def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
LNB Bancorp, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its filing. |
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LNB Bancorp,
Inc.
457 Broadway
Lorain, Ohio 44052
Dear Shareholders:
The 2011 Annual Meeting of Shareholders (the Annual
Meeting) of LNB Bancorp, Inc. (LNB) will be
held at The Lorain National Bank, 521 Broadway, Lorain, Ohio,
44052, on Tuesday, May 3, 2011 at 9:00 a.m. local time.
The Annual Meeting will be held for the purposes that are
described in the notice of the Annual Meeting, and more fully
addressed in LNBs proxy materials accompanying this
letter. We encourage you to read all of these materials
carefully, and then vote using the enclosed proxy card.
At the Annual Meeting, LNB will ask its shareholders to vote
upon a proposal to elect three directors of LNB. The Board of
Directors has nominated J. Martin Erbaugh, Terry D. Goode and
James R. Herrick, each of whom is currently a director of LNB,
for election as directors. LNB will also ask its shareholders
for ratification of the appointment of Plante & Moran,
PLLC as LNBs independent registered public accounting firm
for its 2011 fiscal year, for approval and adoption of
amendments to LNBs code of regulations to permit
amendments to the code of regulations by the Board of Directors
to the extent permitted by Ohio law, for advisory approval of
LNBs executive compensation program, and for an advisory
vote on the frequency of executive compensation advisory votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE DIRECTOR NOMINEES IN PROPOSAL 1,
AND FOR PROPOSALS 2, 3 AND 4. THE BOARD
OF DIRECTORS MAKES NO RECOMMENDATION ON PROPOSAL 5.
Your vote is important regardless of the number of shares you
own. The Board of Directors urges you to sign, date and deliver
the enclosed proxy, as promptly as possible, by mail (using the
enclosed postage-paid envelope).
I can assure you that the Board of Directors and LNBs
management will continue to act in the best interests of all LNB
shareholders. We appreciate your continued support.
Sincerely,
James R.
Herrick
Chairman of the Board of Directors
March 14, 2011
LNB Bancorp,
Inc.
457 Broadway
Lorain, Ohio, 44052
NOTICE OF 2011 ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON MAY 3, 2011
March 14,
2011
To the Shareholders of LNB Bancorp, Inc.:
The 2011 Annual Meeting of Shareholders (the Annual
Meeting) of LNB Bancorp, Inc. (LNB) will be
held at The Lorain National Bank, 521 Broadway, Lorain, Ohio,
44052, on May 3, 2011 at 9:00 a.m. local time for the
purpose of considering and voting upon the following matters as
more fully described in the attached Proxy Statement:
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1.
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To elect three directors for the next three years;
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2.
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To ratify the appointment of Plante & Moran, PLLC as
LNBs independent registered public accounting firm for its
2011 fiscal year;
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3.
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To approve and adopt amendments to LNBs code of
regulations to permit amendments to the code of regulations by
the Board of Directors to the extent permitted by Ohio law;
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4. To seek advisory approval of LNBs executive
compensation program;
5. An advisory vote on the frequency of executive
compensation advisory votes; and
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6.
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To transact any other business which may properly come before
the meeting or any postponement or adjournment of the meeting.
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Shareholders of record at the close of business on March 9,
2011 will be entitled to vote the number of common shares held
of record in their names on that date at the Annual Meeting.
We urge you to sign, date and return the enclosed proxy card as
promptly as possible, whether or not you plan to attend the
Annual Meeting in person. Whether or not you plan to attend the
Annual Meeting, and regardless of the number of common shares
you own, we urge you to vote FOR the three director
nominees in Proposal 1, and FOR
Proposals 2, 3 and 4. We make no recommendation with
respect to Proposal 5.
By Order of the Board of Directors,
Robert F. Heinrich
Corporate Secretary
Your vote is important. Please mark, sign, date and mail the
enclosed proxy form(s) whether or not you plan to attend the
Annual Meeting. A return envelope is enclosed for your
convenience.
Important
Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to Be Held on May 3,
2011:
The Proxy
Statement and the 2010 Annual Report are available at
https://materials.proxyvote.com/502100.
NOTICE OF
ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
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LNB Bancorp,
Inc.
457 Broadway
Lorain, Ohio 44052
PROXY
STATEMENT FOR 2011 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 3, 2011
Date,
Time and Place of the Annual Meeting
This Proxy Statement is being furnished to shareholders of LNB
Bancorp, Inc. (LNB or the Corporation)
in connection with the solicitation of proxies by the Board of
Directors of the Corporation for the 2011 Annual Meeting of
Shareholders, and any postponement or adjournment thereof, to be
held at the time and place set forth in the accompanying notice
(the Annual Meeting). The notice of the meeting,
this Proxy Statement, the Corporations annual report to
shareholders for the fiscal year ended December 31, 2010
and the enclosed proxy card are first being sent to shareholders
on or about March 14, 2011.
Purpose
of the Annual Meeting
The purpose of the Annual Meeting is to consider the proposals
that are described in the notice of Annual Meeting, and more
fully addressed in this Proxy Statement. We encourage you to
read all of these materials carefully, and then vote the
enclosed proxy card.
At the Annual Meeting, LNB will ask its shareholders to vote
upon the following proposals:
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1.
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To elect three directors of the Corporation. The Board of
Directors has nominated J. Martin Erbaugh, Terry D. Goode and
James R. Herrick, each of whom is currently a director of LNB,
for election as directors.
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The Board of Directors recommends that you vote
FOR the director nominees in Proposal 1.
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2.
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To ratify the appointment of Plante & Moran, PLLC as
LNBs independent registered public accounting firm for its
2011 fiscal year.
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The Board of Directors recommends that you vote
FOR Proposal 2.
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3.
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To approve and adopt amendments to LNBs code of
regulations to permit amendments to the code of regulations by
the Board of Directors to the extent permitted by Ohio law.
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The Board of Directors recommends that you vote
FOR Proposal 3.
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4.
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To seek advisory approval of LNBs executive compensation
program.
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The Board of Directors recommends that you vote
FOR Proposal 4.
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5.
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An advisory vote on the frequency of executive compensation
advisory votes.
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The Board of Directors makes no recommendation with respect to
Proposal 5.
We urge you to sign, date and return the enclosed proxy card as
promptly as possible, whether or not you plan to attend the
Annual Meeting in person. Whether or not you plan to attend the
Annual Meeting, and regardless of the number of common shares
you own, we urge you to vote FOR the three director
nominees in Proposal 1, and FOR
Proposals 2, 3 and 4. We make no recommendation with
respect to Proposal 5.
1
QUESTIONS &
ANSWERS ABOUT THE ANNUAL MEETING
The following are some questions that you may have regarding the
matters being considered at the Annual Meeting as well as brief
answers to those questions. LNB urges you to read the remainder
of this Proxy Statement carefully because the information below
does not provide all information that might be important to you.
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When and where will the Annual Meeting of the shareholders of
LNB take place, and who is entitled to vote at the Annual
Meeting? |
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The Annual Meeting will be held on Tuesday, May 3, 2011 at
9:00 a.m., local time, at The Lorain National Bank, 521
Broadway, Lorain, Ohio 44052. You may attend the Annual Meeting
and vote your shares in person, rather than voting the enclosed
proxy card; but, whether or not you intend to attend the Annual
Meeting, the Board of Directors urges you to sign, date and
deliver the enclosed proxy card, as promptly as possible, by
mail (using the enclosed postage-paid envelope). If you hold
shares in street name and would like to vote your shares in
person at the Annual Meeting, you must present a legal proxy
from your bank, broker or nominee at the Annual Meeting. |
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LNBs Board of Directors has fixed the close of business on
March 9, 2011 as the record date (the Record
Date) for the determination of shareholders entitled to
vote at the Annual Meeting. Only holders of record of LNBs
common shares at the close of business on the Record Date are
entitled to notice of and to vote at the Annual Meeting. Each
common share entitles record holders to one vote on each matter
properly submitted for consideration at the Annual Meeting. |
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As of the Record Date, there were 1,858 record holders of the
Corporations common shares and 7,884,749 of the
Corporations common shares outstanding. |
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What may I vote on at the Annual Meeting? |
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You may vote on Proposals 1, 2, 3, 4 and 5 as described
below. |
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What do I need to do now? |
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Please carefully read and consider the information contained in
this Proxy Statement, and vote your shares in any of the ways
provided in this Proxy Statement. |
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How does the Board of Directors recommend that I vote? |
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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE DIRECTOR NOMINEES IN PROPOSAL 1,
FOR THE RATIFICATION OF THE APPOINTMENT OF
PLANTE & MORAN, PLLC AS THE CORPORATIONS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AS DISCUSSED IN
PROPOSAL 2, FOR APPROVAL AND ADOPTION OF
AMENDMENTS TO LNBS CODE OF REGULATIONS TO PERMIT
AMENDMENTS TO THE CODE OF REGULATIONS BY THE BOARD OF DIRECTORS
TO THE EXTENT PERMITTED BY OHIO LAW AS DISCUSSED IN
PROPOSAL 3, AND FOR ADVISORY APPROVAL OF
THE CORPORATIONS EXECUTIVE COMPENSATION PROGRAM AS
DISCUSSED IN PROPOSAL 4. THE BOARD OF DIRECTORS MAKES NO
RECOMMENDATION WITH RESPECT TO PROPOSAL 5. |
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How can I vote my common shares? |
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If your common shares are registered directly in your name with
our transfer agent, you are a shareholder of record with respect
to those common shares, and you may either vote in person at the
Annual Meeting or by signing, dating and returning the enclosed
proxy card in the envelope provided. You may also vote your
shares through the internet or via telephone by following the
instructions contained on the enclosed proxy card. Whether or
not you plan to attend the Annual Meeting in person, you should
submit your proxy card as soon as possible. If your LNB common
shares are held in street name through a broker,
bank or other nominee, you should follow the directions provided
by your broker, bank or other nominee regarding how to instruct
such party to vote. Brokerage firms have the authority to vote
shares on certain routine matters when their
customers do not provide voting instructions. However, on other
matters, when the brokerage firm has not received voting
instructions from its customers, the brokerage firm cannot vote
the shares on that matter and a broker non-vote
occurs. The ratification of Plante & Moran, PLLC as
our independent registered public accounting firm
(Proposal 2) is considered to be a routine
matter and your brokerage firm will be able to vote |
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on that item even if it does not receive instructions from you,
so long as it holds your shares in its name. The election of
directors (Proposal 1), the amendment to the code of
regulations (Proposal 3) and the advisory approval of
the executive compensation program and the advisory vote on the
frequency of executive compensation advisory votes
(Proposals 4 and 5) are non-routine items.
If you do not instruct your broker how to vote with respect to
these items, your broker may not vote with respect to these
proposals and those votes will be counted as broker
non-votes. Please be sure to give specific voting
instructions to your broker so that your vote can be counted. |
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If the enclosed proxy card is properly executed and returned to
LNB in time to be voted at the Annual Meeting, the common shares
represented by your proxy will be voted in accordance with your
instructions marked on the proxy card. Where properly executed
proxies are returned but no such instructions are given, the
proxy holders will vote FOR the election of the
three director nominees nominated by the Board of Directors,
FOR the ratification of the appointment of
Plante & Moran, PLLC as the Corporations
independent registered public accounting firm, FOR
the approval and adoption of amendments to LNBs code of
regulations to permit amendments by the Board of Directors to
the extent permitted by Ohio law, FOR advisory
approval of the Corporations executive compensation
program, and ABSTAIN on the advisory vote on the
frequency of executive compensation advisory votes. |
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Will the proxy holders named on the proxy card have
discretionary authority to vote my common shares? |
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As to any matters that may properly come before the meeting that
are not on the enclosed proxy card, the proxy grants to Gary J.
Elek and Robert F. Heinrich the authority to vote the shares for
which they hold proxies in accordance with their discretion. |
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Can I change my vote? |
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You may revoke a proxy at any time prior to its exercise by
filing with LNBs Secretary a written notice of revocation,
by delivering to LNBs Secretary a duly executed proxy
bearing a later date, or by attending the Annual Meeting and
voting in person. The mere presence of a shareholder at the
Annual Meeting will not automatically revoke any proxy
previously given by such shareholder. Written notices of revoked
proxies may be directed to Mr. Robert F. Heinrich,
Corporate Secretary, LNB Bancorp, Inc., 457 Broadway, Lorain,
Ohio 44052. |
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If you are a beneficial owner of common shares, you may submit
new voting instructions by contacting your broker, bank or other
nominee. You may also vote in person at the Annual Meeting if
you obtain a legal proxy as described above. |
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What constitutes a quorum? |
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Under LNBs Code of Regulations, the number of common
shares held by the shareholders present in person or by proxy at
the Annual Meeting constitute a quorum for the transaction of
business at the Annual Meeting. Nasdaq Stock Market rules
provide, however, that in no case shall a quorum be less than
thirty three and one-third percent
(331/3%)
of the outstanding common shares. Accordingly, so long as at
least thirty three and one-third percent
(331/3%)
of the outstanding common shares of the Corporation are present
in person or by proxy at the Annual Meeting, a quorum shall be
present for the transaction of business at the Annual Meeting.
Abstentions and shares that do not vote on a particular proposal
will be counted for purposes of determining whether a quorum
exists at the Annual Meeting. Broker non-votes will also be
counted for purposes of determining whether a quorum exists at
the Annual Meeting, unless the broker has failed to vote as to
all matters. |
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What vote is required by LNB in connection with the
proposals? |
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A plurality of the votes cast at the meeting is required to
elect directors. The three director nominees receiving the
highest number of for votes at the Annual Meeting
will be elected as directors under Proposal 1. Abstentions,
broker non-votes and instructions on the enclosed proxy card to
withhold authority to vote for one or
more of the nominees will result in the nominee receiving fewer
votes, but will not affect the outcome of the election. |
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The ratification of the appointment of Plante & Moran,
PLLC as LNBs independent registered public accounting firm
for its 2011 fiscal year under Proposal 2 requires the
affirmative vote of the holders of a |
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majority of the common shares present in person or by proxy at
the Annual Meeting. Abstentions with respect to Proposal 3
will not be voted, but will be counted for purposes of
determining the number of shares present. Accordingly,
abstentions will have the same effect as an against
vote. |
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Article X, Section 1 of LNBs code of regulations
provides that the regulations may be amended by the shareholders
at any shareholder meeting by the affirmative vote of the
registered holders of a majority of the common shares
represented in person or by proxy at the meeting. LNBs
code of regulations further provides that amendments to
Article III and Article IV of the regulations may be
adopted by the affirmative vote of the registered holders of a
majority of the common shares represented in person or by proxy
at the meeting, so long as (1) LNB has no interested
shareholder (as defined in the code of regulations) and
the amendments are first approved by a majority of the Board of
Directors or (2) LNB has an interested shareholder and the
amendments are first approved by a two-thirds majority of the
continuing directors (as defined in the
regulations). LNB does not believe that it has an interested
shareholder and, in any event, the amendments to LNBs code
of regulations to permit amendments to the code of regulations
by the Board of Directors to the extent permitted by Ohio law
has been approved by more than two-thirds of the directors who
would constitute continuing directors. Accordingly,
the approval and adoption of Proposal 3 requires the
affirmative vote of the holders of a majority of the common
shares present in person or by proxy at the Annual Meeting.
Abstentions with respect to Proposal 3 will not be voted,
but will be counted for purposes of determining the number of
shares present. Accordingly, abstentions and broker non-votes
will have the same effect as an against vote. |
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The approval of the advisory proposal on LNBs executive
compensation program under Proposal 4 requires the
affirmative vote of the holders of a majority of the common
shares present in person or by proxy at the Annual Meeting.
Abstentions with respect to Proposal 4 will not be voted,
but will be counted for purposes of determining the number of
shares present. Accordingly, abstentions and broker non-votes
will have the same effect as an against vote. |
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The approval of the advisory vote on the frequency of executive
compensation advisory votes under Proposal 5 will require
the affirmative vote of a majority of the Corporations
common shares represented in person or by proxy at the Annual
Meeting. If none of the alternatives (one year, two years or
three years) receive a majority vote, the Corporation will
consider the alternative with the highest number of votes cast
by shareholders to be the frequency that has been selected by
shareholders. Abstentions and broker non-votes with respect to
Proposal 5 will not be voted and, accordingly, will result
in each alternative receiving fewer votes. |
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What should I do if I receive more than one set of voting
materials? |
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If your common shares are registered differently and are held in
more than one account, then you will receive more than one Proxy
Statement and proxy card. Please be sure to vote all of your
accounts so that all of your common shares are represented at
the Annual Meeting. |
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What identification should I bring to the Annual Meeting? |
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All shareholders who owned LNB common shares on the Record Date
may attend the Annual Meeting. In order to gain admission to the
Annual Meeting, please be sure to bring with you a valid
government-issued personal identification with a picture (such
as a drivers license or passport). If your common shares
are held in the name of a bank, broker or other nominee, you
must also bring evidence of your ownership of common shares as
of the Record Date, in the form of a letter or statement from
your bank, broker or other nominee or the voting instruction
card provided by the broker, in each case, indicating that you
owned common shares as of the Record Date. |
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If you are a proxy holder for a LNB shareholder, then you must
bring (1) the validly executed proxy naming you as the
proxy holder, signed by a LNB shareholder who owned LNB common
shares as of the Record Date, (2) a valid government-issued
personal identification with a picture (such as a drivers
license or passport) and (3) if the shareholder whose proxy
you hold was not a record holder of LNB common shares as of the
Record Date, proof of the shareholders ownership of LNB
common shares as of the Record Date, in the form of a letter or
statement from a bank, broker or other nominee or the voting
instruction card provided by the broker, in each case,
indicating that the shareholder owned those common shares as of
the Record Date. |
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How will proxies for the Annual Meeting be solicited? |
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In addition to soliciting proxies by mail, LNB, through its
directors and officers and regular employees, may also solicit
proxies personally or by telephone, telegram, advertisement,
courier service, or other means of communication (such as
e-mail).
Such directors and officers and regular employees will not be
additionally compensated, but may be reimbursed for
out-of-pocket
expenses in connection with such solicitation. |
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Who will bear the cost of soliciting proxies? |
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LNB will bear the cost of soliciting proxies in the form
enclosed herewith. LNB will request persons, firms and
corporations holding common shares in their names or in the name
of their nominees, which are beneficially owned by others, to
send proxy materials to and obtain proxies from the beneficial
owners and LNB will reimburse the holders for their reasonable
expenses in doing so. |
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Can I access the Notice of Annual Meeting, Proxy Statement
and 2010 Annual Report on the internet? |
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The Notice of Annual Meeting, Proxy Statement and 2010 Annual
Report are available on the internet at
https://materials.proxyvote.com/502100.
We will also provide a copy of any of these documents to any
shareholder free of charge, upon request in writing to Corporate
Secretary, LNB Bancorp, Inc., 457 Broadway, Lorain, Ohio 44052. |
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If you hold your shares in a bank or brokerage account, your
bank or broker may also provided copies of these documents
electronically. Please check the information provided in the
proxy materials mailed to you by your bank or broker regarding
the availability of service. |
5
COMPANY
PROPOSALS
LNBs Amended Code of Regulations 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. The directors of each
class shall hold office for a term of three years. At the Annual
Meeting, three directors will be elected.
The Board of Directors has nominated J. Martin Erbaugh, Terry D.
Goode and James R. Herrick, each of whom is currently a director
of the Corporation, for election to the Board of Directors at
the Annual Meeting. Each of the director nominees has indicated
his willingness to serve another term as a director if elected,
and has consented to be named in this Proxy Statement as a
director nominee.
The names and qualifications of all of the current directors are
set forth below in this Proxy Statement. The three directors
standing for re-election are successful local business people
who contribute much to the success of LNB. The Board of
Directors believes that the re-election of these three directors
is important to LNBs future growth and the fulfillment of
LNBs strategic plan.
Daniel G. Merkel and Thomas P. Perciak were appointed as
directors by the Board of Directors on April 22, 2008
pursuant to a settlement agreement (the Settlement
Agreement). Additional information regarding the
Settlement Agreement is included in the Corporations
Current Report on
Form 8-K
filed on April 23, 2008. J. Martin Erbaugh was appointed as
a director by the Board of Directors effective May 10, 2007
in connection with the consummation of LNBs acquisition of
Morgan Bancorp, Inc. and in accordance with terms of the related
Agreement and Plan of Merger, dated January 15, 2007. There
are no other arrangements or understandings pursuant to which
any of the persons listed below were selected as directors or
director nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR ALL OF THE DIRECTOR NOMINEES.
Nominees
for Election as Directors
Class I Directors. The information below
is with respect to the nominees for election as Class I
Directors of the Corporation at the Annual Meeting, whose terms
will expire in 2014. Benjamin G. Norton has informed the
Corporation of his intention to retire from the Board of
Directors upon the expiration of his current term at the Annual
Meeting in accordance with the Corporations internal
director retirement guidelines and Mr. Norton will not
stand for reelection as a director at the Annual Meeting.
Following the Annual Meeting, the size of LNBs Board of
Directors will be fixed at 11 members.
J. Martin Erbaugh, 62, has been a director since
2007. Since 1995, Mr. Erbaugh has been the President of
JM Erbaugh Co., a private investment firm. Mr. Erbaugh
was the Chairman of the Board of Morgan Bancorp, Inc. from 2002
until it was acquired by the Corporation in May 2007.
Mr. Erbaugh served as a director of Lesco, Inc. from March
1995 to May 2007, including as Chairman of the Board from April
2002 to May 2007.
The Board concluded that Mr. Erbaugh should serve as a
director of the Corporation primarily due to his experience in
managing and serving as a director of businesses in the banking
and finance industry, as well as his long experience in leading
a financial institution in the Hudson, Ohio and Summit County
area, a market in which the Corporation has sought to grow its
business. Mr. Erbaughs industry experience,
experience as a director of other publicly-traded companies and
educational background, which includes a law degree from Case
Western Reserve University School of Law, enables
Mr. Erbaugh to provide valuable contributions to the Board
on a range of matters, including strategic direction, business
operations and financial results, risk management and the
compensation of management.
Terry D. Goode, 56, has been a director since 1997 and
Vice Chairman of the Board since April 2010. Since 1987,
Mr. Goode has been the Vice President of the Lawyers
Title Insurance Corp. and from 1987 to 2001, served as Vice
President of Lorain County Title Company.
6
The Board concluded that Mr. Goode should serve as a
director of the Corporation primarily due to his significant
knowledge of the Corporation, having served as a director of the
Corporation for thirteen years, and experience in real estate
development and finance in the markets in which the Corporation
operates. Mr. Goodes knowledge and experience in the
industry and the communities in which the Corporations operates
allow him to serve a vital role on the Board in its assessment
and evaluation of strategic direction and risk management,
particularly with respect to the Corporations management
of credit risk.
James R. Herrick, 59, has been a director since 1999 and
Chairman of Board since December 2004. Since 1987,
Mr. Herrick has been the President of the Liberty Auto
Group, Inc., an automobile dealership organization.
The Board concluded that Mr. Herrick should serve as a
director of the Corporation primarily due to his extensive
executive leadership experience and significant knowledge of the
Corporation, having served on the Board for eleven years.
Mr. Herricks experience, as well as his leadership of
businesses in the communities in which the Corporation operates,
enables him to provide the Board with valuable insight and
perspective on organizational management, risk assessment and
management, local and regional business conditions and trends
relating to consumers and borrowers in the markets in which the
Corporation operates.
Directors
Continuing in Office
Class II Directors. The information below
is with regard to Class II Directors of LNB, whose terms
expire in 2012.
Lee C. Howley, 63, has been a director since
2001. Since 2000, Mr. Howley has been the
President of Howley Bread Group Ltd., a company that operates
Panera Bread restaurant franchises. From 1996 to May 2007,
Mr. Howley served as director of Lesco, Inc. From 1996 to
September 2006, Mr. Howley served as director of Boykin
Lodging Company.
The Board concluded that Mr. Howley should serve as a
director of the Corporation, primarily due to his extensive
executive leadership experience and financial and accounting
expertise. Mr. Howley has long experience in managing
businesses and serving on public company boards, and is a highly
successful entrepreneur. Mr. Howleys background
enables him to provide useful insight in evaluating the business
conditions in markets in which the Corporation operates, as well
as in setting corporate strategy and motivating the
Corporations management to achieve corporate goals.
Mr. Howleys financial and accounting expertise is of
particular value to the Board in evaluating and managing the
Corporations financial risk and internal controls in his
role on the Audit and Finance Committee.
Daniel E. Klimas, 52, has been a director and the
President and Chief Executive Officer of the Corporation and The
Lorain National Bank since February 2005. Mr. Klimas was
the President of the Northern Ohio Region of Huntington Bank
from 2001 until February 2005.
The Board concluded that Mr. Klimas should serve as a
director of the Corporation largely due to his role as the
Corporations Chief Executive Officer. The Board believes
that having a member of the Corporations management team,
who is intimately familiar with the Corporations
day-to-day
business operations, serve as director provides the Board with
invaluable insight into the Corporation. Mr. Klimas
role as Chief Executive Officer and long experience in
leadership positions within the banking industry allows
Mr. Klimas to provide the Board with the management
perspective necessary to successfully overseeing the Corporation
and its business operations.
Jeffrey F. Riddell, 59, has been a director since 1995.
Since 1992, Mr. Riddell has been the President and, since
1996, the Chief Executive Officer of Consumer Builders Supply
Company.
The Board concluded that Mr. Riddell should serve as a
director of the Corporation primarily due to his significant
knowledge of the Corporation, having served as a director for
fifteen years, and his long experience in managing businesses in
the Corporations markets. Mr. Riddells
background enables him to provide valuable insight in evaluating
the business conditions in markets in which the Corporation does
business, as well as in setting corporate strategy and managing
the Boards governance structure.
John W. Schaeffer, M.D., 65, has been a director
since 1999. Since 1976, Dr. Schaeffer has been the
President of the North Ohio Heart Center, Inc.
7
The Board concluded that Dr. Schaeffer should serve as a
director of the Corporation primarily due to his significant
knowledge of the Corporation and its markets, and his strong
ties to Corporations primary market area, which provides
the Board with perspective that is helpful to the Corporation in
its role as a community bank. Dr. Schaeffers
experience and background as a physician and leader of a
regional medical institution allow him to bring a perspective to
the Board that is unique and different than many of the other
members of the Board, which the Board finds valuable in its
determination and evaluation of corporate goals, strategic
direction and corporate governance structures.
Class III Directors. The information
below is with regard to Class III Directors of LNB, whose
terms expire in 2013.
Robert M. Campana, 51, has been a director since
1997. Since January 2000, Mr. Campana has been
the owner of Campana Development, a real estate development
company.
The Board concluded that Mr. Campana should serve as a
director of the Corporation primarily due to his long experience
in managing businesses and his significant experience in and
knowledge of real estate development in the Corporations
markets. Mr. Campana is the former president of P.C.
Campana Inc., owns and operates Campana Development, a real
estate development company, and has been recognized in his
community for his entrepreneurial skills. In addition,
Mr. Campana has significant experience with the
Corporation, having served on the Board for thirteen years. This
background enables Mr. Campana to provide valuable insights
to the Board, particularly in evaluating the business conditions
in markets in which the Corporation operates, as well as in
setting corporate strategy and compensating the
Corporations management.
Daniel G. Merkel, 67, has been a director since
2008. From 2001 to 2007, Mr. Merkel was the
Regional President-Commercial Lending of Republic Bancorp, Inc.,
a bank holding company. Following the acquisition of Republic
Bancorp by Citizens Bancorp, Inc., Mr. Merkel served as a
Senior Vice President of Citizens Bancorp until his retirement
in 2008. From 1995 to 2001, Mr. Merkel was the Senior Vice
President-Commercial Lending of Republic Bancorp, Inc., and from
1991 to 1995 he was President of Tech Built Manufacturing
Company. Prior to that he held senior executive positions in
banking and commercial mortgage lending in privately held and
public companies.
The Board concluded that Mr. Merkel should serve as a
director of the Corporation primarily due to his extensive
experience in the banking industry and knowledge of banking
operations and finance. Mr. Merkels experience in a
variety of positions with Republic Bancorp, Inc., as well as his
educational background that includes a Masters in Business
Administration from Cleveland State University, enables
Mr. Merkel to provide valuable contributions to the Board.
Mr. Merkel is also a retired senior officer with eight
years of active duty and twenty-three years of reserve service
to the U.S. Navy. This experience provides a unique
perspective through which to evaluate the Corporations
management and organization.
Thomas P. Perciak, 63, has been a director since
2008. Since 2004, Mr. Perciak has been the mayor
of Strongsville, Ohio. From 1999 until 2004, Mr. Perciak
was the Executive Vice President of Fifth Third Bank,
Northeastern, Ohio. From 1985 to 1999, Mr. Perciak was
President and Chief Executive Officer of the Strongsville
Savings Bank.
The Board concluded that Mr. Perciak should serve as a
director of the Corporation primarily due to his extensive
banking industry and management and community leadership
experience. Prior to serving as the mayor of one of Northeast
Ohios most vibrant suburbs, Mr. Perciak spent years
leading successful local financial institutions.
Mr. Perciaks long industry experience provides the
Board with valuable perspectives on the Corporations
management, strategy and risks. Mr. Perciaks role as
a community leader and philanthropist also allows him to provide
beneficial insights to the Corporation in serving as a community
bank.
Donald F. Zwilling, CPA, 65, has been a director since
2005. Since 1976, Mr. Zwilling has been a partner,
shareholder and director of Barnes Wendling CPAs, Inc., an
accounting firm.
The Board concluded that Mr. Zwilling should serve as a
director of the Corporation, primarily due to his extensive
public accounting experience. Mr. Zwilling is a certified
public accountant and accredited in business valuation with
nearly four decades of experience working with businesses
regarding tax and financial planning. Mr. Zwillings
experience is of particular value to the Board in assessing and
evaluating the Corporations financial performance,
internal controls and management of financial risk.
8
PROPOSAL 2
RATIFICATION OF
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit and Finance Committee has appointed Plante &
Moran, PLLC to continue as the Corporations independent
registered public accounting firm and to audit its financial
statements for the year ended December 31, 2011. The Audit
and Finance Committee and the Board of Directors are asking you
to ratify this appointment. During the year ended
December 31, 2010, Plante & Moran, PLLC served as
the Corporations independent registered public accounting
firm and provided tax and other services. Representatives of
Plante & Moran, PLLC are expected to be present at the
annual meeting and will have an opportunity to make a statement
if they so desire and will be available to respond to
appropriate questions.
Approval of this proposal will require the affirmative vote of a
majority of the Corporations common shares represented in
person or by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE ADOPTION OF THIS PROPOSAL.
9
PROPOSAL 3
APPROVAL AND ADOPTION OF AMENDMENTS TO LNBS
CODE
OF REGULATIONS TO PERMIT AMENDMENTS TO THE CODE OF
REGULATIONS
BY THE
BOARD OF DIRECTORS TO THE EXTENT PERMITTED BY OHIO
LAW
The Board of Directors recommends that the Corporations
code of regulations be amended so that in addition to the
shareholders ongoing right to authorize amendments, the
Board also would be authorized to make future amendments to the
code of regulations, but only to the extent permitted by the
Ohio General Corporation Law. For Ohio corporations, the code of
regulations is the equivalent of by-laws for other corporations.
The existing code of regulations provides that an amendment of
the code of regulations requires the affirmative vote of
registered shareholders holding at least a majority of the
Corporations common shares, with amendments to
Articles III or IV of the code of regulations
requiring in some cases the affirmative vote of shareholders
holding at least seventy-five percent of the Corporations
common shares. The Board of Directors is not currently permitted
to amend the code of regulations in any respect because the
traditional law of Ohio did not allow for boards to authorize
code of regulations amendments.
However, the Ohio General Corporation Law was amended in October
2006 to allow boards of directors of Ohio corporations to amend
regulations without shareholder approval, within certain
statutory limitations, thus bringing Ohio law into line with the
laws of most other states. The Ohio statute requires shareholder
approval of an amendment to the code of regulations authorizing
the Board to make future amendments to the code of regulations.
Under the Ohio General Corporation Law, the Board is not
permitted to amend the code of regulations in various areas that
are deemed to impact fundamental shareholder rights.
Specifically, the Board may not amend the code of regulations to
do any of the following: (1) change the authority of the
shareholders themselves; (2) establish or change the
percentage of shares that must be held by shareholders in order
to call a shareholders meeting or change the time period
required for notice of a shareholders meeting;
(3) establish or change the quorum requirements at
shareholder meetings; (4) prohibit the shareholders or
directors from taking action by written consent without a
meeting; (5) change directors terms of office or
provide for the classification of directors; (6) require
more than a majority vote of shareholders to remove directors
without cause; (7) change the quorum or voting requirements
at director meetings; or (8) remove the requirement that a
control share acquisition of an issuing public
corporation must be approved by the shareholders of the
corporation to be acquired; or (9) allow the board to
delegate to a board committee the authority to amend the code of
regulations. This proposal does not seek to change in any way
these limitations placed on the Board under the Ohio General
Corporation Law with respect to amendments of the code of
regulations. If this proposal is approved, the Board will have
the authority to amend the code of regulations to the extent
permitted by the Ohio General Corporation Law. Accordingly, to
the extent that the limitations placed on the Board under Ohio
General Corporation Law with respect to amendments to the code
of regulations are modified in any respect in the future, the
Boards authority to make future amendments to the code of
regulations will be correspondingly modified.
The Board believes that the proposed amendments will enhance the
Corporations ability to timely adopt changes to the code
of regulations to adapt to changes in the law. For example, the
proposed amendments would allow the Board to timely adopt
modification to the director nomination procedures in the code
of regulations if necessary or advisable in order to accommodate
the SECs proposed proxy access rules, when
those rules are finalized. Under Ohio law, the shareholders can
always override amendments made by the Board, and the code of
regulations may never divest the shareholders of the power to
adopt, amend or repeal the code of regulations.
The Board of Directors recommends that Article X,
Section 1 of the code of regulations, Article III,
Section 10 of the code of regulations and Article IV,
Section 8 of the code of regulations be amended to add the
following underlined language, with deleted text struck through:
Article X, Section 1 of the code of regulations:
Section 1. Amendments.
a. Except as otherwise expressly provided
in by law, by the Articles of Incorporation
or by these Regulations, the Shareholders may repeal
or amend these Regulations or adopt amended
regulations:(as they may be amended from time to
time) may be amended, repealed or added to in any respect
(i) by the Board (to
10
the extent permitted by the Ohio General Corporation Law),
(i) (ii) at any Shareholder Meeting
(with previous notice of such amendment, repeal or
adoption addition), by the affirmative
vote of the registered holders of a majority of the Shares
represented in person or by proxy at such Shareholder Meeting,
or (ii) (iii) without a
Shareholder Meeting, by the written consent of the
registered holders of a majority of the Shares without a
Shareholder Meeting.
b. If these Regulations are amended, repealed or added
to in any respect or amended regulations are adopted
by written consent without a Shareholder
Meeting, the Secretary of the Corporation (or any other Officer)
shall forthwith mail a copy of the amendment, repeal or
addition to these Regulations or the amended
regulations to each Shareholder who did not participate
in the adoption of the amendment, repeal or addition
or the amended regulations.
Article III, Section 10 of the code of
regulations:
Section 10. Amendments
to Article III.
Notwithstanding any contrary provision in these Regulations,
amendments to any provision of this Article III shall
require the affirmative vote of the holders of seventy-five
percent (75%) of the Shares; provided, however, that any such
amendments shall, instead, be governed by the
Shareholder voting requirements of
Section 1 of Article X of these Regulations if:
(i) the Corporation has no Interested Shareholder (as
defined in Section 1 of Article IX) and the
proposed amendment is first approved by a majority vote of the
whole Board, or (ii) the Corporation has an Interested
Shareholder and the proposed amendment is first approved by a
two-thirds (2/3) majority of the Continuing Directors (as
defined in Section 1 of Article IX).
Article IV, Section 8 of the code of
regulations:
Section 8. Amendments
to Article IV.
Notwithstanding any contrary provision in these
Regulations, amendments to any provisions of this
Article IV shall require the affirmative vote of the
holders of seventy-five percent (75%) of the Shares; provided,
however, that any such amendments shall, instead, be governed by
the Shareholder voting requirements of
Section 1 of Article X of these Regulations if:
(i) the Corporation has no Interested Shareholder (as
defined in Section 1 of Article IX) and the
proposed amendment is first approved by a majority vote of the
whole Board, or (ii) the Corporation has an Interested
Shareholder and the proposed amendment is first approved by a
two-thirds (2/3) majority of the Continuing Directors (as
defined in Section 1 of Article IX).
Adoption of the amendment to the code of regulations proposed in
this Proposal 3 requires the affirmative vote of a majority
of the Corporations common shares represented in person or
by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE ADOPTION OF THIS PROPOSAL.
11
PROPOSAL 4
ADVISORY APPROVAL OF
LNBS
EXECUTIVE COMPENSATION PROGRAM
The Board of Directors is providing the shareholders with the
opportunity to cast an advisory vote on the compensation of the
Corporations named executive officers (Named
Executives) as disclosed in this Proxy Statement pursuant
to Item 402 of
Regulation S-K,
including in the Compensation Discussion and Analysis section,
compensation tables and accompanying narrative disclosures.
Item 402 of
Regulation S-K
is the SEC regulation that sets forth what companies must
include in their Compensation Discussion and Analysis and
compensation tables. As required by the interim final rules
issued by the U.S. Treasury (the TARP
Regulations) regarding the Emergency Economic Stability
Act of 2008 (EESA) and by the recent Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank
Act), this is an advisory vote, which means that this
proposal is not binding on the Corporation. However, the
Compensation Committee of the Board of Directors (the
Compensation Committee) will take into account the
outcome of the vote when considering future compensation
arrangements for the Named Executives. The following resolution
is submitted to the shareholders to vote on the
Corporations compensation of the Named Executives:
RESOLVED, that the compensation paid to the Corporations
Named Executives, as disclosed pursuant to Item 402 of
Regulation S-K,
including the Compensation Discussion and Analysis, compensation
tables and narrative discussion is hereby approved.
Approval of this proposal will require the affirmative vote of a
majority of the Corporations common shares represented in
person or by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE ADOPTION OF THIS PROPOSAL.
12
PROPOSAL 5
ADVISORY VOTE ON FREQUENCY OF
EXECUTIVE
COMPENSATION ADVISORY VOTES
The Board of Directors is asking shareholders to advise it as to
how frequently they wish to cast an advisory vote on the
compensation of the Named Executives: once every year, once
every two years, or once every three years. Under the TARP
Regulations, the Corporation is required to provide the
shareholders with the opportunity to cast an advisory vote on
the compensation of the Corporations Named Executives
every year. That advisory vote is typically referred to as a
say-on-pay
vote. While the frequency of
say-on-pay
vote in this proposal is not required to be presented to the
shareholders so long as the Corporation is subject to the TARP
Regulations, the Board of Directors is asking shareholders to
cast an advisory vote on how frequently
say-on-pay
votes should be held in order to better understand the views of
Corporations shareholders on its executive compensation
programs. Accordingly, the Board of Directors has not made a
recommendation as to how you should vote on this proposal.
Shareholders will be able to cast their votes on whether to hold
say-on-pay
votes every one, two or three years. Alternatively, you may
abstain from casting a vote. Approval of this proposal will
require the affirmative vote of a majority of the
Corporations common shares represented in person or by
proxy at the Annual Meeting. If none of the alternatives (one
year, two years or three years) receive a majority vote, the
Corporation will consider the alternative with the highest
number of votes cast by shareholders to be the frequency that
has been selected by shareholders. However, this vote is
advisory, which means that it is not binding on the Corporation.
13
OWNERSHIP
OF VOTING SHARES
Security
Ownership of Management and Principal Shareholders
The following table sets forth the beneficial ownership of the
Corporations common shares by each of the
Corporations directors and the Corporations Named
Executives, and the directors and executive officers as a group,
as of March 9, 2011. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange
Commission and includes generally voting power
and/or
investment power with respect to securities. Common shares that
an individual has a right to acquire within 60 days after
March 9, 2011, including pursuant to stock options to
purchase common shares, are deemed outstanding for purposes of
computing the percentage of beneficial ownership owned by the
person holding such security, but are not deemed outstanding for
purposes of computing the percentage beneficially owned by any
other person. Except as indicated by footnote, the Corporation
believes that the persons named in this table, based on
information provided by these persons, have sole voting and
investment power with respect to the securities indicated. The
address of each of the Corporations directors and
executive officers is care of LNB Bancorp, Inc., 457 Broadway,
Lorain, Ohio 44052. As of March 9, 2011, a total of
7,884,749 common shares were outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
Shares
|
|
|
|
|
Beneficially
|
|
Percentage of
|
Name of Beneficial Owner
|
|
Owned(1)
|
|
Class
|
|
Robert M. Campana
|
|
|
21,183
|
(2)
|
|
|
|
*
|
|
Gary J. Elek
|
|
|
26,210
|
(3)
|
|
|
|
*
|
|
J. Martin Erbaugh
|
|
|
103,049
|
|
|
|
|
1.31
|
%
|
Terry D. Goode
|
|
|
79,000
|
(4)
|
|
|
|
1.00
|
%
|
David S. Harnett
|
|
|
38,028
|
(5)
|
|
|
|
*
|
|
James R. Herrick
|
|
|
23,427
|
(6)
|
|
|
|
*
|
|
Lee C. Howley
|
|
|
21,113
|
(7)
|
|
|
|
*
|
|
Daniel E. Klimas
|
|
|
191,063
|
(8)
|
|
|
|
2.38
|
%
|
Daniel G. Merkel
|
|
|
7,296
|
(9)
|
|
|
|
*
|
|
Kevin W. Nelson
|
|
|
14,858
|
(10)
|
|
|
|
*
|
|
Benjamin G. Norton
|
|
|
156,801
|
(11)
|
|
|
|
1.99
|
%
|
Thomas P. Perciak
|
|
|
10,166
|
|
|
|
|
*
|
|
Jeffrey F. Riddell
|
|
|
103,575
|
(12)
|
|
|
|
1.31
|
%
|
John W. Schaeffer, M.D.
|
|
|
17,912
|
(13)
|
|
|
|
*
|
|
Frank A. Soltis
|
|
|
22,817
|
(14)
|
|
|
|
*
|
|
Donald F. Zwilling
|
|
|
9,399
|
(15)
|
|
|
|
*
|
|
All Directors and Executive Officers as a Group (19 in group)
|
|
|
876,991
|
(16)
|
|
|
|
10.88
|
%
|
|
|
|
* |
|
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
common shares reported. |
|
(2) |
|
Common shares beneficially owned by Mr. Campana which are
subject to shared voting and investment power with his spouse. |
|
(3) |
|
Includes 833 common shares beneficially owned by Mr. Elek
which are subject to unexercised stock options which are vested
and exercisable and 1,877 shares beneficially owned by
Mr. Elek which are held in the Corporations 401(k)
subject to shared voting and investment power. |
|
(4) |
|
Includes 24,947 common shares beneficially owned by
Mr. Goode which are subject to shared voting and investment
power with his spouse. |
14
|
|
|
(5) |
|
Includes 22,500 common shares beneficially owned by
Mr. Harnett which are subject to unexercised stock options
which are vested and exercisable and 3,028 shares which are
held in the Corporations 401(k) subject to shared voting
and investment power. |
|
(6) |
|
Includes 8,000 common shares beneficially owned by
Mr. Herrick which are held in his companys 401(k)
subject to shared voting and investment power. |
|
(7) |
|
Includes 7,530 common shares beneficially owned by
Mr. Howley which are held by a partnership of which
Mr. Howley is a partner and which are subject to shared
voting and investment power. |
|
(8) |
|
Includes 140,000 common shares beneficially owned by
Mr. Klimas which are subject to unexercised stock options
which are vested and exercisable and 4,709 shares which are
held in the Corporations 401(k) subject to shared voting
and investment power. |
|
(9) |
|
Includes 6,796 common shares beneficially owned by
Mr. Merkel which are subject to shared voting and
investment power with his spouse and 500 common shares held by
his spouse. |
|
(10) |
|
Includes 2,500 common shares beneficially owned by
Mr. Nelson which are subject to unexercised stock options
which are vested and exercisable and 2,358 shares which are
held in the Corporations 401(k) subject to shared voting
and investment power. |
|
(11) |
|
Includes 73,809 common shares beneficially owned by
Mr. Norton which are held in a trust for the benefit of
Mr. Nortons spouse and subject to shared voting and
investment power. |
|
(12) |
|
Includes 31,663 shares beneficially owned by
Mr. Riddell which are held in a trust for the benefit of
Mr. Riddell. |
|
(13) |
|
Includes 7,403 common shares beneficially owned by
Dr. Schaeffer which are held by his spouse and subject to
shared voting and investment power. |
|
(14) |
|
Includes 5,000 common shares beneficially owned by
Mr. Soltis which are subject to unexercised stock options
which are vested and exercisable and 5,217 shares which are
held in the Corporations 401(k) subject to shared voting
and investment power. |
|
(15) |
|
Includes 1,009 common shares beneficially owned by
Mr. Zwilling which are held in a trust for the benefit of
his spouse and subject to shared voting and investment power. |
|
(16) |
|
Includes 208,958 common shares which are subject to shared
voting and investment power and 178,333 common shares which are
subject to unexercised stock options which are vested and
exercisable. |
As of March 9, 2011, 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:
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Name and Address of
|
|
Beneficially
|
|
Percent of
|
Beneficial Owner
|
|
Owned
|
|
Class
|
|
The Lorain National Bank
|
|
|
501,396
|
|
|
|
6.36
|
%
|
457 Broadway
Lorain, Ohio 44052(1)
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP
|
|
|
584,724
|
|
|
|
7.47
|
%
|
Palisades West, Building One
6300 Bee Cave Road
Austin, Texas, 78746(2)
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Umberto P. Fedeli
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474,985
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6.07
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%
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5005 Rockside Road, Fifth Floor
Independence, Ohio 44131(3)
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(1) |
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These common shares are held in various fiduciary capacities in
the ordinary course of business under numerous trust
relationships by The Lorain National Bank. As fiduciary, The
Lorain National Bank has sole power to dispose of all of these
common shares, sole power to vote none of these common shares,
and shared power to vote all of these common shares. |
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(2) |
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Based solely on a Schedule 13G filed on February 11,
2011, which reports that Dimensional Fund Advisors LP
(DFA) may be deemed to be the beneficial owner of
584,724 common shares as a result of acting as |
15
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investment adviser or
sub-adviser
to, or manager of, certain investment companies, trusts and
accounts (collectively, the DFA Funds). The DFA
Funds possess sole voting power over 579,400 common shares and
sole dispositive power over 584,724 common shares. DFA disclaims
beneficial ownership of such securities. |
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(3) |
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Based solely on a Schedule 13G/A filed November 10,
2010 by Umberto P. Fedeli, who has sole voting power and sole
dispositive power over 474,985 of the shares. |
CORPORATE
GOVERNANCE
The Board of Directors met 12 times in 2010. Each director who
served on the Board of Directors during 2010 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.
The non-employee directors meet in executive sessions after the
end of each regularly scheduled Board meeting.
The Board of Directors has implemented a formal policy that
requires each director to attend the Corporations annual
meetings of shareholders, and which requires the Corporation to
identify any director who was unable to attend an annual meeting
in the following years annual meeting proxy statement and
explain the reason for such directors absence. Typically,
the Board holds its annual organizational meeting directly
following each annual meeting of shareholders, which results in
most directors being able to attend the Corporations
annual meetings of shareholders. All of the directors attended
the 2010 Annual Meeting of Shareholders.
In accordance with Nasdaq Stock Market rules, the Board of
Directors determines the independence of each director and
director nominee in accordance with the standards set forth in
Rule 4200(a)(1)-(15)
of the Nasdaq Stock Market listing rules. The Board of Directors
has determined that all of the Corporations directors and
director nominees are independent in accordance with the Nasdaq
Stock Market listing standards, except for Mr. Klimas.
The Board of Directors has established a Code of Ethics and
Business Conduct that applies to all directors, officers and
employees, which may be found on the Corporations website
at www.4lnb.com. The information on the Corporations
website is not part of this Proxy Statement. The Corporation
intends to post on its website all disclosures that are required
by law or Nasdaq Stock Market listing standards concerning any
amendments to, or waivers from, the Code of Ethics and Business
Conduct. Shareholders may request a copy of the Code of Ethics
and Business Conduct by written request directed to LNB Bancorp,
Inc., Attention: Corporate Secretary, 457 Broadway, Lorain, OH
44052.
Shareholders may communicate directly to the Board of Directors
in writing by sending a letter to the Board at: LNB Bancorp,
Inc. Board of Directors, 457 Broadway, Lorain, Ohio 44052. All
letters directed to the Board of Directors will be received and
processed by the Corporate Secretary and will be forwarded to
the Chairman of the Governance Committee without any editing or
screening.
Board
Leadership
While the Corporations Chief Executive Officer is a member
of Board of Directors, the Boards governance structure
currently separates the roles of Chief Executive Officer and
Chairman of the Board. The Chairman of the Board is
independent in accordance with the Nasdaq Stock
Market listing standards. The Board of Directors believes that
it serves a vital role in the oversight of the
Corporations management team on behalf of shareholders and
that the Board is more effective in that role when led by an
independent Chairman of the Board. The Board of Directors also
believes that separating the roles of Chief Executive Officer
and Chairman of the Board permits the Chief Executive Officer to
focus more on managing the Corporations business
operations as the Chairman has responsibility for leading the
Board in its oversight function and consideration of corporate
strategy. The Board recognizes the time, effort and energy that
the Chief Executive Officer is required to devote to his
position in the current business environment, as well as the
commitment required to serve as the Chairman of the Board.
Accordingly, the Board believes that the Corporations
interests are best served by separating the role of Chief
Executive Officer and Chairman of the Board.
16
Committees
of the Board
The Board of Directors of LNB Bancorp, Inc., has four standing
committees: the Audit and Finance Committee, the Compensation
Committee, the Governance Committee and the Executive Committee.
Each Committee serves in a dual capacity as a Committee of the
Corporation and The Lorain National Bank.
Audit and
Finance Committee
Members
Lee C. Howley, Chairman
J. Martin Erbaugh
Terry D. Goode
Donald F. Zwilling
The Audit and Finance Committee met nine (9) times during
2010. Daniel G. Merkel served as a member of the committee until
April 27, 2010, when the Board realigned committee
assignments. The functions of the Audit and Finance Committee
include the engagement of an independent registered public
accounting firm, reviewing with that independent registered
public accounting firm the plans for and results of its audit of
the Corporation, approving the annual audit plan and reviewing
the results of the procedures for internal auditing, reviewing
the independence of the external auditors, reviewing the
Corporations financial results and Securities and Exchange
Commission filings, reviewing the effectiveness of the
Corporations internal controls and similar functions and
approving all auditing and non-auditing services performed by
the Corporations independent registered public accounting
firm. The Board of Directors has adopted a written charter for
the Audit and Finance Committee, which may be found on the
Corporations website at www.4lnb.com. All members of the
Audit and Finance Committee meet the independence standards of
Rule 4200(a)(15) of the Nasdaq Stock Market listing
standards and
Rule 10A-3
under the Securities Exchange Act of 1934, as amended, and the
Audit and Finance Committee qualifications of
Rule 4350(d)(2) of the Nasdaq Stock Market listing
standards. The Board of Directors has determined that Lee C.
Howley and Donald F. Zwilling are each an audit committee
financial expert as that term is defined in
Item 407(d)(5) of
Regulation S-K.
The report of the Audit and Finance Committee for 2010 appears
under the caption Report of the Audit and Finance
Committee.
Compensation
Committee
Members
Robert M. Campana, Chairman
Terry D. Goode
Benjamin G. Norton
Thomas P. Perciak
John W. Schaeffer, M.D.
The Compensation Committee is comprised entirely of independent
directors as prescribed by Nasdaq Stock Market listing
standards. The Board of Directors has adopted a Compensation
Committee Charter, which may be found on the Corporations
website at www.4lnb.com. The Compensation Committee met thirteen
(13) times during 2010. James F. Kidd and J. Martin Erbaugh
served as members of the committee until April 27, 2010,
when Mr. Kidd retired from the Board of Directors and the
Board realigned committee assignments. The Compensation
Committee is responsible for determining director and executive
officer compensation, reviews and establishes policies for
benefit programs of the Corporation, and reviews benefit
insurance programs of the Corporation. The committees role
in establishing compensation for the Corporations
executive compensation is discussed further under the caption
Compensation Discussion and Analysis and the
committees report on executive compensation matters for
2010 appears under the caption Report of the Compensation
Committee on Executive Compensation.
17
Governance
Committee
Members
Jeffrey F. Riddell, Chairman
J. Martin Erbaugh
Benjamin G. Norton
John W. Schaeffer, M.D.
The Governance Committee is comprised entirely of independent
directors as prescribed by Nasdaq Stock Market listing
standards. The Board of Directors has adopted a Governance
Committee Charter which may be found on the Corporations
website at www.4lnb.com. The Governance Committee met eight
(8) times during 2010. Daniel G. Merkel served as a member
of the committee until April 27, 2010, when the Board
realigned committee assignments.
The Governance Committee is responsible for developing and
recommending to the Board corporate governance policies and
guidelines for the Corporation. The committee also develops
guidelines for identifying director and committee member
candidates and recommends qualified candidates to the Board for
nomination for election to the Board and appointment to
committee membership in accordance with the Corporations
Amended Code of Regulations. The committee recommends director
candidates to the Board of Directors for nomination, in
accordance with the Corporations Amended Code of
Regulations. The committee evaluates and assesses the background
and skills of potential directors and committee members. The
Governance Committee may engage a third party search firm to
assist in identifying potential directors if necessary, but has
not done so and, accordingly, has paid no fees to any such firm.
The Governance Committee and the Board of Directors consider the
following criteria in determining whether an individual is
qualified to serve as a director of the Corporation:
independence (a majority of the directors must be independent);
honesty and integrity; willingness to devote sufficient time to
fulfilling duties as a director; particular experience, skills
or expertise relevant to the Corporations business; depth
and breadth of business and civic experience in leadership
positions; and ties to LNBs geographic markets. The
Governance Committee and the Board of Directors also consider
the composition of the Board as a whole in evaluating whether a
particular individual should serve on the Board, as the Board
seeks to comprise itself of members which, collectively, possess
a range of relevant skills, experience and expertise. While the
Board of Directors does not maintain a policy regarding
diversity, the Board of Directors does consider the diversity of
the Board when considering director nominees.
Shareholder
Recommendations
Shareholders may propose potential director nominees for the
consideration of the Governance Committee by submitting the
names and qualifications of such persons to the Chairman of the
Governance Committee at the Corporations executive
offices, which submissions then will be forwarded to the
Chairman. The Governance Committee will evaluate the
qualifications of any such persons using the criteria outlined
above and will consider whether to recommend the nomination of
any such person in light of the committees evaluation of
the persons qualifications, the qualifications of any
other potential director nominees and then current size and
composition of the Board of Directors. In order for any such
potential director nominees to be evaluated for nomination at an
annual meeting of shareholders, submissions of the name and
qualifications of such potential nominees should be made no
later than the December 31st prior to the annual
meeting. The Governance Committee is not obligated to recommend
to the Board, nor is the Board obligated to nominate any such
individual for election as a director.
18
Executive
Committee
Members
James R. Herrick, Chairman
Terry D. Goode, Vice Chairman
Robert M. Campana
Lee C. Howley
Daniel E. Klimas
Daniel G. Merkel
Jeffrey F. Riddell
The Executive Committee is authorized and empowered to exercise,
during the intervals between meetings of the Board of Directors,
all of the powers of the Board of Directors in the management
and control of the Corporation to the extent permitted by law.
The Executive Committee did not meet during 2010.
Board
Role in Risk Oversight
Risk is inherent in any business and the Corporations
management is responsible for the
day-to-day
management of risks that the Corporation faces. The Board, on
the other hand, has responsibility for the oversight of risk
management. The Board of Directors is responsible for providing
oversight of, and direction and authority to management
regarding the Corporations business activities in a manner
consistent with the best interests of the Corporations
stakeholders. The Board is responsible for identifying and
understanding the needs and expectations of key stakeholders and
for evaluating possible outcomes that could arise out of the
Corporations business activities and whether they would be
acceptable to stakeholders. To guide managements decision
making process, the Board articulates broad tolerance levels or
limits. To ensure that risk management activities are within
those tolerance limits, the Board is responsible for ensuring
the establishment of satisfactory management information and
communication requirements.
The Board believes that full and open communication between
management and the Board of Directors is essential for effective
risk management and oversight. The Chairman of the Board meets
regularly with the Chief Executive Officer and other senior
officers to discuss strategy and risks facing the Corporation.
Senior management attends the Boards monthly meetings, as
well the monthly Board committee meetings, in order to address
any questions or concerns raised by the Board on risk
management-related and any other matters. Each month, the Board
of Directors receives presentations from senior management on
business operations, financial results and strategic matters.
The Board holds an annual strategic planning retreat, as well as
periodic strategic planning sessions with senior management to
discuss strategies, key challenges, and risks and opportunities
for the Corporation.
The Boards committees assist the Board in fulfilling its
oversight responsibilities in certain areas of risk. The Audit
and Finance Committee assists the Board in fulfilling its
oversight responsibilities with respect to enterprise risk
management and risk management in the areas of financial
reporting, internal controls and compliance with legal and
regulatory requirements. A risk management committee comprised
of the Corporations senior management reports to the Audit
and Finance Committee and is responsible for managing the
Corporations risk management activities and delegating
risk management authority to the individuals who responsible for
executing specific activities. Risk assessment reports are
regularly provided by management and the Corporations
internal auditors to the Audit and Finance Committee. The
Compensation Committee assists the Board in fulfilling its
oversight responsibilities with respect to the management of
risks arising from the Corporations compensation policies
and programs. The Governance Committee assists the Board in
fulfilling its oversight responsibilities with respect to the
management of risks associated with Board organization,
membership and structure, succession planning for directors and
executive officers, and corporate governance. The Lorain
National Banks Loan Review Committee monitors and oversees
the banks management of credit risk in its primary areas
of business. All of these committees report back to the full
Board of Directors at each Board meeting as to the
committees activities and matters discussed and reviewed
at the committees meetings.
19
Report of
the Audit and Finance Committee
The Audit and Finance Committee of the LNB Bancorp, Inc. Board
of Directors is comprised of four (4) directors, each of
whom is independent as defined by the Nasdaq Stock Market
listing standards and
Rule 10A-3
under the Securities Exchange Act of 1934, as amended, and
operates under a written charter adopted by the Board of
Directors.
Management is responsible for the Corporations internal
controls and the financial reporting process. The independent
registered public accounting firm is responsible for performing
an independent audit of the Corporations consolidated
financial statements in accordance with the Standards of the
Public Company Accounting Oversight Board and issuing a report
thereon. The Audit and Finance Committees responsibility
is to monitor and oversee these processes.
In this context, the Audit and Finance Committee has met and
held discussions with management and Plante & Moran,
PLLC, the Corporations independent registered public
accounting firm in 2010. In fulfilling the Committees
oversight responsibility as to the audit process, the Audit and
Finance Committee obtained from Plante & Moran, PLLC a
formal written statement describing all relationships between
the firm and the Corporation that might bear on the firms
independence as required by applicable requirements of the
Public Company Accounting Oversight Board regarding
Plante & Moran, PLLCs communications with the
Audit and Finance Committee concerning independence and
discussed with the firm any relationships that may impact its
objectivity and independence and satisfied itself as to the
independence of Plante & Moran, PLLC. The Audit and
Finance Committee also discussed with management, the
Corporations internal auditors and Plante &
Moran, PLLC the quality and adequacy of LNBs internal
controls and the internal audit functions organization,
responsibilities, budget and staffing. The committee reviewed
with Plante & Moran, PLLC and the Corporations
internal auditors their audit plans, audit scope and
identification of audit risks.
The Audit and Finance Committee discussed and reviewed with
Plante & Moran, PLLC all communications required by
generally accepted auditing standards, including those described
in Statement on Auditing Standards No. 61, as amended,
Communication with Audit and Finance Committees,
and, with and without management present, discussed and reviewed
the results of Plante & Moran, PLLCs examination
of the financial statements. The Audit and Finance Committee
also discussed the results of the internal audit examinations.
The Audit and Finance Committee reviewed the audited
consolidated financial statements of LNB Bancorp, Inc. as of and
for the year ended December 31, 2010, with management and
the independent registered public accounting firm.
Based on the above-mentioned review and discussions with
management and the independent registered public accounting
firm, the Audit and Finance Committee recommended to the Board
that the Corporations audited consolidated financial
statements be included in its Annual Report on
Form 10-K
for the year ended December 31, 2010, for filing with the
Securities and Exchange Commission. During 2010, the Audit and
Finance Committee appointed Plante & Moran, PLLC as
the Corporations independent registered public accounting
firm for 2010.
The Audit and Finance Committee has appointed Plante &
Moran, PLLC to continue as the Corporations independent
registered public accounting firm for its 2011 fiscal year, and
the Company is seeking ratification of such appointment at the
2011 Annual Meeting.
Audit and Finance Committee
Lee C. Howley, Chairman
J. Martin Erbaugh
Terry D. Goode
Donald F. Zwilling
20
Principal
Independent Registered Accounting Firm Fees
The Audit and Finance Committee has appointed Plante &
Moran, PLLC to continue as the Corporations independent
registered public accounting firm and to audit the financial
statements of the Corporation for the fiscal year ending
December 31, 2011. The Corporation is asking its
shareholders to ratify this appointment at the Annual Meeting.
The following table sets forth the aggregate fees billed for the
fiscal years ended December 31, 2010 and December 31,
2009 by LNBs principal independent registered public
accounting firm, Plante & Moran, PLLC.
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For the Year Ended
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December 31,
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2010
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2009
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Audit fees
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$
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282,925
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$
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275,600
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Audit-related fees(a)
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18,720
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Tax fees(b)
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25,945
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29,600
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All other fees(c)
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33,075
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32,025
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Total fees
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341,945
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355,945
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(a) |
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Includes fees for consulting services related to other
accounting and reporting matters. |
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(b) |
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Includes fees for services related to tax compliance. |
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(c) |
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The Audit and Finance Committee has considered whether the
provision of these services is compatible with maintaining the
principal independent registered accounting firms
independence and has determined that the provision of such
services has not affected the principal independent registered
accounting firms independence. In 2010 and 2009, these
fees include fees for services related to benefit plan audits. |
The Audit and Finance Committee is responsible for pre-approving
all auditing services and permitted non-audit services to be
performed by its independent registered public accounting firm,
except as described below.
The Audit and Finance Committee has established general
guidelines for the permissible scope and nature of any permitted
non-audit services in connection with its annual review of the
audit plan and reviewed such guidelines with the Board of
Directors. Pre-approval may be granted by action by the full
Audit and Finance Committee Chairman, whose action shall be
considered to be that of the entire committee. Pre-approval
shall not be required for the provision of non-audit services if
(1) the aggregate amount of all such non-audit services
constitutes no more than 5% of the total amount of revenues paid
by the Corporation to the auditors during the fiscal year in
which the non-audit services are provided, (2) such
services were not recognized by the Corporation at the time of
engagement to be non-audit services are provided, and
(3) such services are promptly brought to the attention of
the Audit and Finance Committee and approved prior to the
completion of the audit. No services were provided by
Plante & Moran, PLLC pursuant to these exceptions in
2010 or 2009.
21
EXECUTIVE
COMPENSATION AND OTHER INFORMATION
Compensation Discussion and Analysis
Introduction
The Compensation Committee operates under a written charter
adopted by the Board of Directors. The Compensation Committee is
responsible for developing and making recommendations to the
Board with respect to the Corporations executive
compensation policies and for the approval and administration of
the Corporations existing and proposed executive
compensation plans. The Compensation Committees
responsibility includes determining the contents of the
Corporations executive compensation plans, authorizing the
awards to be made pursuant to such plans and annually reviewing
and approving all compensation decisions relating to the
Corporations executive officers, including the President
and Chief Executive Officer and the other executive officers
named in the Summary Compensation Table (the Named
Executives).
The members of the Compensation Committee are Robert M. Campana,
Chairman, Terry D. Goode, Benjamin G. Norton, Thomas P. Perciak
and John W. Schaeffer, M.D. Each of the current members of
the Compensation Committee meets the definitions of
(i) independent within the meaning of the
listing standards of The Nasdaq Stock Market and (ii) a
non-employee director within the meaning of
Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as
amended.
Charter
The Board of Directors of the Corporation has adopted a charter
which describes the responsibilities, functions and authority of
the Compensation Committee. The full text of the charter is
available on the Corporations website at www.4lnb.com by
clicking on the link for Investor Relations. There
were thirteen (13) meetings of the Compensation Committee
in 2010.
Role of
Executives in Establishing Compensation
The Corporations Human Resources Department and other
members of management assist the Compensation Committee in its
administration of the Corporations executive compensation
program and the Corporations overall benefits program. The
Corporations Chief Executive Officer assesses the
performance of each of the Corporations other executive
officers and provides recommendations to the Compensation
Committee as to the structure and amounts of salary, cash bonus
awards, equity incentive awards and other benefits to be paid to
such executive officers. The CEO formulates his recommendations
with the assistance of the Corporations Senior Vice
President of Human Resources. The Senior Vice President of Human
Resources provides the CEO and the Compensation Committee with
information from external industry data surveys developed by the
American Bankers Association, The Ohio Bankers League,
Salary.com, and Robert Half and with internally prepared surveys
of the annual base salaries, cash bonus awards, equity incentive
awards and other benefits for the Named Executives in a group of
competitive companies, as described in Elements of
Compensation below. The Corporation did not engage an
independent compensation consultant during 2010.
The CEO
and/or the
Senior Vice President of Human Resources attend each meeting of
the Compensation Committee for the purpose of providing insight
into the Corporations performance and the performance of
individual executives and the executives contribution to
the Corporations performance, and to make recommendations
as to the structure and implementation of elements of executive
compensation. The CEO and the Senior Vice President of Human
Resources are not present during any discussions of their
respective individual compensation by the Compensation
Committee. The Compensation Committee believes that the input of
these executives, together with the external industry and
internal competitive group surveys reviewed by the committee,
provides the Compensation Committee with information necessary
to make informed decisions on executive compensation that are
consistent with the Compensation Committees overall
philosophy.
22
Limitations
on Executive Compensation in Connection with the
Corporations Participation in the TARP Program
On December 12, 2008, the Corporation issued preferred
stock and common stock purchase warrants to the
U.S. Department of Treasury under the TARP Capital Purchase
Program (CPP) created under EESA. As a result of
that transaction, the Corporation entered into certain required
amendments to incentive compensation plans and compensation
agreements with the Named Executives and became subject to
certain additional executive compensation and governance
requirements under TARP, CPP, EESA, and Treasury Department
regulations. Those requirements apply to certain employees of
the Corporation, including senior executive officers
of the Corporation (SEOs), which includes the Named
Executives. These requirements:
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prohibit incentive compensation arrangements that encourage SEOs
to take unnecessary and excessive risks;
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obligate the Compensation Committee to review SEO incentive
compensation arrangements with senior risk officers to ensure
that executives are not encouraged to take unnecessary and
excessive risks and to meet annually with senior risk officers
to discuss and review the relationship between risk management
policies and practices and SEO incentive compensation
arrangements;
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provide for the recovery of any bonus or incentive compensation
paid to a SEO where the payment was later found to have been
based on statements of earnings, gains, or other criteria which
prove to be materially inaccurate;
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limit the amounts that can be paid under change in control and
similar agreements which provide payments upon separation of
service; and
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limit the Corporations tax deduction for compensation paid
to any SEO to $500,000 annually.
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On February 17, 2009, the American Recovery and
Reinvestment Act of 2009 (ARRA) was signed into law.
On June 10, 2009, the U.S. Treasury issued the TARP
Regulations implementing the compensation and governance
requirements under ARRA. The TARP Regulations amend the
executive compensation and corporate governance provisions of
EESA to, among other things:
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prohibit the Corporation from making golden parachute payments
to any SEO or any of the next five most highly compensated
employees of the Corporation;
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require the Corporation to ensure that any bonus payment made to
a SEO or the next twenty most highly compensated employees is
subject to recovery or clawback by the Corporation
if the bonus payment was paid based on materially inaccurate
financial statements or any other materially inaccurate
performance metric criteria;
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prohibit tax
gross-ups or
other reimbursements for the payment of taxes to any of the SEOs
or the next twenty most highly compensated employees;
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prohibit paying or accruing any bonus, retention award, or
incentive compensation to the five most highly compensated
employees of the Corporation that fully vests during the period
in which any obligation under CPP remains outstanding or that
has a value greater than one-third of the total amount of the
annual compensation of the employee receiving the award; and
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require an annual, non-binding shareholder vote on the
Corporations executive compensation program.
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In accordance with the TARP Regulations, the Board of Directors
authorized a non-binding advisory shareholder vote on the
Corporations executive compensation plans, programs and
arrangements. See Proposal 4 Advisory
Approval of LNBs Executive Compensation Program. The
Corporations shareholders voted on similar proposals at
the Corporations past two annual meetings and each time
those proposals were approved by sizable majorities. The
Compensation Committee considers the results of these votes to
indicate that shareholders are generally supportive of the
Corporations executive compensation program and the
philosophy and objectives of the program. Accordingly, the
Compensation Committee has sought to make executive compensation
decisions and implement executive compensation policies that are
consistent with the philosophy and objectives that the
Corporations shareholders have approved in prior years.
23
Other provisions of ARRA require the participating companies to
establish a board compensation committee that must meet at least
semi-annually to discuss and evaluate employee compensation
plans in light of an assessment of any risk posed to the
Corporation from the plans; to adopt a company-wide policy
regarding excessive or luxury
expenditures; and to annually file a written certification of
the companys CEO and CFO as to the companys
compliance with the requirements.
The Corporations executive compensation program has
historically included significant performance-based elements,
including annual and long-term incentive cash compensation. The
Compensation Committees ability to award performance-based
elements of compensation has been greatly limited under the TARP
Regulations, particularly with respect to the Named Executives.
Accordingly, the Compensation Committee has taken action, and
continues to assess what further actions may be necessary or
appropriate, to modify the Corporations executive
compensation program for Named Executives to work within the
limitations imposed by the TARP Regulations while still ensuring
that the executive compensation program continues to fulfill its
philosophy and objective.
General
Compensation Philosophy
The Compensation Committee has determined that the Corporation,
as a performance-driven business, should reward outstanding
financial results with appropriate compensation. The
Compensation Committees strategy for carrying out this
philosophy is to seek to link executive compensation with the
Corporations financial performance while, at the same
time, considering external market factors that affect such
performance that are outside the control of the
Corporations executives. The Compensation Committee
recognizes the importance of maintaining compensation and
benefits at competitive levels in order to attract and retain
talented executives. In addition, the Compensation Committee
considers how compensation arrangements may affect risk-taking
by executives.
The Corporations executive compensation program has
historically consisted of three primary components: base salary,
an annual cash bonus and equity incentive awards. Due to the
Corporations participation in the CPP and the limitations
on executive compensation under the related TARP Regulations, an
annual cash bonus is no longer a primary component of the
compensation of the Named Executives. In general, base salaries
are established at or near market median levels for comparable
positions in Northeast Ohio banks and banks of similar size in
other regions. Annual cash bonus opportunities (to the extent
they are permissible under the TARP Regulations) are dependent
upon the achievement of financial objectives established in
advance and reflective of the opportunities and challenges
present in the Corporations industry. In addition,
long-term compensation has been awarded in the form of equity
awards to the Named Executives and other key executives. The
equity awards, granted as restricted shares intended to meet the
definition of long-term restricted stock under the
TARP Regulations, are intended to provide key executives with
competitive financial benefits, to the extent shareholder value
is enhanced.
The Compensation Committee believes that equity-based
compensation aligns the long-term interests of employees with
those of shareholders, and has periodically included equity
award grants as an element of executive compensation for the
Corporations key executives, including the Named
Executives. In determining appropriate equity-based compensation
awards for the Corporations executives, the Compensation
Committee focuses on the current performance and achievements of
the executive, the industry data surveys and comparative peer
group information, and the executives present and
potential future contribution to the Corporations success.
The Compensation Committee also considers that recommendation of
the Chief Executive Officer, with respect to equity award grants
to executives other than the Chief Executive Officer.
The Corporation also provides its executives with certain other
benefits. Those benefits include the opportunity to participate
in a 401(k) retirement savings plan, as well as certain
compensatory insurance benefits and other perquisites which are
described below and in the Summary Compensation Table included
in this proxy statement. In addition, the Chief Executive
Officer previously entered into an agreement with the
Corporation that provides for specified benefits based upon
certain events following a change of control of the Corporation.
The Compensation Committee believes that the agreement serves to
better align the interests of the Chief Executive Officer and
the Corporations shareholders should such a change arise,
and help ensure that the Chief Executive Officer remains in his
position during a period of ownership transition and makes
operational decisions which are in the best interests of the
Corporation and its shareholders. While this agreement with the
Chief Executive Officer remains in effect, in
24
order to comply with TARP Regulations, it has been amended to
prohibit the payment of the change in control benefits under the
agreement, except to the extent permitted under the TARP
Regulations.
The Compensation Committee believes these various elements of
the executive compensation and benefits program further the
Corporations business objectives and the interests of its
shareholders by attracting and retaining the talented executive
leadership necessary for the growth and success of the
Corporations business and motivating its executives to
exert the maximum possible effort to further the interests of
shareholders. However, as a result of the TARP Regulations, the
Corporation is subject to limitations that have required the
Compensation Committee to alter, modify or eliminate elements
that have historically been a part of the Corporations
executive compensation program.
Elements
of Compensation
A primary role of the Compensation Committee is to analyze the
competitiveness and structure of the overall compensation
program of the corporate executives. This includes analyzing the
salary, annual cash bonus awards and long-term equity incentive
awards, where applicable, to be paid to the Corporations
executives. The Compensation Committee also structures and
monitors the Corporations equity-based compensation plans
with executive officers and its employment and change in control
agreement with its Chief Executive Officer. The Compensation
Committee does not benchmark executive compensation
against its competitors, but the committee does gauge the
competitiveness of the Corporations executive compensation
level by analyzing market data regarding annual base salary,
annual cash bonus awards, long-term equity incentive awards and
other benefits paid by companies in what the Compensation
Committee considers the Corporations primary
competitor group, which includes financial institutions
within a Tri-State area with $1 billion in assets, and
companies in a secondary competitor group, which
includes financial institutions from across various states
having annual revenue similar to that of the Corporation. The
Compensation Committee relies on management and external
research to identify the individual companies which make up
these competitor groups. The Compensation Committee and the
Human Resources department believe that the most direct
competitors for executive talent are not necessarily the
companies that would be included in the peer group established
to compare shareholder returns. Accordingly, in identifying the
group of surveyed employers, the Human Resources department
assembles market data on companies having projected revenues
similar to that of the Corporation, with particular emphasis on
larger employers which may be significant competitors for
executive talent. The assembled data is then reviewed by the
Chief Executive Officer, the Senior Vice President of Human
Resources and with respect to each of the top executive officer
positions, adjusted for the scope of responsibilities of the
position within the Corporation as compared to the equivalent
responsibilities of positions within the companies included in
the survey data. The Compensation Committee then compares the
Corporations compensation and benefits practices with
those of the other companies included in the survey data and
takes the results into account when establishing compensation
guidelines and recommendations for executives.
Total
Compensation
In prior years, before the Corporation participated in the CPP
and became subject to the TARP Regulations, the Compensation
Committee sought to provide the Named Executives with an annual
cash bonus opportunity that, when combined with the
executives base salary, would result in total annual cash
compensation to the executive in an amount competitive when
compared to the market data provided by the surveys reviewed by
the committee. As a result of the restrictions imposed by the
TARP Regulations, the Corporation, in particular, is generally
prohibited from paying cash bonuses to the Named Executives. The
Compensation Committee believes that the Named Executives have
performed well during a period of persistent economic
challenges, industry unpredictably and far-reaching regulatory
changes and that maintaining compensation and benefits at
competitive levels in order to retain the Corporations
management team is important to the future success of the
Corporation. Accordingly, the Compensation Committee has shifted
from its historical focus on cash compensation and instead
emphasizes providing the Named Executives with total
compensation, including base salary, long-term equity
compensation awards and other benefits, that is competitive when
compared to the market data in the surveys reviewed by the
Compensation Committee.
25
In determining the total compensation for each Named Executive
other than the CEO for 2010, the Compensation Committee
generally seeks to provide each Named Executive other than the
CEO with total compensation, including annual base salary,
long-term equity compensation awards and other benefits, that
would result in total annual compensation to the executive that
is competitive with the market data provided by the surveys.
Chief Executive Officer. In determining the
total compensation of the Chief Executive Officer for 2010, the
Compensation Committee surveyed the total compensation provided
to the chief executive officers of the financial institutions in
the Corporations primary competitor group and secondary
competitor group with assets and operations most closely aligned
with those of the Corporation. The Compensation Committee
reviewed the total compensation, including annual base salary,
annual cash bonus, equity incentive awards and pension and
retirement benefits, provided by these other financial
institutions.
Annual
Base Salary
Generally, the Compensation Committee seeks to establish an
annual base salary level for each executive that falls at or
near the competitive market levels established for the surveyed
positions of executives having similar responsibilities. The
Compensation Committee believes that establishing base salaries
at this level helps the Corporation attract and retain talented
executives and, when paired with long-term equity compensation
awards, appropriately rewards executives based on performance.
In establishing salary levels for each executive other than the
CEO, the Compensation Committee, at its regular meeting early in
the fiscal year, considers annual survey information from the
Human Resources Department and also reviews annual
recommendations from the CEO. The Compensation Committee also
takes into account whether each executive met key objectives,
and considers each executives potential future
contributions to the Corporation. In addition, the Compensation
Committee determines whether each executives base salary
provides an appropriate reward for the executives role in
the Corporations performance and incentive for the
executive to contribute to sustaining and enhancing the
Corporations long-term performance. Important components
that are considered by the Compensation Committee in
establishing base salary levels are: knowledge and problem
solving abilities required to meet the position requirements,
span of control, accountability, educational requirements, years
of experience, division sales and profit objectives, key
departmental objectives, and market salary surveys. Operating
objectives vary for each executive and typically change from
year-to-year.
Financial and operating objectives are considered in the
aggregate by the Compensation Committee and are not specifically
weighted in establishing base salaries. The base salary levels
established for 2010 were based on the judgment of the
Compensation Committee, taking into account the CEOs input
regarding each executives achievement of applicable 2009
operating and financial objectives and the targeted salary
ranges based on market salary information. Where necessary, the
Compensation Committee may recognize the particular talents,
unique skills, experience, length of service to the Corporation
and depth of banking or functional knowledge of certain key
executives and determine that their base salary levels must be
established above the market range to retain these executives.
After reviewing the overall compensation programs of the Named
Executives, and considering the economic conditions of the
banking industry, market survey information, the
Corporations 2009 financial results, and the
recommendations of the Chief Executive Officer, the Compensation
Committee determined to implement merit increases of between 2.2
and 3% of the base salaries for the four Named Executives other
than the Chief Executive Officer for 2010.
Chief Executive Officer. In determining the
Chief Executive Officers base salary for 2010, the
Compensation Committee reviewed the compensation arrangements
provided by other financial institutions in the
Corporations competitor groups discussed above, and
considered the Corporations performance in light of the
prevailing economic and industry conditions, as well as the
constantly changing regulatory environment. The Compensation
Committee also considered the CEOs individual experience,
accountability, know-how, leadership and problem-solving
abilities, and determined that the CEOs base salary was
appropriate and, accordingly, it was not increased for 2010.
26
Indirect
Loan Production Commission
While cash bonuses and incentives may not be paid to the
Corporations five most highly compensated employees
pursuant to the TARP Regulations, the TARP Regulations do permit
payment of commission compensation under certain circumstances.
Accordingly, the Compensation Committee continued in 2010 the
Corporations use of a commission compensation program as
part of its compensation of Kevin W. Nelson, the
Corporations Senior Vice President of Indirect Lending.
Under the program, Mr. Nelson has the opportunity to earn a
commission based on the total amount of indirect automobile
loans made by the Corporation during 2010 for which
Mr. Nelson is responsible. The program provided
Mr. Nelson with the opportunity to earn a commission equal
to up to 20% of his base salary, based on a graduated scale of
5% to 20% of his base salary paid based on achievement from 80%
to 110% of the goal of $122,300,000 in indirect loans for 2010.
Mr. Nelson achieved loan production equal to 100% of the
goal and, accordingly, was paid a commission of $20,025 for 2010.
Long-Term
Equity Compensation Awards
In prior years, the Compensation Committee, from time to time,
included grants of long-term equity compensation awards as part
of the annual compensation provided to the Named Executives,
primarily in the form of stock options. The Compensation
Committee believes that the primary benefit to the Corporation
of long-term equity compensation awards is to motivate the Named
Executives to increase shareholder value, and to ensure adequate
executive retention.
Under the TARP Regulations, the Corporation is prohibited from
granting equity compensation awards to the Named Executives
unless such awards are made in the form of long-term
restricted stock that complies with various requirements
specified in the regulations. In light of those restrictions, as
well as the general prohibition on the payment of cash bonuses
to the Named Executives under the TARP Regulations, the
Compensation Committee determined to make equity compensation
awards a more prominent component of the overall compensation of
the Named Executives and authorized long-term restricted stock
awards under the Corporations existing 2006 Stock
Incentive Plan. After considering the strong performance of the
Corporations core business during 2009, to further align
the Named Executives interests with the Corporations
shareholders and in order to maintain the competitiveness of the
Corporation total executive compensation and help ensure
executive retention, in February 2010, the Compensation
Committee granted shares of long-term restricted stock under the
Corporations existing 2006 Stock Incentive Plan to each of
the Named Executives. The material terms of the long-term
restricted stock awards are further described in this proxy
statement under 2006 Stock Incentive Plan
Long-Term Restricted Stock.
Chief Executive Officer. In prior years,
before the Corporation was subject to the requirements imposed
by the TARP Regulations, the Compensation Committee established
a long-term incentive plan for the CEO that provided for an
incentive payment in cash, equity awards, or a combination of
both, to the CEO based on achievement of long-term strategic
goals. As discussed above, the TARP Regulations prohibit the
Corporation from paying the Chief Executive Officer a cash bonus
or granting him equity compensation awards other than in the
form of long-term restricted stock.
The Compensation Committee believes that the CEO is the primary
force for the long term strategic vision of the Corporation. The
Compensation Committee also believes that the Chief Executive
Officer should receive appropriate compensation for his
effective leadership of the Corporation during a period of
persistent economic and industry-related challenges, and the
strong performance of the Corporations core business
during 2009 and into 2010 in the face of these challenges.
Accordingly, in light of the Corporations performance, and
in order to further align the CEOs interests with the
Corporations shareholders and to maintain the
competitiveness of the CEOs total compensation and help
ensure his retention, the Compensation Committee, in February
2010, granted shares of long-term restricted stock to the CEO.
In November 2010, the Compensation Committee, approved an
additional grant of long-term restricted stock to the CEO in
order to enhance the competitiveness of his total compensation
relative to the compensation provided to similarly-situated
CEOs in the market data and competitor group data reviewed
by the committee and to further recognize his effective
leadership of the Corporation.
27
Personal
Benefits and Perquisites
The Corporation has established the Lorain National Bank
Retirement Savings Plan, a qualified 401(k) defined contribution
plan, to which the Corporation makes contributions on behalf of
each of the Named Executives. Consistent with what is generally
provided to all of its employees, the Corporation also maintains
and pays premiums on behalf of each Named Executive which
provide a benefit under the Life Insurance, Long-term
Disability, and Accidental Death and Dismemberment Plans of up
to two times the Named Executives base salary on life and
AD&D coverage and up to two-thirds of the Named
Executives base salary on disability coverage, and
provides partial payment of elected medical benefit premiums for
the Named Executive.
The Corporation provided certain Named Executives certain
perquisites in 2010, which the Compensation Committee believes
are commensurate with the types of benefits and perquisites
provided to similarly situated executives within the competitor
peer groups, and are thus useful to the Corporation in
attracting and retaining qualified executives. These perquisites
include the payment of automobile expenses and club dues as
described below under the Summary Compensation Table.
Elements
of Post-Termination Compensation
The Corporation previously entered into an employment agreement
with Mr. Klimas which provided for the payment of certain
severance benefits upon termination of employment in certain
circumstances, including following a change of control of the
Corporation, which arrangements are summarized below under Other
Potential Post-Employment Compensation. The Compensation
Committee believes that the severance arrangements provided for
in an agreement such as this are vital to the attraction and
retention of a talented CEO and, thus, to the long term success
of the Corporation. This agreement also addresses the
Corporations interest in ensuring the continuity of
corporate management and the continued dedication of the CEO
during any period of uncertainty caused by the possible threat
of a takeover. However, the TARP Regulations restrict the
Corporations ability to provide the severance arrangements
established under this agreement while the Corporations
TARP obligations remain outstanding, so Mr. Klimas
agreement was amended in 2009 to comply with the TARP
Regulations.
Compensation
Policies
Section 162(m)
of the Internal Revenue Code
The Compensation Committee believes it is in the
shareholders best interest to retain as much flexibility
as possible in the design and administration of executive
compensation plans. The Corporation recognizes, 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 corporations chief executive
officer and four other most highly compensated executive
officers. Because the statute exempts qualifying
performance-based compensation from the deduction limit if
certain requirements are met, the Compensation Committee intends
generally to structure performance-based compensation to
executive officers who may be subject to Section 162(m) in
a manner that satisfies the requirements for this exemption
whenever administratively and practically feasible. The Board
and the Compensation Committee, however, 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, there is no assurance that compensation intended to
satisfy the requirements for deductibility under
Section 162(m) actually will be deductible.
Report of
the Compensation Committee on Executive Compensation
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with the Corporations management. Based on that review and
discussion, the Compensation Committee recommended to the Board
of Directors that the Compensation Discussion and Analysis be
included in the Corporations Annual Report on
Form 10-K
and in the Corporations definitive proxy statement
prepared in connection with its 2011 Annual Meeting of
Shareholders.
Risk
Review
Pursuant to the TARP Regulations, the Compensation Committee, at
least once every six months, discusses, evaluates and reviews
with the Corporations senior risk officers any risks
(including long-term and short-term
28
risks) that the Corporation faces that could threaten the value
of the Corporation. In connection with this review, the
Compensation Committee discusses, evaluates and reviews with the
Corporations senior risk officers:
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the Corporations SEO compensation plans to ensure that
those plans do not encourage SEOs to take
unnecessary and excessive risks that threaten the
value of the Corporation;
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all employee compensation plans in light of the risks posed to
the Corporation by those plans and how to limit such
risks; and
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all employee compensation plans of the Corporation to ensure
that those plans do not encourage the manipulation of reported
earnings of the Corporation to enhance the compensation of any
of the Corporations employees.
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SEO
Compensation Plans
The Corporation offers the following plans in which the
SEOs participate:
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An employment agreement for the Chief Executive Officer;
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The 2006 Stock Incentive Plan and the Stock Appreciation Rights
Plan;
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An indirect loan production commission arrangement for the
Senior Vice President of Indirect Lending; and
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The Corporations 401(k) Plan.
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The Compensation Committee reviewed each of the above plans and
arrangements and determined that none of them encourage the SEOs
to take unnecessary and excessive risks that threaten the value
of the Corporation. In this regard, the employment agreement
with the Chief Executive Officer provides for severance payments
if a termination of employment occurs under certain
circumstances. As discussed under Compensation Discussion
and Analysis and Other Potential Post-Employment
Compensation, due to the Corporations participation
in the TARP Capital Purchase Program, the Corporation is
restricted from providing the Chief Executive Officer with any
severance payments in connection with the termination of his
employment before the preferred stock issued to the
U.S. Department of the Treasury pursuant to the TARP
Capital Purchase Program is redeemed.
The 2006 Stock Incentive Plan and the Stock Appreciation Rights
Plan were each approved by the shareholders of the Corporation
and provide for the granting of equity awards, including stock
options, stock appreciation rights and restricted stock awards.
The Compensation Committee believes that long-term equity
incentives help to align the interests of management with
shareholders. Awards granted under these plans include a
long-term vesting schedule to further encourage positive
long-range performance and to assist in the retention of
management and are subject to a recovery or clawback
provision if any applicable award or payment under the plan is
based on financial statements or other performance metrics that
are later determined to be materially inaccurate. Long-term
restricted stock awards granted under the 2006 Stock Incentive
Plan are intended to comply with all requirements for such
awards under the TARP Regulations. In light of the long-term
nature of these equity awards and the recovery provisions
established under the plans, the Compensation Committee believes
that these equity awards do not encourage the Named Executives
to take unnecessary and excessive risks that threaten the value
of the Corporation.
The Corporation maintains an indirect loan production commission
arrangement for its Senior Vice President of Indirect Lending.
The arrangement provides for a commission to be paid based on
the total amount of indirect automobile loans made by the
Corporation during 2010 for which the executive is responsible.
The Compensation Committee believes that the commission, which
may constitute any amount equal to up to 20% of the
executives salary, acts as an appropriate incentive and
motivation to the executive without encouraging him to take
unnecessary and excessive risks that threaten the value of the
Corporation.
The 401(k) Plan is a tax-qualified plan that provides benefits
to all employees who meet certain service requirements. Because
participation and allocations in the plan are not based on
Corporation or individual performance, the Compensation
Committee believes that this plan does not encourage the SEOs to
take unnecessary and excessive risks that threaten the value of
the Corporation.
The Compensation Committee believes that the above plans and
arrangements encourage the creation of long-term value instead
of behavior focused on achieving short-term results. In
addition, as discussed under Compensation Discussion and
Analysis, the Corporation is restricted from paying any
cash bonuses or granting any new stock options to
29
its five most highly compensated employees due to restrictions
imposed on TARP Capital Purchase Program participants. Further,
the SEOs and the next five most highly compensated employees are
restricted from receiving any severance payments if their
employment is terminated before the preferred stock is redeemed.
These restrictions further limit the unnecessary and
excessive risks that could arise from the
Corporations executive compensation arrangements.
Other
Employee Compensation Plans
In addition to the plans and arrangements identified above, the
Compensation Committee has identified eight different employee
compensation arrangements that provide for variable cash
compensation bonus, commission or incentive payments. Each
arrangement is available to a different set of employees and the
amount received differs depending on level of job responsibility
and plan objectives. Incentive compensation to management
employees who are not one of the five most highly compensated
employees is based on the Corporations profitability and
the achievement of subjective goals. Incentive compensation to
lending employees is based on volume, adjusted for nonperforming
loans and credit costs, and subject to approval by a separate
credit underwriting approval process. Incentive compensation to
retail banking employees is based on deposit and balance growth
and is subject to a maximum limit. Incentive compensation to
brokerage employees was based on volume of asset management,
brokerage and referral fees and commissions, and was subject to
an independent review and approval process until the Corporation
exited the business in 2010. Incentive compensation to trust
employees is based on net new business and is subject to an
independent review and approval process. Awards under these
plans are subject to a recovery or clawback
provision if any applicable award or payment under the plan is
based on financial statements or other performance metrics that
are later determined to be materially inaccurate.
The Compensation Committee reviewed the structure and
implementation of these arrangements and discussed the risks
faced by the Corporation and the policies and processes in place
at the Corporation that mitigate these risks, as well as the
allocation of incentive compensation compared to other
compensation provided to the various employees and the recovery
provisions established under the arrangements, and determined
that the arrangements act an as appropriate incentive and
motivation to the employees and do not encourage unnecessary and
excessive risks that threaten the value of the Corporation or
the manipulation of reported earnings to enhance the
compensation of any employee.
TARP
Certification
The Compensation Committee certifies that, during any part of
the most recently completed fiscal year that was a TARP period:
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(1)
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It has reviewed, at least every six months, with senior risk
officers the SEO compensation plans and has made all reasonable
efforts to ensure that these plans do not encourage SEOs to take
unnecessary and excessive risks that threaten the value of the
Corporation;
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(2)
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It has reviewed, at least every six months, with senior risk
officers the employee compensation plans and has made all
reasonable efforts to limit any unnecessary risks these plans
pose to the Corporation; and
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(3)
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It has reviewed, at least every six months, the employee
compensation plans to eliminate any features of these plans that
would encourage the manipulation of reported earnings of the
Corporation to enhance the compensation of any employee.
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Compensation Committee
Robert M. Campana, Chairman
Terry D. Goode
Benjamin G. Norton
Thomas P. Perciak
John W. Schaeffer, M.D.
30
The above Report of the Compensation Committee does not
constitute soliciting material and should not be deemed filed
with the Commission or subject to Regulation 14A or 14C
(other than as provided in Item 407 of
Regulation S-K)
or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended (the Exchange Act),
except to the extent that the Corporation specifically requests
that the information in this Report be treated as soliciting
material or specifically incorporates it by reference into a
document filed under the Securities Act of 1933, as amended (the
Securities Act), or the Exchange Act. If this Report
is incorporated by reference into the Corporations Annual
Report on
Form 10-K,
such disclosure will be furnished in such Annual Report on
Form 10-K
and will not be deemed incorporated by reference into any filing
under the Securities Act or the Exchange Act as a result of
furnishing the disclosure in this manner.
Compensation
Committee Interlocks and Insider Participation
During 2010, the Compensation Committee was comprised of
Messrs. Campana, Goode, Norton, Perciak, and Schaeffer,
each of whom was an independent director.
Summary
Compensation Table
The following table presents the total compensation to the Chief
Executive Officer, Chief Financial Officer and the three other
most highly compensated executive officers of the Corporation in
2010.
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Non-Equity
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Stock
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Option
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Incentive Plan
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All Other
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Name and Principal Position
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Year
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Salary
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Bonus
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Awards(1)
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Awards(2)
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Compensation
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Compensation(3)
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Total
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Daniel E. Klimas
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2010
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$
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400,000
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$
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198,750
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$
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$
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23,021
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(4)
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$
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621,771
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President and Chief
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2009
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$
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400,000
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$
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$
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21,549
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$
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421,549
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Executive Officer
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2008
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$
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390,769
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$
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56,500
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$
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19,497
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$
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466,766
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Gary J. Elek
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2010
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$
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228,846
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$
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43,500
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$
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$
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25,260
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(5)
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$
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297,606
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Chief Financial Officer
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2009
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$
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151,442
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$
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1,150
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$
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3,948
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$
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156,540
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David S. Harnett
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2010
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$
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204,615
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$
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32,625
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$
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$
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38,242
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(6)
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$
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275,482
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Chief Credit Officer
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2009
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$
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200,000
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$
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$
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19,194
|
|
|
$
|
219,194
|
|
|
|
|
|
|
|
|
2008
|
|
|
$
|
200,192
|
|
|
|
|
|
|
|
|
|
|
$
|
2,825
|
|
|
|
|
|
|
$
|
19,613
|
|
|
$
|
222,630
|
|
|
|
|
|
Frank A. Soltis
|
|
|
2010
|
|
|
$
|
176,846
|
|
|
|
|
|
|
$
|
32,625
|
|
|
$
|
|
|
|
|
|
|
|
$
|
30,446
|
(7)
|
|
$
|
239,918
|
|
|
|
|
|
Senior Vice President -
|
|
|
2009
|
|
|
$
|
173,000
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
13,309
|
|
|
$
|
186,309
|
|
|
|
|
|
Information Technology &
Operations
|
|
|
2008
|
|
|
$
|
171,846
|
|
|
|
|
|
|
|
|
|
|
$
|
2,825
|
|
|
|
|
|
|
$
|
21,060
|
|
|
$
|
195,731
|
|
|
|
|
|
Kevin W. Nelson
|
|
|
2010
|
|
|
$
|
132,692
|
|
|
|
|
|
|
$
|
32,625
|
|
|
$
|
|
|
|
$
|
20,025
|
(8)
|
|
$
|
12,729
|
(9)
|
|
$
|
198,072
|
|
|
|
|
|
Senior Vice President -
Indirect Lending
|
|
|
2009
|
|
|
$
|
128,311
|
|
|
$
|
24,000
|
(10)
|
|
|
|
|
|
$
|
|
|
|
$
|
13,000
|
|
|
$
|
12,425
|
|
|
$
|
177,736
|
|
|
|
|
|
|
|
|
(1) |
|
The values reported in this column represent the fair value of
the long-term restricted stock equity awards granted to the
Named Executive during the applicable fiscal year. For a summary
of the terms of these awards, see the section captioned
2006 Stock Incentive Plan elsewhere in this Proxy
Statement. For a description of the assumptions made in
computing the amounts reported in this table, see the discussion
of Stock-Based Compensation in the Notes to
Consolidated Financial contained in the Corporations
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. |
|
(2) |
|
The values reported in this column represent the grant date fair
value of stock options granted to the Named Executive during the
applicable fiscal year. For a summary of the terms of these
awards, see the section captioned 2006 Stock Incentive
Plan elsewhere in this Proxy Statement. For a description
of the assumptions made in computing the amounts reported in
this table, see the discussion of Stock-Based
Compensation in the Notes to Consolidated Financial
Statements contained in the Corporations Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. |
|
(3) |
|
For purposes of the disclosure in the Summary Compensation
Table, perquisites are valued on the basis of the aggregate
incremental cost to the Corporation of providing the perquisite
to the applicable officer. |
|
(4) |
|
Compensation reported in this column includes
(i) contributions made by the Corporation on behalf of
Mr. Klimas to the Corporations 401(k) Plan;
(ii) premiums paid by the Corporation under the
Corporations life, long-term disability and accidental
death and dismemberment plans on behalf of Mr. Klimas;
(iii) payments made for a vehicle owned by the Corporation
for use by Mr. Klimas; and (iv) club dues. |
31
|
|
|
(5) |
|
Compensation reported in this column includes
(i) contributions made by the Corporation on behalf of
Mr. Elek to the Corporations 401(k) Plan;
(ii) premiums paid by the Corporation under the
Corporations life, long-term disability and accidental
death and dismemberment insurance plans on behalf of
Mr. Elek; (iii) premiums paid by the Corporation under
the Corporations health insurance plans on behalf of
Mr. Elek; and (iv) a car allowance paid by the
Corporation. |
|
(6) |
|
Compensation reported in this column includes
(i) contributions made by the Corporation on behalf of
Mr. Harnett to the Corporations 401(k) Plan;
(ii) premiums paid by the Corporation under the
Corporations life, long-term disability and accidental
death and dismemberment insurance plans on behalf of
Mr. Harnett; (iii) premiums paid by the Corporation
under the Corporations health insurance plans on behalf of
Mr. Harnett; (iv) club dues; and (v) a car
allowance. |
|
(7) |
|
Compensation reported in this column includes
(i) contributions made by the Corporation on behalf of
Mr. Soltis to the Corporations 401(k) Plan;
(ii) premiums paid by the Corporation under the
Corporations life, long-term disability and accidental
death and dismemberment insurance plans on behalf of
Mr. Soltis; (iii) premiums paid by the Corporation
under the Corporations health insurance plans on behalf of
Mr. Soltis; and (iv) a car allowance. |
|
(8) |
|
Represents the amount of cash commission paid to Mr. Nelson
under the Corporations commission compensation program.
See Compensation Discussion and Analysis
Indirect Loan Production Commission. |
|
(9) |
|
Compensation reported in this column includes
(i) contributions made by the Corporation on behalf of
Mr. Nelson to the Corporations 401(k) Plan;
(ii) premiums paid by the Corporation under the
Corporations life, long-term disability and accidental
death and dismemberment insurance plans on behalf of
Mr. Nelson; and (iii) premiums paid by the Corporation
under the Corporations health insurance plans on behalf of
Mr. Nelson. |
|
(10) |
|
Represents amount paid to Mr. Nelson as an Exemplary
Service Cash Bonus for 2009. |
Employment
Agreement
Daniel
E. Klimas
The Corporation has entered into an employment agreement with
Mr. Klimas which had an initial term of three years
commencing February 1, 2005, and which provides that,
unless the agreement is terminated by either party on or before
November 1, 2006 and on or before each November 1
thereafter, the agreement term will automatically renew for one
additional year, such that the agreement term (unless terminated
prior to such automatic extension) shall not be less than
fifteen (15) months, and after November 1, 2006 shall
not be greater than twenty seven (27) months. The
employment agreement was amended in 2008 to provide for an
annual base salary of $400,000, and an annual bonus opportunity
of up to 50% of base salary based on the attainment by
Mr. Klimas of performance levels determined by the
Compensation Committee. The employment agreement also provides
for perquisites consistent with those available to the
Corporations other executives. On February 1, 2005,
Mr. Klimas also received a signing bonus of $115,000 and an
award of 5,000 unrestricted shares of the registrants
common stock. The employment agreement also provides for the
grant of stock options to purchase 30,000 shares of the
registrants common stock on February 1, 2005 and each
of the first two anniversaries thereof, which options vest over
periods ending in 2010. The agreement also contains
non-disclosure and non-solicitation provisions that, among other
things, prohibit Mr. Klimas from soliciting employees,
customers or clients of the Corporation for a period of one year
following the termination of his employment. The employment
agreement also provides for certain severance and change of
control benefits under certain circumstances that are further
described below under Other Potential Post- Employment
Compensation. The Employment Agreement was amended during
2009 in order to comply with the terms of EESA, as amended by
ARRA, with respect to CPP participants, and provides that the
agreement will be further interpreted or reformed to so comply.
The amendment to the agreement also provides for the recovery by
the Corporation of any applicable payment under the agreement if
it is later determined that the payment is based on financial
statements or other performance metrics that are later
determined to be materially inaccurate.
32
Grants of
Plan-Based Awards For Fiscal Year 2010
The following table shows, for the Named Executives, plan-based
awards to those officers during 2010, including restricted stock
awards and stock option grants, as well as other incentive plan
awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Date Fair
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
|
Awards:
|
|
|
Value
|
|
|
|
|
|
|
Under Non-Equity
|
|
|
Number of
|
|
|
of Stock and
|
|
|
|
|
|
|
Incentive Plan Awards
|
|
|
Shares of
|
|
|
Option
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Stock or
|
|
|
Awards
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Units (#)
|
|
|
($)(1)
|
|
|
Daniel E. Klimas
|
|
|
2/23/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(2)
|
|
$
|
108,750
|
|
|
|
|
11/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,364
|
(2)
|
|
$
|
89,996
|
|
Gary J. Elek
|
|
|
2/23/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(2)
|
|
$
|
43,500
|
|
David S. Harnett
|
|
|
2/23/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(2)
|
|
$
|
32,625
|
|
Frank A. Soltis
|
|
|
2/23/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(2)
|
|
$
|
32,625
|
|
Kevin W. Nelson
|
|
|
2/23/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(2)
|
|
$
|
32,625
|
|
|
|
|
(3
|
)
|
|
$
|
6,675
|
(3)
|
|
$
|
20,025
|
(3)
|
|
$
|
26,700
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The values reported in this column represent the FAS 123R
value of all shares of long-term restricted stock awarded to
each officer during 2010. For a description of the assumptions
made in computing the FAS 123R values reported in this
table, see the discussion of Stock-Based Compensation in
footnote [18] in the Notes to Consolidated Financial
Statements contained in the Corporations Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. |
|
(2) |
|
Long-term restricted stock award granted under the
Corporations 2006 Stock Incentive Plan, which vests in 50%
increments on the second and third anniversaries of the date of
grant and is subject to the terms and conditions described below
under 2006 Stock Incentive Plan Long-Term
Restricted Stock. |
|
(3) |
|
Indirect loan commission program award, under which
Mr. Nelson had the opportunity to earn a commission based
on the total amount of indirect automobile loans made by the
Corporation during 2010 for which Mr. Nelson is
responsible. The program provided Mr. Nelson with the
opportunity to earn a commission equal to up to 20% of his base
salary, based on a graduated scale of 5 to 20% of his base
salary paid based on achievement from 80% to 110% of the goal of
$122,300,000 in indirect loans for 2010. Mr. Nelson
achieved loan production equal to 100% of the goal and,
accordingly, was paid a commission of $20,025 for 2010. |
33
Outstanding
Equity Awards at December 31, 2010
The following table shows, for the Named Executives, outstanding
equity awards held by such officers at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number
|
|
|
Value of
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Shares or
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
or Units of
|
|
|
Units of
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
|
|
|
Stock That
|
|
|
Stock That
|
|
|
|
Options
|
|
|
Options
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Option
|
|
|
Have Not
|
|
|
Have Not
|
|
|
|
(#)
|
|
|
(#)
|
|
|
Options
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
|
($)
|
|
|
Daniel E. Klimas
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
$
|
19.10
|
|
|
|
2/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
19.17
|
|
|
|
2/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
16.00
|
|
|
|
2/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333
|
|
|
|
16,667
|
(1)
|
|
|
|
|
|
|
14.47
|
|
|
|
2/4/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
(2)
|
|
$
|
124,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,364
|
(3)
|
|
$
|
96,239
|
|
Gary J. Elek
|
|
|
833
|
|
|
|
1,667
|
(4)
|
|
|
|
|
|
|
5.46
|
|
|
|
5/14/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(2)
|
|
$
|
49,700
|
|
David S. Harnett
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
15.35
|
|
|
|
8/8/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666
|
|
|
|
834
|
(1)
|
|
|
|
|
|
|
14.47
|
|
|
|
2/4/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(2)
|
|
$
|
37,275
|
|
Frank A. Soltis
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
16.50
|
|
|
|
6/27/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
19.00
|
|
|
|
1/20/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666
|
|
|
|
834
|
(1)
|
|
|
|
|
|
|
14.47
|
|
|
|
2/4/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(2)
|
|
$
|
37,275
|
|
Kevin W. Nelson
|
|
|
1,666
|
|
|
|
834
|
(1)
|
|
|
|
|
|
|
14.47
|
|
|
|
2/4/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
(2)
|
|
$
|
32,625
|
|
|
|
|
(1) |
|
These stock options become exercisable in one-third increments
over three years commencing February 4, 2009. |
|
(2) |
|
These shares of long-term restricted stock vest in 50%
increments on February 23, 2012 and 2013, and are subject
to other restrictions as described below under 2006 Stock
Incentive Plan Long-Term Restricted Stock. |
|
(3) |
|
These shares of long-term restricted stock vest in 50%
increments on November 1, 2012 and 2013, and are subject to
other restrictions as described below under 2006 Stock
Incentive Plan Long-Term Restricted Stock. |
|
(4) |
|
These stock options become exercisable in one-third increments
over three years commencing May 14, 2010. |
None of the Named Executives exercised stock options or stock
appreciation rights during 2010.
2006
Stock Incentive Plan
Each of the outstanding stock options granted prior to August
2007 were made pursuant to stock option agreements established
outside of a stock option plan. In 2006, the Corporation
established the LNB Bancorp, Inc. 2006 Stock Incentive Plan (the
2006 Plan), a shareholder-approved equity incentive
plan which permits the Corporation to grant incentive stock
options, nonqualified stock options, stock appreciation rights,
performance shares, restricted shares and restricted share units
to officers and other key employees of the Corporation who are
eligible to participate in the plan as determined by the
Compensation Committee in its sole discretion. The maximum
number of shares of the Corporation that may be issued pursuant
to awards granted under the 2006 Plan is 600,000 shares, up
to 400,000 of which may be granted in the form of stock options
and 200,000 of which may be granted in the form of restricted
shares. The total number of shares underlying awards granted
under the Plan to any participant in any fiscal year, regardless
of whether any of those awards are subsequently canceled,
forfeited, or
34
terminated, will not exceed 60,000 shares. Awards granted
under the 2006 Plan are subject to the terms of the plan and
such terms as may be specified by the Compensation Committee.
The 2006 Plan is administered by the Compensation Committee,
which includes the authority to determine the terms and
conditions of awards granted under the plan and to interpret,
administer and implement the plan. During 2009, the 2006 Plan
was amended in order to comply with the terms of EESA, as
amended by ARRA, with respect to CPP participants, and provides
that the plan will be further interpreted or reformed to so
comply. The amendment to the 2006 Plan also provides for the
recovery by the Corporation of any applicable award or payment
under the plan if it is later determined that the award or
payment is based on financial statements or other performance
metrics that are later determined to be materially inaccurate.
Long-Term Restricted Stock. In February 2010,
the Compensation Committee first approved grants of long-term
restricted stock under the 2006 Stock Incentive Plan. The terms
and conditions of the long-term restricted stock are intended to
meet the requirements of the long-term restricted stock
exception in the TARP Regulations. Accordingly, shares of
long-term restricted stock generally vest in two equal
installments on the second and third anniversaries of the date
of grant, or upon the earlier death or disability of the
recipient or a qualified change of control of the Company.
Furthermore, the shares will not be transferable by the
recipient of the grant prior to the repayment of the TARP
investment received by the Corporation, except as permitted
under the TARP Regulations and as specified in the agreement
governing the grant.
Stock
Appreciation Rights Plan
The Stock Appreciation Rights (SAR) Plan permits the
Compensation Committee to grant SARs, to be settled in cash
only, to officers and other key employees of the Corporation who
are eligible to participate in the SAR Plan as determined by the
Compensation Committee in its sole discretion. The Compensation
Committee may grant SARs for up to an aggregate of 50,000 common
shares of the Corporation under the SAR Plan. SARs, when
exercised, will entitle the holder thereof to a cash payment
based on the appreciation in the fair market value of the common
shares underlying the SAR, subject to the terms of the SAR Plan
and such terms as may be specified by the Compensation
Committee. The purpose of the SAR Plan is to provide long-term
incentive compensation opportunities that are intended to help
the Corporation attract and retain skilled employees, motivate
participants to achieve long-term success and growth of the
Corporation, and align the interests of the participating
employees with those of the shareholders of the Corporation. The
Compensation Committee has the authority to grant SARs under the
SAR Plan. During 2009, the SAR Plan was amended in order to
comply with the terms of EESA, as amended by ARRA, with respect
to CPP participants, and provides that the plan will be further
interpreted or reformed to so comply. The amendment to the SAR
Plan also provides for the recovery by the Corporation of any
applicable award or payment under the plan if it is later
determined that the award or payment is based on financial
statements or other performance metrics that are later
determined to be materially inaccurate.
Other
Potential Post-Employment Compensation
Severance
and Change of Control Benefits
The Corporation entered into an employment agreement with Daniel
E. Klimas that provide severance
and/or
change of control benefits upon termination of employment for
certain reasons. See the discussion of Mr. Klimas
agreement included above with the Summary Compensation Table.
The severance and change of control benefits payable to
Mr. Klimas are addressed in the discussion below.
Notwithstanding the following discussions regarding the amount
of compensation payable to Mr. Klimas in the event of a
termination of employment or a change of control, the TARP
Regulations may prohibit such payments from being made upon the
termination of the officers employment with the
Corporation during a period in which any obligations arising
from financial assistance provided under TARP remains
outstanding. Please refer to the discussion appearing under the
caption Compensation Discussion and Analysis
Limitations on Executive Compensation in Connection with the
Corporations Participation in the TARP Program.
If Mr. Klimas terminates his employment with the
Corporation as a result of a breach of his employment agreement
by the Corporation or for good cause, or if the Corporation
terminates his employment without cause, the
35
Corporation shall continue to pay to Mr. Klimas his salary,
and health and life insurance benefits, as in effect immediately
prior to the termination, for the then remaining term of the
agreement. In addition, Mr. Klimas shall be entitled to a
pro rata portion of the annual incentive awards applicable to
the year in which such termination occurs and annual incentive
awards each equal to 50% of his salary as in effect immediately
prior to termination for the then remaining term of the
agreement. Mr. Klimas shall also be entitled to be
immediately awarded any stock options provided for in the
agreement but not then issued, and all unvested stock options
held by Mr. Klimas will become immediately exercisable in
full. For purposes of the agreement, good cause
means (i) a material adverse change in
Mr. Klimas position, responsibilities, duties, or
status, or title or offices, with the Corporation, (ii) a
reduction in Mr. Klimas salary, (iii) a
requirement that Mr. Klimas be based at a location more
than 50 miles from his current residence, or
(iv) failure of the Corporation to comply with the employee
benefit provisions of the agreement.
Notwithstanding the terms described above, assuming that
Mr. Klimas employment with the Corporation was
terminated by the Corporation without cause or by
Mr. Klimas for good reason as of December 31, 2010,
the TARP Regulations prohibit such payments from being made upon
the termination of the officers employment with the
Corporation during a period in which any obligations arising
from financial assistance provided under TARP remains
outstanding. Accordingly, Mr. Klimas would not have been
entitled to receive any such payments under his employment
agreement if his employment with the Corporation had been so
terminated as of December 31, 2010. Please refer to the
discussion appearing under the caption Compensation
Discussion and Analysis Limitations on Executive
Compensation in Connection with the Corporations
Participation in the TARP Program.
Under Mr. Klimas employment agreement,
Mr. Klimas is entitled to continuing indemnification to the
fullest extent permitted by Ohio law for actions against him by
reason of his being or having been an officer of the Corporation.
Under Mr. Klimas employment agreement, if, at any
time within two years after the occurrence of a change in
control (as defined in the agreement),
Mr. Klimas employment is terminated by the
Corporation (except for cause) or Mr. Klimas terminates his
employment for good reason, the Corporation will pay to
Mr. Klimas a lump sum severance benefit equal to the sum of
(a) Mr. Klimas highest annual base salary as
measured from the date of termination through the end of the
term of the agreement (but not less than 24 months),
(b) any bonuses earned but unpaid through the date of
termination, (c) a pro rated portion of
Mr. Klimas annual bonus amount for the fiscal year in
which the termination occurs, (d) any accrued and unpaid
vacation pay, and (e) the annual incentive awards payable
for each remaining year of the term of the agreement (but not
less than 24 months) in an amount equal to 50% of
Mr. Klimas salary as in effect on the date of
termination. Mr. Klimas shall also be entitled to be
immediately awarded any stock options provided for in the
agreement but not then issued, and all unvested stock options
held by Mr. Klimas will become immediately exercisable in
full. If the termination of employment occurs on or before
February 1, 2010, Mr. Klimas will be entitled to
receive
gross-up
payments to the extent that payment of any of the foregoing
amounts results in excise taxes or penalties under
Section 280G or 4999 of the Internal Revenue Code. For
purposes of the agreement, good reason means, at any
time after a change in control, (i) a material adverse
change in Mr. Klimas position, responsibilities,
duties, or status, or title or offices, with the Corporation
from those in effect before the change of control, (ii) a
reduction in Mr. Klimas base salary or failure to pay
an annual bonus equal to or greater than the annual bonus earned
for the year prior to the change in control, (iii) a
requirement that Mr. Klimas be based at a location more
than 50 miles from where he was located prior to the change
in control or a substantial increase in Mr. Klimas
business travel obligations as compared to such obligations
prior to the change in control, and (iv) failure of the
Corporation to continue any material employee benefit or
compensation plan in which Mr. Klimas was participating
prior to the change in control or provide Mr. Klimas with
vacation in accordance with the policies in effect prior to the
change in control. For purposes of the employment agreement,
cause includes failure to perform duties as an
employee, illegal conduct or gross misconduct, conviction of a
felony, or breach of non-competition or non-disclosure
obligations of the employee.
Notwithstanding the terms described above, assuming that a
change of control of the Corporation occurred as of
December 31, 2010 and Mr. Klimas employment with
the Corporation was terminated by the Corporation without cause
or by Mr. Klimas for good reason immediately thereafter,
the TARP Regulations prohibited such payments from being made
upon the termination of the officers employment with the
Corporation during a period in which any obligations arising
from financial assistance provided under TARP remains
outstanding. Accordingly,
36
Mr. Klimas would not have been entitled to receive any such
payments under his employment agreement if his employment with
the Corporation had been so terminated as of December 31,
2010. Please refer to the discussion appearing under the caption
Compensation Discussion and Analysis
Limitations on Executive Compensation in Connection with the
Corporations Participation in the TARP Program.
In connection with the Corporations participating in TARP,
Mr. Klimas employment agreement was amended to
provide that any payment or payments that may be payable by the
Corporation thereunder shall be modified to the extent necessary
in order to comply with the golden parachute payment
prohibitions in the TARP Regulations.
Director
Compensation
Non-employee director compensation is determined annually by the
Board of Directors acting upon the recommendation of the
Governance Committee. Directors who are also employees of the
Corporation receive no additional compensation for service as a
director.
Each of the directors of the Corporation also serves as a
director of The Lorain National Bank, the Corporations
wholly-owned bank subsidiary. Under the bylaws of The Lorain
National Bank each director is to hold common shares of the
Corporation in an amount equal to $100,000, based on the market
value of the common shares as of the date such shares are
acquired by the director. As of December 31, 2010, all of
the Corporations directors met these stock ownership
guidelines.
The following table shows the compensation paid to non-employee
directors for service during 2010.
Director
Compensation Table
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Fees
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Earned or
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Paid in
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All Other
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Cash
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Compensation
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Total
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Name
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($)(1)
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($)
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($)
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Daniel P. Batista
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$
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16,041
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(2)
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$
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$
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16,041
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Robert M. Campana
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32,500
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32,500
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J. Martin Erbaugh
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27,500
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2,000
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(3)
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29,500
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Terry D. Goode
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32,500
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32,500
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James R. Herrick
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47,500
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47,500
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Lee C. Howley
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32,500
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32,500
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James F. Kidd(4)
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18,958
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(5)
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18,958
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Daniel G. Merkel
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30,000
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30,000
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Benjamin G. Norton
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27,500
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28,100
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Thomas P. Perciak
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27,500
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27,500
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Jeffrey F. Riddell
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32,500
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32,500
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John W. Schaeffer, M.D.
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27,500
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27,500
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Donald F. Zwilling
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27,500
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27,500
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(1) |
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The Corporation pays a base annual fee to each Director of
$27,500. The Vice Chairman of the Board of Directors
(Mr. Kidd, and Mr. Goode following
Mr. Kidds retirement) and each of the Committee
Chairmen (Messrs. Campana, Howley and Riddell), as well as
Mr. Merkel, who is Chairman of the Loan Review Committee of
The Lorain National Bank, are paid a base annual fee of $32,500,
and the Chairman of the Board of Directors (Mr. Herrick) is
paid a base annual fee of $47,500. |
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(2) |
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Mr. Batista served on the Board of Directors of the
Corporation until his retirement April 27, 2010. |
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(3) |
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Represents fees paid to Mr. Erbaugh for service as a member
of the Corporations Morgan Advisory Board. The Morgan
Advisory Board is a six person committee comprised of former
directors of Morgan Bank that the Corporation has formed for the
purpose of providing input and advice on the Corporations
Morgan Bank |
37
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business. The Morgan Advisory Board met two times during 2010,
and each member was paid a fee of $1,000 per meeting attended. |
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(4) |
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Amounts set forth in this table with respect to Mr. Kidd
represent fees paid to Mr. Kidd for serving as Vice
Chairman of the Board of Directors. In addition, the Corporation
has an individual supplemental retirement agreement with
Mr. Kidd, which was entered into during and in connection
with Mr. Kidds service as an employee of the
Corporation. The agreement provides supplemental retirement
benefits to Mr. Kidd, in addition to the retirement
benefits generally provided to all employees of the Corporation,
in the event of: normal retirement; reduced supplemental
retirement benefits in the event of early retirement; disability
prior to retirement; death; or discharge without
cause. Upon his retirement as an employee of the
Corporation in 1999, Mr. Kidd became entitled under the
agreement to receive annual payments of $53,474, commencing
March 1, 2000 and continuing for 10 years. These
payments were deferred during Mr. Kidds term as
interim CEO of the Corporation, but resumed in February 2005 and
continued until March 2010. |
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(5) |
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Mr. Kidd served on the Board of Directors of the
Corporation until his retirement April 27, 2010. |
Certain
Transactions
Directors and executive officers of the Corporation and their
associates were customers of, or had transactions with, the
Corporation or the Corporations banking or other
subsidiaries in the ordinary course of business during 2010.
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 greater than normal risk of
collectability or present other unfavorable features.
Review of
Certain Transactions
The Corporation has written procedures for reviewing
transactions between the Corporation and its directors and
executive officers, their immediate family members and entities
with which they have a position or relationship. These
procedures are intended to determine whether any such related
person transaction impairs the independence of a director or
presents a conflict of interest on the part of a director or
executive officer.
The Corporation annually requires each of its directors and
executive officers to complete a directors and
officers questionnaire that elicits information about
related person transactions. The Corporations Audit and
Finance Committee and Board of Directors annually review all
transactions and relationships disclosed in the director and
officer questionnaires, and the Board of Directors makes a
formal determination regarding each directors independence
under Nasdaq Stock Market listing standards and applicable SEC
rules.
In addition to the annual review, the Corporations Code of
Ethics and Business Conduct requires that the Corporations
Chief Executive Officer be notified of any proposed transaction
involving a director or executive officer that may present an
actual or potential conflict of interest, and that such
transaction be presented to and approved by the Audit and
Finance Committee.
Upon receiving any notice of a related person transaction
involving a director or executive officer, the Chief Executive
Officer will discuss the transaction with the Chairman of the
Corporations Audit and Finance Committee. If any
likelihood exists that the transaction would present a conflict
of interest or, in the case of a director, impair the
directors independence, the Audit and Finance Committee
will review the transaction and its ramifications. If, in the
case of a director, the Audit and Finance Committee determines
that the transaction presents a conflict of interest or impairs
the directors independence, the Board of Directors will
determine the appropriate response. If, in the case of an
executive officer, the Audit and Finance Committee determines
that the transaction presents a conflict of interest, the Audit
and Finance Committee will determine the appropriate response.
The related party transactions described above were approved by
the Corporation.
38
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934 requires
LNBs executive officers, directors and greater than ten
percent shareholders (Insiders) to file with the
Securities and Exchange Commission and LNB reports regarding
their ownership of and transactions in LNBs securities.
Based upon written representations and copies of reports
furnished to LNB by Insiders, all reports required to be filed
by Insiders pursuant to Section 16 during the fiscal year
ended December 31, 2010 were made on a timely basis.
OTHER
BUSINESS
The Board of Directors is not aware of any other matters that
may be presented at the Annual Meeting other than those stated
in the notice of Annual Meeting and described in this Proxy
Statement. However, if any other matters properly come before
the Annual Meeting, the enclosed proxy card directs the persons
voting such proxy to vote in accordance with their discretion.
DELIVERY
OF DOCUMENTS TO SHAREHOLDERS SHARING AN ADDRESS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements with respect to two or more
shareholders sharing the same address by delivering a single
proxy statement addressed to those shareholders. This process,
which is commonly referred to as householding,
potentially means extra convenience for shareholders and cost
savings for companies.
A single proxy statement will be delivered to multiple
shareholders sharing an address unless contrary instructions
have been received from the affected shareholders. Once you have
received notice from your broker that it will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement, please
notify your broker, direct your written request to LNB Bancorp,
Inc., Attn: Investor Relations, 457 Broadway, Lorain, Ohio
44052. Shareholders who currently receive multiple copies of the
proxy statement at their address and would like to request
householding of their communications should contact
their broker.
SHAREHOLDER
PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder who wishes to submit a proposal for inclusion in
the proxy material to be distributed by the Corporation in
connection with its annual meeting of shareholders to be held in
2012 must do so no later than November 15, 2011. To be
considered eligible for inclusion in the Corporations 2012
Proxy Statement, a proposal must conform to the requirements of
Regulation 14A under the Securities Exchange Act of 1934,
as amended. Shareholder proposals should be directed to LNB
Bancorp, Inc. via certified mail, Attention: Corporate
Secretary, 457 Broadway, Lorain, Ohio 44052. Unless notice of a
shareholder proposal for the 2012 annual meeting of shareholders
is received by the Corporation not later than January 29,
2012, the Corporation may vote all proxies in its discretion
with respect to any shareholder proposal properly brought before
the annual meeting.
The Corporations Amended Code of Regulations establishes
advance notice procedures as to the nomination by shareholders
of candidates for election as directors. In order to make a
director nomination, it is necessary that you notify the
Corporation in writing no fewer than 14 days nor more than
50 days in advance of next years Annual Meeting
unless the Corporation gives you less than 21 days notice
of the Annual Meeting and then notice of nominations must be
given no later than the seventh day after we mailed notice of
the Annual Meeting to you. Notice of nominations of directors
must also meet all other requirements contained in the
Corporations Amended Code of Regulations. You may obtain
the Code of Regulations by written request. Such request should
be directed to LNB Bancorp, Inc., Attention: Corporate
Secretary, 457 Broadway, Lorain, OH 44052.
ANNUAL
REPORT
We will provide without charge a copy of the Corporations
Annual Report on
Form 10-K
for its fiscal year ended December 31, 2010 to any
shareholder who makes a written request for it directed to
Robert F. Heinrich, Corporate Secretary, LNB Bancorp, Inc., 457
Broadway, Lorain, Ohio 44052.
We urge you to sign and return the enclosed proxy card as
promptly as possible whether or not you plan to attend the
Annual Meeting in person.
39
LNB BANCORP, INC.
457 BROADWAY
LORAIN, OH 44052
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for
electronic delivery of information up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you access the web site and follow the
instructions to obtain your records and to create an electronic
voting instruction form.
Electronic Delivery of Future PROXY MATERIALS
If you would like to reduce the costs incurred by our company in
mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery,
please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access
proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day before
the cut-off date or meeting date. Have your proxy card in hand
when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided or return it to Vote
Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN
SIGNED AND DATED.
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The Board of Directors recommends you vote FOR the following: |
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For
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Withhold
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For All
Except |
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To withhold authority to vote
for any individual nominee(s), mark
For All Except and write the number(s) of the
nominee(s) on the line below. |
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1. |
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Election of Directors
Nominees |
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01 J. Martin Erbaugh |
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02 Terry D. Goode |
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03 James R. Herrick |
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The Board of Directors recommends you vote FOR proposals 2, 3 and 4. |
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For |
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Against |
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Abstain |
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2 |
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To ratify the appointment of
Plante & Moran, PLLC as LNBs
independent registered public
accounting firm for its 2011
fiscal year. |
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NOTE: It is the
Board of Directors
recommendation that
you vote for all of
the director
nominees with
respect to the
election of
directors in
Proposal 1 and for
Proposals 2, 3 and
4. The Board of
Directors makes no
recommendation with
respect to Proposal
5. If any other
matters properly
come before the
Annual Meeting, the
persons named in
this proxy will
vote the shares
represented by the
proxy in their
discretion. |
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3 |
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To approve and adopt amendments to LNBs code
of regulations to permit amendments to the
code of regulations by the Board of Directors
to the extent permitted by Ohio law. |
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To seek advisory approval of
LNBs executive compensation
program. |
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The Board of Directors makes no
recommendation on the following proposal: |
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Abstain |
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5 |
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Advisory vote on the frequency
of executive compensation
advisory votes. |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary,
please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership,
please sign in full corporate or partnership name, by authorized officer. |
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Signature [PLEASE SIGN WITHIN BOX] |
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Signature (Joint Owners) |
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDERS MEETING TO BE HELD ON MAY 3, 2011.
The following materials are available at
www.proxyvote.com:
Proxy Statement and 2010 Annual Report
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The
AR/10K wrap, Notice & Proxy Statement is/are available at www.proxyvote.com.
Proxy Card for the 2011 Annual Meeting of
Shareholders of LNB Bancorp, Inc.
Scheduled for May 3, 2011
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary J. Elek and Robert F. Heinrich, or either of them, with full
power of substitution, as proxies to vote, for and in the name of the undersigned, all common
shares of LNB Bancorp, Inc. that the undersigned is entitled to vote at the Annual Meeting of
Shareholders of LNB Bancorp, Inc. scheduled for May 3, 2011 at 9:00 a.m., local time, at The Lorain
National Bank, 521 Broadway, Lorain, Ohio 44052, and at any adjournments or postponements of the
meeting (the Annual Meeting). This proxy will be voted in accordance with your instructions
specified below. If you do not give any specific instructions, this proxy will be voted FOR all
of the director nominees with respect to the election of directors in Proposal 1, FOR Proposals
2, 3 and 4 and ABSTAIN with respect to Proposal 5. In addition, the proxies are authorized to
vote in their discretion on any other matters that may properly come before the Annual Meeting.
Continued and to be signed on reverse side