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UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C.
20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|For the fiscal
      year ended | Commission file
      number
|------------------------------- | ----------------------------
|December 31,
      2007         | 0-13203                     

LNB Bancorp, Inc.(Exact name of the registrant as
specified in its charter)

|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)                          

(440) 244-6000(Registrants telephone number,
including area code)

|Securities Registered Pursuant to Section 12(b) of the
      Act:
|-----------------------------------------------------------------
|Title of Each
      Class                                        
|Common
    Shares                                                
|Par Value $1.00 Per
      Share                                  
|Preferred Share
      Purchase Rights                            

|Securities Registered Pursuant to Section 12(g) of the
      Act:
|-----------------------------------------------------------------
|Title of Each
      Class                                        
|None                                                             

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.Yes     o     No     þIndicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act.YesoNoþ

Indicate by
check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.YesþNoo

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule12b-2 of the Exchange Act.

|Large Accelerated
      Filer     o                 |  | Accelerated
      filer     þ        
|--------------------------------------------------- |  | -------------------------------------
|Non-accelerated
      Filer     o                   |  | Smaller reporting
      company     o
|(Do not check if a
      smaller reporting company) |  |                                      

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).YesoNoþ

The
aggregate market value of the common shares held by non-affiliates of the
registrant at June 30, 2007 was approximately $109,872,685.

The number of common shares of the
registrant outstanding on March 7, 2008 was 7,295,663.

DOCUMENTS INCORPORATED BY
REFERENCE

Portions
of the Proxy Statement for the 2008 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Form 10-K.

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TABLE OF CONTENTS

|               |    |                                                                                               | Page
|-------------- | -- | --------------------------------------------------------------------------------------------- | ----
|PART I        
|Item
      1.  |    | Business                                                                                      | 1   
|Item 1A.       |    | Risk Factors                                                                                  | 3   
|Item
      1B. |    | Unresolved Staff
      Comments                                                               | 4   
|Item 2.        |    | Properties                                                                                    | 5   
|Item
      3.  |    | Legal
      Proceedings                                                                       | 5   
|Item 4.        |    | Submission of Matters to a Vote of Security Holders                                           | 6   
|               |    | Supplemental
      Item: Executive Officers of the Registrant                                 | 7   
|              
|PART II       
|Item
      5.  |    | Market for the
      Registrants Common Equity, Related Stockholder Matters and
      Issuer |     
|               |    | Purchases of
      Equity Securities                                                          | 8   
|Item 6.        |    | Selected Financial Data                                                                       | 11  
|Item
      7.  |    | Managements
      Discussion and Analysis of Financial Condition and Results of              |     
|               |    | Operations                                                                                    | 12  
|Item 7A.       |    | Quantitative and Qualitative Disclosures About Market
      Risk                              | 29  
|Item
      8.  |    | Financial
      Statements and Supplementary Data                                             | 34  
|Item 9.        |    | Changes in and Disagreements With Accountants on Accounting and
      Financial               |     
|               |    | Disclosure                                                                                    | 70  
|Item
      9A. |    | Controls and
      Procedures                                                                 | 70  
|              
|PART III      
|Item 10.       |    | Directors, Executive Officers, Promoters and Control Persons of the
      Registrant          | 71  
|Item 11.       |    | Executive Compensation                                                                        | 71  
|Item
      12. |    | Security
      Ownership of Certain Beneficial Owners and Management                          | 71  
|Item 13.       |    | Certain Relationships and Related Transactions                                                | 72  
|Item
      14. |    | Principal
      Accounting Fees and Services                                                  | 72  
|              
|PART IV       
|Item
      15. |    | Exhibits and
      Financial Statement Schedules                                              | 73  
|Exhibit Index  | 74
|Signatures     |    |                                                                                               | 77  
|Certifications |   

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PART I

Item 1. Business

Overview

General.LNB Bancorp, Inc., (the
Corporation), is a diversified financial services company headquartered in
Lorain, Ohio. It is organized as a financial holding company under the Bank
Holding Company Act of 1956, as amended (the BHC Act). Its predecessor, the
Lorain Banking Company was a state chartered bank founded in 1905. It merged
with the National Bank of Lorain in 1961, and in 1984 became a wholly-owned
subsidiary of LNB Bancorp, Inc. The Corporation received its financial holding
company status on March 13, 2000.

The
Corporation engages in banking, mortgage, and brokerage services. These services
are generally offered through its wholly-owned subsidiary  The Lorain National
Bank (the Bank). For brokerage services the Bank operates under an agreement
with Investment Centers of America, Inc. Investment Centers of America, Inc. is
a member of NASD/SIPC and offers mutual funds, variable annuity investments,
variable annuity and life insurance products, along with investments in stocks
and bonds.

The
primary business of the Bank is providing personal, mortgage and commercial
banking products along with investment management and trust services. The Lorain
National Bank operates through 21 retail-banking locations and 29 automated
teller machines (ATMs) in Lorain, eastern Erie, western Cuyahoga and Summit
counties in the Ohio communities of Lorain, Elyria, Amherst, Avon, Avon Lake,
LaGrange, North Ridgeville, Oberlin, Olmsted Township, Vermilion, Westlake, and
Hudson, as well as a business development office in Cuyahoga County.

The
Banks commercial lending activities consist of commercial real estate loans,
construction and equipment loans, letters of credit, revolving lines of credit,
Small Business Administration loans and government guaranteed loans. The Banks
wholly-owned subsidiary, North Coast Community Development Corporation, offers
commercial loans with preferred interest rates on projects that meet the
standards for the federal governments New Markets Tax Credit Program.

The
Banks residential mortgage lending activities consist of loans originated for
portfolio, for the purchase of personal residences. The Banks installment
lending activities consist of traditional forms of financing for automobile and
personal loans, indirect automobile loans, second mortgages, and home equity
lines of credit.

The
Banks deposit services include traditional transaction and time deposit
accounts as well as cash management services for corporate and municipal
customers. The Bank supplements local deposit generation with time deposits
generated through a broker relationship. Deposits of the Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance Corporation
(the FDIC).

Other
bank services offered include safe deposit boxes, night depository, U.S. savings
bonds, travelers checks, money orders, cashiers checks, ATMs, debit cards,
wire transfer, electronic funds transfers (ACH), foreign drafts, foreign
currency, electronic banking by phone or through the internet, lockbox and other
services tailored for both individuals and businesses.

Competition.The Corporation competes
with sixteen other financial institutions in Lorain County, in Ohio, which range
in size from approximately $100,000 to over $970 million in Lorain County
deposits. These competitors, as well as credit unions and financial
intermediaries compete for Lorain County deposits of approximately of $3.5
billion.

The Banks market share of total
deposits in Lorain County was 19.49% in 2007 and 18.96% in 2006, and the Bank
ranked number two in market share in Lorain County in 2007 and 2006.

The Bank
has a limited presence in Cuyahoga County, competing with twenty-nine other
financial institutions. Cuyahoga County deposits as of 2007 totaled $49.1
billion. The Banks market share of deposits in Cuyahoga County was 0.06% in
2007 and 0.07% in 2006 based on the FDIC Summary of Deposits for specific market
areas dated June 30, 2007.

1

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Business Strategy.The Bank competes
with larger financial institutions by providing exceptional local service that
emphasizes direct customer access to the Banks officers. It competes against
smaller local banks by providing distribution channels that are more convenient
and by providing a wider array of products. The Bank endeavors to provide
informed and courteous personal services. The Corporations management team
(Management) believes that the Bank is well positioned to compete successfully
in its market area. Competition among financial institutions is based largely
upon interest rates offered on deposit accounts, interest rates charged on
loans, the relative level of service charges, the quality and scope of the
services rendered, the convenience of the banking centers and, in the case of
loans to commercial borrowers, relative lending limits. Management believes that
the commitment of the Bank to provide quality personal service and its local
community involvement give the Bank a competitive advantage over other financial
institutions operating in its markets.

On May
10, 2007, LNB Bancorp, Inc. acquired Morgan Bancorp, Inc. and its wholly-owned
subsidiary, Morgan Bank, N.A., in a stock and cash merger transaction valued at
approximately $26.5 million. The Corporations Morgan Bank division operates
from one location in Hudson, Ohio, which ranks as the fourth wealthiest city in
Ohio as measured by median household income statistics, making it one of the
most demographically appealing markets in Ohio for banking institutions and
financial services providers. Morgan Bank enjoys the number one deposit market
share position in Hudson with approximately 20.74% of this $515 million deposit
market. This merger is consistent with The Corporations strategy to create
shareholder value by expanding into attractive markets in contiguous
counties.

Supervision and Regulation.The
Corporation is subject to the supervision and examination of the Board of
Governors of the Federal Reserve System (the Federal Reserve Board). The BHC
Act requires prior approval of the Federal Reserve Board before acquiring or
holding more than a 5% voting interest in any bank. It also restricts interstate
banking activities.

The Bank
is subject to extensive regulation, supervision and examination by applicable
federal banking agencies, including the FDIC, the Office of the Comptroller of
the Currency (the OCC) and the Federal Reserve Board. Brokerage and Trust
management are subject to supervision by the National Association of Securities
Dealers (the NASD) and the Securities Investor Protection Corporation
(SPIC).

Employees.As of December 31, 2007,
the Corporation employed 270 full-time equivalent employees. The Corporation is
not a party to any collective bargaining agreement. Management considers its
relationship with its employees to be good. Employee benefits programs are
considered by the Corporation to be competitive with benefits programs provided
by other financial institutions and major employers within the current market
area.

Industry Segments

The
Corporation and its subsidiary, The Lorain National Bank, are engaged in one
line of business, which is banking services.

Available Information

LNB
Bancorp, Inc.s internet website is www.4LNB.com. Copies of the annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and any amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, are made available through this
website, or directly through the Securities and Exchange Commission (SEC)
website which is www.sec.gov.

Forward-Looking Statements

This Form
10-K contains forward-looking statements within the meaning of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. Terms such
as will, should, plan, intend, expect, continue, believe,
anticipate and seek, as well as similar comments, are forward-looking in
nature. Actual results and events may differ materially from those expressed or
anticipated as a result of risks and uncertainties which include but are not
limited to:

- 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;

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- 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;
- customer reaction to and unforeseen complications
  with respect to the Corporations integration of acquisitions;

Item 1A. Risk Factors

As a
competitor in the banking and financial services industries, the Corporation and
its business, operations and financial condition are subject to various risks
and uncertainties. You should carefully consider the risks and uncertainties
described below, together with all of the other information in this annual
report on Form 10-K and in the Corporations other filings with the SEC, before
making any investment decision with respect to the Corporations securities. In
particular, you should consider the discussion contained in Item 7 of this
annual report, which contains Managements Discussion and Analysis of Financial
Condition and Results of Operations.

The risks
and uncertainties described below may not be the only ones the Corporation
faces. Additional risks and uncertainties not presently known by the Corporation
or that the Corporation currently deems immaterial may also affect the
Corporations business. If any of these known or unknown risks or uncertainties
actually occur or develop, the Corporations business, financial condition,
results of operations and future growth prospects could change. Under those
circumstances, the trading prices of the Corporations securities could decline,
and you could lose all or part of your investment.

Competition.Strong competition may
reduce our ability to generate loans and deposits in our market. The Corporation
competes in a consolidating industry. Increasingly the Corporations competition
are large regional companies which have the capital resources to substantially
impact such things as loan and deposit pricing, delivery channels and products.
This may allow those companies to offer what may be perceived in the market as
better products and better convenience relative to smaller competitors like the
Corporation, which could impact the Corporations ability to grow its assets and
earnings.

Interest Rate Risk.Changes in
interest rates could adversely affect the Corporations earnings and financial
condition. The Corporation derives the majority of its revenue from net interest
income. Net interest income may be reduced if more rate sensitive assets than
interest-bearing liabilities reprice or mature during a time when rates are
declining, or if more interest-bearing liabilities than rate sensitive assets
reprice or mature during a time when rates are rising; however, the Corporation
has historically experienced improved net interest income during periods of
rising rates, so if rates fall, the Corporations revenue may be adversely
impacted. Interest rate changes also impact customer preferences for products.
Changing rates can lead to unpredicted cash flow from assets and liabilities,
which can impact net interest income.

Government Policies.The Corporations
business may be adversely affected by changes in government policies. The
Corporation competes in a highly regulated environment. Changes in regulation
are continually being proposed which can substantially impact the Corporations
products and cost of delivery. Regulatory burdens imposed by legislation such as
The Sarbanes-Oxley Act of 2002, The USA Patriot Act of 2001, The International
Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, The Equal
Credit Opportunity Act, The Fair Housing Act, The Community Reinvestment Act and
the Home Mortgage Disclosure

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Act can materially impact the ability
of the Corporation to grow should the Corporation fail to develop the systems to
adequately comply with these regulations. Failure to comply with these
regulations can lead to loss of customer confidence, substantial fines and
regulatory constraints on the Corporations operations. These burdens can also
materially impact the earnings of the Corporation as additional resources are
expended to comply with these requirements. The government, through the open
market activities of the Federal Reserve Board, can also adversely impact our
business. The Federal Reserve Board can change the discount rate which impacts
the composition of the Corporations balance sheet by influencing the rates that
the Corporation earns on its assets and pays on its liabilities.

General Economic Conditions.The
Corporation may be adversely impacted by weakness in the local economies we
serve. The Corporation is geographically concentrated in Lorain County, Ohio,
where commercial activity is not expanding at a rate that is being experienced
in other parts of Ohio or nationally. This is the result of continued reliance
on a weak manufacturing sector, especially steel and automobiles. This can lead
to unexpected deterioration in loan quality, slower asset and deposit growth and
increased operating losses.

Credit
Risk.The Corporations earnings and
reputation may be adversely affected if credit risk is not properly managed.
Originating and underwriting loans is critical to the success of the
Corporation. This activity exposes the Corporation to credit risk, which is the
risk of losing principal and interest income because the borrower cannot repay
the loan in full. The Corporation depends on collateral in underwriting loans,
and the value of this collateral is impacted by interest rates and economic
conditions.

Concentration of Credit Risk.The
Corporations earnings may be adversely affected if management does not
understand and properly manage loan concentrations. The Corporations commercial
loan portfolio is concentrated in commercial real estate. This includes
significant commercial and residential development customers. This means that
the Corporations credit risk profile is dependent upon, not only the general
economic conditions in the market, but also the health of the local housing
market. These loans involve greater risk because they generally are not fully
amortizing over the loan period, but have a balloon payment due at maturity. The
borrowers ability to make a balloon payment typically will depend on being able
to refinance the loan or to sell the underlying collateral. This factor,
combined with others, including our geographic concentration, can lead to
unexpected credit deterioration and higher provisions for loan losses.

Dependence on Technology and Systems.If the Corporations technology and systems are damaged, its ability to service
customers, comply with regulation and grow asset and liabilities may be
adversely impacted. The Corporation is dependent on the proper functioning of
its hardware, software and communications. Security breaches, terrorist events,
and natural disasters can all have a material impact on the Corporations
ability to maintain accurate records which is critical to the Corporations
operations.

Shareholder Actions.A special meeting
of shareholders has been called at the request of AMG Investments, LLC, a
shareholder of the Corporation, for the purpose of voting on, among other
things, proposals for the removal of ten incumbent directors of the Corporation
and the election of up to three AMG director nominees. The calling of the
special meeting for these purposes has disrupted the Corporations business,
primarily due to the significant amount of management time that has been
required to be devoted to the meeting (including the preparation of solicitation
materials, responding to any comments raised by the SEC, and the time required
to be devoted to soliciting proxies from shareholders) and other uncertainties,
including litigation with AMG and its principals. This disruption may result in
uncertainty and instability that could create greater risks for the Corporation
and its shareholders going forward, particularly during a period of significant
economic turmoil and tremendous uncertainty, such as the markets are
experiencing today. If AMGs efforts to unseat a majority of the Corporations
directors continue, the Corporation will likely be required to devote additional
management time and financial resources to responding to those efforts, which
could adversely affect the Corporations financial results and operations.

Item 1B. Unresolved Staff Comment
Letters

Not applicable.

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Item 2. Properties

The
Corporate Offices are located at the Corporations Main Banking Center, 457
Broadway, Lorain, Ohio, 44052. The Corporation owns the land and buildings
occupied by thirteen of its banking centers, and it leases the other eight
banking centers from various parties on varying lease terms. There is no
outstanding mortgage debt on any of the properties which the Corporation owns.
Listed below are the banking centers, loan production offices and service
facilities of the Corporation and their addresses, all of which are located in
Lorain, eastern Erie, western Cuyahoga and Summit counties of Ohio:

| | Main Banking
      Center & Corporate Offices | 457 Broadway,
      Lorain                     
| | --------------------------------------------- | -----------------------------------------------
| | Vermilion                                     | 4455 East
      Liberty Avenue, Vermilion      
| | Amherst                                       | 1175 Cleveland
      Avenue, Amherst           
| | Lake
      Avenue                             | 42935 North
      Ridge Road, Elyria Township  
| | Avon                                          | 2100 Center
      Road, Avon                   
| | Avon
      Lake                               | 32960 Walker
      Road, Avon Lake             
| | Kansas
      Avenue                           | 1604 Kansas
      Avenue, Lorain               
| | Pearl
      Avenue                            | 2850 Pearl
      Avenue, Lorain                
| | Oberlin
      Office                          | 40 East College
      Street, Oberlin          
| | Ely
      Square                              | 124 Middle
      Avenue, Elyria                
| | Cleveland
      Street                        | 801 Cleveland
      Street, Elyria             
| | Oberlin
      Avenue                          | 3660 Oberlin
      Avenue, Lorain              
| | Olmsted
      Township                        | 27095 Bagley
      Road, Olmsted Township      
| | Kendal at
      Oberlin                       | 600 Kendal
      Drive, Oberlin                
| | The
      Renaissance                         | 26376 John Road,
      Olmsted Township        
| | Chestnut
      Commons                        | 105 Chestnut
      Commons Drive, Elyria       
| | North
      Ridgeville                        | 34085 Center
      Ridge Road, North Ridgeville
| | Village of
      LaGrange                     | 546 North Center
      Street, LaGrange        
| | Westlake
      Village                        | 28550 Westlake
      Village Drive, Westlake   
| | Elyria United
      Methodist Village         | 807 West Avenue,
      Elyria                  
| | Avon Pointe Loan
      Center                 | 36711 American
      Way, Avon                 
| | Morgan
      Bank                             | 178 West
      Streetsboro Street, Hudson      
| | Operations                                    | 2130 West Park
      Drive, Lorain             
| | Maintenance                                   | 2140 West Park
      Drive, Lorain             
| | General
      Accounting                      | 2150 West Park
      Drive, Lorain             
| | Training
      Center                         | 521 Broadway,
      Lorain                     

The
Corporation also owns and leases equipment for use in its business. The
Corporate headquarters at 457 Broadway is currently 75% occupied. The remaining
space is expected to be utilized as the Corporation continues to grow. The
Corporation considers all its facilities to be in good condition, well
maintained and more than adequate to conduct the business of banking.

Item 3. Legal
Proceedings

Richard M. Osborne v. LNB Bancorp,
Inc.

On
February 26, 2008, plaintiff Richard M. Osborne, a shareholder of the
Corporation, filed a complaint against the Corporation for declaratory judgment
and preliminary and permanent injunctive relief in the United States District
Court for the Northern District of Ohio, Eastern Division, Case No. 1:08 CV
0473. Plaintiff Osborne, in his capacity as a member of AMG Investments, LLC
(AMG) and as a shareholder of the Corporation, is seeking preliminary and
permanent injunctive relief to compel the Corporation to (a) modify the agenda
of the Corporations upcoming March 18, 2008 Special Meeting of Shareholders
(the Special Meeting) to include certain proposals brought forth by AMG after
AMG delivered its formal request for the Special Meeting to the Corporation, (b)
modify the Corporations proxy statement with regard to the Special Meeting to
conform

5

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to AMGs proposals and (c) count all
proxies voted in favor of AMGs proposals at the Special Meeting. The
Corporation has stated in its proxy materials that the proposals set forth in
the Corporations proxy statement are the only matters to be voted upon at the
Special Meeting. AMG has filed its own proxy materials, in which it asks
shareholders to vote upon proposals different from those that AMG formally
requested the Corporation to address at the Special Meeting, and different from
those the Corporation included in its proxy statement. Mr. Osborne also sought
an order from the Court temporarily restraining the Corporation from
disseminating proxy materials indicating that certain of AMGs proposals will
not be voted upon at the Special Meeting. On February 28, 2008, the Court issued
an order denying Mr. Osbornes motion for a temporary restraining order. Mr.
Osborne subsequently withdrew his motion for a preliminary injunction. The
lawsuit remains pending, and the Court has yet to set any dates for discovery or
trial. On March 17, 2008, the Corporation filed an answer denying the
substantive allegations in Mr. Osbornes complaint and asserting various
affirmative defenses. The Corporation is vigorously defending against Plaintiff
Osbornes claims.

Other
than the foregoing, there are no material legal proceedings pending to which the
Corporation or its subsidiaries is a party or to which any of its property is
subject. The Corporation is occasionally involved in ordinary routine litigation
incidental to its business which it does not consider to be material.

Item 4. Submission of Matters to a
Vote of Security Holders

On
November 5, 2007, AMG Investments, LLC, a shareholder of the Corporation, filed
a definitive proxy statement with the SEC for the purpose of soliciting
authorizations from the Corporations shareholders to call a special meeting of
shareholders, pursuant to Article II, Section 2(a) of the Corporations code of
regulations, for the purpose of amending the Corporations code of regulations
to eliminate provisions establishing a classified Board of Directors and to
reduce the size of the Corporations Board of Directors, removing all but three
of the Corporations incumbent directors, and electing AMGs nominees as
directors of the Corporation. On November 21, 2007, the Corporation filed a
definitive proxy statement with the SEC for the purpose of soliciting
revocations from the Corporations shareholders for the purpose of revoking any
authorization that the shareholders may have provided to AMG with respect to
calling a special meeting of shareholders. On December 12, 2007, AMG delivered a
request for the Corporation to call a special meeting of shareholders which
referenced authorizations from shareholders who purportedly represented the
registered owners of more than 25% of the Corporations common shares on the
record date fixed for such a meeting. On December 27, 2007, the Corporation
rejected AMGs request for a meeting. It advised AMG that due to the fact that
it had used an incorrect record date for proxies submitted on behalf of the
holders of street name accounts, AMG did not submit materials indicating that it
had the requisite support necessary to call a special meeting. On January 23,
2008, AMG submitted a new request for a special meeting of shareholders, with
corrected record date information for street name accounts, and again requested
that the Corporation call a special meeting of shareholders for the purposes
referenced in its November 5, 2007 solicitation materials. On February 4, 2008,
the Corporations Board of Directors authorized the calling of a special meeting
for the purposes set forth in AMGs January 23, 2008 request, to be held on
March 18, 2008. On February 14, 2008, AMG submitted its own notice of the
special meeting, in which AMG purported to call the special meeting for the
purpose of voting on seven proposals, some of which were different from or
inconsistent with the proposals included in the Corporations notice of special
meeting. On February 28, 2008, AMG, together with its managing members, and the
Corporation each filed definitive proxy statements with the SEC for the purposes
of soliciting proxies from the Corporations shareholders with respect to the
matters to be voted upon at the special meeting. As discussed above in Item 3.
Legal Proceedings, a disagreement exists between the Corporation and AMG
concerning the matters to be addressed at this meeting.

6

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SUPPLEMENTAL ITEM  EXECUTIVE
OFFICERS OF THE REGISTRANT

Pursuant
to Form 10-K, General Instruction G (3), the following information on Executive
Officers is included as an additional item in Part I:

|                          |  |    |     |                                                  |       |                                       |                   | Executive
|------------------------- |  | -- | --- | ------------------------------------------------ | ----- | ------------------------------------- | ----------------- | ---------
|                          |  |    |     | Principal
      Occupation For Past Five         |       | Positions
      and Offices Held with |                   | Officer  
|Name                      |  |    | Age |                                                  | Years |                                       | LNB Bancorp, Inc. |          
|Daniel E. Klimas          |  | 49 |     | President and Chief Executive Officer,           |       | President and Chief                   |                   | 2005     
|                          |  |    |     | LNB Bancorp, Inc., February 2005 to              |       | Executive Officer                     |                   |          
|                          |  |    |     | present. President, Northern Ohio Region,        |       |                                       |                   |          
|                          |  |    |     | Huntington Bank from 2001 to February            |       |                                       |                   |          
|                          |  |    |     | 2005.                                            |       |                                       |                   |          
|Paul
      A. Campagna    |  | 47 |     | Senior Vice
      President, LNB Bancorp, Inc.   |       | Senior Vice
      President           |                   | 2004     
|                          |  |    |     | April 2002 to
      present. Vice President,     |       |                                       |                   |          
|                          |  |    |     | Premier Bank and
      Trust from 1998 to        |       |                                       |                   |          
|                          |  |    |     | 2002.                                            |       |                                       |                   |          
|Mary E. Miles             |  | 49 |     | Senior Vice President, LNB Bancorp, Inc.         |       | Senior Vice President                 |                   | 2005     
|                          |  |    |     | April 2005 to present. President, Miles          |       |                                       |                   |          
|                          |  |    |     | Consulting, Inc. from 2001 to 2005.              |       |                                       |                   |          
|Frank
      A. Soltis     |  | 55 |     | Senior Vice
      President, LNB Bancorp,        |       | Senior Vice
      President           |                   | 2005     
|                          |  |    |     | Inc. July 2005
      to present. Senior Vice     |       |                                       |                   |          
|                          |  |    |     | President,
      Lakeland Financial Corporation, |       |                                       |                   |          
|                          |  |    |     | 1997 to
      2005.                              |       |                                       |                   |          
|David S. Harnett          |  | 56 |     | Senior Vice President and Chief Credit           |       | Senior Vice President and             |                   | 2007     
|                          |  |    |     | Officer, LNB Bancorp, Inc. August 2007           |       | Chief Credit Officer                  |                   |          
|                          |  |    |     | to present. Senior Lender and Chief Credit       |       |                                       |                   |          
|                          |  |    |     | Officer January 2006 to August 2007 and          |       |                                       |                   |          
|                          |  |    |     | Senior Vice President and Chief Credit           |       |                                       |                   |          
|                          |  |    |     | Officer January 2002 to January 2006 of          |       |                                       |                   |          
|                          |  |    |     | the Cleveland, Ohio affiliate of Fifth Third     |       |                                       |                   |          
|                          |  |    |     | Bank.                                            |       |                                       |                   |          
|Sharon
      L. Churchill |  | 53 |     | Chief Financial
      Officer and Principal      |       | Chief Financial
      Officer         |                   | 2006     
|                          |  |    |     | Accounting
      Officer, LNB Bancorp,           |       | and Principal
      Accounting        |                   |          
|                          |  |    |     | Inc., March 2007
      to present. Principal     |       | Officer                               |                   |          
|                          |  |    |     | Accounting
      Officer and Controller, LNB     |       |                                       |                   |          
|                          |  |    |     | Bancorp, Inc.
      April 2006 to March 2007;    |       |                                       |                   |          
|                          |  |    |     | Controller, LNB
      Bancorp, Inc. November     |       |                                       |                   |          
|                          |  |    |     | 2005 to March
      2007. Assistant Vice         |       |                                       |                   |          
|                          |  |    |     | President,
      Controller and Corporation      |       |                                       |                   |          
|                          |  |    |     | Secretary,
      Tele-Communications, Inc.,      |       |                                       |                   |          
|                          |  |    |     | 1988 to 2005.
      Certified Public Accountant. |       |                                       |                   |          

7

---

PART II

Item 5. Market for the Registrants
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

**Market Information; Equity
Holders; Dividends.**LNB Bancorp, Inc.
common shares, par value $1.00 per share, are traded on The NASDAQ Stock Market
® under the ticker symbol LNBB. The prices below represent the high
and low sales prices reported on The NASDAQ Stock Market ® for each
specified period. All prices reflect inter-dealer prices without markup,
markdown or commission and may not necessarily represent actual transactions.
LNB Bancorp, Inc. has paid a cash dividend to shareholders each year since
becoming a holding company in 1984. At present, the Corporation expects to pay
comparable cash dividends to shareholders in 2008 if approved by the Board of
Directors.

The
common shares of LNB Bancorp, Inc. are usually listed in publications as LNB
Bancorp. LNB Bancorp Inc.s common stock CUSIP is 502100100.

As of
February 22, 2008, LNB Bancorp, Inc. had 2,032 shareholders of record and a
closing price of $14.00 on February 22, 2008. Prospective shareholders may
contact our Investor Relations Department at (440) 244-7317 for more
information.

Common Stock Trading Ranges and Cash
Dividends Declared

2007Cash
      DividendsHigh
    
    Low
    
    Declared per shareFirst Quarter
    
    $16.44
    
    $14.65
    
    $0.18Second
      Quarter
    
    16.02
    
    14.17
    
    0.18Third Quarter
    
    15.48
    
    14.50
    
    0.18Fourth
      Quarter
    
    14.80
    
    13.25
    
    0.182006Cash
      DividendsHigh
    
    Low
    
    Declared per shareFirst Quarter
    
    $19.73
    
    $18.00
    
    $0.18Second
      Quarter
    
    19.55
    
    17.55
    
    0.18Third Quarter
    
    18.70
    
    16.77
    
    0.18Fourth
      Quarter
    
    17.31
    
    15.88
    
    0.18


8

---

The
following graph shows a five-year comparison of cumulative total returns for LNB
Bancorp, the Standard & Poors 500 Stock Index© and the Nasdaq
Bank Index.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*Among LNB Bancorp, Inc., The
S&P 500 IndexAnd The NASDAQ Bank Index



* $100 invested on 12/31/02 in stock or
index-including reinvestment of dividends. Fiscal year ending December
31.

Copyright © 2008, Standard & Poors
, a division of The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm

The graph shown above is based on
the following data points:

|Cumulative
      Total Return |  |        |  |        |  |        |  |        |  |        |  |       
|----------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|Period End Index              |  | 12/02  |  | 12/03  |  | 12/04  |  | 12/05  |  | 12/06  |  | 12/07 
|LNB Bancorp, Inc.             |  | 100.00 |  | 115.58 |  | 118.71 |  | 110.27 |  | 102.64 |  | 98.32 
|S&P
      500                 |  | 100.00 |  | 128.68 |  | 142.69 |  | 149.70 |  | 173.34 |  | 182.87
|NASDAQ Bank                   |  | 100.00 |  | 130.51 |  | 144.96 |  | 141.92 |  | 159.42 |  | 125.80

9

---

Issuer Purchases of Equity
Securities

The following table summarizes share
repurchase activity for the quarter ended December 31, 2007:

|                                     |  |                    |           |                          |                           |                         |             | (d)                    
|------------------------------------ |  | ------------------ | --------- | ------------------------ | ------------------------- | ----------------------- | ----------- | -----------------------
|                                     |  |                    |           |                          |                           | (c)                     |             | Maximum                
|                                     |  |                    |           |                          |                           | Total
      number of   |             | number
      of        
|                                     |  | (a)                |           |                          |                           | shares (or
      units) |             | shares (or
      units)
|                                     |  | Total
      number |           |                          |                           | purchased
      as      |             | that may
      yet be  
|                                     |  | of
      shares    |           | (b)                      |                           | Part of
      Publicly  |             | purchased
      under  
|                                     |  | (or
      units)   |           | Average
      price paid |                           | announced
      Plans   |             | the
      plans        
|Period                               |  |                    | Purchased |                          | per share (or
      Unit) |                         | or Programs |                        
|October 1, 2007-October 31, 2007     |  |                   |           | n/a                      |                           |                        |             | 129,500                
|November 1, 2007 - November 30, 2007 |  |                   |           | n/a                      |                           |                        |             | 129,500                
|December 1, 2007 - December 31, 2007 |  |                   |           | n/a                      |                           |                        |             | 129,500                
|Total                                |  |                   |           | n/a                      |                           |                        |             | 129,500                

On July
28, 2005, the Corporation announced a share repurchase program of up to 5
percent, or about 332,000, of its common shares outstanding. Repurchased shares
can be used for a number of corporate purposes, including the Corporations
stock option and employee benefit plans. Under the share repurchase program,
share repurchases are expected to be made primarily on the open market from
time-to-time until the 5 percent maximum is repurchased or the earlier
termination of the repurchase program by the Board of Directors. Repurchases
under the program will be made at the discretion of management based upon
market, business, legal and other factors. As of December 31, 2007, the
Corporation had repurchased an aggregate of 202,500 shares under this
program.

10

---

Item 6. Selected Financial
Data

Five Year Consolidated Financial
Summary

|                                                          | Year Ended December 31,                                                   
|--------------------------------------------------------- | --------------------------------------------------------------------------
|                                                          | 2007                                                                      
|                                                          | (Dollars in thousands except
      share and per share amounts and ratios)
|Total interest
      income                               | $                                                                         
|Total interest
      expense                              |                                                                           
|Net interest income                                       |                                                                           
|Provision for Loan
      Losses                           |                                                                           
|Other
      income                                        |                                                                           
|Net gain (loss) on sale of
      assets                   |                                                                           
|Other
      expenses                                      |                                                                           
|Income before income
      taxes                          |                                                                           
|Income
      taxes                                        |                                                                           
|Net
      income                                          | $                                                                         
|Cash dividend
      declared                              | $                                                                         
|Per Common Share(1)(2)                                    |                                                                           
|Basic earnings                                            | $                                                                         
|Diluted earnings                                          |                                                                           
|Cash dividend declared                                    |                                                                           
|Book
      value per share                                | $                                                                         
|Financial
      Ratios                                    |                                                                           
|Return
      on average assets                            |                                                                           
|Return on average common equity                           |                                                                           
|Net
      interest margin (FTE)(3)                        |                                                                           
|Efficiency ratio                                          |                                                                           
|Period
      end loans to period end deposits             |                                                                           
|Dividend payout                                           |                                                                           
|Average shareholders equity to average assets            |                                                                           
|Net charge-offs to average loans                          |                                                                           
|Allowance for loan losses to period end total
      loans |                                                                           
|Nonperforming loans to period end total
      loans       |                                                                           
|Allowance for loan losses to nonperforming loans          |                                                                           
|At Year
      End                                         |                                                                           
|Cash
      and cash equivalents                           | $                                                                         
|Securities                                                |                                                                           
|Gross
      loans                                         |                                                                           
|Allowance for loan losses                                 |                                                                           
|Net
      loans                                           |                                                                           
|Other assets                                              |                                                                           
|Total
      assets                                        |                                                                           
|Total deposits                                            |                                                                           
|Borrowings                                                |                                                                           
|Other liabilities                                         |                                                                           
|Total
      liabilities                                   |                                                                           
|Total shareholders equity                                |                                                                           
|Total liabilities and
      shareholders equity          | $                                                                         

|(1) |  | Basic and diluted earnings per
      share are computed using the weighted-average number of shares outstanding
      during each year.                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | All share and per share data has
      been adjusted to reflect the three-for-two stock split in
    2003.                                                                                                            
|   
|(3) |  | Tax exempt income was converted
      to a fully taxable equivalent basis at a 35% statutory Federal income tax
      rate in 2003 and 2004, and a 34% statutory Federal income tax rate in
      2005, 2006 and 2007.
|   

11

---

Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Introduction

The
Corporation competes in the Cleveland, Ohio market as defined by the Federal
Reserve Bank. This market includes most of northeast Ohio. Prior to 2006, the
Corporations presence was historically limited to Lorain County. The
Corporations strategy has been to strengthen its commitment for better customer
service and visibility by expanding its market presence in northeast Ohio. Over
the past two years, the Corporation has been successful in broadening its
footprint into Cuyahoga and Summit Counties. During 2007, the Corporation
completed the successful acquisition of Hudson-based Morgan Bank, located in one
of the most affluent demographic markets in Ohio. Full service offices were
opened at Chestnut Commons in Elyria, Ohio in January 2007 as well as North
Ridgeville during 2006. In addition, during this period, the Corporation opened
a business development office in Independence in Cuyahoga County and a
commercial real estate office in Avon Pointe in Avon resulting in strong
commercial banking growth. Both the Cuyahoga County and Avon offices are staffed
with commercial banking and treasury management professionals.

While
making these significant investments for the future, the Corporation continued
to address the economic realities in its historical market. 2007 proved to be a
challenging competitive environment and a difficult banking environment with a
flat yield curve for much of the year, followed by a rapidly changing yield
curve in the fourth quarter. While the Corporation does not expect the local and
national economic conditions to improve substantially for at least the next
several months, the Corporation continues to work on strategies to further
increase net interest margin and reduce nonperforming loans. The Corporation
experienced solid growth in commercial loans during the year. Due to a strong
focus on credit quality, the Corporation has managed to avoid the subprime
mortgage issues facing other banks. The Companys progress in improving its
credit quality in the commercial real estate development sector is reflected in
a lower level of nonperforming loans at December 31, 2007 as compared to
December 31, 2006. While the expansion strategy is an important investment in
the future, it added to the overall expense structure of the Corporation.

Key Indicators and Material Trends(Dollars in thousands)

Net
interest income growth continues to be a challenge in the banking industry. The
Corporation, like many Midwestern banks, continues to deal with a rapidly
changing Treasury yield curve, tougher competition and challenging local
economic conditions. Since the Corporation is highly dependent on net interest
income for its revenue, minimizing net interest margin compression is a very
important factor in the Corporations financial performance. The net interest
margin for 2007 was 3.39 percent versus 3.78 percent for 2006. During the second
quarter of 2007, the Company completed two private offerings of trust preferred
securities which reduced the net interest margin 10 basis points for 2007. The
Corporation experienced solid growth in its commercial loan portfolio during
2007, which, in combination with a strong low-cost retail deposit base, has
historically strengthened net interest margin. Noninterest-bearing deposits,
while weak in 2006, increased just slightly in 2007; however, interest- bearing
demand deposits grew 35.6%. A major highlight of the second quarter this year
was the successful completion of the acquisition of Morgan Bank, N.A. of Hudson,
Ohio and its wholly-owned subsidiary, Morgan Bank, N.A. The acquisition expanded
the Corporations market area to include Summit County.

Generation of noninterest income is important to the long-term success of
the Corporation. Fee income from deposit service charges and electronic banking
continued to increase during 2007 in part due to the Corporations continued
aggressive sales and marketing efforts, which focus on strengthening recurring
sources of noninterest income. During 2007, the Corporation established a
secondary market mortgage sales program. This, in combination with the sale of
high quality indirect loans to the secondary market, produced additional
noninterest income in the form of gains and servicing fees.

Asset
quality generally is a key indicator of financial strength, and the Corporation
continues to manage credit risk aggressively. The Corporations progress in
improving its credit quality is reflected in a lower level of nonperforming
loans at December 31, 2007, as compared to December 31, 2006. During 2006, it
became evident that the slowing housing market and general local economic
weakness was impacting the Corporations commercial and residential real estate
portfolios. While net charge-offs in 2007 were at the lowest level since 2002,
they continued to be above the levels experienced by banks of comparable size,
and, thus, are an area in

12

---

which the Corporation intends to focus
on improvement. In 2007, the level of nonperforming loans decreased over the
prior year from $12,812 at December 31, 2006 to $10,831 at December 31, 2007.
While the Corporation intends to continue to work on decreasing nonperforming
loans, total delinquency has declined from 2.9% at year-end 2006 to 2.3% at
December 31, 2007. Total nonperforming loans as a percentage of total loans is
improving, totaling 1.4% at December 31, 2007 as compared to 2.0% at December
31, 2006.

Since the
ability to generate deposits is a key indication of the Corporations ability to
meet its liquidity needs and fund profitable asset growth, it is a significant
measure of the success of the Corporations business plan. As measured by the
FDIC at June 30, 2007, the Corporations market share of deposits grew to 19.5%
from 19.0% in 2006. This compared to 17.8% five years ago. The Corporation
continues to do well in its historically strong city markets of Lorain, Elyria
and Amherst, and is pleased with the performance of its newer offices in the
eastern parts of Lorain county, as well as Summit and Cuyahoga
counties.

Results of Operations(Dollars in thousands except per share
data)

Summary of
Earnings

Net
income in 2007 was $5,512 or $.79 per diluted share, up from $5,424 or $.84 per
diluted share in 2006, and down from $6,413 or $.97 per diluted share in 2005.
Earnings per diluted share in 2007 were affected by the issuance of 851,990
shares in May, 2007 as part of the acquisition of Morgan Bancorp. During the
fourth quarter of 2006 and continuing into the first quarter of 2007, asset
quality issues negatively impacted the Corporations overall performance. While
credit quality remains a negative factor in earnings on an annual basis,
nonperforming loans decreased during the remainder of 2007, which is a
reflection of additional controls implemented over the credit administration
process. The majority of this improvement was due to loans becoming current or
paid-off. Much of the growth in net income came in the second half of the year
which increased 54% over the first half of 2007.

In 2007,
net interest income increased 3.7% to $29,670 from $28,607 in 2006. While some
of this increase was attributable to assets acquired in the acquisition of
Morgan Bank, the Company also experienced solid growth in commercial loans and
an increase in interest income from securities. The net interest margin at
December 31, 2007 was 3.4% versus 3.8% for 2006. During the second quarter of
2007, the Company completed two private offerings of trust preferred securities
which reduced the net interest margin 10 basis points for 2007. During 2006 and
throughout 2007, the flattening of the Treasury yield curve and the impact of
competition on loan and deposit pricing, resulted in prolonged compression in
the net interest margin.

Noninterest income in 2007 was $11,499, an increase of $1,748 over 2006.
Included in 2007 were gains of $766 from the sale of mortgage and installment
loans to the secondary market. During the first quarter of 2007, the Corporation
established a secondary market mortgage sales program, through which the
Corporation sold mortgage loans to Freddie Mac. The sale of high quality
indirect loans was a primary activity of Morgan Bank prior to the acquisition,
and is being continued by the Corporation. Other types of noninterest income
grew as well in 2007 in comparison to 2006, including an increase of $598 in
service charges on deposit accounts and ATM charges reflecting continued
momentum in fee-based services. Investment and trust services increased $91, or
4.4%, over 2006.

The
Morgan Bank acquisition was a continuation of the Corporations strategy to
strengthen its commitment for better customer service and visibility by
expanding its market presence in Lorain County, Cuyahoga County and, with the
completion of the acquisition, Summit County. Full service offices were opened
at North Ridgeville during 2006 as well as Chestnut Commons in Elyria, Ohio in
January 2007. In addition, in June 2006, a Cuyahoga County loan production
office was opened. During the first quarter of 2007, the Westlake, Ohio loan
production office was relocated to Avon Pointe plaza in the Avon, Ohio area.
Both the Cuyahoga County and Avon offices are staffed with commercial banking
and treasury management professionals. While making these significant
investments for the future, the Corporation has had success in limiting related
increases in overhead expense. The $2,766 increase in noninterest expense during
2007 includes operating costs associated with these new service and facility
additions, as well as increases in legal and other carrying costs associated
with non-performing assets.

13

---

As a
percent of average assets, net income in 2007 represents a return of .58%. This
compares to .66% and .81% in 2006 and 2005, respectively. Return on assets is
one measurement of operating efficiency. As a percent of average shareholders
equity this represents a return of 7.1% as compared to 7.9% and 9.1% in 2006 and
2005, respectively. Return on shareholders equity is a measure of how well the
Corporation employs leverage to maximize the return on the capital it
employs.

2007 versus 2006 Net
Interest Income Comparison

Net
interest income is the difference between interest income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The Corporation reviews net interest income on a fully taxable
equivalent basis, which presents interest income with an adjustment for
tax-exempt interest income on an equivalent pre-tax basis assuming a 34%
statutory Federal tax rate. These rates may differ from the Corporations actual
effective tax rate. Net interest income is affected by changes in the volumes,
rates and the composition of interest-earning assets and interest-bearing
liabilities. The net interest margin is net interest income as a percentage of
average earning assets.

Table 1
summarizes net interest income and the net interest margin for the three years
ended December 31, 2007.

Table 1: Net Interest
Income

Year ended December 31,2007
    
    2006
    
    2005(Dollars in thousands)Net interest income
    $
    29,670
    
    
    $
    28,607
    
    
    $
    30,030Tax equivalent
      adjustments
    
    382
    
    
    
    269
    
    
    
    201Net interest income (FTE)
    $
    30,052
    
    
    $
    28,876
    
    
    $
    30,231Net interest
      margin
    
    3.35
    %
    
    
    3.74
    %
    
    
    4.06
    %Tax equivalent adjustments
    
    0.04
    %
    
    
    0.04
    %
    
    
    0.03
    %Net interest
      margin (FTE)
    
    3.39
    %
    
    
    3.78
    %
    
    
    4.09
    %


Yields

Table 2
reflects the detailed components of the Corporations net interest income for
each of the three years ended December 31, 2007. Rates are computed on a tax
equivalent basis and nonaccrual loans are included in the average loan balances.

The
Corporations net interest income on a fully tax equivalent basis was $30,052 in
2007, which compares to $28,876 in 2006. This follows a decrease of $1,355, or
4.5% between 2006 and 2005. The net interest margin, which is determined by
dividing tax equivalent net interest income by average earning assets, was 3.4%
in 2007, or a decrease of 39 basis points from 2006. This follows a decrease of
31 basis points in 2006 as compared to 2005. The decline in net interest income
in 2007 was the result of a continued flat Treasury yield curve and competitive
pressures.

14

---

Table 2: Condensed Consolidated
Average Balance Sheets

Interest, Rate, and Rate/ Volume
differentials are stated on a Fully-Tax Equivalent (FTE) Basis.

|                                           | Year ended December 31,     
|------------------------------------------ | ----------------------------
|                                           | 2007                        
|                                           | Average                     
|                                           | Balance                     
|                                           | (Dollars in
      thousands)
|Assets:                                    |                             
|U.S. Govt
      agencies and corporations, |                             
|Federal Home Loan Bank stock and           |                             
|Federal Reserve Bank stock                 | $                           
|State and
      political subdivisions     |                             
|Federal funds
      sold and short-term    |                             
|investments.                               |                             
|Commercial
      loans                     |                             
|Real estate
      mortgage loans           |                             
|Home equity lines
      of credit          |                             
|Purchased
      installment loans          |                             
|Installment
      loans                    |                             
|Total Earning Assets                       | $                           
|Allowance for
      loan loss              |                             
|Cash and due from
      banks              |                             
|Bank owned life
      insurance            |                             
|Other
      assets                         |                             
|Total Assets                               | $                           
|Liabilities
      and Shareholders' Equity |                             
|Consumer time
      deposits               | $                           
|Public time
      deposits                 |                             
|Brokered time
      deposits               |                             
|Savings
      deposits                     |                             
|Interest-bearing
      demand              |                             
|Short-term
      borrowings                |                             
|FHLB
      advances                        |                             
|Trust preferred
      securities           |                             
|Total Interest-Bearing Liabilities         | $                           
|Noninterest-bearing deposits               |                             
|Other
      liabilities                    |                             
|Shareholders'
      Equity                 |                             
|Total Liabilities and                      |                             
|Shareholders' Equity                       | $                           
|Net interest
      Income (FTE)            |                             
|Taxable
      Equivalent Adjustment        |                             
|Net Interest
      Income Per              |                             
|Financial Statements                       |                             
|Net Yield on
      Earning Assets          |                             

Average
Balances

Average
earning assets increased $122,933, or 16.1%, to $886,832 in 2007 as compared to
$763,899 for the same period of 2006. Average loans increased $97,282, or 16.2%,
to $698,401 in 2007 as compared to $601,119 in 2006. The Morgan Bank
acquisition, which was completed on May 10, 2007, contributed approximately
$92,042 in portfolio loans, primarily indirect auto loans of $52,305, and
commercial loans of $26,146. Loan growth in all areas of the portfolio
contributed to the average increase of $97,282 with an increase in the
commercial loan portfolio of $30,533, an increase in installment loans of
$41,851, an increase in home equity loans of $8,527 and an increase of $16,371
in mortgage loans. The increase in average loans was primarily funded with
$113,945 of deposit growth. During 2007, average consumer time deposits
increased $77,327, and public time deposits

15

---

increased $15,556 as compared to 2006.
Noninterest-bearing deposits, while weak in 2006, increased just slightly in
2007 by 0.69%; however interest-bearing demand deposits grew $43,518, or 23.0%.
The Bank began to use brokered time deposits in 2004 as an alternative wholesale
funding source. Brokered time deposits have become an important and comparably
priced substitute for FHLB advances, and they require no collateralization as
compared to FHLB advances which require collateral in the form of real estate
mortgage loans and securities. The Bank was less reliant on alternative funding
which, including brokered time deposits, decreased $18,504, or 15.6%, from
2006.

Rate/Volume

Net
interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. Table 3 presents an analysis
of increases and decreases in interest income and expense in terms of changes in
volume and interest rates during the two years ended December 31, 2007. Changes
that are not due solely to either a change in volume or a change in rate have
been allocated proportionally to both changes due to volume and rate. The table
is presented on a tax-equivalent basis.

Table 3: Rate/Volume Analysis of Net
Interest Income (FTE)

|                                                    | Year Ended December 31,      
|--------------------------------------------------- | -----------------------------
|                                                    | Increase (Decrease)
      in 
|                                                    | Interest
      Income/Expense
|                                                    | in 2007 over 2006            
|                                                    | Volume                       
|                                                    | (Dollars in
      thousands) 
|U.S. Govt
      agencies and corporations           | $                            
|State and political
      subdivisions              |                              
|Federal funds
      sold and short-term investments |                              
|Commercial loans                                    |                              
|Real estate
      mortgage loans                    |                              
|Home equity lines of
      credit                   |                              
|Purchased
      installment loans                   |                              
|Installment loans                                   |                              
|Total Interest Income                               |                              
|Consumer time
      deposits                        |                              
|Public time
      deposits                          |                              
|Brokered time
      deposits                        |                              
|Savings
      deposits                              |                              
|Interest-bearing
      demand                       |                              
|Short-term
      borrowings                         |                              
|FHLB advances                                       |                              
|Trust preferred
      securities                    |                              
|Total Interest Expense                              |                              
|Net Interest
      Income (FTE)                     | $                            

The
impact of balance sheet growth and changing rates can be seen in Table 3, which
segments the change in net interest income into volume and rate components.
Total interest income on a fully tax equivalent basis was $59,144 in 2007 as
compared to $49,511 in 2006. This is an increase of $9,633 or 19.5%. Of this
increase, $7,753 was due to volume and $1,879 to rate. When comparing 2007 to
2006, the contribution from balance sheet growth improved, and rates provided a
positive contribution as well. Total interest expense was $29,092 in 2007 as
compared to $20,635 in 2006. This is an increase of $8,457, or 41.0%. Of this
increase, $5,365 was due to volume and $3,092 to rate.

Although
difficult to isolate, changing customer preferences and competition impact the
rate and volume factors. Competitive margin pressure and stiff competition in
our markets resulted in a $1,213 reduction in net interest income due to rising
rates. This was offset by an increase in net interest income of $2,388 due to
increases in the volume of loans and deposits, for a resulting increase in net
interest income (FTE) of $1,175.

16

---

2006 versus 2005 Net
Interest Income Comparison

The
Corporations net interest income on a fully tax equivalent basis was $28,876 in
2006, which compares to $30,231 in 2005, and is a decrease of $1,355, or 4.5%,
from 2005. The net interest margin, which is determined by dividing tax
equivalent net interest income by average earning assets, was 3.78% in 2006, or
a decrease of 31 basis points from 2005. This follows an increase of 8 basis
points in 2005 as compared to 2004. The decline in net interest income in 2006
was the result of a flat Treasury yield curve, competitive pressures and a
change in deposit mix from low-cost to higher-cost sources.

Average
earning assets increased $24,379, or 3.3%, to $763,899 in 2006 as compared to
$739,520 for the same period of 2005. Average loans increased $16,357, or 2.8%,
to $601,119 in 2006 as compared to $584,762 in 2005. The average increase of
$16,357 was due primarily to an increase in the commercial loan portfolio of
$10,807, an increase in installment loans of $2,111, an increase in home equity
loans of $2,199 and an increase of $4,872 in purchased installment loans.
Partially offsetting this growth was runoff of real estate mortgages of $3,632.
Loan growth in all areas, except installment loans, was slower in 2006 than what
had been experienced in 2005 and 2004. The increase in average loans was
primarily funded with $44,033 of deposit growth. Noninterest-bearing deposits
were weak in 2006 declining $8,953, or 9.7%, however interest- bearing deposits
grew $52,986, or 9.8%. The interest-bearing deposit growth experienced in
consumer time deposits was $32,754, or 18.2%, interest-bearing demand growth was
$15,838, or 9.1%, brokered time deposit growth was $12,774, or 31.2% and public
time deposit growth was $7,103, or 15.1% . Offsetting a portion of this growth
was a $15,483 decline in savings deposits. The Bank began to use brokered time
deposits in 2004 as an alternative wholesale funding source. Brokered time
deposits have become an important and comparably priced substitute for FHLB
advances, and they require no collateralization as compared to FHLB advances
which require collateral in the form of real estate mortgage loans and
securities.

Total
interest income was $49,511 in 2006 as compared to $43,633 in 2005, an increase
of $5,878, or 13.5% . Of this increase, $1,756 was due to volume and $4,123 to
rate. When comparing 2006 to 2005, the contribution from balance sheet growth
improved, and rates provided a positive contribution as well. Total interest
expense was $20,635 in 2006 as compared to $13,402 in 2005. This is an increase
of $7,233, or 54.0% . Of this increase, $1,991 was due to volume and $5,242 to
rate.

While
rising rates generally benefit the Corporation, competitive margin pressure and
stiff competition in our markets in 2006 resulted in a $1,119 reduction in net
interest income due to rising rates. Also impacting the net interest margin was
a continuing shift of savings accounts to higher cost money market accounts and
retail time deposits. The deposit mix changes during 2006 resulted in a $235
reduction in net interest income due to volume decreases. Additionally, the
Corporation continued to increase its use of brokered time deposits during this
period, which were more expensive than deposits generated through our retail
branch system.

Noninterest
Income

Table 4: Details of Noninterest
Income

|                                           | Year ended December 31,
|------------------------------------------ | -----------------------
|                                           |                        
|                                           | 2007                   
|                                           |                        
|Investment and trust services              | $                      
|Deposit service
      charges              |                        
|Other service charges and fees             |                        
|Mortgage banking
      revenue             |                        
|Income from bank owned life insurance      |                        
|Other
      income                         |                        
|Total fees and other income                |                        
|Gain (loss) on
      sale of securities    |                        
|Gain on sale of loans                      |                        
|Gains (loss) on
      sale of other assets |                        
|Total noninterest
      income             | $                      

17

---

***2007 vs 2006 Noninterest Income
Comparison***

Total
noninterest income was $11,499 in 2007 as compared to $9,751 in 2006. This was
an increase of $1,748, or 17.9%. Core noninterest income, which consists of
noninterest income before other income and gains and losses, was $9,966 in 2007
as compared to $9,299 in 2006. This was an increase of $667, or
7.2%.

Trust and investment management fees
increased $91, or 4.4%, during 2007 in comparison to 2006. Net trust commission
decreased $10, or 3.0%, in 2007 from the same period in 2006. This was offset by
an increase in net brokerage fee income, through Investment Centers of America,
Inc., which was $136 in 2007, in comparison to $35 in 2006, due to increased
marketing efforts in this area.

Overall,
deposit service charges and electronic banking fees increased 9.0% to $7,064 in
2007, as compared to $6,481 in 2006. Deposit service charges consist largely of
overdraft, stop payment and return item fees amounting to $4,052 during 2007.
Electronic banking fees include debit, ATM and merchant services. Management
attributes this continued momentum in overall growth to continued aggressive
sales and marketing efforts.

Other
income was $396 in 2007 as compared to $215 in 2006. This was an increase of
$181, or 84.2%. Other income consists of miscellaneous fees such as safe deposit
box rentals and fees, gift card income and Other Real Estate Owned rental
income. Also included in other income are servicing fees from sold loans. During
2007, the Corporation established a secondary market mortgage sales program,
through which the Corporation sold mortgage loans to Freddie Mac. The
Corporation also sold high quality indirect loans, generated primarily through
Morgan Bank. The Corporation retains the servicing rights for both sold
mortgages and indirect loans. Income produced from servicing fees for 2007
increased $160 over 2006. Gains on the sale of mortgage and indirect loans
during 2007 were $362 and $404, respectively.

Gains on
the sale of Other Real Estate Owned were $87 in 2007; in addition $10 was
recorded on the sale and/or disposal of miscellaneous assets. During the fourth
quarter of 2006, the land and buildings formerly housing the Westlake Loan
Production Office, were sold resulting in a gain of $231. Gains on the sale and
mark-to-market adjustments of trading securities were $274 during
2007.

***2006 vs 2005 Noninterest Income
Comparison***

Total
noninterest income was $9,751 in 2006 as compared to $10,377 in 2005. This was a
decrease of $626, or 6.0%. Core noninterest income, which consists of
noninterest income before other income and gains and losses, was $9,299 in 2006
as compared to $9,613 in 2005. This was a decrease of $314, or 3.3%.

Trust and
investment management fees increased $139, or 7.2%, during 2006 in comparison to
2005. Net trust commission increased $112, or 5.8%, in 2006 over the same period
in 2005. Net brokerage fee income, through Investment Centers of America, Inc.,
was $35 in 2006, in comparison to $8 in 2005. Trust and investment management
fee revenue was positively impacted by the performance of the S&P 500 index
and pricing adjustments, which more than offset competitive pressures.

Deposit
service charges were $4,533 in 2006 as compared to $4,219 in 2005. This was an
increase of $314, or 7.4%. Charges and fees, consisting primarily of overdraft
fees, increased $471, or 14.1%, in 2006 over the same period 2005. Management
attributes this overall growth to aggressive sales and marketing efforts this
year. The Corporation, however, experienced weaker business account growth
during 2006 compared in 2005.

Electronic banking fees were $1,948 in 2006 as compared to $1,895 in
2005. This is an increase of $53, or 2.8%. Electronic banking fees include
debit, ATM and merchant services. Merchant service income, which is outsourced
and a fee is received, increased $58, or 7.2%, over 2005. ATM fees increased
$13, or 1.8%, over 2005.

During
the fourth quarter 2005, the operations of LNB Mortgage, LLC were closed. This
eliminated the mortgage banking revenue as well as the expenses related to its
generation.

Income
from bank owned life insurance increased $139, or 23.2%, in 2006 as compared to
2005. This increase is attributed to improvement in market performance which is
reflected in the credit rates.

18

---

Other
income was $215 in 2006 as compared to $479 in 2005. This was a decrease of
$264, or 55.1%. During 2005 certain loans, which were not appropriate for the
Corporations portfolio, were placed with another financial institution for a
fee. This resulted in $196 in revenue during 2005. There were no such
transactions during 2006. Charleston Title Agency, a 49% owned subsidiary of the
Corporation, was dissolved during the third quarter of 2006. Revenue generated
from this Agency was $23 in 2006 as compared to $35 in 2005.

During
the fourth quarter of 2006, the land and buildings formerly housing the Westlake
LPO, were sold resulting in a gain of $231. During 2005 several small equity
securities and non-rated municipal bonds were sold resulting in a gain of $173.
Gain on sale of loans was $132 in 2005. During 2006, a gain of $5 was recognized
on the sale of other real estate owned.

***Noninterest Expense***

Table 5: Details on Noninterest
Expense

|                               | Year ended December 31,
|------------------------------ | -----------------------
|                               |                        
|                               | 2007                   
|                               | (Dollars in thousands) 
|Salaries and employee benefits | $                      
|Furniture and
      equipment  |                        
|Net occupancy                  |                        
|Outside
      services         |                        
|Marketing and public relations |                        
|Supplies and
      postage     |                        
|Telecommunications             |                        
|Ohio Franchise
      tax       |                        
|Electronic banking expense     |                        
|Other
      expense            |                        
|Total noninterest expense      | $                      

***2007 versus 2006 Noninterest Expense Comparison***

Noninterest expense was $31,751 in 2007 as compared to $28,985 in 2006.
This is an increase of $2,766, or 9.5%. Increases of approximately $1,101 in
occupancy, postage, supplies and delivery, telephone and furniture and equipment
primarily are associated with the Morgan acquisition as well as other facilities
opened over the past two years. The increase of $54 in intangible assets
includes the amortization of core deposit intangibles also related to the Morgan
acquisition. Morgan contributed approximately $365 of salaries and employee
benefit expense in 2007. While making these significant investments for the
future, the Company has had success in limiting related increases in overhead
expense, with a less than a 10% overall increase in noninterest expense over the
previous year. The increase in noninterest expense also includes an increase of
$454 in expenses related to Other Real Estate Owned such as real estate taxes
and insurance costs, as well as an increased level of other operating
charge-offs and losses primarily related to overdrafts as the economy continues
to weaken. Operating charge-offs increased $166 in 2007 over the same period in
2006.

***2006 versus 2005 Noninterest Expense Comparison***

Noninterest expense was $28,985 in 2006 as compared to $30,267 in 2005.
This is a decrease of $1,282, or 4.2%. During the second quarter of 2005, $1,218
of noninterest expense was recorded in salary and benefits and other noninterest
expense categories that were specifically attributable to activities related to
building a long-term business plan, including several management and personnel
changes, and job eliminations. In addition, during the fourth quarter 2005, the
Corporation closed the operations of LNB Mortgage, LLC as a separate business
entity and absorbed mortgage lending into the operations of the Bank. As a
result, $1,716 of operating expense which was present during 2005 was no longer
a factor with respect to noninterest expense during 2006.

19

---

Salaries
and employee benefits were $14,894 in 2006 as compared to $15,057 in 2005.
Included in 2005 was $972 of this expense from LNB Mortgage, LLC. Eliminating
this expense, salary and employee benefit expense in 2006 increased $809, or
5.7%, in comparison to 2005. The increase in salary and benefit expense reflects
the addition of sales personnel related to market expansion into Cuyahoga County
during 2006, as well as personnel for two new branches.

Furniture
and equipment decreased $17, or 0.6%, in 2006 as compared to 2005. Leased
equipment expense increased $81 over 2005, primarily due to new mainframe
computer and telephone equipment leases placed in service in mid 2005. 2006
carried the full expense of these leases. The increase in leased equipment cost
was off-set by a decrease in depreciation expense of $97.

Net
occupancy expense was $1,905 in 2006 as compared to $1,830 in 2005. This was an
increase of $75, or 4.1%. This was primarily attributable to expansion into
Cuyahoga County in June of 2006 and the addition of the North Ridgeville office,
and increased real estate taxes and facilities maintenance costs associated with
the addition of these facilities. This was somewhat offset by the elimination of
expenses related to LNB Mortgage, LLC.

Outside
services decreased $316, or 16.4%, in 2006 as compared to 2005. Legal expenses
in 2005 were approximately $200 higher due to corporate governance and executive
compensation work, as well as $150 for consulting work related to the technology
area and commercial portfolio.

Marketing
and public relations expense increased $30, or 2.4% in 2006 as compared to 2005.
This was primarily the result of increased media advertising for deposits and
higher productions costs, as well as promotion of new facilities.

Postage and supplies expense
approximated that of 2005, with a decrease of $9, or .7% in 2006.

Telecommunications expense was $751 in 2006 as compared to $1,167 in
2005. This was a decrease of $416, or 35.6%. During 2005, the Bank upgraded its
voice and data telecom systems to provide enhanced service and reliability. All
redundant expenses related to this project were eliminated in 2006.

Ohio
Franchise tax expense in 2006 increased $45, or 5.8%, over 2005. This is an
equity based tax paid by the Corporation and its subsidiaries. In 2006, the Bank
and its subsidiary, North Coast Community Development Corporation, were paying
higher franchise taxes based on equity accumulation.

Electronic banking expense was $618 in 2006 as compared to $542 in 2005.
This increase is primarily the result of increased fees associated with
bank-issued debit cards as a result of the transaction growth experienced in the
number of new checking accounts.

Other
expense decreased $587, or 16.9%, in 2006 as compared to 2005. Included in this
decrease was a single charge-off for an ATM loss of $82 during the first quarter
2005. Also included in other noninterest expense for 2005 was a goodwill
impairment expense of $311 for LNB Mortgage, LLC. Charge-offs associated with
overdrafts decreased $51 during 2006 as compared to 2005. Loan and collection
expense decreased $71 in 2006 as compared to 2005.

2007 versus 2006 Income
taxes

The
Corporation recognized tax expense of $1,651 during 2007 and $1,669 for 2006.
This is a decrease of $18, or 1.1% from 2006. The Corporations effective tax
rate was 23.1% for 2007 as compared to 23.5% for the same period 2006. On
December 29, 2003, North Coast Community Development (NCCDC), a wholly owned
subsidiary of The Lorain National Bank, received official notification of a new
market tax credit award. Over the remaining nine years of the award, it is
expected that projects will be financed, which should improve the overall
economic conditions in Lorain County, and generate additional interest income
through the funding of qualified loans to these projects and tax credits for the
Corporation. The Corporation had total qualified investments in NCCDC of $8,620
at December 31, 2007, generating a tax credit of $476. At December 31, 2006
qualified investments in NCCDC were $8,020, generating a tax credit of $401.
Investment tax credit for the first three years is 5%, and 6% for the next four
for each layer added.

20

---

2006 versus 2005
Income taxes

The
Corporation recognized tax expense of $1,669 during 2006 and $2,479 for 2005.
This is a decrease of $810, or 32.7% from 2005. The Corporations effective tax
rate was 23.5% for 2006 as compared to 27.9% for the same period 2005. New
market tax credit being generated by North Coast Community Development, a wholly
owned subsidiary of The Lorain National Bank, was at a higher level during the
2006 as compared to 2005. On December 29, 2003, NCCDC received official
notification of this tax credit award. The Corporation had total qualified
investments in NCCDC of $8,020 at December 31, 2006, generating a tax credit of
$401. At December 31, 2005 qualified investments in NCCDC were $5,500,
generating a tax credit of $276.

Balance Sheet
Analysis

***Overview***

The
Corporations total assets at December 31, 2007 were $1,056,645 as compared to
$851,098 at December 31, 2006. This is an increase of $205,547, or 24.2%. Total
securities increased $58,347, or 36.7%, over December 31, 2006. Portfolio loans
increased $125,265, or 19.9%, over December 31, 2006. The acquisition of Morgan
Bancorp, Inc. and its wholly owned subsidiary, Morgan Bank, NA during the second
quarter of 2007 contributed $135,640 in assets. Total deposits at December 31,
2007 were $856,941 as compared to $717,261 at December 31, 2006. Total
interest-bearing liabilities were $875,061 as compared to $683,294 at December
31, 2006.

Securities

The
distribution of the Corporations securities portfolio at December 31, 2007 and
December 31, 2006 is presented in Note 5 to the Consolidated Financial
Statements contained within this Form 10-K. The Corporation continues to employ
the securities portfolio to manage interest rate risk and to manage its
liquidity needs. Currently, the portfolio is comprised of 15.4% trading
securities, 82.5% available for sale securities and 2.1% Federal Home Loan Bank
and Federal Reserve Bank stock. Available for sale securities are comprised of
50.7% U.S. Government agencies, 40.7% U. S. agency mortgage backed securities,
8.5% municipal securities and 0.1% miscellaneous equity securities. At December
31, 2007 the available for sale securities portfolio had a temporary unrealized
loss of $220, representing 0.1% of the total amortized cost of the Banks
available for sale securities. The unrealized loss at December 31, 2006 was
$2,771. The change year-over-year reflects the early election of SFAS 159 on
January 1, 2007 in which approximately $51,000 in securities were permanently
marked-to-market and the proceeds from sale or maturity of securities in 2007
that have been reinvested at current market rates. New investments are primarily
in three to four year average life agencies and four to five year average life
mortgage backed securities and intermediate, high quality municipal bonds.
Tables 6 and 7 present the maturity distribution of securities and the weighted
average yield for each maturity range for the year ended December 31,
2007.

Table 6: Maturity Distribution of
Available for Sale Securities at Amortized Cost

|                                       | From 1 to 5                          |         | From 5 to |   | After 10 |  | At December 31,
|-------------------------------------- | ------------------------------------ | ------- | --------- | - | -------- |  | ---------------
|                                       | Years                                |         | 10 Years  |   | Years    |  | 2007           
|                                       | **(****Dollars in
      thousands)**
|Securities available for sale:         |                                      |         |           |   |          |  |                
|U.S. Government agencies and           |                                      |         |           |   |          |  |                
|corporations                           | $                                    | 90,046  |           | $ |         |  | $              
|Mortgage backed securities             |                                      | 12,977  |           |   | 4,888    |  |                
|State and political
      subdivisions |                                      | 2,061   |           |   | 6,196    |  |                
|Equity Securities                      |                                      | 152     |           |   |         |  |                
|Total securities available for sale    | $                                    | 105,236 |           | $ | 11,084   |  | $              

21

---

Table 7: The Weighted Average Yield
for Each Range of Maturities of Securities

|                                          | From 1 to 5 |   | From 5 to |      | After 10 |  | At December 31,
|----------------------------------------- | ----------- | - | --------- | ---- | -------- |  | ---------------
|                                          | Years       |   | 10 Years  |      | Years    |  | 2007           
|Securities available for sale:            |             |   |           |      |          |  |                
|U.S. Government agencies and corporations | 4.62        | % |           | 0.00 | %        |  | 0.00           
|Mortgage backed securities                | 4.84        |   |           | 4.60 |          |  | 5.45           
|State and political subdivisions          | 6.70        |   |           | 4.29 |          |  | 3.93           
|Equity securities                         | 5.26        |   |           |     |          |  |               
|Total
      securities available for sale | 4.69        | % |           | 4.43 | %        |  | 5.28           

(1) Yields on tax-exempt obligations
are computed on a tax equivalent basis based upon a 34% statutory Federal income
tax rate.

Loans

The
detail of loan balances are presented in Note 7 to the Consolidated Financial
Statements contained within this Form 10-K.

Total
portfolio loans at December 31, 2007 were $753,598. This is an increase of
$125,265, or 19.9% over December 31, 2006. At December 31, 2007, commercial
loans represented 57.5%, and real estate mortgage loans represented 13.3% of
total portfolio loans. Consumer loans, consisting of installment loans and home
equity loans, comprised 29.2% of total portfolio loans.

Commercial loans were $433,081 at December 31, 2007. This was an increase
of $59,026, or 15.8%, over December 31, 2006. Commercial loans are primarily
made to local businesses in the form of lines-of-credit, equipment or plant
facilities to local businesses.

Consumer
loans are made to borrowers on both secured and unsecured terms dependent on the
maturity and nature of the loan. Since the acquisition of Morgan Bank in 2007,
consumer loans previously purchased from Morgan Bank, N.A, are included with
installment loans. Consumer loans increased $65,002, or 41.9%, in comparison to
December 31, 2007.

Real
estate mortgages are construction and 1-4 family mortgage loans. Construction
loans comprised $3,355 of the $100,419 real estate mortgage loan portfolio at
December 31, 2007. At December 31, 2007, mortgage loans had increased $1,237, or
1.3%, in comparison to December 31, 2006. The Corporation generally requires a
loan-to-value ratio of 80% or private mortgage insurance for loan-to-value
ratios in excess of 80%.

Loans
held for sale, and not included in portfolio loans, were $4,724 at December 31,
2007. Mortgage loans represented 31.4%, and installment loans represented 68.6%
of loans held for sale. There were no commercial loans held for sale at December
31, 2007. There were no loans held for sale at December 31, 2006.

Loan balances and loan mix are
presented by type for the five years ended December 31, 2007 in Table
8.

22

---

Table 8: Loan Portfolio
Distribution

| |                                 | At December 31,       
| | ------------------------------- | ----------------------
| |                                 | 2007                  
| |                                 | (Dollars in thousands)
| | Commercial                      | $                     
| | Real estate
      mortgage      |                       
| | Home equity lines of credit     |                       
| | Purchased
      installment     |                       
| | Installment                     |                       
| | Credit
      Cards              |                       
| | Total Loans                     |                       
| | Allowance for
      loan losses |                       
| | Net Loans                       | $                     

| |                                   | At December 31,
| | --------------------------------- | ---------------
| |                                   | 2007           
| | Loan Mix Percent                  |                
| | Commercial                        | 57.5           
| | Real Estate Mortgage              | 13.3           
| | Home Equity
      lines of credit | 10.6           
| | Purchased installment             | 0.0            
| | Installment                       | 18.6           
| | Total Loans                       | 100.0          

Table 9
shows the amount of commercial loans outstanding as of December 31, 2007 based
on the remaining scheduled principal payments or principal amounts repricing in
the periods indicated. Amounts due after one year which are subject to more
frequent repricing are included in the due in one year or less
classification.

Table 9: Commercial Loan Maturity
and Repricing Analysis

| |                                                                   | At December 31, 2007  
| | ----------------------------------------------------------------- | ----------------------
| |                                                                   | (Dollars in thousands)
| | Maturing and repricing in one year or less                        |                       
| | Maturing and
      repricing after one year but within five years |                       
| | Maturing and repricing beyond five years                          |                       
| | Total Commercial
      Loans                                      |                       

23

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Funding Sources

The following table shows the
various sources of funding for the Corporation.

Table 10: Funding
Sources

| |                                      | Average Balances
      Outstanding |         | Average Rates Paid
| | ------------------------------------ | ---------------------------------- | ------- | ------------------
| |                                      | 2007                               |         | 2006              
| |                                      | (Dollars in thousands)            
| | Demand deposits                      | $                                  | 84,352  |                   
| | Interest
      checking              |                                    | 232,691 |                   
| | Savings deposits                     |                                    | 80,513  |                   
| | Consumer time
      deposits         |                                    | 289,906 |                   
| | Public time deposits                 |                                    | 69,804  |                   
| | Brokered time
      deposits         |                                    | 36,497  |                   
| | Total Deposits                       |                                    | 793,763 |                   
| | Short-term
      borrowings          |                                    | 26,334  |                   
| | FHLB borrowings                      |                                    | 37,088  |                   
| | Junior
      subordinated debentures |                                    | 13,465  |                   
| | Total borrowings                     |                                    | 76,887  |                   
| | Total
      funding                  | $                                  | 870,650 |                   

The
Corporation obtains funding through many sources. The primary source of funds
continues to be the generation of deposit accounts within our primary market. In
order to achieve deposit account growth, the Corporation offers retail and
business customers a full line of deposit products that includes checking
accounts, interest checking, savings accounts, and time deposits. The
Corporation also generates funds through wholesale sources that include local
borrowings generated by a business sweep product. The Corporation utilizes
brokered time deposits to provide term funding at rates comparable to other
wholesale funding sources. Wholesale funding sources include lines of credit
with correspondent banks, advances through the Federal Home Loan Bank of
Cincinnati, and a secured line of credit with the Federal Reserve Bank of
Cleveland. Table 10 highlights the average balances and the average rates paid
on these sources of funds for the three years ended December 31, 2007.

Average
deposit balances grew 16.8% in 2007 compared to increases of 6.9% in 2006 and
7.9% in 2005. The Corporation benefits from a large concentration of low-cost
local deposit funding. These funding sources include demand deposits, interest
checking accounts and savings deposits. These sources, which experienced a
decline of 2.4% between 2006 and 2005, increased 10.7% during 2007 in comparison
to 2006. The mix of low-cost funding to time deposits has decreased over the
last three years with the concentration of these accounts to total average
deposits at 50.0% in 2007, 52.8% in 2006 and 57.9% in 2005. Low-cost funds had
an average yield of 1.6% in 2007 as compared to 1.2% in 2006 and .62% in 2005.
Included in these funds are money market accounts which carried an average yield
of 3.6% in 2007 as compared to 3.2% in 2006. Average time deposits were $396,207
in 2007 as compared to $320,543 in 2006. This was an increase of $75,664, or
23.6%. Brokered time deposits and public fund time deposits represented 26.8%
and 33.7% of total average time deposits during 2007 and 2006, respectively. Of
the $101,870 in deposits contributed by Morgan Bank at fair market value on the
acquisition date of May 10, 2007, time deposits represented 36.58%, while money
market and interest-bearing checking accounts were 25.93% and 21.19%,
respectively.

The
Corporation offers various deposit products to both retail and business
customers. The Corporation also utilizes its business sweep accounts to generate
funds as well as the brokered CD market to provide funding comparable to other
national market borrowings, which include the Federal Home loan Bank of
Cincinnati and the Federal Reserve Bank of Cleveland.

24

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Borrowings

The
Corporation utilizes both short-term and long-term borrowings to assist in the
growth of earning assets. For the Corporation, short-term borrowings include
federal funds purchased and repurchase agreements. As of December 31, 2007, the
Corporation had $42,105 of short-term borrowings which consisted of $20,000 of
Federal Funds borrowed and $22,105 in repurchase agreements Long-term borrowings
for the Corporation consist of Federal Home Loan Bank advances of $44,207 and
junior subordinated debentures of $20,620. Federal Home Loan Bank advances were
$35,086 at December 31, 2006. Maturities of long-term Federal Home Loan Bank
advances are presented in Note 11 to the Consolidated Financial Statements
contained within this Form 10-K. During the second quarter of 2007, the
Corporation completed a private offering of trust preferred securities, as
described in Note 12 to the Consolidated Financial Statements contained within
this Form 10-K. The securities were issued in two $10 million tranches, one of
which pays dividends at a fixed rate of 6.64% per annum and the other of which
pays dividends at LIBOR plus 1.48% per annum.

Liquidity

Management of liquidity is a continual process in the banking industry.
The liquidity of the Bank reflects its ability to meet loan demand, the possible
outflow of deposits and its ability to take advantage of market opportunities
made possible by potential rate environments. Assuring adequate liquidity is
achieved by managing the cashflow characteristics of the assets the Bank
originates and the availability of alternative funding sources. The Bank
monitors liquidity according to limits established in its liquidity policy. The
policy establishes minimums for the ratio of cash and cash equivalents to total
assets and the loan to deposit ratio. At December 31, 2007 the Bank was in
compliance with these policy limits.

In
addition to maintaining a stable source of core deposits, the Bank manages
adequate liquidity by assuring continual cash flow in the securities portfolio.
At December 31, 2007, the Corporation expects the securities portfolio to
generate cash flow in the next 12 months of $95,298 and $173,549 in the next 36
months.

The Bank
maintains borrowing capacity at the Federal Home Loan Bank of Cincinnati, the
Federal Reserve Bank of Cleveland and Federal Fund lines with correspondent
banks. Table 11 highlights the liquidity position of the Bank including total
borrowing capacity and current unused capacity for each borrowing arrangement at
December 31, 2007.

Table 11: Liquidity

| |                     | Borrowing              |         | Unused  
| | ------------------- | ---------------------- | ------- | --------
| |                     | Capacity               |         | Capacity
| |                     | (Dollars in thousands)
| | FHLB Cincinnati     | $                      | 82,675  |         
| | FRB
      Cleveland |                        | 4,785   |         
| | Federal Funds Lines |                        | 52,750  |         
| | Total               | $                      | 140,210 |         

LNB
Bancorp, Inc. is the financial holding company of The Lorain National Bank and
conducts no operations. Its only ongoing need for liquidity is the payment of
the quarterly shareholder dividend if declared and miscellaneous expenses
related to the regulatory and reporting requirements of a publicly traded
corporation. The holding companys main source of operating liquidity is the
dividend that it receives from The Lorain National Bank. Dividends from The
Lorain National Bank are restricted by regulation. At December 31, 2007, the
Corporation also had certain short-term investments in the amount of $414 which
may be used for dividends and other corporate purposes. The holding company from
time-to-time, has access to additional sources of liquidity through
correspondent lines of credit, but no such agreements were in place and there
was no amount outstanding as of December 31, 2007.

25

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Capital Resources

The
Corporation continues to maintain a capital position that it believes is
appropriate. Total shareholders equity was $82,653 at December 31, 2007. This
is an increase of 20.3% over December 31, 2006. Shareholders equity was
increased by the issuance of 851,990 of the Corporations common shares in
connection with the Morgan Bank acquisition on May 10, 2007 at the closing
market price on that date of $14.23 per share. Net income also increased total
shareholders equity by $5,512. Other factors increasing shareholders equity
were a $1,359 increase in accumulated other comprehensive gain resulting from an
increase in the fair value of available for sale securities, and a $58 increase
for share-based payment arrangements, net of tax. The factors decreasing total
shareholders equity during 2007 were cash dividends payable to shareholders of
$5,097. The Corporation held 328,194 shares of common stock as treasury stock at
December 31, 2007, at a cost of $6,092.

Total
cash dividends declared in 2007 by the Board of Directors was $5,097 as compared
to $4,641 in 2006. In each of the last 21 years, the Board of Directors has
approved a regular cash dividend. Any future dividend is subject to Board
approval. The dividend payout ratio, representing dividends per share divided by
earnings per share, was 91.1% and 85.7% for the years 2007 and 2006,
respectively. The increase in the dividend payout ratio is above the long-term
target ratio established by the Board of Directors, but represents the
Corporations expectation for the near-term recovery of both revenue and
earnings growth.

At
December 31, 2007, the Corporations market capitalization was $106,881 compared
to $103,421 at December 31, 2006. There were 2,043 shareholders of record at
December 31, 2007. LNB Bancorp, Inc.s common shares are traded on the NASDAQ
Stock Market under the ticker symbol LNBB.

On July 28, 2005, the Corporation
announced a share repurchase program of up to 5 percent, or about 332,000, of
its common shares outstanding. Repurchased shares can be used for a number of
corporate purposes, including the Corporations stock option and employee
benefit plans. Under the share repurchase program, share repurchases are
expected to be made primarily on the open market from time-to-time until the 5
percent maximum is repurchased or the earlier termination of the repurchase
program by the Board of Directors. Repurchases under the program will be made at
the discretion of management based upon market, business, legal and other
factors. As of December 31, 2007, the Corporation had repurchased an aggregate
of 202,500 shares under this program.

The
Federal Reserve Board has established risk-based capital guidelines that must be
observed by financial holding companies and banks. The Corporation has
consistently maintained the regulatory capital ratios of the Corporation and its
bank subsidiary, The Lorain National Bank, above well capitalized levels. For
further information on capital ratios see Notes 1 and 14 of the Consolidated
Financial Statements.

Contractual Obligations and
Commitments

Contractual obligations and
commitments of the Corporation at December 31, 2007 are as follows:

Table 12: Contractual Obligations

| |                        |                        |        |       |         |        |     | Four  |       |       |   |       |  |  
| | ---------------------- | ---------------------- | ------ | ----- | ------- | ------ | --- | ----- | ----- | ----- | - | ----- |  | -
| |                        |                        |        |       | Two and |        | and |       | Over  |       |   |      
| |                        | One Year               |        | Three |         | Five   |     | Five  |       |       |  
| |                        | or Less                |        | Years |         | Years  |     | Years |       | Total
| |                        | (Dollars in thousands)
| | Short-term borrowings  | $                      | 42,105 |       | $       |       |     | $     |      |       | $ |      |  | $
| | FHLB
      advances    |                        | 30,803 |       |         | 10,833 |     |       |      |       |   | 2,571 |  |  
| | Operating Leases       |                        | 1,066  |       |         | 1,220  |     |       | 728   |       |   | 1,143 |  |  
| | Benefit
      payments |                        | 329    |       |         | 684    |     |       | 1,127 |       |   | 2,640 |  |  
| | Severance Payments     |                        | 138    |       |         | 255    |     |       | 198   |       |   |      |  |  
| | Total                  | $                      | 74,441 |       | $       | 12,992 |     | $     | 2,053 |       | $ | 6,354 |  | $

26

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Critical Accounting Policies and
Estimates

The
Corporations consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
Corporation follows general practices within the banking industry and
application of these principles requires the Corporations management
(Management) to make assumptions, estimates and judgments that affect the
financial statements and accompanying notes. These assumptions, estimates and
judgments are based on information available as of the date of the financial
statements.

The most
significant accounting policies followed by the Corporation are presented in
Note 1 to the Consolidated Financial Statements. These policies are fundamental
to the understanding of results of operation and financial conditions.

The accounting policies considered
to be critical by Management are as follows:

- Allowance for loan
  losses

The
allowance for loan losses is an amount that Management believes will be adequate
to absorb probable credit losses inherent in the loan portfolio taking into
consideration such factors as past loss experience, changes in the nature and
volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, and current economic conditions that affect the
borrowers ability to pay. Determination of the allowance is subjective in
nature. Loan losses are charged off against the allowance when Management
believes that the full collectibility of the loan is unlikely. Recoveries of
amounts previously charged-off are credited to the allowance.

A loan is
considered impaired when it is probable that not all principal and interest
amounts will be collected according to the loan contract. Residential mortgage,
installment and other consumer loans are evaluated collectively for impairment.
Individual commercial loans exceeding size thresholds established by Management
are evaluated for impairment. Impaired loans are written down by the
establishment of a specific allowance where necessary. The fair value of all
loans currently evaluated for impairment is collateral-dependent and therefore
the fair value is determined by the fair value of the underlying collateral.

The
Corporation maintains the allowance for loan losses at a level adequate to
absorb Managements estimate of probable credit losses inherent in the loan
portfolio. The allowance is comprised of a general allowance, a specific
allowance for identified problem loans and an unallocated allowance representing
estimations pursuant to either Statement of Financial Accounting Standards
(SFAS) No. 5 Accounting for Contingencies, or SFAS No. 114, Accounting by
Creditors for Impairment of a Loan.

The general allowance is determined
by applying estimated loss factors to the credit exposures from outstanding
loans. For commercial and commercial real estate loans, loss factors are applied
based on internal risk grades of these loans. Many factors are considered when
these grades are assigned to individual loans such as current and past
delinquency, financial statements of the borrower, current net realizable value
of collateral and the general economic environment and specific economic trends
affecting the portfolio. For residential real estate, installment and other
loans, loss factors are applied on a portfolio basis. Loss factors are based on
the Corporations historical loss experience and are reviewed for
appropriateness on a quarterly basis, along with other factors affecting the
collectibility of the loan portfolio.

Specific
allowances are established for all classified loans when Management has
determined that, due to identified significant conditions, it is probable that a
loss has been incurred that exceeds the general allowance loss factor from these
loans. The unallocated allowance recognizes the estimation risk associated with
the allocated general and specific allowances and incorporates Managements
evaluation of existing conditions that are not included in the allocated
allowance determinations. These conditions are reviewed quarterly by Management
and include general economic conditions, credit quality trends and internal loan
review and regulatory examination findings.

27

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Management believes that it uses the best information available to
determine the adequacy of the allowance for loan losses. However, future
adjustments to the allowance may be necessary and the results of operations
could be significantly and adversely affected if circumstances differ
substantially from the assumptions used in making the determinations.

- Income
Taxes

The
Corporations income tax expense and related current and deferred tax assets and
liabilities are presented as prescribed in SFAS No. 109 Accounting for Income
Taxes. SFAS No. 109 requires the periodic review and adjustment of tax assets
and liabilities based on many assumptions. These assumptions include predictions
as to the Corporations future profitability, as well as potential changes in
tax laws that could impact the deductibility of certain income and expense
items. Since financial results could be significantly different than these
estimates, future adjustments may be necessary to tax expense and related
balance sheet accounts.

New Accounting
Pronouncements

Management is not aware of any proposed regulations or current
recommendations by the Financial Accounting Standards Board or by regulatory
authorities, which, if they were implemented, would have a material effect on
the liquidity, capital resources, or operations of the Corporation. However, the
potential impact of certain accounting pronouncements warrants further
discussion.

FASB Statement No.
159 The Fair Value Option for Financial Assets and Financial
Liabilities

In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
159 The Fair Value Option for Financial Assets and Financial Liabilities,
which generally permits the measurement of selected eligible financial
instruments at fair value at specified election dates (SFAS 159). The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. The provisions of this statement are effective as of the
beginning of an entitys first fiscal year that begins after November 15, 2007.
Early adoption was permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provisions of FASB Statement No. 157, Fair Value Measurements. The Corporation
elected early adoption of SFAS 159 as of January 1, 2007 and has included
disclosures in accordance with the requirements.

FASB
Statement No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132R

In
September 2006, the FASB issued Statement No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132R (SFAS 158). SFAS 158 requires an entity
to recognize in its balance sheet the funded status of its defined benefit
postretirement plans, measured as the difference between the fair value of the
plan assets and the benefit obligation. SFAS 158 also requires an entity to
recognize changes in the funded status of a defined benefit postretirement plan
within accumulated other comprehensive income, net of tax, to the extent such
changes are not recognized in earnings as components of periodic net benefit
cost. SFAS 158 is effective as of the end of the fiscal year ending after
December 15, 2006. The adoption of SFAS 158 did not have a material effect on
our consolidated balance sheet, results of operations or cash flows.

FASB Statement No.
156, Accounting for Servicing of Financial Assets, an Amendment of FAS
140.

In March
2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
Assets, an amendment of FAS 140 Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities (SFAS 156). SFAS 156
clarifies when to separately account for servicing rights, requires separately
recognized servicing rights to be initially measured at fair value, and provides
the option to subsequently account for those servicing rights either under the
amortization method previously required under FAS 140 or at fair value. The
provision of SFAS 156 is effective January 1, 2007. The Corporation has elected
the amortization method. The adoption of SFAS 156 did not have a material effect
on our consolidated balance sheet, results of operations or cash
flows.

28

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FASB Statement No.
157, Fair Value Measurements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles. The provisions of SFAS 157 are
effective for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Adoption of SFAS 157 was required effective January
1, 2007 as the Corporation elected early adoption of SFAS 159. Upon adoption of
SFAS 159, the Corporation has developed a framework to measure the fair value of
financial assets and financial liabilities and expanded disclosures in
accordance with the requirements.

ITEM 7A. Quantitative and
Qualitative Disclosures About Market Risk.

Risk Elements

Risk
management is an essential aspect in operating a financial services company
successfully and effectively. The most prominent risk exposures, for a financial
services company, are credit, operational, interest rate, market, and liquidity
risk. Credit risk involves the risk of uncollectible interest and principal
balance on a loan when it is due. Fraud, legal and compliance issues, processing
errors, technology and the related disaster recovery, and breaches in business
continuation and internal controls are types of operational risks. Changes in
interest rates affecting net interest income are considered interest rate risks.
Market risk is the risk that a financial institutions earnings and capital or
its ability to meet its business objectives are adversely affected by movements
in market rates or prices. Such movements include fluctuations in interest
rates, foreign exchange rates, equity prices that affect the changes in value of
available-for-sale securities, credit spreads, and commodity prices. The
inability to fund obligations due to investors, borrowers, or depositors is
liquidity risk. For the Corporation, the dominant risks are market risk and
credit risk.

Credit Risk
Management

Uniform
underwriting criteria, ongoing risk monitoring and review processes, and
well-defined, centralized credit policies dictate the management of credit risk
for the Corporation. As such, credit risk is managed through the Banks
allowance for loan loss policy which requires the loan officer, lending
officers, and the loan review committee to manage loan quality. The
Corporations credit policies are reviewed and modified on an ongoing basis in
order to remain suitable for the management of credit risks within the loan
portfolio as conditions change. The Corporation uses a loan rating system to
properly classify and assess the credit quality of individual commercial loan
transactions. The loan rating system is used to determine the adequacy of the
allowance for loan losses for regulatory reporting purposes and to assist in the
determination of the frequency of review for credit exposures.

The
Corporations progress in improving its credit quality in the commercial real
estate development sector is reflected in a lower level of nonperforming loans
at December 31, 2007 as compared to December 31, 2006. During 2006, weaker
general economic conditions, especially in residential and commercial
development lending, combined with the need to further strengthen underwriting
and portfolio management controls resulted in higher levels of nonperforming
loans and potential problem loans.

Nonperforming
Assets

Total
nonperforming assets consist of nonperforming loans, loans which have been
restructured, and other foreclosed assets. As such, a loan is considered
nonperforming if it is 90 days past due and/or in Managements estimation the
collection of interest on the loan is doubtful. Nonperforming loans no longer
accrue interest and are accounted for on a cash basis. The classification of
restructured loans involves the deterioration of a borrowers financial ability
leading to original terms being favorably modified or either principal or
interest being forgiven.

29

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Nonperforming loans at December 31, 2007 were $10,831 as compared to
$12,812 at December 31, 2006, a decrease of $1,981. Of this total, commercial
loans were $7,927 as compared to $10,322 at December 31, 2006. These are
commercial loans that are primarily secured by real estate and, in some cases,
by SBA guarantees, and have either been charged-down to their realizable value
or a specific reserve has been established for any collateral short-fall. At
December 31, 2007, construction and land development represented $2.8 million of
the total commercial loan nonperforming, with non-farm, non-residential
representing about $4.1 million, and the remaining being commercial and
industrial. All nonperforming loans are being actively managed.

Management also monitors delinquency and potential commercial problem
loans. Bank-wide delinquency at December 31, 2007 was 2.3% of total loans as
compared to 2.9% at December 31, 2006. Total 30-90 day delinquency was unchanged
at 0.9% of total loans between year-end 2006 and December 31, 2007. 30-90 day
delinquency as a percent of loan type is under 1% for all loan types except
loans to individuals which is 1.0% and non-farm, non-residential commercial real
estate which was 1.4% . The non-farm, non-residential ratio represents $3.9
million of balances and is up about $2.6 million since year-end 2006.

Other foreclosed assets were $2,478
as of December 31, 2007, an increase of $1,189 from December 31, 2006. The
$2,478 is comprised of nine commercial properties totaling $1,641 and four 1-4
family residential properties totaling $837. This compares to $344 in 1-4 family
residential properties with the remainder in commercial properties as of
December 31, 2006.

Table 13 sets forth nonperforming
assets for the period ended December 31, 2007.

Table 13: Nonperforming Assets

|                                                       | At December 31,       
|------------------------------------------------------ | ----------------------
|                                                       | 2007                  
|                                                       | (Dollars in thousands)
|Commercial loans                                       | $                     
|Real estate
      mortgage                             |                       
|Home equity lines of credit                            |                       
|Purchased
      installment                            |                       
|Installment loans                                      |                       
|Total nonperforming loans                              |                       
|Other foreclosed assets                                |                       
|Total nonperforming assets                             | $                     
|Loans 90 days past due accruing interest               | **$**                 
|Allowance for
      loan losses to nonperforming loans |                       

Provision and Allowance for Loan
Losses

The
allowance for loan losses is maintained by the Corporation at a level considered
by Management to be adequate to cover probable credit losses inherent in the
loan portfolio. The amount of the provision for loan losses charged to operating
expenses is the amount necessary, in the estimation of Management, to maintain
the allowance for loan losses at an adequate level. Management determines the
adequacy of the allowance based upon past experience, changes in portfolio size
and mix, relative quality of the loan portfolio and the rate of loan growth,
assessments of current and future economic conditions, and information about
specific borrower situations, including their financial position and collateral
values, and other factors, which are subject to change over time. While
Managements periodic analysis of the allowance for loan losses may dictate
portions of the allowance be allocated to specific problem loans, the entire
amount is available for any loan charge-offs that may occur. Table 14 presents
the detailed activity in the allowance for loan losses and related charge-off
activity for the five years ended 2007.

30

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Table14: Analysis of Allowance for
Loan Losses

|                                  | Year Ended December
      31,
|--------------------------------- | -----------------------------
|                                  | **2007**                     
|                                  | (Dollars in thousands)       
|Balance at beginning of year      | $                            
|Charge-offs:                      |                              
|Commercial                        |                              
|Real estate mortgage              |                              
|Home
      equity lines of credit |                              
|Purchased installment             |                              
|Installment                       |                              
|DDA Overdrafts                    |                              
|Total charge-offs                 |                              
|Recoveries:                       |                              
|Commercial                        |                              
|Real estate mortgage              |                              
|Home
      equity lines of credit |                              
|Purchased installment             |                              
|Installment                       |                              
|DDA Overdrafts                    |                              
|Total Recoveries                  |                              
|Net
      Charge-offs             |                              
|Provision for loan losses         |                              
|Allowance
      from merger       |                              
|Balance at end of year            | $                            

The
allowance for loan losses at December 31, 2007 was $7,820 or 1.0% of outstanding
loans, compared to $7,300 or 1.2% of outstanding loans at December 31, 2006. The
allowance for loan losses was 72.2% and 57.0% of nonperforming loans at December
31, 2007 and 2006, respectively.

Net
charge-offs for the year ended December 31, 2007 were $2,833, as compared to
$1,602 for the year ended December 31, 2006. Net charge-offs as a percent of
average loans in 2007 was 0.4% , as compared to 0.3% in 2006.

Direct
deposit account overdrafts were charged to the allowance for loan losses for the
first time in 2006 and accounted for $202 and $126, respectively, of the net
charge-offs in 2007 and 2006. These charges were previously expensed directly to
noninterest expense. For comparison purposes the net overdraft charge-offs
expensed to noninterest expense in 2005 was $31.

The
provision charged to expense was $2,255 for the year ended December 31, 2007 as
compared to $2,280 for the same period 2006. The Company has experienced a
decline in nonperforming loans and in substandard loans. The charge-offs have
increased in 2007 as the level of problem loans is resolved and asset quality is
stable at December 31, 2007. The resulting allowance for loan losses is, in the
opinion of management, sufficient given its analysis of the information
available about the portfolio at December 31, 2007. Management continues to work
toward prompt resolution of nonperforming loan situations and to adjust
underwriting standards as conditions warrant.

31

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Market Risk
Management

The
Corporation manages market risk through its Asset/Liability Management Committee
(ALCO) at the Bank level governed by policies set forth and established by the
Board of Directors. This committee assesses interest rate risk exposure through
two primary measures: rate sensitive assets divided by rate sensitive
liabilities and earnings-at-risk simulation of net interest income over the one
year planning cycle and the longer term strategic horizon in order to provide a
stable and steadily increasing flow of net interest income.

The
difference between a financial institutions interest rate sensitive assets and
interest rate sensitive liabilities is referred to as the interest rate gap. An
institution that has more interest rate sensitive assets than interest rate
sensitive liabilities in a given period is said to be asset sensitive or has a
positive gap. This means that if interest rates rise a corporations net
interest income may rise and if interest rates fall its net interest income may
decline. If interest sensitive liabilities exceed interest sensitive assets then
the opposite impact on net interest income may occur. The usefulness of the gap
measure is limited. It is important to know the gross dollars of assets and
liabilities that may re-price in various time horizons, but without knowing the
frequency and basis of the potential rate changes the predictive power of the
gap measure is limited.

Two more
useful tools in managing market risk are earnings-at-risk simulation and
economic value of equity simulation. An earnings-at-risk analysis is a modeling
approach that combines the repricing information from gap analysis, with
forecasts of balance sheet growth and changes in future interest rates. The
result of this simulation provides management with a range of possible net
interest margin outcomes. Trends that are identified in earnings-at-risk
simulation can help identify product and pricing decisions that can be made
currently to assure stable net interest income performance in the future. At
December 31, 2007, a shock treatment of the balance sheet, in which a parallel
shift in the yield curve occurs and all rates increase immediately, indicates
that in a +200 basis point shock, net interest income would increase $567, or
1.9%, and in a -200 basis point shock, net interest income would decrease $807,
or 2.7%. The reason for the lack of symmetry in these results is the implied
floors in many of the Corporations core funding which limits their downward
adjustment from current offering rates. This analysis is done to describe a best
or worst case scenario. Factors such as non-parallel yield curve shifts,
management pricing changes, customer preferences and other factors are likely to
produce different results.

The
economic value of equity approach measures the change in the value of the
Corporations equity as the value of assets and liabilities on the balance sheet
change with interest rates. At December 31, 2007, this analysis indicated that a
+200 basis point change in rates would reduce the value of the Corporations
equity by 16.7% while a -200 basis point change in rates would increase the
value of the Corporations equity by 17.4%.

32

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Table 15: GAP
Analysis:

|                                   |                        |         | At December 31,
      2007
|---------------------------------- | ---------------------- | ------- | --------------------------
|                                   | **Under 3**            |         | **3 to 12**               
|                                   | **Months**             |         | **Months**                
|                                   | (Dollars in thousands)
|Earning Assets:                    |                        |         |                           
|Securities and
      short-term    |                        |         |                           
|investments                        | $                      | 20,131  |                           
|Trading securities                 |                        | 33,402  |                           
|Loans                              |                        | 364,051 |                           
|Total earning assets               | $                      | 417,584 |                           
|                                  
|Interest-bearing liabilities:      |                        |         |                           
|Consumer time
      deposits       | $                      | 146,731 |                           
|Money Market deposits              |                        | 129,961 |                           
|Savings
      deposits             |                        |        |                           
|Interest-bearing demand deposits   |                        |        |                           
|Short-term
      borrowings        |                        | 7,701   |                           
|Long-term debt                     |                        |        |                           
|Fed Funds,
      Repos, Other      |                        | 42,105  |                           
|Total interest-bearing liabilities | $                      | 326,498 |                           
|                                  
|Cumulative interest rate gap       | $                      | 91,086  |                           
|RSA/RSL                            |                        | 128     | %                         

|                                   |                        |         | At December 31,
      2006
|---------------------------------- | ---------------------- | ------- | --------------------------
|                                   | **Under 3**            |         | **3 to 12**               
|                                   | **Months**             |         | **Months**                
|                                   | (Dollars in thousands)
|Earning Assets:                    |                        |         |                           
|Securities and
      short-term    |                        |         |                           
|investments                        | $                      | 17,660  |                           
|Loans                              |                        | 381,679 |                           
|Total earning
      assets         | $                      | 399,339 |                           
|                                  
|Interest-bearing liabilities:      |                        |         |                           
|Consumer time
      deposits       | $                      | 102,938 |                           
|Money Market deposits              |                        | 109,774 |                           
|Savings
      deposits             |                        |        |                           
|Interest-bearing demand deposits   |                        |        |                           
|Short-term
      borrowings        |                        | 3,750   |                           
|Long-term debt                     |                        |        |                           
|Fed Funds,
      Repos, Other      |                        | 22,163  |                           
|Total interest-bearing liabilities | $                      | 238,625 |                           
|                                  
|Cumulative interest rate gap       | $                      | 160,715 |                           
|RSA/RSL                            |                        | 167     | %                         

33

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Item 8. Financial Statements and
Supplementary Data.

Table of Contents

|Report of Independent Registered Public Accounting
      Firm                                                    | 35
|---------------------------------------------------------------------------------------------------------------- | --
|Consolidated
      Balance Sheets as of December 31, 2007 and 2006                                               | 37
|Consolidated Statements of Income for the Years Ended December 31,
      2007, 2006 and 2005                     | 38
|Consolidated
      Statements of Shareholders' Equity for the Years Ended December 31, 2007,
      2006 and 2005 | 39
|Consolidated Statements of Cash Flows for the Years Ended December
      31, 2007, 2006 and 2005                 | 40
|Notes to
      Consolidated Financial Statements December 31, 2007, 2006 and
      2005                          | 41

34

---

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders LNB Bancorp, Inc.

We have
audited the accompanying consolidated balance sheet of LNB Bancorp, Inc. as of
December 31, 2007 and 2006, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the years then ended. We also
have audited the Companys internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Management is responsible for these financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying financial statements. Our responsibility
is to express an opinion on these financial statements and an opinion on the
companys internal control over financial reporting based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.

A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of LNB Bancorp, Inc. as
of December 31, 2007 and 2006, and the consolidated results of its operations
and its cash flows for each of the years then ended in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, LNB Bancorp, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control  Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

35

---

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
LNB Bancorp, Inc.:

We have
audited the accompanying consolidated statements of income, shareholders equity
and cash flows of LNB Bancorp, Inc. and subsidiaries (Company) for the year
ended December 31, 2005. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of LNB Bancorp, Inc. and subsidiaries for the year ended December 31, 2005 in
conformity with U.S. generally accepted accounting principles.



Cleveland, Ohio March 13,
2006

36

---

CONSOLIDATED BALANCE
SHEETS

|                                                                                  | At December 31,                
|--------------------------------------------------------------------------------- | -------------------------------
|                                                                                  | **2007**                       
|                                                                                  | **(Dollars in
      thousands**
|                                                                                  | **except share
      amounts)**
|ASSETS                                                                            |                                
|Cash and due
      from Banks (Note 3)                                            | $                              
|Securities: (Note 5)                                                              |                                
|Trading securities, at fair value                                                 |                                
|Available for sale, at fair value                                                 |                                
|Federal Home Loan Bank and Federal Reserve Bank
      Stock                       |                                
|Total securities                                                                  |                                
|Loans held for
      sale                                                         |                                
|Loans:                                                                            |                                
|Portfolio loans                                                                   |                                
|Allowance for loan losses (Note 7)                                                |                                
|Net
      loans                                                                   |                                
|Bank premises and equipment, net (Note 8)                                         |                                
|Other real
      estate owned                                                     |                                
|Bank owned life insurance                                                         |                                
|Goodwill, net
      (Note 4)                                                      |                                
|Intangible assets, net (Note 4)                                                   |                                
|Accrued interest
      receivable                                                 |                                
|Other assets (Note 13)                                                            |                                
|Total
      Assets                                                                | $                              
|                                                                                 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                              |                                
|Deposits (Note
      9)                                                           |                                
|Demand and other noninterest-bearing                                              | $                              
|Savings, money market and interest-bearing
      demand                           |                                
|Certificates of deposit                                                           |                                
|Total
      deposits                                                              |                                
|Short-term borrowings (Note 10)                                                   |                                
|Federal Home
      Loan Bank advances (Note 11)                                   |                                
|Junior subordinated debentures (Note 12)                                          |                                
|Accrued interest
      payable                                                    |                                
|Accrued taxes, expenses and other liabilities (Note
      13)                     |                                
|Total
      Liabilities                                                           |                                
|Shareholders' Equity (Notes 14 and 15)                                            |                                
|Common stock, par value $1 per share, authorized
      15,000,000 shares,         |                                
|issued 7,623,857 shares at December 31, 2007 and
      6,771,867 at               |                                
|December 31,2006                                                                  |                                
|Preferred Shares, Series A Voting, no par value, authorized 750,000
      shares, |                                
|none issued at December 31, 2007 and 2006                                         |                                
|Additional paid-in capital                                                        |                                
|Retained earnings                                                                 |                                
|Accumulated other comprehensive income
      (loss)                               |                                
|Treasury shares at cost, 328,194 shares at December 31, 2007 and
      at         |                                
|December 31, 2006                                                                 |                                
|Total
      Shareholders' Equity                                                  |                                
|Total Liabilities and Shareholders' Equity                                        | $                              

See accompanying notes to
consolidated financial statements.

37

---

CONSOLIDATED STATEMENTS OF
INCOME

|                                                          | Year Ended December
      31,
|--------------------------------------------------------- | -----------------------------
|                                                          | 2007                         
|                                                          |                              
|                                                          |                              
|Interest Income                                           |                              
|Loans                                                     | $                            
|Securities:                                               |                              
|U.S. Government agencies and corporations                 |                              
|State and political subdivisions                          |                              
|Other debt and equity securities                          |                              
|Federal funds sold and short-term investments             |                              
|Total interest
      income                               |                              
|Interest Expense                                          |                              
|Deposits                                                  |                              
|Federal Home Loan Bank advances                           |                              
|Short-term borrowings                                     |                              
|Junior subordinated debenture                             |                              
|Total interest
      expense                              |                              
|Net Interest Income                                       |                              
|Provision for
      Loan Losses (Note 7)                  |                              
|Net
      interest income after provision for loan losses |                              
|Noninterest
      Income                                  |                              
|Investment and trust services                             |                              
|Deposit service charges                                   |                              
|Other service charges and fees                            |                              
|Mortgage banking revenue                                  |                              
|Income from bank owned life insurance                     |                              
|Other income                                              |                              
|Total fees and other income                               |                              
|Securities gains (losses), net                            |                              
|Gains on sale of loans                                    |                              
|Gains (loss) on sale of other assets, net                 |                              
|Total noninterest income                                  |                              
|Noninterest
      Expense                                 |                              
|Salaries and employee benefits (Notes 18 & 19)            |                              
|Furniture and equipment                                   |                              
|Net
      occupancy (Note 8)                              |                              
|Outside services                                          |                              
|Marketing and public relations                            |                              
|Supplies, postage and freight                             |                              
|Telecommunications                                        |                              
|Ohio Franchise tax                                        |                              
|Intangible asset amortization                             |                              
|Electronic banking expenses                               |                              
|Loan
      and Collection Expense                         |                              
|Other expense                                             |                              
|Total noninterest expense                                 |                              
|Income before
      income tax expense                    |                              
|Income tax expense (Note 13)                              |                              
|Net
      Income                                          | $                            
|Net Income Per Common Share                               |                              
|Basic                                                     | $                            
|Diluted                                                   |                              
|Dividends declared                                        |                              
|Average Common Shares Outstanding                         |                              
|Basic                                                     |                              
|Diluted                                                   |                              

See accompanying notes to
consolidated financial statements

38

---

CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY

|                                                 |            |       |             |                |                                                                 |  |                         |        |              |       | **Accumulated** |        |   |  |   |        |   |  |  
|------------------------------------------------ | ---------- | ----- | ----------- | -------------- | --------------------------------------------------------------- |  | ----------------------- | ------ | ------------ | ----- | --------------- | ------ | - |  | - | ------ | - |  | -
|                                                 |            |       |             | **Additional** |                                                                 |  |                         |        |              | Other |                 |        |   |  |   |        |   | 
|                                                 | **Common** |       | **Paid-In** |                | **Retained**                                                    |  | **Comprehensive**       |        | **Treasury** |       |                 |        |  
|                                                 | **Stock**  |       | **Capital** |                | **Earnings**                                                    |  | **Income
      (Loss)** |        | **Stock**    |       | Total          
|                                                 |            |       |             |                | (Dollars in thousands except share and per share
      amounts) | 
|Balance, January 1, 2005                         | $          | 6,766 |             | $              | 26,243                                                          |  | $                       | 41,292 |              |       | $               | (1,297 | ) |  | $ | (2,430 | ) |  | $
|Comprehensive income:                            |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Net Income                                       |            |       |             |                |                                                                 |  |                         | 6,413  |              |       |                 |        |   |  |   |        |   |  |  
|Other comprehensive loss, net of tax:            |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Minimum pension liability                        |            |       |             |                |                                                                 |  |                         |        |              |       |                 | (129   | ) |  |   |        |   |  |  
|Change in unrealized gains and losses on         |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|securities                                       |            |       |             |                |                                                                 |  |                         |        |              |       |                 | (1,570 | ) |  |   |        |   |  |  
|Total comprehensive income                       |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Issuance of
      common stock under employment  |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|agreement                                        |            | 6     |             |                | 91                                                              |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Purchase of 125,000 shares of Treasury Stock     |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   | (2,219 | ) |  |  
|Common dividends
      declared, $.72 per share  |            |       |             |                |                                                                 |  |                         | (4,760 | )            |       |                 |        |   |  |   |        |   |  |  
|Balance, December 31, 2005                       | $          | 6,772 |             | $              | 26,334                                                          |  | $                       | 42,945 |              |       | $               | (2,996 | ) |  | $ | (4,649 | ) |  | $
|Comprehensive income:                            |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Net Income                                       |            |       |             |                |                                                                 |  |                         | 5,424  |              |       |                 |        |   |  |   |        |   |  |  
|Other comprehensive loss, net of tax:            |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Minimum pension liability                        |            |       |             |                |                                                                 |  |                         |        |              |       |                 | 47     |   |  |   |        |   |  |  
|Change in unrealized gains and losses on         |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|securities                                       |            |       |             |                |                                                                 |  |                         |        |              |       |                 | 856    |   |  |   |        |   |  |  
|Total comprehensive income                       |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Share-based
      comprehensive income           |            |       |             |                | 48                                                              |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Purchase of 77,500 shares of Treasury Stock      |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   | (1,443 | ) |  |  
|Common dividends
      declared, $.72 per share  |            |       |             |                |                                                                 |  |                         | (4,641 | )            |       |                 |        |   |  |   |        |   |  |  
|Balance, December 31, 2006                       | $          | 6,772 |             | $              | 26,382                                                          |  | $                       | 43,728 |              |       | $               | (2,093 | ) |  | $ | (6,092 | ) |  | $
|Cumulative
      affect of adoption of SFAS 159  |            |       |             |                |                                                                 |  |                         | (1,192 | )            |       |                 | 1,192  |   |  |   |        |   |  |  
|Comprehensive income:                            |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Net Income                                       |            |       |             |                |                                                                 |  |                         | 5,512  |              |       |                 |        |   |  |   |        |   |  |  
|Other comprehensive income, net of tax:          |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Minimum pension liability                        |            |       |             |                |                                                                 |  |                         |        |              |       |                 | (155   | ) |  |   |        |   |  |  
|Change in unrealized gains and losses on         |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|securities                                       |            |       |             |                |                                                                 |  |                         |        |              |       |                 | 1,514  |   |  |   |        |   |  |  
|Total
      comprehensive income                 |            |       |             |                |                                                                 |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Share-based compensation income                  |            |       |             |                | 58                                                              |  |                         |        |              |       |                 |        |   |  |   |        |   |  |  
|Issuance of
      851,990 shares of common stock |            | 852   |             |                | 11,272                                                          |  |                         |        |              |       |                 |        |   |  |   |       |   |  |  
|Common dividends declared, $.72 per share        |            |       |             |                |                                                                 |  |                         | (5,097 | )            |       |                 |        |   |  |   |        |   |  |  
|Balance,
      December 31, 2007                 | $          | 7,624 |             | $              | 37,712                                                          |  | $                       | 42,951 |              |       | $               | 458    |   |  | $ | (6,092 | ) |  | $

See accompanying notes to
consolidated financial statements

39

---

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                            | Year Ended December 31,
|--------------------------------------------------------------------------- | -----------------------
|                                                                            | 2007                   
|                                                                            | (Dollars in thousands) 
|Operating Activities                                                        |                        
|Net income                                                                  | $                      
|Adjustments to reconcile net income to net cash provided by (used
      in) |                        
|operating
      activities:                                                 |                        
|Provision for loan losses                                                   |                        
|Depreciation and
      amortization                                         |                        
|Amortization of premiums and discounts                                      |                        
|Amortization of
      intangibles                                           |                        
|Amortization of mortgage servicing rights                                   |                        
|Impairment of
      goodwill                                                |                        
|Amortization of deferred loan fees                                          |                        
|Federal deferred income
      tax expense (benefit)                         |                        
|Issuance of stock under employment
      agreement                          |                        
|Securities gains,
      net                                                 |                        
|Share-based compensation expense, net of
      tax                          |                        
|Net gain from loan
      sales                                              |                        
|Net (gain) loss on sale of other assets                                     |                        
|Net increase in accrued
      interest receivable and other assets          |                        
|Net decrease in accrued interest payable, taxes and other
      liabilities |                        
|Net cash provided by operating activities                                   |                        
|Investing
      Activities                                                  |                        
|Purchase of
      available-for-sale securities                             |                        
|Proceeds from sales of available-for-sale
      securities                  |                        
|Proceeds from maturities
      of available-for-sale securities             |                        
|Purchase of trading securities                                              |                        
|Proceeds from sale of
      trading securities                              |                        
|Purchase of Federal Reserve Bank Stock                                      |                        
|Purchase of Federal Home
      Loan Bank Stock                              |                        
|Redemption of Federal Home Loan Bank Stock                                  |                        
|Acquisition, net of cash
      and cash equivalents acquired                |                        
|Net increase in loans made to customers                                     |                        
|Proceeds from the sale of
      other real estate owned                     |                        
|Purchase of bank premises and equipment                                     |                        
|Proceeds from sale of
      bank premises and equipment                     |                        
|Net cash used
      in investing activities                                 |                        
|Financing Activities                                                        |                        
|Net increase (decrease) in demand and other
      noninterest-bearing       |                        
|Net increase (decrease)
      in savings, money market and interest-        |                        
|bearing
      demand                                                        |                        
|Net increase in certificates of deposit                                     |                        
|Net increase (decrease)
      in short-term borrowings                      |                        
|Proceeds from loan sales                                                    |                        
|Proceeds from Federal
      Home Loan Bank advances                         |                        
|Prepayment of Federal Home Loan Bank
      advances                         |                        
|Purchase of treasury
      stock                                            |                        
|Proceeds from issuance of junior subordinated
      debentures              |                        
|Dividends
      paid                                                        |                        
|Net cash
      provided by financing activities                             |                        
|Net increase (decrease) in cash and cash equivalents                        |                        
|Cash and cash
      equivalents, January 1                                  |                        
|Cash and cash equivalents, December 31                                      | $                      
|Supplemental
      cash flow information                                    |                        
|Interest paid                                                               | $                      
|Income taxes
      paid                                                     |                        
|Transfer of loans to other real estate owned                                |                        

See accompanying notes to
consolidated financial statements

40

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Dollars in thousands except per share amounts)

(1) Summary of Significant
Accounting Policies

Basis of
Presentation

The
consolidated financial statements include the accounts of LNB Bancorp, Inc. (the
Corporation) and its wholly-owned subsidiary, The Lorain National Bank (the
Bank). The consolidated financial statements also include the accounts of
North Coast Community Development Corporation which is a wholly-owned subsidiary
of the Bank. All intercompany transactions and balances have been eliminated in
consolidation.

Use of
Estimates

LNB
Bancorp Inc. prepares its financial statements in conformity with U.S. generally
accepted accounting principles (GAAP). As such, GAAP requires the Corporations
management (Management) to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Areas involving the use of Managements estimates and assumptions
include the allowance for loan losses, the realization of deferred tax assets,
fair values of certain securities, net periodic pension expense, and accrued
pension costs recognized in the Corporations consolidated financial statements.
Estimates that are more susceptible to change in the near term include the
allowance for loan losses and the fair value of certain securities.

Segment
Information

The
Corporations activities are considered to be a single industry segment for
financial reporting purposes. LNB Bancorp, Inc. is a financial holding company
engaged in the business of commercial and retail banking, investment management
and trust services, title insurance, and insurance with operations conducted
through its main office and banking centers located throughout Lorain, eastern
Erie, western Cuyahoga, and Summit counties of Ohio. This market provides the
source for substantially all of the Banks deposit, loan and trust activities
and title insurance and insurance activities. The majority of the Banks income
is derived from a diverse base of commercial, mortgage and retail lending
activities and investments.

Statement of Cash
Flows

For
purposes of reporting in the Consolidated Statements of Cash Flows, cash and
cash equivalents include currency on hand, amounts due from banks, Federal funds
sold, and securities purchased under resale agreements. Generally, Federal funds
sold and securities purchased under resale agreements are for one day periods.

Securities

Securities that are bought and held for the sole purpose of being sold in
the near term are deemed trading securities with any related unrealized gains
and losses reported in earnings. LNB Bancorp, Inc. held trading securities as of
December 31, 2007 and did not hold any trading securities as of December 31,
2006. Securities that the Corporation has a positive intent and ability to hold
to maturity are classified as held to maturity. As of December 31, 2007 and
December 31, 2006, LNB Bancorp, Inc. did not hold any securities classified as
held to maturity. Securities that are not classified as trading or held to
maturity are classified as available for sale. Securities classified as
available for sale are carried at their fair value with unrealized gains and
losses, net of tax, included as a component of accumulated other comprehensive
income, net of tax. A decline in the fair value of securities below cost that is
deemed other than temporary is charged to earnings, resulting in establishment
of a new cost basis for the security. Interest and dividends on securities,
including amortization of premiums and accretion of discounts using the
effective interest method over the period to maturity or call, are included in
interest income.

41

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Federal Reserve Bank
(FRB) and Federal Home Loan Bank (FHLB) Stock

These
stocks are required investments for institutions that are members of the Federal
Reserve and Federal Home Loan Bank systems. The required investment in the
common stock is based on a predetermined formula. These stocks are recorded at
redemption value which approximates fair value.

Loans held for
sale

Held for
sale loans are carried at the lower of amortized cost or estimated fair value,
determined on an aggregate basis for each type of loan. Net unrealized losses
are recognized by charges to income. Gains and losses on loan sales (sales
proceeds minus carrying value) are recorded in noninterest income.

Loans

Loans are
reported at the principal amount outstanding, net of unearned income and
premiums and discounts. Loans acquired through business combinations are valued
at fair market value on or near the date of acquisition. The difference between
the principal amount outstanding and the fair market valuation is amortized over
the aggregate average life of each class of loan. Unearned income includes
deferred fees, net of deferred direct incremental loan origination costs.
Unearned income is amortized to interest income, over the contractual life of
the loan, using the interest method. Deferred direct loan origination fees and
costs are amortized to interest income, over the contractual life of the loan,
using the interest method.

Loans are
generally placed on nonaccrual status when they are 90 days past due for
interest or principal or when the full and timely collection of interest or
principal becomes uncertain. When a loan has been placed on nonaccrual status,
the accrued and unpaid interest receivable is reversed against interest income.
Generally, a loan is returned to accrual status when all delinquent interest and
principal becomes current under the terms of the loan agreement and when the
collectibility is no longer doubtful.

A loan is
impaired when full payment under the original loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as real estate mortgages and installment loans, and on an individual loan
basis for commercial loans that are graded substandard. Factors considered by
Management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis. If a loan is
impaired, a portion of the allowance may be allocated so that the loan is
reported, net, at the present value of estimated future cash flows using the
loans existing rate or at the fair value of collateral if repayment is expected
solely from the collateral.

Allowance for Loan
Losses

The
allowance for loan losses is Managements estimate of credit losses inherent in
the loan portfolio at the balance sheet date. Managements determination of the
allowance, and the resulting provision, is based on judgments and assumptions,
including general economic conditions, loan portfolio composition, loan loss
experience, Managements evaluation of credit risk relating to pools of loan and
individual borrowers, sensitivity analysis and expected loss models, value of
underlying collateral, and observations of internal loan review staff or banking
regulators.

The
provision for loan losses is determined based on Managements evaluation of the
loan portfolio and the adequacy of the allowance for loan losses under current
economic conditions and such other factors which, in Managements judgment,
deserve current recognition. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Corporations allowance for loan losses. Such agencies may require the
Corporation to recognize additions to the allowance for loan losses based on
their judgments about information available to them at the time of their
examinations.

42

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Servicing

Servicing
assets are recognized as separate assets when rights are acquired through sale
of financial assets. Capitalized servicing rights are reported in other assets
and are amortized into noninterest income in proportion to, and over the period
of, the estimated future net servicing income of the underlying financial
assets. Servicing assets are evaluated for impairment based upon the fair value
of the rights as compared to amortized cost. Impairment is determined by
stratifying rights by predominant characteristics, such as interest rates and
terms. Fair value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Impairment is recognized through a valuation allowance
for an individual stratum, to the extent that fair value is less than the
capitalized amount for the stratum.

Bank Premises and
Equipment

Bank
premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed generally on the
straight-line method over the estimated useful lives of the assets. Upon the
sale or other disposition of assets, the cost and related accumulated
depreciation are retired and the resulting gain or loss is recognized.
Maintenance and repairs are charged to expense as incurred, while renewals and
improvements are capitalized. Software costs related to externally developed
systems are capitalized at cost less accumulated amortization. Amortization is
computed on the straight-line method over the estimated useful life.

Goodwill and Core
Deposit Intangibles

Intangible assets arise from acquisitions and include goodwill and core
deposit intangibles. Goodwill is the excess of purchase price over the fair
value of identified net assets in acquisitions. Core deposit intangibles
represent the value of depositor relationships purchased. The Corporation
follows Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets and SFAS No. 147 Acquisitions of Certain Financial
Institutions. Goodwill is tested at least annually for impairment.

Core
deposit intangible assets are amortized using the straight-line method over ten
years and are subject to annual impairment testing.

Other Real Estate
Owned

Other
real estate owned (OREO) represent properties acquired through customer loan
default. Real estate and other tangible assets acquired through foreclosure are
carried as OREO on the Consolidated Balance Sheet at fair value, net of
estimated costs to sell, not to exceed the cost of property acquired through
foreclosure.

Investment and Trust
Services Assets and Income

Property
held by the Corporation in fiduciary or agency capacity for its customers is not
included in the Corporations financial statements as such items are not assets
of the Corporation. Income from the Investment and Trust Services Division is
reported on an accrual basis.

Income
Taxes

The
Corporation and its wholly-owned subsidiary file a consolidated Federal income
tax return. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded when
necessary to reduce deferred tax assets to amounts which are deemed more likely
than not to be realized.

43

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Comprehensive
Income

The
Corporation displays the accumulated balance of other comprehensive income as a
separate component of shareholders equity.

(2) Earnings Per
Share

Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted average number of shares outstanding during the
year. Diluted earnings per share is computed based on the weighted average
number of shares outstanding plus the effects of dilutive stock options
outstanding during the year. Basic and diluted earnings per share are calculated
as follows:

| |                                                  | Year Ended December 31,                         |          
| | ------------------------------------------------ | ----------------------------------------------- | ---------
| |                                                  | 2007                                            |          
| |                                                  | (Dollars in thousands except per share amounts) |          
| | Weighted average shares outstanding used in      |                                                 |          
| | Basic Earnings per Share                         |                                                 | 6,992,215
| | Dilutive effect
      of incentive stock options |                                                 |         
| | Weighted average shares outstanding used in      |                                                 |          
| | Diluted Earnings Per
      Share                 |                                                 | 6,992,215
| | Net
      Income                                 | $                                               | 5,512    
| | Basic Earnings Per Share                         | $                                               | 0.79     
| | Diluted Earnings
      Per Share                 | $                                               | 0.79     

The
dilutive effect of incentive stock options for the year ended December 31, 2006
was 202. All outstanding options were anti-dilutive for the year ended December
31, 2007.

(3) Cash and Due from
Banks

Federal
Reserve Board regulations require the Bank to maintain reserve balances on
deposits with the Federal Reserve Bank of Cleveland. The average required
reserve balance was $5,840 and $12,834 during 2007 and 2006. The required ending
reserve balance was $500 on December 31, 2007 and $12,692 on December 31, 2006.

(4) Goodwill and Intangible
Assets

On May
10, 2007, LNB Bancorp, Inc. completed the acquisition of Morgan Bancorp, Inc.,
of Hudson, Ohio and its wholly-owned subsidiary, Morgan Bank, NA. Under the
terms of the transaction, the Corporation acquired all of the outstanding stock
of Morgan Bancorp, Inc. in a stock and cash merger transaction valued at
$27,864. The acquisition was accounted for using the purchase method of
accounting, and accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon the estimated fair values at
the date of acquisition. The purchase accounting fair values are being amortized
under various methods and over the lives of the corresponding assets and
liabilities. Goodwill recorded for the acquisition amounted to $18,743. Goodwill
is not deductible for tax purposes. The Corporation recorded $1,367 in core
deposit intangibles related to the acquisition of Morgan Bank, NA. These core
deposit intangibles were amortized $88 in the period since acquisition to
December 31, 2007.

44

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

The
estimated fair values of significant assets purchased and liabilities assumed
related to the acquisition of Morgan Bank, NA were as follows:

(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


The
consolidated statements of income reflect the operating results of the Morgan
Bank division since the effective date of the acquisition. The following table
presents pro forma information for the years ended December 31, 2007 and 2006 as
if the acquisition of Morgan Bancorp, Inc. had occurred at the beginning of the
years presented. The pro forma information includes adjustments for the
amortization of core deposit intangibles arising from the transaction, the
elimination of acquisition related expenses and the related income tax effects.
The pro forma financial information is not necessarily indicative of the results
of operations as they would have been, had the transaction been effected on the
assumed dates.

Consolidated Pro forma Statement of
Income

Year ended December 31,2007
    
    2006(Dollars in thousands exceptper share amounts)Total interest income
    $
    61,335
    
    
    $
    56,081Noninterest
      income
    
    11,639
    
    
    
    11,437Net Income
    $
    3,852
    
    
    $
    6,006Net income
      per common shareBasic
    $
    0.54
    
    
    $
    .82Diluted
    $
    0.54
    
    
    $
    .82


The loss
recorded on the Morgan Bancorp, Inc. statement of income for the period ended
May 10, 2007 included loss on sale of securities of $739, and other employee
expenses not previously accrued.

The
Corporation recorded core deposit intangibles in 1997, related to the
acquisition of three branch offices from another bank. These core deposit
intangibles were fully amortized during the third quarter of 2007. Core deposit
intangibles are amortized over their estimated useful life of 10 years. A
summary of core deposit intangible assets, including those from the Morgan
acquisition, follows:

At December 31,2007
    
    2006(Dollars in thousands)Core deposit intangibles
    
    $2,655
    
    
    
    $1,287Less:
      accumulated amortization
    
    1,375
    
    
    
    1,208Carrying value of core deposit
      intangibles
    
    $1,280
    
    
    
    $    
      79


The
Corporation assesses goodwill for impairment annually and more frequently in
certain circumstances. Goodwill was assessed at a reporting unit level by
applying a fair-value based test using discounted estimated future net cash
flows.

45

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Amortization expense for intangible assets was $167, $113 and $113 for
the years ended December 31, 2007, 2006 and 2005, respectively. The following
table shows the estimated future amortization expense for amortizable intangible
assets based on existing asset balances and the interest rate environment as of
December 31, 2007. The Companys actual amortization expense in any given period
may be significantly different from the estimated amounts depending upon the
addition of new intangible assets, changes in mortgage interest rates,
prepayment rates and market conditions.

Core Deposits Intangibles(Dollars
      in thousands)2008
    
    $ 1372009
    
    1372010
    
    1372011
    
    1372012
    
    1372013 and
      beyond
    
    595


(5) Securities

The
amortized cost, gross unrealized gains and losses and fair values of securities
at December 31, 2007 and 2006 follows:

|                                                | At December 31, 2007  
|----------------------------------------------- | ----------------------
|                                                | Amortized             
|                                                | Cost                  
|                                                | (Dollars in thousands)
|Securities available for sale:                  |                       
|U.S. Government agencies and
      corporations | $                     
|Mortgage backed
      securities                |                       
|State and political subdivisions                |                       
|Equity
      securities                         |                       
|Total
      Securities                          | $                     

|                                                | At December 31, 2006  
|----------------------------------------------- | ----------------------
|                                                | Amortized             
|                                                | Cost                  
|                                                | (Dollars in thousands)
|Securities available for sale:                  |                       
|U.S. Government agencies and
      corporations | $                     
|Mortgage backed
      securities                |                       
|State and political subdivisions                |                       
|Equity
      securities                         |                       
|Total
      Securities                          | $                     

|                   |  | Trading Securities held at December
      31, 2007
|------------------ |  | --------------------------------------------------
|                   |  |                                                   
|                   |  | Cost                                              
|                   |  | (Dollars in thousands)                            
|Trading Securities |  | **$33,388**                                       

46

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

The
amortized cost, fair value and weighted average yield of available for sale debt
securities by contractual maturity date at December 31, 2007 follows:

|                                          | At December 31, 2007  
|----------------------------------------- | ----------------------
|                                          |                       
|                                          | Within                
|                                          | 1 Year                
|                                          | (Dollars in thousands)
|U.S. Government agencies and corporations | $                     
|Mortgage backed
      securities          |                       
|State and political subdivisions          |                       
|Equity
      securities                   |                       
|Amortized cost                            | $                     
|Fair
      Value                          | $                     

Trading securities carried a
weighted average yield of 4.6% at December 31, 2007.

Realized
gains and losses related to securities available-for-sale for each of the three
years ended December 31 follows:

| |                                                               | 2007                   |    | 2006 |  | 2005
| | ------------------------------------------------------------- | ---------------------- | -- | ---- |  | ----
| |                                                               | (Dollars in thousands)
| | Gross realized gains                                          |                        | $ |      |  |     
| | Gross realized
      losses                                   |                        |   |      |  |     
| | Net Securities Gains (Losses)                                 |                        | $ |      |  |     
| | Proceeds from
      the sale of available for sale securities |                        | $ |      |  |     

Net gains
of $274 were recorded on the sale of trading securities during 2007. This
included unrealized gains of $14 recorded to income on currently held trading
securities. There were no trading securities held during 2006 or
2005.

U.S.
Government agencies and corporations include callable and bullet agency issues
and agency-backed mortgage backed securities. The maturity of mortgage backed
securities is shown based on contractual maturity of the security although
repayments occur each year.

The
carrying value of securities pledged to secure trust deposits, public deposits,
line of credit, and for other purposes required by law amounted to $154,430 and
$125,947 at December 31, 2007 and 2006, respectively.

The
securities portfolio contained $403 and $448 in non-rated securities of state
and political subdivisions at December 31, 2007 and 2006, respectively. Based
upon yield, term to maturity and market risk, the fair value of these securities
was estimated to be $401 and $444 at December 31, 2007 and 2006, respectively.
This portfolio of non-rated securities are short-term debt issues of two (2)
local political subdivisions. Management reviewed these non-rated securities and
has determined that there was no other than temporary impairment to their value
at December 31, 2007 and 2006.

47

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

The
following is a summary of securities that had unrealized losses at December 31,
2007 and 2006. The information is presented for securities that have been in an
unrealized loss position for less than 12 months and for more than 12 months.
There are temporary reasons why securities may be valued at less than amortized
cost. Temporary reasons are that the current levels of interest rates as
compared to the coupons on the securities held by the Corporation are higher and
impairment is not due to credit deterioration. The Corporation has the ability
to hold these securities until their value recovers. At December 31, 2007, the
total unrealized losses of $220 were temporary in nature and due to the current
level of interest rates.

|                                 | At December 31, 2007  
|-------------------------------- | ----------------------
|                                 | Less than 12 months   
|                                 | Fair                  
|                                 | Value                 
|                                 | (Dollars in thousands)
|U.S. Government agencies and     |                       
|corporations                     | $                     
|Mortgage backed
      securities |                       
|State and political subdivisions |                       
|Total                            | $                     

|                                 | At December 31, 2006  
|-------------------------------- | ----------------------
|                                 | Less than 12 months   
|                                 |                       
|                                 | Fair Value            
|                                 | (Dollars in thousands)
|U.S. Government agencies and     |                       
|corporations                     |                       
|Mortgage backed
      securities |                       
|State and political subdivisions |                       
|Total                            |                       

(6) Transactions with Related
Parties

The
Corporation, through its subsidiary Bank, makes loans to its officers, directors
and their affiliates. These loans are made on substantially the same terms and
conditions as transactions with non-related parties. A comparison of loans
outstanding to related parties follows:

| |                                                                   | At December 31,       
| | ----------------------------------------------------------------- | ----------------------
| |                                                                   | 2007                  
| |                                                                   | (Dollars in thousands)
| | Amount at beginning of year                                       | $                     
| | Additions
      (deductions)                                      |                       
| | New Loans                                                         |                       
| | Repayments                                                        |                       
| | Changes in directors and
      officers and /or affiliations, net |                       
| | Amount at end of
      year                                       | $                     

The
Corporation, through its subsidiary Bank, maintains deposits accounts for
officers, directors and their affiliates. These deposits are made on
substantially the same terms and conditions as transactions with non-related
parties. The balances of deposit accounts for related parties were $8,190 and
$1,384, respectively at December 31, 2007 and 2006.

48

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

(7) Loans and Allowance for Loan
Losses

Loan balances at December 31, 2007
and December 31, 2006 are summarized by purpose as follows:

|                                                                                | At December 31,       
|------------------------------------------------------------------------------- | ----------------------
|                                                                                | 2007                  
|                                                                                | (Dollars in thousands)
|Real estate loans (includes loans secured primarily by real estate
      only): |                       
|Construction and land development                                               | $                     
|One to four family residential                                                  |                       
|Multi-family residential                                                        |                       
|Non-farm non-residential
      properties                                       |                       
|Commercial and
      industrial loans                                           |                       
|Personal loans to individuals                                                   |                       
|All other
      loans                                                           |                       
|Total loans                                                                     |                       
|Allowance for loan losses                                                       |                       
|Net loans                                                                       | $                     

Activity in the allowance for loan
losses for 2007, 2006 and 2005 is summarized as follows:

|                                           | Year Ended December 31,
|------------------------------------------ | -----------------------
|                                           | 2007                   
|                                           | (Dollars in thousands) 
|Balance at the beginning of year           | $                      
|Provision for
      loan losses            |                        
|Allowance from merger                      |                        
|Loans
      charged-off                    |                        
|Recoveries on loans previously charged-off |                        
|Balance at the
      end of the year       | $                      

In 2005,
substandard loans totaling $5.7 million were sold. As a result, loans
charged-off in 2005 include $1,173 from the sale of these loans.

Information regarding impaired loans is as follows:

|                                                                   | At December 31,
|------------------------------------------------------------------ | ---------------
|                                                                   | 2007           
|                                                                   |                
|Year-end impaired loans                                            | $              
|Amount of
      allowance specifically allocated to impaired loans |                
|Average of impaired loans during the year                          |                
|Interest income
      recognized during impairment                 |                
|Nonaccrual loans at year end                                       |                

49

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

(8) Bank Premises, Equipment and
Leases

Bank premises and equipment are
summarized as follows:

|                                                | At December 31        
|----------------------------------------------- | ----------------------
|                                                | 2007                  
|                                                | (Dollars in thousands)
|Land                                            | $                     
|Buildings                                       |                       
|Equipment                                       |                       
|Purchased
      software                        |                       
|Leasehold improvements                          |                       
|Total
      cost                                | $                     
|Less: accumulated depreciation and amortization |                       
|Net bank
      premises and equipment           | $                     

Depreciation of Bank premises and equipment charged to noninterest
expense amounted to $1,466 in 2007, $1,389 in 2006 and $1,503 in 2005.
Amortization of purchased software charged to noninterest expense amounted to
$264 in 2007, $242 in 2006 and $273 in 2005.

At
December 31, 2007, the Bank was obligated to pay rental commitments under
noncancelable operating leases on certain Bank premises and equipment as
follows:

Amount(Dollars inthousands)2008
    
    $1,0662009
    
    6592010
    
    5612011
    
    4292012
    
    2992013 and
      thereafter
    
    1,143Total
    
    $4,157


Rentals
paid under leases on Corporation premises and equipment amounted to $1,106 in
2007, $879 in 2006 and $663 in 2005.

(9) Deposits

Deposit balances at December 31,
2007 and December 31, 2006 are summarized as follows:

|                                     | At December
      31,
|------------------------------------ | ---------------------
|                                     | 2007                 
|                                     |                      
|Demand and other noninterest-bearing | **$**                
|Interest
      checking              |                      
|Savings                              |                      
|Money market
      accounts          |                      
|Consumer time deposits               |                      
|Public time
      deposits           |                      
|Brokered time deposits               |                      
|Total
      deposits                 | **$**                

50

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

The
aggregate amount of certificates of deposit in denominations of $100,000 or more
amounted to $159,350 and $161,655 at December 31, 2007 and 2006, respectively.
Brokered time deposits totaling $27,631 and $65,093 at December 31, 2007 and
2006, respectively, are included in these totals.

The maturity distribution of
certificates of deposit as of December 31, 2007 follows:

|                           |                        |         |                     |  |                     |            |       |  |       |                | After |  |  |    
|-------------------------- | ---------------------- | ------- | ------------------- |  | ------------------- | ---------- | ----- |  | ----- | -------------- | ----- |  |  | ---
|                           | Within 12              |         | After 12 months but |  | After 36 months but |            | 5     |  |       |               
|                           | months                 |         | within 36 months    |  | within 60 months    |            | years |  | Total
|                           | (Dollars in thousands)
|Consumer time deposits     | $                      | 306,722 |                     |  |                     | $   34,082 |       |  |       | $  3,475       |       |  |  | $ 
|Public time
      deposits |                        | 60,254  |                     |  |                     | 4,459      |       |  |       | 200            |       |  |  |   
|Brokered time deposits     |                        | 25,131  |                     |  |                     | 2,500      |       |  |       |               |       |  |  |   
|Total time
      deposits  | $                      | 392,107 |                     |  |                     | $  41,041  |       |  |       | **$****3,675** |       |  |  | $ 

(10) Short-Term
Borrowings

The
Corporation has a line of credit for advances and discounts with the Federal
Reserve Bank of Cleveland. The amount of this line of credit varies on a monthly
basis. The line is equal to 85% of the balances of qualified home equity lines
of credit that are pledged as collateral. At December 31, 2007, the Bank had
pledged approximately $5,629 in qualifying home equity lines of credit,
resulting in an available line of credit of approximately $4,785. No amounts
were outstanding at December 31, 2007 or December 31, 2006.

Short-term borrowings include securities sold under repurchase agreements
and Federal funds purchased from correspondent banks. The table below presents
information for short-term borrowings for the three years ended December 31,
2007.

|                                            | Year ended December 31
|------------------------------------------- | ----------------------
|                                            | 2007                  
|                                            | (Dollars in thousands)
|Securities sold under repurchase agreements |                       
|Period End:                                 |                       
|Outstanding                                 | $                     
|Interest rate                               |                       
|Average:                                    |                       
|Outstanding                                 | $                     
|Interest rate                               |                       
|Maximum month-end balance                   | $                     
|Federal funds purchased                     |                       
|Period End:                                 |                       
|Outstanding                                 | $                     
|Interest rate                               |                       
|Average:                                    |                       
|Outstanding                                 | $                     
|Interest rate                               |                       
|Maximum month-end balance                   | $                     

51

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

(11) Federal Home Loan Bank
Advances

Federal
Home Loan Bank advances amounted to $44,207 and $35,086 at December 31, 2007 and
December 31, 2006 respectively. All advances are bullet maturities with no call
features. At December 31, 2007, collateral pledged for FHLB advances consisted
of qualified real estate mortgage loans and home equity lines of credit of
$105,892 and $39,754 respectively. The maximum borrowing capacity of the Bank at
December 31, 2007 was $82,675 with unused collateral borrowing capacity of
$38,400. The Bank maintains a $40,000 cash management line of credit (CMA) with
the FHLB. The following table presents the activity on this line of credit for
the three years ended December 31, 2007.

|                                                | Year Ended December 31,
|----------------------------------------------- | -----------------------
|                                                | 2007                   
|                                                | (Dollars in thousands) 
|Cash management advances (CMA) from the Federal |                        
|Home Loan Bank (FHLB)                           |                        
|Period End:                                     |                        
|Outstanding                                     | $                      
|Interest rate                                   | $                      
|Average:                                        |                        
|Outstanding                                     | $                      
|Interest rate                                   |                        

Maturities of FHLB advances outstanding
at December 31, 2007 and 2006 are as follows:

|                                                  | 2007                   |        | 2006
|------------------------------------------------- | ---------------------- | ------ | ----
|                                                  | (Dollars in thousands)
|FHLB advance - 2.95%, due January 30, 2007        | $                      |       |     
|FHLB advance -
      3.55%, due November 21, 2007 |                        |       |     
|FHLB advance - 3.33%, due February 8, 2008        |                        | 5,000  |     
|FHLB advance -
      4.47%, due April 11, 2008    |                        | 281    |     
|FHLB advance - 4.99% due November 28, 2008        |                        | 5,000  |     
|FHLB advance -
      5.07%, due December 12, 2008 |                        | 500    |     
|FHLB advance - 3.36%, due March 27, 2009          |                        | 10,000 |     
|FHLB advance -
      4.67%, due April 10, 2009    |                        | 350    |     
|FHLB advance - 5.00%, due December 14, 2009       |                        | 500    |     
|FHLB advance -
      3.58%, due January 8, 2010   |                        | 10,000 |     
|FHLB advance - 3.67%, due January 8, 2011         |                        | 10,000 |     
|FHLB advance -
      3.55%, due January 1, 2014   |                        | 76     |     
|FHLB advance - 4.76%, due July 6, 2015            |                        | 2,500  |     
|Total FHLB advances                               | $                      | 44,207 |     

(12) Trust Preferred
Securities

On May 9,
2007, the Corporation completed two private offerings of trust preferred
securities through two separate Delaware statutory trusts sponsored by the
Corporation. LNB Trust I (Trust I) sold $10.0 million of preferred securities
and LNB Trust II (Trust II) sold $10.0 million of preferred securities (Trust
I and Trust II are hereafter collectively referred to as the Trusts). The
proceeds from the offering were used to fund the cash portion of the Morgan
Bancorp, Inc. acquisition. The Corporation owns all of the common securities of
each of the Trusts.

The subordinated notes mature in
2037. Trust I bears a floating interest rate (current three-month LIBOR plus 148
basis points). Trust II bears a fixed rate of 6.6% through June 15, 2017, and
then becomes a floating interest rate (current three-month LIBOR plus 148 basis
points). Interest on the notes is payable quarterly.

52

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

The
subordinated notes are redeemable in whole or in part, without penalty, at the
Corporations option on or after June 15, 2012 and mature on June 15, 2037. The
notes are junior in right of payment to the prior payment in full of all Senior
Indebtedness of the Corporation, whether outstanding at the date of this
Indenture or thereafter incurred. At December 31, 2007, the balance of the
subordinated notes payable to Trust I and Trust II was $10,310 each. The
interest rates in effect as of the last determination date in 2007 were 7.1743%
and 6.64% for Trust I and Trust II, respectively.

A broad
based stock option incentive plan, the 2006 Stock Incentive Plan, was adopted by
the Corporations shareholders on April 18, 2006. One award was outstanding
under the plan at December 31, 2007; however, the Corporation did have stock
option agreements outside of the 2006 Stock Incentive Plan at December 31, 2007
and December 31, 2006 with two individuals. The Corporation also issued Stock
Appreciation Rights (SARs) on January 20, 2006 to eight employees. SFAS No.
123R has been adopted for the accounting and disclosure of the stock option
agreements and the SARs.

(13) Income Taxes

The provision for income taxes
consists of the following:

|                                         | Year Ended December
      31,
|---------------------------------------- | -----------------------------
|                                         | 2007                         
|                                         | (Dollars in thousands)       
|Income Taxes:                            |                              
|Federal current expense                  | $                            
|Federal deferred expense
      (benefit) |                              
|Total Income
      Taxes                 | $                            

The
following presents a reconciliation of income taxes as shown on the Consolidated
Statements of Income with that which would be computed by applying the statutory
Federal tax rate of 34% to income before taxes in 2007, 2006 and
2005.

|                                                                | Year Ended December 31,
|--------------------------------------------------------------- | -----------------------
|                                                                | 2007                   
|                                                                | (Dollars in thousands) 
|Computed expected tax expense                                 | $                      
|Increase (reduction) in income taxes resulting
      from:      |                        
|Tax exempt
      interest on obligations of state and political |                        
|subdivisions                                                    |                        
|Tax exempt
      interest on bank owned life insurance          |                        
|New markets tax
      credit                                    |                        
|Other, net                                                      |                        
|Total Income Taxes                                              | $                      

Net
deferred Federal tax assets are included in other assets on the consolidated
Balance Sheets. Management believes that it is more likely than not that the
deferred Federal tax assets will be realized. At December 31, 2007 and 2006
there was no valuation allowance required. The tax effects of temporary
differences that give rise to significant portions of the deferred Federal tax
assets and deferred Federal tax liabilities are presented below.

53

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

As of
December 31, 2007, the Corporation had a net operating loss (NOL) carry forward
for tax purposes of approximately $1.7 million. The NOL will expire in
2027.

At December 312007
    
    2006(Dollars in thousands)Deferred Federal tax assets:Allowance for loan losses
    $
    2,608
    
    
    $
    2,482Deferred compensation
    
    405
    
    
    
    470Minimum pension liability
    
    352
    
    
    
    273Equity based compensation
    
    60
    
    
    
    32Unrealized loss on securities available for
      sale
    
    
    
    
    
    805NOL Carryforward
    
    574
    
    
    
    Mark-to-market adjustments
    
    326
    
    
    
    Other, net
    
    73
    
    
    
    50Total deferred
      Federal tax assets
    $
    4,398
    
    
    $
    4,112Deferred Federal tax liabilities:Bank premises and equipment depreciation
    $
    (140
    )
    
    $
    (175
    )Unrealized gain on securities available for
      sale
    
    (588
    )
    
    
    FHLB stock dividends
    
    (205
    )
    
    
    (177
    )Intangible asset amortization
    
    (310
    )
    
    
    (215
    )Accrued loan fees and costs
    
    (42
    )
    
    
    (166
    )Deferred charges
    
    (202
    )
    
    
    (94
    )Prepaid pension
    
    (417
    )
    
    
    (133
    )Total deferred Federal tax liabilities
    
    (1,904
    )
    
    
    (960
    )Net deferred
      Federal tax assets
    $
    2,494
    
    
    $
    3,152


(14) Shareholders
Equity

Preferred Stock

The
Corporation is authorized to issue up to 1,000,000 shares of Voting Preferred
Stock, no par value. As of December 31, 2007 and 2006, no such stock had been
issued. The Board of Directors of the Corporation is authorized to provide for
the issuance of one or more series of Voting Preferred Stock and establish the
dividend rate, dividend dates, whether dividends are cumulative, liquidation
prices, redemption rights and prices, sinking fund requirements, conversion
rights, and restrictions on the issuance of any series of Voting Preferred
Stock. The Voting Preferred Stock may be issued with conversion rights to common
stock and may rank prior to the common stock in dividends, liquidation
preferences, or both. The Corporation has authorized 750,000 Series A Voting
Preferred Shares none of which have been issued.

Common Stock

The
Corporation is authorized to issue up to 15,000,000 shares of common stock.
Common shares outstanding were 7,295,663 and 6,443,673 at December 31, 2007 and
December 31, 2006, respectively.

Common Stock Repurchase Plan
and Treasury Stock

On July
28, 2005, the Board of Directors authorized the repurchase of up to 5% of the
outstanding shares of the common stock of the Corporation, or approximately
332,000 shares. The repurchased shares will be used primarily for qualified
employee benefit plans, incentive stock option plans, stock dividends and other
corporate purposes. At December 31, 2007 and December 31, 2006, LNB Bancorp,
Inc. held 328,194 shares of common stock as Treasury Stock under this plan at a
total cost of $6,092.

54

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Shareholder Rights
Plan

On
October 24, 2000, the Board of Directors of LNB Bancorp, Inc. adopted a
Shareholder Rights Plan which was amended as of May 17, 2006. The rights plan is
designed to prevent a potential acquirer from exceeding a prescribed ownership
level in LNB Bancorp, Inc., other than in the context of a negotiated
acquisition involving the Board of Directors. If the prescribed level is
exceeded, the rights become exercisable and, following a limited period for the
Board of Directors to redeem the rights, allow shareholders, other than the
potential acquirer that triggered the exercise of the rights, to purchase
Preferred Share Units of the Corporation having characteristics comparable to
the Corporations Common Shares, at 50% of market value. This would dilute the
potential acquirers ownership level and voting power, making an acquisition of
the Corporation without prior Board approval prohibitively expensive.

The
Shareholder Rights Plan provided for the distribution of one Preferred Share
Purchase Right as a dividend on each outstanding LNB Bancorp, Inc. Common Share
held as of the close of business on November 6, 2000. One Preferred Share
Purchase Right will also be distributed for each Common Share issued after
November 6, 2000. Each right entitles the registered holder to purchase from LNB
Bancorp, Inc. Units of a new series of Voting Preferred Shares, no par value, at
50% of market value, if a person or group acquires 15% or more of LNB Bancorp,
Inc.s Common Shares. Each Unit of the new Preferred Shares has terms designed
to make it the economic equivalent of one Common share.

LNBB Direct Stock
Purchase and Dividend Reinvestment Plan

The Board
of Directors adopted the LNBB Direct Stock Purchase and Dividend Reinvestment
Plan (the Plan) effective June 2001, replacing the former LNB Bancorp, Inc.
Dividend Reinvestment Plan. The Plan authorized the sale of 500,000 shares of
the Corporations common shares to shareholders who choose to invest all or a
portion of their cash dividends plus additional cash payments for LNB Bancorp,
Inc. common stock. The Corporation did not issue shares pursuant to the Plan in
2007 and 43,518 shares were purchased in the open market at the current market
price. Similarly, the Corporation did not issue shares pursuant to the Plan in
2006 while 38,498 shares were purchased in the open market at the current market
price.

Dividend
Restrictions

Dividends
paid by the Bank are the primary source of funds available to the Corporation
for payment of dividends to shareholders and for other working capital needs.
The payment of dividends by the Bank to the Corporation is subject to
restrictions by the Office of the Comptroller of Currency. These restrictions
generally limit dividends to the current and prior two years retained earnings.
At December 31, 2007, approximately $3,937 of the Banks retained earnings was
available for dividends to the Corporation. In addition to these restrictions,
as a practical matter, dividend payments cannot reduce regulatory capital levels
below the Corporations regulatory capital requirements and minimum regulatory
guidelines. These restrictions do not presently limit the Corporation from
paying normal dividends.

(15) Regulatory
Capital

The
Corporation and the Bank are subject to risk-based capital guidelines issued by
the Board of Governors of the Federal Reserve Board and the Office of
Comptroller of Currency. These guidelines are used to evaluate capital adequacy
and include required minimums as discussed below. The Corporation and the Bank
are subject to an array of banking, Federal Deposit Insurance Corporation, U.S.
Federal, including the FDIC Improvement Act. The FDIC Improvement Act
established five capital categories ranging from well capitalized to
critically
undercapitalized.These five capital categories are used by the Federal Deposit Insurance Corporation to determine
prompt corrective action and an institutions semi-annual FDIC deposit insurance
premium assessments.

55

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

Capital
adequacy guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weightings, and other factors and the regulators can lower
classifications in certain cases. Failure to meet various capital requirements
can initiate regulatory action that could have a direct material effect on the
consolidated financial statements.

The
prompt corrective action regulations provide for five categories which in
declining order are: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
under-capitalized. To be considered well capitalized, an institution must
generally have a leverage capital ratio of at least five percent, a Tier I
risk-based capital ratio of at least six percent, and a total risk-based capital
ratio of at least ten percent.

At
December 31, 2007 and 2006, the capital ratios for the Corporation and its
wholly-owned subsidiary, The Lorain National Bank, exceeded the ratios required
to be well capitalized. The well capitalized status affords the Bank the
ability to operate with the greatest flexibility under current laws and
regulations. The Comptroller of the Currencys most recent notification
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that Management believes have changed the Banks category. Analysis
of The Lorain National Bank and LNB Bancorp, Inc.s Regulatory Capital and
Regulatory Capital Requirements follows:

56

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)|(Dollars in thousands except per share
amounts)

|                                     | December 31 2007       |        | December 31 2006
|------------------------------------ | ---------------------- | ------ | ----------------
|                                     | Amount                 |        | Ratio           
|                                     | (Dollars in thousands)
|Total capital (risk weighted)        |                        |        |                 
|Consolidated                         | $                      | 87,765 |                 
|Bank                                 |                        | 87,443 |                 
|Tier 1 capital
      (risk weighted) |                        |        |                 
|Consolidated                         |                        | 79,945 |                 
|Bank                                 |                        | 71,623 |                 
|Tier 1 capital (average assets)      |                        |        |                 
|Consolidated                         |                        | 79,945 |                 
|Bank                                 |                        | 71,623 |                 
|Well
      Capitalized:              |                        |        |                 
|Total capital (risk weighted)        |                        |        |                 
|Consolidated                         | $                      | 83,343 |                 
|Bank                                 |                        | 83,322 |                 
|Tier 1 capital
      (risk weighted) |                        |        |                 
|Consolidated                         |                        | 50,006 |                 
|Bank                                 |                        | 49,993 |                 
|Tier 1 capital (average assets)      |                        |        |                 
|Consolidated                         |                        | 50,459 |                 
|Bank                                 |                        | 50,409 |                 
|Minimum
      Required:              |                        |        |                 
|Total capital (risk weighted)        |                        |        |                 
|Consolidated                         | $                      | 66,675 |                 
|Bank                                 |                        | 66,657 |                 
|Tier 1 capital
      (risk weighted) |                        |        |                 
|Consolidated                         |                        | 33,337 |                 
|Bank                                 |                        | 33,329 |                 
|Tier 1 capital (average assets)      |                        |        |                 
|Consolidated                         |                        | 40,368 |                 
|Bank                                 |                        | 40,327 |                 

57

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

(16) Parent Company Financial
Information

LNB
Bancorp, Inc.s (parent company only) condensed balance sheets as of December
31, 2007 and 2006, and the condensed statements of income and cash flows for the
years ended December 31, 2007, 2006 and 2005 are as follows:

**Year
      ended December 31,**Condensed
      Balance Sheets
    **2007**
    
    **2006****(Dollars in thousands)**Assets:Cash
    $
    414
    
    $
    28Investment in The Lorain National Bank
    
    95,007
    
    
    64,637Other
      investments
    
    7
    
    
    7Note receivable - The Lorain National Bank
    
    8,000
    
    
    4,000Other
      assets
    
    247
    
    
    45Total Assets
    $
    103,675
    
    $
    68,717Liabilities
      and Shareholders EquityJunior subordinated debenture
    $
    20,620
    
    $
    Other
      liabilities
    
    402
    
    
    20Shareholders equity
    
    82,653
    
    
    68,697Total
      Liabilities and Shareholders Equity
    $
    103,675
    
    $
    68,717


**Year
      ended December 31,**Condensed
      Statements of Income
    **2007**
    
    2006
    
    2005**(Dollars in
      thousands)**IncomeInterest
      income
    $
    368
    
    $
    272
    
    $
    321Cash dividend from The Lorain National Bank
    
    5,160
    
    
    5,300
    
    
    3,575Other
      income
    
    2
    
    
    23
    
    
    72Gain on sale of available for sale securities
    
    
    
    
    
    
    
    73Total
      Income
    $
    5,530
    
    $
    5,595
    
    $
    4,041ExpensesInterest
      expense
    
    914
    
    
    
    
    
    Other expenses
    
    245
    
    
    178
    
    
    341Income before
      income taxes and equity in undistributed net income ofsubsidiaries
    
    4,371
    
    
    5,417
    
    
    3,700Income tax expense
    
    6
    
    
    36
    
    
    35Equity in undistributed net income of subsidiaries
    
    1,147
    
    
    43
    
    
    2,748Net Income
    $
    5,512
    
    $
    5,424
    
    $
    6,413


58

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Year ended December
      31,**Condensed
      Statements of Cash Flows**
    2007
    
    2006
    
    2005(Dollars in thousands)Net Income
    $
    5,512
    
    
    $
    5,424
    
    
    $
    6,413Adjustments to
      reconcile net income to net cash provided by(used in) operating activities:Equity in undistributed net income of The Lorain
      NationalBank
    
    (1,147
    )
    
    
    (43
    )
    
    
    (2,748
    )Gain on sale of available for sale
      securities
    
    
    
    
    
    
    
    
    
    (73
    )Issuance of common stock under employment agreements
    
    
    
    
    
    
    
    
    
    97Equity in undistributed net income of non-bank
      subsidiaries
    
    
    
    
    
    
    
    
    
    36Net
      change in other assets and liabilities
    
    238
    
    
    
    163
    
    
    
    (132
    )Net cash provided by operating activities
    
    4,603
    
    
    
    5,544
    
    
    
    3,593Cash Flows from Investing Activities:Payments for investments in subsidiaries
    
    (15,740
    )
    
    
    
    
    
    
    Payments to The Lorain National Bank for subordinateddebt instrument
    
    (4,000
    )
    
    
    
    
    
    
    Proceeds from sales of available for sale
      securities
    
    
    
    
    
    
    
    
    
    73Net
      cash provided by/(used in) investing activities
    
    (19,740
    )
    
    
    
    
    
    
    73Cash Flows
      from Financing Activities:Purchase of treasury stock
    
    
    
    
    
    (1,443
    )
    
    
    (2,219
    )Proceeds from issuance of junior subordinated
      debentures
    
    20,620
    
    
    
    
    
    
    
    Dividends paid
    
    (5,097
    )
    
    
    (4,641
    )
    
    
    (4,760
    )Net cash provided by/(used in) financing
      activities
    
    15,523
    
    
    
    (6,084
    )
    
    
    (6,979
    )Net increase (decrease) in cash equivalents
    
    386
    
    
    
    (540
    )
    
    
    (3,313
    )Cash and cash
      equivalents at beginning of year
    
    28
    
    
    
    568
    
    
    
    3,881Cash and cash equivalents at end of year
    $
    414
    
    
    $
    28
    
    
    $
    568


(17) Retirement Pension
Plan

The
Banks non-contributory defined benefit pension plan (the Plan) covers
substantially all of its employees. In general, benefits are based on years of
service and the employees level of compensation. The Banks funding policy is
to contribute annually an actuarially determined amount to cover current service
cost plus amortization of prior service costs.

The
Company adopted the provisions of SFAS No. 158 as of December 31, 2006, which
require that the funded status of the defined benefit pension retirement plan be
fully recognized in the balance sheet. Effective December 31, 2002, the benefits
under this plan have been frozen and the Accumulated Benefit Obligation (ABO) is
equal to the Projected Benefit Obligation (PBO). As a result, the funded status
of the plan has been fully recognized in the balance sheet and the
implementation of SFAS 158 did not require an additional liability
accrual.

The net
periodic pension costs charged to expense amounted to $(15) in 2007, $9 in 2006
and $32 in 2005. The following table sets forth the defined benefit pension
plans Change in Projected Benefit Obligation, Change in Plan Assets and Funded
Status, including the Prepaid Asset or Accrued Liability for the years ended
December 31, 2007, 2006, and 2005. Effective December 31, 2002, the benefits
under the Plan were frozen

59

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

and no additional benefits are accrued
under the Plan after December 31, 2002. The losses recognized due to settlement
in the amount of $48, $85 and $135 results from significant lump sum
distributions paid in 2007, 2006 and 2005, but not actuarially
projected.

Year ended December
      31,2007
    
    **2006**
    
    **2005**(Dollars in thousands)Change in projected benefit obligationProjected
      benefit obligation at the beginning of the year
    $
    (5,534
    )
    
    $
    (6,341
    )
    
    $
    (7,390
    )Interest Cost
    
    (308
    )
    
    
    (329
    )
    
    
    (398
    )Actuarial gain (loss)
    
    (284
    )
    
    
    263
    
    
    
    111Settlement loss
    
    (92
    )
    
    
    (185
    )
    
    
    (210
    )Benefits paid
    
    659
    
    
    
    1,058
    
    
    
    1,546Projected benefit obligation at the end of the year
    $
    (5,559
    )
    
    $
    (5,534
    )
    
    $
    (6,341
    )Change in
      plan assetsFair value of plan assets at beginning of year
    $
    5,374
    
    
    $
    5,868
    
    
    $
    6,895Actual gain on plan assets
    
    465
    
    
    
    314
    
    
    
    269Employer contributions
    
    250
    
    
    
    250
    
    
    
    250Benefits paid
    
    (659
    )
    
    
    (1,058
    )
    
    
    (1,546
    )Fair value of plan assets at end of year
    $
    5,430
    
    
    $
    5,374
    
    
    $
    5,868Funded
      StatusFunded status
    $
    (129
    )
    
    $
    (160
    )
    
    $
    (473
    )Unrecognized actuarial loss
    
    1,037
    
    
    
    802
    
    
    
    874Unrecognized prior service cost
    
    
    
    
    
    
    
    
    
    Prepaid Asset
      (Accrued Liability)
    $
    908
    
    
    $
    642
    
    
    $
    401


60

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Amounts recognized in the
consolidated statements of income consist of:

Year ended December
      31,2007
    
    2006
    
    2005(Dollars in thousands)Net Periodic Pension Cost (Benefit)Interest cost on
      projected benefit obligation
    $
    307
    
    
    $
    329
    
    
    $
    398Expected return on plan benefits
    
    (389
    )
    
    
    (423
    )
    
    
    (501
    )Net periodic
      pension cost (benefit)
    
    (82
    )
    
    
    (94
    )
    
    
    (103
    )Amortization of Loss
    
    19
    
    
    
    18
    
    
    
    Loss recognized
      due to settlement
    
    48
    
    
    
    85
    
    
    
    135Total pension costs
    $
    (15
    )
    
    $
    9
    
    
    $
    32


The
following items included in accumulated other comprehensive income have not yet
been recognized as components of periodic benefit cost:

**Year
      ended December 31,****2007**
    
    2006
    
    2005**(Dollars in
      thousands)**Actuarial Loss
    $
    1,037
    
    
    $
    802
    
    
    $
    874Tax
      Benefit
    
    (353
    )
    
    
    (273
    )
    
    
    (297
    )Net amount not recognized
    $
    684
    
    
    $
    529
    
    
    $
    577


Weighted-average assumptions used to determine net periodic benefit cost
for years ended December 31, 2007, 2006 and 2005:

**2007**
    
    **2006**
    
    **2005**Weighted average discount rate
    5.75
    %
    
    5.50
    %
    
    5.75
    %Expected
      long-term rate of return on plan assets
    7.50
    %
    
    7.50
    %
    
    7.50
    %Assumed rate of future compensation increases
    0.00
    %
    
    0.00
    %
    
    0.00
    %


Amounts recognized in the
consolidated balance sheets consist of:

Year ended December
      31,2007
    
    **2006**
    
    **2005**(Dollars in thousands)Accrued benefit cost
    $
    (129
    )
    
    $
    (160
    )
    
    $
    (473
    )Minimum pension
      liability
    
    1,037
    
    
    
    802
    
    
    
    874Net amount recognized
    $
    908
    
    
    $
    642
    
    
    $
    401


Year ended December
      31,2007
    
    **2006**
    
    **2005**(Dollars in thousands)Increase (decrease) in minimum liability included in
      othercomprehensive income
    $
    155
    
    $
    (48)
    
    $
    129


The
actuarial assumptions used in the pension plan valuation are reviewed annually.
The plan reviews Moodys Aaa and Aa corporate bond yields as of each plan
year-end to determine the appropriate discount rate to calculate the year-end
benefit plan obligation and the following years net periodic pension cost.

61

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

Plan Assets

The
Lorain National Banks Retirement Pension Plans weighted-average assets
allocations at December 31, 2007, 2006 and 2005 by asset category are as
follows:

|                                                          | **Plan
      Assets at December 31,**
|--------------------------------------------------------- | -------------------------------------
|                                                          | **2007**                             
|Asset Category:                                           |                                      
|Equity
      securities                                   | 59.9                                 
|Debt securities                                           | 35.3                                 
|Cash and cash
      equivalents                           | 4.8                                  
|Total                                                     | 100.0                                
|LNB Bancorp,
      Inc. common stock to total plan assets | 8.5                                  

The
investment strategy for 2007 will continue to be an equity security allocation
percent of 60% and a debt security position of 40%. This strategy will be
employed in order to position more assets to benefit from the anticipated
increase in the equities market in 2008.

The
Lorain National Bank has not yet decided the contribution to The Lorain National
Bank Retirement Pension Plan in 2008.

The
following estimated future benefit payments, which reflect no expected future
service as the plan is frozen, are expected to be paid as follows:

|          | Amount                
|--------- | ----------------------
|          | (Dollars in thousands)
|2008      | $                     
|2009      |                       
|2010      |                       
|2011      |                       
|2012-2017 |                       

62

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

(18) Stock Options and Stock
Appreciation Rights

A broad
based stock option incentive plan, the 2006 Stock Incentive Plan, was adopted by
the Corporations shareholders on April 18, 2006. One award was outstanding
under the plan at December 31, 2007. At December 31, 2007 and December 31, 2006,
the Corporation had nonqualified stock option agreements outside of the 2006
Stock Incentive Plan with two executives granted in 2005, 2006 and 2007. On
January 20, 2006, the Corporation issued an aggregate of 30,000 Stock
Appreciation Rights (SARs) to 8 employees, 8,500 of which expired during 2007
due to employee terminations. SFAS No. 123R has been adopted for the accounting
and disclosure of the stock option agreements and the SARs. The expense
recorded as of December 31, 2007 was $0 for SARs and $79 for stock options.
Expense recorded during 2006 was $21 for SARs and $73 for stock options. The
number of options or SARs and the exercise prices for these nonqualified
incentive options or SARs outstanding as of December 31, 2007
follows:

Year Issued2005
    
    2005
    
    2006
    
    2007
    
    2007
    
    2006Type
    
    Option
    
    Option
    
    Option
    
    Option
    
    Option
    
    SAR'sNumber of Options
    
    
    2,500
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    20,000
    
    
    
    30,000Strike
      Price
    
    $
    16.50
    
    
    $
    19.17
    
    
    $
    19.10
    
    
    $
    16.00
    
    
    $
    15.35
    
    
    $
    19.00Number of Options Vested
    
    
    2,500
    
    
    
    20,000
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    Assumptions:Risk free interest rate
    
    
    4.50
    %
    
    
    3.92
    %
    
    
    3.66
    %
    
    
    4.73
    %
    
    
    4.72
    %
    
    
    3.35
    %Dividend
      yield
    
    
    4.36
    %
    
    
    3.76
    %
    
    
    3.77
    %
    
    
    4.50
    %
    
    
    4.69
    %
    
    
    4.91
    %Volatility
    
    
    18.48
    %
    
    
    17.30
    %
    
    
    17.66
    %
    
    
    16.52
    %
    
    
    15.33
    %
    
    
    13.95
    %Expected Life -
      years
    
    
    5
    
    
    
    6
    
    
    
    6
    
    
    
    7
    
    
    
    6
    
    
    
    5.21


The activity in stock options
outstanding for the three years ended December 31, 2007 follows:

2007
    
    2006
    
    2005Weighted
    
    
    
    Weighted
    
    
    
    
    WeightedAverage
    
    
    
    Average
    
    
    
    
    AverageExercise
    
    
    
    Exercise
    
    
    
    
    ExercisePrice per
    
    
    
    Price per
    
    
    
    
    Price perOptions
    
    Share
    
    Options
    
    Share
    
    Options
    
    ShareOutstanding at beginning of year
    
    62,500
    
    $
    19.03
    
    32,500
    
    $
    18.96
    
    21,939
    
    
    $
    19.39Granted
    
    50,000
    
    
    15.74
    
    30,000
    
    
    19.10
    
    32,500
    
    
    
    18.96Forfeited
    
    
    
    
    
    
    
    
    
    
    
    (21,939
    )
    
    
    19.39Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock dividend or split
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at
      end of year
    
    112,500
    
    $
    17.57
    
    62,500
    
    $
    19.03
    
    32,500
    
    
    $
    18.96Exerciseable at end of year
    
    32,500
    
    $
    18.94
    
    12,500
    
    $
    18.64
    
    
    
    
    $
    


The
weighted average remaining contractual life of options exercisable at December
31, 2007 was 8.66 years with an aggregate intrinsic value of $0.

A summary
of the status of the Corporations nonvested shares as of December 31, 2007, and
changes during the year ended December 31, 2007, is presented below:

WeightedNonvested
    
    AverageGrant DateShares
    
    Fair Value per shareNonvested at January 1, 2007
    50,000
    
    
    $
    19.13Granted
    50,000
    
    
    
    15.74Vested
    20,000
    
    
    
    19.14Forfeited
    
    
    
    
    Nonvested at December 31, 2007
    80,000
    
    
    
    17.01


63

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

As of
December 31, 2007, there was $65 of total unrecognized compensation cost related
to nonvested stock options. The unrecognized compensation is expected to be
recognized over a period of 2.25 years.

In
accordance with the disclosure requirements of Statement of Financial Accounting
Standard, or SFAS, No. 123, Accounting for Stock-Based Compensation, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure  An amendment of FASB Statement No. 123, the following table
provides the pro forma effect on net income and earnings per share if the fair
value method of accounting for stock-based compensation had been used for all
awards for the year ended December 31, 2005.

December 31, 2005(Dollars inthousands, exceptper share amounts)Net Income as reported
    $
    6,413Add: Stock-based
      compensation, net of tax, as reported
    
    62Deduct: Stock-based compensation, net of tax, thatwould have been reported if the fair value
      based methodhad been applied to all awards.
    
    (123
    )Pro forma net income
    $
    6,352Pro forma net income per share:Basic - as reported
    $
    0.97Basic - pro forma
    
    0.96Diluted - as reported
    
    0.97Diluted - pro forma
    
    0.96


(19) Employee Stock Ownership
Plan

The
Lorain National Bank Employee Stock Ownership Plan (ESOP) is a non-contributory
plan that covers substantially all employees. Contributions by the Bank to the
ESOP are discretionary and subject to approval by the Board of Directors.
Contributions are expensed in the year in which they are approved. No
contributions were made to this plan in 2007, 2006 and 2005. Under the terms of
the ESOP agreement, the Corporations common stock is to be the Plans primary
investment.

(20) 401(k) Plan

The Bank
adopted the The Lorain National Bank 401(k) Plan (the Plan) effective January 1,
2001. This Plan amended and restated the previous plan  The Lorain National
Bank Stock Purchase Plan. The Plan allows for the purchase of up to 80,000
shares of LNB Bancorp, Inc. treasury shares. No shares were purchased out of
Treasury during 2007, 2006 or 2005.

Under
provisions of the Plan, a participant can contribute a percentage of their
compensation to the Plan. The Bank makes a non-discretionary 50% contribution to
match each employees contribution. The Banks match is limited to the first six
percent of an employees wage. The Plan uses the contributions of the
Corporation to purchase LNB Bancorp, Inc. common stock. Effective January 1,
2001, the Plan permits the investment of plan assets, contributed by employees,
among different funds.

The
Banks matching contributions are expensed in the year in which the associated
participant contributions are made and totaled $296, $271, and $252, in 2007,
2006 and 2005, respectively.

64

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

(21) Commitments, Credit Risk, and
Contingencies

In the
normal course of business, the Bank enters into commitments with off-balance
sheet risk to meet the financing needs of its customers. These instruments are
currently limited to commitments to extend credit and standby letters of credit.
Commitments to extend credit involve elements of credit risk and interest rate
risk in excess of the amount recognized in the consolidated balance sheets. The
Banks exposure to credit loss in the event of nonperformance by the other party
to the commitment is represented by the contractual amount of the commitment.
The Bank uses the same credit policies in making commitments as it does for
on-balance sheet instruments. Interest rate risk on commitments to extend credit
results from the possibility that interest rates may have moved unfavorably from
the position of the Bank since the time the commitment was made.

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of 30 to 120 days or other
termination clauses and may require payment of a fee. Since some of the
commitments may expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.

The Bank
evaluates each customers credit worthiness on a case-by-case basis. The amount
of collateral obtained by the Bank upon extension of credit is based on
Managements credit evaluation of the applicant. Collateral held is generally
single-family residential real estate and commercial real estate. Substantially
all of the obligations to extend credit are variable rate. Standby letters of
credit are conditional commitments issued to guarantee the performance of a
customer to a third party. Standby letters of credit generally are contingent
upon the failure of the customer to perform according to the terms of the
underlying contract with the third party.

A summary of the contractual amount
of commitments at December 31, 2007 and 2006 follows:

2007
    
    2006(Dollars in thousands)Commitments to extend credit
    $
    112,445
    
    $
    87,366Home equity
      lines of credit
    
    77,942
    
    
    64,365Standby letters of credit
    
    3,759
    
    
    4,347Total
    $
    194,146
    
    $
    156,078


Most of
the Banks business activity is with customers located within the Banks defined
market area. As of December 31, 2007 and 2006, the Bank had no significant
concentrations of credit risk in its loan portfolio. The Bank also has no
exposure to highly leveraged transactions and no foreign credits in its loan
portfolio.

The
nature of the Corporations business may result in litigation. Management, after
reviewing with counsel all actions and proceedings pending against or involving
LNB Bancorp, Inc. and subsidiaries, considers that the aggregate liability or
loss, if any, resulting from them will not be material to the Corporations
financial position, results of operation or liquidity.

(22) Estimated Fair Value of
Financial Instruments

The
Corporation discloses estimated fair values for its financial instruments. Fair
value estimates, methods and assumptions are set forth below for the
Corporations financial instruments.

The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:

- 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.

65

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(Dollars in thousands except per share
amounts)

- 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 December 31, 2007 and 2006.

The following information pertains
to assets measured by fair value on a recurring basis (in thousands):

Quoted Prices
    
    SignificantFair Value
    
    in
      Active
    
    Other
    
    Significantas
      of
    
    Markets for
    
    Observable
    
    UnobservableDecember
    
    Identical Assets
    
    Inputs
    
    InputsDescription
    
    31, 2007
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Trading Securities
    
    $
    33,402
    
    
    $
    33,402
    
    
    $
    
    
    
    $
    Available for
      Sale Securities
    
    
    179,424
    
    
    
    163,970
    
    
    
    15,454
    
    
    
    Total
    
    $
    212,826
    
    
    $
    197,372
    
    
    $
    15,454
    
    
    $
    


Gains of
$247 were included under security gains in earnings for the year ended December
31, 2007 for assets held and measured at fair value as of December 31,
2007.

The
Corporation elected early adoption of SFAS 159 effective January 1, 2007. As a
result of its analysis and evaluation of the benefits of accounting for
investment securities under SFAS 159, the Corporations management, its Audit
and Finance Committee and its Asset/Liability Committee determined that early
adoption of SFAS 159 would benefit the Corporation by allowing it to address
both the immediate and the longer-term liquidity and interest rate risks it
would face as a result of the Corporations acquisition of Morgan Bancorp, Inc.
and its wholly-owned bank subsidiary Morgan Bank N.A. (collectively, Morgan)
in May 2007. In addition, the Corporation believed that adoption of SFAS 159
would potentially provide it with a simpler and, thus, more effective long-term
approach to managing its liquidity and simplify its accounting for any hedging
activity that might be required to manage the Corporations assets in future
years. The securities that were chosen for the fair value measurement option and
classified as trading securities by the Corporation were substantially all of
the Corporations well-seasoned seven-year balloon and 15-year mortgage-backed
securities having an average

66

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

duration of 2.4 years. These securities
were selected based on the anticipated impact that a falling interest rate
environment would have on the value of the securities in Morgans consumer loan
portfolio. At the time of the Corporations early adoption of SFAS 159, economic
forecast predicted further decreases in interest rates. The Corporation
anticipated that, if overall interest rates decreased, the fair value of the
selected securities would increase and the related income would help offset the
interest margin compression that the Corporation would experience as a result of
falling rates.

*Limitations*

Estimates
of fair value are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

Estimates
of fair value are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Bank has a substantial Investment and
Trust Services Division that contributes net fee income annually. The Investment
and Trust Services Division is not considered a financial instrument and its
value has not been incorporated into the fair value estimates. Other significant
assets and liabilities that are not considered financial instruments include
property, plant, and equipment and deferred tax liabilities. In addition, it is
not practicable for the Corporation to estimate the tax ramifications related to
the realization of the unrealized gains and losses and they have not been
reflected in any of the estimates of fair value. The impact of these tax
ramifications can have a significant effect on estimates of fair value. The
estimated fair values of the Corporations financial instruments at December 31,
2007 and 2006 are summarized as follows:

67

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued) (Dollars in thousands except per share
amounts)

|                                                             |  | At December 31,       
|------------------------------------------------------------ |  | ----------------------
|                                                             |  | 2007                  
|                                                             |  | Carrying              
|                                                             |  | Value                 
|                                                             |  | (Dollars in thousands)
|Financial assets                                             |  |                       
|Cash and due
      from banks, Federal funds sold and short- |  |                       
|term investments                                             |  | $                     
|Securities                                                   |  |                       
|Trading
      securities, at fair value                      |  |                       
|Portfolio loans, net                                         |  |                       
|Loans held for
      sale                                    |  |                       
|Accrued interest receivable                                  |  |                       
|Financial
      liabilities                                  |  |                       
|Deposits:                                                    |  |                       
|Demand, savings and money market                             |  |                       
|Certificates of deposit                                      |  |                       
|Total
      deposits                                         |  |                       
|Short-term borrowings                                        |  |                       
|Federal Home
      Loan Bank advances                        |  |                       
|Junior subordinated debentures                               |  |                       
|Accrued interest
      payable                               |  |                       

68

---

(23) Quarterly Financial Data
(Unaudited)

|                                                          |  | First                                           |                                                 | Second |   | Third  |  | Fourth |        | **Full Year**
|--------------------------------------------------------- |  | ----------------------------------------------- | ----------------------------------------------- | ------ | - | ------ |  | ------ | ------ | -------------
|                                                          |  |                                                 | (Dollars in thousands, except per share amount)
|2007                                                      |  |                                                 |                                                 |        |   |        |  |        |        |              
|Total interest
      income                               |  | $                                               | 12,872                                          |        | $ | 14,162 |  | $      | 15,871 |              
|Total interest expense                                    |  |                                                 | 6,043                                           |        |   | 6,964  |  |        | 8,043  |              
|Net Interest
      income                                 |  |                                                 | 6,829                                           |        |   | 7,198  |  |        | 7,828  |              
|Provision for loan losses                                 |  |                                                 | 383                                             |        |   | 853    |  |        | 441    |              
|Net interest
      income after provision for loan losses |  |                                                 | 6,446                                           |        |   | 6,345  |  |        | 7,387  |              
|Noninterest income                                        |  |                                                 | 2,989                                           |        |   | 2,433  |  |        | 3,004  |              
|Noninterest
      expense                                 |  |                                                 | 7,358                                           |        |   | 8,009  |  |        | 8,334  |              
|Income tax                                                |  |                                                 | 542                                             |        |   | 133    |  |        | 384    |              
|Net
      Income                                          |  |                                                 | 1,535                                           |        |   | 636    |  |        | 1,673  |              
|Basic earnings per share                                  |  |                                                 | 0.24                                            |        |   | 0.09   |  |        | 0.23   |              
|Diluted earnings
      per share                          |  |                                                 | 0.24                                            |        |   | 0.09   |  |        | 0.23   |              
|Dividends declared per
      share                        |  |                                                 | 0.18                                            |        |   | 0.18   |  |        | 0.18   |              
|                                                         
|                                                          |  | First                                           |                                                 | Second |   | Third  |  | Fourth |        | **Full Year**
|                                                          |  | (Dollars in thousands, except per share amount)
|2006                                                      |  |                                                 |                                                 |        |   |        |  |        |        |              
|Total interest
      income                               |  | $                                               | 11,608                                          |        | $ | 12,049 |  | $      | 12,835 |              
|Total interest expense                                    |  |                                                 | 4,405                                           |        |   | 4,853  |  |        | 5,515  |              
|Net Interest
      income                                 |  |                                                 | 7,203                                           |        |   | 7,196  |  |        | 7,320  |              
|Provision for loan losses                                 |  |                                                 | 150                                             |        |   | 165    |  |        | 600    |              
|Net interest
      income after provision for loan losses |  |                                                 | 7,053                                           |        |   | 7,031  |  |        | 6,720  |              
|Noninterest income                                        |  |                                                 | 2,121                                           |        |   | 2,377  |  |        | 2,453  |              
|Noninterest
      expense                                 |  |                                                 | 7,209                                           |        |   | 7,191  |  |        | 7,279  |              
|Income tax                                                |  |                                                 | 517                                             |        |   | 578    |  |        | 475    |              
|Net
      Income                                          |  |                                                 | 1,448                                           |        |   | 1,639  |  |        | 1,419  |              
|Basic earnings per share                                  |  |                                                 | 0.22                                            |        |   | 0.25   |  |        | 0.22   |              
|Diluted earnings
      per share                          |  |                                                 | 0.22                                            |        |   | 0.25   |  |        | 0.22   |              
|Dividends declared per
      share                        |  |                                                 | 0.18                                            |        |   | 0.18   |  |        | 0.18   |              

69

---

Item 9.Changes in and Disagreements With Accountants on Accounting
and Financial Disclosures

None.

Item 9A.Controls and Procedures

1. Disclosure Controls and
Procedures

The
Corporation maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Companys Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is accumulated
and communicated to the Companys management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

The
Corporations Management carried out an evaluation, under the supervision and
with the participation of the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of LNB Bancorp, Inc.s
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of
December 31, 2007, pursuant to the evaluation of these controls and procedures
required by Rule 13a-15 of the Securities Exchange Act of 1934.

Based
upon that evaluation, Management concluded as of the end of the period covered
by this Annual Report on Form 10-K that The Corporations disclosure controls
and procedures were effective over financial reporting.

2. Internal Control over Financial
Reporting

The
Management of LNB Bancorp, Inc. is responsible for establishing and maintaining
adequate internal control over its financial reporting. LNB Bancorp, Inc.s
internal control over financial reporting is a process designed under the
supervision of the Corporations Chief Executive Officer and Chief Financial
Officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Corporations financial statements for
external reporting purposes in accordance with U.S. generally accepted
accounting principles.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

LNB
Bancorp, Inc.s Management assessed the effectiveness of the Corporations
internal control over financial reporting as of December 31, 2007 based on the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control Integrated Framework. Based on this
assessment, Management determined that at December 31, 2007, the Corporations
internal control over financial reporting was effective.

3. Changes in Internal Control over
Financial Reporting

No change
in the Corporations internal control over financial reporting occurred during
the fiscal quarter ended December 31, 2007 that has materially affected, or is
reasonably likely to materially affect, the Corporations internal control over
financial reporting.

70

---

PART III

Item 10.Directors, Executive Officers, Promoters and Control Persons
of the Registrant

Information regarding the executive officers of the Corporation is set
forth in Part I, Item 4 of this Form 10-K. Other information required to be
included under this item is incorporated by reference herein from the
information about our directors provided in the section captioned Election of
Directors, the information provided in the section captioned Section 16(a)
Beneficial Ownership Reporting Compliance, and the information about the
Corporations Audit and Finance Committee, audit committee financial expert and
procedures for recommending nominees to the Board of Directors and Corporate
Governance provided in the sections captioned Committees of the Board and
Corporate Governance in the Corporations Proxy Statement for the 2008 Annual
Meeting of Shareholders filed with the SEC.

Item 11.Executive Compensation

The
information required by this item is incorporated by reference herein from the
information provided in the sections captioned Executive Compensation and Other
Information, in the Corporations Proxy Statement for the 2008 Annual Meeting
of Shareholders filed with the SEC.

Item 12.Security Ownership of Certain Beneficial Owners and Management

The
information about security ownership of certain beneficial owners and management
required by this item is incorporated by reference herein from the information
provided in the section captioned Ownership of Voting Shares in the
Corporations Proxy Statement for the 2008 Annual Meeting of Shareholders filed
with the SEC. The following table shows information about the Corporations
common shares that may be issued upon the exercise of options, warrants and
rights under all of the Corporations equity compensation plans as of December
31, 2007:

Equity Compensation Plan
Table

|                                                |  | Number of            |         | Weighted-            |  | Number of securities     
|----------------------------------------------- |  | -------------------- | ------- | -------------------- |  | -------------------------
|                                                |  | securities to be     |         | Average              |  | remaining available for  
|                                                |  | issued upon exercise |         | exercise price       |  | future issuance under    
|                                                |  | of
      outstanding |         | of
      outstanding |  | equity compensation      
|                                                |  | options, warrants    |         | options, warrants    |  | plans exluding securities
|                                                |  | and rights (1)       |         | and rights           |  | reflected in column (a)  
|**Plan Category**                               |  | (a)                  |         | (b)                  |  | (c)                      
|Equity compensation plans approved by           |  |                      |         |                      |  |                          
|security holders                                |  |                      | 20,000  |                      |  |                          
|Equity
      compensation plans not approved by |  |                      |         |                      |  |                          
|security holders (3)                            |  |                      | 92,500  |                      |  |                          
|Total                                           |  |                      | 112,500 |                      |  |                          

|(1) |  | Consists of common
      shares of the Corporation covered by outstanding options.                                                                                                                                                                                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents shares
      available for grant under the LNB Bancorp, Inc. 2006 Stock Incentive Plan.
      The LNB Bancorp, Inc. 2006 Stock Incentive Plan allows for the granting of
      an aggregate of 600,000 common shares, no more than 400,000 of which may
      be granted in the form of stock options and no more than 200,000 of which
      may be granted in the form of restricted
shares.

71

---

|(3) |  | All common shares
      included in equity compensation plans not approved by shareholders are
      covered by outstanding options awarded to two current officers under
      agreements having the same material terms. Each of these options is a
      nonqualified option, meaning a stock option that does not qualify under
      Section 422 of the Internal Revenue Code for the special tax treatment
      available for qualified, or incentive, stock options. Mr. Klimas was
      granted a stock options on February 1, 2005, February 1, 2006, and
      February 1, 2007 each to purchase 30,000 shares which vest in 10,000 share
      increments on the first, second and third anniversaries of the date of
      grant. Mr. Soltis has an option to purchase 2,500 shares which vested on
      the first year anniversary of the date of grant. Each option may be
      exercised for a term of 10 years from the date the option vests, subject
      to earlier termination in the event of death, disability or other
      termination of the employment of the option holder. The option holder has
      up to 12 months following termination of employment due to death or
      disability to exercise the options. The options terminate three months
      after termination of employment for reasons other than death, disability
      or termination for cause, and immediately upon termination of employment
      if for cause. The exercise price and number of shares covered by the
      option are to be adjusted to reflect any share dividend, share split,
      merger or other recapitalization of the common shares of the Corporation.
      The options are not transferable other than by will or state inheritance
      laws. Exercise prices for these options are at fair market value at the
      date of grant. The stock option for 30,000 shares awarded to Mr. Klimas on
      February 1, 2005 has an exercise price of $19.17 per share, the stock
      option for 30,000 shares awarded to Mr. Klimas on February 1, 2006 has an
      exercise price of $19.10 per share, the stock option for 30,000 shares
      awarded to Mr. Klimas on February 1, 2007 has an exercise price of $16.00
      per share and the 2,500 shares awarded Mr. Soltis have an exercise price
      of $16.50 per share. The remaining contractual terms of the options are 10
      years from the date of vesting.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 13.Certain Relationships and Related
Transactions

The
information required by this item is incorporated by reference from the
information provided in section captioned Certain Transactions in the
Corporations Proxy Statement for the 2008 Annual Meeting of Shareholders filed
with the SEC.

Item 14.Principal Accounting Fees and Services

The
information required by this item is incorporated by reference herein from the
information provided in section captioned Principal Accounting Firm Fees in
the Corporations Proxy Statement for the 2008 Annual Meeting of Shareholders
filed with the SEC.

72

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PART IV

Item 15.Exhibits, Financial Statement Schedules

(a)The following Consolidated Financial
Statements and related Notes to Consolidated Financial Statements, together with
the report of Independent Registered Public Accounting Firm dated March 11,
2008, appear on pages 37 through 68 of this annual report on Form 10-K:

| | (1) |  | Financial Statements                                                                                                                                                                                                 
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  |                                                                                                                                                                                                                      
| |     |  | Consolidated Balance Sheets                                                                                                                                                                                          
| |     |  |                                                                                                                                                                                                                      
| |     |  | December 31, 2007 and 2006                                                                                                                                                                                           
| |     |  |                                                                                                                                                                                                                      
| |     |  | Consolidated Statements of Income for the Years Ended                                                                                                                                                                
| |     |  |                                                                                                                                                                                                                      
| |     |  | December 31, 2007, 2006 and 2005                                                                                                                                                                                     
| |     |  |                                                                                                                                                                                                                      
| |     |  | Consolidated Statements of Shareholders Equity for the
    Years                                                                                                                                                    
| |     |  |                                                                                                                                                                                                                      
| |     |  | Ended
      December 31, 2007, 2006 and 2005                                                                                                                                                                         
| |     |  |                                                                                                                                                                                                                      
| |     |  | Consolidated Statements of Cash Flows for the Years
  Ended                                                                                                                                                          
| |     |  |                                                                                                                                                                                                                      
| |     |  | December 31, 2007, 2006 and 2005                                                                                                                                                                                     
| |     |  |                                                                                                                                                                                                                      
| |     |  | Notes
      to Consolidated Financial Statements for the Years                                                                                                                                                       
| |     |  |                                                                                                                                                                                                                      
| |     |  | Ended
      December 31, 2007, 2006 and 2005                                                                                                                                                                         
| |     |  |                                                                                                                                                                                                                      
| |     |  | Report of Independent Registered Public Accounting
Firm                                                                                                                                                              
| |     |  |                                                                                                                                                                                                                      
| | (2) |  | Financial Statement Schedules                                                                                                                                                                                        
| |     |  |                                                                                                                                                                                                                      
| |     |  | Financial
      statement schedules are omitted as they are not required or are not
      applicable or because the required information is included in the
      consolidated financial statements or notes thereto.
| |     |  |                                                                                                                                                                                                                      
| | (3) |  | Exhibits required by Item 601 Regulation S-K                                                                                                                                                                         
| |     |  |                                                                                                                                                                                                                      
| |     |  | Reference is made to the Exhibit Index which is found on page 74 of
      this Form 10-K.                                                                                                                            
| |     |  |                                                                                                                                                                                                                      
| | (b) |  | the following
      exhibits required by Item 601 of Regulation S-K are filed as part of this
      report:                                                                                                          
| |     |  |                                                                                                                                                                                                                      
| |     |  | Form
      10-K Exhibit Index                                                                                                                                                                                        

73

---

Exhibit Index

|S-K       |   |        
|--------- | - | -------
|Reference |   |        
|Number    |   | Exhibit
|2(a)      |   |        
|          |   |        
|3(a)      |   |        
|          |   |        
|3(b)      |   |        
|          |   |        
|4(a)      |   |        
|          |   |        
|4(c)      |   |        
|          |   |        
|4(d)      |   |        
|          |   |        
|4(e)      |   |        
|          |   |        
|4(f)      |   |        
|          |   |        
|10(a)     | * |        
|          |   |        
|10(b)     | * |        
|          |   |        
|10(c)     | * |        
|          |   |        
|10(d)     | * |        
|          |   |        
|10(e)     |   |        

74

---

|S-K       |   |        
|--------- | - | -------
|Reference |   |        
|Number    |   | Exhibit
|10(f)     |   |        
|          |   |        
|10(g)     | * |        
|          |   |        
|10(h)     |   |        
|          |   |        
|10(i)     |   |        
|          |   |        
|10(j)     |   |        
|          |   |        
|10(k)     |   |        
|          |   |        
|10(l)     |   |        
|          |   |        
|10(m)     | * |        
|          |   |        
|10(n)     |   |        
|          |   |        
|10(o)     | * |        
|          |   |        
|10(p)     |   |        
|          |   |        
|10(q)     |   |        
|          |   |        
|10(r)     |   |        
|          |   |        
|10(s)     | * |        

75

---

|S-K       |   |            
|--------- | - | -----------
|Reference |   |            
|Number    |   | **Exhibit**
|10(t)     | * |            
|          |   |            
|10(u)     | * |            
|          |   |            
|10(v)     | * |            
|          |   |            
|10(w)     | * |            
|          |   |            
|10(x)     |   |            
|          |   |            
|10(y)     |   |            
|          |   |            
|10(z)     | * |            
|          |   |            
|10(aa)    | * |            
|          |   |            
|10(bb)    | * |            
|          |   |            
|21.1      |   |            
|          |   |            
|23.1      |   |            
|          |   |            
|23.2      |   |            
|          |   |            
|31.1      |   |            
|          |   |            
|31.2      |   |            
|          |   |            
|32.1      |   |            
|          |   |            
|32.2      |   |            

76

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

| | LNB
      Bancorp, Inc.
| | -----------------------
| | (Registrant)           
| |                        
| |                        
| |                        
| | By:                    
| |                        
| |                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons in the capacities and on the dates
indicated:

|/s/ Daniel P. Batista        | Director                                  
|---------------------------- | ------------------------------------------
|DANIELP. BATISTA             |                                           
|/s/ Robert M. Campana        | Director                                  
|ROBERTM. CAMPANA             |                                           
|/s/ Terry D. Goode           | Director                                  
|TERRYD. GOODE                |                                           
|/s/ James R. Herrick         | Chairman and
      Director               
|JAMESR. HERRICK              |                                           
|/s/ James F. Kidd            | Vice Chairman
      and Director          
|JAMESF. KIDD                 |                                           
|/s/ J. Martin Erbaugh        | Director                                  
|J.
      MARTINERBAUGH       |                                           
|/s/ Kevin C. Martin          | Director                                  
|KEVINC. MARTIN               |                                           
|/s/ Benjamin G. Norton       | Director                                  
|BENJAMING. NORTON            |                                           
|/s/ Jeffrey F. Riddell       | Director                                  
|JEFFREYF. RIDDELL            |                                           
|/s/ John W. Schaeffer, MD    | Director                                  
|JOHNW. SCHAEFFER,
      M.D. |                                           
|/s/ Lee C. Howley            | Director                                  
|LEEC. HOWLEY                 |                                           
|/s/ Donald F. Zwilling       | Director                                  
|DONALDF. ZWILLING            |                                           
|/s/ Daniel E. Klimas         | Director and
      Chief Executive Officer
|DANIELE. KLIMAS              | (Principal
      Executive Officer)       
|/s/ Sharon L. Churchill      | Chief
      Financial Officer             
|SHARONL. CHURCHILL           | (Principal
      Financial and            
|                             | Accounting
      Officer)                 

77

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