10-K 1 lnb10k2002.txt LNB BANCORP, INC. 2002 10-K 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 Commission file December 31, 2002 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(g) OF THE SECURITIES EXCHANGE ACT OF 1934: Title of Each Class Name of Each Exchange on Which Registered Common Stock, Par Value $1.00 NASDAQ - National Market Per Share Preferred Share Purchase Rights Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting common stock held by non-affiliates of the Registrant at February 28, 2003 was approximately $114,796,000. The number of shares of Registrant's Common Stock outstanding on February 28, 2003 was 4,401,232. 1 DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2002 Annual Report to Stockholders of Registrant are incorporated by reference in Parts I, II, and IV of this report. 2 LNB Bancorp, Inc. Form 10-K Report Table of Contents 2002 Page PART I Item 1 Business a. General Development of Business 4 b. Financial Information About Industry Segments 5 c. Description of LNB Bancorp, Inc.'s Business 5 d. Financial Information About Foreign and Domestic Operations and Export Sales 11 e. Statistical Disclosure by Bank Holding Companies 11 I. Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential 12 II. Investment Portfolio 12 III. Loan Portfolio 13 IV. Summary of Loan Loss Experience 17 V. Deposits 20 VI. Return on Equity and Assets 21 VII. Short-Term Borrowings 21 Item 2 Properties 21 Item 3 Legal Proceedings 23 Item 4 Submission of Matters to a Vote of Shareholders 23 PART II Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters 25 Item 6 Selected Financial Data 25 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7(a) Quantitative and Qualitative Disclosures about Market Risk 26 Item 8 Financial Statements and Supplementary Data 26 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 PART III Item 10 Directors and Executive Officers of the Registrant 27 Item 11 Executive Compensation 29 Item 12 Security Ownership of Certain Beneficial Owners and Management 40 Item 13 Certain Relationships and Related Transactions 44 3 PART IV Item 14 Controls and Procedures 45 Item 15 Exhibits, Financial Statements, Schedules and Reports on Form 8-K 46 SIGNATURES 46 CERTIFICATION OF CHIEF EXECUTIVE OFFICER 49 CERTIFICATION OF CHIEF FINANCIAL OFFICER 51 EXHIBIT INDEX 53 4 PART 1 ITEM 1 - BUSINESS a) GENERAL DEVELOPMENT OF BUSINESS LNB Bancorp, Inc.(the Parent Company), a financial holding company, was incorporated on October 11, 1983 under the laws of the State of Ohio at the direction of the Board of Directors of The Lorain National Bank (the Bank), a national banking association, for the purpose of acquiring all the outstanding common stock of the Bank. The term "the Corporation" refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries. At a special meeting of the shareholders of the Bank, held on February 28, 1984, the shareholders approved the Plan of Reorganization, involving the merger of the Bank into the Lorain Interim Association, a national banking corporation, incorporated solely for the purpose of effecting the Reorganization Plan. Lorain Interim was a wholly-owned subsidiary of the Corporation. Upon the consummation of the merger on March 30, 1984, under the Plan of Reorganization, the business of the Bank is conducted by the merged Bank under the name "The Lorain National Bank." Each outstanding share of common stock of the Bank, par value $2.50, was converted into one share of LNB Bancorp, Inc. common stock, par value $2.50. A total of 904,570 shares of corporate stock were issued at the effective date of the merger. On April 8, 1989, the shareholders of the Corporation approved a two-for-one stock split, which reduced the par value to $1.25. On April 20, 1993, the shareholders of the Corporation approved a five-for-four stock split, which reduced the par value to $1.00. On April 18, 1995, the Corporation's shareholders approved an amendment to the Articles of Incorporation to increase the number of authorized shares of Common Stock from 4,000,000 to 5,000,000 and fix the par value of Common Stock at $1.00 per share to allow for a five-for-four stock split. On April 18, 1995, the Corporation's Board of Directors authorized a five-for-four stock split in the form of a 25 percent stock dividend. The stock split increased the number of shares outstanding by 802,692. Also, Common Stock has been increased by $802,692 with an offsetting reduction to additional capital to reflect the fixed $1.00 par value per share for each additional share issued pursuant to the stock split. At a special meeting of shareholders held on December 14, 1999, the Corporation's Shareholders approved an amendment to the Articles of Incorporation to increase the number of authorized shares of Common Stock from 5,000,000 to 15,000,000 shares. Also, on December 14, 1999, the Corporation's Shareholders approved an amendment to the Articles of Incorporation to provide for 1,000,000 shares of Voting Preferred Stock. 5 On October 24, 2000, the Board of Directors of LNB Bancorp, Inc. adopted a Shareholder Rights Plan. The rights plan is designed to prevent a potential acquiror from exceeding a prescribed ownership level in LNB Bancorp, Inc., other than in the context of a negotiated acquisition involving the Board of Directors. On November 14, 2000, LNB Bancorp, Inc. filed its Second Amended Articles of Incorporation which authorized and provided the terms of 750,000 Series A Voting Preferred Shares. On February 25, 2003, the Corporation's board of directors approved a three- for-two (3-for2) stock split of the Corporation's common stock. The shares issued as a result of the split will be distributed on or about March 14, 2003 to shareholders of record at the close of business on March 10, 2003. Shareholders participating in the Corporation's dividend reinvestment plan will be issued fraction shares as is necessary. Shareholders not participating in the plan will be paid cash in lieu of fractional shares as is necessary. The retroactive impact of the stock split is not reflected in the accompanying consolidated financial statements and Form 10-K with respect to any references to the number of shares issued or outstanding, to per share information relating to previous stock dividends and stock option activity. LNB Bancorp, Inc. has broader powers than the Bank. These powers principally include the power to engage in certain non-banking businesses that are financial in nature, to own capital stock of banks located in Ohio and certain other states and to own capital stock of business corporations (other than banks) located within or outside Ohio. b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Corporation and subsidiary companies are engaged in one line of business which is banking services. Neither of the two new subsidiaries represent a significant part of LNB Bancorp, Inc. at December 31, 2002. Reference is hereby made to Item 1e., Statistical Disclosure by Bank Holding Companies, and to Item 8 of this Form 10-K for financial information pertaining to the Corporation's business. c) DESCRIPTION OF LNB BANCORP, INC.'S BUSINESS LNB Bancorp, Inc., (the Bancorp), is a $715 million financial holding company headquartered in Lorain, Ohio. The Bancorp is a public company whose stock is traded on The Nasdaq National Stock Market@ under the ticker symbol LNBB. Its predecessor, The Lorain National Bank, was formed as a result of the merger of The Lorain Banking Company and The National Bank of Lorain on January 1, 1961. The Lorain Banking Company was a state chartered bank founded in 1905. The National Bank of Lorain was a national bank receiving its national charter in 1934. On March 30, 1984, the Lorain National Bank became the wholly owned subsidiary of LNB Bancorp, Inc. The Bancorp received its financial holding company status on March 13, 2000. 6 LNB Bancorp, Inc., offers life insurance, term life, whole life, universal life and long-term care insurance and fixed annuity products through its wholly owned insurance subsidiary Charleston Insurance Agency, Inc.; and traditional title services through 49-percent owned subsidiary Charleston Title Agency, LLC. In addition, pursuant to an agreement between Lorain National Bank and Raymond James Financial Services, Inc., member NASD/SIPX, Raymond James offers brokerage services including stocks, mutual funds, variable annuity products and variable life insurance products to Lorain National Bank customers through the LNB Investment Center. The Lorain National Bank operates 21 retail branches and 27 ATMs in the nine communities of Lorain, Elyria, Amherst, Avon Lake, LaGrange, Oberlin, Olmsted Township, Vermilion, and Westlake. Lorain National Bank offers a full range of bank products and services while specializing in small business, mortgage, and personal banking services, including investment management and trust services. The Bank's commercial lending activities consist of commercial loans, working capital loans, commercial mortgage loans, construction loans, equipment loans, letter of credit, revolving line of credit, Small Business Administration loans, government guaranteed loans and Federal Home Loan Bank program loans. The Bank's residential mortgage lending activities consist primarily of loans for purchasing personal residences, home equity loans, local lender loans, or loans for commercial or consumer purposes secured by residential mortgages. Consumer lending activities consist of traditional forms of financing for automobile and personal loans, indirect automobile loans, and home equity lines of credit. The Bank's credit card lending activities consist of Visa Lorain Lighthouse and VISA Gold cards, ATM cards, Access debit card and Bankcard Merchant services. The Bank's range of deposit services include checking accounts, totally free checking, interest-bearing checking, CheckInvest accounts, savings accounts, Holiday savings, money market accounts, Market Access accounts, individual retirement accounts, certificates of deposit, Keough plans, and overdraft protection. Deposits of the Bank are insured by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation. Other bank services offered include safe deposit boxes, night depository, U. S. savings bonds, travelers' checks, money orders, cashiers checks, bank- by-mail, automatic teller machine cash and transaction services, debit cards, wire transfers, foreign drafts, foreign currency, electronic funds transfer, utility bill collections, notary public service, payroll direct deposit, cash management services, 24 hour telephone banking with bill paying service, internet banking, Lockbox, sweep accounts, ACH, discount brokerage services and other services tailored for both individuals and businesses. The Bank's 7 electronic data processing department provides centralized electronic data processing services to local financial intermediaries. The Investment and Trust Services Division of the Bank performs investment management and trust administrative functions and offers agency, trust services and Mutual fund investment products to individuals, partnerships, corporations, institutions and municipalities. The Investment and Trust Services Division offers employee benefit administration and assists in the designs of employee benefit plans. The Bank is not dependent upon any one significant customer or specific industry. The business of the Corporation is not seasonal to any material degree. In the opinion of Management, LNB Bancorp, Inc. does not have exposure to material costs associated with environmental hazardous waste clean up. Competition Lorain National Bank faces strong competition both in making loans and attracting deposits. The deregulation of the banking industry and the wide spread enactment of state laws that permit multi-bank holding companies as well as the availability of nationwide interstate banking has created a highly competitive environment for financial services providers. Lorain National Bank competes with other national and state banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies and other financial intermediaries operating in its market and elsewhere, many of whom have substantially greater financial and managerial resources. Lorain National Bank competes with seven other banks and bank holding companies operating in Lorain County which range in size from approximately $715 million to over $275.0 billion in assets. Other competition comes primarily from savings and loans, credit unions, and other financial intermediaries operating in Lorain County and counties adjacent to it. The Bank's market share of total deposits in Lorain County in all types of financial institutions was 17.8% in 2002 and 17.4% in 2001, while ranking number two in market share in 2002 and 2001. Lorain National Bank seeks to minimize the competitive effect of larger financial institutions through a community banking approach that emphasizes direct customer access to the Bank's president and other officers in an environment conducive to friendly, informed and courteous personal services. Management believes that Lorain National Bank is well positioned to compete successfully in its respective primary market area. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality and scope of the services rendered, the convenience of the banking centers and, in the case of loans to commercial borrowers, relative lending limits. Management believes that the commitment of Lorain National Bank to personal service, innovation and 8 involvement in their respective communities and primary market areas, as well as their commitment to quality community banking service, are factors that contribute to it's competitive advantage. Supervision and Regulation LNB Bancorp, Inc., as a financial holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the BHC Act), and is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the Federal Reserve Board). The BHC Act requires the prior approval of the Federal Reserve Board for a financial holding company to acquire or hold more than a 5% voting interest in any bank and restricts interstate banking activities. The BHC Act allows interstate bank acquisitions anywhere in the country and interstate branching by acquisition and consolidation in those states that have not opted out by January 1, 1997. The BHC Act restricts LNB Bancorp, Inc.'s nonbanking activities to those which are determined by the Federal Reserve Board to be financial in nature, incidental to such financial activity or complementary to a financial activity. The BHC Act does not place territorial restrictions on the activities of nonbank subsidiaries of financial holding companies. LNB Bancorp, Inc.'s banking subsidiary is subject to limitations with respect to transactions with affiliates. Sarbanes-Oxley Act of 2002 On July 30, 2002, the Senate and the House of Representatives of the United States (Congress) enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. The Nasdaq National Stock Exchange has also proposed corporate governance rules that were presented to the Securities and Exchange Commission for review and approval. The proposed changes are intended to allow stockholders to more easily and efficiently monitor the performance of companies and directors. Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley, LNB Bancorp, Inc.'s chief executive officer and chief financial officer are each required to certify that LNB Bancorp, Inc.'s Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of LNB Bancorp, Inc.'s internal controls; they have made certain disclosures to LNB Bancorp, Inc.'s auditors and the audit committee of the Board of Directors about LNB Bancorp, Inc.'s internal controls; and they have included information in LNB Bancorp, Inc.'s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in LNB Bancorp, Inc.'s internal controls or in other factors that 9 could significantly affect internal controls subsequent to the evaluation. The enactment of the Gramm-Leach-Bliley Act of 1999 (the GLB Act) represented a pivotal point in the history of the financial services industry. The GLB Act swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance companies, and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for regulation through the financial holding company, which has as its umbrella regulator the Federal Reserve Board. Functional regulation of the financial holding company's separately regulated subsidiaries is conducted by their primary functional regulator. The GLB Act requires "satisfactory" or higher Community Reinvestment Act compliance for insured depository institutions and their financial holding companies in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy of non-public personal information of individual customers. LNB Bancorp, Inc. and its subsidiaries are also subject to certain state laws that deal with the use and distribution of non- public personal information. A substantial portion of the Corporation's cash revenues is derived from dividends paid by its subsidiary bank. These dividends are subject to various legal and regulatory restrictions as summarized in Note(13) under Dividend Restrictions on page 26 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated herein by reference. The Bank is subject to the provisions of the National Bank Act. The Bank is subject to primary supervision, regulation and examination by the Office of the Comptroller of the Currency (OCC). The Bank is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). The Bank is also subject to the state banking laws of Ohio. Ohio adopted nationwide reciprocal interstate banking. However, banking laws of other states may restrict branching within the state and acquisitions or mergers involving banks and bank holding companies located in other states. Federal regulators adopted risk-based capital guidelines and leverage standards for banks and bank holding companies. A discussion of the impact of risk-based capital guidelines and leverage standards is presented in Note 14 on page 27 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated herein by reference. The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company's controlled insured depository institutions are liable for any loss incurred by the Federal Deposit 10 Insurance Corporation in connection with the default of any FDIC- assisted transaction involving an affiliated insured bank or savings association. During 2000, the Securities and Exchange Commission issued Regulation FD which established affirmative disclosure requirements on public corporations such that material nonpublic information must be widely, rather than selectively, disseminated. Regulation FD is based on the premise that full and fair disclosure is the cornerstone of an efficient market system. LNB Bancorp, Inc. is subject to Regulation FD. Through Regulation FD, the Securities and Exchange Commission seeks to encourage broad public disclosure in order to increase investor confidence in the integrity of the capital markets. Noncompliance with laws and regulations by financial holding companies and banks can lead to monetary penalties and/or an increased level of supervision or a combination of these two items. Management is not aware of any current instances of noncompliance with laws and regulations and does not anticipate any problems maintaining compliance on a prospective basis. Recent regulatory inspections and examinations of the Corporation and the Bank have not disclosed any significant instances of noncompliance. The minor instances of noncompliance detected during these inspections and examinations were promptly corrected by Management and no action was taken by the regulators against the Corporation or the Bank. The earnings and growth of LNB Bancorp, Inc. are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government and its agencies, particularly the Federal Reserve Board. Its policies influence the amount of bank loans and deposits and the interest rates charged and paid thereon, and thus have an effect on earnings. The nature of future monetary policies and the effect of such policies on the future business and earnings of the Corporation and its subsidiary bank cannot be predicted. The discussion of "Impacts of Accounting and Regulatory Pronouncements" is incorporated herein by reference to pages 47 and 48 of the LNB Bancorp, Inc. 2002 Annual Report. Employees As of December 31, 2002, the Corporation employed 243 full-time employees and 65 part-time employees. The Corporation is not a party to any collective bargaining agreement. Management considers its relationship with its employees to be very good. Employee benefits programs are considered by Management to be competitive with benefits programs provided by other financial institutions and major employers within the Corporation's market area. 11 d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Corporation has no offices located in foreign countries and they have no foreign assets, liabilities or related income and expense for the years presented. e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES The following section contains certain financial disclosures related to the Corporation as required under the Securities and Exchange Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding Companies," or a specific reference as to the location of the required disclosures in the LNB Bancorp, Inc. 2002 Annual Report, portions of which are incorporated in this Form 10-K by reference. 12 LNB BANCORP, INC.'S STATISTICAL DISCLOSURE I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL A. and B. The average balance sheet information and the related analysis of net interest income for the years ending December 31, 2002, 2001, and 2000 are included in the Condensed Consolidated Average Balance Sheets, within Management's Discussion and Analysis found on page 39 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated into this Item I by reference. All interest is reported on a fully taxable equivalent basis. Nonaccruing loans, for the purpose of the computations, are included in the daily average loan amounts outstanding. Loan fees are included in interest on loans. C. Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 2002 and 2001 are included in Rate/Volume Analysis of Net Interest Income within Management's Discussion and Analysis found on page 39 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated into this Item I by reference. II. INVESTMENT PORTFOLIO A. The carrying values of securities at year end are as follows: December 31, ----------------------------------- (Amounts in Thousands) 2002 2001 2000 ------------------------------------------------------------------------ Securities available for sale: U.S. Treasury securities $ -0- $ 1,085 $ 2,090 Securities of other U.S. Government agencies and corporations 122,232 105,085 76,133 State and political subdivisions 10,883 7,260 -0- Equity securities 4,794 4,198 1,295 ------------------------------------------------------------------------ Total securities available for sale 137,909 117,628 79,518 ------------------------------------------------------------------------ 13 Securities held to maturity: Securities of other U.S. Government agencies and corporations 7,335 13,386 39,566 States and political subdivisions 3,313 3,805 4,865 ------------------------------------------------------------------------ Total securities held to maturity 10,648 17,191 44,431 ------------------------------------------------------------------------ Federal Home Loan Bank and Federal Reserve Bank Stock 3,738 3,582 3,152 ------------------------------------------------------------------------ Total securities $148,557 $138,401 $127,101 ------------------------------------------------------------------------ B. MATURITY DISTRIBUTION OF SECURITIES Information relating to the maturity distribution of securities for the year ended December 31, 2002 is included in the "Financial Condition" section of Management's Discussion and Analysis found on page 42 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated herein by reference. WEIGHTED-AVERAGE YIELD OF INVESTMENT SECURITIES Information relating to the weighted average yield of each range of maturities of securities for the year ended December 31, 2002 is included in the "Financial Condition" section of Management's Discussion and Analysis found on page 42 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated herein by reference. C. Excluding those holdings of the securities portfolio in Collaterlized Mortgage Obligations and U.S. Government Agencies and Corporations, there were no investments in securities of any one issuer which exceeded 10% of the consolidated shareholders' equity of the Corporation at December 31, 2002. III. LOAN PORTFOLIO A. Information relating to the distribution of the loan portfolio for the years ended December 31, 2002, 2001, 2000, 1999, and 1998 appears on page 43 of the LNB Bancorp, Inc. 2002 Annual Report under the caption "Loan Portfolio Distribution" and is incorporated herein by reference. 14 B. COMMERCIAL LOAN MATURITY AND REPRICING ANALYSIS AS OF DECEMBER 31, 2002 (Amounts in Thousands) 2002 --------------------------------------------------------- Maturing and repricing in one year or less $255,804 Maturing and repricing after one year but within five years 4,189 Maturing and repricing beyond five years -0- --------------------------------------------------------- TOTAL COMMERCIAL LOANS $259,993 ========================================================= Loans repricing beyond one year: Fixed rate $ 667 Variable rate 3,522 --------------------------------------------------------- TOTAL $ 4,189 ========================================================= C. RISK ELEMENTS Information relating to nonperforming assets for the years ended December 31, 2002, 2001, 2000, 1999, and 1998 appears on page 41 of the LNB Bancorp, Inc. 2002 Annual Report under the caption "Nonperforming Assets" and is incorporated herein by reference. The Corporation, through its subsidiary bank, grants commercial, residential, and consumer loans to customers located primarily in the northern Ohio counties of Lorain, Cuyahoga, Erie and Huron. Total nonperforming assets consist of nonperforming loans, loans which have been restructured, and other foreclosed assets. Nonperforming loans are loans which are 90 days past due and with respect to which, in Management's opinion, collection of interest is doubtful. These loans no longer accrue interest and are accounted for on a cash basis. Loans are classified as restructured when, due to the deterioration of a customer's financial ability, the original terms have been favorably modified or either principal or interest has been forgiven. The level of total nonperforming assets increased during 1998 due to one significant commercial loan credit relationship of $1,300,000, placed in other foreclosed assets at December 31, 1998, and subsequently liquidated for $1,300,000 in January of 1999. The level of nonperforming assets increased $978,000 during 2000. This increase is the result of a net increase in nonaccrual loans of $976,000 plus increases in other foreclosed assets in the amount of $2,000. During 2001, nonperforming loans decreased due to charge-offs and decreases in commercial, mortgage and indirect automobile credits placed on 15 nonperforming status. The level of total nonperforming assets increased by $446,000 during 2002. This increase is the result of an increase in total nonperforming loans of $547,000 offset by a decrease in other foreclosed assets in the amount of $101,000. The decrease in other foreclosed assets relates to the net of - decreases in the amount of $11,000 of repossessions of motor vehicles during 2002, plus a decrease of $90,000 in other real estate owned. The increase in nonperforming loans is due to decreases in nonaccrual principal balances of $1,647,000 which have been paid off and brought current, loans charged-off in the amount of $778,000, liquidation of nonaccrual loans of $315,000 and increases in nonaccrual principal balances of $3,287,000. The increase in nonaccrual loans in 2002 was due primarily to increases in mortgage and commercial loan customers. The reserve for loan loss coverage to total nonperforming assets decreased from 3.5 times at 1999 year end to 2.3 times at 2000 year end while increasing to 4.1 times at 2001 year end, and decreased to 3.5 times at year- end 2002. This ratio decreased in 2002 from increases in nonperforming assets in the amount of $446,000 and increases in the loan loss reserve of $763,000. It is the Bank's policy to cease accruing interest on commercial and mortgage loans where the principal and/or interest remains unpaid for 90 days or more and 120 days for consumer loans, unless a shorter period is specified by regulatory guidelines. In addition to the total nonperforming assets classified above, the loan review committee identifies accruing loans past due 90 days plus potential problem loans. These loans are closely monitored by the loan review committee to assess the borrowers' ability to comply with the terms of the loans. Management's year-end review of these loans indicated that a charge to the reserve for loan losses or classification to nonperforming status was not warranted. Loans which are 90 days or more past due but continue to accrue interest are loans which, in Management's opinion, are well secured and are in the process of collection. (2) Potential Problem Loans A summary of potential problem loans at December 31, follows: (Amounts in Thousands) 2002 2001 2000 1999 1998 ----------------------------------------------------------------- Potential Problem Loans $15,549 $8,579 $3,924 $4,348 $2,941 ================================================================= Potential problem loans are loans identified on Management's classified credits list which include both loans which Management has some concern as to the borrowers' ability to comply with the present repayment terms and 16 loans which Management is actively monitoring due to changes in the borrowers financial condition. These loans and their potential loss exposure have been considered in Management's analysis of the adequacy of the allowance for loan losses. The level of potential problem loans rose significantly during 2001 and 2002. The increase during 2001 was primarily due to two factors. First was a weakening of the local and national economies. Second was the Corporation's formation of an independent loan administration function including the recruitment of a loan review officer and the adoption of a formal loan grading system. The increase during 2002 was primarily due to further weakening of the local and national economies. Most of the increases potential problem loans were in the category of "Special Mention". These are credits that are identified, at an early stage, as being potential problem loans. The early identification process allows the loan officers and loan administration function to monitor these credits and to take proactive steps with the related borrowers' of these credits. This, in turn, reduces the potential for the migration of such credits into a nonperforming loan status. At December 31, 2002, potential problem loans totaled $15,549,000, an increase of $6,970,000 from one year ago. Potential problem loans at December 31, 2002 are primarily comprised of commercial credits that the Bank is monitoring and reviewing. About $8,652,000 in potential problem loans relates to credit extended to six manufacturing and transportation related companies Another $5,371,000 of these loans relates to the extension of credits to four entities in the recreational business. The potential problem loans in 2000, 1999 and 1998 remained at a relatively low level. (3) Foreign Outstandings - There were no foreign loans outstandings at December 31, 2002, 2001, 2000, 1999 or 1998. (4) Loan Concentrations - Bank management reviews concentrations of credit and other portfolio risk elements on a quarterly basis. Management is not aware of any significant loans, group of loans or segments of the loan portfolio, other than those reported in the schedule of nonperforming loans, where there are serious doubts as to the ability of the borrower to comply with the present loan repayment terms. No loans are outstanding which would, if consolidated, be considered as a concentration of lending in any particular industry or group of industries nor are there significant amounts of loans made to agricultural or energy related businesses. Credit risk is managed through the bank's loan loss review policy which provides the Loan Review Officer, lending officers and the loan review committee with the responsibility to manage loan quality. The Corporation's credit policies are reviewed and modified on an ongoing basis in order to remain suitable for the management of credit risks within the loan portfolio as conditions change. At December 31, 2002, 2001, 2000, 1999 and 1998, there were no significant concentrations of credit risk in the loan 17 portfolio. The Corporation's credit policies and review procedures are intended to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, Management must rely upon estimates, appraisals and evaluations of loans and the possibility that changes in such estimates, appraisals and evaluations could occur quickly because of changing economic conditions and the economic prospects of borrowers. Also see Note (20), "Commitments, Credit Risk and Contingencies:," of the "Notes to Consolidated Financial Statements" which appears on page 31 of the LNB Bancorp, Inc. 2002 Annual Report and is incorporated herein by reference. (5) No material amount of loans that have been classified by regulatory examiners as loss, substandard, doubtful, or special mention have been excluded from the amounts disclosed as nonaccrual, past due 90 days or more, restructured, or potential problem loans. Corporate management is not aware of any current recommendations by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation or its subsidiary bank. D. Other interest-bearing assets - As of December 31, 2002, there are no other interest-bearing assets that would be required to be disclosed under Item III C.1 or 2 if such assets were loans. The Corporation had $22,000, $123,000, $98,000, $96,000 and $1,400,000 in Other Foreclosed Assets at December 31, 2002, 2001, 2000, 1999 and 1998, respectively. The balance at the end of 1998 resulted almost solely from a single commercial loan credit relationship. IV. SUMMARY OF LOAN LOSSES Information relating to the reserve for loan losses for the years ended December 31, 2002, 2001, 2000, 1999, and 1998 appears on page 41 of the LNB Bancorp, Inc. 2002 Annual Report under the caption "Reserve for Loan Losses" and is incorporated herein by reference. 18 Analytical data relating to the Reserve for Loan Losses at December 31, follows: (Amounts in Thousands) 2002 2001 2000 1999 1998 -------------------------------------------------------------------- ANALYTICAL DATA BALANCES: Average total loans $496,446 $460,757 $437,593 $403,388 $346,161 Total loans at year end 509,550 477,488 451,140 419,516 369,866 Net charge-offs 1,437 1,560 1,117 816 3,410 Provision for loan losses 2,200 2,200 1,700 2,000 2,725 Reserve for loan losses at year end 6,653 5,890 5,250 4,667 3,483 RATIOS: Net charge-offs to: Average total loans 0.29% 0.34% 0.26% 0.20% 0.99% Total loans at year end 0.28 0.33 0.25 0.19 0.92 Provision for loan losses 65.32 70.91 65.71 40.80 125.14 Reserve for loan losses 21.60 26.49 21.28 17.48 97.90 Reserve for loan losses to: Average total loans 1.34 1.28 1.20 1.16 1.01 Total loans at year End 1.31 1.23 1.16 1.11 .94 The amount of 2002 net charge-offs resulted primarily from net charge-offs of consumer indirect automobile credits and commercial credits. The 2002 provision of $2,200,000 remained at the same level as 2001. The level of provision booked in 2002 was required due to charge-offs of indirect automobile and commercial loans and increases in nonperforming assets. Net charge-offs for 2001 and 2000 showed higher charge-offs of consumer loans due to consumer indirect automobile loans booked in late 1999 and early 2000. Charge-offs of consumer loans began trending down in 2002 due to runoff of indirect automobile loans and increased home equity loans in the consumer loan portfolio. The Bank's policy is to maintain the reserve for loan losses at a level considered by Management to be adequate for probable future losses. The evaluation performed by the Loan Review Committee is based upon a continuous review of delinquency trends; the amount of nonperforming loans (nonaccrual and restructured); loans past due 90 days or more and potential problem loans; historical and present trends in loans charged-off; changes in the composition and level of various loan categories; and current economic conditions. 19 Net charge-offs (recoveries) by portfolio type which are summarized from the analysis of the Reserve for Loan Losses on page 41 of the LNB Bancorp, Inc. 2002 Annual Report are presented in the following table: (Amounts in Thousands) 2002 2001 2000 1999 1998 ------------------------------------------------------------------ Commercial $ 575 $ 426 $ 11 $ -0- $3,031 Real estate 14 12 50 251 76 Consumer 848 1,122 1,056 565 303 ------------------------------------------------------------------ Total net charge-offs $1,437 $1,560 $1,117 $ 816 $3,410 ================================================================== Both the provision and the reserve are based on an analysis of individual credits, prior and current loss experience, changes in portfolio mix, current economic conditions, and other factors. Consumer and credit card loans are charged-off within industry norms, while commercial and mortgage loans are evaluated individually. An allocation of the ending reserve for loan losses by major type follows: (Amounts in Thousands) 2002 2001 2000 1999 1998 ---------------------------------------------------------------- Commercial $4,145 $3,750 $2,729 $1,803 $1,398 Real estate 412 363 338 530 500 Consumer 1,475 1,351 1,738 1,236 704 Off-balance sheet risk 113 113 150 150 125 Unallocated 508 313 295 948 756 ------------------------------------------------------------------ TOTAL $6,653 $5,890 $5,250 $4,667 $3,483 ================================================================== This allocation is made for analytical purposes. The total allowance is available to absorb losses from any segment of the portfolio. The 2002 provision for loan losses was greater than net charge-offs by $763,000. The 2001 provision for loan losses was greater than net charge-offs by $640,000. The 2000 provision for loan losses was greater than net charge-offs by $583,000. The allocated portion of the reserve for loan losses has changed during 1998 through 2002 due to the loan portfolio mix, increased loan income, and changes in the mix of nonperforming assets. The allocated portion of the reserve to consumer loans decreased in 2002 due to a run off of indirect automobile loans and their related credit risk. The portion allocated to commercial loans increased in 2002 and 2001 due to increases in the amounts of nonperforming assets caused by a weakening of the local and national economies. 20 The following table shows the percentage of loans in each category to total loans at year end: 2002 2001 2000 1999 1998 ------------------------------------------------------------- Commercial 51.0% 46.0% 41.4% 37.7% 33.8% Real estate 27.8 33.1 34.9 36.4 39.9 Consumer 21.2 20.9 23.7 25.9 26.3 ------------------------------------------ 100.0% 100.0% 100.0% 100.0% 100.0% ------------------------------------------ The loan portfolio mix has shifted during the past five years. Commercial loans as a percent of total loans grew from 1998 through 2002 with a related decrease in mortgage loans. During 1999, the commercial loans as a percentage of total loans increased by 3.9% with a corresponding decrease in consumer loans by 0.4% and real estate loans decreased by 3.5%. During 2000, the commercial loans as a percentage of total loans increased by 3.7%, real estate loans decreased 1.5% and consumer loans decreased by 2.2%. During 2001, the commercial loans as a percentage of total loans increased by 4.6%, real estate loans decreased 1.8% and consumer loans decreased by 2.8%. During 2002, the consumer loan portfolio is running off slightly due to the lack of indirect automobile loan opportunities caused by zero rate dealer financing and loan payouts. The decrease of indirect automobile loan volume was offset, in part, by increased home equity line volume. Commercial loans experienced strong growth during 2002. This is the result of increased demand and not reduced credit standards. Commercial loans pending approval are at a relatively high level at year end 2002. V. DEPOSITS AVERAGE DEPOSITS BY CLASSIFICATION The following table sets forth the classification of average deposits for the indicated period. December 31, ------------------------------------- (Amounts in Thousands) 2002 2001 2000 ---------------------------------------------------------------- Demand deposits $ 82,665 $ 81,097 $ 81,221 NOW accounts 58,068 57,736 54,332 High Performance - Interest 6,708 -0- -0- Money market accounts 16,706 14,949 13,385 Market access accounts 93,619 68,449 33,464 Savings deposits 95,893 93,272 101,276 Time deposits 194,461 195,656 205,877 ---------------------------------------------------------------- Total $548,120 $511,159 $489,555 ================================================================ 21 AVERAGE RATES PAID ON DEPOSITS The following table sets forth average rates paid on categories of interest-bearing deposits for the periods indicated: Years ended December 31, ---------------------------------------- 2002 2001 2000 --------------------------------------------------------------------- NOW accounts .77% 1.08% 1.19% High Performance - Interest .55 N/A N/A Money market accounts 2.86 3.06 2.06 Market access accounts 1.86 3.62 5.44 Savings deposits .83 1.35 1.97 Time deposits 3.29 5.01 5.47 ============================================== MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE The following table sets forth the maturity of time deposits of $100,000 or more, in thousands of dollars, at December 31, 2002. Maturing within 3 months $ 60,748 After 3 but within 6 months 33,021 After 6 but within 12 months 36,702 After 12 months 74,161 ---------------------------------------------- Total $204,632 ============================================== VI. RETURN ON EQUITY AND ASSETS Information relating to key financial ratios for the years ended December 31, 2002, 2001, 2000, 1999, and 1998 appears on page 36 of the LNB Bancorp, Inc. 2002 Annual report under the caption "Financial Ratios" and is incorporated herein by reference. VII. SHORT-TERM BORROWINGS Information relating to short-term borrowings for the years ended December 31, 2002, 2001 and 2000 appears on page 24 of the LNB Bancorp, Inc. 2002 Annual Report under footnote (10) "Securities Sold Under Repurchase Agreements and Other Short-Term Borrowings" and footnote (11) Federal Home Loan Bank Advances, short-term and is incorporated herein by reference. ITEM 2 - PROPERTIES LNB BANCORP, INC. The principal executive offices are located at its Main Office, 457 22 Broadway, Lorain, Ohio. The Corporation owns the land and buildings occupied by the Main Office, twelve of its banking centers, the Professional Development Center Building, the Maintenance Building, the Purchasing Building and the Technology Center. The remaining nine banking centers are subject to lease obligations with various lessors and varying lease terms. There is no outstanding mortgage debt on any of the properties which the Corporation owns. Listed below are the banking centers/customer service facilities of the Corporation and their locations: Main Office 457 Broadway, Lorain Vermilion 4455 Liberty Avenue, Vermilion Amherst 1175 Cleveland Avenue, Amherst Lake Avenue 42935 North Ridge Road, Elyria Township Avon Lake 240 Miller 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 Westlake 30210 Detroit Road, Westlake Kendal at Oberlin 600 Kendal Drive, Oberlin The Renaissance 26376 John Road, Olmsted Township Westlake Village 28550 Westlake Village Drive, Westlake Cooper Foster Park Road ATM Facility 1920 Cooper Foster Park Road, Lorain Midway Mall 6395 Midway Mall, Elyria Village of LaGrange 546 North Center Street, LaGrange 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 The Corporation also owns automated teller machines and on-line teller terminals, as well as computers and related equipment for use in its business. The Corporate office facility at 457 Broadway is currently utilized at a level of 75%. The remaining space will be utilized as the Corporation continues to grow. The Corporation considers its Corporate offices, banking centers and computer operations center to be in good to excellent condition, well maintained and are more than adequate to conduct the business of Banking. 23 ITEM 3 - LEGAL PROCEEDINGS There are no material legal proceedings, other than ordinary routine litigation incidental to its business, to which the Corporation or its subsidiaries is a party to or which any of its property is subject. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the year ended December 31, 2002 there were no matters submitted to a vote of security holders. Pursuant to Form 10-M, General Instruction G(3), the following information is included as additional item in Part I: EXECUTIVE OFFICERS OF THE REGISTRANT CURRENT POSITION AND EXECUTIVE PRINCIPAL OCCUPATION OFFICER NAME(AGE) DURING PAST 5 YEARS SINCE Debra R. Brown Senior Vice President,(1999 to present) 1999 (44) Banking Center Administration LNB Bancorp, Inc. and The Lorain National Bank Vice President (1997 - 1999) Lorain National Bank Robert Cox Senior Vice President Sales (2001 to 2001 (47) LNB Bancorp, Inc. and present) The Lorain National Bank Vice President (1999 - 2000) Sales Coordinator (1998 - 1999) Vice President and (1997- 1998) Area Sales Manager KeyBank Sandra L. Dubell Senior Vice President and 1997 (57) Senior Lending Officer, LNB Bancorp, Inc. and The Lorain National Bank Mitchell J. Fallis Vice President and 1996 (48) Chief Accounting Officer, LNB Bancorp, Inc. and The Lorain National Bank 24 Gregory D. Friedman Executive Vice President, 1990 (52) Chief Financial Officer and Corporate Secretary, LNB Bancorp, Inc. and The Lorain National Bank Michael D. Ireland Senior Vice President and 1987 (56) Senior Operations Officer, LNB Bancorp, Inc. and The Lorain National Bank James W. Manning Director of Audit (2001 to present) 2001 (55) LNB Bancorp, Inc. and The Lorain National Bank Vice President and (2000 - 2001) Senior Risk Manager KeyCorp, Inc. Vice President and (1998 - 2000) Senior Internal Auditor Carolina First Bank Vice President (1997 - 1998) Regional Audit Director PNC Bank Corporation Carol A. Mesko Vice President (1999 to present) 2001 (57) Human Resources The Lorain National Bank Assistant Vice President (1997 - 1999) Human Resources The Lorain National Bank Kevin W. Nelson Executive Vice President and 2000 (39) Chief Operating Officer (2000 to present) LNB Bancorp, Inc. and The Lorain National Bank Division President (1998 - 2000) Bankfirst National and Bankfirst Ohio Corp. President and Chief Executive Officer (1998) Bellbrook Community Bank and Bankfirst Ohio Corp. Senior Vice President and Senior Lending Officer (1997 - 1998) Bellbrook Community Bank and Bankfirst Ohio Corp. 25 David Nocjar Senior Trust and Investment Officer (54) (2002 to present) The Lorain National Bank Vice President and Trust Officer (2000 to 2002) The Lorain National Bank Vice President and Senior Trust Officer (1996 to 2000) Citizens National Bank of Norwalk Gary C. Smith President and 1999 (55) Chief Executive Officer (2000 to present) LNB Bancorp, Inc. and The Lorain National Bank Chairman of the Board Charleston Insurance Agency, Inc. First Executive Vice President (1999 - 2000) LNB Bancorp, Inc. and The Lorain National Bank Division President (1997 - 1999) First National Bank of Zanesville James H. Weber Senior Vice President and 1987 (56) Senior Marketing Officer LNB Bancorp, Inc. and The Lorain National Bank PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Common Stock Trading Ranges, Cash Dividends Declared information and information relating to dividend restrictions appear on the inside front flap of the LNB Bancorp, Inc. 2002 Annual Report and are incorporated herein by reference. HOLDERS The total number of shareholders was 2,213 as of February 28, 2003. Upon the consummation of the Plan of Reorganization on March 30, 1984, the Corporation became a one bank holding company and shareholders of the Bank became shareholders of the Corporation, receiving one share of voting Common Stock for each outstanding share of Common Stock of the Bank. ITEM 6 - SELECTED FINANCIAL DATA A Five Year Consolidated Financial Summary of selected financial data on 26 page 36 of the LNB Bancorp, Inc. 2002 Annual Report is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis" is incorporated herein by reference to pages 37 - 48 of the LNB Bancorp, Inc. 2002 Annual Report. Also, see Item 8 - Financial Statements and Supplementary Data. (a) Quantitative and Qualitative Disclosures about Market Risk are incorporated herein by reference to pages 45 - 46 of the LNB Bancorp, Inc. 2002 Annual Report to Shareholders. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Corporation's Independent Auditors' Report and Consolidated Financial Statements are listed below and are incorporated herein by reference to the LNB Bancorp, Inc. 2002 Annual Report (Appendix 13), pages 14 through 34. The supplementary financial information specified by Item 302 of Regulation S-K, selected unaudited quarterly financial data, is included on page 35 of the LNB Bancorp, Inc. 2002 Annual Report. Consolidated Balance Sheets as of December 31, 2002 and 2001 Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements December 31, 2002, 2001 and 2000 Report of Management Report of Independent Auditors ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 27 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning executive officers of the Corporation is set forth in Part I in accordance with General Instruction G(3), pursuant to Instruction 3 to Item 401(b) of Regulation S-K. Other information relating to Item 10 follows. ELECTION OF DIRECTORS The Code of Regulations of the Corporation provides that the Board of Directors of the Corporation shall be divided into three classes as nearly equal in number as possible, with the term of office of one class expiring each year. Each class shall hold office for a term of three years. At the Annual Meeting, four directors will be elected to a three-year term expiring in 2006. The nominees for election at the Annual Meeting are Robert M. Campana, Lee C. Howley, James F. Kidd and Jeffrey F. Riddell each of whom is currently a director of the Corporation. Thomas P. Ryan, a "Class II" director, communicated to the Board of Directors that he was retiring from the Board of Directors and that he would not stand for re-election when his term expires on April 15, 2003. Leo Weingarten, a "Class III" director, also communicated to the Board of Directors that he would retire from the Board of Directors effective April 15, 2003. Currently, the Board of Directors has no plans to replace either of these two directors. NOMINEES CLASS "II" DIRECTORS. The following table sets forth certain information with respect to the nominees as Class "II" Directors of the Corporation who will be voted upon at the Annual Meeting. There were no arrangements or understandings pursuant to which the persons listed below were selected as directors or nominees for director. POSITIONS AND OFFICES PRINCIPAL OCCUPATION HELD WITH DIRECTOR NAME AGE FOR PAST FIVE YEARS LNB BANCORP SINCE ---- --- -------------------- --------------------- -------- CLASS "II" ---------- Robert M. Campana 43 MANAGING DIRECTOR Director 1997 P.C. Campana, Inc. Lee C. Howley 55 PRESIDENT Director 2001 Howley Bread Group Ltd. 28 James F. Kidd 63 VICE CHAIRMAN OF THE BOARD Vice Chairman, 1989 LNB Bancorp, Inc. and Director Lorain National Bank Jeffrey F. Riddell 51 PRESIDENT AND Director 1995 CHIEF EXECUTIVE OFFICER Consumeracq, Inc. and Consumers Builders Supply Company CONTINUING DIRECTORS CLASS "I" AND "III" DIRECTORS. The following table sets forth certain information with respect to Class "I" and Class "III" Directors of LNB Bancorp, whose terms expire in 2005 and 2004, respectively. POSITIONS AND OFFICES PRINCIPAL OCCUPATION HELD WITH DIRECTOR NAME AGE FOR PAST FIVE YEARS LNB BANCORP SINCE ---- --- -------------------- --------------------- -------- CLASS "I" --------- Terry D. Goode 48 VICE PRESIDENT Director 1997 LandAmerica Financial Group, Inc. and Lorain County Title Company Wellsley O. Gray 69 RETIRED Director 1983 James R. Herrick 51 PRESIDENT Director 1999 Liberty Auto Group, Inc. Benjamin G. Norton 63 HUMAN RESOURCE Director 1983 CONSULTANT LTI Power Systems John W. Schaeffer, 57 PRESIDENT Director 1999 M.D. North Ohio Heart Center, Inc. Gary C. Smith 55 PRESIDENT AND President and 1999 CHIEF EXECUTIVE OFFICER Chief Executive (2000 to Present) Officer, LNB Bancorp, Inc. and Director Subsidiaries FIRST EXECUTIVE VICE PRESIDENT (1999 - 2000) LNB Bancorp, Inc. and Lorain National Bank DIVISION PRESIDENT First National Bank of Zanesville 29 CLASS "III" ----------- Daniel P. Batista 68 CHAIRMAN OF THE BOARD Director 1983 Wickens, Herzer, Panza, Cook & Batista, L.P.A. David M. Koethe 67 RETIRED Director 1983 Stanley G. Pijor 72 CHAIRMAN OF THE BOARD Chairman, 1983 LNB Bancorp, Inc. and Director The Lorain National Bank Eugene M. Sofranko 72 CHAIRMAN OF THE BOARD Director 1983 Lorain Glass Company, Inc. There were no agreements or understandings pursuant to which any of the persons listed under the captions of "Nominees" or " Continuing Directors" was selected as a director. The Board of Directors of LNB Bancorp met 16 times in 2002. In 2002 each director attended at least 75% of the combined total of meetings of the Board of Directors and meetings of each committee on which such director served, with the exception of John W. Schaeffer, M.D. and Leo Weingarten. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16 of the Securities Exchange Act of 1934 requires LNB Bancorp's executive officers, directors and more than ten percent shareholders ("Insiders") to file with the Securities and Exchange Commission and LNB Bancorp reports of their ownership of LNB Bancorp securities. Based upon written representations and copies of reports furnished to LNB Bancorp by Insiders, all Section 16 reporting requirements applicable to Insiders during 2002 were satisfied on a timely basis except as follows: Dr. John W. Schaeffer, Director, and Leo Weingarten, Director, had one Form 4 each, relating to a single transaction, that was not filed on a timely basis. ITEM 11 - EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION AND OTHER INFORMATION GENERAL. The following information relates to compensation of management for the years ended December 31, 2002, 2001 and 2000, unless otherwise noted below. EXECUTIVE COMPENSATION. The following table sets forth the annual and long-term compensation for LNB Bancorp, Inc.'s Chief Executive Officer and the four highest paid executive officers, as well as the total compensation paid to each individual during LNB Bancorp, Inc.'s last three fiscal years. 30 SUMMARY COMPENSATION TABLE LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------ ------------ (3) SECURITIES ALL OTHER (1) (2) UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($) --------------------------- ---- --------- -------- ----------- --------- Gary C. Smith 2002 $225,232 $16,960 -0- $119,754 President and 2001 214,694 -0- 10,000 $108,309 Chief Executive Officer 2000 212,287 30,000 5,000 15,640 Gregory D. Friedman, C.P.A. 2002 $135,824 $10,532 -0- $ 31,829 Executive Vice President, 2001 136,655 -0- -0- $ 24,045 Chief Financial Officer and 2000 125,328 19,000 -0- 35,012 Corporate Secretary Kevin W. Nelson 2002 $133,024 $10,240 -0- $ 9,033 Executive Vice President and 2001 $127,945 -0- -0- $ 3,919 Chief Operating Officer 2000 125,328 19,000 -0- 35,012 Terry M. White 2002 $ 99,328 $10,400 -0- $ 22,533 Executive Vice President and 2001 n/a n/a n/a n/a Chief Investment Officer 2000 n/a n/a n/a n/a Sandra L. Dubell 2002 $103,460 $ 8,124 -0- $ 7,840 Senior Vice President 2001 99,710 -0- -0- 4,042 2000 94,423 13,880 -0- 10,388 ----------------------------- (1)Mr. Smith's salary figure for the 2002 year increases $8,100 in fees paid for attending LNB Bancorp, Inc. Board and Committee meetings. (2)Annual incentive compensation bonus accrued for 2002 and subsequently paid in 2003. (3)The amounts shown in this column for the 2002 year were derived from the following figures: (a) contributions by LNB Bancorp to The Lorain National Bank 401(k) Plan: Mr. Smith, $6,009; Mr. Friedman, $4,261; Mr. Nelson, $4,298; Mr. White $1,212 and Ms. DuBell, $3,286; (b) supplemental executive retirement plan accruals: Mr. Smith, $105,867 and Mr. Friedman, $22,342; (c) insurance premiums paid by LNB Bancorp on supplemental term life insurance policies: Mr. Smith, $1,145; Mr. Friedman, $654; Mr. Nelson, $257; Mr. White, $284 and Ms. DuBell, $1,071 and (d) contributions by LNB Bancorp, Inc. to the Lorain National Bank Employee Stock Ownership Plan accrued for 2002 and subsequently funded in 2003: Mr. Smith, $6,733; Mr. Friedman, $4,572; Mr. Nelson, $4,478 and Ms. Dubell, $3,483; and (e)moving and relocation expenses paid in 2002 for Mr. White, $21,037. 31 OPTION GRANTS TABLE. No stock options were granted to the five named executive officers in 2002. Correspondingly, there is no options table to present. OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table presents information about stock options exercised during 2002 and unexercised stock options at December 31, 2002 for the five named executive officers. OPTION EXERCISES AND YEAR-END VALUE TABLE AGGREGATED OPTION EXERCISES IN 2002 AND FISCAL YEAR END OPTION VALUES NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS DECEMBER 31, 2002(#) ---------------------- SHARES ACQUIRED VALUE NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE ---- --------------- -------- ------------------------- Gary C. Smith -0- $ -0- 26,014 / -0- Gregory D. Friedman -0- $ -0- 1,777 / -0- Kevin W. Nelson -0- $ -0- 7,959 / -0- Terry M. White -0- $ -0- -0- / -0- Sandra L. DuBell -0- $ -0- 1,031 / -0- VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT DECEMBER 31, 2002 ($) ----------------------- EXERCISABLE/UNEXERCISABLE ------------------------- $92,664 / -0- $15,424 / -0- $ -0- / -0- $ -0- / -0- $ 8,949 / -0- EMPLOYMENT AGREEMENTS WITH EXECUTIVES LNB Bancorp has entered into employment agreements with Messrs. Smith, Friedman, Nelson and White. These Agreements may be terminated by either the executive or LNB Bancorp on ninety (90) days written notice. The Agreements provide for base compensation, adjusted annually at the Compensation Committee's discretion, and incentive awards (as described in more detail in "Executive Compensation and Other Information" and the "Compensation Committee Report on Executive Compensation") to be paid to the executives for the performance of their duties. These Agreements also provide for continuing payments for one year of the executive's total compensation to 32 Messrs. Smith, Friedman, Nelson and White in the event of termination of the executive's employment without cause, or due to breach of the employment agreement by the Corporation. The Agreements also provide for lump sum payments of 200% of the executive's highest annual base salary (highest annual base salary paid to the executive during the last three fiscal years immediately prior to the event of termination), plus a pro rata portion of the executive's bonus and continuation for up to two years of certain health insurance and other benefits, in the event of termination of the executive's employment following a change in control of the Corporation (other than termination of employment for death, disability or cause). The aggregate compensation (excluding the value of benefits and any pro rata bonus) payable to each such executive officer under the Agreements in the event of a change in control, as defined in the Agreements, and the termination of that executive's employment would be approximately as follows: Mr. Smith, $434,000; Mr. Friedman, $272,000; Mr. Nelson, $266,000; and Mr. White, $260,000. In the event of an involuntary termination with no change in control, the aggregate compensation would be approximately as follows: Mr. Smith, $217,000; Mr. Friedman, $136,000; Mr. Nelson, $133,000; and Mr. White, $130,000. LNB Bancorp has also entered into a change in control agreement with Ms. Dubell. This Agreement may be terminated by LNB Bancorp on two years prior written notice, but continues for two years following a change in control of the Corporation. This Agreement provides for a lump sum payment of 200% of Ms. Dubell's highest annual base salary (highest annual base salary paid to her during the last three fiscal years immediately prior to the event of termination of her employment, or a substantial change in her duties or status, following a change in control of the Corporation other than termination of employment for death, disability or cause), plus a pro rata portion of her bonus for the year of termination and continuation for up to two years of certain health insurance and other benefits. The aggregate compensation, (excluding the value of any pro rata bonus) payable under this change in control agreement in the event of a change in control of the Corporation and termination of Ms. Dubell's employment is $208,000. GROUP TERM CARVE-OUT PLAN. On July 11, 2002, Lorain National Bank (the Bank) purchased insurance policies on the lives of thirty-nine officers, for which Lorain National Bank made a single premium payment of approximately $10.4 million in total to three separate insurance carriers. Currently, a corporation can provide its employees with a group term life insurance policy death benefit of up to $50,000 on a tax-free basis. The cost of providing a death benefit in excess of $50,000 is currently taxed to the employee as ordinary income. The Group Term Carve-Out Plan replaces the taxable portion of the group term life insurance plan with tax-free permanent life insurance. The officers covered by the group term carve-out split dollar insurance plan includes: Mr. Smith, Mr. Friedman, Mr. Nelson, Mr. White and Ms. Dubell. The Bank and the officers share rights to death benefits payable under the policies. An officer's beneficiaries are entitled to an aggregate amount equal to: 33 1) the lesser of (a) $1,000,000, less $50,000 from the bank's existing group term plan or (b) 2.75 times the officer's base annual salary at the time of death, less $50,000 from the bank's existing group term plan, if he or she is employed by the Bank at the time of death but had not reached normal retirement age or 2) the lesser of (a) $1,000,000, less $50,000 from the bank's existing group term plan or (b) one times the officer's base annual salary at the time of death, less $50,000, if he or she is employed by the Bank at the time of death but had reached normal retirement age, or 3) the lesser of (a) $1,000,000, or (b) one times the officer's base annual salary at the time of death, if he or she dies was no longer employed by the bank at the time of death, and if termination of employment occurred on or after early retirement age or within three years of a change in control but not because of termination for cause or disability, 4) If the participant terminated employment because of disability, the death benefit shall be: (1) Death benefit before age 65: the lesser of (a) $1,000,000, or (b) 2.75 times the officer's base salary at the time of death, if he or she dies before normal retirement age or (2) Death after age 65: the lesser of (a) $1,000,000 or (b) one times the officer's base annual salary at the time of death, if he or she dies after normal retirement age The Bank shall be the beneficiary of the remaining of death proceeds of each policy after the participant interest is determined benefits. The Bank expects to recover in full from the Bank's portion of the policy's death benefits, the premium paid by the Bank. The term "change in control" has the same meaning in the Group Term Carve-Out Plan as it has for purposes of the severance agreements, discussed below. Benefits payable to the officers' beneficiaries are payable in a lump sum at the officer's death. The officers also have life insurance benefits under the Bank's group term life insurance program for all employees, paying benefits up to $50,000 to the employee's beneficiaries if the employee dies while employed by the Bank. The death benefit payable to the executive will be paid directly by the insurance company to the named beneficiary. As such, the Bank has no benefit obligation to the participants in the Group Term Carve-Out Plan, and no accruals (i.e., no expense recognition) are required under generally accepted accounting principles. This Group Term Carve-Out Plan was a replacement for the executives' participation in the Bank's group term life insurance program (except for the non-taxable $50,000 group term life insurance benefit). The Group Term Carve-Out Plan provides comparable life 34 insurance coverage to what the executives had under the Bank's group term life insurance program for all employees, while reducing the annual expense of group term life insurance. DIRECTOR COMPENSATION Directors of LNB Bancorp are compensated for all services as a director in the following manner: each director receives an annual retainer fee of $5,000 regardless of board meeting attendance and $600 per each board and committee meeting attended. Directors, who are also officers of the Corporation, receive a fee of $300 for their attendance at the Corporation's board and committee meetings and receive no director's fees for their attendance at the Bank's board or Bank's committee meetings. PENSION PLAN Lorain National Bank, LNB Bancorp's subsidiary bank, sponsors The Lorain National Bank Retirement Pension Plan (the "Plan") covering substantially all employees of the Bank. An employee is eligible to participate on January 1 or July 1 after the attainment of age twenty-one (21) and completion of one (1) year of service, as defined in the Plan. For the Plan year ended December 31, 2002, the bank accrued a contribution to the Plan totaling $651,584. The 2002 contribution shall be made to the Plan not later than September 15, 2003. Annual benefit payments under the provisions of the Plan are computed by a formula, the factors of which include annual compensation, years of service and the Social Security taxable wage base. Participants are eligible for normal retirement upon reaching age sixty-five (65). Annual benefit payments are determined as a percentage for the five (5) consecutive Plan years that yield the highest average salary. Participants in the Plan prior to January 1, 1989 will have annual benefits reduced if they have less than fifteen (15) years of continuous employment upon retirement. Participants who join the Plan after January 1989 will have benefit payments reduced if they have less than twenty-five (25) years of continuous employment upon retirement. The normal form of benefit payment is a joint and survivor annuity. Benefits become fully vested after a participant has completed five (5) years of service. The Plan also provides for the payment of early retirement, death, disability, and deferred vested benefits in the form of a lump sum distribution, or a monthly annuity. The Plan was amended, effective January 1, 1995, to allow the payment of accrued benefits in the form of a lump sum distribution upon retirement at normal retirement age. The Plan was amended and restated for GUST effective January 1, 2001 and amended for EGTRRA effective January 1, 2002. Effective December 31, 2002, the benefits under the Plan were frozen and no additional benefits will be accrued under the Plan after December 31, 2002. The estimated present value of the accrued benefit using the Plan's actuarial equivalence assumptions for the Named Executive Officers ranged from $234,700 35 to $0 as of December 31, 2002. Assuming the participant selects the benefit payable in a ten (10) year certain and life annuity at normal retirement date, the following table reflects annual benefits payable to the employee based upon average annual compensation levels and twenty-five (25) years of service. Final Average Employees Annual Estimated Annual Compensation Pension Payments Assuming Minimum of 25 Years Of Service $250,000 $101,090 200,000 101,090 170,000 85,328 100,000 47,703 The annual compensation with respect to determining an employee's annual pension payment is currently limited by the Internal Revenue Code to $200,000. The Plan reflects the annual compensation limit, and this results in a maximum annual pension payment of $101,090. Therefore, an employee's annual estimated pension payment for final average compensation levels of $200,000 and above remains at the $101,090 level. Pension benefits accrued prior to 1995 are grandfathered, if their calculated benefit is greater than $101,090. These pension payments do not reflect any additional retirement benefits which the employee may receive in the form of Social Security and other forms of supplemental retirement benefits. Messrs. Smith, Friedman, Nelson, White and Ms. Dubell have three (3), seventeen (17), three (3), zero (0), and thirty-one (31) years of service respectively, under the provisions of the Plan. LNB Bancorp has entered into separate individual supplemental retirement agreements ("SERP") with Messrs. Smith and Friedman. The purpose of these agreements is to provide supplemental retirement benefits to Messrs. Smith and Friedman in addition to the benefits provided by the Plan and to assist LNB Bancorp in retaining their services through normal retirement. The SERPs provide for monthly payments in the event of: (a) normal retirement; (b) reduced supplemental retirement benefits in the event of early retirement; (c) disability prior to retirement; (d) death; or (e) discharge "without cause". Under the terms of their SERPs, Messrs. Smith and Friedman will receive supplemental retirement benefits for a period of ten (10) years. The full benefit amount is equal to seventy percent (70%) of the largest annual base salary and the largest annual bonus paid for the two (2) full calendar years of employment immediately preceding the date of the executive's employment termination, less pension benefits and Social Security benefits. Messrs. Smith and Friedman are entitled to the full benefit amount if they retire at their normal retirement age of sixty-five (65); seventy-five 36 percent (75%) of the full benefit amount if they retire at age sixty-four (64); fifty percent (50%) of the full benefit amount if they retire at age sixty-three (63); twenty-five percent (25%) of the full benefit amount if they retire at age sixty-two (62); and no benefit if they retire prior to age sixty-two (62). In the event of disability prior to retirement, the disabled individual would receive the actuarial equivalent of the full benefit amount with payments commencing in the month following termination of employment because of the disability and continuing for a ten (10)-year period. In the event of death prior to retirement, the actuarial equivalent of the full benefit amount would be payable to his designated beneficiary, with such payments commencing the month following death and continuing for a ten (10)- year period. In the event of discharge "without cause" prior to age sixty- five (65), the discharged individual would receive the actuarial equivalent of the full benefit amount commencing in the month after discharge and continuing for a ten (10)-year period. The SERPs are non-qualified defined benefit agreements. As of December 31, 2002, the monthly benefits that would be paid at normal retirement age would be as follows: Mr. Smith, $22,185; and Mr. Friedman, $12,954. Additionally, in the event the employment of Mr. Smith or Mr. Friedman is terminated following a change in control of LNB Bancorp and such termination is (i) by LNB Bancorp without cause, or (ii) by Mr. Smith or Mr. Friedman because there is a material and adverse change in their duties or status following a change in control of LNB Bancorp, each would receive his full SERP benefit as if he had retired at age sixty-five (65), with such payments commencing at age sixty-five (65). REPORT OF THE COMPENSATION / GOVERNANCE COMMITTEE ON EXECUTIVE COMPENSATION OVERVIEW AND PHILOSOPHY. The Board of Directors of LNB Bancorp has established a Compensation / Governance Committee. The Compensation / Governance Committee is responsible for developing and making recommendations to the Board with respect to LNB Bancorp's executive compensation policies. Pursuant to authority delegated by the Board, the Compensation / Governance Committee determines annually the compensation to be paid to the Chief Executive Officer and each other executive officer. The Compensation / Governance Committee also structures and monitors LNB Bancorp's supplemental retirement, employment or change in control contracts with its executive officers which include, among other things, provisions relating to each executive in the event of a change in control. Compensation decisions with respect to executive officers are based on the factors discussed in the following paragraphs of the "Report of the Compensation / Governance Committee on Executive Compensation", rather than any obligation set forth in such employment contracts. The Compensation / Governance Committee has available to it outside compensation consultants. The Compensation / Governance Committee gathers comparative compensation data from outside consultants and independent sources to develop a strategy in which compensation reflects performance. 37 The objectives of LNB Bancorp's executive compensation program are to: * Support the achievement of desired LNB Bancorp goals, * Provide compensation that will attract and retain superior talent and reward performance, and * Align the executive officers' interests with those of shareholders by placing a portion of pay at risk with payout dependent upon corporate performance, both on a short-term and long-term basis. The executive compensation program provides an overall level of compensation opportunity that is competitive within the financial institution industry. Actual compensation levels may be greater or less than average competitive levels in surveyed companies based upon annual and long-term LNB Bancorp performance, as well as individual performance. The Compensation / Governance Committee uses its discretion to set executive compensation where, in its judgment, external, internal or an individual's circumstances warrant. COMPENSATION MATTERS IN 2002. During 2002, the Compensation / Governance Committee increased the levels of base salary of the Chief Executive Officer and certain other executive officers. The increases in base salary were based upon a survey and review of compensation levels for management performing similar functions at other financial holding companies of similar size and scope and complexity of operations, and the objective of the Compensation / Governance Committee to place base salaries of executive officers at or near market median levels, given satisfactory job performance. EXECUTIVE OFFICER COMPENSATION PROGRAM. LNB Bancorp's executive officer compensation program is comprised of base salary, annual cash incentive compensation, longer-term incentive compensation in the form of stock options, and various benefits. BASE SALARY. Base salary levels for LNB Bancorp's executive officers are attempted to be set relative to companies in the financial institution industry of similar size and scope and complexity of operations, as described above. In determining salaries, the Compensation / Governance Committee also takes into account individual experience and performance, LNB Bancorp performance and specific issues particular to LNB Bancorp. ANNUAL INCENTIVE COMPENSATION. LNB Bancorp maintains a conditional annual cash incentive program for executive officers. The purpose of the plan is to provide direct financial incentives in the form of an annual cash bonus to executives to achieve LNB Bancorp, Inc.'s annual goals. Target goals are attempted to be set at competitive levels within the financial institution industry. Target goals for LNB Bancorp, Inc. are set at the beginning of each fiscal year. For the year 2002, the performance goals of LNB Bancorp, Inc. were as follows: 38 After achieving a 6% increase in earnings over the 2001 level, a bonus of 8% of base salary for Executive Officers will be deemed to have been earned, After achieving a 7% increase in earnings over the 2001 level, an Incremental bonus of 2% (10% total) of base salary for Executive Officers will be deemed to have been earned, and After achieving an 8% increase in earnings, over the 2001 level, an incremental bonus of 2% (12% total) of base salary for Executive Officers will be deemed to have been earned. After achieving a 10% increase in earnings, over the 2001 level, an incremental bonus of 3% (15% total) of base salary for Executive Officers will be deemed to have been earned. After achieving a 12% increase in earnings, over the 2001 level, an incremental bonus of 3% (18% total) of base salary for Executive Officers will be deemed to have been earned. The first two earnings performance goal levels were reached in 2002. This resulted in 10% bonuses being accrued for executive officers at year-end 2002. The achievement of goals representing corporate performance factors comprised all of the executive officers' potential incentive compensation for 2002. CHIEF EXECUTIVE OFFICER COMPENSATION. The annual base salary of Mr. Smith, LNB Bancorp's President and Chief Executive Officer, was increased by $12,200, effective January 6, 2003. The increase was based, in part, on Mr. Smith's pivotal role in the Corporation's 21st consecutive year of increased earnings. At year-end 2002 an annual incentive compensation bonus, in the amount of $16,960, was accrued and subsequently paid in 2003. The annual incentive compensation bonus amounted to 8% of Mr. Smith's 2002 base salary and was awarded in recognition of the Corporation's achievement of a 7% increase in net income during 2002. DEDUCTIBILITY UNDER INTERNAL REVENUE CODE SECTION 162(m). We believe it is in shareholders' best interest to retain as much flexibility as possible in the design and administration of executive compensation plans. LNB Bancorp and its subsidiaries recognize, however, that Section 162(m) of the Internal Revenue Code disallows a tax deduction for non-exempted compensation in excess of $1,000,000 paid for any fiscal year to a corporation's chief executive officer and four other most highly compensated executive officers. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met. The Executive Compensation Committee currently intends to structure performance-based compensation to executive officers who may be subject to Section 162(m) in a 39 manner that satisfies those requirements. The Board and the Executive Compensation Committee could award non-deductible compensation in other circumstances, as they deem appropriate. Moreover, because of ambiguities in the application and interpretation of Section 162(m) and the regulations issued, we can give you no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m) actually will be deductible. COMPENSATION / GOVERNANCE COMMITTEE Jeffrey F. Riddell, Chairman Lee C. Howley, Vice Chairman Terry D. Goode James F. Kidd David M. Koethe Eugene M. Sofranko COMPENSATION / GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS Regulations of the Securities and Exchange Commission require the disclosure of any related party transactions with members of the Compensation / Governance Committee. During the past year, certain directors and officers, including members of the Compensation / Governance Committee, and one or more of their associates may have been customers of and had business transactions with one or more of the bank subsidiaries of LNB Bancorp. All loans included in such transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons, and did not involve more than normal risk of collectability or present other unfavorable features. It is expected that similar transactions will occur in the future. In addition, Mr. Kidd is Vice Chairman of the Board of Directors of LNB Bancorp, Inc. and Lorain National Bank and also served as President and Chief Executive Officer until the end of 1999. LNB Bancorp Performance The following graph shows a five-year comparison of cumulative total returns for LNB Bancorp, the Standard & Poor's 500 Stock Index and the NASDAQ Bank Index. Comparison of Five Year Cumulative Total Return* (PERFORMANCE GRAPH FOLLOWS IN PRINTED VERSION WITH YEARS 1997 THROUGH 2002 ON THE X-AXIS AND CUMULATIVE INVESTMENT ON THE Y-AXIS IN $50 INCREMENTS RANGING FROM $0 TO $250. THE CO-ORDINATES, BY YEAR, WHICH ARE PRESENTED IN THE TABLE BELOW ARE PLOTTED ON THE PREVIOUSLY DESCRIBED GRID ALONG WITH AN ACCOMPANYING LEGEND FOR IDENTIFICATION PURPOSES.) 40 -------------------------------------------------------------------------- December 31, 1997 1998 1999 2000 2001 2002 -------------------------------------------------------------------------- LNB Bancorp, Inc. $100.00 $103.96 $ 89.63 $ 90.84 $ 94.96 $128.87 -------------------------------------------------------------------------- S&P 500 Index $100.00 $128.58 $155.64 $141.46 $124.65 $ 97.10 -------------------------------------------------------------------------- NASDAQ Bank Index $100.00 $ 99.36 $ 95.51 $108.95 $117.97 $120.61 -------------------------------------------------------------------------- *Assumes the value of the investment in LNB Bancorp common shares and each index was $100 on December 31, 1997 and that all dividends were reinvested. The graph shown above is based on the following data points: Cumulative Total Return Period Ended ---------------------------------------------------------- Index 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 ---------------------------------------------------------------------------- LNB Bancorp, Inc. $100.00 $103.96 $ 89.63 $ 90.84 $ 94.96 $128.87 S&P 500 Index 100.00 128.58 155.64 141.46 124.65 97.10 NASDAQ Bank Index 100.00 99.36 95.51 108.95 117.97 120.61 Copyright@ 2002 Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OWNERSHIP OF VOTING SHARES The following table sets forth the beneficial ownership of the Corporation's common shares by each of the Corporation's directors and the Corporation's named executive officers, and the directors and executive officers as a group, as of December 31, 2002. SHARES OF COMMON NAME OF BENEFICIAL OWNER STOCK OWNED (1) PERCENT OF CLASS ------------------------ ----------------- ---------------- Daniel P. Batista 35,093 * Robert M. Campana 12,327(2) * Terry D. Goode 37,965(3) * Wellsley O. Gray 10,849(4) * James R. Herrick 20,208 * Lee C. Howley 3,100(5) * James F. Kidd 55,221(6) 1.26% David M. Koethe 45,580(7) 1.04% Benjamin G. Norton 101,466(8) 2.30% Stanley G. Pijor 89,411(9) 2.03% 41 Jeffrey F. Riddell 69,046(10) 1.57% Thomas P. Ryan 39,629(11) * John W. Schaeffer, M.D. 9,980(12) * Gary C. Smith 30,517(13) * Eugene M. Sofranko 31,850(14) * Leo Weingarten 106,633(15) 2.42% Sandra L. DuBell 10,967(16) * Gregory D. Friedman 21,747(17) * Kevin W. Nelson 9,376(18) * Terry M. White 4,207 * All Directors and Executive 813,862 18.49% Officers as a Group (29 in group) *Ownership is less than 1% of the class. ---------------------------------- 1) Except as otherwise noted, none of the named individuals shares with another person either voting or investment power as to the shares reported. 2) Includes 10,415 shares subject to shared voting and investment power. 3) Includes 10,465 shares subject to shared voting and investment power. 4) Includes 3,599 shares subject to shared voting and investment power. 5) Includes 3,100 shares subject to shared voting and investment power. 6) Includes 15,132 shares subject to shared voting and investment power. 7) Includes 232 shares subject to shared voting and investment power. 8) Includes 49,746 shares subject to shared voting and investment power. 9) Includes 34,998 shares subject to shared voting and investment power. 10) Includes 8,558 shares subject to shared voting and investment power. 11) Includes 15,244 shares subject to shared voting and investment power. 12) Includes 5,524 shares subject to shared voting and investment power. 13) Includes 26,014 shares subject to options which are currently exercisable. 14) Includes 24,192 shares subject to shared voting and investment power. 15) Includes 4,537 shares subject to shared voting and investment power. 16) Includes 1,031 shares subject to options which are currently exercisable. 17) Includes 1,777 shares subject to options which are currently exercisable. 18) Includes 7,959 shares subject to options which are currently exercisable. As of December 31, 2002, no person was known by the Corporation to be the beneficial owner of more than 5% of the outstanding common shares of the Corporation, except as follows: NAME AND ADDRESS OF SHARES OF COMMON BENEFICIAL OWNER STOCK OWNED PERCENT OF CLASS ------------------- ------------------- ---------------- Lorain National Bank 457 Broadway Lorain, Ohio 44052 468,665(1) 10.65%(1) 42 Richard M. Osborne Trust(2) 8500 Station Street, Suite 113 Mentor, Ohio 44060 266,567(2) 6.06%(2) GLB Bancorp, Inc.(2) 7001 Center Street Mentor, Ohio 44060 ----------------------------- (1)These shares are held in various fiduciary capacities in the ordinary course of business under numerous trust relationships by Lorain National Bank. As fiduciary, the Lorain National Bank has sole power to dispose of 438,439 of these shares, shared power to dispose of 30,226 of these shares, sole power to vote 102,878 of these shares, and shared power to vote 0 of these shares for a total of 10.65% of the outstanding shares of the Corporation. (2)The Richard M. Osborne Trust and GLB Bancorp, Inc. have reported a combined ownership of 6.06% of the outstanding shares of the Corporation under the group name of Turkey Vulture Fund XIII, Ltd. Richard M. Osborne is the sole trustee of the Richard M. Osborne Trust and is the Vice Chairman of the Board of Directors of GLB Bancorp, Inc. 43 The following Equity Compensation Plan Table is as December 31, 2002: ----------------------------------------------------------------------------- Equity Compensation Plan Table Plan Category Number of Weighted-average Number of securities to be exercise price of securities issued upon outstanding remaining available exercise of options, warrants for future issuance outstanding and rights under equity options compensation plans warrants and (excluding rights(1) securities reflected in column (a)) ----------------------------------------------------------------------------- (a) (b) (c) ----------------------------------------------------------------------------- Equity compensation plans by approved security holders 12,345 18.47 -0- ----------------------------------------------------------------------------- Equity compensation plans not approved by security holders(2) 33,973 25.16 -0- ----------------------------------------------------------------------------- Total 46,318 23.29 -0- ----------------------------------------------------------------------------- (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 executive 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 44 date of grant and ranged from $21.13 to $28.27. The remaining contractual terms of the options ranged from 6.3 to 9.0 years at December 31, 2002. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN TRANSACTIONS Directors and executive officers of LNB Bancorp and their associates were customers of, or had transactions with, the Corporation or the Corporation's banking or other subsidiaries in the ordinary course of business during 2002. Additional transactions may be expected to take place in the future. All outstanding loans to directors and executive officers and their associates, commitments and sales, purchases and placements of investment securities and other financial instruments included in such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral where applicable, as those prevailing at the time for comparable transactions with other persons, and did not involve more than normal risk of collectibility or present other unfavorable features. Mr. Batista, a director who is not a member of Audit/Finance or Compensation/Governance committees, is the chairman of the law firm of Wickens, Herzer, Panza, Cook & Batista a Legal Professional Association. The Corporation has retained the aforementioned law firm as general legal counsel for the last several years. During the last fiscal year, the Corporation paid to Wickens, Herzer, Panza, Cook and Batista, a Legal Professional Association, legal fees in the amount of $388,000. It is anticipated that this relationship will continue during the current fiscal year. COMPENSATION / GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS Regulations of the Securities and Exchange Commission require the disclosure of any related party transactions with members of the Compensation / Governance Committee. During the past year, certain directors and officers, including members of the Compensation / Governance Committee, and one or more of their associates may have been customers of and had business transactions with one or more of the bank subsidiaries of LNB Bancorp. All loans included in such transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons, and did not involve more than normal risk of collectability or present other unfavorable features. It is expected that similar transactions will occur in the future. In addition, Mr. Kidd is Vice Chairman of the Board of Directors of LNB Bancorp, Inc. and Lorain National Bank and also served as President and Chief Executive Officer until the end of 1999. 45 PART IV ITEM 14 - CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Corporation carried out an evaluation under the supervision and with the participation of the Corporation's management, including the Corporation's President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Corporate Secretary, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to SEC rule 13a-14. Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Corporate Secretary concluded that as of that date, the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. There were no significant changes made in the Corporation's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the evaluation performed by the Corporation's President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Corporate Secretary. ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following Consolidated Financial Statements and related Notes to Consolidated Financial Statements, together with the Independent Auditors' Report, dated January 28, 2003, except as to note 22, which is as of February 25, 2003, appear on pages 14 through 34 of the LNB Bancorp, Inc. 2002 Annual Report and are incorporated herein by reference: (1) Financial Statements Consolidated Balance Sheets December 31, 2002 and 2001 Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements for the Years Ended December 31, 2002, 2001 and 2000 46 Report of Management Report of Independent Auditors (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 52 of this Form 10-K. (b) Reports on Form 8-K filed during the fourth quarter of 2002 and through the date of this Form 10-K filing: February 26, 2003 - LNB Bancorp, Inc. issued an outside press release announcing a three-for-two stock split with a record date of March 10, 2003 and a payable date of March 14, 2003. (c) Exhibits required by Item 601 Regulation S-K Reference is made to the Exhibit Index which is found on page 52 of this Form 10-K. (d) See Item 15(a)(2) above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LNB Bancorp, Inc. (Registrant) By /s/Gregory D. Friedman ------------------------ Gregory D. Friedman Executive Vice President, Chief Financial Officer and Corporate Secretary 47 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: /s/Daniel P. Batista DIRECTOR March 04, 2003 ----------------------- Daniel P. Batista /s/Robert M. Campana DIRECTOR March 04, 2003 ----------------------- Robert M. Campana /s/Terry D. Goode DIRECTOR March 04, 2003 ----------------------- Terry D. Goode /s/Wellsley O. Gray DIRECTOR March 04, 2003 ----------------------- Wellsley O. Gray /s/James R. Herrick DIRECTOR March 04, 2003 ----------------------- James R. Herrick /s/Lee C. Howley DIRECTOR March 04, 2003 ----------------------- Lee C. Howley /s/David M. Koethe DIRECTOR March 04, 2003 ----------------------- David M. Koethe /s/Benjamin G. Norton DIRECTOR March 04, 2003 ----------------------- Benjamin G. Norton /s/Jeffrey F. Riddell DIRECTOR March 04, 2003 ----------------------- Jeffrey F. Riddell /s/Thomas P. Ryan DIRECTOR March 04, 2003 ----------------------- Thomas P. Ryan /s/John W. Schaeffer, M.D. DIRECTOR March 04, 2003 ----------------------- John W. Schaeffer, M.D. 48 /s/Eugene M. Sofranko DIRECTOR March 04, 2003 ----------------------- Eugene M. Sofranko ABSENT - EXCUSED DIRECTOR March 04, 2003 ----------------------- Leo Weingarten /s/Stanley G. Pijor CHAIRMAN OF THE March 04, 2003 ----------------------- BOARD AND DIRECTOR Stanley G. Pijor /s/James F. Kidd VICE CHAIRMAN OF March 04, 2003 ----------------------- THE BOARD AND James F. Kidd DIRECTOR /s/Gary C. Smith PRESIDENT AND March 04, 2003 ----------------------- CHIEF EXECUTIVE Gary C. Smith OFFICER AND DIRECTOR EXECUTIVE VICE /s/Gregory D. Friedman PRESIDENT AND March 04, 2003 ----------------------- CHIEF FINANCIAL Gregory D. Friedman,CPA OFFICER /s/Mitchell J. Fallis VICE PRESIDENT AND March 04, 2003 ----------------------- CHIEF ACCOUNTING Mitchell J. Fallis,CPA OFFICER 49 Certifications I, Gary C. Smith, President and Chief Executive Officer of LNB Bancorp, Inc., certify that: 1. I, have reviewed this annual report on Form 10-K of LNB Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control; 50 and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date March 7, 2003 ---------------------- By /s/Gary C. Smith ---------------------- Gary C. Smith, President and Chief Executive Officer 51 I, Gregory D. Friedman, Executive Vice President, Chief Financial Officer and Corporate Secretary of LNB Bancorp, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of LNB Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control; and 52 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date March 7, 2003 ---------------------------- By /s/Gregory D. Friedman ---------------------------- Gregory D. Friedman, CPA Executive Vice President, Chief Financial Officer and Corporate Secretary 53 LNB Bancorp, Inc. Exhibit Index Pursuant to Item 601 (a) of Regulation S-K S-K Reference Page Number Exhibit Number (3) (a)LNB Bancorp, Inc. Second Amended Articles of N/A Incorporation. Previously filed under Item 6, Exhibit (3)i to Quarterly Report on Form 10-Q (Commission File No. 0-13202) for the quarter ended September 30, 2000, and incorporated herein by reference. (b)LNB Bancorp, Inc. Amended Code of Regulations. N/A 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) Material Contracts (a)The Lorain National Bank Retirement Pension Plan N/A amended and restated effective December 31, 2002, dated November 19, 2002. (b)Employment Agreement by and between Terry M. White N/A 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. (c)Lorain National Bank Group Term Carve Out Plan, N/A (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. (d)Restated and Amended (to conform with specific N/A 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. 54 S-K Reference Page Number Exhibit Number (e)Restated and Amended (to conform with specific N/A 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. (f)Restated and Amended (to conform with specific N/A 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. (g)Supplemental Retirement Benefits Agreement by and N/A 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. (h)Supplemental Retirement Benefits Agreement by and N/A 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. (i)Supplemental Retirement Benefits Agreement by and N/A 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. (j)Non-qualified Incentive Stock Option Agreement by N/A and between Gary C. Smith and LNB Bancorp, Inc. dated December 15, 2000. Previously filed as Exhibit (10d) 55 S-K Reference Page Number Exhibit Number to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2000 and incorporated herein by reference. (k) Rights Agreement between LNB Bancorp, Inc. and N/A Registrar and Transfer Company 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. (l)Employment Agreement by and between Kevin W. Nelson N/A 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. (m)Incentive Stock Option Agreement by and between N/A 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. (n)Amended Supplemental Retirement Agreement by and N/A 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. (o)Employment Agreement by and between Gary C. Smith N/A 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. (p)Incentive Stock Option Agreement by and between N/A 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. 56 S-K Reference Page Number Exhibit Number (q)Amended Employment Agreement by and between James F. N/A 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. (r) Amended Employment Agreement by and between Thomas N/A 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. (s) Branch Purchase and Assumption Agreement by and N/A 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. (t)Supplemental Retirement Agreement by and between N/A 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 by reference. (u)Supplemental Retirement Agreement by and between N/A 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. (v)Supplemental Retirement Agreement by and between N/A 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. (w)Employment Agreement by and between James F. Kidd N/A 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 57 S-K Reference Page Number Exhibit Number No. 0-13203) for the quarter ended September 30, 1995, and incorporated herein by reference. (x)Employment Agreement by and between Thomas P. Ryan N/A 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. (y)Consultant Agreement by and between Lorain National N/A 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. (z)Supplemental Retirement Agreement by and between N/A 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. (aa)Employment Agreement by and between Lorain National N/A 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. (bb)The Lorain National Bank 1985 Incentive Stock Option N/A 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. (cc)Agreement To Join In The Filing of Consolidated N/A 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. N/A 58 S-K Reference Page Number Exhibit Number (13) LNB Bancorp, Inc. 2002 Annual Report to Shareholders. N/A (21) Subsidiaries of LNB Bancorp, Inc. N/A (23) Consent of Independent Accountants. N/A (99.1) Certification pursuant to 18 U.S.C. section 1350, as N/A enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (99.2) Certification pursuant to 18 U.S.C. section 1350, as N/A enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (99.3) Annual report on Form 10-K/A of The Lorain National N/A Bank Employee Stock Ownership Plan (registration number 33-65034) for the plan year ended December 31, 2002 to be filed as an amendment to this annual report on Form 10-K. (99.4) Annual report on Form 10-K/A of The Lorain National N/A Bank Stock Purchase Plan (registration number 33-65034) for the plan year ended December 31, 2002 to be filed as an amendment to this annual report on Form 10-K.