##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, 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
    December 31, 2004 |  | Commission file number
    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 |  | Name of Each Exchange on Which Registered
|                    |  |                                          
|None                |  | None                                     

Securities Registered Pursuant to Section 12(g) of the
Act:


|                                |  |                                          
|------------------------------- |  | -----------------------------------------
|Title of Each Class             |  | Name of Each Exchange on Which Registered
|                                |  |                                          
|Common Shares                   |  |                                          
|Par Value $1.00 Per Share       |  | NASDAQ  National Market                 
|Preferred Share Purchase Rights |  |                                          

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DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS


|               |  |                                                                                          |    |      |    | 
|-------------- |  | ---------------------------------------------------------------------------------------- | -- | ---- | -- | 
|               |  |                                                                                          |    | Page |   
|               |  |                                                                                          |    |      |   
|PART I        
|Item 1.        |  | Business                                                                                 |    |      | 1  | 
|Item 2.        |  | Properties                                                                               |    |      | 3  | 
|Item 3.        |  | Legal Proceedings                                                                        |    |      | 4  | 
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                      |    |      | 4  | 
|               |  | Supplementary Item: Executive Officers of Registrant                                     |    |      | 5  | 
|              
|PART II       
|              
|Item 5.        |  | Market for Registrants Common Equity and Related
    Stockholder Matters                |    |      | 6  | 
|Item 6.        |  | Selected Financial Data                                                                  |    |      | 7  | 
|Item 7.        |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operation |    |      | 8  | 
|Item 7A.       |  | Quantitative and Qualitative Disclosures About Market Risk                               |    |      | 29 | 
|Item 8.        |  | Financial Statements and Supplementary Data                                              |    |      | 31 | 
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure |    |      | 63 | 
|Item 9A.       |  | Controls and Procedures                                                                  |    |      | 63 | 
|Item 9B.       |  | Other Information                                                                        |    |      | 65 | 
|              
|PART III      
|              
|Item 10.       |  | Directors and Executive Officers of the Registrant                                       |    |      | 65 | 
|Item 11.       |  | Executive Compensation                                                                   |    |      | 65 | 
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management                           |    |      | 65 | 
|Item 13.       |  | Certain Relationships and Related Transactions                                           |    |      | 66 | 
|Item 14.       |  | Principal Accounting Fees and Services                                                   |    |      | 66 | 
|              
|PART IV       
|              
|Item 15.       |  | Exhibits, Financial Statement Schedules                                                  |    |      | 67 | 
|Signatures     |  |                                                                                          | 68 |     
|Exhibits       |  |                                                                                          | 69 |     
|Certifications |  |                                                                                          | 75 |     



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PART 1


Item 1.Business


Overview


History.


Banking.








Mortgage Services.


Brokerage Services.


Insurance Services.


Competition.


1



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Business Strategy.


Acquisition.


Supervision and Regulation.




Employees.


Risk Management.






Industry Segments




2



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Available Information




Item 2.Properties






|                                |  |                                             
|------------------------------- |  | --------------------------------------------
|Main Office                     |  | 457 Broadway, Lorain                        
|Vermilion                       |  | 4455 East Liberty Avenue, Vermilion         
|Amherst                         |  | 1175 Cleveland Avenue, Amherst              
|Lake Avenue                     |  | 42935 North Ridge Road, Elyria Township     
|LaGrange                        |  | 546 North Center Street, Village of LaGrange
|Avon                            |  | 2100 Center Road, Avon                      
|Avon Lake                       |  | 32960 Walker Road, Avon Lake                
|Kansas Avenue                   |  | 1604 Kansas Avenue, Lorain                  
|Sixth Street Drive-In           |  | 200 Sixth Street, Lorain                    
|Pearl Avenue                    |  | 2850 Pearl Avenue, Lorain                   
|Oberlin Office                  |  | 40 East College Street, Oberlin             
|West Park Drive-In              |  | 2130 West Park Drive, Lorain                
|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           
|Westlake Village                |  | 28550 Westlake Village Drive, Westlake      
|Westlake LPO                    |  | 30210 Detroit Road, Westlake                
|Elyria United Methodist Village |  | 807 West Avenue, Elyria                     
|Technology Center               |  | 2130 West Park Drive, Lorain                
|Maintenance Building            |  | 2140 West Park Drive, Lorain                
|Purchasing Building             |  | 2150 West Park Drive, Lorain                
|Professional Development Center |  | 521 Broadway, Lorain                        



3



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Item 3.Legal
Proceedings




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




4



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SUPPLEMENTAL ITEM  EXECUTIVE OFFICERS OF THE
REGISTRANT




Executive Officers of the Registrant


|                   |  |                                                                                                                                                                                                                                                                                                                                                           |  |     |    | 
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | -- | 
|Name               |  | Principal Occupation During Past Five Years                                                                                                                                                                                                                                                                                                               |  | Age |   
|                   |  |                                                                                                                                                                                                                                                                                                                                                           |  |     |   
|Daniel E. Klimas   |  | President and Chief Executive Officer, LNB Bancorp, Inc. and The
    Lorain National Bank (February 7, 2005 to Present);
    Previously, President, Northern Ohio Region, Huntington Bank,
    (2000 to February 4, 2005)                                                                                                                                 |  |     | 47 | 
|Kevin W. Nelson    |  | Executive Vice President, LNB Bancorp, Inc. and The Lorain
    National Bank (2000 to Present)                                                                                                                                                                                                                                                            |  |     | 41 | 
|Terry M. White     |  | Executive Vice President, Chief Financial Officer and Corporate
    Secretary, LNB Bancorp, Inc. and The Lorain National Bank (2002
    to present); Previously Senior Vice President at Austin
    Associates, LLC (2000 to 2002); Previously Executive Vice
    President and Chief Financial Officer at Lakeland Financial
    Corporation (1993-2000) |  |     | 47 | 
|Debra R. Brown     |  | Executive Vice President and Chief Operations Officer LNB
    Bancorp, Inc. and The Lorain National Bank (2004 to present);
    Previously Senior Vice President LNB Bancorp, Inc. and The
    Lorain National Bank (1999 to 2004)                                                                                                                        |  |     | 46 | 
|Paul A. Campagna   |  | Senior Vice President, Senior Lending Officer, The Lorain
    National Bank (2002 to present); Previously, Vice President and
    Credit Officer, ShoreBank, Cleveland (1998 to 2002)                                                                                                                                                                     |  |     | 44 | 
|Robert F. Heinrich |  | Treasurer, The Lorain National Bank (2004 to present);
    Previously, Staff Auditor, The Lorain National Bank (2003 to
    2004); Previously, Assistant Vice President Risk Management,
    KeyCorp (2001 to 2003); Previously, Consultant, Jeffersonwells
    International (1998 to 2001)                                                              |  |     | 51 | 
|Jeffery A. Davis   |  | Director of Audit, The Lorain National Bank (2004 to present);
    Previously, Loan Officer, Premier Mortgage Group (2003 to 2004);
    Previously, Risk Manager, Key Bank (2001 to 2003); Previously,
    Senior Auditor, Ohio Savings Bank (2000 to 2001)                                                                                               |  |     | 38 | 
|John A. Funderburg |  | Vice President and Director of Loan Administration, The Lorain
    National Bank (2004 to Present); Previously, Vice President Loan
    Administration, The Lorain National Bank (1999 to 2004)                                                                                                                                                           |  |     | 39 | 
|Robert L. Cox      |  | Senior Vice President and Director of Retail Banking, LNB
    Bancorp, Inc. and The Lorain National Bank (2001 to present);
    Previously, Vice President, Key Bank (1999-2000)                                                                                                                                                                          |  |     | 49 | 
|Carol A. Mesko     |  | Vice President and Director of Human Resources, The Lorain
    National Bank (1999 to present)                                                                                                                                                                                                                                                            |  |     | 59 | 
|David E. Nocjar    |  | Senior Trust and Investment Officer, The Lorain National Bank
    (2002 to present); Previously Vice President and Trust Officer,
    The Lorain National Bank (2000 to 2002); Previously, Vice
    President and Senior Trust Officer, Citizens National Bank of
    Norwalk (1996 to 2000)                                                              |  |     | 56 | 
|James H. Weber     |  | Senior Vice President and Director of Marketing, LNB Bancorp,
    Inc. and The Lorain National Bank (1987 to present)                                                                                                                                                                                                                                     |  |     | 58 | 

5



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PART II




|        |                                                                         
|------- | ------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock and Related
    Stockholder Matters

Market Information.


Common Stock Trading Ranges and Cash Dividends Declared


|               |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|               |  | 2004 |       |  | 2003 |  
|               |  |      |       |  |      |  
|               |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|               |  |      |       |  |      |   |       |      |  |   |       | 
|First Quarter  |  | $    | 21.60 |  |      | $ | 20.30 |      |  | $ | 21.28 |  |  | $ | 18.17 | 
|Second Quarter |  |      | 21.13 |  |      |   | 18.28 |      |  |   | 23.95 |  |  |   | 20.50 | 
|Third Quarter  |  |      | 20.60 |  |      |   | 19.26 |      |  |   | 21.67 |  |  |   | 20.15 | 
|Fourth Quarter |  |      | 20.70 |  |      |   | 19.45 |      |  |   | 21.00 |  |  |   | 20.17 | 

|                         |  |                |      |  |                |   |      | 
|------------------------ |  | -------------- | ---- |  | -------------- | - | ---- | 
|                         |  | 2004           |      |  | 2003           |  
|                         |  | Cash Dividends |      |  | Cash Dividends |  
|                         |  | Declared       |      |  | Declared       |  
|                         |  |                |      |  |                |  
|First Quarter  regular  |  | $              | 0.18 |  |                | $ | 0.17 | 
|Second Quarter  regular |  |                | 0.18 |  |                |   | 0.17 | 
|Third Quarter  regular  |  |                | 0.18 |  |                |   | 0.17 | 
|Fourth Quarter  regular |  |                | 0.18 |  |                |   | 0.17 | 
|Fourth Quarter  extra   |  |                |     |  |                |   | 0.02 | 
|                         |  |                |      |  |                |  
|Total Dividends          |  | $              | 0.72 |  |                | $ | 0.70 | 
|                         |  |                |      |  |                |  

Dividend Information.


Market Makers.




|  |                               
|- | ------------------------------
| | Archipelago Exchange (The)    
| 
| | Boston Stock Exchange         
| 
| | Brokerage America, LLC        
| 
| | Citigroup Global Markets Inc. 
| 
| | Friedman Billings Ramsey & Co.
| 
| | Hill, Thompson, Magid and Co. 
| 
| | Howe Barnes Investments, Inc. 
| 
| | Keefe, Bruyette & Woods, Inc. 
| 
| | Knight Equity Markets, L.P.   
| 
| | Morgan Stanley & Co., Inc.    
| 
| | National Stock Exchange       
| 
| | Sandler ONeill & Partners    
| 
| | Schwab Capital Markets        
| 
| | Susquehanna Capital Group     
| 
| | Sweney Cartwright & Co.       
| 
| | Trident Securities Inc.       

6



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Item 6.     Selected Financial
Data


Five Year Consolidated Financial Summary




Condensed Statements of Income and Selected Financial Data


|                                  |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |        |         |        |   |        |         |        | 
|--------------------------------- | ------------------------------------------------ | -------------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | - | ------ | ------- | ------ | ---- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                  |                                                  | For the Years Ended December 31, |       
|                                  |                                                  |                                  |       
|                                  |                                                  | 2004                             |        |         | 2003   |   |        | 2002    |        |   | 2001   |         |        | 2000 |       
|                                  |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |       
|                                  |                                                  | (Dollars in thousands)           |       
|Total interest income             |                                                  | $                                | 37,224 |         |        | $ | 37,860 |         |        | $ | 41,327 |         |        | $    | 45,101 |         |        | $ | 46,645 |        
|Total interest expense            |                                                  |                                  | 9,102  |         |        |   | 9,196  |         |        |   | 12,095 |         |        |      | 16,998 |         |        |   | 19,209 |        
|                                  |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |       
|                                  |                                                  | Net interest income              |        |         | 28,122 |   |        |         | 28,664 |   |        |         | 29,232 |      |        |         | 28,103 |   |        |         | 27,436 | 
|Provision for loan losses         |                                                  |                                  | 1,748  |         |        |   | 2,695  |         |        |   | 2,200  |         |        |      | 2,200  |         |        |   | 1,700  |        
|                                  |                                                  | Other income                     |        |         | 10,660 |   |        |         | 10,105 |   |        |         | 10,278 |      |        |         | 9,343  |   |        |         | 8,362  | 
|Net gain (loss) on sale of assets |                                                  |                                  | (218   | )       |        |   | 1,519  |         |        |   | 808    |         |        |      | 313    |         |        |   | (14    | )      
|                                  |                                                  | Other expenses                   |        |         | 26,290 |   |        |         | 26,467 |   |        |         | 24,753 |      |        |         | 22,946 |   |        |         | 21,254 | 
|                                  |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |       
|Income before income taxes        |                                                  |                                  | 10,526 |         |        |   | 11,126 |         |        |   | 13,365 |         |        |      | 12,613 |         |        |   | 12,830 |        
|                                  |                                                  | Income taxes                     |        |         | 3,051  |   |        |         | 3,411  |   |        |         | 4,200  |      |        |         | 4,048  |   |        |         | 4,400  | 
|                                  |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |       
|                                  |                                                  | Net income                       |        | $       | 7,475  |   |        | $       | 7,715  |   |        | $       | 9,165  |      |        | $       | 8,565  |   |        | $       | 8,430  | 
|                                  |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |       
|Cash dividend declared            |                                                  | $                                | 4,777  |         |        | $ | 4,626  |         |        | $ | 4,468  |         |        | $    | 4,365  |         |        | $ | 4,191  |        
|Per Common Share(1)(2)            |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |        |         |        |   |        |        
|                                  | Basic earnings                                   |                                  | $      | 1.13    |        |   | $      | 1.17    |        |   | $      | 1.39    |        |      | $      | 1.30    |        |   | $      | 1.28    |       
|                                  | Diluted earnings                                 |                                  |        | 1.13    |        |   |        | 1.17    |        |   |        | 1.39    |        |      |        | 1.30    |        |   |        | 1.28    |       
|                                  | Cash dividend declared                           |                                  |        | 0.72    |        |   |        | 0.70    |        |   |        | 0.68    |        |      |        | 0.66    |        |   |        | 0.64    |       
|                                  | Book value per share                             |                                  |        | 10.64   |        |   |        | 10.30   |        |   |        | 10.09   |        |      |        | 9.41    |        |   |        | 8.60    |       
|Financial Ratios(3)               |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |        |         |        |   |        |        
|                                  | Return on average assets                         |                                  |        | 0.98    | %      |   |        | 1.05    | %      |   |        | 1.33    | %      |      |        | 1.35    | %      |   |        | 1.39    | %     
|                                  | Return on average common equity                  |                                  |        | 10.75   |        |   |        | 11.33   |        |   |        | 14.24   |        |      |        | 14.36   |        |   |        | 15.83   |       
|                                  | Net interest margin (FTE)(4)                     |                                  |        | 4.01    |        |   |        | 4.23    |        |   |        | 4.58    |        |      |        | 4.75    |        |   |        | 4.85    |       
|                                  | Efficiency ratio                                 |                                  |        | 67.82   |        |   |        | 63.01   |        |   |        | 61.41   |        |      |        | 60.96   |        |   |        | 59.42   |       
|                                  | Loans to deposits                                |                                  |        | 93.77   |        |   |        | 91.91   |        |   |        | 90.01   |        |      |        | 92.13   |        |   |        | 90.94   |       
|                                  | Dividend payout                                  |                                  |        | 63.72   |        |   |        | 59.98   |        |   |        | 48.75   |        |      |        | 50.96   |        |   |        | 49.72   |       
|                                  | Average shareholders equity to average assets   |                                  |        | 9.15    |        |   |        | 9.22    |        |   |        | 9.31    |        |      |        | 9.35    |        |   |        | 8.77    |       
|                                  | Net charge-offs to average loans                 |                                  |        | 0.38    |        |   |        | 0.31    |        |   |        | 0.29    |        |      |        | 0.34    |        |   |        | 0.26    |       
|                                  | Allowance for loan losses to total loans         |                                  |        | 1.28    |        |   |        | 1.46    |        |   |        | 1.31    |        |      |        | 1.23    |        |   |        | 1.16    |       
|                                  | Nonperforming loans to total loans               |                                  |        | 0.86    |        |   |        | 0.96    |        |   |        | 0.37    |        |      |        | 0.30    |        |   |        | 0.51    |       
|                                  | Allowance for loan losses to nonperforming loans |                                  |        | 138.29  |        |   |        | 135.00  |        |   |        | 352.94  |        |      |        | 409.30  |        |   |        | 226.60  |       
|At Year End                       |                                                  |                                  |        |         |        |   |        |         |        |   |        |         |        |      |        |         |        |   |        |        
|                                  | Cash and cash equivalents                        |                                  | $      | 26,818  |        |   | $      | 27,749  |        |   | $      | 26,832  |        |      | $      | 31,505  |        |   | $      | 25,136  |       
|                                  | Securities                                       |                                  |        | 149,621 |        |   |        | 152,127 |        |   |        | 152,295 |        |      |        | 138,401 |        |   |        | 127,101 |       
|                                  | Gross loans                                      |                                  |        | 575,224 |        |   |        | 533,975 |        |   |        | 509,376 |        |      |        | 477,488 |        |   |        | 451,140 |       
|                                  | Allowance for loan losses                        |                                  |        | 7,386   |        |   |        | 7,730   |        |   |        | 6,653   |        |      |        | 5,890   |        |   |        | 5,250   |       
|                                  | Net loans                                        |                                  |        | 567,838 |        |   |        | 526,245 |        |   |        | 502,723 |        |      |        | 471,598 |        |   |        | 445,890 |       
|                                  | Other assets                                     |                                  |        | 37,372  |        |   |        | 35,100  |        |   |        | 33,549  |        |      |        | 23,022  |        |   |        | 23,983  |       
|                                  | Total assets                                     |                                  |        | 781,649 |        |   |        | 741,221 |        |   |        | 715,399 |        |      |        | 664,526 |        |   |        | 622,110 |       
|                                  | Total deposits                                   |                                  |        | 605,543 |        |   |        | 581,344 |        |   |        | 566,127 |        |      |        | 518,267 |        |   |        | 496,091 |       
|                                  | Other borrowings                                 |                                  |        | 100,915 |        |   |        | 86,563  |        |   |        | 75,791  |        |      |        | 78,515  |        |   |        | 63,736  |       
|                                  | Other liabilities                                |                                  |        | 4,617   |        |   |        | 5,179   |        |   |        | 6,868   |        |      |        | 5,606   |        |   |        | 5,758   |       
|                                  | Total liabilities                                |                                  |        | 711,075 |        |   |        | 673,086 |        |   |        | 648,786 |        |      |        | 602,388 |        |   |        | 565,585 |       
|                                  | Total shareholders equity                       |                                  |        | 70,574  |        |   |        | 68,135  |        |   |        | 66,613  |        |      |        | 62,138  |        |   |        | 56,525  |       
|                                  | Total liabilities and shareholders equity       |                                  | $      | 781,649 |        |   | $      | 741,221 |        |   | $      | 715,399 |        |      | $      | 664,526 |        |   | $      | 622,110 |       






|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 and the 2 percent stock
    dividends in 2002, 2001, and 2000.
|(3) | Ratios based on average annual balances.                                                                                                                          
|(4) | Fully-Tax Equivalent (FTE) Basis.                                                                                                                                 

7



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


Introduction














Key Indicators and Material Trends






8



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


Summary of Earnings




Net Interest Income




Table 1:     Net Interest Income


|                           |  |                        |        |   |      |   |        |      |  |   |        |  
|-------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                           |  | 2004                   |        |   | 2003 |   |        | 2002 | 
|                           |  |                        |        |   |      |   |        |      | 
|                           |  | (Dollars in thousands) |       
|Net interest income        |  | $                      | 28,122 |   |      | $ | 28,664 |      |  | $ | 29,232 |  
|Tax equivalent adjustments |  |                        | 215    |   |      |   | 383    |      |  |   | 415    |  
|Net interest income (FTE)  |  |                        | 28,337 |   |      |   | 29,047 |      |  |   | 29,647 |  
|Net interest margin        |  |                        | 3.98   | % |      |   | 4.17   | %    |  |   | 4.52   | %
|Tax equivalent adjustments |  |                        | 0.03   | % |      |   | 0.06   | %    |  |   | 0.06   | %
|Net interest margin (FTE)  |  |                        | 4.01   | % |      |   | 4.23   | %    |  |   | 4.58   | %

9



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10



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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                     |        
|                                              |                                    |                                            |        
|                                              |                                    | 2004                                       |         |         | 2003     |   |         | 2002  |       
|                                              |                                    |                                            |         |         |          |   |         |       |       
|                                              |                                    | Average                                    |         |         |          |   | Average |       |        |  |         | Average |      |          |        
|                                              |                                    | Balance                                    |         |         | Interest |   |         | Rate  |        |  | Balance |         |      | Interest |         |         | Rate    |   |        | Balance |        |  | Interest |      |      | Rate |        
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|                                              |                                    | (Dollars in thousands)                     |        
|Assets:                                       |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |         |         |         |   |        |        |        |  |       |     
|Securities-tax equivalent                     |                                    | $                                          | 139,646 |         |          | $ | 4,085   |       |        |  | 2.93    | %       |      | $        | 143,505 |         |         | $ | 4,572  |         |        |  | 3.19     | %    |      | $    | 132,140 |         |         | $ | 6,559  |        |        |  | 4.96  | %   
|Securities-tax exempt                         |                                    |                                            | 10,581  |         |          |   | 674     |       |        |  | 6.37    | %       |      |          | 14,268  |         |         |   | 871    |         |        |  | 6.10     | %    |      |      | 13,135  |         |         |   | 812    |        |        |  | 6.18  | %   
|Federal funds sold and short-term investments |                                    |                                            | 5,289   |         |          |   | 120     |       |        |  | 2.27    | %       |      |          | 3,261   |         |         |   | 39     |         |        |  | 1.20     | %    |      |      | 5,456   |         |         |   | 94     |        |        |  | 1.72  | %   
|Commercial loans                              |                                    |                                            | 321,154 |         |          |   | 18,663  |       |        |  | 5.81    | %       |      |          | 286,244 |         |         |   | 16,788 |         |        |  | 5.86     | %    |      |      | 241,884 |         |         |   | 15,464 |        |        |  | 6.39  | %   
|Commercial loans-tax exempt                   |                                    |                                            |        |         |          |   |        |       |        |  | 0.00    | %       |      |          |        |         |         |   |       |         |        |  | 0.00     | %    |      |      |        |         |         |   |       |        |        |  | 0.00  | %   
|Mortgage loans                                |                                    |                                            | 105,485 |         |          |   | 7,051   |       |        |  | 6.68    | %       |      |          | 127,244 |         |         |   | 9,111  |         |        |  | 7.16     | %    |      |      | 148,489 |         |         |   | 11,162 |        |        |  | 7.52  | %   
|Consumer Loans                                |                                    |                                            | 124,876 |         |          |   | 6,846   |       |        |  | 5.48    | %       |      |          | 112,628 |         |         |   | 6,862  |         |        |  | 6.09     | %    |      |      | 106,073 |         |         |   | 7,651  |        |        |  | 7.21  | %   
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|                                              |                                    | Total Earning Assets                       |         | $       | 707,031  |   |         | $     | 37,439 |  |         |         | 5.30 | %        |         | $       | 687,150 |   |        | $       | 38,243 |  |          |      | 5.57 | %    |         | $       | 647,177 |   |        | $      | 41,742 |  |       |      | 6.45 | %
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|Allowance for loan loss                       |                                    |                                            | (7,878  | )       |          |   |         |       |        |  |         |         |      |          | (7,215  | )       |         |   |        |         |        |  |          |      |      |      | (6,405  | )       |         |   |        |        |        |  |       |     
|Cash and due from banks                       |                                    |                                            | 24,737  |         |          |   |         |       |        |  |         |         |      |          | 24,276  |         |         |   |        |         |        |  |          |      |      |      | 22,861  |         |         |   |        |        |        |  |       |     
|Bank owned life insurance                     |                                    |                                            | 13,030  |         |          |   |         |       |        |  |         |         |      |          | 12,313  |         |         |   |        |         |        |  |          |      |      |      | 6,164   |         |         |   |        |        |        |  |       |     
|Other assets                                  |                                    |                                            | 22,617  |         |          |   |         |       |        |  |         |         |      |          | 21,696  |         |         |   |        |         |        |  |          |      |      |      | 21,689  |         |         |   |        |        |        |  |       |     
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|                                              |                                    | Total Assets                               |         | $       | 759,537  |   |         |       |        |  |         |         |      |          |         | $       | 738,220 |   |        |         |        |  |          |      |      |      |         | $       | 691,486 |   |        |        |        |  |       |      |      |  
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|Liabilities and Stockholders Equity          |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |         |         |         |   |        |       
|Time deposits                                 |                                    | $                                          | 217,009 |         |          | $ | 5,147   |       |        |  | 2.37    | %       |      | $        | 213,743 |         |         | $ | 5,627  |         |        |  | 2.63     | %    |      | $    | 194,461 |         |         | $ | 6,394  |        |        |  | 3.29  | %   
|Savings deposit                               |                                    |                                            | 105,883 |         |          |   | 322     |       |        |  | 0.30    | %       |      |          | 102,100 |         |         |   | 366    |         |        |  | 0.36     | %    |      |      | 95,893  |         |         |   | 800    |        |        |  | 0.83  | %   
|Interest-bearing demand                       |                                    |                                            | 174,150 |         |          |   | 1,345   |       |        |  | 0.77    | %       |      |          | 176,430 |         |         |   | 1,268  |         |        |  | 0.72     | %    |      |      | 175,101 |         |         |   | 2,704  |        |        |  | 1.54  | %   
|Short-term borrowings                         |                                    |                                            | 18,013  |         |          |   | 205     |       |        |  | 1.14    | %       |      |          | 18,185  |         |         |   | 198    |         |        |  | 1.09     | %    |      |      | 22,604  |         |         |   | 407    |        |        |  | 1.80  | %   
|FHLB advances                                 |                                    |                                            | 77,760  |         |          |   | 2,083   |       |        |  | 2.68    | %       |      |          | 64,880  |         |         |   | 1,737  |         |        |  | 2.68     | %    |      |      | 50,609  |         |         |   | 1,790  |        |        |  | 3.54  | %   
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|                                              | Total Interest-Bearing Liabilities |                                            | $       | 592,815 |          |   | $       | 9,102 |        |  |         | 1.54    | %    |          | $       | 575,338 |         |   | $      | 9,196   |        |  |          | 1.60 | %    |      | $       | 538,668 |         |   | $      | 12,095 |        |  |       | 2.25 | %   
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|Noninterest-bearing deposits                  |                                    |                                            | 92,305  |         |          |   |         |       |        |  |         |         |      |          | 89,928  |         |         |   |        |         |        |  |          |      |      |      | 82,665  |         |         |   |        |        |        |  |       |     
|Other liabilities                             |                                    |                                            | 4,910   |         |          |   |         |       |        |  |         |         |      |          | 4,865   |         |         |   |        |         |        |  |          |      |      |      | 5,773   |         |         |   |        |        |        |  |       |     
|Stockholders Equity                          |                                    |                                            | 69,507  |         |          |   |         |       |        |  |         |         |      |          | 68,089  |         |         |   |        |         |        |  |          |      |      |      | 64,380  |         |         |   |        |        |        |  |       |     
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|                                              |                                    | Total Liabilities and Stockholders Equity |         | $       | 759,537  |   |         |       |        |  |         |         |      |          |         | $       | 738,220 |   |        |         |        |  |          |      |      |      |         | $       | 691,486 |   |        |        |        |  |       |      |      |  
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|Net Interest Income (FTE)                     |                                    |                                            |         |         |          | $ | 28,337  |       |        |  | 4.01    | %       |      |          |         |         |         | $ | 29,047 |         |        |  | 4.23     | %    |      |      |         |         |         | $ | 29,647 |        |        |  | 4.58  | %   
|Taxable equivalent adjustment                 |                                    |                                            |         |         |          |   | (215    | )     |        |  | (0.03   | )%      |      |          |         |         |         |   | (383   | )       |        |  | (0.06    | )%   |      |      |         |         |         |   | (415   | )      |        |  | (0.06 | )%  
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|Net Interest Income Per Financial Statements  |                                    |                                            |         |         |          | $ | 28,122  |       |        |  |         |         |      |          |         |         |         | $ | 28,664 |         |        |  |          |      |      |      |         |         |         | $ | 29,232 |        |        |  |       |     
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        
|Net Yield on Earning Assets                   |                                    |                                            |         |         |          |   |         |       |        |  | 3.98    | %       |      |          |         |         |         |   |        |         |        |  | 4.17     | %    |      |      |         |         |         |   |        |        |        |  | 4.52  | %   
|                                              |                                    |                                            |         |         |          |   |         |       |        |  |         |         |      |          |         |         |         |   |        |         |        |  |          |      |      |      |        



11



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##### 



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


|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |   |        |        |   |   |        |        |  
|--------------------------------------------- | ---------------------- | ------------------------------- | ------ | --- | ------------------------------- | - | ---- | ------ | - | - | ------ | ---- | - | ---- | ------ | ----- | ----- | - | ------ | ------ | - | - | ------ | ------ | -
|                                              |                        | Years ended December 31,        |       
|                                              |                        |                                 |       
|                                              |                        | Increase (Decrease) In Interest |        |     | Increase (Decrease) In Interest |  
|                                              |                        | Income/Expense 2004 and 2003    |        |     | Income/Expense 2003 and 2002    |  
|                                              |                        |                                 |        |     |                                 |  
|                                              |                        | Volume                          |        |     | Rate                            |   |      | Total  |   |   | Volume |      |   | Rate |        |       | Total |  
|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |  
|                                              |                        | (Dollars in thousands)          |       
|Securities-tax equivalent                     |                        | $                               | (115   | )   |                                 | $ | (372 | )      |   | $ | (487   | )    |   | $    | 564    |       |       | $ | (2,551 | )      |   | $ | (1,987 | )     
|Securities-tax exempt                         |                        |                                 | (224   | )   |                                 |   | 27   |        |   |   | (197   | )    |   |      | 70     |       |       |   | (11    | )      |   |   | 59     |       
|Federal funds sold and short term investments |                        |                                 | 36     |     |                                 |   | 45   |        |   |   | 81     |      |   |      | (38    | )     |       |   | (17    | )      |   |   | (55    | )     
|Commercial loans                              |                        |                                 | 2,049  |     |                                 |   | (174 | )      |   |   | 1,875  |      |   |      | 2,836  |       |       |   | (1,512 | )      |   |   | 1,324  |       
|Mortgage loans                                |                        |                                 | (1,531 | )   |                                 |   | (529 | )      |   |   | (2,060 | )    |   |      | (1,618 | )     |       |   | (433   | )      |   |   | (2,051 | )     
|Consumer loans                                |                        |                                 | 118    |     |                                 |   | (134 | )      |   |   | (16    | )    |   |      | 473    |       |       |   | (1,262 | )      |   |   | (789   | )     
|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |  
|                                              | Total Interest Income  |                                 |        | 333 |                                 |   |      | (1,137 | ) |   |        | (804 | ) |      |        | 2,287 |       |   |        | (5,786 | ) |   |        | (3,499 | )
|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |  
|Time deposits                                 |                        |                                 | 76     |     |                                 |   | (556 | )      |   |   | (480   | )    |   |      | 634    |       |       |   | (1,401 | )      |   |   | (767   | )     
|Savings deposits                              |                        |                                 | 11     |     |                                 |   | (55  | )      |   |   | (44    | )    |   |      | 52     |       |       |   | (486   | )      |   |   | (434   | )     
|Interest bearing demand                       |                        |                                 | (18    | )   |                                 |   | 95   |        |   |   | 77     |      |   |      | 21     |       |       |   | (1,457 | )      |   |   | (1,436 | )     
|Short-term borrowings                         |                        |                                 | (2     | )   |                                 |   | 9    |        |   |   | 7      |      |   |      | (80    | )     |       |   | (129   | )      |   |   | (209   | )     
|FHLB advances                                 |                        |                                 | 345    |     |                                 |   | 1    |        |   |   | 346    |      |   |      | 505    |       |       |   | (558   | )      |   |   | (53    | )     
|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |  
|                                              | Total Interest Expense |                                 |        | 412 |                                 |   |      | (506   | ) |   |        | (94  | ) |      |        | 1,132 |       |   |        | (4,031 | ) |   |        | (2,899 | )
|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |  
|Net Interest Income (FTE)                     |                        | $                               | (79    | )   |                                 | $ | (631 | )      |   | $ | (710   | )    |   | $    | 1,155  |       |       | $ | (1,755 | )      |   | $ | (600   | )     
|                                              |                        |                                 |        |     |                                 |   |      |        |   |   |        |      |   |      |        |       |       |  

Table 4:     Details of Noninterest
Income:


|                                      |       |                          |        |        |        |   |       |        |        |   |        |        |        |      |       |     |       |    |        |      |     |  
|------------------------------------- | ----- | ------------------------ | ------ | ------ | ------ | - | ----- | ------ | ------ | - | ------ | ------ | ------ | ---- | ----- | --- | ----- | -- | ------ | ---- | --- | -
|                                      |       |                          |        |        |        |   |       | 2004   |        |   | 2003   |       
|                                      |       |                          |        |        |        |   |       | versus |        |   | versus |       
|                                      |       | 2004                     |        |        | 2003   |   |       | 2002   |        |   | 2003   |        |        | 2002 |      
|                                      |       |                          |        |        |        |   |       |        |        |   |        |        |        |      |      
|                                      |       | (Dollars in thousands)   |       
|Investment and trust services         |       | $                        | 2,091  |        |        | $ | 1,762 |        |        | $ | 2,080  |        |        |      | 18.7  | %   |       |    | (15.3  | )%  
|Deposit services charges              |       |                          | 4,187  |        |        |   | 4,260 |        |        |   | 4,083  |        |        |      | (1.7  | )   |       |    | 4.3    |     
|Other service charges and fees        |       |                          | 479    |        |        |   | 616   |        |        |   | 622    |        |        |      | (22.2 | )   |       |    | (1.0   | )   
|Electronic banking fees               |       |                          | 2,315  |        |        |   | 2,488 |        |        |   | 2,577  |        |        |      | (7.0  | )   |       |    | (3.5   | )   
|Gain on sale of loans                 |       |                          | 181    |        |        |   | 236   |        |        |   | 94     |        |        |      | (23.3 | )   |       |    | 151.1  |     
|Gain on sale of securities            |       |                          | 381    |        |        |   | 449   |        |        |   | 732    |        |        |      | (15.1 | )   |       |    | (38.7  | )   
|Gain (loss) on sale of other assets   |       |                          | 378    |        |        |   | 2     |        |        |   | (18    | )      |        |      | NM    |     |       |    | (111.1 | )   
|Income from bank owned life insurance |       |                          | 632    |        |        |   | 772   |        |        |   | 489    |        |        |      | (18.1 | )   |       |    | 57.9   |     
|Other income                          |       |                          | 956    |        |        |   | 207   |        |        |   | 427    |        |        |      | 361.8 |     |       |    | (51.5  | )   
|                                      |       |                          |        |        |        |   |       |        |        |   |        |        |        |      |      
|                                      | Total |                          | $      | 11,600 |        |   | $     | 10,792 |        |   | $      | 11,086 |        |      |       | 7.5 | %     |    |        | (2.7 | )% 
|Impairment charge on securities       |       |                          | (1,158 | )      |        |   |      |        |        |   |       |        |        |      | NM    |     |       |    |       |     
|Gain on sale of credit card portfolio |       |                          |       |        |        |   | 832   |        |        |   |       |        |        |      | NM    |     |       |    | NM     |     
|                                      |       |                          |        |        |        |   |       |        |        |   |        |        |        |      |      
|                                      |       | Total noninterest income |        | $      | 10,442 |   |       | $      | 11,624 |   |        | $      | 11,086 |      |       |     | (10.2 | )% |        |      | 4.9 | %
|                                      |       |                          |        |        |        |   |       |        |        |   |        |        |        |      |      

2004 versus 2003 Noninterest
Income Comparison




12



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##### 







2003 versus 2002 Noninterest
Income Comparison




13



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##### 



Table 5:     Details of Noninterest
Expense:


|                               |       |                                  |        |        |      |   |        |        |  |   |        |        |  |      |       |     |   |  |       |     |  
|------------------------------ | ----- | -------------------------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | ---- | ----- | --- | - |  | ----- | --- | -
|                               |       | For the Years Ended December 31, |       
|                               |       |                                  |       
|                               |       |                                  |        | 2004   |      |   | 2003   |       
|                               |       |                                  |        | versus |      |   | versus |       
|                               |       | 2004                             |        |        | 2003 |   |        | 2002   |  |   | 2003   |        |  | 2002 |      
|                               |       |                                  |        |        |      |   |        |        |  |   |        |        |  |      |      
|                               |       | (Dollars in thousands)           |       
|Salaries and employee benefits |       | $                                | 12,995 |        |      | $ | 12,102 |        |  | $ | 12,229 |        |  |      | 7.4   | %   |   |  | (1.0  | )% 
|Net occupancy                  |       |                                  | 1,633  |        |      |   | 1,585  |        |  |   | 1,476  |        |  |      | 3.0   |     |   |  | 7.4   |    
|Furniture and equipment        |       |                                  | 2,784  |        |      |   | 2,517  |        |  |   | 2,193  |        |  |      | 10.6  |     |   |  | 14.8  |    
|Electronic banking expense     |       |                                  | 1,257  |        |      |   | 1,395  |        |  |   | 1,325  |        |  |      | (9.9  | )   |   |  | 5.3   |    
|Supplies and postage           |       |                                  | 1,208  |        |      |   | 1,137  |        |  |   | 1,018  |        |  |      | 6.2   |     |   |  | 11.7  |    
|Outside services               |       |                                  | 1,182  |        |      |   | 1,441  |        |  |   | 1,306  |        |  |      | (18.0 | )   |   |  | 10.3  |    
|Marketing and public relations |       |                                  | 1,047  |        |      |   | 762    |        |  |   | 1,032  |        |  |      | 37.4  |     |   |  | (26.2 | )  
|Ohio franchise tax             |       |                                  | 729    |        |      |   | 673    |        |  |   | 502    |        |  |      | 8.3   |     |   |  | 34.1  |    
|Other expense                  |       |                                  | 3,455  |        |      |   | 3,143  |        |  |   | 3,672  |        |  |      | 9.9   |     |   |  | (14.4 | )  
|                               |       |                                  |        |        |      |   |        |        |  |   |        |        |  |      |      
|                               | Total |                                  | $      | 26,290 |      |   | $      | 24,755 |  |   | $      | 24,753 |  |      |       | 6.2 | % |  |       | 0.0 | %
|Severance expense              |       |                                  |        |        |      |   | 1,712  |        |  |   |        |        |  |      | NM    |     |   |  | NM    |    
|                               |       |                                  |        |        |      |   |        |        |  |   |        |        |  |      |      
|Total noninterest expense      |       | $                                | 26,290 |        |      | $ | 26,467 |        |  | $ | 24,753 |        |  |      | (0.7  | )%  |   |  | 6.9   | %  
|                               |       |                                  |        |        |      |   |        |        |  |   |        |        |  |      |      

2004 versus 2003 Noninterest
Expense Comparison












14



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##### 





2003 versus 2002 Noninterest
Expense Comparison


















Income Taxes




15



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##### 



Balance Sheet Analysis


Securities




Table 6:     Maturity Distribution
of Securities at Amortized Cost


|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |   |         |         |  |   |         |         | 
|----------------------------------- | ----------------------------------------- | ---------------------- | ------ | ------ | --------- | - | ------ | ------------ |  | - | ------ | ----- |  | ----- | ------- | ------- | ----- | - | ------- | ------- |  | - | ------- | ------- | 
|                                    |                                           |                        |        |        |           |   |        | December 31, | 
|                                    |                                           |                        |        |        |           |   |        |              | 
|                                    |                                           |                        |        |        |           |   |        | 2004         |  |   | 2003   |       |  | 2002  |        
|                                    |                                           | From 1 to 5            |        |        | From 5 to |   |        | After 10     |  |   |        |       |  |       |         |         |       |  
|                                    |                                           | years                  |        |        | 10 years  |   |        | years        |  |   | Total  |       |  | Total |         |         | Total |  
|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |  
|                                    |                                           | (Dollars in thousands) |       
|Securities available for sale:      |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |   |         |         |  |   |         |        
|                                    | U.S. Government agencies and corporations |                        | $      | 64,030 |           |   | $      | 59,071       |  |   | $      | 8,688 |  |       | $       | 131,789 |       |   | $       | 127,571 |  |   | $       | 120,599 | 
|                                    | State and political subdivisions          |                        |        | 3,168  |           |   |        | 2,517        |  |   |        | 5,463 |  |       |         | 11,148  |       |   |         | 11,240  |  |   |         | 10,515  | 
|                                    | Equity Securities                         |                        |        | 3,938  |           |   |        |              |  |   |        |       |  |       |         | 3,938   |       |   |         | 5,137   |  |   |         | 5,198   | 
|                                    | FHLB and Federal Reserve stock            |                        |        | 4,033  |           |   |        |              |  |   |        |       |  |       |         | 4,033   |       |   |         |        |  |   |         |        | 
|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |  
|Total securities available for sale |                                           |                        | 75,169 |        |           |   | 61,588 |              |  |   | 14,151 |       |  |       | 150,908 |         |       |   | 143,948 |         |  |   | 136,312 |        
|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |  
|Securities held to maturity:        |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |   |         |         |  |   |         |        
|                                    | U.S. Government agencies and corporations |                        |        |       |           |   |        |             |  |   |        |      |  |       |         |        |       |   |         | 2,993   |  |   |         | 7,335   | 
|                                    | State and political subdivisions          |                        |        |       |           |   |        |             |  |   |        |      |  |       |         |        |       |   |         | 1,796   |  |   |         | 3,313   | 
|                                    | Equity Securities                         |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |   |         |        |  |   |         |        | 
|                                    | FHLB and Federal Reserve stock            |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |   |         | 3,879   |  |   |         | 3,738   | 
|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |  
|Total securities held to maturity   |                                           |                        |       |        |           |   |       |              |  |   |       |       |  |       |        |         |       |   | 8,668   |         |  |   | 14,386  |        
|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |  
|Total Securities                    |                                           | $                      | 75,169 |        |           | $ | 61,588 |              |  | $ | 14,151 |       |  | $     | 150,908 |         |       | $ | 152,616 |         |  | $ | 150,698 |        
|                                    |                                           |                        |        |        |           |   |        |              |  |   |        |       |  |       |         |         |       |  

16



---



##### 



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


|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      |      |   |  |      |      |  
|----------------------------------- | ----------------------------------------- | ----------- | ---- | ---- | --------- |  | ---- | ------------ | - |  | ----- | ---- | - | ----- | ---- | ---- | ----- |  | ---- | ---- | - |  | ---- | ---- | -
|                                    |                                           |             |      |      |           |  |      | December 31, |  
|                                    |                                           |             |      |      |           |  |      |              |  
|                                    |                                           |             |      |      |           |  |      | 2004         |   |  | 2003  |      |   | 2002  |     
|                                    |                                           | From 1 to 5 |      |      | From 5 to |  |      | After 10     |   |  |       |      |   |       |      |      |       | 
|                                    |                                           | years       |      |      | 10 years  |  |      | years        |   |  | Total |      |   | Total |      |      | Total | 
|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       | 
|Securities available for sale:      |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      |      |   |  |      |     
|                                    | U.S. Government agencies and corporations |             |      | 2.90 | %         |  |      | 3.45         | % |  |       | 4.71 | % |       |      | 3.28 | %     |  |      | 2.99 | % |  |      | 4.24 | %
|                                    | State and political subdivisions(1)       |             |      | 3.65 |           |  |      | 5.82         |   |  |       | 5.99 |   |       |      | 5.29 |       |  |      | 6.43 |   |  |      | 6.41 |  
|                                    | Equity securities                         |             |      | 5.67 |           |  |      |              |   |  |       |      |   |       |      | 5.67 |       |  |      | 5.67 |   |  |      | 5.67 |  
|                                    | FHLB and Federal Reserve stock            |             |      | 4.36 |           |  |      |              |   |  |       |      |   |       |      | 4.36 |       |  |      | 0.00 |   |  |      | 0.00 |  
|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       | 
|Total securities available for sale |                                           |             | 3.54 | %    |           |  | 3.33 | %            |   |  | 5.20  | %    |   |       | 3.54 | %    |       |  | 3.35 | %    |   |  | 4.46 | %   
|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       | 
|Securities held to maturity:        |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      |      |   |  |      |     
|                                    | U.S. Government agencies and corporations |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      | 4.25 | % |  |      | 5.60 | %
|                                    | State and political subdivisions(1)       |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      | 8.37 |   |  |      | 7.45 |  
|                                    | Equity securities                         |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      | 0.00 |   |  |      | 0.00 |  
|                                    | FHLB and Federal Reserve stock            |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  |      | 4.14 |   |  |      | 4.61 |  
|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       | 
|Total securities held to maturity   |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       |  | 5.05 | %    |   |  | 5.77 | %   
|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       | 
|Total Securities                    |                                           |             | 3.54 | %    |           |  | 3.33 | %            |   |  | 5.20  | %    |   |       | 3.54 | %    |       |  | 3.45 | %    |   |  | 4.59 | %   
|                                    |                                           |             |      |      |           |  |      |              |   |  |       |      |   |       |      |      |       | 






|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Yields on tax-exempt obligations are computed on a tax
    equivalent basis based upon a 35% statutory Federal income tax
    rate.

Loans










17



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##### 



Table 8:     Loan Portfolio
Distribution


|                          |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                          |  | December 31,           |        
|                          |  |                        |        
|                          |  | 2004                   |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                          |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|                          |  | (Dollars in thousands) |        
|Commercial                |  | $                      | 339,439 |   |      | $ | 303,683 |      |  | $ | 259,993 |   |  | $    | 219,511 |   |  | $ | 186,866 |  
|Real Estate Mortgage      |  |                        | 112,787 |   |      |   | 113,649 |      |  |   | 141,405 |   |  |      | 158,221 |   |  |   | 157,575 |  
|Installment               |  |                        | 60,855  |   |      |   | 59,217  |      |  |   | 54,219  |   |  |      | 57,886  |   |  |   | 69,821  |  
|Home equity lines         |  |                        | 62,143  |   |      |   | 57,762  |      |  |   | 48,816  |   |  |      | 37,008  |   |  |   | 31,662  |  
|Credit cards              |  |                        |        |   |      |   |        |      |  |   | 5,117   |   |  |      | 4,862   |   |  |   | 5,216   |  
|                          |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Total loans               |  |                        | 575,224 |   |      |   | 534,311 |      |  |   | 509,550 |   |  |      | 477,488 |   |  |   | 451,140 |  
|Allowance for loan losses |  |                        | (7,386  | ) |      |   | (7,730  | )    |  |   | (6,653  | ) |  |      | (5,890  | ) |  |   | (5,250  | )
|                          |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Net loans                 |  | $                      | 567,838 |   |      | $ | 526,581 |      |  | $ | 502,897 |   |  | $    | 471,598 |   |  | $ | 445,890 |  
|                          |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        

|                     |  |              |       |   |      |  |       |      |  |  |       |   |  |      |       |   |  |  |       |  
|-------------------- |  | ------------ | ----- | - | ---- |  | ----- | ---- |  |  | ----- | - |  | ---- | ----- | - |  |  | ----- | -
|                     |  | December 31, |      
|                     |  |              |      
|                     |  | 2004         |       |   | 2003 |  |       | 2002 |  |  | 2001  |   |  | 2000 |      
|                     |  |              |       |   |      |  |       |      |  |  |       |   |  |      |      
|Loan Mix Percent     |  |              |       |   |      |  |       |      |  |  |       |   |  |      |       |   |  |  |       |  
|                     |  |              |       |   |      |  |       |      |  |  |       |   |  |      |      
|Commercial           |  |              | 59.0  | % |      |  | 56.8  | %    |  |  | 51.0  | % |  |      | 46.0  | % |  |  | 41.4  | %
|Real Estate Mortgage |  |              | 19.6  | % |      |  | 21.3  | %    |  |  | 27.8  | % |  |      | 33.1  | % |  |  | 34.9  | %
|Installment          |  |              | 10.6  | % |      |  | 11.1  | %    |  |  | 10.6  | % |  |      | 12.1  | % |  |  | 15.5  | %
|Home equity lines    |  |              | 10.8  | % |      |  | 10.8  | %    |  |  | 9.6   | % |  |      | 7.8   | % |  |  | 7.0   | %
|Credit cards         |  |              | 0.0   | % |      |  | 0.0   | %    |  |  | 1.0   | % |  |      | 1.0   | % |  |  | 1.2   | %
|                     |  |              |       |   |      |  |       |      |  |  |       |   |  |      |      
|Total loans          |  |              | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | % |  |      | 100.0 | % |  |  | 100.0 | %
|                     |  |              |       |   |      |  |       |      |  |  |       |   |  |      |      



Table 9:     Commercial Loan
Maturity and Repricing Analysis


|                                                            |               |              |         |       | 
|----------------------------------------------------------- | ------------- | ------------ | ------- | ----- | 
|                                                            |               | December 31, |        
|                                                            |               | 2004         |        
|                                                            |               |              |        
|                                                            |               | (Dollars in  |        
|                                                            |               | thousands)   |        
|Maturing and repricing in one year or less                  |               | $            | 323,841 |      
|Maturing and repricing after one year but within five years |               |              | 7,960   |      
|Maturing and repricing beyond five years                    |               |              | 7,638   |      
|                                                            |               |              |        
|Total Commercial Loans                                      |               | $            | 339,439 |      
|                                                            |               |              |        
|Loans repricing beyond five years:                          |               |              |         |      
|                                                            | Fixed rate    |              | $       | 7,638 | 
|                                                            | Variable rate |              |         |      | 
|                                                            |               |              |        
|Total                                                       |               | $            | 7,638   |      
|                                                            |               |              |        

18



---



##### 



RISK ELEMENTS




|    |                        
|--- | -----------------------
|(1) | Potential Problem Loans



|                        |  |                        |        |  |      |   |        |      |  |   |        |  |  |      |       |  |  |   |       | 
|----------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ----- |  |  | - | ----- | 
|                        |  | 2004                   |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |      
|                        |  |                        |        |  |      |   |        |      |  |   |        |  |  |      |      
|                        |  | (Dollars in thousands) |       
|Potential Problem Loans |  | $                      | 21,576 |  |      | $ | 21,747 |      |  | $ | 15,549 |  |  | $    | 8,579 |  |  | $ | 3,924 | 
|                        |  |                        |        |  |      |   |        |      |  |   |        |  |  |      |      









|    |                    
|--- | -------------------
|(2) | Loan Concentrations









|    |             
|--- | ------------
|(3) | Loan Quality



19



---



##### 



Provision and Allowance for Loan Losses












20



---



##### 



Table 10:     Analysis of Allowance
for Loan Losses


|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |  
|---------------------------- | -------------------- | ---------------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                             |                      | For the Periods ended December 31, |       
|                             |                      |                                    |       
|                             |                      | 2004                               |        |        | 2003 |   |        | 2002   |   |   | 2001   |        |   | 2000 |       
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|                             |                      | (Dollars in thousands)             |       
|Balance at beginning of year |                      | $                                  | 7,730  |        |      | $ | 6,653  |        |   | $ | 5,890  |        |   | $    | 5,250  |        |   | $ | 4,667  |       
|Charge-offs:                 |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |       
|                             | Commercial           |                                    |        | (1,619 | )    |   |        | (1,207 | ) |   |        | (738   | ) |      |        | (490   | ) |   |        | (85    | )
|                             | Real Estate Mortgage |                                    |        | (21    | )    |   |        | (1     | ) |   |        | (15    | ) |      |        | (16    | ) |   |        |       |  
|                             | Installment          |                                    |        | (586   | )    |   |        | (595   | ) |   |        | (889   | ) |      |        | (1,078 | ) |   |        | (1,161 | )
|                             | Home equity lines    |                                    |        | (109   | )    |   |        | (22    | ) |   |        |       |   |      |        | (9     | ) |   |        |       |  
|                             | Credit cards         |                                    |        | (5     | )    |   |        | (133   | ) |   |        | (141   | ) |      |        | (145   | ) |   |        | (87    | )
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|                             | Total charge-offs    |                                    |        | (2,340 | )    |   |        | (1,958 | ) |   |        | (1,783 | ) |      |        | (1,738 | ) |   |        | (1,333 | )
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|Recoveries:                  |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |       
|                             | Commercial           |                                    |        | 71     |      |   |        | 87     |   |   |        | 163    |   |      |        | 64     |   |   |        | 15     |  
|                             | Real Estate Mortgage |                                    |        |       |      |   |        |       |   |   |        | 1      |   |      |        | 5      |   |   |        | 9      |  
|                             | Installment          |                                    |        | 158    |      |   |        | 219    |   |   |        | 157    |   |      |        | 76     |   |   |        | 151    |  
|                             | Home equity lines    |                                    |        | 1      |      |   |        |       |   |   |        |       |   |      |        | 9      |   |   |        |       |  
|                             | Credit cards         |                                    |        | 18     |      |   |        | 34     |   |   |        | 25     |   |      |        | 24     |   |   |        | 42     |  
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|                             | Total recoveries     |                                    |        | 248    |      |   |        | 340    |   |   |        | 346    |   |      |        | 178    |   |   |        | 217    |  
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|Net charge-offs              |                      |                                    | (2,092 | )      |      |   | (1,618 | )      |   |   | (1,437 | )      |   |      | (1,560 | )      |   |   | (1,116 | )     
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|Provision for loan losses    |                      |                                    | 1,748  |        |      |   | 2,695  |        |   |   | 2,200  |        |   |      | 2,200  |        |   |   | 1,700  |       
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       
|Balance at end of year       |                      | $                                  | 7,386  |        |      | $ | 7,730  |        |   | $ | 6,653  |        |   | $    | 5,890  |        |   | $ | 5,251  |       
|                             |                      |                                    |        |        |      |   |        |        |   |   |        |        |   |      |       

Allocation of Year-end Allowance for Loan Losses


|                     |  |                        |       |  |      |   |       |      |  |   |       |  |  |      |       |  |  |   |       | 
|-------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | ---- | ----- |  |  | - | ----- | 
|                     |  | December 31,           |      
|                     |  |                        |      
|                     |  | 2004                   |       |  | 2003 |   |       | 2002 |  |   | 2001  |  |  | 2000 |      
|                     |  |                        |       |  |      |   |       |      |  |   |       |  |  |      |      
|                     |  | (Dollars in thousands) |      
|Commercial           |  | $                      | 5,436 |  |      | $ | 5,495 |      |  | $ | 4,145 |  |  | $    | 3,750 |  |  | $ | 2,730 | 
|Real Estate Mortgage |  |                        | 161   |  |      |   | 405   |      |  |   | 412   |  |  |      | 363   |  |  |   | 338   | 
|Installment          |  |                        | 700   |  |      |   | 1,237 |      |  |   | 1,475 |  |  |      | 1,351 |  |  |   | 1,738 | 
|Home equity lines    |  |                        | 109   |  |      |   |      |      |  |   |      |  |  |      |      |  |  |   |      | 
|Unallocated          |  |                        | 980   |  |      |   | 593   |      |  |   | 621   |  |  |      | 426   |  |  |   | 445   | 
|                     |  |                        |       |  |      |   |       |      |  |   |       |  |  |      |      
|Total                |  | $                      | 7,386 |  |      | $ | 7,730 |      |  | $ | 6,653 |  |  | $    | 5,890 |  |  | $ | 5,251 | 
|                     |  |                        |       |  |      |   |       |      |  |   |       |  |  |      |      

Nonperforming Assets






21



---



##### 









Table 11:     Nonperforming
Assets


|                                                 |                            |                        |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       | 
|------------------------------------------------ | -------------------------- | ---------------------- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                 |                            | December 31,           |      
|                                                 |                            |                        |      
|                                                 |                            | 2004                   |       |       | 2003 |   |       | 2002  |  |   | 2001  |       |  | 2000 |      
|                                                 |                            |                        |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                 |                            | (Dollars in thousands) |      
|Commercial loans                                 |                            | $                      | 3,255 |       |      | $ | 4,104 |       |  | $ | 1,213 |       |  | $    | 546   |       |  | $ | 1,380 |      
|Real Estate Mortgage                             |                            |                        | 1,116 |       |      |   | 821   |       |  |   | 461   |       |  |      | 644   |       |  |   | 467   |      
|Installment loans                                |                            |                        | 150   |       |      |   | 140   |       |  |   | 167   |       |  |      | 113   |       |  |   | 189   |      
|Home equity lines                                |                            |                        | 400   |       |      |   | 89    |       |  |   | 22    |       |  |      | 13    |       |  |   | 183   |      
|                                                 | Total nonperforming loans  |                        |       | 4,921 |      |   |       | 5,154 |  |   |       | 1,863 |  |      |       | 1,316 |  |   |       | 2,219 | 
|Other foreclosed assets                          |                            |                        | 420   |       |      |   | 589   |       |  |   | 22    |       |  |      | 123   |       |  |   | 98    |      
|                                                 |                            |                        |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                 | Total nonperforming assets |                        | $     | 5,341 |      |   | $     | 5,743 |  |   | $     | 1,885 |  |      | $     | 1,439 |  |   | $     | 2,317 | 
|                                                 |                            |                        |       |       |      |   |       |       |  |   |       |       |  |      |      
|Loans 90 days past due accruing interest         |                            | $                      |      |       |      | $ | 46    |       |  | $ | 45    |       |  | $    | 149   |       |  | $ | 306   |      
|                                                 |                            |                        |       |       |      |   |       |       |  |   |       |       |  |      |      
|Allowance for loan losses to nonperforming loans |                            |                        | 150.1 | %     |      |   | 150.0 | %     |  |   | 357.1 | %     |  |      | 447.6 | %     |  |   | 236.6 | %    
|                                                 |                            |                        |       |       |      |   |       |       |  |   |       |       |  |      |      

22



---



##### 



Funding Sources




Table 12:     Funding Sources


|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      |  |      |   |  |  |      |  
|--------------------- |  | ---------------------------- | ------- |  | ------------------ | - | ------- | ---- |  | - | ------- |  |  | ---- | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|                      |  | Average Balances Outstanding |         |  | Average Rates Paid |  
|                      |  |                              |         |  |                    |  
|                      |  | 2004                         |         |  | 2003               |   |         | 2002 |  |   | 2004    |  |  | 2003 |      |   | 2002 | 
|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      | 
|                      |  | (Dollars in thousands)       |        
|Demand deposits       |  | $                            | 92,305  |  |                    | $ | 89,928  |      |  | $ | 82,665  |  |  |      | 0.00 | % |      |  | 0.00 | % |  |  | 0.00 | %
|Interest checking     |  |                              | 81,191  |  |                    |   | 72,795  |      |  |   | 64,776  |  |  |      | 0.23 | % |      |  | 0.26 | % |  |  | 0.75 | %
|Money market          |  |                              | 7,942   |  |                    |   | 15,434  |      |  |   | 16,706  |  |  |      | 1.59 | % |      |  | 0.82 | % |  |  | 2.86 | %
|Market access         |  |                              | 85,017  |  |                    |   | 88,201  |      |  |   | 93,619  |  |  |      | 1.12 | % |      |  | 1.08 | % |  |  | 1.86 | %
|Savings deposits      |  |                              | 105,883 |  |                    |   | 102,100 |      |  |   | 95,893  |  |  |      | 0.34 | % |      |  | 0.36 | % |  |  | 0.83 | %
|Time deposits         |  |                              | 217,009 |  |                    |   | 213,743 |      |  |   | 194,461 |  |  |      | 2.59 | % |      |  | 2.63 | % |  |  | 3.29 | %
|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      | 
|Total deposits        |  | $                            | 589,347 |  |                    | $ | 582,201 |      |  | $ | 548,120 |  |  |      | 1.23 | % |      |  | 1.60 | % |  |  | 2.25 | %
|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      | 
|Short-term borrowings |  |                              | 18,013  |  |                    |   | 18,185  |      |  |   | 22,604  |  |  |      | 1.14 | % |      |  | 1.90 | % |  |  | 1.80 | %
|FHLB borrowings       |  |                              | 77,760  |  |                    |   | 64,880  |      |  |   | 50,609  |  |  |      | 2.68 | % |      |  | 2.68 | % |  |  | 3.54 | %
|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      | 
|Total borrowings      |  |                              | 95,773  |  |                    |   | 83,065  |      |  |   | 73,213  |  |  |      | 2.39 | % |      |  | 2.33 | % |  |  | 3.00 | %
|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      | 
|Total funding         |  | $                            | 685,120 |  |                    | $ | 665,266 |      |  | $ | 621,333 |  |  |      | 1.39 | % |      |  | 1.69 | % |  |  | 2.34 | %
|                      |  |                              |         |  |                    |   |         |      |  |   |         |  |  |      |      |   |      | 







23



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##### 



Liquidity








Table 13:     Liquidity


|                    |  |                        |         |  |          |   |        |            |  |   |         | 
|------------------- |  | ---------------------- | ------- |  | -------- | - | ------ | ---------- |  | - | ------- | 
|                    |  | Borrowing              |         |  | Unused   |   |        | Collateral | 
|Funding Source      |  | Capacity               |         |  | Capacity |   |        | Pledged    | 
|                    |  |                        |         |  |          |   |        |            | 
|                    |  | (Dollars in thousands) |        
|FHLB Cincinnati     |  | $                      | 79,250  |  |          | $ | 19,725 |            |  | $ | 254,229 | 
|FRB Cleveland       |  |                        | 14,288  |  |          |   | 14,288 |            |  |   | 16,809  | 
|Federal Funds Lines |  |                        | 47,750  |  |          |   | 27,750 |            |  |   |        | 
|                    |  |                        |         |  |          |   |        |            | 
|Total               |  | $                      | 141,288 |  |          | $ | 61,763 |            |  | $ | 271,038 | 
|                    |  |                        |         |  |          |   |        |            | 



| |                  
| | -----------------
| | LNB Bancorp, Inc.











24



---



##### 









Contractual Obligations, Commitments, Contingent Liabilities
and Off-balance Sheet Arrangements




Table 14:     Contractual
Obligations


|                        |  |                        |         |  |             |   |         |            |  |   |           |  |  |       |       |  |  |   |         | 
|----------------------- |  | ---------------------- | ------- |  | ----------- | - | ------- | ---------- |  | - | --------- |  |  | ----- | ----- |  |  | - | ------- | 
|                        |  | One Year               |         |  | Two and     |   |         | Four and   |  |   | Over Five |  |  |      
|                        |  | or Less                |         |  | Three Years |   |         | Five Years |  |   | Years     |  |  | Total |      
|                        |  |                        |         |  |             |   |         |            |  |   |           |  |  |       |      
|                        |  | (Dollars in thousands) |        
|Deposits                |  | $                      | 178,952 |  |             | $ | 197,497 |            |  | $ |          |  |  | $     |      |  |  | $ | 376,449 | 
|Certificates of deposit |  |                        | 126,353 |  |             |   | 85,892  |            |  |   | 16,339    |  |  |       | 510   |  |  |   | 229,094 | 
|Short-term borrowings   |  |                        | 31,619  |  |             |   |        |            |  |   |          |  |  |       |      |  |  |   | 31,619  | 
|FHLB advances           |  |                        | 28,190  |  |             |   | 26,000  |            |  |   | 15,000    |  |  |       | 106   |  |  |   | 69,296  | 
|Operating leases        |  |                        | 277     |  |             |   | 475     |            |  |   | 298       |  |  |       | 157   |  |  |   | 1,207   | 
|Benefit payments        |  |                        | 312     |  |             |   | 678     |            |  |   | 695       |  |  |       | 2,285 |  |  |   | 3,970   | 
|Severance payments      |  |                        | 291     |  |             |   | 251     |            |  |   | 218       |  |  |       | 261   |  |  |   | 1,021   | 

Forward-looking Statements






25



---



##### 



Critical Accounting Policy and Estimates








| |   |                          
| | - | -------------------------
| |  | Allowance for loan losses













26



---



##### 





| |   |                   
| | - | ------------------
| |  | Pension accounting













| |   |             
| | - | ------------
| |  | Income Taxes



Impacts of Recent Accounting Pronouncements:






| |                                                 
| | ------------------------------------------------
| | SFAS No. 123 (revised) Share Based
    Payment



27



---



##### 





| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | AICPA Statement of Position (SOP) 03-3,
    Accounting for Certain Loans or Debt Securities Acquired
    in a Transfer





| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | EITF No 03-01 The Meaning of Other-Than-Temporary
    Impairment and Its Application to Certain
    Investments





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 132 Employers Disclosures
    about Pensions and Other Postretirement Benefits, an amendment
    of FASB Statements No. 87, 88 and 106



28



---



##### 





|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk

Also, see Item 8  Financial Statements and
Supplementary Data


Market Risk Management












29



---



##### 



Table 15:     GAP Analysis


|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |   |         |   |  |   |         | 
|----------------------------------------------------------------- |  | ---------------------- | ------- | ----- | --------- | - | ------- | --------- |  | - | ---------- | - |  | -------- | ------- | - | ----- | - | ------- | - |  | - | ------- | 
|                                                                  |  | December 31, 2004      |        
|                                                                  |  |                        |        
|                                                                  |  |                        |         | After |           |   |        
|                                                                  |  | 1 Year                 |         |       | 2-3 Years |   |         | 4-5 Years |  |   | 5-15 Years |   |  | 15 Years |         |   | Total |  
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  
|                                                                  |  | (Dollars in thousands) |        
|Securities and short-term investment                              |  | $                      | 27,739  |       |           | $ | 51,418  |           |  | $ | 27,872     |   |  | $        | 47,557  |   |       | $ |        |   |  | $ | 154,586 | 
|Commercial loans                                                  |  |                        | 65,940  |       |           |   |        |           |  |   |           |   |  |          |        |   |       |   |        |   |  |   | 65,940  | 
|Real estate loans                                                 |  |                        | 320,815 |       |           |   | 29,974  |           |  |   | 40,427     |   |  |          | 56,716  |   |       |   | 488     |   |  |   | 448,420 | 
|Consumer loans                                                    |  |                        | 28,399  |       |           |   | 12,787  |           |  |   | 9,467      |   |  |          | 10,202  |   |       |   |         |   |  |   | 60,855  | 
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  
|Total interest-earning assets                                     |  | $                      | 442,893 |       |           | $ | 94,179  |           |  | $ | 77,766     |   |  | $        | 114,475 |   |       | $ | 488     |   |  | $ | 729,801 | 
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  
|Time deposits                                                     |  | $                      | 127,357 |       |           | $ | 85,484  |           |  | $ | 16,253     |   |  | $        |        |   |       | $ |        |   |  | $ | 229,094 | 
|Interest-bearing demand and savings                               |  |                        | 63,512  |       |           |   | 62,963  |           |  |   | 60,506     |   |  |          |         |   |       |   |         |   |  |   | 186,981 | 
|Money market accounts                                             |  |                        | 62,467  |       |           |   | 15,666  |           |  |   | 15,055     |   |  |          |         |   |       |   |         |   |  |   | 93,188  | 
|Short-term borrowings                                             |  |                        | 59,809  |       |           |   |         |           |  |   |            |   |  |          |         |   |       |   |         |   |  |   | 59,809  | 
|Long-term borrowings                                              |  |                        |        |       |           |   | 27,897  |           |  |   | 17,209     |   |  |          |         |   |       |   |         |   |  |   | 45,106  | 
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  
|Total interest-bearing liabilities                                |  | $                      | 313,145 |       |           | $ | 192,010 |           |  | $ | 109,023    |   |  | $        |        |   |       | $ |        |   |  | $ | 614,178 | 
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  
|Cumulative interest rate gap                                      |  | $                      | 129,748 |       |           | $ | 31,917  |           |  | $ | 660        |   |  | $        | 115,135 |   |       | $ | 115,623 |   |  | $ | 115,623 | 
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  
|Cumulative interest rate gap as percent of average earning assets |  |                        | 18.6    | %     |           |   | 4.6     | %         |  |   | 0.1        | % |  |          | 16.5    | % |       |   | 16.6    | % |  |   |         | 
|                                                                  |  |                        |         |       |           |   |         |           |  |   |            |   |  |          |         |   |       |  

30



---



##### 





|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Table of Contents:


|                                                                                                         |  |  |    | 
|-------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                             |  |  | 32 | 
|Consolidated Statements of Income for the Years Ended
    December 31, 2004, 2003 and 2002               |  |  | 33 | 
|Consolidated Statements of Shareholders Equity for the
    Years Ended December 31, 2004, 2003 and 2002 |  |  | 34 | 
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2004, 2003 and 2002           |  |  | 35 | 
|Notes to Consolidated Financial Statements December 31,
    2004, 2003 and 2002                          |  |  | 36 | 
|Report of Independent Registered Public Accounting Firm                                                  |  |  | 62 | 
|Report of Management                                                                                     |  |  | 63 | 
|Report of Independent Registered Public Accounting Firm                                                  |  |  | 64 | 

31



---



##### 



CONSOLIDATED BALANCE SHEETS


|                                                                                |                                                                                                 |                       |         |         |      |   |         |         |  
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------- | ------- | ------- | ---- | - | ------- | ------- | -
|                                                                                |                                                                                                 | December 31,          |        
|                                                                                |                                                                                                 |                       |        
|                                                                                |                                                                                                 | 2004                  |         |         | 2003 |  
|                                                                                |                                                                                                 |                       |         |         |      |  
|                                                                                |                                                                                                 | (Dollars in thousands |        
|                                                                                |                                                                                                 | except share amounts) |        
|ASSETS                                                                         
|Cash and due from banks                                                         |                                                                                                 | $                     | 23,123  |         |      | $ | 24,646  |        
|Federal funds sold and short-term investments                                   |                                                                                                 |                       | 3,695   |         |      |   | 3,103   |        
|Securities:                                                                     |                                                                                                 |                       |         |         |      |   |         |        
|                                                                                | Available for sale, at fair value                                                               |                       |         | 145,588 |      |   |         | 143,459 |  
|                                                                                | Held to maturity, at cost (fair value $4,952 in 2003)                                           |                       |         |        |      |   |         | 4,789   |  
|                                                                                | Federal Home Loan Bank and Federal Reserve stock                                                |                       |         | 4,033   |      |   |         | 3,879   |  
|                                                                                |                                                                                                 |                       |         |         |      |  
|Total securities                                                                |                                                                                                 |                       | 149,621 |         |      |   | 152,127 |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|Loans:                                                                          |                                                                                                 |                       |         |         |      |   |         |        
|                                                                                | Loans held for sale                                                                             |                       |         | 3,067   |      |   |         | 6,215   |  
|                                                                                | Portfolio loans                                                                                 |                       |         | 572,157 |      |   |         | 527,760 |  
|                                                                                | Allowance for loan losses                                                                       |                       |         | (7,386  | )    |   |         | (7,730  | )
|                                                                                |                                                                                                 |                       |         |         |      |  
|Net loans                                                                       |                                                                                                 |                       | 567,838 |         |      |   | 526,245 |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|Bank premises and equipment, net                                                |                                                                                                 |                       | 11,493  |         |      |   | 11,009  |        
|Other real estate owned                                                         |                                                                                                 |                       | 420     |         |      |   | 589     |        
|Bank owned life insurance                                                       |                                                                                                 |                       | 13,335  |         |      |   | 12,702  |        
|Intangible assets                                                               |                                                                                                 |                       | 3,801   |         |      |   | 3,581   |        
|Accrued interest receivable                                                     |                                                                                                 |                       | 2,594   |         |      |   | 2,589   |        
|Other assets                                                                    |                                                                                                 |                       | 5,729   |         |      |   | 4,630   |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|Total Assets                                                                    |                                                                                                 | $                     | 781,649 |         |      | $ | 741,221 |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|                                                                               
|LIABILITIES                                                                    
|Deposits                                                                        |                                                                                                 |                       |         |         |      |   |         |        
|                                                                                | Demand and other noninterest-bearing                                                            |                       | $       | 96,280  |      |   | $       | 86,693  |  
|                                                                                | Savings, money market, and interest-bearing                                                     |                       |         | 280,169 |      |   |         | 277,197 |  
|                                                                                | Certificates of deposit                                                                         |                       |         | 229,094 |      |   |         | 217,454 |  
|                                                                                |                                                                                                 |                       |         |         |      |  
|Total deposits                                                                  |                                                                                                 |                       | 605,543 |         |      |   | 581,344 |        
|Securities sold under repurchase agreements and other short-term
    borrowings |                                                                                                 |                       | 31,619  |         |      |   | 15,023  |        
|Federal Home Loan Bank advances                                                 |                                                                                                 |                       | 69,296  |         |      |   | 71,540  |        
|Accrued interest payable                                                        |                                                                                                 |                       | 1,172   |         |      |   | 875     |        
|Accrued taxes, expenses and other liabilities                                   |                                                                                                 |                       | 3,445   |         |      |   | 4,304   |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|Total Liabilities                                                               |                                                                                                 |                       | 711,075 |         |      |   | 673,086 |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|Shareholders Equity                                                            |                                                                                                 |                       |         |         |      |   |         |        
|                                                                                | Common stock, par value $1 per share, authorized
    15,000,000 shares, issued 6,766,867 shares |                       |         | 6,766   |      |   |         | 6,766   |  
|                                                                                | Additional paid-in capital                                                                      |                       |         | 26,243  |      |   |         | 26,243  |  
|                                                                                | Retained earnings                                                                               |                       |         | 41,292  |      |   |         | 38,715  |  
|                                                                                | Accumulated other comprehensive loss                                                            |                       |         | (1,297  | )    |   |         | (704    | )
|                                                                                | Treasury stock at cost, 125,686 shares in 2004 and
    149,249 shares in 2003                   |                       |         | (2,430  | )    |   |         | (2,885  | )
|                                                                                |                                                                                                 |                       |         |         |      |  
|Total Shareholders Equity                                                      |                                                                                                 |                       | 70,574  |         |      |   | 68,135  |        
|                                                                                |                                                                                                 |                       |         |         |      |  
|Total Liabilities and Shareholders Equity                                      |                                                                                                 | $                     | 781,649 |         |      | $ | 741,221 |        
|                                                                                |                                                                                                 |                       |         |         |      |  

See accompanying notes to consolidated financial
statements.


32



---



##### 



CONSOLIDATED STATEMENTS OF INCOME


|                                  |                                                           |                                                     |        |           |        |   |        |           |        |   |        |           |        | 
|--------------------------------- | --------------------------------------------------------- | --------------------------------------------------- | ------ | --------- | ------ | - | ------ | --------- | ------ | - | ------ | --------- | ------ | 
|                                  |                                                           | For the Year Ended                                  |       
|                                  |                                                           |                                                     |       
|                                  |                                                           | 2004                                                |        |           | 2003   |   |        | 2002      |       
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|                                  |                                                           | (Dollars in thousands except share                  |       
|                                  |                                                           | and per share amounts)                              |       
|Interest Income                   |                                                           |                                                     |        |           |        |   |        |           |        |   |        |          
|                                  | Loans                                                     |                                                     | $      | 32,560    |        |   | $      | 32,759    |        |   | $      | 34,277    |       
|                                  | Securities:                                               |                                                     |        |           |        |   |        |           |        |   |        |           |       
|                                  |                                                           | U.S. Government agencies and corporations           |        |           | 3,784  |   |        |           | 4,155  |   |        |           | 5,944  | 
|                                  |                                                           | States and political subdivisions                   |        |           | 459    |   |        |           | 610    |   |        |           | 583    | 
|                                  |                                                           | Other debt and equity securities                    |        |           | 301    |   |        |           | 296    |   |        |           | 423    | 
|                                  |                                                           | U.S. Treasury securities                            |        |           |       |   |        |           |       |   |        |           | 6      | 
|                                  | Federal funds sold and short-term investments             |                                                     |        | 120       |        |   |        | 40        |        |   |        | 94        |       
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Total interest income             |                                                           |                                                     | 37,224 |           |        |   | 37,860 |           |        |   | 41,327 |          
|Interest Expense                  |                                                           |                                                     |        |           |        |   |        |           |        |   |        |          
|                                  | Deposits:                                                 |                                                     |        |           |        |   |        |           |        |   |        |           |       
|                                  |                                                           | Certificates of deposit, $100 and over              |        |           | 1,448  |   |        |           | 1,447  |   |        |           | 1,394  | 
|                                  |                                                           | Other deposits                                      |        |           | 5,366  |   |        |           | 5,814  |   |        |           | 8,504  | 
|                                  | Federal Home Loan Bank advances                           |                                                     |        | 2,066     |        |   |        | 1,737     |        |   |        | 1,790     |       
|                                  | Federal funds borrowed and security repurchase agreements |                                                     |        | 222       |        |   |        | 198       |        |   |        | 407       |       
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Total interest expense            |                                                           |                                                     | 9,102  |           |        |   | 9,196  |           |        |   | 12,095 |          
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Net Interest Income               |                                                           |                                                     | 28,122 |           |        |   | 28,664 |           |        |   | 29,232 |          
|Provision for Loan Losses         |                                                           |                                                     | 1,748  |           |        |   | 2,695  |           |        |   | 2,200  |          
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|                                  |                                                           | Net interest income after provision for loan losses |        |           | 26,374 |   |        |           | 25,969 |   |        |           | 27,032 | 
|Noninterest income                |                                                           |                                                     |        |           |        |   |        |           |        |   |        |          
|                                  | Investment and trust services                             |                                                     |        | 2,091     |        |   |        | 1,762     |        |   |        | 2,080     |       
|                                  | Deposit service charges                                   |                                                     |        | 4,187     |        |   |        | 4,260     |        |   |        | 4,083     |       
|                                  | Other service charges and fees                            |                                                     |        | 2,794     |        |   |        | 3,104     |        |   |        | 3,199     |       
|                                  | Income from bank owned life insurance                     |                                                     |        | 632       |        |   |        | 772       |        |   |        | 489       |       
|                                  | Other income                                              |                                                     |        | 956       |        |   |        | 207       |        |   |        | 427       |       
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Total fees and other income       |                                                           |                                                     | 10,660 |           |        |   | 10,105 |           |        |   | 10,278 |          
|                                  | Securities gains (losses), net                            |                                                     |        | (777      | )      |   |        | 449       |        |   |        | 732       |       
|                                  | Gain on sale of loans                                     |                                                     |        | 181       |        |   |        | 236       |        |   |        | 94        |       
|                                  | Gain on sale of credit card portfolio                     |                                                     |        |          |        |   |        | 832       |        |   |        |          |       
|                                  | Gain (loss) on sale of other assets, net                  |                                                     |        | 378       |        |   |        | 2         |        |   |        | (18       | )     
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Total noninterest income          |                                                           |                                                     | 10,442 |           |        |   | 11,624 |           |        |   | 11,086 |          
|Noninterest Expense               |                                                           |                                                     |        |           |        |   |        |           |        |   |        |          
|                                  | Salaries and employee benefits                            |                                                     |        | 12,995    |        |   |        | 13,814    |        |   |        | 12,229    |       
|                                  | Net occupancy                                             |                                                     |        | 1,633     |        |   |        | 1,585     |        |   |        | 1,476     |       
|                                  | Furniture and Equipment                                   |                                                     |        | 2,784     |        |   |        | 2,517     |        |   |        | 2,193     |       
|                                  | Electronic banking expenses                               |                                                     |        | 1,257     |        |   |        | 1,395     |        |   |        | 1,325     |       
|                                  | Supplies and postage                                      |                                                     |        | 1,208     |        |   |        | 1,137     |        |   |        | 1,018     |       
|                                  | Outside services                                          |                                                     |        | 1,182     |        |   |        | 1,441     |        |   |        | 1,306     |       
|                                  | Marketing and public relations                            |                                                     |        | 1,047     |        |   |        | 762       |        |   |        | 1,032     |       
|                                  | Ohio Franchise tax                                        |                                                     |        | 729       |        |   |        | 673       |        |   |        | 502       |       
|                                  | Other expense                                             |                                                     |        | 3,455     |        |   |        | 3,143     |        |   |        | 3,672     |       
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Total noninterest expense         |                                                           |                                                     | 26,290 |           |        |   | 26,467 |           |        |   | 24,753 |          
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Income before income tax expense  |                                                           |                                                     | 10,526 |           |        |   | 11,126 |           |        |   | 13,365 |          
|Income tax expense                |                                                           |                                                     | 3,051  |           |        |   | 3,411  |           |        |   | 4,200  |          
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Net Income                        |                                                           | $                                                   | 7,475  |           |        | $ | 7,715  |           |        | $ | 9,165  |          
|                                  |                                                           |                                                     |        |           |        |   |        |           |       
|Net Income Per Common Share       |                                                           |                                                     |        |           |        |   |        |           |        |   |        |          
|                                  | Basic                                                     |                                                     | $      | 1.13      |        |   | $      | 1.17      |        |   | $      | 1.39      |       
|                                  | Diluted                                                   |                                                     |        | 1.13      |        |   |        | 1.17      |        |   |        | 1.39      |       
|                                  | Dividends declared                                        |                                                     |        | 0.72      |        |   |        | 0.70      |        |   |        | 0.68      |       
|Average Common Shares Outstanding |                                                           |                                                     |        |           |        |   |        |           |        |   |        |          
|                                  | Basic                                                     |                                                     |        | 6,631,392 |        |   |        | 6,615,654 |        |   |        | 6,607,943 |       
|                                  | Diluted                                                   |                                                     |        | 6,632,324 |        |   |        | 6,615,654 |        |   |        | 6,607,943 |       

See accompanying notes to consolidated financial
statements.


33



---



##### 



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, December 31, 2001                                                              |                                         | $                                                         | 4,418 |            |         | $ | 26,238 |             |       | $ | 33,125        |   |       | $        | 1,257  |   |        | $ | (2,900 | ) |  | $ | 62,138 |  
|                                                                                        | Comprehensive income:                   |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   |        |   |       
|                                                                                        |                                         | Net income                                                |       |            |         |   |        |             |       |   |               |   | 9,165 |          |        |   |        |   |        |   |  |   |        |   | 9,165  |  
|                                                                                        | Other comprehensive income, net of tax: |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   |        |   |       
|                                                                                        |                                         | Change in unrealized gains and losses on securities       |       |            |         |   |        |             |       |   |               |   |       |          |        |   | (203   | ) |        |   |  |   |        |   | (203   | )
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  
|Total comprehensive income                                                              |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   | 8,962  |  
|Common dividends declared, $.68 per share                                               |                                         |                                                           |       |            |         |   |        |             |       |   | (4,468        | ) |       |          |        |   |        |   |        |   |  |   | (4,468 | )
|Issuance of 200 common shares under stock option plans                                  |                                         |                                                           |       |            |         |   | 3      |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   | 3      |  
|Payment of cash in lieu of fractional shares issued pursuant to
    2% stock dividend   |                                         |                                                           |       |            |         |   |        |             |       |   | (22           | ) |       |          |        |   |        |   |        |   |  |   | (22    | )
|Market value of stock issued in payment of 2% stock dividend,
    83,474 shares         |                                         |                                                           | 83    |            |         |   | 2,078  |             |       |   | (2,161        | ) |       |          |        |   |        |   |        |   |  |   |       |  
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  
|Balance, December 31, 2002                                                              |                                         | $                                                         | 4,501 |            |         | $ | 28,319 |             |       | $ | 35,639        |   |       | $        | 1,054  |   |        | $ | (2,900 | ) |  | $ | 66,613 |  
|                                                                                        | Comprehensive income:                   |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   |        |   |       
|                                                                                        |                                         | Net income                                                |       |            |         |   |        |             |       |   |               |   | 7,715 |          |        |   |        |   |        |   |  |   |        |   | 7,715  |  
|                                                                                        | Other comprehensive loss, net of tax:   |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   |        |   |       
|                                                                                        |                                         | Minimum pension liability                                 |       |            |         |   |        |             |       |   |               |   |       |          |        |   | (381   | ) |        |   |  |   |        |   | (381   | )
|                                                                                        |                                         | Change in unrealized gains and losses on securities       |       |            |         |   |        |             |       |   |               |   |       |          |        |   | (1,377 | ) |        |   |  |   |        |   | (1,377 | )
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  
|Total comprehensive income                                                              |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   | 5,957  |  
|Common dividends declared, $.70 per share                                               |                                         |                                                           |       |            |         |   |        |             |       |   | (4,626        | ) |       |          |        |   |        |   |        |   |  |   | (4,626 | )
|Issuance of 722 shares of Treasury Stock                                                |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   | 15     |   |  |   | 15     |  
|Issuance of 15,425 common shares under stock option plans                               |                                         |                                                           | 15    |            |         |   | 174    |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   | 189    |  
|Payment of cash in lieu of fractional shares issued under
    three-for-two stock split |                                         |                                                           |       |            |         |   |        |             |       |   | (13           | ) |       |          |        |   |        |   |        |   |  |   | (13    | )
|Issuance of 2,250,210 common shares under three-for-two stock
    split                 |                                         |                                                           | 2,250 |            |         |   | (2,250 | )           |       |   |               |   |       |          |        |   |        |   |        |   |  |   |       |  
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  
|Balance, December 31, 2003                                                              |                                         | $                                                         | 6,766 |            |         | $ | 26,243 |             |       | $ | 38,715        |   |       | $        | (704   | ) |        | $ | (2,885 | ) |  | $ | 68,135 |  
|                                                                                        | Comprehensive income:                   |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   |        |   |       
|                                                                                        |                                         | Net income                                                |       |            |         |   |        |             |       |   |               |   | 7,475 |          |        |   |        |   |        |   |  |   |        |   | 7,475  |  
|                                                                                        | Other comprehensive loss, net of tax:   |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   |        |   |       
|                                                                                        |                                         | Minimum pension liability                                 |       |            |         |   |        |             |       |   |               |   |       |          |        |   | (67    | ) |        |   |  |   |        |   | (67    | )
|                                                                                        |                                         | Change in unrealized gains and losses on securities       |       |            |         |   |        |             |       |   |               |   |       |          |        |   | (526   | ) |        |   |  |   |        |   | (526   | )
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  
|Total comprehensive income                                                              |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   |        |   |  |   | 6,882  |  
|Issuance of 23,103 shares of Treasury stock for stock options                           |                                         |                                                           |       |            |         |   |        |             |       |   | (121          | ) |       |          |        |   |        |   | 454    |   |  |   | 333    |  
|Issuance of 460 shares of Treasury stock for employee benefit
    plans                 |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |   | 1      |   |  |   | 1      |  
|Common dividends declared, $.72 per share                                               |                                         |                                                           |       |            |         |   |        |             |       |   | (4,777        | ) |       |          |        |   |        |   |        |   |  |   | (4,777 | )
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  
|Balance, December 31, 2004                                                              |                                         | $                                                         | 6,766 |            |         | $ | 26,243 |             |       | $ | 41,292        |   |       | $        | (1,297 | ) |        | $ | (2,430 | ) |  | $ | 70,574 |  
|                                                                                        |                                         |                                                           |       |            |         |   |        |             |       |   |               |   |       |          |        |   |        |  

See accompanying notes to consolidated financial
statements.


34



---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                |                                                                               |                        |         |          |      |   |         |          |   |   |         |          |  
|----------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------- | ------- | -------- | ---- | - | ------- | -------- | - | - | ------- | -------- | -
|                                                                                                |                                                                               | For the Year Ended     |        
|                                                                                                |                                                                               |                        |        
|                                                                                                |                                                                               | 2004                   |         |          | 2003 |   |         | 2002     |  
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|                                                                                                |                                                                               | (Dollars in thousands) |        
|Operating Activities                                                                            |                                                                               |                        |         |          |      |   |         |          |   |   |         |         
|                                                                                                | Net income                                                                    |                        | $       | 7,475    |      |   | $       | 7,715    |   |   | $       | 9,165    |  
|Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                                                               |                        |         |          |      |   |         |          |   |   |         |         
|                                                                                                | Provision for loan losses                                                     |                        |         | 1,748    |      |   |         | 2,695    |   |   |         | 2,200    |  
|                                                                                                | Depreciation and amortization                                                 |                        |         | 3,045    |      |   |         | 2,972    |   |   |         | 2,135    |  
|                                                                                                | Securities (gains) losses, net                                                |                        |         | 777      |      |   |         | (449     | ) |   |         | (638     | )
|                                                                                                | Origination of Loans Held for Sale                                            |                        |         |         |      |   |         | (24,544  | ) |   |         | (16,549  | )
|                                                                                                | Proceeds from loan sales                                                      |                        |         | 829      |      |   |         | 25,842   |   |   |         | 17,787   |  
|                                                                                                | Net gain from loan sales                                                      |                        |         | (181     | )    |   |         | (236     | ) |   |         | (94      | )
|                                                                                                | Net (gain) loss on sale of other assets                                       |                        |         | (378     | )    |   |         | (834     | ) |   |         | 18       |  
|                                                                                                | Net increase (decrease) in other assets                                       |                        |         | (2,100   | )    |   |         | 227      |   |   |         | 751      |  
|                                                                                                | Net decrease (increase) in other liabilities                                  |                        |         | 560      |      |   |         | (740     | ) |   |         | 650      |  
|                                                                                                | Other operating activities                                                    |                        |         | (1,768   | )    |   |         | (2,642   | ) |   |         | 937      |  
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Net cash provided by operating activities                                                       |                                                                               |                        | 10,007  |          |      |   | 10,006  |          |   |   | 16,362  |         
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Investing Activities                                                                            |                                                                               |                        |         |          |      |   |         |          |   |   |         |         
|                                                                                                | Proceeds from maturities of held-to-maturity securities                       |                        |         | 1,330    |      |   |         | 5,859    |   |   |         | 6,045    |  
|                                                                                                | Proceeds from sales and maturities of available-for-sale
    securities       |                        |         | 63,979   |      |   |         | 134,756  |   |   |         | 101,234  |  
|                                                                                                | Purchase of held-to-maturity securities                                       |                        |         | (16,596  | )    |   |         |         |   |   |         | (699     | )
|                                                                                                | Purchase of available-for-sale securities                                     |                        |         | (48,829  | )    |   |         | (143,250 | ) |   |         | (121,894 | )
|                                                                                                | Purchase of Federal Home Loan Bank Stock                                      |                        |         | 154      |      |   |         |         |   |   |         |         |  
|                                                                                                | Net increase in loans made to customers                                       |                        |         | (42,695  | )    |   |         | (25,457  | ) |   |         | (34,366  | )
|                                                                                                | Purchases of Bank premises and equipment                                      |                        |         | (2,604   | )    |   |         | (2,646   | ) |   |         | (1,876   | )
|                                                                                                | Purchase of Bank Owned Life Insurance                                         |                        |         |         |      |   |         |         |   |   |         | (10,413  | )
|                                                                                                | Proceeds from sale of bank premises and equipment                             |                        |         | 565      |      |   |         | 26       |   |   |         | 262      |  
|                                                                                                | Net cash paid in acquisitions                                                 |                        |         | (350     | )    |   |         |         |   |   |         |         |  
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Net cash used in investing activities                                                           |                                                                               |                        | (45,046 | )        |      |   | (30,712 | )        |   |   | (61,707 | )       
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Financing Activities                                                                            |                                                                               |                        |         |          |      |   |         |          |   |   |         |         
|                                                                                                | Net increase (decrease) in demand and other non interest
    bearing deposits |                        |         | 9,587    |      |   |         | 5,814    |   |   |         | (6,609   | )
|                                                                                                | Net increase (decrease) in savings, money access, and
    passbook deposits   |                        |         | 2,972    |      |   |         | (3,419   | ) |   |         | 27,110   |  
|                                                                                                | Net increase in certificates of deposit                                       |                        |         | 11,640   |      |   |         | 12,822   |   |   |         | 27,359   |  
|                                                                                                | Net increase (decrease) in securities sold under repurchase
    agreements    |                        |         | 16,596   |      |   |         | (11,843  | ) |   |         | (2,304   | )
|                                                                                                | Proceeds from Federal Home Loan Bank advances                                 |                        |         | 104,256  |      |   |         | 247,210  |   |   |         | 43,830   |  
|                                                                                                | Prepayment of Federal Home Loan Bank advances                                 |                        |         | (106,500 | )    |   |         | (224,595 | ) |   |         | (44,250  | )
|                                                                                                | Cash paid in lieu of fractional shares related to three-for-two
    split     |                        |         |         |      |   |         | (13      | ) |   |         | (22      | )
|                                                                                                | Proceeds from exercise of stock option plans                                  |                        |         | 333      |      |   |         | 189      |   |   |         | 3        |  
|                                                                                                | Issuance of treasury stock                                                    |                        |         | 1        |      |   |         | 15       |   |   |         |         |  
|                                                                                                | Dividends paid                                                                |                        |         | (4,777   | )    |   |         | (4,557   | ) |   |         | (4,445   | )
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Net cash provided by financing activities                                                       |                                                                               |                        | 34,108  |          |      |   | 21,623  |          |   |   | 40,672  |         
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Net increase (decrease) in cash and due from banks                                              |                                                                               |                        | (931    | )        |      |   | 917     |          |   |   | (4,673  | )       
|Cash and due from banks, January 1                                                              |                                                                               |                        | 27,749  |          |      |   | 26,832  |          |   |   | 31,505  |         
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Cash and Due From Banks, December 31                                                            |                                                                               | $                      | 26,818  |          |      | $ | 27,749  |          |   | $ | 26,832  |         
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  
|Supplemental cash flow information                                                              |                                                                               |                        |         |          |      |   |         |          |   |   |         |         
|Interest paid                                                                                   |                                                                               | $                      | 9,376   |          |      | $ | 9,304   |          |   | $ | 12,243  |         
|Income taxes paid                                                                               |                                                                               |                        | 2,060   |          |      |   | 4,194   |          |   |   | 4,522   |         
|Transfer of loans to other real estate owned                                                    |                                                                               |                        | 999     |          |      |   | 589     |          |   |   | 86      |         
|Transfer of held to maturity securities to available for sale                                   |                                                                               |                        | 19,909  |          |      |   |        |          |   |   |        |         
|                                                                                                |                                                                               |                        |         |          |      |   |         |          |  



35



---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                                           
|--- | ------------------------------------------
|(1) | Summary of Significant Accounting Policies



| |              
| | -------------
| | Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Segment Information





| |                        
| | -----------------------
| | Statement of Cash Flows





| |           
| | ----------
| | Securities



36



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






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





| |      
| | -----
| | Loans











| |                          
| | -------------------------
| | Allowance for Loan Losses





37



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                          
| | -------------------------
| | Mortgage Servicing Rights







| |                            
| | ---------------------------
| | Bank Premises and Equipment





| |                                      
| | -------------------------------------
| | Goodwill and Core Deposit Intangibles







| |                        
| | -----------------------
| | Other Real Estate Owned





| |                                                
| | -----------------------------------------------
| | Investment and Trust Services Assets and Income





| |                             
| | ----------------------------
| | Interest on Deposit Accounts



38



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |             
| | ------------
| | Income Taxes





| |                     
| | --------------------
| | Comprehensive Income





| |                         
| | ------------------------
| | Stock-Based Compensation





| |                  
| | -----------------
| | Reclassifications





|    |                   
|--- | ------------------
|(2) | Earnings Per Share



|                                                                         |                            |                                    |           |           |      |   |           |           |  |   |           |           | 
|------------------------------------------------------------------------ | -------------------------- | ---------------------------------- | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                         |                            | For the Calendar Year              |          
|                                                                         |                            |                                    |          
|                                                                         |                            | 2004                               |           |           | 2003 |   |           | 2002      | 
|                                                                         |                            |                                    |           |           |      |   |           |           | 
|                                                                         |                            | (Dollars in thousands except share |          
|                                                                         |                            | and per share amounts)             |          
|Weighted average shares outstanding used in Basic Earnings Per
    Share |                            |                                    | 6,631,392 |           |      |   | 6,605,560 |           |  |   | 6,601,619 |          
|Dilutive effect of incentive stock options                               |                            |                                    | 932       |           |      |   | 10,094    |           |  |   | 6,324     |          
|                                                                         |                            |                                    |           |           |      |   |           |           | 
|Weighted average shares outstanding used in                              |                            |                                    |           |           |      |   |           |           |  |   |           |          
|                                                                         | Diluted Earnings Per Share |                                    |           | 6,632,324 |      |   |           | 6,615,654 |  |   |           | 6,607,943 | 
|                                                                         |                            |                                    |           |           |      |   |           |           | 
|Net Income                                                               |                            | $                                  | 7,475     |           |      | $ | 7,715     |           |  | $ | 9,165     |          
|                                                                         |                            |                                    |           |           |      |   |           |           | 
|Basic Earnings Per Share                                                 |                            | $                                  | 1.13      |           |      | $ | 1.17      |           |  | $ | 1.39      |          
|                                                                         |                            |                                    |           |           |      |   |           |           | 
|Diluted Earning Per Share                                                |                            | $                                  | 1.13      |           |      | $ | 1.17      |           |  | $ | 1.39      |          
|                                                                         |                            |                                    |           |           |      |   |           |           | 



|    |                        
|--- | -----------------------
|(3) | Cash and Due from Banks



39



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                      
|--- | -------------------------------------
|(4) | Goodwill and Core Deposit Intangibles









|                               |                                            |              |       |     |      |   |       |     | 
|------------------------------ | ------------------------------------------ | ------------ | ----- | --- | ---- | - | ----- | --- | 
|                               |                                            | December 31, |      
|                               |                                            |              |      
|                               |                                            | 2004         |       |     | 2003 |  
|                               |                                            |              |       |     |      |  
|                               |                                            | (Dollars in  |      
|                               |                                            | thousands)   |      
|Core deposit intangible        |                                            | $            | 1,288 |     |      | $ | 1,288 |    
|Less: accumulated amortization |                                            |              | 983   |     |      |   | 870   |    
|                               |                                            |              |       |     |      |  
|                               | Carrying Value of core deposit intangibles |              | $     | 305 |      |   | $     | 418 | 
|                               |                                            |              |       |     |      |  



|                          |  |              |       |  |      |   |       | 
|------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                          |  | December 31, |      
|                          |  |              |      
|                          |  | 2004         |       |  | 2003 |  
|                          |  |              |       |  |      |  
|                          |  | (Dollars in  |      
|                          |  | thousands)   |      
|Goodwill                  |  | $            | 3,138 |  |      | $ | 2,827 | 
|Mortgage servicing rights |  |              | 358   |  |      |   | 336   | 
|Core deposit intangible   |  |              | 305   |  |      |   | 418   | 
|                          |  |              |       |  |      |  
|Total intangible assets   |  | $            | 3,801 |  |      | $ | 3,581 | 
|                          |  |              |       |  |      |  





|      |  |                        |     | 
|----- |  | ---------------------- | --- | 
|      |  | Amortization Expense   |    
|      |  |                        |    
|      |  | (Dollars in thousands) |    
|2005  |  | $                      | 113 | 
|2006  |  |                        | 113 | 
|2007  |  |                        | 79  | 
|      |  |                        |    
|Total |  | $                      | 305 | 
|      |  |                        |    

40



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


(5)     Securities




|                               |                                           |                        |         |         |            |   |     |            |  |   |            |        |   |   |         |         | 
|------------------------------ | ----------------------------------------- | ---------------------- | ------- | ------- | ---------- | - | --- | ---------- |  | - | ---------- | ------ | - | - | ------- | ------- | 
|                               |                                           | December 31, 2004      |        
|                               |                                           |                        |        
|                               |                                           | Amortized              |         |         | Unrealized |   |     | Unrealized |  |   |           
|                               |                                           | cost                   |         |         | Gains      |   |     | Losses     |  |   | Fair Value |       
|                               |                                           |                        |         |         |            |   |     |            |  |   |            |       
|                               |                                           | (Dollars in thousands) |        
|Securities available for sale: |                                           |                        |         |         |            |   |     |            |  |   |            |        |   |   |         |        
|                               | U.S. Government agencies and corporations |                        | $       | 131,789 |            |   | $   | 168        |  |   | $          | (2,080 | ) |   | $       | 129,877 | 
|                               | State and political subdivisions          |                        |         | 11,148  |            |   |     | 349        |  |   |            | (8     | ) |   |         | 11,489  | 
|                               | Equity securities                         |                        |         | 3,938   |            |   |     | 284        |  |   |            |       |   |   |         | 4,222   | 
|                               | Federal Home Loan Bank and                |                        |         |         |            |   |     |            |  |   |            |        |   |   |         |         | 
|                               | Federal Reserve Bank stock                |                        |         | 4,033   |            |   |     |           |  |   |            |       |   |   |         | 4,033   | 
|                               |                                           |                        |         |         |            |   |     |            |  |   |            |       
|Total Securities               |                                           | $                      | 150,908 |         |            | $ | 801 |            |  | $ | (2,088     | )      |   | $ | 149,621 |        
|                               |                                           |                        |         |         |            |   |     |            |  |   |            |       

|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |        |   |   |         |         | 
|----------------------------------------------------- | ----------------------------------------- | ---------------------- | ------- | ------- | ---------- | - | --- | ---------- |  | - | ---------- | ------ | - | - | ------- | ------- | 
|                                                      |                                           | December 31, 2003      |        
|                                                      |                                           |                        |        
|                                                      |                                           | Amortized              |         |         | Unrealized |   |     | Unrealized |  |   |           
|                                                      |                                           | cost                   |         |         | Gains      |   |     | Losses     |  |   | Fair Value |       
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       
|                                                      |                                           | (Dollars in thousands) |        
|Securities available for sale:                        |                                           |                        |         |         |            |   |     |            |  |   |            |        |   |   |         |        
|                                                      | U.S. Government agencies and corporations |                        | $       | 127,571 |            |   | $   | 238        |  |   | $          | (1,148 | ) |   | $       | 126,661 | 
|                                                      | State and political subdivisions          |                        |         | 11,240  |            |   |     | 494        |  |   |            | (10    | ) |   |         | 11,724  | 
|                                                      | Equity securities                         |                        |         | 5,137   |            |   |     | 76         |  |   |            | (139   | ) |   |         | 5,074   | 
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       
|Total securities available for sale                   |                                           |                        | 143,948 |         |            |   | 808 |            |  |   | (1,297     | )      |   |   | 143,459 |        
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       
|Securities held to maturity:                          |                                           |                        |         |         |            |   |     |            |  |   |            |        |   |   |         |        
|                                                      | U.S. Government agencies and corporations |                        |         | 2,993   |            |   |     | 100        |  |   |            |       |   |   |         | 3,093   | 
|                                                      | State and political subdivisions          |                        |         | 1,796   |            |   |     | 63         |  |   |            |       |   |   |         | 1,859   | 
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       
|Total securities held to maturity                     |                                           |                        | 4,789   |         |            |   | 163 |            |  |   |           |        |   |   | 4,952   |        
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       
|Federal Home Loan Bank and Federal Reserve Bank stock |                                           |                        | 3,879   |         |            |   |     |            |  |   |            |        |   |   | 3,879   |        
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       
|Total Securities                                      |                                           | $                      | 152,616 |         |            | $ | 971 |            |  | $ | (1,297     | )      |   | $ | 152,290 |        
|                                                      |                                           |                        |         |         |            |   |     |            |  |   |            |       



41



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                      |  |                        |        |          |         |   |        |          |  |   |          |  |  |       |        |         |       |   |         |  |  |  |      |  
|----------------------------------------------------- |  | ---------------------- | ------ | -------- | ------- | - | ------ | -------- |  | - | -------- |  |  | ----- | ------ | ------- | ----- | - | ------- |  |  |  | ---- | -
|                                                      |  | December 31, 2004      |       
|                                                      |  |                        |       
|                                                      |  |                        |        | Weighted |        
|                                                      |  | Within                 |        |          | 1 to    |   |        | 5 to     |  |   | After    |  |  |       |        | Average |      
|                                                      |  | 1 Year                 |        |          | 5 Years |   |        | 10 Years |  |   | 10 Years |  |  | Total |        |         | Yield |  
|                                                      |  |                        |        |          |         |   |        |          |  |   |          |  |  |       |        |         |       |  
|                                                      |  | (Dollars in thousands) |       
|U.S. Government agencies and corporations             |  | $                      | 1,000  |          |         | $ | 60,049 |          |  | $ |         |  |  | $     |       |         |       | $ | 61,049  |  |  |  | 2.91 | %
|U.S. Government agencies mortgage-backed securities   |  |                        |       |          |         |   | 2,981  |          |  |   | 59,071   |  |  |       | 8,688  |         |       |   | 70,740  |  |  |  | 3.65 | %
|State and political subdivisions                      |  |                        | 2,131  |          |         |   | 1,036  |          |  |   | 2,517    |  |  |       | 5,464  |         |       |   | 11,148  |  |  |  | 5.32 | %
|Equity securities                                     |  |                        | 3,938  |          |         |   |       |          |  |   |         |  |  |       |       |         |       |   | 3,938   |  |  |  | 5.67 | %
|Federal Home Loan Bank and Federal Reserve Bank stock |  |                        | 4,033  |          |         |   |       |          |  |   |         |  |  |       |       |         |       |   | 4,033   |  |  |  | 4.36 | %
|                                                      |  |                        |        |          |         |   |        |          |  |   |          |  |  |       |        |         |       |  
|Amortized cost                                        |  | $                      | 11,102 |          |         | $ | 64,066 |          |  | $ | 61,588   |  |  | $     | 14,152 |         |       | $ | 150,908 |  |  |  | 3.54 | %
|                                                      |  |                        |        |          |         |   |        |          |  |   |          |  |  |       |        |         |       |  
|Fair Value                                            |  | $                      | 11,411 |          |         | $ | 63,185 |          |  | $ | 60,773   |  |  | $     | 14,252 |         |       | $ | 149,621 |  |  |  | 3.89 | %
|                                                      |  |                        |        |          |         |   |        |          |  |   |          |  |  |       |        |         |       |  





42



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                   |  |                        |        |  |                     |   |      |       |  |   |            |  |  |            |        |            |        |   |         |  |  |   |        |  
|-------------------------------------------------- |  | ---------------------- | ------ |  | ------------------- | - | ---- | ----- |  | - | ---------- |  |  | ---------- | ------ | ---------- | ------ | - | ------- |  |  | - | ------ | -
|                                                   |  | Less than 12 months    |        |  | 12 months or longer |   |      | Total | 
|                                                   |  |                        |        |  |                     |   |      |       | 
|                                                   |  | Fair                   |        |  | Unrealized          |   |      | Fair  |  |   | Unrealized |  |  |            |        | Unrealized |       
|                                                   |  | Value                  |        |  | Losses              |   |      | Value |  |   | Losses     |  |  | Fair Value |        |            | Losses |  
|                                                   |  |                        |        |  |                     |   |      |       |  |   |            |  |  |            |        |            |        |  
|                                                   |  | (Dollars in thousands) |       
|U.S. Government agencies and corporations          |  | $                      | 30,458 |  |                     | $ | (248 | )     |  | $ | 28,640     |  |  | $          | (510   | )          |        | $ | 59,098  |  |  | $ | (758   | )
|U.S. Government agency mortgage- backed securities |  |                        | 19,684 |  |                     |   | (485 | )     |  |   | 41,641     |  |  |            | (837   | )          |        |   | 61,325  |  |  |   | (1,322 | )
|State and political subdivisions                   |  |                        |       |  |                     |   |     |       |  |   | 841        |  |  |            | (8     | )          |        |   | 841     |  |  |   | (8     | )
|                                                   |  |                        |        |  |                     |   |      |       |  |   |            |  |  |            |        |            |        |  
|Total                                              |  | $                      | 50,142 |  |                     | $ | (733 | )     |  | $ | 71,122     |  |  | $          | (1,355 | )          |        | $ | 121,264 |  |  | $ | (2,088 | )
|                                                   |  |                        |        |  |                     |   |      |       |  |   |            |  |  |            |        |            |        |  

(6)     Transactions with Related
Parties




|                                   |                                                            |                        |        |        |      |   |        |         |   |   |        |        |  
|---------------------------------- | ---------------------------------------------------------- | ---------------------- | ------ | ------ | ---- | - | ------ | ------- | - | - | ------ | ------ | -
|                                   |                                                            | December 31,           |       
|                                   |                                                            |                        |       
|                                   |                                                            | 2004                   |        |        | 2003 |   |        | 2002    |  
|                                   |                                                            |                        |        |        |      |   |        |         |  
|                                   |                                                            | (Dollars in thousands) |       
|Aggregate amount beginning of year |                                                            | $                      | 23,283 |        |      | $ | 24,608 |         |   | $ | 16,423 |       
|Additions (deductions)             |                                                            |                        |        |        |      |   |        |         |   |   |        |       
|                                   | New Loans                                                  |                        |        | 9,021  |      |   |        | 12,145  |   |   |        | 5,735  |  
|                                   | Repayments                                                 |                        |        | (9,464 | )    |   |        | (12,915 | ) |   |        | (1,223 | )
|                                   | Changes in directors and officers and/or affiliations, net |                        |        | (441   | )    |   |        | (555    | ) |   |        | 3,673  |  
|                                   |                                                            |                        |        |        |      |   |        |         |  
|Aggregate amount end of year       |                                                            | $                      | 22,399 |        |      | $ | 23,283 |         |   | $ | 24,608 |       
|                                   |                                                            |                        |        |        |      |   |        |         |  

(7)     Loans and Allowance for Loan
Losses




|                                                                              |                           |                                      |         |        |         |   |         |        |         | 
|----------------------------------------------------------------------------- | ------------------------- | ------------------------------------ | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                              |                           | December 31,                         |        
|                                                                              |                           |                                      |        
|                                                                              |                           | 2004                                 |         |        | 2003    |  
|                                                                              |                           |                                      |         |        |         |  
|                                                                              |                           | (Dollars in thousands)               |        
|Real estate loans (includes loans secured primarily by real
    estate only): |                           |                                      |         |        |         |   |         |       
|                                                                              |                           | Construction and land development    |         | $      | 137,830 |   |         | $      | 91,759  | 
|                                                                              |                           | One to four family residential       |         |        | 170,582 |   |         |        | 187,697 | 
|                                                                              |                           | Multi-family residential             |         |        | 4,348   |   |         |        | 4,125   | 
|                                                                              |                           | Non-farm non-residential properties  |         |        | 135,528 |   |         |        | 148,053 | 
|Commercial and industrial loans                                               |                           |                                      | 64,740  |        |         |   | 59,119  |       
|Personal loans to individuals:                                                |                           |                                      |         |        |         |   |         |       
|                                                                              |                           | Auto, single payment and installment |         |        | 60,855  |   |         |        | 43,060  | 
|All other loans                                                               |                           |                                      | 1,341   |        |         |   | 162     |       
|                                                                              |                           |                                      |         |        |         |  
|Total loans                                                                   |                           |                                      | 575,224 |        |         |   | 533,975 |       
|                                                                              | Allowance for loan losses |                                      |         | (7,386 | )       |   |         | (7,730 | )      
|                                                                              |                           |                                      |         |        |         |  
|Net loans                                                                     |                           | $                                    | 567,838 |        |         | $ | 526,245 |       
|                                                                              |                           |                                      |         |        |         |  

43



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##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                           |  |                        |        |   |      |   |        |      |  |   |        |  
|------------------------------------------ |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                           |  | December 31,           |       
|                                           |  |                        |       
|                                           |  | 2004                   |        |   | 2003 |   |        | 2002 | 
|                                           |  |                        |        |   |      |   |        |      | 
|                                           |  | (Dollars in thousands) |       
|Balance at the beginning of year           |  | $                      | 7,730  |   |      | $ | 6,653  |      |  | $ | 5,890  |  
|Provision for loan losses                  |  |                        | 1,748  |   |      |   | 2,695  |      |  |   | 2,200  |  
|Loans charged-off                          |  |                        | (2,340 | ) |      |   | (1,958 | )    |  |   | (1,783 | )
|Recoveries on loans previously charged-off |  |                        | 248    |   |      |   | 340    |      |  |   | 346    |  
|                                           |  |                        |        |   |      |   |        |      | 
|Balance at the end of year                 |  | $                      | 7,386  |   |      | $ | 7,730  |      |  | $ | 6,653  |  
|                                           |  |                        |        |   |      |   |        |      | 



|                                                                                   |  |                        |       |  |      |   |        |      |  |   |        | 
|---------------------------------------------------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                                   |  | December 31,           |      
|                                                                                   |  |                        |      
|                                                                                   |  | 2004                   |       |  | 2003 |   |        | 2002 | 
|                                                                                   |  |                        |       |  |      |   |        |      | 
|                                                                                   |  | (Dollars in thousands) |      
|Year-end impaired loans with allowance for loans losses
    specifically allocated |  | $                      | 6,030 |  |      | $ | 16,329 |      |  | $ | 10,881 | 
|Amount of allowance specifically allocated to impaired loans                       |  |                        | 1,865 |  |      |   | 2,272  |      |  |   | 1,711  | 
|Average of impaired loans during the year                                          |  |                        | 7,077 |  |      |   | 21,742 |      |  |   | 16,454 | 
|Interest income recognized during impairment                                       |  |                        | 300   |  |      |   | 258    |      |  |   | 95     | 
|Nonaccrual loans at year end                                                       |  | $                      | 4,921 |  |      | $ | 5,154  |      |  | $ | 1,865  | 
|                                                                                   |  |                        |       |  |      |   |        |      | 

(8)     Bank Premises, Equipment and
Leases




|                                               |  |                        |        |  |      |   |        | 
|---------------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                                               |  | December 31,           |       
|                                               |  |                        |       
|                                               |  | 2004                   |        |  | 2003 |  
|                                               |  |                        |        |  |      |  
|                                               |  | (Dollars in thousands) |       
|Land                                           |  | $                      | 2,323  |  |      | $ | 2,347  | 
|Buildings                                      |  |                        | 10,503 |  |      |   | 9,863  | 
|Equipment                                      |  |                        | 15,388 |  |      |   | 17,599 | 
|Leasehold improvements                         |  |                        | 850    |  |      |   | 749    | 
|                                               |  |                        |        |  |      |  
|Total Cost                                     |  |                        | 29,064 |  |      |   | 30,558 | 
|Less accumulated depreciation and amortization |  |                        | 17,571 |  |      |   | 19,549 | 
|                                               |  |                        |        |  |      |  
|Net Bank premises and equipment                |  | $                      | 11,493 |  |      | $ | 11,009 | 
|                                               |  |                        |        |  |      |  



44



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##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                    |  |                        |       |  |           |   |     | 
|------------------- |  | ---------------------- | ----- |  | --------- | - | --- | 
|                    |  | Building               |       |  | Equipment |  
|                    |  |                        |       |  |           |  
|                    |  | (Dollars in thousands) |      
|2005                |  | $                      | 277   |  |           | $ | 185 | 
|2006                |  |                        | 249   |  |           |   | 160 | 
|2007                |  |                        | 226   |  |           |   | 137 | 
|2008                |  |                        | 200   |  |           |   | 105 | 
|2009                |  |                        | 98    |  |           |   | 64  | 
|2010 and thereafter |  |                        | 159   |  |           |   | 10  | 
|                    |  |                        |       |  |           |  
|Total               |  | $                      | 1,209 |  |           | $ | 661 | 
|                    |  |                        |       |  |           |  





|    |         
|--- | --------
|(9) | Deposits



|                                                      |                                             |                        |         |         |      |   |         |         | 
|----------------------------------------------------- | ------------------------------------------- | ---------------------- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                      |                                             | December 31,           |        
|                                                      |                                             |                        |        
|                                                      |                                             | 2004                   |         |         | 2003 |  
|                                                      |                                             |                        |         |         |      |  
|                                                      |                                             | (Dollars in thousands) |        
|Demand and noninterest-bearing:                       |                                             |                        |         |         |      |   |         |        
|                                                      | Individuals, partnerships, and corporations |                        | $       | 87,209  |      |   | $       | 75,606  | 
|                                                      | U.S. Government                             |                        |         | 95      |      |   |         | 149     | 
|                                                      | States and political subdivisions           |                        |         | 7,468   |      |   |         | 6,451   | 
|                                                      | Other                                       |                        |         | 1,508   |      |   |         | 4,487   | 
|                                                      |                                             |                        |         |         |      |  
|Total demand and noninterest-bearing                  |                                             |                        | 96,280  |         |      |   | 86,693  |        
|                                                      |                                             |                        |         |         |      |  
|Savings, money market, and interest-bearing DDA:      |                                             |                        |         |         |      |   |         |        
|                                                      | Individuals and non-profit organizations    |                        |         | 238,358 |      |   |         | 226,384 | 
|                                                      | Corporations and profit organizations       |                        |         | 26,932  |      |   |         | 32,231  | 
|                                                      | State and political subdivisions            |                        |         | 14,879  |      |   |         | 18,582  | 
|                                                      |                                             |                        |         |         |      |  
|Total savings, money market, and interest-bearing DDA |                                             |                        | 280,169 |         |      |   | 277,197 |        
|                                                      |                                             |                        |         |         |      |  
|Certificates of deposit:                              |                                             |                        |         |         |      |   |         |        
|                                                      | Individuals, partnerships, and corporations |                        |         | 190,016 |      |   |         | 167,780 | 
|                                                      | State and political subdivisions            |                        |         | 39,078  |      |   |         | 49,674  | 
|                                                      |                                             |                        |         |         |      |  
|Total certificates of deposit                         |                                             |                        | 229,094 |         |      |   | 217,454 |        
|                                                      |                                             |                        |         |         |      |  
|Total Deposits                                        |                                             | $                      | 605,543 |         |      | $ | 581,344 |        
|                                                      |                                             |                        |         |         |      |  



45



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                  |  |                        |        |            |          |   |            |          |  |              |              |         |           |          |        |  |         |   |        |       |  |   |       |  |  |   |         | 
|----------------- |  | ---------------------- | ------ | ---------- | -------- | - | ---------- | -------- |  | ------------ | ------------ | ------- | --------- | -------- | ------ |  | ------- | - | ------ | ----- |  | - | ----- |  |  | - | ------- | 
|                  |  |                        |        | After 3    |          |   | After 6    |          |  |              |              | After 2 |           |          |        |  |        
|                  |  |                        |        | months but |          |   | months but |          |  | After 1 year |              |         | years but |          |        |  |         |  
|                  |  | Within 3               |        |            | within 6 |   |            | within 1 |  |              | but within 2 |         |           | within 5 |        |  | After 5 |   |        |      
|                  |  | months                 |        |            | months   |   |            | year     |  |              | years        |         |           | years    |        |  | years   |   |        | Total | 
|                  |  |                        |        |            |          |   |            |          |  |              |              |         |           |          |        |  |         |   |        |       | 
|                  |  | (Dollars in thousands) |       
|December 31, 2004 |  | $                      | 52,027 |            |          | $ | 43,278     |          |  | $            | 31,049       |         |           | $        | 64,812 |  |         | $ | 29,842 |       |  | $ | 8,086 |  |  | $ | 229,094 | 



|     |                      
|---- | ---------------------
|(10) | Short-Term Borrowings





|                                            |               |                        |        |        |        |   |        |       |        |   |        |        |        |  
|------------------------------------------- | ------------- | ---------------------- | ------ | ------ | ------ | - | ------ | ----- | ------ | - | ------ | ------ | ------ | -
|                                            |               | December 31,           |       
|                                            |               |                        |       
|                                            |               | 2004                   |        |        | 2003   |   |        | 2002  |       
|                                            |               |                        |        |        |        |   |        |       |       
|                                            |               | (Dollars in thousands) |       
|Securities sold under repurchase agreements |               |                        |        |        |        |   |        |       |        |   |        |       
|Period End:                                 |               |                        |        |        |        |   |        |       |        |   |        |       
|                                            |               | Outstanding            |        | $      | 11,619 |   |        | $     | 15,023 |   |        | $      | 26,866 |  
|                                            |               | Interest rate          |        |        | 2.23   | % |        |       | 0.89   | % |        |        | 1.36   | %
|Average:                                    |               |                        |        |        |        |   |        |       |        |   |        |       
|                                            |               | Outstanding            |        | $      | 14,749 |   |        | $     | 16,815 |   |        | $      | 18,805 |  
|                                            |               | Interest rate          |        |        | 1.39   | % |        |       | 0.99   | % |        |        | 1.74   | %
|Maximum month-end balance                   |               | $                      | 18,997 |        |        | $ | 26,309 |       |        | $ | 29,633 |       
|                                            |               |                        |        |        |        |   |        |       |       
|Federal Funds Purchased                     |               |                        |        |        |        |   |        |       |        |   |        |       
|Period End:                                 |               |                        |        |        |        |   |        |       |        |   |        |       
|                                            | Outstanding   |                        | $      | 20,000 |        |   | $      |      |        |   | $      | 10,000 |       
|                                            | Interest rate |                        |        | 2.44   | %      |   |        | 0.00  | %      |   |        | 1.38   | %     
|Average:                                    |               |                        |        |        |        |   |        |       |        |   |        |       
|                                            | Outstanding   |                        | $      | 3,264  |        |   | $      | 1,370 |        |   | $      | 3,799  |       
|                                            | Interest rate |                        |        | 1.48   | %      |   |        | 1.35  | %      |   |        | 1.84   | %     
|Maximum month-end balance                   |               | $                      | 20,000 |        |        | $ | 7,000  |       |        | $ | 10,000 |       
|                                            |               |                        |        |        |        |   |        |       |       



|     |                                
|---- | -------------------------------
|(11) | Federal Home Loan Bank Advances



46



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                           |                       |                        |        |            |      |   |        |            |   |   |        |            |  
|---------------------------------------------------------- | --------------------- | ---------------------- | ------ | ---------- | ---- | - | ------ | ---------- | - | - | ------ | ---------- | -
|                                                           |                       | 2004                   |        |            | 2003 |   |        | 2002       |  
|                                                           |                       |                        |        |            |      |   |        |            |  
|                                                           |                       | (Dollars in thousands) |       
|Cash management advances from the Federal                  |                       |                        |        |            |      |   |        |            |   |   |        |           
|                                                           | Home Loan Bank (FHLB) |                        |        |            |      |   |        |            |   |   |        |            |  
|Period End:                                                |                       |                        |        |            |      |   |        |            |   |   |        |           
|                                                           | Outstanding           |                        | $      |           |      |   | $      | 15,000     |   |   | $      | 5,500      |  
|                                                           | Interest rate         |                        |        | 0.00       | %    |   |        | 1.09       | % |   |        | 1.40       | %
|Average:                                                   |                       |                        |        |            |      |   |        |            |   |   |        |           
|                                                           | Outstanding           |                        | $      | 10,961     |      |   | $      | 16,600     |   |   | $      | 3,743      |  
|                                                           | Interest rate         |                        |        | 1.16       | %    |   |        | 1.28       | % |   |        | 1.88       | %
|Maximum month-end balance                                  |                       | $                      | 17,000 |            |      | $ | 30,000 |            |   | $ | 13,000 |           
|Short-term advances from the Federal Home Loan Bank (FHLB) |                       |                        |        |            |      |   |        |            |   |   |        |           
|Period End:                                                |                       |                        |        |            |      |   |        |            |   |   |        |           
|                                                           | Outstanding           |                        | $      | 28,190     |      |   | $      | 17,235     |   |   | $      | 24,595     |  
|                                                           | Interest rate range   |                        |        | 2.06- 4.61 | %    |   |        | 1.15- 3.73 | % |   |        | 1.50- 4.95 | %



|              |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |       |   |      |   |        |   |  |   |      |  
|------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ----- | - | ---- | - | ------ | - |  | - | ---- | -
|              |  | 2005                   |        |   | 2006 |   |        | 2007 |  |   | 2008   |   |  | 2009 |       |   | 2014 |  
|              |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |       |   |      |  
|              |  | (Dollars in thousands) |       
|Amount        |  | $                      | 28,190 |   |      | $ | 11,000 |      |  | $ | 15,000 |   |  | $    | 5,000 |   |      | $ | 10,000 |   |  | $ | 106  |  
|Interest Rate |  |                        | 2.80   | % |      |   | 2.90   | %    |  |   | 3.60   | % |  |      | 3.30  | % |      |   | 3.36   | % |  |   | 3.55 | %



|     |             
|---- | ------------
|(12) | Income Taxes



|                   |                                    |                        |       |       |      |   |       |       |   |   |       |       | 
|------------------ | ---------------------------------- | ---------------------- | ----- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | 
|                   |                                    | December 31,           |      
|                   |                                    |                        |      
|                   |                                    | 2004                   |       |       | 2003 |   |       | 2002  |  
|                   |                                    |                        |       |       |      |   |       |       |  
|                   |                                    | (Dollars in thousands) |      
|Income Taxes:      |                                    |                        |       |       |      |   |       |       |   |   |       |      
|                   | Federal current expense            |                        | $     | 3,050 |      |   | $     | 3,661 |   |   | $     | 4,119 | 
|                   | Federal deferred expense (benefit) |                        |       | 1     |      |   |       | (254  | ) |   |       | 81    | 
|                   | State and city current expense     |                        |       |      |      |   |       | 4     |   |   |       |      | 
|                   |                                    |                        |       |       |      |   |       |       |  
|Total Income Taxes |                                    | $                      | 3,051 |       |      | $ | 3,411 |       |   | $ | 4,200 |      
|                   |                                    |                        |       |       |      |   |       |       |  



47



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                |                                                      |                        |                                                  |                            |      |      |       |      |   |      |       |  |   |      |   | 
|------------------------------- | ---------------------------------------------------- | ---------------------- | ------------------------------------------------ | -------------------------- | ---- | ---- | ----- | ---- | - | ---- | ----- |  | - | ---- | - | 
|                                |                                                      | December 31,           |                                                 
|                                |                                                      |                        |                                                 
|                                |                                                      | 2004                   |                                                  |                            | 2003 |      |       | 2002 |  
|                                |                                                      |                        |                                                  |                            |      |      |       |      |  
|                                |                                                      | (Dollars in thousands) |                                                 
|Computed expected tax expense |                                                      | $                      | 3,685                                            |                            |      | $    | 3,896 |      |   | $    | 4,678 | 
|                                | Increase (reduction) in income taxes resulting from: |                        |                                                  |                            |      |      |       |      |   |      |       |  |  
|                                |                                                      |                        | Tax exempt interest on obligations of states     |                            |      |      |       |      |   | (201 | )     |  |   | (188 | )
|                                |                                                      |                        |                                                  | and political subdivisions |      |      | (152  | )    |   |      |       |  |   |      |   | 
|                                |                                                      |                        | Tax exempt interest on bank owned life insurance |                            |      | (215 | )     |      |   | (270 | )     |  |   | (171 | )
|                                |                                                      |                        | State income taxes net of Federal benefit        |                            |      | 2    |       |      |   | 2    |       |  |   |     |  
|                                |                                                      | New markets tax credit |                                                  |                            | (225 | )    |       |      | - |      |       |  |  |     
|                                |                                                      |                        | Other, net                                       |                            |      | (44  | )     |      |   | (16  | )     |  |   | (119 | )
|                                |                                                      |                        |                                                  |                            |      |      |       |      |  
|Total Income Taxes              |                                                      | $                      | 3,051                                            |                            |      | $    | 3,411 |      |   | $    | 4,200 | 
|                                |                                                      |                        |                                                  |                            |      |      |       |      |  



|                                       |                                                  |                        |        |       |      |   |        |       |  
|-------------------------------------- | ------------------------------------------------ | ---------------------- | ------ | ----- | ---- | - | ------ | ----- | -
|                                       |                                                  | December 31,           |       
|                                       |                                                  |                        |       
|                                       |                                                  | 2004                   |        |       | 2003 |  
|                                       |                                                  |                        |        |       |      |  
|                                       |                                                  | (Dollars in thousands) |       
|Deferred Federal tax assets:           |                                                  |                        |        |       |      |   |        |      
|                                       | Allowance for loan losses                        |                        | $      | 2,511 |      |   | $      | 2,628 |  
|                                       | Deferred compensation                            |                        |        | 681   |      |   |        | 879   |  
|                                       | Minimum pension liability                        |                        |        | 231   |      |   |        | 197   |  
|                                       | Securities writedown                             |                        |        | 394   |      |   |        | -     |  
|                                       | Unrealized loss on securities available for sale |                        |        | 438   |      |   |        | 166   |  
|                                       | Other, net                                       |                        |        | 25    |      |   |        | 27    |  
|                                       |                                                  |                        |        |       |      |  
|Total deferred Federal tax assets      |                                                  | $                      | 4,280  |       |      | $ | 3,897  |      
|                                       |                                                  |                        |        |       |      |  
|Deferred Federal tax liabilities:      |                                                  |                        |        |       |      |   |        |      
|                                       | Bank premises and equipment depreciation         |                        | $      | (488  | )    |   | $      | (525  | )
|                                       | FHLB stock dividends                             |                        |        | (450  | )    |   |        | (398  | )
|                                       | Intangible asset amortization                    |                        |        | (157  | )    |   |        | (72   | )
|                                       | Accrued loan fees and costs                      |                        |        | (386  | )    |   |        | (335  | )
|                                       | Deferred charges                                 |                        |        | (184  | )    |   |        | (95   | )
|                                       | Prepaid pension                                  |                        |        | (147  | )    |   |        | (123  | )
|                                       |                                                  |                        |        |       |      |  
|Total deferred Federal tax liabilities |                                                  |                        | (1,812 | )     |      |   | (1,548 | )    
|                                       |                                                  |                        |        |       |      |  
|Net deferred Federal tax assets        |                                                  | $                      | 2,468  |       |      | $ | 2,349  |      
|                                       |                                                  |                        |        |       |      |  



|     |                     
|---- | --------------------
|(13) | Shareholders Equity

Preferred Stock




48



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Common Stock




Common Stock Repurchase Plan
and Treasury Stock:




Shareholder Rights Plan






LNBB Direct Stock Purchase and
Dividend Reinvestment Plan:




Dividend Restrictions




49



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|     |                   
|---- | ------------------
|(14) | Regulatory Capital











|                                |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |       |  
|------------------------------- | ------------ | ---------------------- | - | ------ | ----------------- |  |  | ------ | - |  | ----- | ------ |  |  |  | ----- | -
|                                |              | December 31, 2004      |   |        | December 31, 2003 | 
|                                |              |                        |   |        |                   | 
|                                |              | Amount                 |   |        | Ratio             |  |  | Amount |   |  | Ratio |       
|                                |              |                        |   |        |                   |  |  |        |   |  |       |       
|                                |              | (Dollars in thousands) |  
|Total capital (risk weighted)   |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        | $ | 75,814 |                   |  |  | 11.72  | % |  | $     | 72,838 |  |  |  | 12.57 | %
|                                | Bank         |                        |   | 71,931 |                   |  |  | 11.13  | % |  |       | 69,196 |  |  |  | 11.97 | %
|Tier 1 capital (risk weighted)  |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        |   | 68,428 |                   |  |  | 10.58  | % |  |       | 65,594 |  |  |  | 11.32 | %
|                                | Bank         |                        |   | 60,461 |                   |  |  | 9.36   | % |  |       | 57,961 |  |  |  | 10.02 | %
|Tier 1 capital (average assets) |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        |   | 68,428 |                   |  |  | 9.05   | % |  |       | 65,594 |  |  |  | 8.92  | %
|                                | Bank         |                        |   | 60,461 |                   |  |  | 7.86   | % |  |       | 57,961 |  |  |  | 7.81  | %
|                               

50



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |       |  
|------------------------------- | ------------ | ---------------------- | - | ------ | ----------------- |  |  | ------ | - |  | ----- | ------ |  |  |  | ----- | -
|                                |              | December 31, 2004      |   |        | December 31, 2003 | 
|                                |              |                        |   |        |                   | 
|                                |              | Amount                 |   |        | Ratio             |  |  | Amount |   |  | Ratio |       
|                                |              |                        |   |        |                   |  |  |        |   |  |       |       
|                                |              | (Dollars in thousands) |  
|Well Capitalized:               |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|Total capital (risk weighted)   |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        | $ | 64,688 |                   |  |  | 10.00  | % |  | $     | 57,952 |  |  |  | 10.00 | %
|                                | Bank         |                        |   | 64,428 |                   |  |  | 10.00  | % |  |       | 57,880 |  |  |  | 10.00 | %
|Tier 1 capital (risk weighted)  |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        |   | 38,806 |                   |  |  | 6.00   | % |  |       | 34,771 |  |  |  | 6.00  | %
|                                | Bank         |                        |   | 38,757 |                   |  |  | 6.00   | % |  |       | 34,728 |  |  |  | 6.00  | %
|Tier 1 capital (average assets) |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        |   | 37,806 |                   |  |  | 5.00   | % |  |       | 36,749 |  |  |  | 5.00  | %
|                                | Bank         |                        |   | 38,461 |                   |  |  | 5.00   | % |  |       | 36,561 |  |  |  | 5.00  | %
|                               
|Minimum Required:               |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|Total capital (risk weighted)   |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        | $ | 51,750 |                   |  |  | 8.00   | % |  | $     | 46,362 |  |  |  | 8.00  | %
|                                | Bank         |                        |   | 51,702 |                   |  |  | 8.00   | % |  |       | 46,304 |  |  |  | 8.00  | %
|Tier 1 capital (risk weighted)  |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        |   | 25,871 |                   |  |  | 4.00   | % |  |       | 23,181 |  |  |  | 4.00  | %
|                                | Bank         |                        |   | 25,838 |                   |  |  | 4.00   | % |  |       | 23,152 |  |  |  | 4.00  | %
|Tier 1 capital (average assets) |              |                        |   |        |                   |  |  |        |   |  |       |        |  |  |  |      
|                                | Consolidated |                        |   | 30,244 |                   |  |  | 4.00   | % |  |       | 29,399 |  |  |  | 4.00  | %
|                                | Bank         |                        |   | 30,769 |                   |  |  | 4.00   | % |  |       | 29,249 |  |  |  | 4.00  | %
|                               



|     |                                                    
|---- | ---------------------------------------------------
|(15) | Financial Holding Company Only Financial Statements



|                                           |  |                        |        |  |      |   |        | 
|------------------------------------------ |  | ---------------------- | ------ |  | ---- | - | ------ | 
|                                           |  | December 31,           |       
|                                           |  |                        |       
|Condensed Balance Sheets                   |  | 2004                   |        |  | 2003 |  
|                                           |  |                        |        |  |      |  
|                                           |  | (Dollars in thousands) |       
|Assets:                                    |  |                        |        |  |      |   |        | 
|Cash                                       |  | $                      | 207    |  |      | $ | 1,679  | 
|Short-term investments                     |  |                        | 3,674  |  |      |   | 3,103  | 
|Investment in subsidiary bank              |  |                        | 62,489 |  |      |   | 60,452 | 
|Investment in subsidiary nonbanks          |  |                        | 91     |  |      |   | 77     | 
|Securities available for sale              |  |                        | 116    |  |      |   | 93     | 
|Note receivable  subsidiary bank          |  |                        | 4,000  |  |      |   | 4,000  | 
|Other assets                               |  |                        | 34     |  |      |   | 52     | 
|                                           |  |                        |        |  |      |  
|Total assets                               |  | $                      | 70,611 |  |      | $ | 69,456 | 
|                                           |  |                        |        |  |      |  
|Liabilities and Shareholders Equity       |  |                        |        |  |      |   |        | 
|Liabilities                                |  | $                      | 37     |  |      | $ | 1,321  | 
|Shareholders equity                       |  |                        | 70,574 |  |      |   | 68,135 | 
|                                           |  |                        |        |  |      |  
|Total liabilities and shareholders equity |  | $                      | 70,611 |  |      | $ | 69,456 | 
|                                           |  |                        |        |  |      |  

51



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                                                    |  |                        |       |  |      |   |       |      |  |   |       |  
|----------------------------------------------------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                    |  | Year Ended             |      
|                                                                                    |  |                        |      
|Condensed Statements of Income                                                      |  | 2004                   |       |  | 2003 |   |       | 2002 | 
|                                                                                    |  |                        |       |  |      |   |       |      | 
|                                                                                    |  | (Dollars in thousands) |      
|Income                                                                              |  |                        |       |  |      |   |       |      |  |   |       |  
|Cash dividends from subsidiary                                                      |  | $                      | 4,777 |  |      | $ | 4,626 |      |  | $ | 4,468 |  
|Interest and other income                                                           |  |                        | 369   |  |      |   | 483   |      |  |   | 581   |  
|                                                                                    |  |                        |       |  |      |   |       |      | 
|Total Income                                                                        |  |                        | 5,146 |  |      |   | 5,109 |      |  |   | 5,049 |  
|                                                                                    |  |                        |       |  |      |   |       |      | 
|Expenses                                                                            |  |                        |       |  |      |   |       |      |  |   |       |  
|Other expenses                                                                      |  |                        | 397   |  |      |   | 563   |      |  |   | 838   |  
|                                                                                    |  |                        |       |  |      |   |       |      | 
|Income before income taxes and equity in undistributed net
    income of subsidiary |  |                        | 4,749 |  |      |   | 4,546 |      |  |   | 4,211 |  
|Income tax (benefit) expense                                                        |  |                        | 7     |  |      |   | (27   | )    |  |   | (87   | )
|                                                                                    |  |                        |       |  |      |   |       |      | 
|Equity in undistributed net income of subsidiary                                    |  |                        | 2,733 |  |      |   | 3,142 |      |  |   | 4,867 |  
|                                                                                    |  |                        |       |  |      |   |       |      | 
|Net Income                                                                          |  | $                      | 7,475 |  |      | $ | 7,715 |      |  | $ | 9,165 |  
|                                                                                    |  |                        |       |  |      |   |       |      | 

|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |   |   |       |        |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ----- | ------ | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|                                                                                          |                                                                                                                               | Year Ended December 31, |      
|                                                                                          |                                                                                                                               |                         |      
|Condensed Statements of Cash Flows                                                        |                                                                                                                               | 2004                    |       |        | 2003 |   |       | 2002   |  
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|                                                                                          |                                                                                                                               | (Dollars in thousands)  |      
|Net Income                                                                                |                                                                                                                               | $                       | 7,475 |        |      | $ | 7,715 |        |   | $ | 9,165 |       
|Adjustments to reconcile net income to net cash for (or used in)
    operating activities |                                                                                                                               |                         |       |        |      |   |       |        |   |   |       |       
|                                                                                          | Equity in undistributed net income of banking subsidiary                                                                      |                         |       | (2,733 | )    |   |       | (3,142 | ) |   |       | (4,867 | )
|                                                                                          | Equity in undistributed net income of non-bank subsidiaries                                                                   |                         |       | 35     |      |   |       | 53     |   |   |       | 170    |  
|                                                                                          | Net change in other assets and liabilities                                                                                    |                         |       | (1,235 | )    |   |       | 57     |   |   |       | (313   | )
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|                                                                                          | Net cash Provided by Operating Activities                                                                                     |                         |       | 3,542  |      |   |       | 4,683  |   |   |       | 4,155  |  
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|Cash Flows from Investing Activities:                                                     |                                                                                                                               |                         |       |        |      |   |       |        |   |   |       |       
|                                                                                          | Proceeds from maturity of securities available for sale                                                                       |                         |       |       |      |   |       |       |   |   |       | 80     |  
|                                                                                          | Purchases of securities available for sale                                                                                    |                         |       |       |      |   |       |       |   |   |       | (39    | )
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|                                                                                          | Net cash Provided by Investing Activities                                                                                     |                         |       |       |      |   |       |       |   |   |       | 41     |  
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|Cash Flows from Financing Activities:                                                     |                                                                                                                               |                         |       |        |      |   |       |        |   |   |       |       
|                                                                                          | Cash paid in lieu of fractional shares related to stock
    dividends and stock splits                                        |                         |       |       |      |   |       | (13    | ) |   |       | (22    | )
|                                                                                          | Proceeds from exercise of stock options and shares issued under
    LNBB Direct Stock Purchase and Dividend Reinvestment Plan |                         |       | 333    |      |   |       | 189    |   |   |       | 3      |  
|                                                                                          | Issuance of Treasury Stock                                                                                                    |                         |       | 1      |      |   |       | 15     |   |   |       |       |  
|                                                                                          | Dividends paid to Shareholders                                                                                                |                         |       | (4,777 | )    |   |       | (4,557 | ) |   |       | (4,445 | )
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|                                                                                          | Net cash (Used) in Financing Activities                                                                                       |                         |       | (4,443 | )    |   |       | (4,366 | ) |   |       | (4,464 | )
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|Net increase (decrease) in Cash and Cash Equivalents                                      |                                                                                                                               |                         | (901  | )      |      |   | 317   |        |   |   | (268  | )     
|Cash and Cash Equivalents at Beginning of Year                                            |                                                                                                                               |                         | 4,782 |        |      |   | 4,465 |        |   |   | 4,733 |       
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  
|Cash and Cash Equivalents at End of Year                                                  |                                                                                                                               | $                       | 3,881 |        |      | $ | 4,782 |        |   | $ | 4,465 |       
|                                                                                          |                                                                                                                               |                         |       |        |      |   |       |        |  

52



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |                        
|---- | -----------------------
|(16) | Retirement Pension Plan





|                                                  |                                                  |                         |        |        |      |   |        |        |   |   |         |        |  
|------------------------------------------------- | ------------------------------------------------ | ----------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------ | -
|                                                  |                                                  | Year Ended December 31, |       
|                                                  |                                                  |                         |       
|Change in projected benefit obligation            |                                                  | 2004                    |        |        | 2003 |   |        | 2002   |  
|                                                  |                                                  |                         |        |        |      |   |        |        |  
|                                                  |                                                  | (Dollars in thousands)  |       
|Projected benefit obligation at beginning of year |                                                  | $                       | (7,943 | )      |      | $ | (8,415 | )      |   | $ | (10,850 | )     
|                                                  | Service cost                                     |                         |        |       |      |   |        |       |   |   |         | (556   | )
|                                                  | Interest cost                                    |                         |        | (450   | )    |   |        | (477   | ) |   |         | (643   | )
|                                                  | Actuarial gain (loss)                            |                         |        | 108    |      |   |        | (283   | ) |   |         | (83    | )
|                                                  | Curtailment gain                                 |                         |        |       |      |   |        |       |   |   |         | 2,670  |  
|                                                  | Settlement (loss)                                |                         |        | (159   | )    |   |        | (157   | ) |   |         |       |  
|                                                  | Benefits paid                                    |                         |        | 1,054  |      |   |        | 1,389  |   |   |         | 1,047  |  
|                                                  |                                                  |                         |        |        |      |   |        |        |  
|Projected benefit obligation at the end of year   |                                                  | $                       | (7,390 | )      |      | $ | (7,943 | )      |   | $ | (8,415  | )     
|                                                  |                                                  |                         |        |        |      |   |        |        |  
|Change in plan assets                             |                                                  |                         |        |        |      |   |        |        |   |   |         |       
|Fair value of plan assets at beginning of year    |                                                  | $                       | 7,227  |        |      | $ | 7,741  |        |   | $ | 9,665   |       
|                                                  | Actual gain (loss) on plan assets                |                         |        | 222    |      |   |        | 223    |   |   |         | (877   | )
|                                                  | Employer contributions                           |                         |        | 500    |      |   |        | 652    |   |   |         |       |  
|                                                  | Benefits paid                                    |                         |        | (1,054 | )    |   |        | (1,389 | ) |   |         | (1,047 | )
|                                                  |                                                  |                         |        |        |      |   |        |        |  
|Fair value of plan assets at end of year          |                                                  | $                       | 6,895  |        |      | $ | 7,227  |        |   | $ | 7,741   |       
|                                                  |                                                  |                         |        |        |      |   |        |        |  
|Funded Status                                     |                                                  |                         |        |        |      |   |        |        |   |   |         |       
|                                                  | Unrecognized net (gain) subsequent to transition |                         | $      | (495   | )    |   | $      | (716   | ) |   | $       | (674   | )
|                                                  | Unrecognized actuarial loss                      |                         |        | 678    |      |   |        |       |   |   |         |       |  
|                                                  | Unrecognized prior service cost                  |                         |        |       |      |   |        | 578    |   |   |         |       |  
|                                                  |                                                  |                         |        |        |      |   |        |        |  
|Prepaid (Accrued) Liability                       |                                                  | $                       | 183    |        |      | $ | (138   | )      |   | $ | (674    | )     
|                                                  |                                                  |                         |        |        |      |   |        |        |  

53



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


|                                                                                                                                  |  |                              |      |   |      |   |      |      |  |   |      |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                                                                                  |  | For Years Ended December 31, |     
|                                                                                                                                  |  |                              |     
|Net Periodic Pension Cost                                                                                                         |  | 2004                         |      |   | 2003 |   |      | 2002 | 
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|                                                                                                                                  |  | (Dollars in thousands)       |     
|Service cost                                                                                                                      |  | $                            |     |   |      | $ |     |      |  | $ | 556  |  
|Interest cost on projected benefit obligation                                                                                     |  |                              | 450  |   |      |   | 477  |      |  |   | 643  |  
|Expected return on plan assets                                                                                                    |  |                              | (376 | ) |      |   | (381 | )    |  |   | (743 | )
|Amortization of unrecognized prior service liability                                                                              |  |                              |     |   |      |   |     |      |  |   | (35  | )
|Recognized actuarial loss                                                                                                         |  |                              |     |   |      |   |     |      |  |   | 16   |  
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|Net periodic pension cost                                                                                                         |  | $                            | 74   |   |      | $ | 96   |      |  | $ | 437  |  
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|Loss recognized due to curtailment                                                                                                |  |                              |     |   |      |   |     |      |  |   | 137  |  
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|Loss recognized due to settlement                                                                                                 |  |                              | 105  |   |      |   | 20   |      |  |   |     |  
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|Total pension cost                                                                                                                |  | $                            | 179  |   |      | $ | 116  |      |  | $ | 574  |  
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|                                                                                                                                 
|Weighted-average assumptions used to determine net periodic
    benefit cost for years ended December 31, 2004, 2003 and
    2002 |  |                              |      |   |      |   |      |      |  |   |      |  
|                                                                                                                                 
|Weighted average discount rate                                                                                                    |  |                              | 5.75 | % |      |   | 5.75 | %    |  |   | 6.00 | %
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|Expected long-term rate of return on plan assets                                                                                  |  |                              | 5.00 | % |      |   | 5.00 | %    |  |   | 7.88 | %
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 
|Assumed rate of future compensation increases                                                                                     |  |                              | 0.00 | % |      |   | 0.00 | %    |  |   | 5.00 | %
|                                                                                                                                  |  |                              |      |   |      |   |      |      | 



|                          |  |                        |      |   |      |   |      |      |  |   |      |  
|------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                          |  | December 31,           |     
|                          |  |                        |     
|                          |  | 2004                   |      |   | 2003 |   |      | 2002 | 
|                          |  |                        |      |   |      |   |      |      | 
|                          |  | (Dollars in thousands) |     
|Accrued benefit cost      |  | $                      | (495 | ) |      | $ | (716 | )    |  | $ | (674 | )
|Minimum pension liability |  |                        | 678  |   |      |   | 578  |      |  |   |     |  
|                          |  |                        |      |   |      |   |      |      | 
|Net amount recognized     |  | $                      | 183  |   |      | $ | (138 | )    |  | $ | (674 | )
|                          |  |                        |      |   |      |   |      |      | 

|                                                                         |  |                        |    |  |      |   |     |      |  |   |   | 
|------------------------------------------------------------------------ |  | ---------------------- | -- |  | ---- | - | --- | ---- |  | - | - | 
|                                                                         |  | Pension Benefits      
|                                                                         |  |                       
|                                                                         |  | 2004                   |    |  | 2003 |   |     | 2002
|                                                                         |  |                        |    |  |      |   |     |     
|                                                                         |  | (Dollars in thousands)
|Increase in minimum liability included in other comprehensive
    income |  | $                      | 67 |  |      | $ | 381 |      |  | $ |  | 
|                                                                         |  |                        |    |  |      |   |     |      | 



54



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |            
| | -----------
| | Plan Assets



|                                                    |  |                             |       |   |      |  |       |      |  |  |       |  
|--------------------------------------------------- |  | --------------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                    |  | Plan Assets at December 31, |      
|                                                    |  |                             |      
|                                                    |  | 2004                        |       |   | 2003 |  |       | 2002 | 
|                                                    |  |                             |       |   |      |  |       |      | 
|Asset Category:                                     |  |                             |       |   |      |  |       |      |  |  |       |  
|Equity securities                                   |  |                             | 41.0  | % |      |  | 18.0  | %    |  |  | 53.0  | %
|Debt securities                                     |  |                             | 58.0  | % |      |  | 82.0  | %    |  |  | 42.0  | %
|Cash and cash equivalents                           |  |                             | 1.0   | % |      |  | 0.0   | %    |  |  | 5.0   | %
|                                                    |  |                             |       |   |      |  |       |      | 
|Total                                               |  |                             | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|                                                    |  |                             |       |   |      |  |       |      | 
|LNB Bancorp, Inc. common stock to total plan assets |  |                             | 9.2   | % |      |  | 8.9   | %    |  |  | 7.5   | %
|                                                    |  |                             |       |   |      |  |       |      | 







|          |  |                        |       | 
|--------- |  | ---------------------- | ----- | 
|          |  | Pension Benefit        |      
|          |  |                        |      
|          |  | (Dollars in thousands) |      
|2005      |  | $                      | 312   | 
|2006      |  |                        | 338   | 
|2007      |  |                        | 340   | 
|2008      |  |                        | 343   | 
|2009      |  |                        | 352   | 
|20102014 |  |                        | 2,285 | 



|     |                   
|---- | ------------------
|(17) | Stock Option Plans





55



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                 |  |         |         |          |       |   |       |         |          |  |         |   |  |          |       |  |       |  |        |   |  |   |       | 
|-------------------------------- |  | ------- | ------- | -------- | ----- | - | ----- | ------- | -------- |  | ------- | - |  | -------- | ----- |  | ----- |  | ------ | - |  | - | ----- | 
|                                 |  | 2004    |         |          | 2003  |   |       | 2002    |         
|                                 |  |         |         |          |       |   |       |         |         
|                                 |  |         |         | Weighted |       |   |       |         | Weighted |  |         |   |  | Weighted |      
|                                 |  |         |         | Average  |       |   |       |         | Average  |  |         |   |  | Average  |      
|                                 |  |         |         | Exercise |       |   |       |         | Exercise |  |         |   |  | Exercise |      
|                                 |  | Options |         |          | Price |   |       | Options |          |  | Price   |   |  | Options  |       |  | Price | 
|                                 |  |         |         |          |       |   |       |         |          |  |         |   |  |          |       |  |       | 
|Outstanding at beginning of year |  |         | 50,960  |          |       | $ | 16.69 |         |          |  | 46,318  |   |  | $        | 23.29 |  |       |  | 45,606 |   |  | $ | 23.73 | 
|Granted                          |  |         | 10,000  |          |       |   | 19.60 |         |          |  |        |   |  |          | N/A   |  |       |  |       |   |  |   | N/A   | 
|Expired                          |  |         | (15,918 | )        |       |   | 14.09 |         |          |  | (3,092  | ) |  |          | 12.31 |  |       |  |       |   |  |   | N/A   | 
|Exercised                        |  |         | (23,103 | )        |       |   | 14.09 |         |          |  | (15,425 | ) |  |          | 12.31 |  |       |  | (200   | ) |  |   | 18.47 | 
|Stock dividend or split          |  |         |        |          |       |   |       |         |          |  | 23,159  |   |  |          | 15.52 |  |       |  | 912    |   |  |   | 23.26 | 
|                                 |  |         |         |          |       |   |       |         |          |  |         |   |  |          |       |  |       | 
|Outstanding at end of year       |  |         | 21,939  |          |       |   | 19.39 |         |          |  | 50,960  |   |  |          | 16.69 |  |       |  | 46,318 |   |  |   | 23.29 | 
|                                 |  |         |         |          |       |   |       |         |          |  |         |   |  |          |       |  |       | 
|Exerciseable at end of year      |  |         | 21,939  |          |       | $ | 19.39 |         |          |  | 50,960  |   |  | $        | 16.69 |  |       |  | 46,318 |   |  | $ | 23.29 | 
|                                 |  |         |         |          |       |   |       |         |          |  |         |   |  |          |       |  |       | 















|                                                                         |                       |                              |       |      |      |   |       |      |  |   |       |      | 
|------------------------------------------------------------------------ | --------------------- | ---------------------------- | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                                                                         |                       | For the Year Ended           |      
|                                                                         |                       |                              |      
|                                                                         |                       | 2004                         |       |      | 2003 |   |       | 2002 | 
|                                                                         |                       |                              |       |      |      |   |       |      | 
|                                                                         |                       | (Dollars in thousands except |      
|                                                                         |                       | per share data)              |      
|Net Income as reported                                                   |                       | $                            | 7,475 |      |      | $ | 7,715 |      |  | $ | 9,165 |     
|Deduct:                                                                  |                       |                              |       |      |      |   |       |      |  |   |       |     
|Expense determined under fair value method for all awards net of
    tax |                       |                              | (23   | )    |      |   |      |      |  |   |      |     
|                                                                         |                       |                              |       |      |      |   |       |      | 
|Pro forma Net Income                                                     |                       | $                            | 7,452 |      |      | $ | 7,715 |      |  | $ | 9,165 |     
|                                                                         |                       |                              |       |      |      |   |       |      | 
|Pro forma net income per share:                                          |                       |                              |       |      |      |   |       |      |  |   |       |     
|                                                                         | Basic  as reported   |                              | $     | 1.13 |      |   | $     | 1.17 |  |   | $     | 1.39 | 
|                                                                         | Basic  pro forma     |                              |       | 1.12 |      |   |       | 1.17 |  |   |       | 1.39 | 
|                                                                         | Diluted  as reported |                              |       | 1.13 |      |   |       | 1.17 |  |   |       | 1.39 | 
|                                                                         | Diluted  pro forma   |                              |       | 1.12 |      |   |       | 1.17 |  |   |       | 1.39 | 

56



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|     |                              
|---- | -----------------------------
|(18) | Employee Stock Ownership Plan



(19)     401(k) Plan










|     |                                            
|---- | -------------------------------------------
|(20) | Commitments, Credit Risk, and Contingencies









57



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                             |       |                        |         |         |      |   |        |         | 
|---------------------------- | ----- | ---------------------- | ------- | ------- | ---- | - | ------ | ------- | 
|                             |       | December 31,           |        
|                             |       |                        |        
|                             |       | 2004                   |         |         | 2003 |  
|                             |       |                        |         |         |      |  
|                             |       | (Dollars in thousands) |        
|Commitments to extend credit |       | $                      | 133,992 |         |      | $ | 58,434 |        
|Home equity lines            |       |                        | 45,713  |         |      |   | 43,793 |        
|Commitment to sell mortgages |       |                        |        |         |      |   | 444    |        
|Standby letters of credit    |       |                        | 4,918   |         |      |   | 1,774  |        
|                             |       |                        |         |         |      |  
|                             | Total |                        | $       | 184,623 |      |   | $      | 104,445 | 
|                             |       |                        |         |         |      |  







|     |                                              
|---- | ---------------------------------------------
|(21) | Estimated Fair Value of Financial Instruments







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The carrying value of Cash and due from banks, Federal funds
    sold, short-term investments and accrued interest receivable and
    other financial assets is a reasonable estimate of fair value
    due to the short-term nature of the asset.                                                                                                                                                                                                                                                                                               
|
| |  | The fair value of investment securities is based on quoted
    market prices, where available. If quoted market prices are not
    available, fair value is estimated using the quoted market
    prices of comparable instruments.                                                                                                                                                                                                                                                                                                              
|
| |  | For variable rate loans with interest rates that may be adjusted
    on a quarterly, or more frequent basis, the carrying amount is a
    reasonable estimate of fair value. The fair value of other types
    of loans is estimated by discounting future cash flows using the
    current rates at which similar loans would be made to borrowers
    with similar credit ratings and for the same remaining
    maturities.                                                                                                                   
|
| |  | The carrying value approximates the fair value for bank owned
    life insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The fair value of deposits with no stated maturity, such as
    noninterest-bearing demand deposits, savings, money market,
    checking and interest-bearing checking, is equal to the amount
    payable on demand as of 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.                                                                                                                                                                                                                                                                                                                                                                             

58



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, 2004 and 2003.

Limitations:






Fair Value of Financial Instruments


|                                                                                |                                  |                        |         |         |            |   |         |          |         |   |            |         |         |   |         |         |         | 
|------------------------------------------------------------------------------- | -------------------------------- | ---------------------- | ------- | ------- | ---------- | - | ------- | -------- | ------- | - | ---------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                |                                  | 2004                   |         |         | 2003       |  
|                                                                                |                                  |                        |         |         |            |  
|                                                                                |                                  | Carrying               |         |         | Estimated  |   |         | Carrying |         |   | Estimated  |        
|                                                                                |                                  | Value                  |         |         | Fair Value |   |         | Value    |         |   | Fair Value |        
|                                                                                |                                  |                        |         |         |            |   |         |          |         |   |            |        
|                                                                                |                                  | (Dollars in thousands) |        
|Financial assets:                                                               |                                  |                        |         |         |            |   |         |          |         |   |            |         |         |   |         |        
|Cash and due from banks, Federal funds sold and short-term
    investments      |                                  | $                      | 26,818  |         |            | $ | 26,818  |          |         | $ | 27,749     |         |         | $ | 27,749  |        
|Investment Securities                                                           |                                  |                        | 149,621 |         |            |   | 149,621 |          |         |   | 152,127    |         |         |   | 152,290 |        
|Portfolio loans, net                                                            |                                  |                        | 564,771 |         |            |   | 574,662 |          |         |   | 520,030    |         |         |   | 531,857 |        
|Loans available for sale, net                                                   |                                  |                        | 3,067   |         |            |   | 3,067   |          |         |   | 6,215      |         |         |   | 6,215   |        
|Bank owned life insurance                                                       |                                  |                        | 13,335  |         |            |   | 13,335  |          |         |   | 12,702     |         |         |   | 12,702  |        
|Accrued interest receivable and other financial assets                          |                                  |                        | 8,323   |         |            |   | 8,323   |          |         |   | 7,219      |         |         |   | 7,219   |        
|Financial liabilities:                                                          |                                  |                        |         |         |            |   |         |          |         |   |            |         |         |   |         |        
|Deposits:                                                                       |                                  |                        |         |         |            |   |         |          |         |   |            |         |         |   |         |        
|                                                                                | Demand, savings and money market |                        | $       | 376,449 |            |   | $       | 376,449  |         |   | $          | 363,890 |         |   | $       | 363,890 |        
|                                                                                | Certificates of deposit          |                        |         | 229,094 |            |   |         | 229,094  |         |   |            | 217,454 |         |   |         | 219,878 |        
|                                                                                |                                  |                        |         |         |            |   |         |          |         |   |            |        
|                                                                                |                                  | Total deposits         |         | $       | 605,543    |   |         | $        | 605,543 |   |            | $       | 581,344 |   |         | $       | 583,768 | 
|                                                                                |                                  |                        |         |         |            |   |         |          |         |   |            |        
|Securities sold under repurchase agreements and other short-term
    borrowings |                                  | $                      | 31,619  |         |            | $ | 31,619  |          |         | $ | 15,023     |         |         | $ | 15,023  |        
|Federal Home Loan Bank advances                                                 |                                  |                        | 69,296  |         |            |   | 68,757  |          |         |   | 71,540     |         |         |   | 70,748  |        
|Accrued interest payable and other financial liabilities                        |                                  |                        | 4,617   |         |            |   | 4,617   |          |         |   | 5,179      |         |         |   | 5,179   |        

59



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


(22)     Quarterly Financial Data
(Unaudited):




|                                                    |  |                                                  |       |  |        |   |       |       |  |   |        |  |  |   |       | 
|--------------------------------------------------- |  | ------------------------------------------------ | ----- |  | ------ | - | ----- | ----- |  | - | ------ |  |  | - | ----- | 
|                                                    |  | First                                            |       |  | Second |   |       | Third |  |   | Fourth | 
|                                                    |  |                                                  |       |  |        |   |       |       |  |   |        | 
|                                                    |  | (Dollars in thousands, except per share amounts) |      
|2004                                                |  |                                                  |       |  |        |   |       |       |  |   |        |  |  |   |       | 
|Total interest income                               |  | $                                                | 8,952 |  |        | $ | 9,036 |       |  | $ | 9,451  |  |  | $ | 9,785 | 
|Total interest expense                              |  |                                                  | 2,106 |  |        |   | 2,185 |       |  |   | 2,310  |  |  |   | 2,501 | 
|Net interest income                                 |  |                                                  | 6,846 |  |        |   | 6,851 |       |  |   | 7,141  |  |  |   | 7,284 | 
|Provision for loan losses                           |  |                                                  | 525   |  |        |   | 425   |       |  |   | 399    |  |  |   | 399   | 
|Net interest income after provision for loan losses |  |                                                  | 6,321 |  |        |   | 6,426 |       |  |   | 6,742  |  |  |   | 6,885 | 
|Noninterest income                                  |  |                                                  | 2,879 |  |        |   | 2,612 |       |  |   | 3,003  |  |  |   | 1,948 | 
|Noninterest expense                                 |  |                                                  | 5,975 |  |        |   | 6,263 |       |  |   | 6,760  |  |  |   | 7,292 | 
|Income tax                                          |  |                                                  | 969   |  |        |   | 795   |       |  |   | 911    |  |  |   | 376   | 
|Net income                                          |  |                                                  | 2,256 |  |        |   | 1,980 |       |  |   | 2,074  |  |  |   | 1,165 | 
|Basic earnings per share                            |  |                                                  | 0.34  |  |        |   | 0.30  |       |  |   | 0.31   |  |  |   | 0.18  | 
|Diluted earnings per share                          |  |                                                  | 0.34  |  |        |   | 0.30  |       |  |   | 0.31   |  |  |   | 0.18  | 
|Dividends declared per share                        |  |                                                  | 0.18  |  |        |   | 0.18  |       |  |   | 0.18   |  |  |   | 0.18  | 
|                                                   

|                                                    |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|--------------------------------------------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|2003                                                |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|Total interest income                               |  | $ | 9,665  |  |  | $ | 9,605  |  |  | $ | 9,378  |  |  | $ | 9,212  | 
|Total interest expense                              |  |   | 2,526  |  |  |   | 2,352  |  |  |   | 2,186  |  |  |   | 2,132  | 
|Net interest income                                 |  |   | 7,139  |  |  |   | 7,253  |  |  |   | 7,192  |  |  |   | 7,080  | 
|Provision for loan losses                           |  |   | 564    |  |  |   | 570    |  |  |   | 991    |  |  |   | 570    | 
|Net interest income after provision for loan losses |  |   | 6,575  |  |  |   | 6,683  |  |  |   | 6,201  |  |  |   | 6,510  | 
|Noninterest income                                  |  |   | 2,720  |  |  |   | 2,879  |  |  |   | 3,558  |  |  |   | 2,467  | 
|Noninterest expense                                 |  |   | 6,139  |  |  |   | 6,082  |  |  |   | 6,417  |  |  |   | 7,829  | 
|Income tax                                          |  |   | 965    |  |  |   | 1,156  |  |  |   | 985    |  |  |   | 305    | 
|Net income                                          |  |   | 2,191  |  |  |   | 2,324  |  |  |   | 2,357  |  |  |   | 843    | 
|Basic earnings per share                            |  |   | 0.33   |  |  |   | 0.35   |  |  |   | 0.36   |  |  |   | 0.13   | 
|Diluted earnings per share                          |  |   | 0.33   |  |  |   | 0.35   |  |  |   | 0.36   |  |  |   | 0.13   | 
|Dividends declared per share                        |  |   | 0.17   |  |  |   | 0.17   |  |  |   | 0.17   |  |  |   | 0.19   | 
|                                                   
|2002                                                |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|Total interest income                               |  | $ | 10,180 |  |  | $ | 10,465 |  |  | $ | 10,405 |  |  | $ | 10,277 | 
|Total interest expense                              |  |   | 3,106  |  |  |   | 3,175  |  |  |   | 3,072  |  |  |   | 2,742  | 
|Net interest income                                 |  |   | 7,074  |  |  |   | 7,290  |  |  |   | 7,333  |  |  |   | 7,535  | 
|Provision for loan losses                           |  |   | 600    |  |  |   | 525    |  |  |   | 600    |  |  |   | 475    | 
|Net interest income after provision for loan losses |  |   | 6,474  |  |  |   | 6,765  |  |  |   | 6,733  |  |  |   | 7,060  | 
|Noninterest income                                  |  |   | 2,821  |  |  |   | 2,849  |  |  |   | 2,752  |  |  |   | 3,153  | 
|Noninterest expense                                 |  |   | 6,168  |  |  |   | 6,295  |  |  |   | 6,119  |  |  |   | 6,660  | 
|Income tax                                          |  |   | 1,022  |  |  |   | 1,082  |  |  |   | 1,033  |  |  |   | 1,063  | 
|Net income                                          |  |   | 2,105  |  |  |   | 2,237  |  |  |   | 2,333  |  |  |   | 2,490  | 
|Basic earnings per share                            |  |   | 0.32   |  |  |   | 0.34   |  |  |   | 0.35   |  |  |   | 0.38   | 
|Diluted earnings per share                          |  |   | 0.32   |  |  |   | 0.34   |  |  |   | 0.35   |  |  |   | 0.38   | 
|Dividends declared per share                        |  |   | 0.16   |  |  |   | 0.17   |  |  |   | 0.17   |  |  |   | 0.18   | 
|                                                   

60



---



##### 



NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




61



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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















62



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##### 





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





|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



Managements Report on Internal Control Over Financial
Reporting








|                                      |  |                        
|------------------------------------- |  | -----------------------
|(DANIEL E. KLIMAS SIG)                |  | (TERRY M. WHITE SIG)   
|Daniel E. Klimas                      |  | Terry M. White         
|President and Chief Executive Officer |  | Chief Financial Officer

63



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

























64



---



##### 





|         |                  
|-------- | -----------------
|Item 9B. | Other Information



PART III




|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

www.4lnb.com






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation





|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management





Equity Compensation Plan Table


|                                                              |  |                        |        |  |                      |                      |                                |                                 |  |  |     | 
|------------------------------------------------------------- |  | ---------------------- | ------ |  | -------------------- | -------------------- | ------------------------------ | ------------------------------- |  |  | --- | 
|                                                              |  |                        |        |  |                      | Number of securities |                               
|                                                              |  | Number of securities   |        |  |                      |                      | remaining available for future |                                
|                                                              |  | to be issued upon      |        |  | Weighted-average     |                      |                                | issuance under equity           | 
|                                                              |  | exercise of            |        |  | exercise price of    |                      |                                | compensation plans              | 
|                                                              |  | outstanding option     |        |  | outstanding options, |                      |                                | (excluding securities reflected | 
|                                                              |  | warrants and rights(1) |        |  | warrants and rights  |                      |                                | in columns(a))                  | 
|                                                              |  |                        |        |  |                      |                      |                                |                                 | 
|Plan Category                                                 |  |                        | (a)    |  |                      |                      | (b)                            |                                 |  |  | (c) | 
|Equity compensation plans approved by security holders        |  |                        | 0      |  |                      | $                    |                               |                                 |  |  | 0   | 
|Equity compensation plans not approved by security holders(2) |  |                        | 21,939 |  |                      | $                    | 19.39                          |                                 |  |  | 0   | 
|                                                              |  |                        |        |  |                      |                      |                                |                                 | 
|Total                                                         |  |                        | 21,939 |  |                      | $                    | 19.39                          |                                 |  |  | 0   | 
|                                                              |  |                        |        |  |                      |                      |                                |                                 | 

65



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##### 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of common shares of the Corporation covered by
    outstanding options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | 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. Each of these options vested immediately as to
    all shares covered by the option. Each option may be exercised
    for a term of 10 years from the date of the grant of the
    option, 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 and ranged from $19.21 to
    $19.60. The remaining contractual terms of the options ranged
    from 7 to 10 years at December 31, 2004.



|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions





|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services



66



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##### 



PART IV




|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and Reports on
    Form 8-K





| |                         
| | ------------------------
| | (1) Financial Statements

























| |                                  
| | ---------------------------------
| | (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 69 of this Form 10-K.







| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Reference is made to the Exhibit Index which is found on
    page 69 of this Form 10-K.



67



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##### 



SIGNATURES






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



| |     |                   
| | --- | ------------------
| | By: | /s/ Terry M. White

| |                        
| | -----------------------
| |                        
| | Terry M. White         
| | Chief Financial Officer



|                                                 |  |                                                 |  |                |  | 
|------------------------------------------------ |  | ----------------------------------------------- |  | -------------- |  | 
|                                                
|/s/ Daniel P. BatistaDaniel
    P. Batista       |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Robert M. CampanaRobert
    M. Campana       |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Terry D. GoodeTerry
    D. Goode             |  | Director                                        |  | March 11, 2005
|                                                
|/s/ James F. KiddJames
    F. Kidd               |  | Director                                        |  | March 11, 2005
|                                                
|/s/ David M. KoetheDavid
    M. Koethe           |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Benjamin G. NortonBenjamin
    G. Norton     |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Jeffrey F. RiddellJeffrey
    F. Riddell     |  | Director                                        |  | March 11, 2005
|                                                
|/s/ John W. SchaefferJohn
    W. Schaeffer, M.D. |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Eugene M. SofrankoEugene
    M. Sofranko     |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Stanley G. PijorStanley
    G. Pijor         |  | Director                                        |  | March 11, 2005
|                                                
|/s/ Lee C. HowleyLee
    C. Howley               |  | Director                                        |  | March 11, 2005
|                                                
|/s/ James R. HerrickJames
    R. Herrick         |  | Chairman of the Board and Director              |  | March 11, 2005
|                                                
|/s/ Daniel E. KlimasDaniel
    E. Klimas         |  | President, Chief Executive Officer and Director |  | March 11, 2005
|                                                
|/s/ Terry M. WhiteTerry
    M. White             |  | Chief Financial Officer                         |  | March 11, 2005

68



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##### 



EXHIBIT INDEX


Pursuant to Item 601(a) of Regulation S-K


|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|S-K       |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|Reference |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|Number    |  | Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3(a))    |  | LNB Bancorp, Inc. Second Amended Articles of Incorporation.
    Previously filed under Item 6, Exhibit (3) to Quarterly Report
    on Form 10-Q (Commission File No. 0-13202) for the quarter ended
    September 30, 2000, and incorporated herein by reference                                                                                                                                                         
|(3(b))    |  | LNB Bancorp, Inc. Amended Code of Regulations. Previously filed
    under Item 7, Exhibit 3 to Form 8-K (Commission File No.
    0-13203) filed January 4, 2001 and incorporated herein by
    reference                                                                                                                                                                                                                 
|(10(a))   |  | Employment Agreement by and between Daniel E. Klimas and LNB
    Bancorp, Inc. and The Lorain National Bank dated January 28, 2005                                                                                                                                                                                                                                                                                       
|(10(b))   |  | Employment Agreement by and between Randy L. Bevins and LNB
    Bancorp, Inc. and LNB Mortgage LLC dated August 31, 2004                                                                                                                                                                                                                                                                                                 
|(10(c))   |  | Amendment to Supplemental Retirement Benefits Agreement by and
    between Gary C. Smith and LNB Bancorp, Inc., and The Lorain
    National Bank dated October 6, 2003                                                                                                                                                                                                                                                   
|(10(d))   |  | Severance Agreement and General Release and Amended Employment
    Agreement by and between Gregory D. Friedman and LNB Bancorp,
    Inc, and The Lorain National Bank dated November 21, 2003                                                                                                                                                                                                                           
|(10(e))   |  | The Lorain National Bank Retirement Pension Plan amended and
    restated effective December 31, 2002, dated November 19, 2002                                                                                                                                                                                                                                                                                           
|(10(f))   |  | Employment Agreement by and between Terry M. White and LNB
    Bancorp, Inc, and The Lorain National Bank dated January 23,
    2002. Previously filed as Exhibit (10a) to Quarterly Report Form
    10-Q (Commission File No. 0-13203) for the quarter ended March
    31, 2002, and incorporated herein by reference                                                                                                   
|(10(g))   |  | Lorain National Bank Group Term Carve Out Plan, (the Plan),
    dated August 7, 2002. Previously filed as Exhibit (10a) to
    Quarterly Report Form 10-Q (Commission File No. 0-13203) for the
    quarter ended September 31, 2002, and incorporated herein by
    reference                                                                                                                                           
|(10(h))   |  | Restated and Amended (to conform with specific Employment
    Benefit Plans and Provisions) Employment Agreement by and
    between Gary C. Smith and LNB Bancorp, Inc, and The Lorain
    National Bank dated December 22, 2000. Previously filed as
    Exhibit (10a) to Annual Report Form 10-K (Commission File No.
    0-13203) for the year ended December 31, 2001, and incorporated
    herein by reference      
|(10(i))   |  | Restated and Amended (to conform with specific Employment
    Benefit Plans and Provisions) Employment Agreement by and
    between Kevin W. Nelson and LNB Bancorp, Inc, and The Lorain
    National Bank dated December 22, 2000. Previously filed as
    Exhibit (10b) to Annual Report Form 10-K(Commission File No.
    0-13203) for the year ended December 31, 2001, and incorporated
    herein by reference     
|(10(j))   |  | Restated and Amended (to conform with specific Employment
    Benefit Plans and Provisions) Employment Agreement by and
    between Gregory D. Friedman and LNB Bancorp, Inc, and The Lorain
    National Bank dated December 22, 2000. Previously filed as
    Exhibit (10c) to Annual Report Form 10-K (Commission File No.
    0-13203) for the year ended December 31, 2001, and incorporated
    herein by reference
|(10(k))   |  | Supplemental Retirement Benefits Agreement by and between Gary
    C. Smith and LNB Bancorp, Inc, and The Lorain National Bank
    dated December 22, 2000. Previously filed as Exhibit (10a) to
    Annual Report Form 10-K (Commission File No. 0-13203) for the
    year ended December 31, 2000, and incorporated herein by
    reference                                                                            

69



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##### 



|          |  |                                                                                                                                                                                                                                                                                                                                                   
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|S-K       |  |                                                                                                                                                                                                                                                                                                                                                   
|Reference |  |                                                                                                                                                                                                                                                                                                                                                   
|Number    |  | Exhibit                                                                                                                                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                                                   
|(10(l))   |  | Supplemental Retirement Benefits Agreement by and between Thomas
    P. Ryan and LNB Bancorp, Inc. and The Lorain National Bank dated
    December 23, 2000. Previously filed as Exhibit (10b) to
    Annual Report Form 10-K (Commission File No. 0-13203)
    for the year ended December 31, 2000 and incorporated herein by
    reference     
|(10(m))   |  | Supplemental Retirement Benefits Agreement by and between
    Gregory D. Friedman and LNB Bancorp, Inc. and The Lorain
    National Bank dated December 22, 2000. Previously filed as
    Exhibit (10c) to Annual Report Form 10-K (Commission
    File No. 0-13203) for the year ended December 31, 2000 and
    incorporated herein by reference
|(10(n))   |  | Non-qualified Incentive Stock Option Agreement by and between
    Gary C. Smith and LNB Bancorp, Inc. dated December 15, 2000.
    Previously filed as Exhibit (10d) to Annual Report
    Form 10-K (Commission File No. 0-13203) for the year
    ended December 31, 2000 and incorporated herein by reference                                   
|(10(o))   |  | Rights Agreement between LNB Bancorp, Inc. and Registrar and
    Transfer Corporation dated October 24, 2000. Previously filed as
    Exhibit 1 to Form 8-A (Commission File
    No. 0-13203) filed November 11, 2000, and incorporated
    herein by reference                                                                                   
|(10(p))   |  | Employment Agreement by and between Kevin W. Nelson and LNB
    Bancorp, Inc. and The Lorain National Bank dated February 13,
    2000. Previously filed as Exhibit (10a) to Annual Report
    Form 10-K (Commission File No. 0-13203) for the year
    ended December 31, 1999, and incorporated herein by reference                             
|(10(q))   |  | Incentive Stock Option Agreement by and between Kevin W. Nelson
    and LNB Bancorp, Inc. dated February 13, 2000. Previously filed
    as Exhibit (10b) to Annual Report Form 10-K
    (Commission File No. 0-13203) for the year ended December
    31, 1999 and incorporated herein by reference                                               
|(10(r))   |  | Amended Supplemental Retirement Agreement by and between James
    F. Kidd and The Lorain National Bank dated June 15, 1999.
    Previously filed as Exhibit (10a) to Quarterly Report on
    Form 10-Q (Commission File No.0-13203) for the quarter
    ended June 30, 1999, and incorporated herein by reference                                
|(10(s))   |  | Employment Agreement by and between Gary C. Smith and LNB
    Bancorp, Inc. and The Lorain National Bank dated March 16, 1999.
    Previously filed as Exhibit (10a) to Annual Report
    Form 10-K (Commission File No. 0-13203) for the year
    ended December 31, 1998, and incorporated herein by reference                                  
|(10(t))   |  | Incentive Stock Option Agreement by and between Gary C. Smith
    and LNB Bancorp, Inc. dated March 16, 1999. Previously filed as
    Exhibit (10b) to Annual Report Form 10-K (Commission
    File No. 0-13203) for the year ended December 31, 1998, and
    incorporated herein by reference                                                   
|(10(u))   |  | Amended Employment Agreement by and between James F. Kidd and
    LNB Bancorp, Inc. And The Lorain National Bank dated March 3,
    1999. Previously filed as Exhibit (10c) to Annual Report
    Form 10-K (Commission File No. 0-13203) for the year
    ended December 31, 1998, and incorporated herein by reference                           
|(10(v))   |  | Amended Employment Agreement by and between Thomas P. Ryan and
    LNB Bancorp, Inc. and The Lorain National Bank dated
    March 3, 1999. Previously filed as Exhibit (10d) to
    Annual Report Form 10-K (Commission File No. 0-13203)
    for the year ended December 31, 1998, and incorporated
    herein by reference                      
|(10(w))   |  | Branch Purchase and Assumption Agreement by and between KeyBank
    National Association and the Lorain National Bank dated April
    10, 1997. Previously filed as Exhibit (99.1) to
    Form 8-K (Commission File No. 0-13203) filed
    October 3, 1997, and incorporated herein by reference                                                  
|(10(x))   |  | Supplemental Retirement Agreement by and between James F. Kidd
    and The Lorain National Bank dated July 30, 1996.
    Previously filed as Exhibit (10a) to Quarterly Report on
    Form 10-Q (Commission File No. 0-13203) for the
    quarter ended June 30, 1996, and incorporated herein
    reference                                      

70



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##### 



|          |  |                                                                                                                                                                                                                                                                                                                                                       
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|S-K       |  |                                                                                                                                                                                                                                                                                                                                                       
|Reference |  |                                                                                                                                                                                                                                                                                                                                                       
|Number    |  | Exhibit                                                                                                                                                                                                                                                                                                                                               
|          |  |                                                                                                                                                                                                                                                                                                                                                       
|(10(y))   |  | Supplemental Retirement Agreement by and between Thomas P. Ryan
    and The Lorain National Bank dated July 30, 1996.
    Previously filed as Exhibit (10b) to Quarterly Report on
    Form 10-Q (Commission File No. 0-13203) for the
    quarter ended June 30, 1996, and incorporated herein by
    reference                                      
|(10(z))   |  | Supplemental Retirement Agreement by and between Gregory D.
    Friedman and The Lorain National Bank dated July 30, 1996.
    Previously filed as Exhibit (10c) to Quarterly Report on
    Form 10-Q (Commission File No. 0-13203) for the
    quarter ended June 30, 1996, and incorporated herein by
    reference                                 
|(10(aa))  |  | Employment Agreement by and between James F. Kidd and LNB
    Bancorp, Inc. and The Lorain National Bank dated
    September 11, 1995. Previously filed as Exhibit (10a)
    to Quarterly Report on Form 10-Q (Commission File
    No. 0-13203) for the quarter ended September 30, 1995,
    and incorporated herein by reference                    
|(10(bb))  |  | Employment Agreement by and between Thomas P. Ryan and LNB
    Bancorp, Inc. and The Lorain National Bank dated
    September 11, 1995. Previously filed as Exhibit (10b)
    to Quarterly Report on Form 10-Q (Commission File
    No. 0-13203) for the quarter ended September 30, 1995,
    and incorporated herein by reference                   
|(10(cc))  |  | Consultant Agreement by and between Lorain National Bank, LNB
    Bancorp, Inc. and Stanley G. Pijor dated March 15, 1994.
    Previously filed as Exhibit (10) to Annual Report
    Form 10-K (Commission File No. 0-13203) for the year
    ended December 31, 1993 and incorporated herein by reference                                            
|(10(dd))  |  | Supplemental Retirement Agreement by and between Stanley G.
    Pijor and The Lorain National Bank dated December 31, 1987.
    Previously filed as Exhibit (10) to Annual Report on
    Form 10-K (Commission File No. 0-13203) for the year
    ended December 31, 1987, and incorporated herein by
    reference                                   
|(10(ee))  |  | Employment Agreement by and between Lorain National Bank and
    Stanley G. Pijor dated December 31, 1987, Previously filed
    as Exhibit (10) to Annual Report Form 10-K (Commission
    File No. 0-13203) for the year ended December 31, 1987
    and incorporated herein by reference                                                            
|(10(ff))  |  | The Lorain National Bank 1985 Incentive Stock Option Plan dated
    April 16, 1985. Previously filed as Exhibit (10) to Annual
    Report on Form 10-K (Commission File No. 2-8867-1) for
    the year ended December 31, 1985, and incorporated herein
    by reference                                                                              
|(10(gg))  |  | Agreement To Join In The Filing of Consolidated Federal Income
    Tax Returns between LNB Bancorp, Inc. and The Lorain National
    Bank dated December 15, 1986. Previously filed as
    Exhibit (10) to Annual Report on Form 10-K (Commission
    File No. 2-8867-1) for the year ended December 31,
    1986 and incorporated herein by reference
|(11)      |  | Statements re: Computation of Per Share Earnings. (Incorporated
    herein by reference to Note 2 of the 2003 Annual Report)                                                                                                                                                                                                                          
|(21)      |  | Subsidiaries of LNB Bancorp, Inc. (Incorporated herein by
    reference to IFC of 2004 Annual Report)                                                                                                                                                                                                                                                 
|(23)      |  | Consent of Independent Accountants                                                                                                                                                                                                                                                                                                                    
|(31(a))   |  | Chief Executive Officer Sarbanes-Oxley Act 302 Certification
    dated March 11, 2005 for LNB Bancorp, Inc.s Annual Report
    on Form 10-K for the year ended December 31, 2004                                                                                                                                                                     
|(31(b))   |  | Chief Financial Officer Sarbanes-Oxley Act 302 Certification
    dated March 11, 2005 for LNB Bancorp, Inc.s Annual
    Report on Form 10-K for the year ended December 31,
    2004                                                                                                                                                                 
|(32(a))   |  | Certification pursuant to 18 U.S.C. section 1350, as
    enacted pursuant to section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                                                                                                                                        
|(32(b))   |  | Certification pursuant to 18 U.S.C. section 1350, as
    enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                            

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##### 



|          |  |                                                                                                                                                                                                                                           
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|S-K       |  |                                                                                                                                                                                                                                           
|Reference |  |                                                                                                                                                                                                                                           
|Number    |  | Exhibit                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                           
|(99.1)    |  | Annual report on Form 10-K/A of The Lorain National Bank
    Employee Stock Ownership Plan (registration number 33-65034) for
    the plan year ended December 31, 2003 to be filed as an
    amendment to this annual report on Form 10-K
|(99.2)    |  | Annual report on Form 10-K/A of The Lorain National
    Bank 401(K) Plan (registration number 33-65034) for
    the plan year ended December 31, 2003 to be filed as an
    amendment to this annual report on Form 10-K                  

72