##### 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 June 30, 2009
 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
(State of Incorporation)
    
    34-1406303
(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 þ
    
    Non-accelerated filer o
    
    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 June 30, 2009 (unaudited) and December 31, 2008Consolidated Statements of Income (unaudited) for the three and six months
ended June 30, 2009 and June 30, 2008Consolidated Statements of Changes in Shareholders Equity (unaudited) for
the six months ended June 30, 2009 and June 30, 2008Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 2009 and June 30, 2008Notes to the Consolidated Financial Statements (unaudited)Item 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 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsEX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 Consolidated Balance Sheets
 June 30, 2009
    
    
    December 31, 2008(unaudited)(Dollars in thousands except share amounts)ASSETSCash and due from banks (Note 3)
    
    $
    22,019
    
    
    $
    21,723Federal funds sold and short-term investments
    
    
    47,239
    
    
    
    15,200Cash and cash equivalents
    
    
    69,258
    
    
    
    36,923Interest-bearing deposits in other banks
    
    
    356
    
    
    
    352Securities: (Note 5)Trading securities, at fair value
    
    
    10,630
    
    
    
    11,261Available for sale, at fair value
    
    
    281,733
    
    
    
    223,052Total securities
    
    
    292,363
    
    
    
    234,313Restricted stock
    
    
    4,985
    
    
    
    4,884Loans held for sale
    
    
    6,438
    
    
    
    3,580Loans: (Note 6)Portfolio loans
    
    
    803,549
    
    
    
    803,551Allowance for loan losses (Note 6)
    
    
    (12,978
    )
    
    
    (11,652
    )Net loans
    
    
    790,571
    
    
    
    791,899Bank premises and equipment, net
    
    
    10,573
    
    
    
    11,504Other real estate owned
    
    
    1,170
    
    
    
    1,108Bank owned life insurance
    
    
    16,069
    
    
    
    15,742Goodwill, net (Note 4)
    
    
    21,582
    
    
    
    21,582Intangible assets, net (Note 4)
    
    
    1,074
    
    
    
    1,142Accrued interest receivable
    
    
    4,531
    
    
    
    4,290Other assets
    
    
    13,125
    
    
    
    8,816Total Assets
    
    $
    1,232,095
    
    
    $
    1,136,135LIABILITIES AND SHAREHOLDERS EQUITYDeposits (Note 8)Demand and other noninterest-bearing
    
    $
    95,327
    
    
    $
    93,994Savings, money market and interest-bearing demand
    
    
    324,845
    
    
    
    292,679Certificates of deposit
    
    
    594,552
    
    
    
    534,502Total deposits
    
    
    1,014,724
    
    
    
    921,175Short-term borrowings (Note 9)
    
    
    29,289
    
    
    
    22,928Federal Home Loan Bank advances (Note 10)
    
    
    43,006
    
    
    
    53,357Junior subordinated debentures (Note 11)
    
    
    20,620
    
    
    
    20,620Accrued interest payable
    
    
    3,356
    
    
    
    3,813Accrued taxes, expenses and other liabilities
    
    
    13,421
    
    
    
    7,183Total Liabilities
    
    
    1,124,416
    
    
    
    1,029,076Shareholders EquityPreferred stock, Series A Voting, no par value, authorized 750,000
shares, none issued at June 30, 2009 and December 31, 2008.
    
    
    
    
    
    
    Fixed date cumulative perpetual preferred stock, Series B, no par
value,
25,223 shares authorized and issued at June 30, 2009 and December
31, 2008.
    
    
    25,223
    
    
    
    25,223Discount on Series B preferred stock
    
    
    (138
    )
    
    
    (146
    )Warrant to purchase common stock
    
    
    146
    
    
    
    146Common stock, par value $1 per share, authorized 15,000,000 shares,
issued 7,623,857 shares at June 30, 2009 and December 31, 2008.
    
    
    7,624
    
    
    
    7,624Additional paid-in capital
    
    
    37,840
    
    
    
    37,783Retained earnings
    
    
    41,501
    
    
    
    41,682Accumulated other comprehensive income
    
    
    1,575
    
    
    
    839Treasury shares at cost, 328,194 shares at June 30, 2009
and at December 31, 2008
    
    
    (6,092
    )
    
    
    (6,092
    )Total Shareholders Equity
    
    
    107,679
    
    
    
    107,059Total Liabilities and Shareholders Equity
    
    $
    1,232,095
    
    
    $
    1,136,135
 See accompanying notes to consolidated financial statements.




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##### Table of Contents



Consolidated Statements of Income (unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands except share and per share amounts)Interest and Dividend IncomeLoans
    
    $
    11,360
    
    
    $
    11,962
    
    
    $
    22,971
    
    
    $
    24,538Securities:U.S. Government agencies and corporations
    
    
    2,537
    
    
    
    1,964
    
    
    
    5,012
    
    
    
    3,934State and political subdivisions
    
    
    266
    
    
    
    186
    
    
    
    499
    
    
    
    348Trading securities
    
    
    119
    
    
    
    236
    
    
    
    246
    
    
    
    529Other debt and equity securities
    
    
    55
    
    
    
    67
    
    
    
    118
    
    
    
    132Federal funds sold and short-term investments
    
    
    19
    
    
    
    28
    
    
    
    33
    
    
    
    76Total interest and dividend income
    
    
    14,356
    
    
    
    14,443
    
    
    
    28,879
    
    
    
    29,557Interest ExpenseDeposits
    
    
    4,601
    
    
    
    5,397
    
    
    
    9,503
    
    
    
    11,906Federal Home Loan Bank advances
    
    
    348
    
    
    
    553
    
    
    
    780
    
    
    
    1,123Short-term borrowings
    
    
    32
    
    
    
    86
    
    
    
    68
    
    
    
    261Junior subordinated debentures
    
    
    241
    
    
    
    268
    
    
    
    496
    
    
    
    608Total interest expense
    
    
    5,222
    
    
    
    6,304
    
    
    
    10,847
    
    
    
    13,898Net Interest Income
    
    
    9,134
    
    
    
    8,139
    
    
    
    18,032
    
    
    
    15,659Provision for Loan Losses (Note 6)
    
    
    2,484
    
    
    
    4,664
    
    
    
    4,293
    
    
    
    5,138Net interest income after provision for loan losses
    
    
    6,650
    
    
    
    3,475
    
    
    
    13,739
    
    
    
    10,521Noninterest IncomeInvestment and trust services
    
    
    559
    
    
    
    587
    
    
    
    909
    
    
    
    1,119Deposit service charges
    
    
    1,095
    
    
    
    1,190
    
    
    
    2,121
    
    
    
    2,301Other service charges and fees
    
    
    705
    
    
    
    682
    
    
    
    1,342
    
    
    
    1,326Income from bank owned life insurance
    
    
    165
    
    
    
    398
    
    
    
    327
    
    
    
    581Other income
    
    
    81
    
    
    
    70
    
    
    
    164
    
    
    
    669Total fees and other income
    
    
    2,605
    
    
    
    2,927
    
    
    
    4,863
    
    
    
    5,996Securities gains, net
    
    
    249
    
    
    
    69
    
    
    
    586
    
    
    
    283Gains on sale of loans
    
    
    368
    
    
    
    157
    
    
    
    622
    
    
    
    344Gains (losses) on sale of other assets, net
    
    
    22
    
    
    
    1
    
    
    
    30
    
    
    
    (135
    )Total noninterest income
    
    
    3,244
    
    
    
    3,154
    
    
    
    6,101
    
    
    
    6,488Noninterest ExpenseSalaries and employee benefits
    
    
    3,802
    
    
    
    3,861
    
    
    
    7,520
    
    
    
    7,639Furniture and equipment
    
    
    1,189
    
    
    
    1,035
    
    
    
    2,331
    
    
    
    2,031Net occupancy
    
    
    570
    
    
    
    603
    
    
    
    1,214
    
    
    
    1,260Outside services
    
    
    789
    
    
    
    591
    
    
    
    1,344
    
    
    
    1,474Marketing and public relations
    
    
    295
    
    
    
    274
    
    
    
    539
    
    
    
    582Supplies, postage and freight
    
    
    306
    
    
    
    335
    
    
    
    640
    
    
    
    684Telecommunications
    
    
    185
    
    
    
    202
    
    
    
    388
    
    
    
    446Ohio franchise tax
    
    
    225
    
    
    
    225
    
    
    
    457
    
    
    
    445FDIC assessments
    
    
    976
    
    
    
    37
    
    
    
    1,289
    
    
    
    61Other real estate owned
    
    
    103
    
    
    
    509
    
    
    
    174
    
    
    
    607Electronic banking expenses
    
    
    200
    
    
    
    300
    
    
    
    389
    
    
    
    510Loan and collection expense
    
    
    368
    
    
    
    232
    
    
    
    578
    
    
    
    460Other expense
    
    
    472
    
    
    
    636
    
    
    
    977
    
    
    
    1,163Total noninterest expense
    
    
    9,480
    
    
    
    8,840
    
    
    
    17,840
    
    
    
    17,362Income before income tax expense
    
    
    414
    
    
    
    (2,211
    )
    
    
    2,000
    
    
    
    (353
    )Income tax expense (benefit)
    
    
    (102
    )
    
    
    (1,076
    )
    
    
    167
    
    
    
    (665
    )Net Income
    
    $
    516
    
    
    $
    (1,135
    )
    
    $
    1,833
    
    
    $
    312Dividends and accretion on preferred stock
    
    
    319
    
    
    
    
    
    
    
    618
    
    
    
    Net Income Available to Common Shareholders
    
    $
    197
    
    
    $
    (1,135
    )
    
    $
    1,215
    
    
    $
    312Net Income Per Common Share (Note 2)Basic
    
    $
    0.03
    
    
    $
    (0.16
    )
    
    $
    0.17
    
    
    $
    0.04Diluted
    
    
    0.03
    
    
    
    (0.16
    )
    
    
    0.17
    
    
    
    0.04Dividends declared
    
    
    0.09
    
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.36Average Common Shares OutstandingBasic
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663Diluted
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663
 See accompanying notes to consolidated financial statements




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##### Table of Contents



Consolidated Statements of Sharehlders 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, 2008
    
    $
    
    
    
    $
    
    
    
    $
    7,624
    
    
    $
    37,712
    
    
    $
    42,951
    
    
    $
    458
    
    
    $
    (6,092
    )
    
    $
    82,653Cumulative affect of adoption of EITF 06-4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    
    
    
    
    (725
    )Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    312Other comprehensive income, net of tax:Change in unrealized gains and losses
on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (889
    )
    
    
    
    
    
    
    (889
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (577
    )Share-based compensation income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Common dividends declared, $.36 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,626
    )
    
    
    
    
    
    
    
    
    
    
    (2,626
    )Balance, June 30, 2008
    
    $
    
    
    
    $
    
    
    
    $
    7,624
    
    
    $
    37,734
    
    
    $
    39,912
    
    
    $
    (431
    )
    
    $
    (6,092
    )
    
    $
    78,747Balance, January 1, 2009
    
    $
    25,077
    
    
    $
    146
    
    
    $
    7,624
    
    
    $
    37,783
    
    
    $
    41,682
    
    
    $
    839
    
    
    $
    (6,092
    )
    
    $
    107,059Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,833
    
    
    
    
    
    
    
    
    
    
    
    1,833Other comprehensive income, net of tax:Change in unrealized gains and losses
on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736
    
    
    
    
    
    
    
    736Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,569Share-based compensation income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Preferred dividends and accretion of discount
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (701
    )
    
    
    
    
    
    
    
    
    
    
    (693
    )Common dividends declared, $.18 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,313
    )
    
    
    
    
    
    
    
    
    
    
    (1,313
    )Balance, June 30, 2009
    
    $
    25,085
    
    
    $
    146
    
    
    $
    7,624
    
    
    $
    37,840
    
    
    $
    41,501
    
    
    $
    1,575
    
    
    $
    (6,092
    )
    
    $
    107,679
 See accompanying notes to consolidated financial statements




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##### Table of Contents



Consolidated Statements of Cash Flows (unaudited)
 Six Months Ended June 30,2009
    
    
    2008(Dollars in thousands)Operating ActivitiesNet income
    
    $
    1,833
    
    
    $
    312Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    4,293
    
    
    
    5,138Depreciation and amortization
    
    
    804
    
    
    
    927Amortization (accretion) of premiums and discounts
    
    
    631
    
    
    
    (425
    )Amortization of intangibles
    
    
    68
    
    
    
    68Amortization of loan servicing rights
    
    
    173
    
    
    
    112Amortization of deferred loan fees
    
    
    164
    
    
    
    (164
    )Federal deferred income tax expense (benefit)
    
    
    (171
    )
    
    
    48Securities gains, net
    
    
    (586
    )
    
    
    (283
    )Share-based compensation expense, net of tax
    
    
    57
    
    
    
    22Loans originated for sale
    
    
    (61,417
    )
    
    
    (43,901
    )Proceeds from sales of loan originations
    
    
    58,559
    
    
    
    44,264Net gain from loan sales
    
    
    (622
    )
    
    
    (372
    )Net losses from loans held for sale
    
    
    
    
    
    
    28Net (gain) loss on sale of other assets
    
    
    (30
    )
    
    
    135Net decrease in accrued interest receivable and other assets
    
    
    (4,833
    )
    
    
    (1,203
    )Net increase (decrease) in accrued interest payable, taxes and other liabilities
    
    
    5,624
    
    
    
    (977
    )Net cash provided by operating activities
    
    
    4,547
    
    
    
    3,729Investing ActivitiesProceeds from sales of available-for-sale securities
    
    
    23,049
    
    
    
    40,396Proceeds from maturities of available-for-sale securities
    
    
    24,536
    
    
    
    31,474Purchase of available-for-sale securities
    
    
    (105,463
    )
    
    
    (67,108
    )Purchase of trading securities
    
    
    
    
    
    
    (55,479
    )Proceeds from maturities of trading securities
    
    
    890
    
    
    
    Change in interest-bearing deposits in other banks
    
    
    4
    
    
    
    Proceeds from sale of trading securities
    
    
    
    
    
    
    52,100Purchase of Federal Home Loan Bank Stock
    
    
    (101
    )
    
    
    (117
    )Net increase in loans made to customers
    
    
    (3,153
    )
    
    
    (17,756
    )Proceeds from the sale of other real estate owned
    
    
    536
    
    
    
    512Proceeds from the sale of bank premises and equipment
    
    
    
    
    
    
    5Purchase of bank premises and equipment
    
    
    (220
    )
    
    
    (386
    )Net cash used in investing activities
    
    
    (59,922
    )
    
    
    (16,359
    )Financing ActivitiesNet increase in demand and other noninterest-bearing
    
    
    1,333
    
    
    
    1,845Net increase in savings, money market and interest-bearing demand
    
    
    32,166
    
    
    
    20,629Net increase (decrease) in certificates of deposit
    
    
    60,050
    
    
    
    (18,212
    )Net increase in short-term borrowings
    
    
    6,361
    
    
    
    1,576Proceeds from Federal Home Loan Bank advances
    
    
    15,000
    
    
    
    50,000Payment of Federal Home Loan Bank advances
    
    
    (25,351
    )
    
    
    (35,350
    )Dividends paid
    
    
    (1,849
    )
    
    
    (2,626
    )Net cash provided by financing activities
    
    
    87,710
    
    
    
    17,862Net increase in cash and cash equivalents
    
    
    32,335
    
    
    
    5,232Cash and cash equivalents, January 1
    
    
    36,923
    
    
    
    23,523Cash and cash equivalents, June 30
    
    $
    69,258
    
    
    $
    28,755Supplemental cash flow informationInterest paid
    
    $
    11,291
    
    
    $
    14,214Income taxes paid
    
    
    300
    
    
    
    1,405Transfer of loans to other real estate owned
    
    
    646
    
    
    
    996




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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
  Restricted Stock




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##### Table of Contents



Loans Held For Sale
  Loans
    Allowance for Loan Losses
   Servicing




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##### Table of Contents



Bank Premises and Equipment
  Goodwill and Core Deposit Intangibles
   Other Real Estate Owned
  Split-Dollar Life Insurance
 Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements,
 Investment and Trust Services Assets and Income
  Income Taxes
  Comprehensive Income




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##### Table of Contents



Preferred Stock
  New Accounting Pronouncements
  Subsequent
Events
  (2) Earnings Per Share
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands except per share amounts)Weighted average shares outstanding used in Basic
Earnings per Common Share
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663Dilutive effect of incentive stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding used in
Diluted Earnings Per Common Share
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663
    
    
    
    7,295,663Net Income
    
    $
    516
    
    
    $
    (1,135
    )
    
    $
    1,833
    
    
    $
    312Preferred stock dividend and accretion
    
    
    319
    
    
    
    
    
    
    
    618
    
    
    
    Income Available to Common Shareholders
    
    $
    197
    
    
    $
    (1,135
    )
    
    $
    1,215
    
    
    $
    312Basic Earnings Per Common Share
    
    $
    0.03
    
    
    $
    (0.16
    )
    
    $
    0.17
    
    
    $
    0.04Diluted Earnings Per Common Share
    
    $
    0.03
    
    
    $
    (0.16
    )
    
    $
    0.17
    
    
    $
    0.04
  (3) Cash and Due from Banks
  (4) Goodwill and Intangible Assets




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##### Table of Contents



June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Core deposit intangibles
    
    $
    2,643
    
    
    $
    2,643Less: accumulated amortization
    
    
    1,569
    
    
    
    1,501Carrying value of core deposit intangibles
    
    $
    1,074
    
    
    $
    1,142
  (5) Securities
  At June 30, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    50,805
    
    
    $
    675
    
    
    $
    (231
    )
    
    $
    51,249Mortgage backed securities
    
    
    200,959
    
    
    
    4,729
    
    
    
    (303
    )
    
    
    205,385State and political subdivisions
    
    
    24,906
    
    
    
    391
    
    
    
    (198
    )
    
    
    25,099Total securities available for sale
    
    $
    276,670
    
    
    $
    5,795
    
    
    $
    (732
    )
    
    $
    281,733
 At December 31, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    46,418
    
    
    $
    1,134
    
    
    $
    
    
    
    $
    47,552Mortgage backed securities
    
    
    150,718
    
    
    
    2,886
    
    
    
    (196
    )
    
    
    153,408State and political subdivisions
    
    
    21,969
    
    
    
    438
    
    
    
    (315
    )
    
    
    22,092Total securities available for sale
    
    $
    219,105
    
    
    $
    4,458
    
    
    $
    (511
    )
    
    $
    223,052
  Trading Securities held at June 30, 2009Aggregate Unrealized
    
    
    Aggregate Unrealized
    
    
    FairCost
    
    
    Gains recorded to income
    
    
    Losses recorded to income
    
    
    Value(Dollars in thousands)Trading Securities
    
    $
    10,346
    
    
    $
    284
    
    
    $
    
    
    
    $
    10,630Trading Securities held at December 31, 2008Aggregate Unrealized
    
    
    Aggregate Unrealized
    
    
    FairCost
    
    
    Gains recorded to income
    
    
    Losses recorded to income
    
    
    Value(Dollars in thousands)Trading Securities
    
    $
    11,245
    
    
    $
    16
    
    
    $
    
    
    
    $
    11,261




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##### Table of Contents



(6) Loans and Allowance for Loan Losses
  June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Real estate loans (includes loans secured primarily by real estate only):Construction and land development
    
    $
    67,491
    
    
    $
    60,725One to four family residential
    
    
    224,064
    
    
    
    231,757Multi-family residential
    
    
    27,098
    
    
    
    26,284Non-farm non-residential properties
    
    
    291,263
    
    
    
    296,393Commercial and industrial loans
    
    
    54,691
    
    
    
    60,846Personal loans to individuals:Auto, single payment and installment
    
    
    134,676
    
    
    
    123,807All other loans
    
    
    4,266
    
    
    
    3,739Total loans
    
    
    803,549
    
    
    
    803,551Allowance for loan losses
    
    
    (12,978
    )
    
    
    (11,652
    )Net loans
    
    $
    790,571
    
    
    $
    791,899
  June 30, 2009
    
    
    June 30, 2008(Dollars in thousands)Balance at the beginning of period
    
    $
    11,652
    
    
    $
    7,820Provision for loan losses
    
    
    4,293
    
    
    
    5,138Loans charged-off
    
    
    (3,342
    )
    
    
    (1,246
    )Recoveries on loans previously charged-off
    
    
    375
    
    
    
    162Balance at the end of the year
    
    $
    12,978
    
    
    $
    11,874
  (7) Stock Options and Stock Appreciation Rights




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##### Table of Contents



Year Issued2005
    
    2005
    
    2006
    
    2007
    
    2007
    
    2008
    
    2008
    
    2009
    
    2006Type
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    SARsNumber of Options
    
    
    2,500
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    50,000
    
    
    
    38,500
    
    
    
    2,500
    
    
    
    14,500Strike Price
    
    $
    16.50
    
    
    $
    19.17
    
    
    $
    19.10
    
    
    $
    16.00
    
    
    $
    15.35
    
    
    $
    14.47
    
    
    $
    14.47
    
    
    $
    5.34
    
    
    $
    19.00Number of Options Vested
    
    
    2,500
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    6,667
    
    
    
    16,666
    
    
    
    12,998
    
    
    
    
    
    
    
    14,500Assumptions:Risk free interest rate
    
    
    4.50
    %
    
    
    3.92
    %
    
    
    3.66
    %
    
    
    4.73
    %
    
    
    4.72
    %
    
    
    2.94
    %
    
    
    2.94
    %
    
    
    2.27
    %
    
    
    1.42
    %Dividend yield
    
    
    4.36
    %
    
    
    3.76
    %
    
    
    3.77
    %
    
    
    4.50
    %
    
    
    4.69
    %
    
    
    4.98
    %
    
    
    4.98
    %
    
    
    6.74
    %
    
    
    6.86
    %Volatility
    
    
    18.48
    %
    
    
    17.30
    %
    
    
    17.66
    %
    
    
    16.52
    %
    
    
    15.33
    %
    
    
    15.68
    %
    
    
    15.68
    %
    
    
    22.97
    %
    
    
    25.19
    %Expected Life  years
    
    
    5
    
    
    
    6
    
    
    
    6
    
    
    
    7
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    4
  OptionsOptions outstanding, December 31, 2008
    
    
    203,500Granted
    
    
    2,500Forfeited
    
    
    (2,500
    )Exercised, expired or cancelled
    
    
    Options outstanding, June 30, 2009
    
    
    203,500Options vested and exercisable, June 30, 2009
    
    
    118,831
 (8) Deposits
  June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Demand and other noninterest-bearing
    
    $
    95,327
    
    
    $
    93,994Interest checking
    
    
    132,488
    
    
    
    115,102Savings
    
    
    79,882
    
    
    
    78,526Money market accounts
    
    
    112,475
    
    
    
    99,051Consumer time deposits
    
    
    491,301
    
    
    
    449,772Public time deposits
    
    
    90,758
    
    
    
    72,247Brokered time deposits
    
    
    12,493
    
    
    
    12,483Total deposits
    
    $
    1,014,724
    
    
    $
    921,175
   After 12 months
    
    
    After 36 monthsWithin
    
    
    but within 36
    
    
    but within 6012 months
    
    
    months
    
    
    months
    
    
    After 5 years
    
    
    Total(Dollars in thousands)Consumer time deposits
    
    $
    411,428
    
    
    $
    67,949
    
    
    $
    11,907
    
    
    $
    17
    
    
    $
    491,301Public time deposits
    
    
    88,118
    
    
    
    2,425
    
    
    
    215
    
    
    
    
    
    
    
    90,758Brokered time deposits
    
    
    12,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,493Total time deposits
    
    $
    512,039
    
    
    $
    70,374
    
    
    $
    12,122
    
    
    $
    17
    
    
    $
    594,552




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##### Table of Contents



(9) Short-Term Borrowings
   June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Securities sold under repurchase agreementsPeriod End:Outstanding
    
    $
    29,289
    
    
    $
    22,928Interest rate
    
    
    0.50
    %
    
    
    0.50
    %Average:Outstanding
    
    $
    25,884
    
    
    $
    25,875Interest rate
    
    
    0.53
    %
    
    
    1.19
    %Maximum month-end balance
    
    $
    32,351
    
    
    $
    30,781Federal funds purchasedPeriod End:Outstanding
    
    $
    
    
    
    $
    Interest rate
    
    
    n/a
    
    
    
    n/aAverage:Outstanding
    
    $
    
    
    
    $
    1,989Interest rate
    
    
    n/a
    
    
    
    3.87
    %Maximum month-end balance
    
    $
    
    
    
    $
    12,900
 (10) Federal Home Loan Bank Advances
   June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Maturities January 2009 through
December 2009, with fixed rates
ranging from 3.36% to 5.00%, averaging
5.00% in 2009 and 3.60% in 2008
    
    $
    448
    
    
    $
    25,794Maturity January 2010, fixed rate 3.58%
    
    
    10,000
    
    
    
    10,000Maturities January 2011 through
February 2011, with fixed rates
ranging from 3.17% to 3.67%, averaging
3.50% for 2009 and 2008
    
    
    15,000
    
    
    
    15,000Maturity January 2012, fixed rate 2.37%
    
    
    15,000
    
    
    
    Maturity January 2014, fixed rate 3.55%
    
    
    58
    
    
    
    63Maturity July 2015, fixed rate 4.76%
    
    
    2,500
    
    
    
    2,500Total FHLB advances
    
    $
    43,006
    
    
    $
    53,357




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##### Table of Contents



(11) Trust Preferred Securities
   (12) Commitments, Credit Risk, and Contingencies
     Amount(Dollars in thousands)Commitments to extend credit
    
    $
    86,315Home equity lines of credit
    
    
    79,502Standby letters of credit
    
    
    8,891Total
    
    $
    174,708




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##### Table of Contents



(13) 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 June 30, 2009 and December 31, 2008.Limitations




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##### Table of Contents



June 30, 2009
    
    
    December 31, 2008Carrying
    
    
    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
    
    $
    69,614
    
    
    $
    69,614
    
    
    $
    37,275
    
    
    $
    37,275Securities
    
    
    292,363
    
    
    
    297,348
    
    
    
    234,313
    
    
    
    234,313Restricted stock
    
    
    4,985
    
    
    
    4,985
    
    
    
    4,884
    
    
    
    4,884Portfolio loans, net
    
    
    790,571
    
    
    
    807,064
    
    
    
    791,899
    
    
    
    836,432Loans held for sale
    
    
    6,438
    
    
    
    6,438
    
    
    
    3,580
    
    
    
    3,580Accrued interest receivable
    
    
    4,531
    
    
    
    4,531
    
    
    
    4,290
    
    
    
    4,290Financial liabilitiesDeposits:Demand, savings and money market
    
    
    420,172
    
    
    
    446,223
    
    
    
    422,855
    
    
    
    422,855Certificates of deposit
    
    
    594,552
    
    
    
    602,694
    
    
    
    498,320
    
    
    
    546,497Total deposits
    
    
    1,014,724
    
    
    
    1,048,917
    
    
    
    921,175
    
    
    
    969,352Short-term borrowings
    
    
    29,289
    
    
    
    29,289
    
    
    
    22,928
    
    
    
    22,928Federal Home Loan Bank advances
    
    
    43,006
    
    
    
    43,003
    
    
    
    53,357
    
    
    
    54,647Junior subordinated debentures
    
    
    20,620
    
    
    
    22,291
    
    
    
    20,620
    
    
    
    21,492Accrued interest payable
    
    
    3,356
    
    
    
    3,356
    
    
    
    3,813
    
    
    
    3,813
     Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantFair Value as of
    
    
    Markets for Identical
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    June 30, 2009
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Trading Securities
    
    $
    10,630
    
    
    $
    10,630
    
    
    $
    
    
    
    $
    Available for Sale Securities
    
    
    281,733
    
    
    
    256,634
    
    
    
    25,099
    
    
    
    Total
    
    $
    292,363
    
    
    $
    267,264
    
    
    $
    25,099
    
    
    $
    




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction
   Forward-Looking Statements
  
    
    significant increases in competitive pressure in the banking and financial services industries;
    
    changes in the interest rate environment which could reduce anticipated or actual margins;
    
    changes in political conditions or the legislative or regulatory environment, including new or
heightened legal standards and regulatory requirements, practices or expectations, which may
impede profitability or affect the Corporations financial condition;
    
    persisting volatility and limited credit availability in the financial markets, particularly if
The Emergency Economic Stabilization Act of 2008 (EESA), the American Recovery and
Reinvestment Act of 2009, the Financial Stability Plan announced on February 10, 2009, by the
Secretary of the U.S. Treasury, in coordination with other financial institution regulators,
and other initiatives undertaken by the U.S. government do not have the intended effect on the
financial markets;
    
    limitations on the Corporations ability to return capital to shareholders and dilution of the
Corporations common shares that may result from the terms of the Capital Purchase Program
(CPP), pursuant to which the Corporation issued securities to the United States Department of
the Treasury (the U.S. Treasury);
    
    increases in interest rates or further weakening economic conditions that could constrain
borrowers ability to repay outstanding loans or diminish the value of the collateral securing
those loans;
    
    adverse effects on the Corporations ability to engage in routine funding transactions as a
result of the actions and commercial soundness of other financial institutions;
    
    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, a deterioration in
credit quality of assets;
    
    increases in deposit insurance premiums or assessments imposed on the Corporation by the FDIC;
    
    difficulty attracting and/or retaining key executives and/or relationship managers at
compensation levels necessary to maintain a competitive market position;
    
    changes occurring in business conditions and inflation;




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##### Table of Contents




    
    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
    Allowance for Loan Losses




---



##### Table of Contents



Income Taxes
  New Accounting Pronouncements
  Summary of Earnings (Dollars in thousands except per share data)




---



##### Table of Contents



Results of Operations
 Net Interest Income
  Three Months Ended June 30, 2009 versus Three Months Ended June 30, 2008




---



##### Table of Contents



Six Months Ended June 30, 2009 versus Six Months Ended June 30, 2008




---



##### 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 June 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and corporations and
restricted stock
    
    $
    253,365
    
    
    $
    2,711
    
    
    
    4.29
    %
    
    $
    200,028
    
    
    $
    2,267
    
    
    
    4.56
    %State and political subdivisions
    
    
    24,975
    
    
    
    383
    
    
    
    6.16
    
    
    
    18,004
    
    
    
    268
    
    
    
    5.99Federal funds sold and short-term
investments
    
    
    46,690
    
    
    
    19
    
    
    
    0.16
    
    
    
    6,284
    
    
    
    28
    
    
    
    1.79Commercial loans
    
    
    445,346
    
    
    
    6,253
    
    
    
    5.63
    
    
    
    432,354
    
    
    
    6,997
    
    
    
    6.51Real estate mortgage loans
    
    
    89,092
    
    
    
    1,308
    
    
    
    5.89
    
    
    
    97,951
    
    
    
    1,490
    
    
    
    6.12Home equity lines of credit
    
    
    105,403
    
    
    
    1,053
    
    
    
    4.01
    
    
    
    86,298
    
    
    
    999
    
    
    
    4.66Installment loans
    
    
    168,595
    
    
    
    2,769
    
    
    
    6.59
    
    
    
    148,087
    
    
    
    2,499
    
    
    
    6.79Total Earning Assets
    
    $
    1,133,466
    
    
    $
    14,496
    
    
    
    5.13
    %
    
    $
    989,006
    
    
    $
    14,548
    
    
    
    5.92
    %Allowance for loan loss
    
    
    (11,719
    )
    
    
    
    
    
    
    
    
    
    
    (7,890
    )Cash and due from banks
    
    
    17,464
    
    
    
    
    
    
    
    
    
    
    
    19,396Bank owned life insurance
    
    
    15,965
    
    
    
    
    
    
    
    
    
    
    
    15,703Other assets
    
    
    47,021
    
    
    
    
    
    
    
    
    
    
    
    49,378Total Assets
    
    $
    1,202,197
    
    
    
    
    
    
    
    
    
    
    $
    1,065,593Liabilities and Shareholders EquityConsumer time deposits
    
    $
    481,111
    
    
    $
    3,702
    
    
    
    3.09
    %
    
    $
    383,751
    
    
    $
    3,833
    
    
    
    4.02
    %Public time deposits
    
    
    86,383
    
    
    
    462
    
    
    
    2.96
    
    
    
    55,206
    
    
    
    551
    
    
    
    4.01Brokered time deposits
    
    
    12,491
    
    
    
    133
    
    
    
    4.28
    
    
    
    10,789
    
    
    
    145
    
    
    
    5.41Money market accounts
    
    
    116,471
    
    
    
    175
    
    
    
    0.60
    
    
    
    117,872
    
    
    
    494
    
    
    
    1.69Savings deposits
    
    
    80,858
    
    
    
    44
    
    
    
    0.22
    
    
    
    84,261
    
    
    
    129
    
    
    
    0.62Interest-bearing demand
    
    
    125,704
    
    
    
    86
    
    
    
    0.27
    
    
    
    125,478
    
    
    
    245
    
    
    
    0.79Short-term borrowings
    
    
    23,698
    
    
    
    32
    
    
    
    0.53
    
    
    
    28,830
    
    
    
    86
    
    
    
    1.20FHLB advances
    
    
    43,040
    
    
    
    348
    
    
    
    3.24
    
    
    
    58,895
    
    
    
    553
    
    
    
    3.78Trust preferred securities
    
    
    20,740
    
    
    
    240
    
    
    
    4.64
    
    
    
    20,796
    
    
    
    268
    
    
    
    5.18Total Interest-Bearing Liabilities
    
    $
    990,496
    
    
    $
    5,222
    
    
    
    2.11
    %
    
    $
    885,878
    
    
    $
    6,304
    
    
    
    2.86
    %Noninterest-bearing deposits
    
    
    92,757
    
    
    
    
    
    
    
    
    
    
    
    86,874Other liabilities
    
    
    10,689
    
    
    
    
    
    
    
    
    
    
    
    9,991Shareholders Equity
    
    
    108,255
    
    
    
    
    
    
    
    
    
    
    
    82,850Total Liabilities and
Shareholders Equity
    
    $
    1,202,197
    
    
    
    
    
    
    
    
    
    
    $
    1,065,593Net interest Income (FTE)
    
    
    
    
    
    $
    9,274
    
    
    
    3.28
    %
    
    
    
    
    
    $
    8,244
    
    
    
    3.35
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (140
    )
    
    
    (0.05
    )
    
    
    
    
    
    
    (105
    )
    
    
    (0.04
    )Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    9,134
    
    
    
    
    
    
    
    
    
    
    $
    8,139Net Yield on Earning Assets
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    3.31
    %




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##### Table of Contents



Six Months Ended June 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and corporations and
restricted stock
    
    $
    240,940
    
    
    $
    5,376
    
    
    
    4.50
    %
    
    $
    201,759
    
    
    $
    4,594
    
    
    
    4.58
    %State and political subdivisions
    
    
    23,792
    
    
    
    720
    
    
    
    6.10
    
    
    
    16,487
    
    
    
    502
    
    
    
    6.12Federal funds sold and short-term
investments
    
    
    43,686
    
    
    
    33
    
    
    
    0.15
    
    
    
    7,030
    
    
    
    76
    
    
    
    2.17Commercial loans
    
    
    446,193
    
    
    
    12,677
    
    
    
    5.73
    
    
    
    434,646
    
    
    
    14,315
    
    
    
    6.62Real estate mortgage loans
    
    
    92,052
    
    
    
    2,745
    
    
    
    6.01
    
    
    
    99,492
    
    
    
    2,975
    
    
    
    6.01Home equity lines of credit
    
    
    103,774
    
    
    
    2,063
    
    
    
    4.01
    
    
    
    83,504
    
    
    
    2,177
    
    
    
    5.24Installment loans
    
    
    166,046
    
    
    
    5,526
    
    
    
    6.71
    
    
    
    145,935
    
    
    
    5,116
    
    
    
    7.05Total Earning Assets
    
    $
    1,116,483
    
    
    $
    29,140
    
    
    
    5.40
    %
    
    $
    988,853
    
    
    $
    29,755
    
    
    
    6.05
    %Allowance for loan loss
    
    
    (11,642
    )
    
    
    
    
    
    
    
    
    
    
    (7,901
    )Cash and due from banks
    
    
    18,253
    
    
    
    
    
    
    
    
    
    
    
    23,044Bank owned life insurance
    
    
    15,883
    
    
    
    
    
    
    
    
    
    
    
    15,610Other assets
    
    
    47,158
    
    
    
    
    
    
    
    
    
    
    
    45,341Total Assets
    
    $
    1,186,135
    
    
    
    
    
    
    
    
    
    
    $
    1,064,947Liabilities and Shareholders EquityConsumer time deposits
    
    $
    475,600
    
    
    $
    7,542
    
    
    
    3.20
    %
    
    $
    372,151
    
    
    $
    7,990
    
    
    
    4.32
    %Public time deposits
    
    
    85,154
    
    
    
    1,076
    
    
    
    2.55
    
    
    
    61,866
    
    
    
    1,310
    
    
    
    4.26Brokered time deposits
    
    
    12,488
    
    
    
    264
    
    
    
    4.27
    
    
    
    18,628
    
    
    
    441
    
    
    
    4.76Money market accounts
    
    
    105,722
    
    
    
    332
    
    
    
    0.63
    
    
    
    121,278
    
    
    
    1,321
    
    
    
    2.19Savings deposits
    
    
    79,598
    
    
    
    96
    
    
    
    0.24
    
    
    
    82,913
    
    
    
    273
    
    
    
    0.66Interest-bearing demand
    
    
    122,753
    
    
    
    194
    
    
    
    0.32
    
    
    
    120,954
    
    
    
    571
    
    
    
    0.95Short-term borrowings
    
    
    25,884
    
    
    
    67
    
    
    
    0.53
    
    
    
    27,162
    
    
    
    261
    
    
    
    1.91FHLB advances
    
    
    47,893
    
    
    
    780
    
    
    
    3.28
    
    
    
    59,714
    
    
    
    1,123
    
    
    
    3.78Trust preferred securities
    
    
    20,746
    
    
    
    496
    
    
    
    4.82
    
    
    
    20,787
    
    
    
    608
    
    
    
    5.87Total Interest-Bearing Liabilities
    
    $
    975,838
    
    
    $
    10,847
    
    
    
    2.24
    %
    
    $
    885,453
    
    
    $
    13,898
    
    
    
    3.16
    %Noninterest-bearing deposits
    
    
    91,612
    
    
    
    
    
    
    
    
    
    
    
    85,862Other liabilities
    
    
    10,704
    
    
    
    
    
    
    
    
    
    
    
    10,130Shareholders Equity
    
    
    107,981
    
    
    
    
    
    
    
    
    
    
    
    83,502Total Liabilities and
Shareholders Equity
    
    $
    1,186,135
    
    
    
    
    
    
    
    
    
    
    $
    1,064,947Net interest Income (FTE)
    
    
    
    
    
    $
    18,293
    
    
    
    3.30
    %
    
    
    
    
    
    $
    15,857
    
    
    
    3.22
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (261
    )
    
    
    (0.05
    )
    
    
    
    
    
    
    (201
    )
    
    
    (0.04
    )Net Interest Income Per Financial Statements
    
    
    
    
    
    $
    18,032
    
    
    
    
    
    
    
    
    
    
    $
    15,656Net Yield on Earning Assets
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %
 Rate/Volume




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##### Table of Contents



Table 2: Rate/Volume Analysis of Net Interest Income (FTE)
 Three Months Ended June 30,Increase (Decrease) in Interest Income/Expensein 2009 over 2008Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations and
restricted stock
    
    $
    571
    
    
    $
    (127
    )
    
    $
    444State and political subdivisions
    
    
    107
    
    
    
    8
    
    
    
    115Federal funds sold and short-term investments
    
    
    16
    
    
    
    (25
    )
    
    
    (9
    )Commercial loans
    
    
    182
    
    
    
    (926
    )
    
    
    (744
    )Real estate mortgage loans
    
    
    (130
    )
    
    
    (52
    )
    
    
    (182
    )Home equity lines of credit
    
    
    191
    
    
    
    (137
    )
    
    
    54Installment loans
    
    
    337
    
    
    
    (67
    )
    
    
    270Total Interest Income
    
    
    1,274
    
    
    
    (1,326
    )
    
    
    (52
    )Consumer time deposits
    
    
    749
    
    
    
    (880
    )
    
    
    (131
    )Public time deposits
    
    
    176
    
    
    
    (265
    )
    
    
    (89
    )Brokered time deposits
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Money market accounts
    
    
    (2
    )
    
    
    (317
    )
    
    
    (319
    )Savings deposits
    
    
    (2
    )
    
    
    (83
    )
    
    
    (85
    )Interest bearing demand
    
    
    
    
    
    
    (159
    )
    
    
    (159
    )Short-term borrowings
    
    
    (7
    )
    
    
    (47
    )
    
    
    (54
    )FHLB advances
    
    
    (128
    )
    
    
    (77
    )
    
    
    (205
    )Trust preferred securities
    
    
    
    
    
    
    (28
    )
    
    
    (28
    )Total Interest Expense
    
    
    786
    
    
    
    (1,868
    )
    
    
    (1,082
    )Net Interest Income (FTE)
    
    $
    488
    
    
    $
    542
    
    
    $
    1,030




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##### Table of Contents



Six Months Ended June 30,Increase (Decrease) in Interest Income/Expensein 2009 over 2008Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations and
restricted stock
    
    $
    875
    
    
    $
    (93
    )
    
    $
    782State and political subdivisions
    
    
    214
    
    
    
    4
    
    
    
    218Federal funds sold and short-term investments
    
    
    28
    
    
    
    (71
    )
    
    
    (43
    )Commercial loans
    
    
    336
    
    
    
    (1,974
    )
    
    
    (1,638
    )Real estate mortgage loans
    
    
    (214
    )
    
    
    (16
    )
    
    
    (230
    )Home equity lines of credit
    
    
    394
    
    
    
    (508
    )
    
    
    (114
    )Installment loans
    
    
    669
    
    
    
    (259
    )
    
    
    410Total Interest Income
    
    
    2,302
    
    
    
    (2,917
    )
    
    
    (615
    )Consumer time deposits
    
    
    1,612
    
    
    
    (2,060
    )
    
    
    (448
    )Public time deposits
    
    
    316
    
    
    
    (550
    )
    
    
    (234
    )Brokered time deposits
    
    
    (100
    )
    
    
    (77
    )
    
    
    (177
    )Money market accounts
    
    
    (47
    )
    
    
    (942
    )
    
    
    (989
    )Savings deposits
    
    
    (4
    )
    
    
    (173
    )
    
    
    (177
    )Interest bearing demand
    
    
    1
    
    
    
    (378
    )
    
    
    (377
    )Short-term borrowings
    
    
    (4
    )
    
    
    (190
    )
    
    
    (194
    )FHLB advances
    
    
    (190
    )
    
    
    (153
    )
    
    
    (343
    )Trust preferred securities
    
    
    
    
    
    
    (112
    )
    
    
    (112
    )Total Interest Expense
    
    
    1,584
    
    
    
    (4,635
    )
    
    
    (3,051
    )Net Interest Income (FTE)
    
    $
    718
    
    
    $
    1,718
    
    
    $
    2,436
  Noninterest Income
 Table 3: Details on Noninterest Income
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Investment and trust services
    
    $
    559
    
    
    $
    587
    
    
    $
    909
    
    
    $
    1,119Deposit service charges
    
    
    1,095
    
    
    
    1,190
    
    
    
    2,121
    
    
    
    2,301Electronic banking fees
    
    
    705
    
    
    
    682
    
    
    
    1,342
    
    
    
    1,326Income from bank owned life insurance
    
    
    165
    
    
    
    398
    
    
    
    327
    
    
    
    581Other income
    
    
    81
    
    
    
    70
    
    
    
    164
    
    
    
    669Total fees and other income
    
    
    2,605
    
    
    
    2,927
    
    
    
    4,863
    
    
    
    5,996Gain on sale of securities
    
    
    249
    
    
    
    69
    
    
    
    586
    
    
    
    283Unrealized loss on loans HFS
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )Gain on sale of loans
    
    
    368
    
    
    
    185
    
    
    
    622
    
    
    
    372Gains (losses) on sale of other assets
    
    
    22
    
    
    
    1
    
    
    
    30
    
    
    
    (135
    )Total noninterest income
    
    $
    3,244
    
    
    $
    3,154
    
    
    $
    6,101
    
    
    $
    6,488
 Three Months Ended June 30, 2009 as compared to the Three Months Ended June 30, 2008




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##### Table of Contents



Six Months Ended June 30, 2009 as compared to the Six Months Ended June 30, 2008
   Noninterest Expense
 Table 4: Details on Noninterest Expense
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Salaries and employee benefits
    
    $
    3,802
    
    
    $
    3,861
    
    
    $
    7,520
    
    
    $
    7,639Furniture and equipment
    
    
    1,189
    
    
    
    1,035
    
    
    
    2,331
    
    
    
    2,031Net occupancy
    
    
    570
    
    
    
    603
    
    
    
    1,214
    
    
    
    1,260Outside services
    
    
    789
    
    
    
    591
    
    
    
    1,344
    
    
    
    1,474Marketing and public relations
    
    
    295
    
    
    
    274
    
    
    
    539
    
    
    
    582Supplies, postage and freight
    
    
    306
    
    
    
    335
    
    
    
    640
    
    
    
    684Telecommunications
    
    
    185
    
    
    
    202
    
    
    
    388
    
    
    
    446Ohio Franchise tax
    
    
    225
    
    
    
    225
    
    
    
    457
    
    
    
    445FDIC Assessments
    
    
    976
    
    
    
    37
    
    
    
    1,289
    
    
    
    61Other real estate owned
    
    
    103
    
    
    
    509
    
    
    
    174
    
    
    
    607Electronic banking expenses
    
    
    200
    
    
    
    300
    
    
    
    389
    
    
    
    510Loan and Collection Expense
    
    
    368
    
    
    
    232
    
    
    
    578
    
    
    
    460Other expense
    
    
    472
    
    
    
    636
    
    
    
    977
    
    
    
    1,163Total noninterest expense
    
    $
    9,480
    
    
    $
    8,840
    
    
    $
    17,840
    
    
    $
    17,362




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##### Table of Contents



Three Months Ended June 30, 2009 as compared to the Three Months Ended June 30, 2008
  Six Months Ended June 30, 2009 as compared to the Six Months Ended June 30, 2008
  Income taxes
    Balance Sheet Analysis
 Overview
  Securities




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##### Table of Contents



Loans
  Table 5: Details on Loan Balances
 June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Commercial
    
    $
    447,050
    
    
    $
    450,081Real estate mortgage
    
    
    83,567
    
    
    
    96,241Home equity lines of credit
    
    
    106,605
    
    
    
    100,873Installment
    
    
    166,327
    
    
    
    156,356Total Loans
    
    
    803,549
    
    
    
    803,551Allowance for loan losses
    
    
    (12,978
    )
    
    
    (11,652
    )Net Loans
    
    $
    790,571
    
    
    $
    791,899
   Deposits
 Table 6: Deposits and Borrowings
 Average Balances Outstanding
    
    Average Rates PaidJune 30, 2009
    
    December 31, 2008
    
    June 30, 2009
    
    December 31, 2008(Dollars in thousands)Demand deposits
    
    $
    91,612
    
    
    $
    87,302
    
    
    
    0.00
    %
    
    
    0.00
    %Interest checking
    
    
    122,753
    
    
    
    122,527
    
    
    
    0.32
    
    
    
    0.86Savings deposits
    
    
    79,598
    
    
    
    82,276
    
    
    
    0.24
    
    
    
    0.60Money market accounts
    
    
    105,722
    
    
    
    113,968
    
    
    
    0.63
    
    
    
    1.85Consumer time deposits
    
    
    475,600
    
    
    
    395,686
    
    
    
    3.20
    
    
    
    3.89Public time deposits
    
    
    85,154
    
    
    
    63,652
    
    
    
    2.55
    
    
    
    4.01Brokered time deposits
    
    
    12,488
    
    
    
    13,890
    
    
    
    4.27
    
    
    
    5.01Total Deposits
    
    
    972,927
    
    
    
    879,301
    
    
    
    1.97
    
    
    
    2.82Short-term borrowings
    
    
    25,884
    
    
    
    27,700
    
    
    
    0.53
    
    
    
    1.40FHLB borrowings
    
    
    47,893
    
    
    
    62,341
    
    
    
    3.28
    
    
    
    3.72Junior subordinated debentures
    
    
    20,746
    
    
    
    20,778
    
    
    
    4.82
    
    
    
    5.65Total borrowings
    
    
    94,523
    
    
    
    110,819
    
    
    
    2.87
    
    
    
    3.50Total funding
    
    $
    1,067,450
    
    
    $
    990,120
    
    
    
    2.24
    %
    
    
    2.90
    %




---



##### Table of Contents



Borrowings
  Regulatory Capital




---



##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
 RISK ELEMENTS
  Credit Risk Management
  Nonperforming Assets, Delinquency and Potential Problem Loans




---



##### Table of Contents



Table 7: Nonperforming Assets
 June 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Commercial loans
    
    $
    24,222
    
    
    $
    14,209Real estate mortgage
    
    
    6,536
    
    
    
    3,465Home equity lines of credit
    
    
    933
    
    
    
    989Installment loans
    
    
    1,442
    
    
    
    929Total nonperforming loans
    
    
    33,133
    
    
    
    19,592Other foreclosed assets
    
    
    1,170
    
    
    
    1,108Total nonperforming assets
    
    $
    34,303
    
    
    $
    20,700Loans 90 days past due accruing interest
    
    $
    
    
    
    $
    Allowance for loan losses to nonperforming assets
    
    
    37.83
    %
    
    
    56.29
    %
 Provision and Allowance for Loan Losses




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##### Table of Contents



Table 8: Analysis of Allowance for Loan Losses
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Balance at beginning of
period
    
    $
    11,575
    
    
    $
    8,000
    
    
    $
    11,652
    
    
    $
    7,820Charge-offs:Commercial
    
    
    (470
    )
    
    
    (425
    )
    
    
    (1,444
    )
    
    
    (443
    )Real estate mortgage
    
    
    (86
    )
    
    
    (169
    )
    
    
    (143
    )
    
    
    (275
    )Home equity lines of credit
    
    
    (334
    )
    
    
    (79
    )
    
    
    (705
    )
    
    
    (89
    )Installment
    
    
    (429
    )
    
    
    (139
    )
    
    
    (951
    )
    
    
    (325
    )DDA Overdrafts
    
    
    (50
    )
    
    
    (62
    )
    
    
    (99
    )
    
    
    (114
    )Total charge-offs
    
    
    (1,369
    )
    
    
    (874
    )
    
    
    (3,342
    )
    
    
    (1,246
    )Recoveries:Commercial
    
    
    135
    
    
    
    14
    
    
    
    168
    
    
    
    41Real estate mortgage
    
    
    12
    
    
    
    
    
    
    
    12
    
    
    
    Home equity lines of credit
    
    
    22
    
    
    
    
    
    
    
    24
    
    
    
    Installment
    
    
    109
    
    
    
    59
    
    
    
    143
    
    
    
    92DDA Overdrafts
    
    
    10
    
    
    
    11
    
    
    
    28
    
    
    
    29Total Recoveries
    
    
    288
    
    
    
    84
    
    
    
    375
    
    
    
    162Net Charge-offs
    
    
    (1,081
    )
    
    
    (790
    )
    
    
    (2,967
    )
    
    
    (1,084
    )Provision for loan losses
    
    
    2,484
    
    
    
    4,664
    
    
    
    4,293
    
    
    
    5,138Balance at end of period
    
    $
    12,978
    
    
    $
    11,874
    
    
    $
    12,978
    
    
    $
    11,874
   Market Risk Management




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##### Table of Contents



Liquidity Risk Management
   
 ITEM 4. Controls and Procedures




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders.




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##### Table of Contents



Proposal 1Election of Directors
    
    For
    
    WithheldJ. Martin Erbaugh
    
    
    4,577,654
    
    
    
    704,026Lee C. Howley
    
    
    4,580,090
    
    
    
    701,590Daniel E. Klimas
    
    
    4,492,156
    
    
    
    789,164Jeffrey F. Riddell
    
    
    4,577,292
    
    
    
    704,388John W. Schaeffer, M.D.
    
    
    4,836,673
    
    
    
    445,007
     Proposal 2
    
    For
    
    
    Against
    
    
    AbstainAdvisory Approval of Executive
Compensation Plan
    
    
    4,112,330
    
    
    
    1,102,820
    
    
    
    66,528
 Proposal 3*
    
    For
    
    
    Against
    
    
    AbstainShareholder Proposal to Declassify
the Board of Directors
    
    
    1,711,577
    
    
    
    1,633,794
    
    
    
    31,070
 
 *
    
    Required affirmative vote of shareholders of at least two-thirds of the
outstanding shares to pass Proposal 4
    
    For
    
    
    Against
    
    
    AbstainShareholder Proposal Regarding
President and CEO Share Ownership
Requirement
    
    
    1,474,615
    
    
    
    1,832,086
    
    
    
    69,740
 
 Item 6. Exhibits.




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##### Table of Contents



SIGNATURES
  LNB BANCORP, INC.
(Registrant)Date: August 7, 2009
    /s/ Gary J. ElekGary J. ElekChief Financial Officer
(Duly Authorized Officer, and Principal Financial
Officer)




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##### Table of Contents



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.