##### 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, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from       to
 Commission file number: 0-13203
 LNB Bancorp, Inc.
  Ohio
    
    34-1406303(State of Incorporation)
    
    (I.R.S. Employer Identification No.)457 Broadway, Lorain, Ohio
    
    44052  1769(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Part I  Financial InformationItem 1. Financial Statements.Consolidated Balance Sheets March 31, 2008 (unaudited) and December 31, 2007Consolidated Statements of Income (unaudited) For the three months ended
March 31, 2008 and March 31, 2007Consolidated Statements of Changes in Shareholders Equity (unaudited) For
the three months ended March 31, 2008 and March 31, 2007Consolidated Statements of Cash Flows (unaudited) For the three months
ended March 31, 2008 and March 31, 2007Notes 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-10.1EX-31.1EX-31.2EX-32.1EX-32.2EX-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, 2008
    
    
    December 31, 2007(unaudited)(Dollars in thousands except share amounts)ASSETSCash and due from Banks (Note 3)
    
    $
    22,178
    
    
    $
    23,523Federal funds sold and short-term investments
    
    
    4,300
    
    
    
    Securities: (Note 5)Trading securities, at fair value
    
    
    37,220
    
    
    
    33,402Available for sale, at fair value
    
    
    180,713
    
    
    
    179,424Federal Home Loan Bank and Federal Reserve Stock
    
    
    4,741
    
    
    
    4,579Total securities
    
    
    222,674
    
    
    
    217,405Loans held for sale
    
    
    7,748
    
    
    
    4,724Loans:Portfolio loans
    
    
    752,443
    
    
    
    753,598Allowance for loan losses (Note 6)
    
    
    (8,000
    )
    
    
    (7,820
    )Net loans
    
    
    744,443
    
    
    
    745,778Bank premises and equipment, net
    
    
    12,908
    
    
    
    13,328Other real estate owned
    
    
    2,680
    
    
    
    2,478Bank owned life insurance
    
    
    15,670
    
    
    
    15,487Goodwill, net (Note 4)
    
    
    21,570
    
    
    
    21,570Intangible assets, net (Note 4)
    
    
    1,245
    
    
    
    1,280Accrued interest receivable
    
    
    4,183
    
    
    
    4,074Other assets
    
    
    7,403
    
    
    
    6,998Total Assets
    
    $
    1,067,002
    
    
    $
    1,056,645LIABILITIES AND SHAREHOLDERS EQUITYDeposits (Note 8)Demand and other noninterest-bearing
    
    $
    88,424
    
    
    $
    88,812Savings, money market and interest-bearing demand
    
    
    325,731
    
    
    
    331,306Certificates of deposit
    
    
    450,910
    
    
    
    436,823Total deposits
    
    
    865,065
    
    
    
    856,941Short-term borrowings (Note 9)
    
    
    27,876
    
    
    
    42,105Federal Home Loan Bank advances (Note 10)
    
    
    59,207
    
    
    
    44,207Junior subordinated debentures (Note 11)
    
    
    20,620
    
    
    
    20,620Accrued interest payable
    
    
    4,351
    
    
    
    4,620Accrued taxes, expenses and other liabilities
    
    
    6,520
    
    
    
    5,499Total Liabilities
    
    
    983,639
    
    
    
    973,992Shareholders EquityCommon stock, par value $1 per share, authorized 15,000,000 shares,
issued 7,623,857 shares at March 31, 2008 and December 31, 2007
    
    
    7,624
    
    
    
    7,624Preferred Shares, Series A Voting, no par value, authorized 750,000
shares, none issued at March 31, 2008 and December 31, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    37,720
    
    
    
    37,712Retained earnings
    
    
    42,360
    
    
    
    42,951Accumulated other comprehensive loss
    
    
    1,751
    
    
    
    458Treasury shares at cost, 328,194 shares at March 31, 2008 and December 31, 2007
    
    
    (6,092
    )
    
    
    (6,092
    )Total Shareholders Equity
    
    
    83,363
    
    
    
    82,653Total Liabilities and Shareholders Equity
    
    $
    1,067,002
    
    
    $
    1,056,645
 See accompanying notes to consolidated financial statements.
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Consolidated Statements of Income (unaudited)
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands except share and per share amounts)Interest IncomeLoans
    
    $
    12,576
    
    
    $
    11,088Securities:U.S. Government agencies and corporations
    
    
    1,970
    
    
    
    1,564State and political subdivisions
    
    
    162
    
    
    
    135Trading securities
    
    
    293
    
    
    
    Other debt and equity securities
    
    
    65
    
    
    
    55Federal funds sold and short-term investments
    
    
    48
    
    
    
    30Total interest income
    
    
    15,114
    
    
    
    12,872Interest ExpenseDeposits
    
    
    6,509
    
    
    
    5,481Federal Home Loan Bank advances
    
    
    570
    
    
    
    326Short-term borrowings
    
    
    175
    
    
    
    236Trust Preferred Securities
    
    
    340
    
    
    
    Total interest expense
    
    
    7,594
    
    
    
    6,043Net Interest Income
    
    
    7,520
    
    
    
    6,829Provision for Loan Losses(Note 6)
    
    
    474
    
    
    
    383Net interest income after provision for loan losses
    
    
    7,046
    
    
    
    6,446Noninterest IncomeInvestment and trust services
    
    
    532
    
    
    
    522Deposit service charges
    
    
    1,111
    
    
    
    1,082Other service charges and fees
    
    
    644
    
    
    
    506Income from bank owned life insurance
    
    
    183
    
    
    
    167Other income
    
    
    599
    
    
    
    67Total fees and other income
    
    
    3,069
    
    
    
    2,344Securities gains (losses), net
    
    
    214
    
    
    
    473Gains on sale of loans
    
    
    187
    
    
    
    151Gain(Loss) on sale of other assets, net
    
    
    (136
    )
    
    
    21Total noninterest income
    
    
    3,334
    
    
    
    2,989Noninterest ExpenseSalaries and employee benefits (Note 7)
    
    
    3,778
    
    
    
    3,823Furniture and equipment
    
    
    996
    
    
    
    707Net occupancy
    
    
    657
    
    
    
    555Outside services
    
    
    883
    
    
    
    355Marketing and public relations
    
    
    308
    
    
    
    262Supplies, postage and freight
    
    
    349
    
    
    
    310Telecommunications
    
    
    244
    
    
    
    188Ohio Franchise tax
    
    
    220
    
    
    
    215Intangible asset amortization
    
    
    34
    
    
    
    28Electronic banking expenses
    
    
    210
    
    
    
    189Loan and collection expense
    
    
    228
    
    
    
    94Other expense
    
    
    615
    
    
    
    632Total noninterest expense
    
    
    8,522
    
    
    
    7,358Income before income tax expense
    
    
    1,858
    
    
    
    2,077Income tax expense
    
    
    411
    
    
    
    542Net Income
    
    $
    1,447
    
    
    $
    1,535Net Income Per Common ShareBasic
    
    $
    0.20
    
    
    $
    0.24Diluted
    
    
    0.20
    
    
    
    0.24Dividends declared
    
    
    0.18
    
    
    
    0.18Average Common Shares OutstandingBasic
    
    
    7,295,663
    
    
    
    6,443,673Diluted
    
    
    7,295,663
    
    
    
    6,443,673
 See accompanying notes to consolidated financial statements
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Consolidated Statements of Shareholders Equity (unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Total(Dollars in thousands except share and per share amounts)Balance, January 1, 2007
    
    $
    6,772
    
    
    $
    26,382
    
    
    $
    43,728
    
    
    $
    (2,093
    )
    
    $
    (6,092
    )
    
    
    68,697Cumulative affect of adoption of SFAS 159
    
    
    
    
    
    
    
    
    
    
    (1,192
    )
    
    
    1,192
    
    
    
    
    
    
    
    Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    1,535
    
    
    
    
    
    
    
    
    
    
    
    1,535Other comperhensive income, net of tax:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    46Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,581Share-based compensation income
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Common dividends declared, $.18 per share
    
    
    
    
    
    
    
    
    
    
    (1,156
    )
    
    
    
    
    
    
    
    
    
    
    (1,156
    )Balance, March 31,2007
    
    $
    6,772
    
    
    $
    26,393
    
    
    $
    42,915
    
    
    $
    (855
    )
    
    $
    (6,092
    )
    
    $
    69,133Balance, January 1, 2008
    
    $
    7,624
    
    
    $
    37,712
    
    
    $
    42,951
    
    
    $
    458
    
    
    $
    (6,092
    )
    
    
    82,653Cumulative effect of change in accounting principle for
split-dollar life insurance coverage
    
    
    
    
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    
    
    
    
    (725
    )Comprehensive income:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    
    
    
    
    
    
    
    
    
    1,447
    
    
    
    
    
    
    
    
    
    
    
    1,447Other comprehensive income, net of tax:Change in unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,293
    
    
    
    
    
    
    
    1,293Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,740Share-based compensation income
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Common dividends declared, $.18 per share
    
    
    
    
    
    
    
    
    
    
    (1,313
    )
    
    
    
    
    
    
    
    
    
    
    (1,313
    )Balance, March 31, 2008
    
    $
    7,624
    
    
    $
    37,720
    
    
    $
    42,360
    
    
    $
    1,751
    
    
    $
    (6,092
    )
    
    $
    83,363
 See accompanying notes to consolidated financial statements
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Consolidated Statements of Cash Flows (unaudited)
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Operating ActivitiesNet income
    
    $
    1,447
    
    
    $
    1,535Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for loan losses
    
    
    474
    
    
    
    383Depreciation and amortization
    
    
    468
    
    
    
    408Amortization of premiums and discounts
    
    
    (277
    )
    
    
    9Amortization of intangibles
    
    
    33
    
    
    
    28Amortization of servicing rights
    
    
    58
    
    
    
    5Amortization of deferred loan fees
    
    
    (119
    )
    
    
    (162
    )Federal deferred income tax expense (benefit)
    
    
    
    
    
    
    (18
    )Securities gains, net
    
    
    (214
    )
    
    
    (473
    )Share-based compensation expense, net of tax
    
    
    8
    
    
    
    11Cumulative effect of change in accounting principle for split-dollar life insurance coverage
    
    
    (725
    )
    
    
    Net gain from loan sales
    
    
    (188
    )
    
    
    (184
    )Net losses from loans held for sale
    
    
    
    
    
    
    33Net (gain) loss on sale of other assets
    
    
    138
    
    
    
    (21
    )Net increase in accrued interest receivable and other assets
    
    
    (1,437
    )
    
    
    98Net decrease in accrued interest payable, taxes and other liabilities
    
    
    752
    
    
    
    (510
    )Net cash provided by operating activities
    
    
    418
    
    
    
    1,142Investing ActivitiesPurchase of available-for-sale securities
    
    
    (36,607
    )
    
    
    (24,450
    )Proceeds from sales of available-for-sale securities
    
    
    14,657
    
    
    
    Proceeds from maturities of available-for-sale securities
    
    
    22,772
    
    
    
    21,684Purchase of trading securities
    
    
    (36,979
    )
    
    
    Proceeds from maturity of trading securities
    
    
    33,500
    
    
    
    Purchase of Federal Home Loan Bank Stock
    
    
    (117
    )
    
    
    Net increase in loans made to customers
    
    
    (24,222
    )
    
    
    (12,873
    )Proceeds from the sale of other real estate owned
    
    
    391
    
    
    
    198Purchase of bank premises and equipment
    
    
    (76
    )
    
    
    (1,274
    )Net cash used in investing activities
    
    
    (26,681
    )
    
    
    (16,715
    )Financing ActivitiesNet decrease in demand and other noninterest-bearing
    
    
    (388
    )
    
    
    (12,855
    )Net increase (decrease) in savings, money market and interest-bearing demand
    
    
    (5,574
    )
    
    
    11,031Net increase in certificates of deposit
    
    
    14,087
    
    
    
    7,155Net decrease in short-term borrowings
    
    
    (14,229
    )
    
    
    (1,109
    )Proceeds from loan sales
    
    
    21,635
    
    
    
    13,173Proceeds from Federal Home Loan Bank advances
    
    
    50,000
    
    
    
    97,000Prepayment of Federal Home Loan Bank advances
    
    
    (35,000
    )
    
    
    (100,003
    )Dividends paid
    
    
    (1,313
    )
    
    
    (1,156
    )Net cash provided by financing activities
    
    
    29,218
    
    
    
    13,236Net increase (decrease) in cash and cash equivalents
    
    
    2,955
    
    
    
    (2,337
    )Cash and cash equivalents, January 1
    
    
    23,523
    
    
    
    29,122Cash and cash equivalents, March 31
    
    $
    26,478
    
    
    $
    26,785Supplemental cash flow informationInterest paid
    
    $
    7,806
    
    
    $
    5,341Income taxes paid
    
    
    1,205
    
    
    
    Transfer of loans to other real estate owned
    
    
    731
    
    
    
    
 See accompanying notes to consolidated financial statements
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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
  Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) Stock
  7




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Loans held for sale
  Loans
    Allowance for Loan Losses
   Servicing
 
 8




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Bank Premises and Equipment
  Goodwill and Core Deposit Intangibles
   Other Real Estate Owned
  Investment and Trust Services Assets and Income
  Income Taxes
  Comprehensive Income
  Stock-Based Compensation
  Recent Accounting Pronouncements
 Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements,
 9




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FASB Statement No. 159 The Fair Value Option for Financial Assets and Financial Liabilities
 FASB Statement No. 156, Accounting for Servicing of Financial Assets, an Amendment of FAS 140.
  FASB Statement No. 157, Fair Value Measurements
  (2) Earnings Per Share
  10




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Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands except per share amounts)Weighted average shares outstanding used in Basic
Earnings per Share
    
    
    7,295,663
    
    
    
    6,443,673Dilutive effect of incentive stock options
    
    
    
    
    
    
    Weighted average shares outstanding used in
Diluted Earnings Per Share
    
    
    7,295,663
    
    
    
    6,443,673Net Income
    
    $
    1,447
    
    
    $
    1,535Basic Earnings Per Share
    
    $
    0.20
    
    
    $
    0.24Diluted Earnings Per Share
    
    $
    0.20
    
    
    $
    0.24
  (3) Cash and Due from Banks
  (4) Goodwill and Intangible Assets
   (Dollars in Thousands)Cash
    
    $
    20,652Loans, net of reserve for loan losses
    
    
    92,019Bank premises and equipment, net
    
    
    731Acquisition intangibles
    
    
    20,110Deposits
    
    
    101,870Short term borrowings
    
    
    1,720FHLB borrowings
    
    
    4,124
  11




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March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Core deposit intangibles
    
    $
    2,655
    
    
    $
    2,655Less: accumulated amortization
    
    
    1,410
    
    
    
    1,375Carrying value of core deposit intangibles
    
    $
    1,245
    
    
    $
    1,280
  (5) Securities
  At March 31, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    66,853
    
    
    $
    1,712
    
    
    $
    
    
    
    $
    68,565Mortgage backed securities
    
    
    94,178
    
    
    
    1,579
    
    
    
    (41
    )
    
    
    95,716State and political subdivisions
    
    
    15,840
    
    
    
    393
    
    
    
    (33
    )
    
    
    16,200Equity securities
    
    
    152
    
    
    
    80
    
    
    
    
    
    
    
    232Total Securities
    
    $
    177,023
    
    
    $
    3,764
    
    
    $
    (74
    )
    
    $
    180,713
 At December 31, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    90,046
    
    
    $
    992
    
    
    $
    (87
    )
    
    $
    90,951Mortgage backed securities
    
    
    72,534
    
    
    
    585
    
    
    
    (100
    )
    
    
    73,019State and political subdivisions
    
    
    14,961
    
    
    
    294
    
    
    
    (33
    )
    
    
    15,222Equity securities
    
    
    152
    
    
    
    80
    
    
    
    
    
    
    
    232Total Securities
    
    $
    177,693
    
    
    $
    1,951
    
    
    $
    (220
    )
    
    $
    179,424
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At March 31, 2008Aggregate Unrealized Gains
    
    
    Aggregate Unrealized Lossesrecorded to income for the
    
    
    recorded to income for thequarter ended
    
    
    quarter ended
    
    
    FairCost
    
    
    March 31, 2008
    
    
    March 31, 2008
    
    
    Value(Dollars in thousands)Trading Securities
    
    $
    37,161
    
    
    $
    59
    
    
    $
    
    
    
    $
    37,220
 (6) Loans and Allowance for Loan Losses
  March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Loans Held for Sale, at lower of cost or fair value:Real estate mortgage loans held for sale
    
    $
    1,523
    
    
    $
    1,483Installment loans held for sale
    
    
    6,225
    
    
    
    3,241Total Loans Held for Sale
    
    
    7,748
    
    
    
    4,724Portfolio Loans:Commercial
    
    
    433,688
    
    
    
    433,081Real estate mortgage
    
    
    98,450
    
    
    
    100,419Home equity lines of credit
    
    
    82,697
    
    
    
    80,049Installment
    
    
    137,608
    
    
    
    140,049Total Portfolio Loans
    
    
    752,443
    
    
    
    753,598Allowance for loan losses
    
    
    (8,000
    )
    
    
    (7,820
    )Net Loans
    
    $
    744,443
    
    
    $
    745,778
  March 31, 2008
    
    
    March 31, 2007(Dollars in thousands)Balance at the beginning of period
    
    $
    7,820
    
    
    $
    7,300Provision for loan losses
    
    
    474
    
    
    
    383Loans charged-off
    
    
    (372
    )
    
    
    (500
    )Recoveries on loans previously charged-off
    
    
    78
    
    
    
    75Balance at end of period
    
    $
    8,000
    
    
    $
    7,258
  (7) Stock Options and Stock Appreciation Rights
  13




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Year Issued2005
    
    2005
    
    2006
    
    2007
    
    2007
    
    2008
    
    2008
    
    2006Type
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    SARsNumber of Options
    
    
    2,500
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    50,000
    
    
    
    49,500
    
    
    
    18,000Strike Price
    
    $
    16.50
    
    
    $
    19.17
    
    
    $
    19.10
    
    
    $
    16.00
    
    
    $
    15.35
    
    
    $
    14.47
    
    
    $
    14.47
    
    
    $
    19.00Number of Options Vested
    
    
    2,500
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assumptions:Risk free interest rate
    
    
    4.50
    %
    
    
    3.92
    %
    
    
    3.66
    %
    
    
    4.73
    %
    
    
    4.72
    %
    
    
    2.94
    %
    
    
    2.94
    %
    
    
    2.43
    %Dividend yield
    
    
    4.36
    %
    
    
    3.76
    %
    
    
    3.77
    %
    
    
    4.50
    %
    
    
    4.69
    %
    
    
    4.98
    %
    
    
    4.98
    %
    
    
    5.78
    %Volatility
    
    
    18.48
    %
    
    
    17.30
    %
    
    
    17.66
    %
    
    
    16.52
    %
    
    
    16.52
    %
    
    
    15.68
    %
    
    
    15.68
    %
    
    
    13.00
    %Expected Life  years
    
    
    5
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    5.04
  Weighted AverageExerciseShares
    
    
    Price per ShareOutstanding at beginning of year
    
    
    112,500
    
    
    $
    17.57Granted
    
    
    99,500
    
    
    
    14.47Exercised
    
    
    
    
    
    
    Forfeited, expired or cancelled
    
    
    
    
    
    
    Options outstanding, March 31, 2008
    
    
    212,000
    
    
    $
    16.11Options vested and exercisable, March 31, 2008
    
    
    62,500
    
    
    $
    18.53
 (8) Deposits
  March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Demand and other noninterest-bearing
    
    $
    88,424
    
    
    $
    88,812Interest checking
    
    
    121,696
    
    
    
    120,052Savings
    
    
    83,076
    
    
    
    81,293Money market accounts
    
    
    120,959
    
    
    
    129,961Consumer time deposits
    
    
    376,819
    
    
    
    344,279Public time deposits
    
    
    63,277
    
    
    
    64,913Brokered time deposits
    
    
    10,814
    
    
    
    27,631Total deposits
    
    $
    865,065
    
    
    $
    856,941
 14




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##### Table of Contents



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
    
    $
    338,007
    
    
    $
    36,086
    
    
    $
    2,726
    
    
    
    
    
    
    $
    376,819Public time deposits
    
    
    61,535
    
    
    
    1,289
    
    
    
    452
    
    
    
    
    
    
    
    63,277Brokered time deposits
    
    
    8,317
    
    
    
    2,497
    
    
    
    
    
    
    
    
    
    
    
    10,814Total time deposits
    
    $
    407,860
    
    
    $
    39,872
    
    
    $
    3,178
    
    
    $
    
    
    
    $
    450,910
 (9) Short-Term Borrowings
   March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Securities sold uner agreements to repurchase
    
    $
    27,876
    
    
    $
    22,105Federal funds purchased
    
    $
    
    
    
    $
    20,000Total short-term borrowings
    
    $
    27,876
    
    
    $
    42,105
 (10) Federal Home Loan Bank Advances
  15




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##### Table of Contents



March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)FHLB advance - 3.33%, due February 8, 2008
    
    $
    
    
    
    $
    5,000FHLB advance - 4.47%, due April 11, 2008
    
    
    285
    
    
    
    281FHLB advance - 4.99% due November 28, 2008
    
    
    5,000
    
    
    
    5,000FHLB advance - 5.07%, due December 12, 2008
    
    
    500
    
    
    
    500FHLB advance - 3.36%, due March 27, 2009
    
    
    10,000
    
    
    
    10,000FHLB advance - 4.67%, due April 10, 2009
    
    
    350
    
    
    
    350FHLB advance - 5.00%, due December 14, 2009
    
    
    500
    
    
    
    500FHLB advance - 3.58%, due January 8, 2010
    
    
    10,000
    
    
    
    10,000FHLB advance - 3.67%, due January 8, 2011
    
    
    10,000
    
    
    
    10,000FHLB advance - 3.55%, due January 1, 2014
    
    
    72
    
    
    
    76FHLB advance - 4.76%, due July 6, 2015
    
    
    2,500
    
    
    
    2,500FHLB advance - 3.69%, due January 9, 2009
    
    
    15,000
    
    
    
    FHLB advance - 3.17%, due February 8, 2011
    
    
    5,000
    
    
    
    Total FHLB advances
    
    $
    59,207
    
    
    $
    44,207
 (11) Trust Preferred Securities
   (12) Commitments, Credit Risk, and Contingencies
    16




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##### Table of Contents



Amount(Dollars in thousands)Commitments to extend credit
    
    $
    78,708Home equity lines of credit
    
    
    98,974Standby letters of credit
    
    
    3,891Total
    
    $
    181,573
 (13) Estimated Fair Value of Financial Instruments
   
    
    The carrying value of Cash and due from banks, Federal funds sold,
short-term investments 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 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 December 31, 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, 2008 and
December 31, 2007.
 17




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##### Table of Contents



Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantFair Value as of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    March 31, 2007
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Trading Securities
    
    $
    37,220
    
    
    $
    37,220
    
    
    $
    
    
    
    $
    Available for Sale Securities
    
    
    180,713
    
    
    
    164,281
    
    
    
    16,432
    
    
    
    Total
    
    $
    217,933
    
    
    $
    201,501
    
    
    $
    16,432
    
    
    $
    
  Limitations
   At March 31, 2008
    
    
    At December 31, 2007Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair Value(Dollars in thousands)Financial assetsCash and due from banks, Federal funds sold and short-term investments
    
    $
    22,178
    
    
    $
    22,178
    
    
    $
    23,523
    
    
    $
    23,523Securities
    
    
    185,454
    
    
    
    185,454
    
    
    
    179,424
    
    
    
    179,424Trading securities, at fair value
    
    
    37,220
    
    
    
    37,220
    
    
    
    33,402
    
    
    
    33,402Portfolio loans, net
    
    
    752,443
    
    
    
    771,852
    
    
    
    745,778
    
    
    
    751,578Loans held for sale
    
    
    7,748
    
    
    
    7,748
    
    
    
    4,724
    
    
    
    4,724Accrued interest receivable
    
    
    4,183
    
    
    
    4,183
    
    
    
    4,074
    
    
    
    4,074Financial liabilitiesDeposits:Demand, savings and money market
    
    
    414,155
    
    
    
    414,155
    
    
    
    420,118
    
    
    
    420,118Certificates of deposit
    
    
    450,910
    
    
    
    459,545
    
    
    
    436,823
    
    
    
    441,400Total deposits
    
    
    865,065
    
    
    
    873,700
    
    
    
    856,941
    
    
    
    861,518Short-term borrowings
    
    
    27,876
    
    
    
    27,876
    
    
    
    42,105
    
    
    
    42,105Federal Home Loan Bank advances
    
    
    59,207
    
    
    
    59,731
    
    
    
    44,207
    
    
    
    43,500Junior subordinated debentures
    
    
    20,620
    
    
    
    25,106
    
    
    
    20,620
    
    
    
    21,716Accrued interest payable
    
    
    4,351
    
    
    
    4,351
    
    
    
    4,620
    
    
    
    4,620
 18




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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;
    
    general economic conditions, either nationally or regionally (especially in northeastern
Ohio), becoming less favorable than expected resulting in, among other things, a deterioration
in credit quality of assets;
    
    changes occurring in business conditions and inflation;
    
    changes in technology;
    
    changes in monetary and tax policies;
    
    changes in the securities markets;
    
    changes in economic conditions and competition in the geographic and business areas in which
the Corporation conducts its operations; as well as the risks and uncertainties described from
time to time in the Corporations reports as filed with the Securities and Exchange
Commission;
 Critical Accounting Policies and Estimates
    
    
    Allowance for loan losses
 19




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##### Table of Contents




    
    Income Taxes
  New Accounting Pronouncements
  20




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##### Table of Contents



Summary of Earnings (Dollars in thousands except per share data)
   Results of Operations
 Net Interest Income
  Three Months Ended March 31, 2008 versus Three Months Ended March 31, 2007
   21




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22




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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 31,2008
    
    
    2007Average
Balance
    
    
    Interest
    
    
    Rate
    
    

Average
Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and
corporations
    
    $
    203,393
    
    
    $
    2,263
    
    
    
    4.46
    %
    
    $
    146,371
    
    
    $
    1,619
    
    
    
    4.49
    %State and political subdivisions
    
    
    15,435
    
    
    
    234
    
    
    
    6.08
    
    
    
    12,561
    
    
    
    195
    
    
    
    6.30Federal funds sold and short-term
investments
    
    
    7,212
    
    
    
    112
    
    
    
    6.23
    
    
    
    2,417
    
    
    
    30
    
    
    
    5.03Commercial loans
    
    
    436,421
    
    
    
    7,319
    
    
    
    6.73
    
    
    
    378,040
    
    
    
    6,952
    
    
    
    7.46Real estate mortgage loans
    
    
    100,564
    
    
    
    1,485
    
    
    
    5.92
    
    
    
    98,411
    
    
    
    1,494
    
    
    
    6.16Home equity lines of credit
    
    
    81,567
    
    
    
    1,178
    
    
    
    5.79
    
    
    
    70,301
    
    
    
    1,366
    
    
    
    7.88Purchased installment loans
    
    
    
    
    
    
    
    
    
    
    0.00
    
    
    
    41,316
    
    
    
    510
    
    
    
    5.01Installment loans
    
    
    143,784
    
    
    
    2,617
    
    
    
    7.30
    
    
    
    42,746
    
    
    
    795
    
    
    
    7.54Total Earning Assets
    
    $
    988,376
    
    
    $
    15,208
    
    
    
    6.17
    %
    
    $
    792,163
    
    
    $
    12,961
    
    
    
    6.64
    %Allowance for loan loss
    
    
    (7,913
    )
    
    
    
    
    
    
    
    
    
    
    (7,407
    )Cash and due from banks
    
    
    24,473
    
    
    
    
    
    
    
    
    
    
    
    22,033Bank owned life insurance
    
    
    15,564
    
    
    
    
    
    
    
    
    
    
    
    14,841Other assets
    
    
    42,704
    
    
    
    
    
    
    
    
    
    
    
    26,578Total Assets
    
    $
    1,063,204
    
    
    
    
    
    
    
    
    
    
    $
    848,208Liabilities and Shareholders EquityInterest-bearing demand
    
    $
    118,100
    
    
    $
    326
    
    
    
    1.11
    %
    
    $
    86,544
    
    
    $
    179
    
    
    
    0.84
    %Savings deposits
    
    
    82,032
    
    
    
    144
    
    
    
    0.70
    
    
    
    77,756
    
    
    
    62
    
    
    
    0.32Money market accounts
    
    
    123,593
    
    
    
    827
    
    
    
    2.68
    
    
    
    111,767
    
    
    
    987
    
    
    
    3.58Consumer time deposits
    
    
    364,150
    
    
    
    4,157
    
    
    
    4.58
    
    
    
    231,694
    
    
    
    2,623
    
    
    
    4.59Brokered time deposits
    
    
    23,637
    
    
    
    317
    
    
    
    5.38
    
    
    
    56,863
    
    
    
    718
    
    
    
    5.12Public time deposits
    
    
    65,429
    
    
    
    738
    
    
    
    4.52
    
    
    
    69,526
    
    
    
    915
    
    
    
    5.34Short-term borrowings
    
    
    26,080
    
    
    
    172
    
    
    
    2.65
    
    
    
    21,696
    
    
    
    233
    
    
    
    4.36FHLB advances
    
    
    60,250
    
    
    
    570
    
    
    
    3.79
    
    
    
    33,473
    
    
    
    326
    
    
    
    3.95Trust preferred securities
    
    
    20,798
    
    
    
    340
    
    
    
    6.56
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    2
    
    
    
    0.00
    
    
    
    
    
    
    
    
    
    
    
    Total Interest-Bearing Liabilities
    
    $
    884,069
    
    
    $
    7,593
    
    
    
    3.44
    %
    
    $
    689,319
    
    
    $
    6,043
    
    
    
    3.56
    %Noninterest-bearing deposits
    
    
    84,914
    
    
    
    
    
    
    
    
    
    
    
    81,474Other liabilities
    
    
    10,296
    
    
    
    
    
    
    
    
    
    
    
    8,106Shareholders Equity
    
    
    83,925
    
    
    
    
    
    
    
    
    
    
    
    69,309Total Liabilities and
Shareholders Equity
    
    $
    1,063,204
    
    
    
    
    
    
    
    
    
    
    $
    848,208Net interest Income (FTE)
    
    
    
    
    
    $
    7,615
    
    
    
    3.09
    %
    
    
    
    
    
    $
    6,918
    
    
    
    3.54
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (95
    )
    
    
    -0.04
    
    
    
    
    
    
    
    (89
    )
    
    
    -0.04Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    7,520
    
    
    
    
    
    
    
    
    
    
    $
    6,829Net Yield on Earning Assets
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.50
    %
 23




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##### Table of Contents



Rate/Volume
  Table 2: Rate/Volume Analysis of Net Interest Income (FTE)
 Three Months Ended March 31,Increase (Decrease) in Interest Income/Expense 2008 and 2007Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations
    
    $
    631
    
    
    $
    13
    
    
    $
    644State and political subdivisions
    
    
    45
    
    
    
    (6
    )
    
    
    39Federal funds sold and short-term investments
    
    
    63
    
    
    
    19
    
    
    
    82Commercial loans
    
    
    1,319
    
    
    
    (952
    )
    
    
    367Real estate mortgage loans
    
    
    29
    
    
    
    (37
    )
    
    
    (8
    )Home equity lines of credit
    
    
    125
    
    
    
    (313
    )
    
    
    (188
    )Installment loans
    
    
    969
    
    
    
    342
    
    
    
    1,311Total Interest Income
    
    
    3,181
    
    
    
    (934
    )
    
    
    2,247Interest-bearing demand
    
    
    76
    
    
    
    71
    
    
    
    147Savings deposits
    
    
    7
    
    
    
    75
    
    
    
    82Money market accounts
    
    
    68
    
    
    
    (228
    )
    
    
    (160
    )Consumer time deposits
    
    
    1,500
    
    
    
    34
    
    
    
    1,534Brokered time deposits
    
    
    (416
    )
    
    
    14
    
    
    
    (402
    )Public time deposits
    
    
    (52
    )
    
    
    (125
    )
    
    
    (177
    )Short-term borrowings
    
    
    22
    
    
    
    (83
    )
    
    
    (61
    )FHLB advances
    
    
    261
    
    
    
    (18
    )
    
    
    243Trust preferred securities and miscellaneous
    
    
    170
    
    
    
    170
    
    
    
    340Total Interest Expense
    
    
    1,636
    
    
    
    (90
    )
    
    
    1,546Net Interest Income (FTE)
    
    $
    1,545
    
    
    $
    (844
    )
    
    $
    701
 
 24




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##### Table of Contents



Noninterest Income
 Table 3: Details on Noninterest Income
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Investment and trust services
    
    $
    532
    
    
    $
    522Deposit service charges
    
    
    1,111
    
    
    
    1,082Electronic banking fees
    
    
    644
    
    
    
    436Income from bank owned life insurance
    
    
    183
    
    
    
    167Other income
    
    
    599
    
    
    
    137Total fees and other income
    
    
    3,069
    
    
    
    2,344Securities gains, net
    
    
    214
    
    
    
    473Gains on sale of loans
    
    
    187
    
    
    
    151Gains (losses) on sale of other assets
    
    
    (136
    )
    
    
    21Total noninterest income
    
    $
    3,334
    
    
    $
    2,989
 Three Months Ended March 31, 2008 as compared to the Three Months Ended March 31, 2007
    25




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##### Table of Contents



Noninterest Expense
 Table 4: Details on Noninterest Expense
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Salaries and employee benefits
    
    $
    3,778
    
    
    $
    3,823Furniture and equipment
    
    
    996
    
    
    
    707Net occupancy
    
    
    657
    
    
    
    555Outside services
    
    
    883
    
    
    
    355Marketing and public relations
    
    
    308
    
    
    
    262Supplies and postage
    
    
    349
    
    
    
    310Telecommunications
    
    
    244
    
    
    
    188Ohio Franchise tax
    
    
    220
    
    
    
    215Other real estate owned
    
    
    98
    
    
    
    114Electronic banking expense
    
    
    257
    
    
    
    189Other charge-offs and losses
    
    
    62
    
    
    
    94Loan and collection expense
    
    
    228
    
    
    
    94Other expense
    
    
    442
    
    
    
    452Total noninterest expense
    
    $
    8,522
    
    
    $
    7,358
 Three Months Ended March 31, 2008 as compared to the Three Months Ended March 31, 2007
  Income taxes
  Balance Sheet Analysis
 Overview
  Securities
  26




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##### Table of Contents



Loans
  Table 5: Details on Loan Balances
 March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Real estate loans (includes loans secured primarily by real estate only):Construction and land development
    
    $
    73,840
    
    
    $
    74,379One to four family residential
    
    
    213,977
    
    
    
    213,238Multi-family residential
    
    
    25,289
    
    
    
    24,473Non-farm non-residential properties
    
    
    270,389
    
    
    
    275,552Commercial and industrial loans
    
    
    58,612
    
    
    
    56,688Personal loans to individuals:Auto, single payment and installment
    
    
    105,602
    
    
    
    104,360All other loans
    
    
    4,734
    
    
    
    4,908Total loans
    
    
    752,443
    
    
    
    753,598Allowance for loan losses
    
    
    (8,000
    )
    
    
    (7,820
    )Net loans
    
    $
    744,443
    
    
    $
    745,778
   27




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##### Table of Contents



Deposits
 Table 6: Deposits
 Average
Balances OutstandingAs OfMarch 31, 2008
    
    
    December 31, 2007Average
Balance
    
    

Percent
of Deposits
    
    
    Rate
    
    

Average
Balance
    
    

Percent
of Deposits
    
    
    Rate(Dollars in thousands)Noninterest bearing demand
    
    $
    84,914
    
    
    
    9.86
    %
    
    
    0.00
    %
    
    $
    84,352
    
    
    
    10.64
    %
    
    
    0.00
    %Interest-bearing demand
    
    
    118,100
    
    
    
    13.70
    
    
    
    1.11
    
    
    
    105,018
    
    
    
    13.23
    
    
    
    1.21Savings deposits
    
    
    82,032
    
    
    
    9.52
    
    
    
    0.70
    
    
    
    80,513
    
    
    
    10.14
    
    
    
    0.60Money market accounts
    
    
    123,593
    
    
    
    14.34
    
    
    
    2.68
    
    
    
    127,673
    
    
    
    16.08
    
    
    
    3.60Consumer time deposits
    
    
    364,150
    
    
    
    42.25
    
    
    
    4.58
    
    
    
    289,906
    
    
    
    36.52
    
    
    
    4.71Brokered time deposits
    
    
    23,637
    
    
    
    2.74
    
    
    
    5.38
    
    
    
    36,497
    
    
    
    4.60
    
    
    
    5.22Public time deposits
    
    
    65,429
    
    
    
    7.59
    
    
    
    4.52
    
    
    
    69,804
    
    
    
    8.79
    
    
    
    5.21Total Deposits
    
    $
    861,855
    
    
    
    100.00
    %
    
    
    3.03
    %
    
    $
    793,763
    
    
    
    100.00
    %
    
    
    3.11
    %
  Borrowings
  Regulatory Capital
  28




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
 RISK
ELEMENTS
 Credit Risk Management
  Nonperforming Assets, Delinquency and Potential Problem Loans
   29




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##### Table of Contents



Table 8: Nonperforming Assets
 March 31,2008
    
    
    December 31, 2007(Dollars in thousands)Commercial loans
    
    $
    11,291
    
    
    $
    7,927Real estate mortgage
    
    
    2,782
    
    
    
    2,097Home equity lines of credit
    
    
    443
    
    
    
    429Installment loans
    
    
    528
    
    
    
    378Total nonperforming loans
    
    
    15,044
    
    
    
    10,831Other foreclosed assets
    
    
    2,680
    
    
    
    2,478Total nonperforming assets
    
    $
    17,724
    
    
    $
    13,309Allowance for loan losses to nonperforming loans
    
    
    53.2
    %
    
    
    72.2
    %Nonperforming assets to total assets
    
    
    1.66
    %
    
    
    1.26
    %
 Provision and Allowance for Loan Losses
  30




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##### Table of Contents



Table 9: Analysis of Allowance for Loan Losses
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Balance at beginning of period
    
    $
    7,820
    
    
    $
    7,300Charge-offs:Commercial
    
    
    (18
    )
    
    
    (259
    )Real estate mortgage
    
    
    (106
    )
    
    
    (99
    )Home equity lines of credit
    
    
    (10
    )
    
    
    Installment
    
    
    (186
    )
    
    
    (83
    )DDA overdrafts
    
    
    (52
    )
    
    
    (59
    )Total charge-offs
    
    
    (372
    )
    
    
    (500
    )Recoveries:Commercial
    
    
    27
    
    
    
    28Real estate mortgage
    
    
    
    
    
    
    Home equity lines of credit
    
    
    
    
    
    
    Installment
    
    
    33
    
    
    
    30DDA overdrafts
    
    
    18
    
    
    
    17Total Recoveries
    
    
    78
    
    
    
    75Net Charge-offs
    
    
    (294
    )
    
    
    (425
    )Allowance from merger
    
    
    
    
    
    
    Provision for loan losses
    
    
    474
    
    
    
    383Balance at end of period
    
    $
    8,000
    
    
    $
    7,258
    Market Risk Management
   31




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##### Table of Contents



ITEM 4. Controls and Procedures
  Effect of Recent Acquisition
 32




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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 6. Exhibits.
  
 SIGNATURES
  LNB BANCORP, INC.(Registrant)Date: May 8, 2008
    
    /s/ Sharon L. Churchill

Sharon L. ChurchillChief Financial Officer(Duly Authorized Officer, and PrincipalFinancial Officer)
 33




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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.
 34