
    
    
    18,822Due after ten years
    
    
    29,131
    
    
    
    28,784Mortgage backed securities and
Collateralized Mortgage Obligations
    
    
    147,064
    
    
    
    151,957Total
    
    $
    230,588
    
    
    $
    235,563
  March 31,2011
    
    
    2010(Dollars in thousands)Gross realized gains
    
    $
    412
    
    
    $
    138Gross realized losses
    
    
    
    
    
    
    (100
    )Net securities gains
    
    $
    412
    
    
    $
    38Proceeds from the sale of available
for sale securities
    
    $
    15,499
    
    
    $
    4,170
   13




---



##### Table of Contents



At March 31, 2011Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(Dollars in thousands)U.S. Government agencies and corporations
    
    $
    38,278
    
    
    $
    (546
    )
    
    $
    
    
    
    $
    
    
    
    $
    38,278
    
    
    $
    (546
    )Mortgage backed securities
    
    
    6,395
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    6,395
    
    
    
    (51
    )State and political subdivisions
    
    
    1,942
    
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    1,942
    
    
    
    (206
    )Total
    
    $
    46,615
    
    
    $
    (803
    )
    
    $
    
    
    
    $
    
    
    
    $
    46,615
    
    
    $
    (803
    )
 At December 31, 2010Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(Dollars in thousands)U.S. Government agencies and corporations
    
    $
    29,352
    
    
    $
    (682
    )
    
    $
    
    
    
    $
    
    
    
    $
    29,352
    
    
    $
    (682
    )Mortgage backed securities
    
    
    14,617
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    14,617
    
    
    
    (30
    )Collateralized mortgage obligations
    
    
    10,027
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    10,027
    
    
    
    (27
    )State and political subdivisions
    
    
    1,633
    
    
    
    (400
    )
    
    
    
    
    
    
    
    
    
    
    1,633
    
    
    
    (400
    )Total
    
    $
    55,629
    
    
    $
    (1,139
    )
    
    $
    
    
    
    $
    
    
    
    $
    55,629
    
    
    $
    (1,139
    )
 (6) Loans and Allowance for Loan Losses
    14




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##### Table of Contents



HomeCommercial
    
    
    
    
    
    
    EquityMarch 31, 2011
    
    Commercial
    
    
    Real Estate
    
    
    Residential
    
    
    Loans
    
    
    Indirect
    
    
    Consumer
    
    
    Total(Dollars in thousands)Allowance for loan losses:Balance, beginning of year
    
    $
    1,317
    
    
    $
    11,127
    
    
    $
    805
    
    
    $
    1,512
    
    
    $
    471
    
    
    $
    904
    
    
    $
    16,136Losses charged off
    
    
    
    
    
    
    (230
    )
    
    
    (273
    )
    
    
    (345
    )
    
    
    (195
    )
    
    
    (69
    )
    
    
    (1,112
    )Recoveries
    
    
    31
    
    
    
    102
    
    
    
    4
    
    
    
    1
    
    
    
    25
    
    
    
    28
    
    
    
    191Provision charged to expense
    
    
    (197
    )
    
    
    1,004
    
    
    
    390
    
    
    
    772
    
    
    
    601
    
    
    
    (470
    )
    
    
    2,100Balance, end of period
    
    $
    1,151
    
    
    $
    12,003
    
    
    $
    926
    
    
    $
    1,940
    
    
    $
    902
    
    
    $
    393
    
    
    $
    17,315Ending allowance balance
attributable to loans:Individually evaluated for
impairment
    
    $
    199
    
    
    $
    7,508
    
    
    $
    26
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7,733Collectively evaluated for
impairment
    
    
    952
    
    
    
    4,495
    
    
    
    900
    
    
    
    1,940
    
    
    
    902
    
    
    
    393
    
    
    
    9,582Total ending allowance balance
    
    $
    1,151
    
    
    $
    12,003
    
    
    $
    926
    
    
    $
    1,940
    
    
    $
    902
    
    
    $
    393
    
    
    $
    17,315Loans:Individually evaluated for
impairment
    
    $
    1,027
    
    
    $
    38,850
    
    
    $
    2,561
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    42,438Collectively evaluated for
impairment
    
    
    65,597
    
    
    
    340,358
    
    
    
    67,604
    
    
    
    131,119
    
    
    
    150,196
    
    
    
    13,317
    
    
    
    768,191Total ending loans balance
    
    $
    66,624
    
    
    $
    379,208
    
    
    $
    70,165
    
    
    $
    131,119
    
    
    $
    150,196
    
    
    $
    13,317
    
    
    $
    810,629
 HomeCommercial
    
    
    
    
    
    
    EquityDecember 31, 2010
    
    Commercial
    
    
    Real Estate
    
    
    Residential
    
    
    Loans
    
    
    Indirect
    
    
    Consumer
    
    
    Total(Dollars in thousands)Allowance for loan losses:Balance, beginning of year
    
    $
    862
    
    
    $
    14,390
    
    
    $
    528
    
    
    $
    1,591
    
    
    $
    622
    
    
    $
    799
    
    
    $
    18,792Losses charged off
    
    
    (1,507
    )
    
    
    (8,508
    )
    
    
    (1,491
    )
    
    
    (1,091
    )
    
    
    (573
    )
    
    
    (455
    )
    
    
    (13,625
    )Recoveries
    
    
    157
    
    
    
    87
    
    
    
    30
    
    
    
    39
    
    
    
    138
    
    
    
    293
    
    
    
    744Provision charged to expense
    
    
    1,805
    
    
    
    5,158
    
    
    
    1,738
    
    
    
    973
    
    
    
    284
    
    
    
    267
    
    
    
    10,225Balance, end of year
    
    $
    1,317
    
    
    $
    11,127
    
    
    $
    805
    
    
    $
    1,512
    
    
    $
    471
    
    
    $
    904
    
    
    $
    16,136Ending allowance balance
attributable to loans:Individually evaluated for
impairment
    
    $
    206
    
    
    $
    6,865
    
    
    $
    46
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7,117Collectively evaluated for
impairment
    
    
    1,111
    
    
    
    4,262
    
    
    
    759
    
    
    
    1,512
    
    
    
    471
    
    
    
    904
    
    
    
    9,019Total ending allowance balance
    
    $
    1,317
    
    
    $
    11,127
    
    
    $
    805
    
    
    $
    1,512
    
    
    $
    471
    
    
    $
    904
    
    
    $
    16,136Loans:Individually evaluated for
impairment
    
    $
    1,333
    
    
    $
    38,853
    
    
    $
    4,482
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    44,668Collectively evaluated for
impairment
    
    
    64,329
    
    
    
    336,950
    
    
    
    70,203
    
    
    
    132,536
    
    
    
    150,031
    
    
    
    13,862
    
    
    
    767,911Total ending loans balance
    
    $
    65,662
    
    
    $
    375,803
    
    
    $
    74,685
    
    
    $
    132,536
    
    
    $
    150,031
    
    
    $
    13,862
    
    
    $
    812,579
  March 31, 2010(Dollars in thousands)Balance at the beginning of period
    
    $
    18,792Provision for loan losses
    
    
    2,109Loans charged-off
    
    
    (1,851
    )Recoveries on loans previously charged-off
    
    
    133Balance at the end of the period
    
    $
    19,183
 Delinquencies
  
 15




---



##### Table of Contents




 
  Age Analysis of Past Due Loans
as of March 31, 2011
 Recorded30-59 Days
    
    
    60-89 Days
    
    
    Greater than
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment >(Dollars in thousands)
    
    Past Due
    
    
    Past Due
    
    
    90 Days
    
    
    Total Past Due
    
    
    Current
    
    
    Total Loans
    
    
    90 Days and AccruingCommercial
    
    $
    41
    
    
    $
    484
    
    
    $
    805
    
    
    $
    1,330
    
    
    $
    65,294
    
    
    $
    66,624
    
    
    $
    Commercial Real Estate
    
    
    3,973
    
    
    
    2,474
    
    
    
    19,688
    
    
    
    26,135
    
    
    
    353,073
    
    
    
    379,208
    
    
    
    Residential
    
    
    910
    
    
    
    1,154
    
    
    
    6,025
    
    
    
    8,089
    
    
    
    62,076
    
    
    
    70,165
    
    
    
    331Home Equity Loans
    
    
    1,222
    
    
    
    50
    
    
    
    923
    
    
    
    2,195
    
    
    
    128,924
    
    
    
    131,119
    
    
    
    Indirect
    
    
    519
    
    
    
    114
    
    
    
    115
    
    
    
    748
    
    
    
    149,448
    
    
    
    150,196Consumer
    
    
    310
    
    
    
    6
    
    
    
    18
    
    
    
    334
    
    
    
    12,983
    
    
    
    13,317
    
    
    
    Total
    
    $
    6,975
    
    
    $
    4,282
    
    
    $
    27,574
    
    
    $
    38,831
    
    
    $
    771,798
    
    
    $
    810,629
    
    
    $
    331
 Age Analysis of Past Due Loans
as of December 31, 2010
 Recorded30-59 Days
    
    
    60-89 Days
    
    
    Greater than
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment >(Dollars in thousands)
    
    Past Due
    
    
    Past Due
    
    
    90 Days
    
    
    Total Past Due
    
    
    Current
    
    
    Total Loans
    
    
    90 Days and AccruingCommercial
    
    $
    31
    
    
    $
    211
    
    
    $
    793
    
    
    $
    1,035
    
    
    $
    64,627
    
    
    $
    65,662
    
    
    $
    Commercial Real Estate
    
    
    1,906
    
    
    
    856
    
    
    
    19,970
    
    
    
    22,732
    
    
    
    353,071
    
    
    
    375,803
    
    
    
    Residential
    
    
    1,018
    
    
    
    1,284
    
    
    
    7,172
    
    
    
    9,474
    
    
    
    65,211
    
    
    
    74,685
    
    
    
    Home Equity Loans
    
    
    776
    
    
    
    235
    
    
    
    1,130
    
    
    
    2,141
    
    
    
    130,395
    
    
    
    132,536
    
    
    
    Indirect
    
    
    612
    
    
    
    123
    
    
    
    112
    
    
    
    847
    
    
    
    149,184
    
    
    
    150,031Consumer
    
    
    61
    
    
    
    
    
    
    
    26
    
    
    
    87
    
    
    
    13,775
    
    
    
    13,862
    
    
    
    Total
    
    $
    4,404
    
    
    $
    2,709
    
    
    $
    29,203
    
    
    $
    36,316
    
    
    $
    776,263
    
    
    $
    812,579
    
    
    $
    
 Impaired Loans
  16




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##### Table of Contents



Recorded
    
    
    Unpaid Principal
    
    
    Related
    
    
    Average Recorded
    
    
    Interest IncomeAt March 31, 2011
    
    Investment
    
    
    Balance
    
    
    Allowance
    
    
    Balance
    
    
    Recognized(Dollars in thousands)With no related allowance recorded:Commercial
    
    $
    259
    
    
    $
    259
    
    
    $
    
    
    
    $
    534
    
    
    $
    Commercial Real Estate
    
    
    6,934
    
    
    
    9,098
    
    
    
    
    
    
    
    4,755
    
    
    
    195Residential
    
    
    2,185
    
    
    
    2,366
    
    
    
    
    
    
    
    2,187
    
    
    
    3Home Equity Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    With allowance recorded:Commercial
    
    
    768
    
    
    
    1,416
    
    
    
    199
    
    
    
    662
    
    
    
    Commercial Real Estate
    
    
    31,916
    
    
    
    36,175
    
    
    
    7,508
    
    
    
    29,602
    
    
    
    13Residential
    
    
    376
    
    
    
    376
    
    
    
    26
    
    
    
    377
    
    
    
    Home Equity Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    42,438
    
    
    $
    49,690
    
    
    $
    7,733
    
    
    $
    38,117
    
    
    $
    211
 Recorded
    
    
    Unpaid Principal
    
    
    Related
    
    
    Average Recorded
    
    
    Interest IncomeAt December 31, 2010
    
    Investment
    
    
    Balance
    
    
    Allowance
    
    
    Balance
    
    
    Recognized(Dollars in thousands)With no related allowance recorded:Commercial
    
    $
    549
    
    
    $
    549
    
    
    $
    
    
    
    $
    600
    
    
    $
    16Commercial Real Estate
    
    
    6,393
    
    
    
    10,367
    
    
    
    
    
    
    
    8,643
    
    
    
    133Residential
    
    
    4,031
    
    
    
    3,432
    
    
    
    
    
    
    
    2,666
    
    
    
    Home Equity Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    With allowance recorded:Commercial
    
    
    784
    
    
    
    1,432
    
    
    
    206
    
    
    
    1,143
    
    
    
    Commercial Real Estate
    
    
    32,460
    
    
    
    35,483
    
    
    
    6,865
    
    
    
    29,946
    
    
    
    6Residential
    
    
    451
    
    
    
    1,416
    
    
    
    46
    
    
    
    102
    
    
    
    Home Equity Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    44,668
    
    
    $
    52,679
    
    
    $
    7,117
    
    
    $
    43,100
    
    
    $
    155
 17




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##### Table of Contents



Loans On NonAccrual Status
 March 31, 2011
    
    
    December 31,2010(Dollars in thousands)Commercial
    
    $
    1,288
    
    
    $
    1,333Commercial Real Estate
    
    
    24,904
    
    
    
    25,941Residential
    
    
    8,417
    
    
    
    11,052Home Equity Loans
    
    
    2,213
    
    
    
    2,372Indirect
    
    
    664
    
    
    
    667Consumer
    
    
    322
    
    
    
    466Total Nonaccrual Loans
    
    $
    37,808
    
    
    $
    41,831Percentage of nonaccrual loans to portfolio loans
    
    
    4.66
    %
    
    
    5.15
    %Percentage of nonaccrual loans to total assets
    
    
    3.22
    %
    
    
    3.63
    %
 Troubled Debt Restructuring
 ASC 310-40,
Troubled Debt Restructurings by Creditors,
 Credit Risk Grading
  
    
    Grades 1 -5: defined as Pass credits  loans which are protected by the borrowers
current net worth and paying capacity or by the value of the underlying collateral. Pass credits
are current or have not displayed a significant past due history.
    
    Grade 6: defined as Special Mention credits  loans where a potential weakness or risk
exists, which could cause a more serious problem if not monitored. Loans listed for special
mention generally demonstrate a history of repeated delinquencies, which may indicate a
deterioration of the repayment abilities of the borrower.
    
    Grade 7: defined as Substandard credits  loans that have a well-defined weakness based
on objective evidence and is characterized by the distinct possibility that the Corporation will
sustain some loss if the deficiencies are not corrected.
    
    Grade 8: defined as Doubtful credits  loans classified as doubtful have all the
weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or
liquidation in full highly questionable and improbable.
    
    Grade 9: defined as Loss credits  loans classified as a loss are considered
uncollectible, or of such value that continuance as an asset is not warranted.
  18




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##### Table of Contents



Commercial Real
    
    
    
    
    
    
    Home EquityCommercial
    
    
    Estate
    
    
    Residential*
    
    
    Loans
    
    
    Indirect
    
    
    Consumer
    
    
    TotalCommercial Credit Exposure
    
    March 31, 2011(Dollars in thousands)Loans graded by internal credit risk grade:Grade 1 - Minimal
    
    $
    3,166
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,166Grade 2 - Modest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Grade 3 - Better than average
    
    
    155
    
    
    
    2,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,125Grade 4 - Average
    
    
    8,206
    
    
    
    53,347
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,817Grade 5 - Acceptable
    
    
    51,125
    
    
    
    255,418
    
    
    
    4,054
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310,597Total Pass Credits
    
    
    62,652
    
    
    
    311,735
    
    
    
    4,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378,705Grade 6 - Special mention
    
    
    2,273
    
    
    
    16,178
    
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,818Grade 7 - Substandard
    
    
    1,699
    
    
    
    51,295
    
    
    
    2,291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,285Grade 8 - Doubtful
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Grade 9 - Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total loans internally credit risk graded
    
    
    66,624
    
    
    
    379,208
    
    
    
    6,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    452,808Loans not monitored by internal risk grade:Current loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    56,593
    
    
    
    128,924
    
    
    
    149,448
    
    
    
    12,983
    
    
    
    347,94830-59 days past due loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    910
    
    
    
    1,222
    
    
    
    519
    
    
    
    310
    
    
    
    2,96160-89 days past due loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    491
    
    
    
    50
    
    
    
    114
    
    
    
    6
    
    
    
    66190+ days past due loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    5,195
    
    
    
    923
    
    
    
    115
    
    
    
    18
    
    
    
    6,251Total loans not internally credit risk graded
    
    
    
    
    
    
    
    
    
    
    63,189
    
    
    
    131,119
    
    
    
    150,196
    
    
    
    13,317
    
    
    
    357,821Total loans internally and not internally credit risk graded
    
    $
    66,624
    
    
    $
    379,208
    
    
    $
    70,165
    
    
    $
    131,119
    
    
    $
    150,196
    
    
    $
    13,317
    
    
    $
    810,629
 Commercial Real
    
    
    
    
    
    
    Home EquityCommercial
    
    
    Estate
    
    
    Residential*
    
    
    Loans
    
    
    Indirect
    
    
    Consumer
    
    
    TotalCommercial Credit Exposure
    
    December 31, 2010(Dollars in thousands)Loans graded by internal credit risk grade:Grade 1 - Minimal
    
    $
    3,124
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,124Grade 2 - Modest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Grade 3 - Better than average
    
    
    162
    
    
    
    3,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,217Grade 4 - Average
    
    
    8,343
    
    
    
    59,651
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,261Grade 5 - Acceptable
    
    
    49,727
    
    
    
    246,475
    
    
    
    5,733
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301,935Total Pass Credits
    
    
    61,356
    
    
    
    309,181
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    376,537Grade 6 - Special mention
    
    
    2,599
    
    
    
    13,807
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,576Grade 7 - Substandard
    
    
    1,707
    
    
    
    52,815
    
    
    
    2,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,038Grade 8 - Doubtful
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Grade 9 - Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total loans internally credit risk graded
    
    
    65,662
    
    
    
    375,803
    
    
    
    8,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450,151Loans not monitored by internal risk grade:Current loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    57,389
    
    
    
    130,395
    
    
    
    149,184
    
    
    
    13,775
    
    
    
    350,74330-59 days past due loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    776
    
    
    
    612
    
    
    
    61
    
    
    
    2,46760-89 days past due loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    1,032
    
    
    
    235
    
    
    
    123
    
    
    
    
    
    
    
    1,39090+ days past due loans not internally risk graded
    
    
    
    
    
    
    
    
    
    
    6,560
    
    
    
    1,130
    
    
    
    112
    
    
    
    26
    
    
    
    7,828Total loans not internally credit risk graded
    
    
    
    
    
    
    
    
    
    
    65,999
    
    
    
    132,536
    
    
    
    150,031
    
    
    
    13,862
    
    
    
    362,428Total loans internally and not internally credit risk graded
    
    $
    65,662
    
    
    $
    375,803
    
    
    $
    74,685
    
    
    $
    132,536
    
    
    $
    150,031
    
    
    $
    13,862
    
    
    $
    812,579
 
 *
    
    Residential loans include conventional 1-4 family residential property loans and conventional 1-4
family residential property loans used to finance the cost of construction when upon completion of
construction the loan converts into a permanent mortgage.  19




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##### Table of Contents



Consumer Credit Score Migration
    
    March 31, 2011
    
    
    December 31, 2010Total residential
    
    
    703
    
    
    
    701Total home equity loans
    
    
    750
    
    
    
    750Total loans to individuals
    
    
    725
    
    
    
    728Total indirect
    
    
    766
    
    
    
    771Total revolving lines
    
    
    713
    
    
    
    713
 
 (7) Deposits  March 31, 2011
    
    
    December 31, 2010(Dollars in thousands)Demand and other noninterest-bearing
    
    $
    119,704
    
    
    $
    115,476Interest checking
    
    
    150,671
    
    
    
    134,375Savings
    
    
    95,984
    
    
    
    91,882Money market accounts
    
    
    101,757
    
    
    
    92,177Consumer time deposits
    
    
    471,728
    
    
    
    464,860Public time deposits
    
    
    61,255
    
    
    
    79,756Total deposits
    
    $
    1,001,099
    
    
    $
    978,526
   Within
    
    
    After 12 months but
    
    
    After 36 months but12 months
    
    
    within 36 months
    
    
    within 60 months
    
    
    After 5 years
    
    
    Total(Dollars in thousands)Consumer time deposits
    
    $
    341,497
    
    
    $
    98,337
    
    
    $
    31,894
    
    
    $
    
    
    
    $
    471,728Public time deposits
    
    
    54,511
    
    
    
    4,234
    
    
    
    2,010
    
    
    
    500
    
    
    
    61,255Total time deposits
    
    $
    396,008
    
    
    $
    102,571
    
    
    $
    33,904
    
    
    $
    500
    
    
    $
    532,983
 (8) Short-Term Borrowings
   (9) Federal Home Loan Bank Advances
  20




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##### Table of Contents



March 31, 2011
    
    
    December 31, 2010(Dollars in thousands)Maturities January 2011 through
February 2011, with fixed rates
ranging from 3.17% to 3.67%
    
    $
    
    
    
    $
    15,000Maturity March 2012, fixed rate 2.37%
    
    
    15,000
    
    
    
    15,000Maturities January 2014 though
August 2014, with fixed rates
ranging from 2.06% to 3.55%
    
    
    15,037
    
    
    
    10,040Maturities January 2015 through July
2015, with fixed rates ranging from
2.00% to 4.76%
    
    
    12,463
    
    
    
    2,461Total FHLB advances
    
    $
    42,500
    
    
    $
    42,501
 (10) Trust Preferred Securities
     (11) Commitments, Credit Risk, and Contingencies
    21




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##### Table of Contents



Amount(Dollars in thousands)Commitments to extend credit
    
    $
    71,895Home equity lines of credit
    
    
    77,492Standby letters of credit
    
    
    8,407Total
    
    $
    157,794
 (12) Estimated Fair Value of Financial Instruments
   
    
    The carrying value of cash and due from banks, Federal funds sold, short-term investments,
interest-bearing deposits in other banks and accrued interest receivable and other financial assets
is a reasonable estimate of fair value due to the short-term nature of the asset.
    
    The fair value of investment securities is based on quoted market prices, where available.
If quoted market prices are not available, fair value is estimated using the quoted market prices
of comparable instruments.
    
    For variable rate loans with interest rates that may be adjusted on a quarterly, or more
frequent basis, the carrying amount is a reasonable estimate of fair value. The fair value of other
types of loans is estimated by discounting future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the same remaining
maturities.
    
    The carrying value approximates the fair value for bank owned life insurance.
    
    The fair value of deposits with no stated maturity, such as noninterest-bearing demand
deposits, savings, money market, checking and interest-bearing checking, is equal to the amount
payable on demand as of the balance sheet date, for each year presented. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits
of similar remaining maturities. For variable rate certificates of deposit, the carrying amount is
a reasonable estimate of fair value.
    
    Securities sold under repurchase agreements, other short-term borrowings, accrued interest
payable and other financial liabilities approximate fair value due to the short-term nature of the
liability.
    
    The fair value of Federal Home Loan Bank advances is estimated by discounting future cash
flows using current FHLB rates for the remaining term to maturity.
    
    The fair value of junior subordinated debentures is based on the discounted value of
contractual cash flows using rates currently offered for similar maturities.
    
    The fair value of commitments to extend credit approximates the fees charged to make these
commitments; since rates and fees of the commitment contracts approximates those currently charged
to originate similar commitments. The carrying amount and fair value of off-balance sheet
instruments is not significant as of March 31, 2011 and December 31, 2010.
 Limitations
  22




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##### Table of Contents



March 31, 2011
    
    
    December 31, 2010Carrying
    
    
    Estimated Fair
    
    
    Carrying
    
    
    Estimated FairValue
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)Financial assetsCash and due from banks, Federal
funds sold, short-term investments
and interest-bearing deposits in
other banks
    
    $
    64,741
    
    
    $
    64,741
    
    
    $
    48,568
    
    
    $
    48,568Securities
    
    
    235,563
    
    
    
    235,563
    
    
    
    221,725
    
    
    
    221,725Portfolio loans, net
    
    
    793,314
    
    
    
    789,590
    
    
    
    796,443
    
    
    
    801,585Loans held for sale
    
    
    5,261
    
    
    
    5,261
    
    
    
    5,105
    
    
    
    5,105Accrued interest receivable
    
    
    3,788
    
    
    
    3,788
    
    
    
    3,519
    
    
    
    3,519Financial liabilitiesDeposits:Demand, savings and money market
    
    
    468,116
    
    
    
    468,116
    
    
    
    433,910
    
    
    
    433,910Certificates of deposit
    
    
    532,983
    
    
    
    539,788
    
    
    
    544,616
    
    
    
    551,832Total deposits
    
    
    1,001,099
    
    
    
    1,007,904
    
    
    
    978,526
    
    
    
    985,742Short-term borrowings
    
    
    580
    
    
    
    580
    
    
    
    932
    
    
    
    932Federal Home Loan Bank advances
    
    
    42,500
    
    
    
    43,746
    
    
    
    42,501
    
    
    
    43,613Junior subordinated debentures
    
    
    16,238
    
    
    
    15,646
    
    
    
    16,238
    
    
    
    15,746Accrued interest payable
    
    
    1,450
    
    
    
    1,450
    
    
    
    1,434
    
    
    
    1,434
  
 
 
   23




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##### Table of Contents



SignificantQuoted Prices in
    
    
    OtherActive Markets
    
    
    Observable
    
    
    SignificantFair Value as of
    
    
    for Identical
    
    
    Inputs
    
    
    Unobservable InputsDescription
    
    March 31, 2011
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    58,471
    
    
    $
    
    
    
    $
    58,471
    
    
    $
    Mortgage backed securities
    
    
    110,058
    
    
    
    
    
    
    
    110,058
    
    
    
    Collateralized mortgage obligations
    
    
    41,899
    
    
    
    
    
    
    
    41,899
    
    
    
    State and political subdivisions
    
    
    25,135
    
    
    
    
    
    
    
    25,135
    
    
    
    Total
    
    $
    235,563
    
    
    $
    
    
    
    $
    235,563
    
    
    $
    
 SignificantQuoted Prices in
    
    
    Other
    
    
    SignificantFair Value as of
    
    
    Active Markets
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    for Identical
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Trading Securities
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    Securities available for sale:U.S. Government agencies and corporations
    
    
    56,068
    
    
    
    
    
    
    
    56,068
    
    
    
    Mortgage backed securities
    
    
    95,891
    
    
    
    
    
    
    
    95,891
    
    
    
    Collateralized mortgage obligations
    
    
    45,519
    
    
    
    
    
    
    
    45,519
    
    
    
    State and political subdivisions
    
    
    24,247
    
    
    
    
    
    
    
    24,247
    
    
    
    Total
    
    $
    221,725
    
    
    $
    
    
    
    $
    221,725
    
    
    $
    
   InternalModels
    
    
    InternalQuoted
    
    
    with
    
    
    Models withMarket
    
    
    Significant
    
    
    SignificantPrices in
    
    
    Observable
    
    
    UnobservableActive
    
    
    Market
    
    
    MarketMarkets
    
    
    Parameters
    
    
    ParametersMarch 31, 2011
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(Dollars in thousands)Impaired and nonaccrual loans
    
    $
    
    
    
    $
    
    
    
    $
    42,438
    
    
    $
    42,438Other real estate
    
    
    
    
    
    
    
    
    
    
    3,348
    
    
    
    3,348Mortgage servicing rights
    
    
    
    
    
    
    
    
    
    
    891
    
    
    
    891Total assets at fair value on a nonrecurring basis
    
    $
    
    
    
    $
    
    
    
    $
    46,677
    
    
    $
    46,677
 InternalModels
    
    
    InternalQuoted
    
    
    with
    
    
    Models withMarket
    
    
    Significant
    
    
    SignificantPrices in
    
    
    Observable
    
    
    UnobservableActive
    
    
    Market
    
    
    MarketMarkets
    
    
    Parameters
    
    
    ParametersDecember 31, 2010
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(Dollars in thousands)Impaired and nonaccrual loans
    
    $
    
    
    
    $
    
    
    
    $
    44,668
    
    
    $
    44,668Other real estate
    
    
    
    
    
    
    
    
    
    
    3,119
    
    
    
    3,119Mortgage servicing rights
    
    
    
    
    
    
    
    
    
    
    758
    
    
    
    758Total assets at fair value on a nonrecurring basis
    
    $
    
    
    
    $
    
    
    
    $
    48,545
    
    
    $
    48,545
  24




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##### Table of Contents



Mortgage Servicing Rights (MSR).
 Impaired and Nonaccrual Loans.
 Other Real Estate Owned.
 (13) Share-Based Compensation
  Stock Options
   Outstanding
    
    
    ExercisableWeightedAverageRemaining
    
    
    
    
    
    
    WeightedContractual
    
    
    
    
    
    
    AverageNumber
    
    
    Life (Years)
    
    
    Number
    
    
    Exercise PriceRange of Exercise Prices$5.34-$5.34
    
    
    2,500
    
    
    
    8.13
    
    
    
    833
    
    
    $
    5.34$14.47-$15.34
    
    
    82,000
    
    
    
    6.85
    
    
    
    82,000
    
    
    
    14.47$15.35-$16.50
    
    
    52,500
    
    
    
    5.96
    
    
    
    52,500
    
    
    
    15.78$16.51-$19.10
    
    
    30,000
    
    
    
    4.84
    
    
    
    30,000
    
    
    
    19.10$19.11-$19.17
    
    
    30,000
    
    
    
    3.84
    
    
    
    30,000
    
    
    
    19.17Outstanding at end of period
    
    
    197,000
    
    
    
    5.87
    
    
    
    195,333
    
    
    $
    16.22
  25




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##### Table of Contents



2011
    
    
    2010Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExercisePrice per
    
    
    
    
    
    
    Price perOptions
    
    
    Share
    
    
    Options
    
    
    ShareOutstanding at beginning of period
    
    
    197,000
    
    
    $
    16.12
    
    
    
    198,000
    
    
    $
    16.12Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock dividend or split
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of period
    
    
    197,000
    
    
    $
    16.12
    
    
    
    198,000
    
    
    $
    16.12Exercisable at end of period
    
    
    195,333
    
    
    $
    16.22
    
    
    
    161,163
    
    
    $
    16.60
   WeightedAverageNonvested
    
    
    Exercise PriceShares
    
    
    per shareNonvested at January 1, 2011
    
    
    29,004
    
    
    $
    13.95Granted
    
    
    
    
    
    
    Vested
    
    
    27,337
    
    
    
    14.47Forfeited or expired
    
    
    
    
    
    
    Nonvested at March 31, 2011
    
    
    1,667
    
    
    
    5.34
 Restricted Shares
   WeightedNonvested
    
    
    Average GrantShares
    
    
    Date Fair ValueNonvested at January 1, 2011
    
    
    86,852
    
    
    $
    4.42Granted
    
    
    40,000
    
    
    
    5.28Vested
    
    
    22,500
    
    
    
    4.35Forfeited or expired
    
    
    
    
    
    
    Nonvested at March 31, 2011
    
    
    104,352
    
    
    
    4.76
 26




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##### Table of Contents



Stock Appreciation Rights (SAR)
  27




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Summary
         28




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##### Table of Contents



29




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##### Table of Contents



Table 1: Condensed Consolidated Average Balance Sheets
 Interest, Rate, and Rate/ Volume differentials are stated on a Fully-Tax Equivalent (FTE) Basis.
  Three Months Ended March 31,March 31, 2011
    
    
    March 31, 2010Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and corporations
    
    $
    199,582
    
    
    $
    1,477
    
    
    
    3.00
    %
    
    $
    227,600
    
    
    $
    2,185
    
    
    
    3.89
    %State and political subdivisions
    
    
    24,410
    
    
    
    369
    
    
    
    6.13
    
    
    
    23,178
    
    
    
    355
    
    
    
    6.22Federal funds sold and short-term
investments
    
    
    43,312
    
    
    
    14
    
    
    
    0.13
    
    
    
    32,687
    
    
    
    9
    
    
    
    0.11Restricted stock
    
    
    5,741
    
    
    
    72
    
    
    
    5.09
    
    
    
    5,532
    
    
    
    61
    
    
    
    4.47Commercial loans
    
    
    448,182
    
    
    
    5,837
    
    
    
    5.28
    
    
    
    447,470
    
    
    
    6,041
    
    
    
    5.48Real estate mortgage loans
    
    
    64,662
    
    
    
    914
    
    
    
    5.73
    
    
    
    76,764
    
    
    
    1,032
    
    
    
    5.45Home equity lines of credit
    
    
    109,354
    
    
    
    1,067
    
    
    
    3.96
    
    
    
    108,697
    
    
    
    1,069
    
    
    
    3.99Installment loans
    
    
    193,837
    
    
    
    2,710
    
    
    
    5.67
    
    
    
    166,165
    
    
    
    2,666
    
    
    
    6.51Total Earning Assets
    
    $
    1,089,080
    
    
    $
    12,460
    
    
    
    4.64
    %
    
    $
    1,088,093
    
    
    $
    13,418
    
    
    
    5.00
    %Allowance for loan loss
    
    
    (16,477
    )
    
    
    
    
    
    
    
    
    
    
    (19,150
    )Cash and due from banks
    
    
    17,132
    
    
    
    
    
    
    
    
    
    
    
    18,242Bank owned life insurance
    
    
    17,206
    
    
    
    
    
    
    
    
    
    
    
    16,495Other assets
    
    
    53,910
    
    
    
    
    
    
    
    
    
    
    
    56,775Total Assets
    
    $
    1,160,851
    
    
    
    
    
    
    
    
    
    
    $
    1,160,455Liabilities and Shareholders EquityConsumer time deposits
    
    $
    468,893
    
    
    $
    2,012
    
    
    
    1.74
    %
    
    $
    478,344
    
    
    $
    2,624
    
    
    
    2.23
    %Public time deposits
    
    
    66,688
    
    
    
    76
    
    
    
    0.46
    
    
    
    84,851
    
    
    
    171
    
    
    
    0.82Money market accounts
    
    
    97,954
    
    
    
    85
    
    
    
    0.35
    
    
    
    86,946
    
    
    
    78
    
    
    
    0.36Savings deposits
    
    
    93,064
    
    
    
    38
    
    
    
    0.17
    
    
    
    83,142
    
    
    
    40
    
    
    
    0.19Interest-bearing demand
    
    
    143,797
    
    
    
    71
    
    
    
    0.20
    
    
    
    135,110
    
    
    
    67
    
    
    
    0.20Short-term borrowings
    
    
    905
    
    
    
    1
    
    
    
    0.25
    
    
    
    1,597
    
    
    
    1
    
    
    
    0.23FHLB advances
    
    
    42,500
    
    
    
    267
    
    
    
    2.54
    
    
    
    44,192
    
    
    
    318
    
    
    
    2.91Trust preferred securities
    
    
    16,321
    
    
    
    171
    
    
    
    4.24
    
    
    
    20,727
    
    
    
    215
    
    
    
    4.21Total Interest-Bearing Liabilities
    
    $
    930,122
    
    
    $
    2,721
    
    
    
    1.19
    %
    
    $
    934,909
    
    
    $
    3,514
    
    
    
    1.52
    %Noninterest-bearing deposits
    
    
    116,062
    
    
    
    
    
    
    
    
    
    
    
    111,250Other liabilities
    
    
    4,589
    
    
    
    
    
    
    
    
    
    
    
    9,270Shareholders Equity
    
    
    110,078
    
    
    
    
    
    
    
    
    
    
    
    105,026Total Liabilities and
Shareholders Equity
    
    $
    1,160,851
    
    
    
    
    
    
    
    
    
    
    $
    1,160,455Net interest Income (FTE)
    
    
    
    
    
    $
    9,739
    
    
    
    3.63
    %
    
    
    
    
    
    $
    9,904
    
    
    
    3.69
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (125
    )
    
    
    (0.05
    )
    
    
    
    
    
    
    (125
    )
    
    
    (0.05
    )Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    9,614
    
    
    
    
    
    
    
    
    
    
    $
    9,779Net Yield on Earning Assets
    
    
    
    
    
    
    
    
    
    
    3.58
    %
    
    
    
    
    
    
    
    
    
    
    3.64
    %
 30




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##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2011 versus Three Months Ended March 31, 2010 Net Interest Income
Comparison
      31




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##### Table of Contents



Table 2: Rate/Volume Analysis of Net Interest Income (FTE)
 Three Months Ended March 31,Increase (Decrease) in Interest Income/Expensein 2011 over 2010Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations
    
    $
    (207
    )
    
    $
    (501
    )
    
    $
    (708
    )State and political subdivisions
    
    
    19
    
    
    
    (5
    )
    
    
    14Federal funds sold and short-term investments
    
    
    3
    
    
    
    2
    
    
    
    5Restricted stock
    
    
    3
    
    
    
    8
    
    
    
    11Commercial loans
    
    
    9
    
    
    
    (213
    )
    
    
    (204
    )Real estate mortgage loans
    
    
    (171
    )
    
    
    53
    
    
    
    (118
    )Home equity lines of credit
    
    
    6
    
    
    
    (8
    )
    
    
    (2
    )Installment loans
    
    
    387
    
    
    
    (343
    )
    
    
    44Total Interest Income
    
    
    49
    
    
    
    (1,007
    )
    
    
    (958
    )Consumer time deposits
    
    
    (41
    )
    
    
    (571
    )
    
    
    (612
    )Public time deposits
    
    
    (21
    )
    
    
    (74
    )
    
    
    (95
    )Money market accounts
    
    
    10
    
    
    
    (3
    )
    
    
    7Savings deposits
    
    
    4
    
    
    
    (6
    )
    
    
    (2
    )Interest bearing demand
    
    
    4
    
    
    
    
    
    
    
    4Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    (11
    )
    
    
    (40
    )
    
    
    (51
    )Trust preferred securities
    
    
    (46
    )
    
    
    2
    
    
    
    (44
    )Total Interest Expense
    
    
    (101
    )
    
    
    (692
    )
    
    
    (793
    )Net Interest Income (FTE)
    
    $
    150
    
    
    $
    (315
    )
    
    $
    (165
    )
  32




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##### Table of Contents



Noninterest Income
 Table 3: Details on Noninterest Income
 Three Months Ended March 31,2011
    
    
    2010(Dollars in thousands)Investment and trust services
    
    $
    403
    
    
    $
    445Deposit service charges
    
    
    916
    
    
    
    939Electronic banking fees
    
    
    906
    
    
    
    794Income from bank owned life insurance
    
    
    174
    
    
    
    171Other income
    
    
    79
    
    
    
    93Total fees and other income
    
    
    2,478
    
    
    
    2,442Gain on sale of securities
    
    
    412
    
    
    
    38Gain on sale of loans
    
    
    179
    
    
    
    192Gains (losses) on sale of other assets
    
    
    2
    
    
    
    (21
    )Total noninterest income
    
    $
    3,071
    
    
    $
    2,651
 Three Months Ended March 31, 2011 versus Three Months Ended March 31, 2010 Noninterest Income
Comparison
   33




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##### Table of Contents



Noninterest Expense
 Table 4: Details on Noninterest Expense
 Three Months Ended March 31,2011
    
    
    2010(Dollars in thousands)Salaries and employee benefits
    
    $
    4,091
    
    
    $
    3,918Furniture and equipment
    
    
    680
    
    
    
    933Net occupancy
    
    
    612
    
    
    
    615Outside services
    
    
    486
    
    
    
    553Marketing and public relations
    
    
    271
    
    
    
    246Supplies, postage and freight
    
    
    272
    
    
    
    342Telecommunications
    
    
    215
    
    
    
    212Ohio Franchise tax
    
    
    298
    
    
    
    281FDIC Assessments
    
    
    574
    
    
    
    528Other real estate owned
    
    
    590
    
    
    
    81Electronic banking expenses
    
    
    209
    
    
    
    184Loan and Collection Expense
    
    
    442
    
    
    
    323Other expense
    
    
    449
    
    
    
    477Total noninterest expense
    
    $
    9,189
    
    
    $
    8,693
 Three Months Ended March 31, 2011 versus Three Months Ended March 31, 2010 Noninterest Expense
Comparison
  Income taxes
 Three Months Ended March 31, 2011 versus Three Months Ended March 31, 2010 Income Taxes Comparison
  Financial Condition
 Overview
  34




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##### Table of Contents



Securities
  Loans
  Table 5: Details on Loan Balances
 March 31, 2011
    
    
    December 31, 2010(Dollars in thousands)Commercial real estate
    
    $
    379,208
    
    
    $
    375,803Commercial
    
    
    66,624
    
    
    
    65,662Real estate mortgage
    
    
    70,165
    
    
    
    74,685Home equity
    
    
    131,119
    
    
    
    132,536Indirect
    
    
    150,196
    
    
    
    150,031Consumer
    
    
    13,317
    
    
    
    13,862Total Loans
    
    
    810,629
    
    
    
    812,579Allowance for loan losses
    
    
    (17,315
    )
    
    
    (16,136
    )Net Loans
    
    $
    793,314
    
    
    $
    796,443
     35




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##### Table of Contents



Table 6: Cash Flow and Interest Rate Information for Loans:
 March 31, 2011Due in one year or less
    
    $
    249,998Due after one year but within five years
    
    
    286,872Due after five years
    
    
    273,759Totals
    
    $
    810,629Due after one year with a predetermined fixed interest rate
    
    $
    220,919Due after one year with a floating interest rate
    
    
    339,712Totals
    
    $
    560,631
 Provision and Allowance for Loan Losses
  36




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##### Table of Contents



Table 7: Analysis of Allowance for Loan Losses
 Three Months EndedMarch 31, 2011
    
    
    March 31, 2010(Dollars in thousands)Balance at beginning of period
    
    $
    16,136
    
    
    $
    18,792Charge-offs:Commercial real estate
    
    
    230
    
    
    
    1,018Commercial & industrial
    
    
    
    
    
    
    40Real estate mortgage
    
    
    273
    
    
    
    Home equity lines of credit
    
    
    345
    
    
    
    429Indirect installment
    
    
    195
    
    
    
    265Direct Installment
    
    
    33
    
    
    
    49Overdrafts
    
    
    36
    
    
    
    50Total charge-offs
    
    
    1,112
    
    
    
    1,851Recoveries:Commercial real estate
    
    
    102
    
    
    
    1Commercial & industrial
    
    
    31
    
    
    
    1Real estate mortgage
    
    
    4
    
    
    
    1Home equity lines of credit
    
    
    1
    
    
    
    Indirect installment
    
    
    25
    
    
    
    103Direct Installment
    
    
    9
    
    
    
    6Overdrafts
    
    
    19
    
    
    
    21Total Recoveries
    
    
    191
    
    
    
    133Net Charge-offs
    
    
    921
    
    
    
    1,718Provision for loan losses
    
    
    2,100
    
    
    
    2,109Balance at end of period
    
    $
    17,315
    
    
    $
    19,183Loans outstanding at end of period
    
    $
    810,629
    
    
    $
    792,585Allowance for loan losses as a
percent of loans outstanding at the
end of the period
    
    
    2.14
    %
    
    
    2.42
    %Average Loans Outstanding
    
    $
    810,971
    
    
    $
    796,040Annualized ratio to average loans:Net Charge-offs
    
    
    0.46
    %
    
    
    0.88
    %Provision for loan losses
    
    
    1.05
    %
    
    
    1.07
    %
  37




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##### Table of Contents



Deposits
 Table 8: Deposits and Borrowings
 Average Balances Outstanding
    
    
    Average Rates PaidFor the three months endedMarch 31, 2011
    
    
    December 31, 2010
    
    
    March 31, 2011
    
    
    December 31, 2010(Dollars in thousands)Demand deposits
    
    $
    116,062
    
    
    $
    112,810
    
    
    
    0.00
    %
    
    
    0.00
    %Interest checking
    
    
    143,797
    
    
    
    141,974
    
    
    
    0.20
    
    
    
    0.17
    %Savings deposits
    
    
    93,064
    
    
    
    89,982
    
    
    
    0.17
    
    
    
    0.17
    %Money Market Accounts
    
    
    97,954
    
    
    
    93,502
    
    
    
    0.35
    
    
    
    0.41
    %Consumer time deposits
    
    
    468,893
    
    
    
    464,924
    
    
    
    1.74
    
    
    
    1.81
    %Public time deposits
    
    
    66,688
    
    
    
    80,990
    
    
    
    0.46
    
    
    
    0.54
    %Total Deposits
    
    
    986,458
    
    
    
    984,182
    
    
    
    0.94
    
    
    
    0.98
    %Short-term borrowings
    
    
    905
    
    
    
    1,852
    
    
    
    0.25
    
    
    
    0.25
    %FHLB borrowings
    
    
    42,500
    
    
    
    42,501
    
    
    
    2.54
    
    
    
    2.98
    %Junior subordinated
debentures
    
    
    16,321
    
    
    
    16,322
    
    
    
    4.24
    
    
    
    3.18
    %Total borrowings
    
    
    59,726
    
    
    
    60,675
    
    
    
    2.97
    
    
    
    2.95
    %Total funding
    
    $
    1,046,184
    
    
    $
    1,044,857
    
    
    
    1.19
    %
    
    
    1.23
    %
    38




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##### Table of Contents



Table 9: Consumer and Public Time Deposits Greater Than $100,000
 March 31, 2011(Dollars in thousands)Less than 3 months
    
    $
    39,0153 to 6 months
    
    
    52,9466 to 12 months
    
    
    91,526Over 12 months
    
    
    49,033Total
    
    $
    232,520
 Borrowings
   Regulatory Capital
    39




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##### Table of Contents



Forward-Looking Statements
  
    
    increases in interest rates or further weakening economic conditions that could constrain
borrowers ability to repay outstanding loans or diminish the value of the collateral securing
those loans;
    
    asset price deterioration, which has had and may continue to have a negative effect on the
valuation of certain asset categories represented on the Corporations balance sheet;
    
    general economic conditions, either nationally or regionally (especially in northeastern Ohio),
becoming less favorable than expected resulting in, among other things, further deterioration
in credit quality of assets;
    
    significant increases in competitive pressure in the banking and financial services industries;
    
    changes in the interest rate environment which could reduce anticipated or actual margins;
    
    changes in political conditions or the legislative or regulatory environment, including new or
heightened legal standards and regulatory requirements, practices or expectations, which may
impede profitability or affect the Corporations financial condition (such as, for example, the
Dodd-Frank Wall Street reform and Consumer Protection Act and rules and regulations that may be
promulgated under the Act);
    
    persisting volatility and limited credit availability in the financial markets, particularly if
limitations on the Corporations ability to raise funding to the extent required by banking
regulators or otherwise; initiatives undertaken by the U.S. government do not have the intended
effect on the financial markets;
    
    limitations on the Corporations ability to return capital to shareholders and dilution of the
Corporations common shares that may result from the terms of the Capital Purchase Program
(CPP), pursuant to which the Corporation issued securities to the United States Department of
the Treasury (the U.S. Treasury);
    
    limitations on the Corporations ability to pay dividends;
    
    adverse effects on the Corporations ability to engage in routine funding transactions as a
result of the actions and commercial soundness of other financial institutions;
    
    increases in deposit insurance premiums or assessments imposed on the Corporation by the FDIC;
    
    difficulty attracting and/or retaining key executives and/or relationship managers at
compensation levels necessary to maintain a competitive market position;
    
    changes occurring in business conditions and inflation;
    
    changes in technology;
    
    changes in trade, monetary, fiscal and tax policies;
    
    changes in the securities markets, in particular, continued disruption in the fixed income
markets and adverse capital market conditions;
    
    continued disruption in the housing markets and related conditions in the financial markets; and
    
    changes in general economic conditions and competition in the geographic and business areas in
which the Corporation conducts its operations, particularly in light of the recent
consolidation of competing financial institutions; as well as the risks and uncertainties
described from time to time in the Corporations reports as filed with the Securities and
Exchange Commission.
 Critical Accounting Policies and Estimates
  40




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Allowance for Loan Losses
       Income Taxes
  41




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##### Table of Contents



Goodwill
  New Accounting Pronouncements
  42




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
 RISK ELEMENTS
  Credit Risk Management
  Nonperforming Assets
    43




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##### Table of Contents



Table 10: Nonperforming Assets
 March 31, 2011
    
    
    December 31, 2010(Dollars in thousands)Commercial loans
    
    $
    26,192
    
    
    $
    28,613Real estate mortgage
    
    
    8,417
    
    
    
    8,853Home equity lines of credit
    
    
    2,213
    
    
    
    2,398Installment loans
    
    
    986
    
    
    
    1,967Total nonperforming loans
    
    
    37,808
    
    
    
    41,831Other foreclosed assets
    
    
    3,348
    
    
    
    3,119Total nonperforming assets
    
    $
    41,156
    
    
    $
    44,950Loans 90 days past due accruing interest
    
    $
    331
    
    
    $
    Total nonperforming loans to total portfolio loans
    
    
    4.66
    %
    
    
    5.15
    %Allowance for loan losses to nonperforming assets
    
    
    42.07
    %
    
    
    35.90
    %
 Market Risk Management
     Liquidity Risk Management
  44




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##### Table of Contents



ITEM 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  45




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
  
 Item 6. Exhibits.
 (a)
    
    The exhibits to this Form 10-Q are referenced in the Exhibit Index attached hereto.
 46




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##### Table of Contents



SIGNATURES
  LNB BANCORP, INC.
(Registrant)Date: May 12, 2011
    /s/ Gary J. ElekGary J. ElekChief Financial Officer
(Duly Authorized Officer, and Principal
Financial and Accounting Officer) 47




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Exhibit31.1
    
    
    Chief Executive Officer Rule 13a -14(a)/15d -14(a) Certification.31.2
    
    
    Chief Financial Officer Rule 13a -14(a)/15d -14(a) Certification.32.1
    
    
    Certification pursuant to 18 U.S.C. section 1350, as enacted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification pursuant to 18 U.S.C. section 1350, as enacted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
 48