##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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 September 30, 2009 (unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Income (unaudited) for the three and nine months ended September
30, 2009 and September 30, 2008
    
    
    4Consolidated Statements of Changes in Shareholders Equity (unaudited) for the nine months
ended September 30, 2009 and September 30, 2008
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30,
2009 and September 30, 2008
    
    
    6Notes to the Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    36Part II  Other Information
    
    
    36Item 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 6. Exhibits
    
    
    37EX-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
 September 30, 2009
    
    
    December 31, 2008(unaudited)(Dollars in thousands except share amounts)ASSETSCash and due from banks (Note 3)
    
    $
    18,670
    
    
    $
    21,723Federal funds sold and short-term investments
    
    
    16,004
    
    
    
    15,200Cash and cash equivalents
    
    
    34,674
    
    
    
    36,923Interest-bearing deposits in other banks
    
    
    357
    
    
    
    352Securities: (Note 5)Trading securities, at fair value
    
    
    8,865
    
    
    
    11,261Available for sale, at fair value
    
    
    273,144
    
    
    
    223,052Total securities
    
    
    282,009
    
    
    
    234,313Restricted stock
    
    
    4,985
    
    
    
    4,884Loans held for sale
    
    
    1,707
    
    
    
    3,580Loans: (Note 6)Portfolio loans
    
    
    813,600
    
    
    
    803,551Allowance for loan losses (Note 6)
    
    
    (22,556
    )
    
    
    (11,652
    )Net loans
    
    
    791,044
    
    
    
    791,899Bank premises and equipment, net
    
    
    10,311
    
    
    
    11,504Other real estate owned
    
    
    1,071
    
    
    
    1,108Bank owned life insurance
    
    
    16,282
    
    
    
    15,742Goodwill, net (Note 4)
    
    
    21,582
    
    
    
    21,582Intangible assets, net (Note 4)
    
    
    1,040
    
    
    
    1,142Accrued interest receivable
    
    
    4,337
    
    
    
    4,290Other assets
    
    
    11,780
    
    
    
    8,816Total Assets
    
    $
    1,181,179
    
    
    $
    1,136,135LIABILITIES AND SHAREHOLDERS EQUITYDeposits (Note 8)Demand and other noninterest-bearing
    
    $
    93,200
    
    
    $
    93,994Savings, money market and interest-bearing demand
    
    
    290,553
    
    
    
    292,679Certificates of deposit
    
    
    585,238
    
    
    
    534,502Total deposits
    
    
    968,991
    
    
    
    921,175Short-term borrowings (Note 9)
    
    
    31,422
    
    
    
    22,928Federal Home Loan Bank advances (Note 10)
    
    
    43,005
    
    
    
    53,357Junior subordinated debentures (Note 11)
    
    
    20,620
    
    
    
    20,620Accrued interest payable
    
    
    2,820
    
    
    
    3,813Accrued taxes, expenses and other liabilities
    
    
    9,323
    
    
    
    7,183Total Liabilities
    
    
    1,076,181
    
    
    
    1,029,076Shareholders EquityPreferred stock, Series A Voting, no par value, authorized 750,000
shares, none issued at September 30, 2009 and December 31, 2008.
    
    
    
    
    
    
    Fixed rate cumulative perpetual preferred stock, Series B, no par value,
25,223 shares authorized and issued at September 30, 2009 and December
31, 2008.
    
    
    25,223
    
    
    
    25,223Discount on Series B preferred stock
    
    
    (134
    )
    
    
    (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 September 30, 2009 and December 31, 2008.
    
    
    7,624
    
    
    
    7,624Additional paid-in capital
    
    
    37,852
    
    
    
    37,783Retained earnings
    
    
    36,733
    
    
    
    41,682Accumulated other comprehensive income
    
    
    3,646
    
    
    
    839Treasury shares at cost, 328,194 shares at September 30, 2009
and at December 31, 2008
    
    
    (6,092
    )
    
    
    (6,092
    )Total Shareholders Equity
    
    
    104,998
    
    
    
    107,059Total Liabilities and Shareholders Equity
    
    $
    1,181,179
    
    
    $
    1,136,135
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



Consolidated Statements of Income (unaudited)
 Three Months Ended Sept. 30,
    
    
    Nine Months Ended Sept. 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands except share and per share amounts)Interest and Dividend IncomeLoans
    
    $
    11,536
    
    
    $
    11,976
    
    
    $
    34,507
    
    
    $
    36,514Securities:U.S. Government agencies and corporations
    
    
    2,554
    
    
    
    1,861
    
    
    
    7,566
    
    
    
    5,795State and political subdivisions
    
    
    261
    
    
    
    203
    
    
    
    760
    
    
    
    551Trading securities
    
    
    88
    
    
    
    209
    
    
    
    334
    
    
    
    738Other debt and equity securities
    
    
    65
    
    
    
    82
    
    
    
    183
    
    
    
    214Federal funds sold and short-term investments
    
    
    19
    
    
    
    54
    
    
    
    52
    
    
    
    130Total interest and dividend income
    
    
    14,523
    
    
    
    14,385
    
    
    
    43,402
    
    
    
    43,942Interest ExpenseDeposits
    
    
    4,326
    
    
    
    5,135
    
    
    
    13,829
    
    
    
    17,041Federal Home Loan Bank advances
    
    
    351
    
    
    
    646
    
    
    
    1,131
    
    
    
    1,769Short-term borrowings
    
    
    43
    
    
    
    93
    
    
    
    111
    
    
    
    354Junior subordinated debentures
    
    
    225
    
    
    
    282
    
    
    
    721
    
    
    
    890Total interest expense
    
    
    4,945
    
    
    
    6,156
    
    
    
    15,792
    
    
    
    20,054Net Interest Income
    
    
    9,578
    
    
    
    8,229
    
    
    
    27,610
    
    
    
    23,888Provision for Loan Losses (Note 6)
    
    
    11,067
    
    
    
    471
    
    
    
    15,360
    
    
    
    5,609Net interest income (loss) after provision
for loan losses
    
    
    (1,489
    )
    
    
    7,758
    
    
    
    12,250
    
    
    
    18,279Noninterest IncomeInvestment and trust services
    
    
    496
    
    
    
    441
    
    
    
    1,405
    
    
    
    1,560Deposit service charges
    
    
    1,211
    
    
    
    1,258
    
    
    
    3,332
    
    
    
    3,559Other service charges and fees
    
    
    766
    
    
    
    704
    
    
    
    2,108
    
    
    
    2,030Income from bank owned life insurance
    
    
    213
    
    
    
    154
    
    
    
    540
    
    
    
    735Other income
    
    
    52
    
    
    
    67
    
    
    
    216
    
    
    
    736Total fees and other income
    
    
    2,738
    
    
    
    2,624
    
    
    
    7,601
    
    
    
    8,620Securities gains, net
    
    
    88
    
    
    
    223
    
    
    
    674
    
    
    
    506Gains on sale of loans
    
    
    341
    
    
    
    298
    
    
    
    963
    
    
    
    642Gains (losses) on sale of other assets, net
    
    
    (43
    )
    
    
    13
    
    
    
    (13
    )
    
    
    (122
    )Total noninterest income
    
    
    3,124
    
    
    
    3,158
    
    
    
    9,225
    
    
    
    9,646Noninterest ExpenseSalaries and employee benefits
    
    
    3,610
    
    
    
    3,828
    
    
    
    11,130
    
    
    
    11,467Furniture and equipment
    
    
    1,039
    
    
    
    1,049
    
    
    
    3,370
    
    
    
    3,080Net occupancy
    
    
    571
    
    
    
    556
    
    
    
    1,785
    
    
    
    1,816Outside services
    
    
    657
    
    
    
    522
    
    
    
    2,001
    
    
    
    1,996Marketing and public relations
    
    
    228
    
    
    
    247
    
    
    
    767
    
    
    
    829Supplies, postage and freight
    
    
    311
    
    
    
    408
    
    
    
    951
    
    
    
    1,092Telecommunications
    
    
    208
    
    
    
    189
    
    
    
    596
    
    
    
    635Ohio franchise tax
    
    
    232
    
    
    
    225
    
    
    
    689
    
    
    
    670FDIC assessments
    
    
    743
    
    
    
    177
    
    
    
    2,032
    
    
    
    237Other real estate owned
    
    
    89
    
    
    
    285
    
    
    
    263
    
    
    
    892Electronic banking expenses
    
    
    209
    
    
    
    237
    
    
    
    598
    
    
    
    747Loan and collection expense
    
    
    385
    
    
    
    256
    
    
    
    963
    
    
    
    716Other expense
    
    
    455
    
    
    
    519
    
    
    
    1,432
    
    
    
    1,683Total noninterest expense
    
    
    8,737
    
    
    
    8,498
    
    
    
    26,577
    
    
    
    25,860Income (loss) before income tax expense (benefit)
    
    
    (7,102
    )
    
    
    2,418
    
    
    
    (5,102
    )
    
    
    2,065Income tax expense (benefit)
    
    
    (2,726
    )
    
    
    595
    
    
    
    (2,559
    )
    
    
    (70
    )Net Income (Loss)
    
    $
    (4,376
    )
    
    $
    1,823
    
    
    $
    (2,543
    )
    
    $
    2,135Dividends and accretion on preferred stock
    
    
    319
    
    
    
    
    
    
    
    937
    
    
    
    Net Income (Loss) Available to Common Shareholders
    
    $
    (4,695
    )
    
    $
    1,823
    
    
    $
    (3,480
    )
    
    $
    2,135Net Income (Loss) Per Common Share (Note 2)Basic
    
    $
    (0.64
    )
    
    $
    0.25
    
    
    $
    (0.48
    )
    
    $
    0.29Diluted
    
    
    (0.64
    )
    
    
    0.25
    
    
    
    (0.48
    )
    
    
    0.29Dividends declared
    
    
    0.01
    
    
    
    0.09
    
    
    
    0.19
    
    
    
    0.45Average 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
 4




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##### Table of Contents



Consolidated Statements of Shareholders Equity (unaudited)
 Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedStock
    
    
    Warrant to
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Other(net of
    
    
    Purchase
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasurydiscount)
    
    
    Common Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Total(Dollars in thousands except share and per share amounts)Balance, January 1, 2008
    
    $
    
    
    
    $
    
    
    
    $
    7,624
    
    
    $
    37,712
    
    
    $
    42,951
    
    
    $
    458
    
    
    $
    (6,092
    )
    
    $
    82,653Cumulative affect of split-dollar life insurance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (725
    )
    
    
    
    
    
    
    
    
    
    
    (725
    )Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,135
    
    
    
    
    
    
    
    
    
    
    
    2,135Other comprehensive income, net of tax:Change in unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (474
    )
    
    
    
    
    
    
    (474
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,661Share-based compensation income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Common dividends declared, $.45 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,282
    )
    
    
    
    
    
    
    
    
    
    
    (3,282
    )Balance, September 30, 2008
    
    $
    
    
    
    $
    
    
    
    $
    7,624
    
    
    $
    37,745
    
    
    $
    41,079
    
    
    $
    (16
    )
    
    $
    (6,092
    )
    
    $
    80,340Balance, January 1, 2009
    
    $
    25,077
    
    
    $
    146
    
    
    $
    7,624
    
    
    $
    37,783
    
    
    $
    41,682
    
    
    $
    839
    
    
    $
    (6,092
    )
    
    $
    107,059Comprehensive income:Net Income (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,543
    )
    
    
    
    
    
    
    
    
    
    
    (2,543
    )Other comprehensive income, net of tax:Change in unrealized gains and losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,807
    
    
    
    
    
    
    
    2,807Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264Share-based compensation income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69Preferred dividends and accretion of discount
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,020
    )
    
    
    
    
    
    
    
    
    
    
    (1,008
    )Common dividends declared, $.19 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,386
    )
    
    
    
    
    
    
    
    
    
    
    (1,386
    )Balance, September 30, 2009
    
    $
    25,089
    
    
    $
    146
    
    
    $
    7,624
    
    
    $
    37,852
    
    
    $
    36,733
    
    
    $
    3,646
    
    
    $
    (6,092
    )
    
    $
    104,998
 See accompanying notes to consolidated financial statements
 5




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##### Table of Contents



Consolidated Statements of Cash Flows (unaudited)
 Nine Months Ended September 30,2009
    
    
    2008(Dollars in thousands)Operating ActivitiesNet income (loss)
    
    $
    (2,543
    )
    
    $
    2,135Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    15,360
    
    
    
    5,609Depreciation and amortization
    
    
    1,243
    
    
    
    1,345Amortization (accretion) of premiums and discounts
    
    
    1,152
    
    
    
    (447
    )Amortization of intangibles
    
    
    102
    
    
    
    104Amortization of loan servicing rights
    
    
    253
    
    
    
    164Amortization of deferred loan fees
    
    
    175
    
    
    
    55Federal deferred income tax expense (benefit)
    
    
    (3,614
    )
    
    
    1,459Securities gains, net
    
    
    (674
    )
    
    
    (506
    )Share-based compensation expense, net of tax
    
    
    69
    
    
    
    33Loans originated for sale
    
    
    (92,988
    )
    
    
    (72,075
    )Proceeds from sales of loan originations
    
    
    90,130
    
    
    
    71,115Net gain from loan sales
    
    
    (963
    )
    
    
    (642
    )Net loss on sale of other assets
    
    
    13
    
    
    
    122Net decrease in accrued interest receivable and other assets
    
    
    (1,584
    )
    
    
    (2,482
    )Net increase (decrease) in accrued interest payable, taxes and
other liabilities
    
    
    990
    
    
    
    (1,698
    )Net cash provided by operating activities
    
    
    7,121
    
    
    
    4,291Investing ActivitiesProceeds from sales of available-for-sale securities
    
    
    28,089
    
    
    
    77,069Proceeds from maturities of available-for-sale securities
    
    
    45,242
    
    
    
    33,974Purchase of available-for-sale securities
    
    
    (119,941
    )
    
    
    (104,018
    )Purchase of trading securities
    
    
    (9,005
    )
    
    
    (70,562
    )Proceeds from maturities of trading securities
    
    
    1,292
    
    
    
    Proceeds from sale of trading securities
    
    
    10,462
    
    
    
    70,850Purchase of Federal Home Loan Bank Stock
    
    
    (101
    )
    
    
    (250
    )Purchase of Federal Reserve Bank Stock
    
    
    
    
    
    
    (167
    )Net increase in loans made to customers
    
    
    (9,632
    )
    
    
    (42,085
    )Proceeds from the sale of other real estate owned
    
    
    869
    
    
    
    599Proceeds from the sale of bank premises and equipment
    
    
    
    
    
    
    6Purchase of bank premises and equipment
    
    
    (366
    )
    
    
    (425
    )Net cash used in investing activities
    
    
    (53,091
    )
    
    
    (35,009
    )Financing ActivitiesNet increase (decrease) in demand and other noninterest-bearing
    
    
    (794
    )
    
    
    2,100Net decrease in savings, money market and interest-bearing demand
    
    
    (2,126
    )
    
    
    (23,085
    )Net increase in certificates of deposit
    
    
    50,736
    
    
    
    59,706Net increase (decrease) in short-term borrowings
    
    
    8,494
    
    
    
    (12,229
    )Proceeds from Federal Home Loan Bank advances
    
    
    15,000
    
    
    
    65,000Payment of Federal Home Loan Bank advances
    
    
    (25,352
    )
    
    
    (35,350
    )Dividends paid
    
    
    (2,237
    )
    
    
    (3,282
    )Net cash provided by financing activities
    
    
    43,721
    
    
    
    52,860Net increase (decrease) in cash and cash equivalents
    
    
    (2,249
    )
    
    
    22,142Cash and cash equivalents, January 1
    
    
    36,923
    
    
    
    23,523Cash and cash equivalents, September 30
    
    $
    34,674
    
    
    $
    45,665Supplemental cash flow informationInterest paid
    
    $
    16,773
    
    
    $
    20,574Income taxes paid
    
    
    400
    
    
    
    1,350Transfer of other real estate owned to loans
    
    
    
    
    
    
    335Transfer of loans to other real estate owned
    
    
    646
    
    
    
    688
  6




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##### Table of Contents



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




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##### Table of Contents



Loans Held For Sale
  Loans
    Allowance for Loan Losses
   Servicing
  Bank Premises and Equipment
  8




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##### Table of Contents



Goodwill and Core Deposit Intangibles
  Other Real Estate Owned
  Split-Dollar Life Insurance
  Investment and Trust Services Assets and Income
  Income Taxes
  Comprehensive Income
  Preferred Stock
  New Accounting Pronouncements
  Subsequent Events
  9




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##### Table of Contents



(2) Earnings Per Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 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 (Loss)
    
    $
    (4,376
    )
    
    $
    1,823
    
    
    $
    (2,543
    )
    
    $
    2,135Preferred stock dividend and accretion
    
    
    319
    
    
    
    
    
    
    
    937
    
    
    
    Income (Loss) Available to Common
Shareholders
    
    $
    (4,695
    )
    
    $
    1,823
    
    
    $
    (3,480
    )
    
    $
    2,135Basic Earnings (Loss) Per Common Share
    
    $
    (0.64
    )
    
    $
    0.25
    
    
    $
    (0.48
    )
    
    $
    0.29Diluted Earnings (Loss) Per Common Share
    
    $
    (0.64
    )
    
    $
    0.25
    
    
    $
    (0.48
    )
    
    $
    0.29
  (3) Cash and Due from Banks
  (4) Goodwill and Intangible Assets
    September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Core deposit intangibles
    
    $
    2,643
    
    
    $
    2,643Less: accumulated amortization
    
    
    1,603
    
    
    
    1,501Carrying value of core deposit intangibles
    
    $
    1,040
    
    
    $
    1,142
 10




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##### Table of Contents



(5) Securities
  At September 30, 2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities available for sale:U.S. Government agencies and corporations
    
    $
    54,762
    
    
    $
    528
    
    
    $
    (159
    )
    
    $
    55,131Mortgage backed securities
    
    
    184,810
    
    
    
    6,537
    
    
    
    
    
    
    
    191,347State and political subdivisions
    
    
    25,370
    
    
    
    1,296
    
    
    
    
    
    
    
    26,666Total securities available for sale
    
    $
    264,942
    
    
    $
    8,361
    
    
    $
    (159
    )
    
    $
    273,144
 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 September 30, 2009Aggregate Unrealized
    
    
    Aggregate Unrealized
    
    
    FairCost
    
    
    Gains recorded to income
    
    
    Losses recorded to income
    
    
    Value(Dollars in thousands)Trading Securities
    
    $
    8,789
    
    
    $
    76
    
    
    $
    
    
    
    $
    8,865Trading 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
 (6) Loans and Allowance for Loan Losses
  11




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##### Table of Contents



September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Real estate loans (includes loans secured primarily by real estate only):Construction and land development
    
    $
    70,692
    
    
    $
    60,725One to four family residential
    
    
    224,705
    
    
    
    231,757Multi-family residential
    
    
    29,892
    
    
    
    26,284Non-farm non-residential properties
    
    
    281,972
    
    
    
    296,393Commercial and industrial loans
    
    
    66,599
    
    
    
    60,846Personal loans to individuals:Auto, single payment and installment
    
    
    136,259
    
    
    
    123,807All other loans
    
    
    3,481
    
    
    
    3,739Total loans
    
    
    813,600
    
    
    
    803,551Allowance for loan losses
    
    
    (22,556
    )
    
    
    (11,652
    )Net loans
    
    $
    791,044
    
    
    $
    791,899
  September 30, 2009
    
    
    September 30, 2008(Dollars in thousands)Balance at the beginning of period
    
    $
    11,652
    
    
    $
    7,820Provision for loan losses
    
    
    15,360
    
    
    
    5,609Loans charged-off
    
    
    (4,875
    )
    
    
    (2,655
    )Recoveries on loans previously charged-off
    
    
    419
    
    
    
    581Balance at the end of the year
    
    $
    22,556
    
    
    $
    11,355
  (7) Stock Options and Stock Appreciation Rights
   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
  12




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##### Table of Contents



2009
    
    
    2008Weighted
    
    
    
    
    
    
    WeightedAverage Exercise
    
    
    
    
    
    
    Average ExerciseOptions
    
    
    Price per Share
    
    
    Options
    
    
    Price per ShareOptions outstanding, December 31, 2008
    
    
    203,500
    
    
    $
    16.18
    
    
    
    112,500
    
    
    $
    17.57Granted
    
    
    2,500
    
    
    
    5.34
    
    
    
    99,500
    
    
    
    14.47Forfeited or expired
    
    
    (2,500
    )
    
    
    14.47
    
    
    
    (8,500
    )
    
    
    14.47Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding, September 30, 2009
    
    
    203,500
    
    
    $
    16.07
    
    
    
    203,500
    
    
    $
    16.18Options vested and exercisable, September 30, 2009
    
    
    118,831
    
    
    $
    17.18
    
    
    
    69,167
    
    
    $
    18.23
 (8) Deposits
  September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Demand and other noninterest-bearing
    
    $
    93,200
    
    
    $
    93,994Interest checking
    
    
    122,613
    
    
    
    115,102Savings
    
    
    79,908
    
    
    
    78,526Money market accounts
    
    
    88,032
    
    
    
    99,051Consumer time deposits
    
    
    497,296
    
    
    
    449,772Public time deposits
    
    
    87,942
    
    
    
    72,247Brokered time deposits
    
    
    
    
    
    
    12,483Total deposits
    
    $
    968,991
    
    
    $
    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
    
    $
    406,465
    
    
    $
    79,636
    
    
    $
    11,175
    
    
    $
    20
    
    
    $
    497,296Public time deposits
    
    
    84,957
    
    
    
    2,768
    
    
    
    217
    
    
    
    
    
    
    
    87,942Total time deposits
    
    $
    491,422
    
    
    $
    82,404
    
    
    $
    11,392
    
    
    $
    20
    
    
    $
    585,238
 13




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##### Table of Contents



(9) Short-Term Borrowings
   September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Securities sold under repurchase agreementsPeriod End:Outstanding
    
    $
    31,422
    
    
    $
    22,928Interest rate
    
    
    0.50
    %
    
    
    0.50
    %Average:Outstanding
    
    $
    28,214
    
    
    $
    25,875Interest rate
    
    
    0.53
    %
    
    
    1.19
    %Maximum month-end balance
    
    $
    37,295
    
    
    $
    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
   14




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##### Table of Contents



September 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.
    
    $
    450
    
    
    $
    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%
    
    
    55
    
    
    
    63Maturity July 2015, fixed rate 4.76%
    
    
    2,500
    
    
    
    2,500Total FHLB advances
    
    $
    43,005
    
    
    $
    53,357
 (11) Trust Preferred Securities
   (12) Commitments, Credit Risk, and Contingencies
     15




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##### Table of Contents



Amount(Dollars in thousands)Commitments to extend credit
    
    $
    80,212Home equity lines of credit
    
    
    76,947Standby letters of credit
    
    
    8,916Total
    
    $
    166,075
 (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 September 30, 2009 and December 31, 2008.Limitations
   16




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September 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
    
    $
    35,031
    
    
    $
    35,031
    
    
    $
    37,275
    
    
    $
    37,275Securities
    
    
    282,009
    
    
    
    282,009
    
    
    
    234,313
    
    
    
    234,313Restricted stock
    
    
    4,985
    
    
    
    4,985
    
    
    
    4,884
    
    
    
    4,884Portfolio loans, net
    
    
    791,044
    
    
    
    813,983
    
    
    
    791,899
    
    
    
    836,432Loans held for sale
    
    
    1,707
    
    
    
    1,707
    
    
    
    3,580
    
    
    
    3,580Accrued interest receivable
    
    
    4,337
    
    
    
    4,337
    
    
    
    4,290
    
    
    
    4,290Financial liabilitiesDeposits:Demand, savings and money market
    
    
    383,753
    
    
    
    383,753
    
    
    
    386,673
    
    
    
    386,673Certificates of deposit
    
    
    585,238
    
    
    
    593,392
    
    
    
    534,502
    
    
    
    546,497Total deposits
    
    
    968,991
    
    
    
    977,145
    
    
    
    921,175
    
    
    
    933,170Short-term borrowings
    
    
    31,422
    
    
    
    31,422
    
    
    
    22,928
    
    
    
    22,928Federal Home Loan Bank advances
    
    
    43,005
    
    
    
    43,911
    
    
    
    53,357
    
    
    
    54,647Junior subordinated debentures
    
    
    20,620
    
    
    
    22,339
    
    
    
    20,620
    
    
    
    21,492Accrued interest payable
    
    
    2,820
    
    
    
    2,820
    
    
    
    3,813
    
    
    
    3,813
     Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantFair Value as of
    
    
    Markets for Identical
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    September 30, 2009
    
    
    Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Trading Securities
    
    $
    8,865
    
    
    $
    8,865
    
    
    $
    
    
    
    $
    Available for Sale Securities
    
    
    273,144
    
    
    
    246,478
    
    
    
    26,666
    
    
    
    Total
    
    $
    282,009
    
    
    $
    255,343
    
    
    $
    26,666
    
    
    $
    
    17




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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, 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
limitations on the Corporations ability to raise funding to the extent required by banking
regulators or otherwise; initiatives undertaken by the U.S. government do not have the intended
effect on the financial markets;
    
    limitations on the Corporations ability to return capital to shareholders and dilution of the
Corporations common shares that may result from the terms of the Capital Purchase Program
(CPP), pursuant to which the Corporation issued securities to the United States Department of
the Treasury (the U.S. Treasury);
    
    limitations on the Corporations ability to pay dividends;
    
    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;
    
    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
 19




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##### Table of Contents




    
    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
       20




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##### Table of Contents



Income Taxes
  New Accounting Pronouncements
  Summary of Earnings (Dollars in thousands except per share data)
      21




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##### Table of Contents



Results of Operations
 Net Interest Income
  Three Months Ended September 30, 2009 versus Three Months Ended September 30, 2008
   Nine Months Ended September 30, 2009 versus Nine Months Ended September 30, 2008
     22




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23




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##### Table of Contents



Table 1: Condensed Consolidated Average Balance Sheets
 Interest, Rate, and Rate/ Volume differentials are stated on a Fully-Tax Equivalent (FTE) Basis.
 Three Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and corporations
and restricted stock
    
    $
    265,086
    
    
    $
    2,707
    
    
    
    4.05
    %
    
    $
    183,073
    
    
    $
    2,154
    
    
    
    4.68
    %State and political subdivisions
    
    
    25,774
    
    
    
    376
    
    
    
    5.79
    
    
    
    19,822
    
    
    
    293
    
    
    
    5.88Federal funds sold and short-term
investments
    
    
    59,492
    
    
    
    19
    
    
    
    0.13
    
    
    
    16,747
    
    
    
    54
    
    
    
    1.28Commercial loans
    
    
    453,829
    
    
    
    6,325
    
    
    
    5.53
    
    
    
    437,597
    
    
    
    6,991
    
    
    
    6.36Real estate mortgage loans
    
    
    83,723
    
    
    
    1,176
    
    
    
    5.57
    
    
    
    98,924
    
    
    
    1,495
    
    
    
    6.01Home equity lines of credit
    
    
    107,668
    
    
    
    1,088
    
    
    
    4.01
    
    
    
    92,926
    
    
    
    1,045
    
    
    
    4.47Installment loans
    
    
    173,657
    
    
    
    2,968
    
    
    
    6.78
    
    
    
    161,299
    
    
    
    2,466
    
    
    
    6.08Total Earning Assets
    
    $
    1,169,229
    
    
    $
    14,659
    
    
    
    4.97
    %
    
    $
    1,010,388
    
    
    $
    14,498
    
    
    
    5.71
    %Allowance for loan loss
    
    
    (13,451
    )
    
    
    
    
    
    
    
    
    
    
    (11,888
    )Cash and due from banks
    
    
    16,921
    
    
    
    
    
    
    
    
    
    
    
    19,160Bank owned life insurance
    
    
    16,122
    
    
    
    
    
    
    
    
    
    
    
    15,412Other assets
    
    
    47,234
    
    
    
    
    
    
    
    
    
    
    
    49,797Total Assets
    
    $
    1,236,055
    
    
    
    
    
    
    
    
    
    
    $
    1,082,869Liabilities and Shareholders EquityConsumer time deposits
    
    $
    494,926
    
    
    $
    3,615
    
    
    
    2.90
    %
    
    $
    398,462
    
    
    $
    3,609
    
    
    
    3.60
    %Public time deposits
    
    
    88,223
    
    
    
    370
    
    
    
    1.66
    
    
    
    59,732
    
    
    
    571
    
    
    
    3.80Brokered time deposits
    
    
    5,707
    
    
    
    55
    
    
    
    3.84
    
    
    
    8,477
    
    
    
    98
    
    
    
    4.60Money market accounts
    
    
    135,694
    
    
    
    168
    
    
    
    0.49
    
    
    
    108,528
    
    
    
    459
    
    
    
    1.68Savings deposits
    
    
    80,054
    
    
    
    41
    
    
    
    0.20
    
    
    
    83,137
    
    
    
    133
    
    
    
    0.64Interest-bearing demand
    
    
    119,875
    
    
    
    77
    
    
    
    0.25
    
    
    
    124,928
    
    
    
    265
    
    
    
    0.84Short-term borrowings
    
    
    33,684
    
    
    
    43
    
    
    
    0.51
    
    
    
    32,918
    
    
    
    93
    
    
    
    1.12FHLB advances
    
    
    43,005
    
    
    
    351
    
    
    
    3.24
    
    
    
    70,813
    
    
    
    646
    
    
    
    3.63Trust preferred securities
    
    
    20,732
    
    
    
    225
    
    
    
    4.31
    
    
    
    20,758
    
    
    
    282
    
    
    
    5.40Total Interest-Bearing Liabilities
    
    $
    1,021,900
    
    
    $
    4,945
    
    
    
    1.92
    %
    
    $
    907,753
    
    
    $
    6,156
    
    
    
    2.70
    %Noninterest-bearing deposits
    
    
    94,489
    
    
    
    
    
    
    
    
    
    
    
    87,358Other liabilities
    
    
    11,359
    
    
    
    
    
    
    
    
    
    
    
    8,466Shareholders Equity
    
    
    108,307
    
    
    
    
    
    
    
    
    
    
    
    79,292Total Liabilities and
Shareholders Equity
    
    $
    1,236,055
    
    
    
    
    
    
    
    
    
    
    $
    1,082,869Net interest Income (FTE)
    
    
    
    
    
    $
    9,714
    
    
    
    3.30
    %
    
    
    
    
    
    $
    8,342
    
    
    
    3.28
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    (113
    )Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    9,578
    
    
    
    
    
    
    
    
    
    
    $
    8,229
 24




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##### Table of Contents



Nine Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Assets:U.S. Govt agencies and corporations
and restricted stock
    
    $
    249,077
    
    
    $
    8,083
    
    
    
    4.34
    %
    
    $
    195,431
    
    
    $
    6,748
    
    
    
    4.61
    %State and political subdivisions
    
    
    24,460
    
    
    
    1,096
    
    
    
    5.99
    
    
    
    17,766
    
    
    
    795
    
    
    
    5.98Federal funds sold and short-term
investments
    
    
    49,013
    
    
    
    52
    
    
    
    0.14
    
    
    
    10,384
    
    
    
    130
    
    
    
    1.67Commercial loans
    
    
    448,766
    
    
    
    19,001
    
    
    
    5.66
    
    
    
    435,456
    
    
    
    21,309
    
    
    
    6.54Real estate mortgage loans
    
    
    89,245
    
    
    
    3,921
    
    
    
    5.87
    
    
    
    99,143
    
    
    
    4,470
    
    
    
    6.02Home equity lines of credit
    
    
    105,087
    
    
    
    3,151
    
    
    
    4.01
    
    
    
    86,963
    
    
    
    3,222
    
    
    
    4.95Installment loans
    
    
    168,610
    
    
    
    8,494
    
    
    
    6.74
    
    
    
    151,113
    
    
    
    7,582
    
    
    
    6.70Total Earning Assets
    
    $
    1,134,258
    
    
    $
    43,798
    
    
    
    5.16
    %
    
    $
    996,256
    
    
    $
    44,256
    
    
    
    5.93
    %Allowance for loan loss
    
    
    (12,252
    )
    
    
    
    
    
    
    
    
    
    
    (9,240
    )Cash and due from banks
    
    
    17,804
    
    
    
    
    
    
    
    
    
    
    
    20,749Bank owned life insurance
    
    
    15,964
    
    
    
    
    
    
    
    
    
    
    
    15,559Other assets
    
    
    47,184
    
    
    
    
    
    
    
    
    
    
    
    47,300Total Assets
    
    $
    1,202,958
    
    
    
    
    
    
    
    
    
    
    $
    1,070,624Liabilities and Shareholders EquityConsumer time deposits
    
    $
    482,112
    
    
    $
    11,157
    
    
    
    3.09
    %
    
    $
    382,202
    
    
    $
    11,599
    
    
    
    4.05
    %Public time deposits
    
    
    86,188
    
    
    
    1,445
    
    
    
    2.24
    
    
    
    60,047
    
    
    
    1,858
    
    
    
    4.13Brokered time deposits
    
    
    10,203
    
    
    
    320
    
    
    
    4.19
    
    
    
    14,365
    
    
    
    562
    
    
    
    5.23Money market accounts
    
    
    115,823
    
    
    
    500
    
    
    
    0.58
    
    
    
    116,624
    
    
    
    1,780
    
    
    
    2.04Savings deposits
    
    
    79,752
    
    
    
    137
    
    
    
    0.23
    
    
    
    83,145
    
    
    
    406
    
    
    
    0.65Interest-bearing demand
    
    
    121,783
    
    
    
    270
    
    
    
    0.30
    
    
    
    122,840
    
    
    
    836
    
    
    
    0.91Short-term borrowings
    
    
    28,513
    
    
    
    111
    
    
    
    0.52
    
    
    
    29,286
    
    
    
    354
    
    
    
    1.61FHLB advances
    
    
    46,246
    
    
    
    1,131
    
    
    
    3.27
    
    
    
    63,347
    
    
    
    1,769
    
    
    
    3.73Trust preferred securities
    
    
    20,741
    
    
    
    721
    
    
    
    4.65
    
    
    
    20,784
    
    
    
    890
    
    
    
    5.72Total Interest-Bearing Liabilities
    
    $
    991,361
    
    
    $
    15,792
    
    
    
    2.13
    %
    
    $
    892,640
    
    
    $
    20,054
    
    
    
    3.00
    %Noninterest-bearing deposits
    
    
    92,582
    
    
    
    
    
    
    
    
    
    
    
    86,396Other liabilities
    
    
    10,924
    
    
    
    
    
    
    
    
    
    
    
    9,576Shareholders Equity
    
    
    108,091
    
    
    
    
    
    
    
    
    
    
    
    82,012Total Liabilities and
Shareholders Equity
    
    $
    1,202,958
    
    
    
    
    
    
    
    
    
    
    $
    1,070,624Net interest Income (FTE)
    
    
    
    
    
    $
    28,006
    
    
    
    3.30
    %
    
    
    
    
    
    $
    24,202
    
    
    
    3.24
    %Taxable Equivalent Adjustment
    
    
    
    
    
    
    (396
    )
    
    
    
    
    
    
    
    
    
    
    (314
    )Net Interest Income Per
Financial Statements
    
    
    
    
    
    $
    27,610
    
    
    
    
    
    
    
    
    
    
    $
    23,888
 Rate/Volume
  25




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##### Table of Contents



Table 2: Rate/Volume Analysis of Net Interest Income (FTE)
 Three Months Ended September 30,Increase (Decrease) in Interest Income/Expensein 2009 over 2008Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations and
restricted stock
    
    $
    838
    
    
    $
    (285
    )
    
    $
    553State and political subdivisions
    
    
    87
    
    
    
    (4
    )
    
    
    83Federal funds sold and short-term investments
    
    
    14
    
    
    
    (49
    )
    
    
    (35
    )Commercial loans
    
    
    226
    
    
    
    (892
    )
    
    
    (666
    )Real estate mortgage loans
    
    
    (214
    )
    
    
    (105
    )
    
    
    (319
    )Home equity lines of credit
    
    
    149
    
    
    
    (106
    )
    
    
    43Installment loans
    
    
    211
    
    
    
    291
    
    
    
    502Total Interest Income
    
    
    1,311
    
    
    
    (1,150
    )
    
    
    161Consumer time deposits
    
    
    704
    
    
    
    (698
    )
    
    
    6Public time deposits
    
    
    114
    
    
    
    (315
    )
    
    
    (201
    )Brokered time deposits
    
    
    18
    
    
    
    (61
    )
    
    
    (43
    )Money market accounts
    
    
    34
    
    
    
    (325
    )
    
    
    (291
    )Savings deposits
    
    
    (2
    )
    
    
    (90
    )
    
    
    (92
    )Interest bearing demand
    
    
    (3
    )
    
    
    (185
    )
    
    
    (188
    )Short-term borrowings
    
    
    1
    
    
    
    (51
    )
    
    
    (50
    )FHLB advances
    
    
    (227
    )
    
    
    (68
    )
    
    
    (295
    )Trust preferred securities
    
    
    
    
    
    
    (57
    )
    
    
    (57
    )Total Interest Expense
    
    
    639
    
    
    
    (1,850
    )
    
    
    (1,211
    )Net Interest Income (FTE)
    
    $
    672
    
    
    $
    700
    
    
    $
    1,372
  26




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##### Table of Contents



Nine Months Ended September 30,Increase (Decrease) in Interest Income/Expensein 2009 over 2008Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)U.S. Govt agencies and corporations and
restricted stock
    
    $
    1,741
    
    
    $
    (406
    )
    
    $
    1,335State and political subdivisions
    
    
    300
    
    
    
    1
    
    
    
    301Federal funds sold and short-term investments
    
    
    41
    
    
    
    (119
    )
    
    
    (78
    )Commercial loans
    
    
    564
    
    
    
    (2,872
    )
    
    
    (2,308
    )Real estate mortgage loans
    
    
    (435
    )
    
    
    (114
    )
    
    
    (549
    )Home equity lines of credit
    
    
    543
    
    
    
    (614
    )
    
    
    (71
    )Installment loans
    
    
    881
    
    
    
    31
    
    
    
    912Total Interest Income
    
    
    3,635
    
    
    
    (4,093
    )
    
    
    (458
    )Consumer time deposits
    
    
    2,312
    
    
    
    (2,754
    )
    
    
    (442
    )Public time deposits
    
    
    437
    
    
    
    (850
    )
    
    
    (413
    )Brokered time deposits
    
    
    (128
    )
    
    
    (114
    )
    
    
    (242
    )Money market accounts
    
    
    (3
    )
    
    
    (1,277
    )
    
    
    (1,280
    )Savings deposits
    
    
    (6
    )
    
    
    (263
    )
    
    
    (269
    )Interest bearing demand
    
    
    (2
    )
    
    
    (564
    )
    
    
    (566
    )Short-term borrowings
    
    
    (3
    )
    
    
    (240
    )
    
    
    (243
    )FHLB advances
    
    
    (418
    )
    
    
    (220
    )
    
    
    (638
    )Trust preferred securities
    
    
    (2
    )
    
    
    (167
    )
    
    
    (169
    )Total Interest Expense
    
    
    2,187
    
    
    
    (6,449
    )
    
    
    (4,262
    )Net Interest Income (FTE)
    
    $
    1,448
    
    
    $
    2,356
    
    
    $
    3,804
  Noninterest Income
 Table 3: Details on Noninterest Income
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Investment and trust services
    
    $
    496
    
    
    $
    441
    
    
    $
    1,405
    
    
    $
    1,560Deposit service charges
    
    
    1,211
    
    
    
    1,258
    
    
    
    3,332
    
    
    
    3,559Electronic banking fees
    
    
    766
    
    
    
    704
    
    
    
    2,108
    
    
    
    2,030Income from bank owned life insurance
    
    
    213
    
    
    
    154
    
    
    
    540
    
    
    
    735Other income
    
    
    52
    
    
    
    67
    
    
    
    216
    
    
    
    736Total fees and other income
    
    
    2,738
    
    
    
    2,624
    
    
    
    7,601
    
    
    
    8,620Gain on sale of securities
    
    
    88
    
    
    
    223
    
    
    
    674
    
    
    
    506Gain on sale of loans
    
    
    341
    
    
    
    298
    
    
    
    963
    
    
    
    642Gains (losses) on sale of other assets
    
    
    (43
    )
    
    
    13
    
    
    
    (13
    )
    
    
    (122
    )Total noninterest income
    
    $
    3,124
    
    
    $
    3,158
    
    
    $
    9,225
    
    
    $
    9,646
 27




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##### Table of Contents



Three Months Ended September 30, 2009 as compared to the Three Months Ended September 30, 2008
  Nine Months Ended September 30, 2009 as compared to the Nine Months Ended September 30, 2008
   Noninterest Expense
 Table 4: Details on Noninterest Expense
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Salaries and employee benefits
    
    $
    3,610
    
    
    $
    3,828
    
    
    $
    11,130
    
    
    $
    11,467Furniture and equipment
    
    
    1,039
    
    
    
    1,049
    
    
    
    3,370
    
    
    
    3,080Net occupancy
    
    
    571
    
    
    
    556
    
    
    
    1,785
    
    
    
    1,816Outside services
    
    
    657
    
    
    
    522
    
    
    
    2,001
    
    
    
    1,996Marketing and public relations
    
    
    228
    
    
    
    247
    
    
    
    767
    
    
    
    829Supplies, postage and freight
    
    
    311
    
    
    
    408
    
    
    
    951
    
    
    
    1,092Telecommunications
    
    
    208
    
    
    
    189
    
    
    
    596
    
    
    
    635Ohio Franchise tax
    
    
    232
    
    
    
    225
    
    
    
    689
    
    
    
    670FDIC Assessments
    
    
    743
    
    
    
    177
    
    
    
    2,032
    
    
    
    237Other real estate owned
    
    
    89
    
    
    
    285
    
    
    
    263
    
    
    
    892Electronic banking expenses
    
    
    209
    
    
    
    237
    
    
    
    598
    
    
    
    747Loan and Collection Expense
    
    
    385
    
    
    
    256
    
    
    
    963
    
    
    
    716Other expense
    
    
    455
    
    
    
    519
    
    
    
    1,432
    
    
    
    1,683Total noninterest expense
    
    $
    8,737
    
    
    $
    8,498
    
    
    $
    26,577
    
    
    $
    25,860
 Three Months Ended September 30, 2009 as compared to the Three Months Ended September 30, 2008
  Nine Months Ended September 30, 2009 as compared to the Nine Months Ended September 30, 2008
  28




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##### Table of Contents



Income taxes
    Balance Sheet Analysis
 Overview
  Securities
  Loans
  29




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##### Table of Contents



Table 5: Details on Loan Balances
 September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Commercial
    
    $
    455,207
    
    
    $
    450,081Real estate mortgage
    
    
    82,206
    
    
    
    96,241Home equity lines of credit
    
    
    108,825
    
    
    
    100,873Installment
    
    
    167,362
    
    
    
    156,356Total Loans
    
    
    813,600
    
    
    
    803,551Allowance for loan losses
    
    
    (22,556
    )
    
    
    (11,652
    )Net Loans
    
    $
    791,044
    
    
    $
    791,899
   Deposits
 Table 6: Deposits and Borrowings
 Year to DateAverage Balances Outstanding
    
    Average Rates PaidSeptember 30, 2009
    
    December 31, 2008
    
    September 30, 2009
    
    December 31, 2008(Dollars in thousands)Demand deposits
    
    $
    92,582
    
    
    $
    87,302
    
    
    
    0.00
    %
    
    
    0.00
    %Interest checking
    
    
    121,783
    
    
    
    122,527
    
    
    
    0.30
    
    
    
    0.86Savings deposits
    
    
    79,752
    
    
    
    82,276
    
    
    
    0.23
    
    
    
    0.60Money market accounts
    
    
    115,823
    
    
    
    113,968
    
    
    
    0.58
    
    
    
    1.85Consumer time deposits
    
    
    482,112
    
    
    
    395,686
    
    
    
    3.09
    
    
    
    3.89Public time deposits
    
    
    86,188
    
    
    
    63,652
    
    
    
    2.24
    
    
    
    4.01Brokered time deposits
    
    
    10,203
    
    
    
    13,890
    
    
    
    4.19
    
    
    
    5.01Total Deposits
    
    
    988,443
    
    
    
    879,301
    
    
    
    1.87
    
    
    
    2.82Short-term borrowings
    
    
    28,513
    
    
    
    27,700
    
    
    
    0.52
    
    
    
    1.40FHLB borrowings
    
    
    46,246
    
    
    
    62,341
    
    
    
    3.27
    
    
    
    3.72Junior subordinated debentures
    
    
    20,741
    
    
    
    20,778
    
    
    
    4.65
    
    
    
    5.65Total borrowings
    
    
    95,500
    
    
    
    110,819
    
    
    
    2.75
    
    
    
    3.50Total funding
    
    $
    1,083,943
    
    
    $
    990,120
    
    
    
    2.13
    %
    
    
    2.90
    %
  30




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##### Table of Contents



Borrowings
  Regulatory Capital
    31




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##### Table of Contents



32




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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
     33




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##### Table of Contents



Table 7: Nonperforming Assets
 September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Commercial loans
    
    $
    31,705
    
    
    $
    14,209Real estate mortgage
    
    
    7,943
    
    
    
    3,465Home equity lines of credit
    
    
    1,159
    
    
    
    989Installment loans
    
    
    1,211
    
    
    
    929Total nonperforming loans
    
    
    42,018
    
    
    
    19,592Other foreclosed assets
    
    
    1,071
    
    
    
    1,108Total nonperforming assets
    
    $
    43,089
    
    
    $
    20,700Loans 90 days past due accruing interest
    
    $
    
    
    
    $
    Allowance for loan losses to nonperforming assets
    
    
    52.35
    %
    
    
    56.29
    %
 Provision and Allowance for Loan Losses
  Table 8: Analysis of Allowance for Loan Losses
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Balance at beginning of period
    
    $
    12,978
    
    
    $
    11,874
    
    
    $
    11,652
    
    
    $
    7,820Charge-offs:Commercial
    
    
    (366
    )
    
    
    (1,097
    )
    
    
    (1,810
    )
    
    
    (1,540
    )Real estate mortgage
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    (275
    )Home equity lines of credit
    
    
    (632
    )
    
    
    (72
    )
    
    
    (1,337
    )
    
    
    (161
    )Installment
    
    
    (472
    )
    
    
    (161
    )
    
    
    (1,423
    )
    
    
    (486
    )DDA Overdrafts
    
    
    (63
    )
    
    
    (79
    )
    
    
    (162
    )
    
    
    (193
    )Total charge-offs
    
    
    (1,533
    )
    
    
    (1,409
    )
    
    
    (4,875
    )
    
    
    (2,655
    )Recoveries:Commercial
    
    
    3
    
    
    
    344
    
    
    
    171
    
    
    
    385Real estate mortgage
    
    
    
    
    
    
    28
    
    
    
    12
    
    
    
    28Home equity lines of credit
    
    
    
    
    
    
    1
    
    
    
    24
    
    
    
    1Installment
    
    
    32
    
    
    
    34
    
    
    
    175
    
    
    
    126DDA Overdrafts
    
    
    9
    
    
    
    12
    
    
    
    37
    
    
    
    41Total Recoveries
    
    
    44
    
    
    
    419
    
    
    
    419
    
    
    
    581Net Charge-offs
    
    
    (1,489
    )
    
    
    (990
    )
    
    
    (4,456
    )
    
    
    (2,074
    )Provision for loan losses
    
    
    11,067
    
    
    
    471
    
    
    
    15,360
    
    
    
    5,609Balance at end of period
    
    $
    22,556
    
    
    $
    11,355
    
    
    $
    22,556
    
    
    $
    11,355
 34




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##### Table of Contents



Market Risk Management
     35




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##### Table of Contents



Liquidity Risk Management
   
 ITEM 4. Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  36




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##### Table of Contents



The Corporations ability to pay dividends is subject to limitations.
    Additional capital may not be available to the Corporation if and when it is needed.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
  
 Item 6.
    
    Exhibits.
  37




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##### Table of Contents



SIGNATURES
  LNB BANCORP, INC.
(Registrant)Date: November 6, 2009
    /s/ Gary J. ElekGary J. ElekChief Financial Officer
(Duly Authorized Officer, and Principal
Financial and Accounting Officer) 38




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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.
 39