10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended
December 31, 2003 Commission file
number 0-13203

LNB Bancorp, Inc.

(Exact name of the registrant as specified in its Charter)

Ohio
(State of Incorporation)
457 Broadway, Lorain, Ohio
(Address of principal executive offices) 34-1406303
(I.R.S. Employer Identification No.)
44052-1769
(Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [  ]

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [X] NO [  ]

The aggregate market value of the voting common stock held by non-affiliates of the Registrant at June 30, 2003 was approximately $121,136,000.

The number of shares of Registrant’s Common Stock outstanding on February 29, 2004 was 6,617,726.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2003 Annual Report to Stockholders of Registrant are incorporated by reference in Parts I, II, and IV of this report. Portions of the Definitive Proxy Statement of Registrant dated March 19, 2004 (the Proxy Statement) are incorporated by reference in Part III of this report.

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TABLE OF CONTENTS

PART 1
	ITEM 1 - BUSINESS
		a) GENERAL DEVELOPMENT OF BUSINESS
		b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
		c) DESCRIPTION OF LNB BANCORP, INC.’S BUSINESS
		d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
		e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
			I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
			II. INVESTMENT PORTFOLIO
			III. LOAN PORTFOLIO
			IV. SUMMARY OF LOAN LOSSES
			V. FUNDING SOURCES AND AVERAGE RATES PAID ON FUNDING SOURCES
			VI. RETURN ON EQUITY AND ASSETS
			VII. SHORT-TERM BORROWINGS
			VIII. AVAILABLE INFORMATION
	ITEM 2 - PROPERTIES
	ITEM 3 - LEGAL PROCEEDINGS
	ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
		EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
	ITEM 5 - MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
	ITEM 6 - SELECTED FINANCIAL DATA
	ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7(a) - Quantitative and Qualitative Disclosures about Market Risk
	ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
	ITEM 9(a) – CONTROLS AND PROCEDURES
PART III
	ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT
	ITEM 11 - EXECUTIVE COMPENSATION
	ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
	ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
Exhibit Index
Retirement Benefits Agreement
Severence Agreement
Annual Report
Exhibit 14
Consent
302 CEO Cert
302 CFO Cert
906 CEO Cert
906 CEO Cert

LNB Bancorp, Inc.
Form 10-K Report
Table of Contents
2003

	Page
PART I
Item 1 Business
a. General Development of Business		4
b. Financial Information About Industry Segments		5
c. Description of LNB Bancorp, Inc.’s Business		5
d. Financial Information About Geographic Areas		11
e. Statistical Disclosure by Bank Holding Companies		11
I. Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential		11
II. Investment Portfolio		11
III. Loan Portfolio		12
IV. Summary of Loan Losses		14
V. Funding Sources and Average Rates Paid on Funding Sources		15
VI. Return on Equity and Assets		15
VII. Short-Term Borrowings		15
VIII. Available Information		15
Item 2 Properties		16
Item 3 Legal Proceedings		17
Item 4 Submission of Matters to a Vote of Shareholders		17
Executive officers of the Registrant		17
PART II
Item 5 Market for the Registrant’s Common Equity and Related Shareholder Matters		19
Item 6 Selected Financial Data		19
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 7(a) Quantitative and Qualitative Disclosures about Market Risk		19
Item 8 Financial Statements and Supplementary Data		19
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		20
Item 9(a) Controls and Procedures		20
PART III
Item 10 Directors, Executive Officers, Promoters and Control Persons of the Registrant		20
Item 11 Executive Compensation		21
Item 12 Security Ownership of Certain Beneficial Owners and Management		21

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	Page
Item 13 Certain Relationships and Related Transactions		22
Item 14 Principal Accounting Fees and Services		22
PART IV
Item 15 Exhibits, Financial Statements, Schedules and Reports on Form 8-K		23
SIGNATURES		24
EXHIBIT INDEX		27

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PART 1

ITEM 1 - BUSINESS

a) GENERAL DEVELOPMENT OF BUSINESS

LNB Bancorp, Inc.(the Parent Company), a financial holding company, was incorporated on October 11, 1983 under the laws of the State of Ohio at the direction of the Board of Directors of The Lorain National Bank (the Bank), a national banking association, for the purpose of acquiring all the outstanding common stock of the Bank. The term “the Corporation” refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries. At a special meeting of the shareholders of the Bank, held on February 28, 1984, the shareholders approved the Plan of Reorganization, involving the merger of the Bank into the Lorain Interim Association, a national banking corporation, incorporated solely for the purpose of effecting the Reorganization Plan. Lorain Interim was a wholly-owned subsidiary of the Corporation.

Upon the consummation of the merger on March 30, 1984, under the Plan of Reorganization, the business of the Bank is conducted by the merged Bank under the name “The Lorain National Bank.” Each outstanding share of common stock of the Bank, par value $2.50, was converted into one share of LNB Bancorp, Inc. common stock, par value $2.50. A total of 904,570 shares of corporate stock were issued at the effective date of the merger. On April 8, 1989, the shareholders of the Corporation approved a two-for-one stock split, which reduced the par value to $1.25. On April 20, 1993, the shareholders of the Corporation approved a five-for-four stock split, which reduced the par value to $1.00.

On April 18, 1995, the Corporation’s shareholders approved an amendment to the Articles of Incorporation to increase the number of authorized shares of Common Stock from 4,000,000 to 5,000,000 and fix the par value of Common Stock at $1.00 per share to allow for a five-for-four stock split.

On April 18, 1995, the Corporation’s Board of Directors authorized a five-for-four stock split in the form of a 25 percent stock dividend. The stock split increased the number of shares outstanding by 802,692. Also, Common Stock has been increased by $802,692 with an offsetting reduction to additional capital to reflect the fixed $1.00 par value per share for each additional share issued pursuant to the stock split.

At a special meeting of shareholders held on December 14, 1999, the Corporation’s Shareholders approved an amendment to the Articles of Incorporation to increase the number of authorized shares of Common Stock from 5,000,000 to 15,000,000 shares. Also, on December 14, 1999, the Corporation’s Shareholders approved an amendment to the Articles of Incorporation to provide for 1,000,000 shares of Voting Preferred Stock.

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On October 24, 2000, the Board of Directors of LNB Bancorp, Inc. adopted a Shareholder Rights Plan. The rights plan is designed to prevent a potential acquiror from exceeding a prescribed ownership level in LNB Bancorp, Inc., other than in the context of a negotiated acquisition involving the Board of Directors.

On November 14, 2000, LNB Bancorp, Inc. filed its Second Amended Articles of Incorporation which authorized and provided the terms of 750,000 Series A Voting Preferred Shares.

On February 25, 2003, the Corporation’s board of directors approved a three-for-two (3-for-2) stock split of the Corporation’s common stock. The shares issued as a result of the stock split were distributed on April 1, 2003 to shareholders of record at the close of business on March 17, 2003. The stock split increased the number of shares outstanding by 2,250,210 shares. Shareholders participating in the Corporation’s dividend reinvestment plan were issued fraction shares as is necessary. Shareholders not participating in the plan were paid cash in lieu of fractional shares as is necessary.

LNB Bancorp, Inc. has broader powers than the Bank. These powers principally include the power to engage in certain non-banking businesses that are financial in nature, to own capital stock of banks located in Ohio and certain other states and to own capital stock of business corporations (other than banks) located within or outside Ohio.

b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Corporation and subsidiary companies are engaged in one line of business which is banking services. The subsidiaries, except for Lorain National Bank, did not represent a significant part of LNB Bancorp, Inc. at December 31, 2003. Reference is hereby made to Item 1e., Statistical Disclosure by Bank Holding Companies, and to Item 8 of this Form 10-K for financial information pertaining to the Corporation’s business.

c) DESCRIPTION OF LNB BANCORP, INC.’S BUSINESS

LNB Bancorp, Inc., (the Bancorp), is a $741 million financial holding company headquartered in Lorain, Ohio. The Bancorp is a public company whose stock is traded on The Nasdaq Stock Market@ under the ticker symbol LNBB. Its predecessor, The Lorain National Bank, was formed as a result of the merger of The Lorain Banking Company and The National Bank of Lorain on January 1, 1961. The Lorain Banking Company was a state chartered bank founded in 1905. The National Bank of Lorain was a national bank receiving its national charter in 1934. On March 30, 1984, the Lorain National Bank became the wholly owned subsidiary of LNB Bancorp, Inc. The Bancorp received its financial holding company status on March 13, 2000.

LNB Bancorp, Inc., offers life insurance, term life, whole life, universal life and long-term care insurance and fixed annuity products through its

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wholly owned insurance subsidiary Charleston Insurance Agency, Inc.; and traditional title services through 49-percent owned subsidiary Charleston Title Agency, LLC. In addition, pursuant to an agreement between Lorain National Bank and Raymond James Financial Services, Inc., member NASD/SIPC, Raymond James offers brokerage services including stocks, bonds, mutual funds, variable annuity investments and variable life insurance products to Lorain National Bank customers through the LNB Investment Center.

On July 15, 2002, Lorain National Bank established a wholly-owned subsidiary, North Coast Community Development Corporation, which received its Community Development Entity (CDE) status from the United States Department of Treasury on December 10, 2002. North Coast Community Development Corporation’s mission is to provide commercial investment in low- and moderate-income communities. North Coast Community Development Corporation was awarded $9 million in New Markets Tax Credit Allocation in 2002 and will start making investments during 2004 in low- and moderate-income census tracts in Lorain County.

The Lorain National Bank operates 20 retail branches and 23 ATMs in the nine communities of Lorain, Elyria, Amherst, Avon Lake, LaGrange, Oberlin, Olmsted Township, Vermilion, and Westlake. Lorain National Bank offers a full range of bank products and services while specializing in small business, mortgage, and personal banking services, including investment management and trust services.

The Bank’s commercial lending activities consist of commercial loans, working capital loans, commercial mortgage loans, construction loans, equipment loans, letters of credit, revolving lines of credit, Small Business Administration loans, government guaranteed loans and Federal Home Loan Bank program loans. Through Lorain National Bank’s wholly-owned subsidiary, North Coast Community Development Corporation, commercial loans with preferred interest rates are offered on projects that meet the standards for the New Markets Tax Credit Program.

The Bank’s residential mortgage lending activities consist primarily of loans for purchasing personal residences and local lender loans secured by residential mortgages. Consumer lending activities consist of traditional forms of financing for automobile and personal loans, indirect automobile loans, second mortgages and home equity lines of credit.

The Bank’s credit card lending activities are conducted through a third party marketing agreement with MBNA and consist of Visa Lorain Lighthouse and VISA Platinum cards. The Bank offers ATM cards and Access debit cards to our deposit customers. Bankcard Merchant services are provided to our corporate customers.

The Bank’s range of deposit services include checking accounts, totally free checking, interest-bearing checking, CheckInvest accounts, savings accounts, money market accounts, Market Access accounts, individual retirement

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accounts, certificates of deposit, Keogh plans, and overdraft protection. Deposits of the Bank are insured by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation.

Other bank services offered include safe deposit boxes, night depository, U. S. savings bonds, travelers’ checks, money orders, cashiers checks, automatic teller machine cash and transaction services, debit cards, wire transfers, foreign drafts, foreign currency, electronic funds transfer, notary public service, payroll direct deposit, cash management services, 24 hour telephone banking with bill paying service, internet banking, lockbox, ACH, discount brokerage services and other services tailored for both individuals and businesses.

The Investment and Trust Services Division of the Bank offers investment management and traditional trust and fiduciary services to individuals, partnerships, corporations, institutions and municipalities. The Division also offers employee benefit plan trust and administrative services.

The Bank is not dependent upon any one significant customer or specific industry. The business of the Corporation is not seasonal to any material degree.

In the opinion of Management, LNB Bancorp, Inc. does not have exposure to material costs associated with environmental hazardous waste clean up.

Competition

Lorain National Bank faces strong competition both in making loans and attracting deposits. The deregulation of the banking industry and the wide spread enactment of state laws that permit multi-bank holding companies as well as the availability of nationwide interstate banking has created a highly competitive environment for financial services providers. Lorain National Bank competes with other national and state banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies and other financial intermediaries operating in its market and elsewhere, many of whom have substantially greater financial resources.

Lorain National Bank competes with seven other banks and bank holding companies operating in Lorain County which range in size from approximately $58 million to over $326 billion in assets. Other competition comes primarily from savings and loans, credit unions, and other financial intermediaries operating in Lorain County and counties adjacent to it. The Bank’s market share of total deposits in Lorain County in all types of financial institutions was 17.8% in 2003 and 17.8% in 2002, while ranking number two in market share in 2003 and 2002. Lorain National Bank seeks to minimize the competitive effect of larger financial institutions through a community banking approach that emphasizes direct customer access to the Bank’s president and other officers in an environment conducive to friendly,

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informed and courteous personal services. Management believes that Lorain National Bank is well positioned to compete successfully in its respective primary market area. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans, the relative level of service charges, the quality and scope of the services rendered, the convenience of the banking centers and, in the case of loans to commercial borrowers, relative lending limits. Management believes that the commitment of Lorain National Bank to personal service, innovation and involvement in their respective communities and primary market areas, as well as their commitment to quality community banking service, are factors that contribute to it’s competitive advantage.

Supervision and Regulation

LNB Bancorp, Inc., as a financial holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the BHC Act), and is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the Federal Reserve Board). The BHC Act requires the prior approval of the Federal Reserve Board for a financial holding company to acquire or hold more than a 5% voting interest in any bank and restricts interstate banking activities. The BHC Act allows interstate bank acquisitions anywhere in the country and interstate branching by acquisition and consolidation in those states that have not opted out by January 1, 1997.

The BHC Act restricts LNB Bancorp, Inc.’s nonbanking activities to those which are determined by the Federal Reserve Board to be financial in nature, incidental to such financial activity or complementary to a financial activity. The BHC Act does not place territorial restrictions on the activities of nonbank subsidiaries of financial holding companies. LNB Bancorp, Inc.’s banking subsidiary is subject to limitations with respect to transactions with affiliates.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Senate and the House of Representatives of the United States (Congress) enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. The Nasdaq Stock Exchange has also adopted corporate governance rules that were approved by The Securities and Exchange Commission. These changes are intended to allow stockholders to more easily and efficiently monitor the performance of companies and directors.

Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley, LNB Bancorp, Inc.’s chief executive officer and chief financial officer are each required to certify that LNB Bancorp, Inc.’s Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they

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are responsible for establishing, maintaining and regularly evaluating the effectiveness of LNB Bancorp, Inc.’s internal controls; they have made certain disclosures to LNB Bancorp, Inc.’s auditors and the audit committee of the Board of Directors about LNB Bancorp, Inc.’s internal controls; and they have included information in LNB Bancorp, Inc.’s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in LNB Bancorp, Inc.’s internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

The enactment of the Gramm-Leach-Bliley Act of 1999 (the GLB Act) represented a pivotal point in the history of the financial services industry. The GLB Act swept away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance companies, and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for regulation through the financial holding company, which has as its umbrella regulator the Federal Reserve Board. Functional regulation of the financial holding company’s separately regulated subsidiaries is conducted by their primary functional regulator. The GLB Act requires “satisfactory” or higher Community Reinvestment Act compliance for insured depository institutions and their financial holding companies in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy of non-public personal information of individual customers. LNB Bancorp, Inc. and its subsidiaries are also subject to certain state laws that deal with the use and distribution of non- public personal information.

A substantial portion of the Corporation’s cash revenues is derived from dividends paid by its subsidiary bank. These dividends are subject to various legal and regulatory restrictions as summarized in Note 13 under Dividend Restrictions on page 25 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated herein by reference.

The Bank is subject to the provisions of the National Bank Act. The Bank is subject to primary supervision, regulation and examination by the Office of the Comptroller of the Currency (OCC). The Bank is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC).

The Bank is also subject to the state banking laws of Ohio. Ohio adopted nationwide reciprocal interstate banking. However, banking laws of other states may restrict branching within the state and acquisitions or mergers involving banks and bank holding companies located in other states.

Federal regulators adopted risk-based capital guidelines and leverage standards for banks and bank holding companies. A discussion of the

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impact of risk-based capital guidelines and leverage standards is presented in Note 14 on page 26 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated herein by reference.

The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company’s controlled insured depository institutions are liable for any loss incurred by the Federal Deposit Insurance Corporation in connection with the default of any FDIC-assisted transaction involving an affiliated insured bank or savings association.

During 2000, the Securities and Exchange Commission issued Regulation FD which established affirmative disclosure requirements on public corporations such that material nonpublic information must be widely, rather than selectively, disseminated. Regulation FD is based on the premise that full and fair disclosure is the cornerstone of an efficient market system. LNB Bancorp, Inc. is subject to Regulation FD. Through Regulation FD, the Securities and Exchange Commission seeks to encourage broad public disclosure in order to increase investor confidence in the integrity of the capital markets.

Noncompliance with laws and regulations by financial holding companies and banks can lead to monetary penalties and/or an increased level of supervision or a combination of these two items. Management is not aware of any current instances of noncompliance with laws and regulations and does not anticipate any problems maintaining compliance on a prospective basis. Recent regulatory inspections and examinations of the Corporation and the Bank have not disclosed any significant instances of noncompliance. The minor instances of noncompliance detected during these inspections and examinations were promptly corrected by Management and no action was taken by the regulators against the Corporation or the Bank.

The earnings and growth of LNB Bancorp, Inc. are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government and its agencies, particularly the Federal Reserve Board. Its policies influence the amount of bank loans and deposits and the interest rates charged and paid thereon, and thus have an effect on earnings. The nature of future monetary policies and the effect of such policies on the future business and earnings of the Corporation and its subsidiary bank cannot be predicted. The discussion of “Impacts of Accounting and Regulatory Pronouncements” is incorporated herein by reference to pages 47 and 48 of the LNB Bancorp, Inc. 2003 Annual Report.

Employees

As of December 31, 2003, the Corporation employed 223 full-time employees and 54 part-time employees. The Corporation is not a party to any collective

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bargaining agreement. Management considers its relationship with its employees to be good. Employee benefits programs are considered by Management to be competitive with benefits programs provided by other financial institutions and major employers within the Corporation’s market area.

d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

The Corporation has no offices located in foreign countries and they have no foreign assets, liabilities or related income and expense for the years presented.

e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES

The following section contains certain financial disclosures related to the Corporation as required under the Securities and Exchange Commission’s Industry Guide 3, “Statistical Disclosures by Bank Holding Companies,” or a specific reference as to the location of the required disclosures in the LNB Bancorp, Inc. 2003 Annual Report, portions of which are incorporated in this Form 10-K by reference.

LNB BANCORP, INC.’S STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL(Dollars in Thousands)

A. and B. The average balance sheet information and the related analysis of net interest income for the years ending December 31, 2003, 2002, and 2001 are included in the Condensed Consolidated Average Balance Sheets, within Management’s Discussion and Analysis found on page 38 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated into this Item I by reference.

All interest is reported on a fully taxable equivalent basis. Nonaccruing loans, for the purpose of the computations, are included in the daily average loan amounts outstanding. Loan fees are included in interest on loans.

C. Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 2003 and 2002 are included in Rate/Volume Analysis of Net Interest Income within Management’s Discussion and Analysis found on page 38 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated into this Item I by reference.

II. INVESTMENT PORTFOLIO

A. SECURITIES

Information relating to the carrying value of securities as December 31, 2003, 2002 and 2001 are included in the “Securities” section of Management’s

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Discussion and Analysis found on page 43 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated herein by reference.

B. MATURITY DISTRIBUTION OF SECURITIES

Information relating to the maturity distribution of securities for the year ended December 31, 2003 is included in the “Securities” section of Management’s Discussion and Analysis found on page 43 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated herein by reference.

WEIGHTED-AVERAGE YIELD OF INVESTMENT SECURITIES

Information relating to the weighted average yield of each range of maturities of securities for the year ended December 31, 2003 is included in the “Securities” section of Management’s Discussion and Analysis found on page 43 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated herein by reference.

C. Excluding those holdings of the securities portfolio in Collaterlized Mortgage Obligations and U.S. Government Agencies and Corporations, there were no investments in securities of any one issuer which exceeded 10% of the consolidated shareholders’ equity of the Corporation at December 31, 2003.

III. LOAN PORTFOLIO

A. Information relating to the distribution of the loan portfolio for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 appears on page 41 of the LNB Bancorp, Inc. 2003 Annual Report under the caption “Loan Portfolio Distribution” and is incorporated herein by reference.

B. COMMERCIAL LOAN MATURITY AND REPRICING ANALYSIS

Information relating to the Commercial Loan Maturity and Repricing Analysis as of December 31, 2003 appears on page 41 of the LNB Bancorp, Inc. 2003 Annual Report under the caption “Commercial Loan Maturity and Repricing Analysis” and is incorporated herein by reference.

C. RISK ELEMENTS

(1) Information relating to nonperforming assets for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 appears on page 42 of the LNB Bancorp, Inc. 2003 Annual Report under the caption “Nonperforming Assets” and is incorporated herein by reference.

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(2) Potential Problem Loans

A summary of potential problem loans at December 31, follows:

(Dollars in Thousands)	2003		2002		2001		2000		1999
Potential Problem Loans	$	21,747	$	15,549	$	8,579	$	3,924	$	4,348

Potential problem loans are loans identified on Management’s classified credits list which include both loans which Management has some concern as to the borrowers’ ability to comply with the present repayment terms and loans which Management is actively monitoring due to changes in the borrowers financial condition. These loans and their potential loss exposure have been considered in Management’s analysis of the adequacy of the allowance for loan losses.

The level of potential problem loans rose significantly during 2002 and 2003. The increase during 2002 was primarily due to two factors. First was a weakening of the local and national economies. Second was the Corporation’s formation of an independent loan administration function including the recruitment of a loan review officer and the adoption of a formal loan grading system. The increase during 2003 was primarily due to further weakening of the local economy. Most of the increases in potential problem loans were in the category of “Substandard,” with some increase in “Special Mention”.

At December 31, 2003, potential problem loans totaled $21,747, an increase of $6,198 from one year ago. Potential problem loans at December 31, 2003 are primarily comprised of commercial credits that the Bank is monitoring and reviewing. There are no particular industry concentrations of potential problem loans and the loans are substantially secured by commercial real estate. The potential problem loans in 2001, 2000 and 1999 remained at relatively low levels.

(3) Foreign Outstandings - There were no foreign loans outstandings at December 31, 2003, 2002, 2001, 2000 or 1999.

(4) Loan Concentrations - Bank management reviews concentrations of credit and other portfolio risk elements on a quarterly basis. Management is not aware of any significant loans, group of loans or segments of the loan portfolio, other than those reported in the schedule of nonperforming loans, where there are serious doubts as to the ability of the borrower to comply with the present loan repayment terms. No loans are outstanding which would, if consolidated, be considered as a concentration of lending in any particular industry or group of industries nor are there significant amounts of loans made to agricultural or energy related businesses.

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Credit risk is managed through the bank’s loan loss review policy which provides the Loan Review Officer, lending officers and the loan review committee with the responsibility to manage loan quality. The Corporation’s credit policies are reviewed and modified on an ongoing basis in order to remain suitable for the management of credit risks within the loan portfolio as conditions change. At December 31, 2003, 2002, 2001, 2000 and 1999, there were no significant concentrations of credit risk in the loan portfolio.

The Corporation’s credit policies and review procedures are intended to minimize the risk and uncertainties inherent in lending. In following these policies and procedures, Management must rely upon estimates, appraisals and evaluations of loans and the possibility that changes in such estimates, appraisals and evaluations could occur quickly because of changing economic conditions and the economic prospects of borrowers. Also see Note (20), “Commitments, Credit Risk and Contingencies:,” of the “Notes to Consolidated Financial Statements” which appears on page 31 of the LNB Bancorp, Inc. 2003 Annual Report and is incorporated herein by reference.

(5) No material amount of loans that have been classified by regulatory examiners as loss, substandard, doubtful, or special mention have been excluded from the amounts disclosed as nonaccrual, past due 90 days or more, restructured, or potential problem loans. Corporate management is not aware of any current recommendations by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation or its subsidiary bank.

D. Other interest-bearing assets - As of December 31, 2003, there are no other interest-bearing assets that would be required to be disclosed under Item III C.1 or 2 if such assets were loans. The Corporation had $589, $22, $123, $98 and $96 in Other Foreclosed Assets at December 31, 2003, 2002, 2001, 2000 and 1999, respectively.

IV. SUMMARY OF LOAN LOSSES

Information relating to the reserve for loan losses for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 appears on pages 41 and 42 of the LNB Bancorp, Inc. 2003 Annual Report under the caption “Provision and Reserve for Loan Losses” and is incorporated herein by reference.

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Analytical data relating to the Reserve for Loan Losses at December 31, follows:

(Dollars in Thousands)	2003		2002		2001		2000		1999
ANALYTICAL DATA
BALANCES:
Average total loans	$	526,116	$	496,446	$	460,757	$	437,593	$	403,388
Total loans at year end		534,311		509,550		477,488		451,140		419,516
Net charge-offs		1,618		1,437		1,560		1,117		816
Provision for loan losses		2,695		2,200		2,200		1,700		2,000
Reserve for loan losses at year end		7,730		6,653		5,890		5,250		4,667

V. FUNDING SOURCES AND AVERAGE RATES PAID ON FUNDING SOURCES

Information relating to funding sources for the years ended December 31, 2003, 2002, and 2001 appears on page 44 of the LNB Bancorp, Inc. 2003 Annual Report under the caption “Funding Sources” and is incorporated herein by reference.

     MATURITIES OF TIME DEPOSITS

Information relating to maturities on time deposits for the years ended December 31, 2003 and 2002 appears on page 22 of the LNB Bancorp, Inc. 2003 Annual Report under the Note 9 caption “Deposits” and is incorporated herein by reference.

VI. RETURN ON EQUITY AND ASSETS

Information relating to key financial ratios for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 appears on page 35 of the LNB Bancorp, Inc. 2003 Annual report under the caption “Financial Ratios” and is incorporated herein by reference.

VII. SHORT-TERM BORROWINGS

Information relating to short-term borrowings for the years ended December 31, 2003, 2002 and 2001 appears on page 23 of the LNB Bancorp, Inc. 2003 Annual Report under Note 10 “Securities Sold Under Repurchase Agreements and Other Short-Term Borrowings” and Note 11 Federal Home Loan Bank Advances, short-term and is incorporated herein by reference.

VIII. AVAILABLE INFORMATION

LNB Bancorp, Inc. makes its Annual Report on Form 10-K, its quarterly reports on From 10-Q, its current reports on Form 8-K, and all amendments to those

15

reports available on its website, free of charge. LNB Bancorp, Inc.’s website address is www.4LNB.com.

ITEM 2 - PROPERTIES

LNB BANCORP, INC.

The principal executive offices are located at its Main Office, 457 Broadway, Lorain, Ohio. The Corporation owns the land and buildings occupied by the Main Office, twelve of its banking centers, the Professional Development Center Building, the Maintenance Building, the Purchasing Building and the Technology Center. The remaining nine banking centers are subject to lease obligations with various lessors and varying lease terms.

There is no outstanding mortgage debt on any of the properties which the Corporation owns. Listed below are the banking centers/customer service facilities of the Corporation and their locations:

Main Office	457 Broadway, Lorain
Vermilion	4455 East Liberty Avenue, Vermilion
Amherst	1175 Cleveland Avenue, Amherst
Lake Avenue	42935 North Ridge Road, Elyria Township
Avon	2100 Center Road, Avon
Avon Lake	240 Miller Road, Avon Lake
Kansas Avenue	1604 Kansas Avenue, Lorain
Sixth Street Drive-In	200 Sixth Street, Lorain
Pearl Avenue	2850 Pearl Avenue, Lorain
Oberlin Office	40 East College Street, Oberlin
West Park Drive-In	2130 West Park Drive, Lorain
Ely Square	124 Middle Avenue, Elyria
Cleveland Street	801 Cleveland Street, Elyria
Oberlin Avenue	3660 Oberlin Avenue, Lorain
Olmsted Township	27095 Bagley Road, Olmsted Township
Kendal at Oberlin	600 Kendal Drive, Oberlin
The Renaissance	26376 John Road, Olmsted Township
Westlake Village	28550 Westlake Village Drive, Westlake
Village of LaGrange	546 North Center Street, Village of LaGrange
Elyria United Methodist Village	807 West Avenue, Elyria
Technology Center	2130 West Park Drive, Lorain
Maintenance Building	2140 West Park Drive, Lorain
Purchasing Building	2150 West Park Drive, Lorain
Professional Development Center	521 Broadway, Lorain

The Corporation also owns automated teller machines, as well as computers and related equipment for use in its business. The Corporate headquarters at 457 Broadway is currently utilized at a level of 75%. The remaining space will be utilized as the Corporation continues to grow. The Corporation considers its Corporate offices, banking centers and computer operations center to be in good to excellent condition, well maintained and are more than adequate to

16

conduct the business of banking.

ITEM 3 - LEGAL PROCEEDINGS

There are no material legal proceedings, other than ordinary routine litigation incidental to its business, to which the Corporation or its subsidiaries is a party to or which any of its property is subject.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year ended December 31, 2003 there were no matters submitted to a vote of security holders.

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

EXECUTIVE OFFICERS OF THE REGISTRANT

	CURRENT POSITION AND	EXECUTIVE
	PRINCIPAL OCCUPATION	OFFICER
NAME(AGE)	DURING PAST 5 YEARS	SINCE
Debra R. Brown	Senior Vice President, (1999 to present)		1999
(45)	Banking Center Administration
	LNB Bancorp, Inc. and
	The Lorain National Bank
Robert Cox	Senior Vice President Sales (2001 to present)		2001
(48)	LNB Bancorp, Inc. and
	The Lorain National Bank
	Vice President (1999 – 2000)
	Key Bank
Mitchell J. Fallis CPA	Vice President and		1996
(49)	Chief Accounting Officer, (1996 to present)
	LNB Bancorp, Inc. and
	The Lorain National Bank
James F. Kidd	President and
(63)	Chief Executive Officer (1995–1999 and 2003 to present)		1995
	LNB Bancorp, Inc. and
	The Lorain National Bank
	Director (1999 to present)
	LNB Bancorp, Inc. and
	The Lorain National Bank
James W. Manning	Director of Audit (2001 to present)		2001
(56)	LNB Bancorp, Inc. and
	The Lorain National Bank
	Vice President and (2000 – 2001)
	Senior Risk Manager
	KeyCorp, Inc.
	Vice President and (1998 – 2000)
	Senior Internal Auditor
	Carolina First Bank

17

	CURRENT POSITION AND	EXECUTIVE
	PRINCIPAL OCCUPATION	OFFICER
NAME(AGE)	DURING PAST 5 YEARS	SINCE
Carol A. Mesko	Vice President (1999 to present)		2001
(58)	Human Resources
	The Lorain National Bank
Kevin W. Nelson	Executive Vice President and		2000
(40)	Chief Operating Officer (2000 to present)
	LNB Bancorp, Inc. and
	The Lorain National Bank
	Division President (1998 – 2000)
	Bankfirst National and
	Bankfirst Ohio Corp.
David Nocjar	Senior Trust and Investment Officer (2002 to present)		2002
(55)	The Lorain National Bank
	Vice President and Trust Officer (2000 to 2002)
	The Lorain National Bank
	Vice President and Senior Trust Officer (1996 to 2000)
	Citizens National Bank of Norwalk
Terry M. White	Executive Vice President,		2002
(46)	Chief Financial Officer and
	Corporate Secretary (2003 to present)
	LNB Bancorp, Inc. and
	Lorain National Bank
	Executive Vice President and
	Chief Investment Officer (2002 to 2003)
	LNB Bancorp, Inc. and
	The Lorain National Bank
	Senior Vice President (2000 – 2002)
	Austin Associates, LLC
	Executive Vice President, (1993 – 2000)
	Chief Financial Officer,
	Treasurer, Secretary, and
	Chief Operating Officer
	Lakeland Financial Corporation
James H. Weber	Senior Vice President and		1987
(57)	Senior Marketing Officer (1987 to present)
	LNB Bancorp, Inc. and
	The Lorain National Bank

18

PART II

ITEM 5 - MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Common Stock Trading Ranges, Cash Dividends Declared information and information relating to dividend restrictions appear on the inside front cover of the LNB Bancorp, Inc. 2003 Annual Report and are incorporated herein by reference.

     HOLDERS

The total number of shareholders was 2,268 as of February 29, 2004. Upon the consummation of the Plan of Reorganization on March 30, 1984, the Corporation became a one bank holding company and shareholders of the Bank became shareholders of the Corporation, receiving one share of voting Common Stock for each outstanding share of Common Stock of the Bank.

ITEM 6 - SELECTED FINANCIAL DATA

A Five Year Consolidated Financial Summary of selected financial data on page 35 of the LNB Bancorp, Inc. 2003 Annual Report is incorporated herein by reference.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

“Management’s Discussion and Analysis” is incorporated herein by reference to pages 36 - 48 of the LNB Bancorp, Inc. 2003 Annual Report.

Also, see Item 8 - Financial Statements and Supplementary Data.

ITEM 7(a) - Quantitative and Qualitative Disclosures about Market Risk are incorporated herein by reference to page 46 of “Management’s Discussion and Analysis” in the LNB Bancorp, Inc. 2003 Annual Report to Shareholders.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Corporation’s Independent Auditors’ Report and Consolidated Financial Statements are listed below and are incorporated herein by reference to the LNB Bancorp, Inc. 2003 Annual Report (Appendix 13), pages 12 through 33. The supplementary financial information specified by Item 302 of Regulation S-K, selected unaudited quarterly financial data, is included on page 34 of the LNB Bancorp, Inc. 2003 Annual Report.

Consolidated Balance Sheets as of December 31, 2003 and 2002

19

Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements December 31, 2003, 2002 and 2001

Report of Management

Report of Independent Auditors

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

     None

ITEM 9(a) – CONTROLS AND PROCEDURES

The Corporation carried out an evaluation under the supervision and with the participation of the Corporation’s management, including the Corporation’s President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Corporate Secretary, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as of December 31, 2003, pursuant to SEC rule 13a-15. Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Corporate Secretary concluded that as of December 31, 2003, the Corporation’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic SEC filings.

There was no significant change made in the Corporation’s internal control over financial reporting that occurred during the Corporation’s fourth quarter ended December 31, 2003, that was materially affecting, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART III

ITEM 10 –  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT

Information concerning executive officers of the Corporation is set forth in Part I, Item 4. Other information responding to Item 10 is included

20

in the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders and is incorporated by reference under the captions “Election of Directors” and “Compensation Committee Interlocks and Insider Participation”, on pages 3 through 6 and pages 16 and 17, respectively. Information concerning The Audit Committee Financial Expert is included in the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders under the caption “Committees of the Board”, pages 6 through 7 and is incorporated herein by reference. The Registrant has adopted a Code of Business Conduct and Ethics. This is included as Exhibit (14) to this Form 10-K report. This Code of Business Conduct and Ethics applies to and has been signed by The President and Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Controller and Director of Audit. This Code of Business Conduct and Ethics applies to all Board of Directors, Officers and employees.

ITEM 11 - EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the captions titled “Executive Compensation and Other Information” and “Compensation Committee Interlocks and Insider Participation” on pages 9 through 14 and pages 16 and 17, respectively, of the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained on pages 2 through 3 of the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders relating to “Ownership of Voting Shares” is incorporated herein by reference.

The following Equity Compensation Plan Table is as December 31, 2003:

Equity Compensation Plan Table

					Number of
	Number of				securities
	securities to be				remaining available
	issued upon				for future issuance
	exercise of		Weighted-average		under equity
	outstanding		exercise price of		compensation plans
	options		outstanding		(excluding
	warrants and		options, warrants		securities reflected
	rights(1)		and rights		in column (a))
Plan Category	(a)		(b)		(c)
Equity compensation plans by approved security holders		-0-	$	0.00		-0-
Equity compensation plans not approved by security holders(2)		50,960		16.69		-0-
Total		50,960	$	16.69		-0-

21

(1) Consists of common shares of the Corporation covered by outstanding options.

(2) All common shares included in equity compensation plans not approved by shareholders are covered by outstanding options awarded to one current and one former executive officer under agreements having the same material terms. Each of these options is a nonqualified option, meaning a stock option that does not qualify under Section 422 of the Internal Revenue Code for the special tax treatment available for qualified, or “incentive,” stock options. Each of these options vested immediately as to all shares covered by the option. Each option may be exercised for a term of 10 years from the date of the grant of the option, subject to earlier termination in the event of death, disability or other termination of the employment of the option holder. The option holder has up to 12 months following termination of employment due to death or disability to exercise the options. The options terminate three months after termination of employment for reasons other than death, disability or termination for cause, and immediately upon termination of employment if for cause. The exercise price and number of shares covered by the option are to be adjusted to reflect any share dividend, share split, merger or other recapitalization of the common shares of the Corporation. The options are not transferable other than by will or state inheritance laws. Exercise prices for these options are at fair market value at the date of grant and ranged from $14.08 to $18.85. The remaining contractual terms of the options ranged from 5.0 to 8.0 years at December 31, 2003.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the caption titled “Compensation Committee Interlocks and Insider Participation” and “Certain Transactions” on pages 16 and 18 of the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders.

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference from the caption titled “Principal Accounting Firm Fees” on page 8 of the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders.

22

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following Consolidated Financial Statements and related Notes to Consolidated Financial Statements, together with the Independent Auditors’ Report, dated January 30, 2004, appear on pages 12 through 33 of the LNB Bancorp, Inc. 2003 Annual Report and are incorporated herein by reference:

(1)	Financial Statements
	Consolidated Balance Sheets     December 31, 2003 and 2002
	Consolidated Statements of Income for the Years Ended     December 31, 2003, 2002 and 2001
	Consolidated Statements of Shareholders’ Equity for the Years     Ended December 31, 2003, 2002 and 2001
	Consolidated Statements of Cash Flows for the Years Ended     December 31, 2003, 2002 and 2001
	Notes to Consolidated Financial Statements for the Years     Ended December 31, 2003, 2002 and 2001
	Report of Management
	Report of Independent Auditors
(2)	Financial Statement Schedules
	Financial statement schedules are omitted as they are not required or are not applicable or because the required information is included in the consolidated financial statements or notes thereto.
(3)	Exhibits required by Item 601 Regulation S-K
	Reference is made to the Exhibit Index which is found on page 27 of this Form 10-K.

(b) Reports on Form 8-K filed or furnished during the fourth quarter of 2003 and through the date of this Form 10-K filing:

October 21, 2003 – LNB Bancorp, Inc. issued a press release reporting its financial results and earnings for the three and nine months ended September 30, 2003.

23

October 21, 2003 – LNB Bancorp, Inc. issued a press release reporting its financial results and earnings for the three and nine month periods ended September 30, 2003. A corrected copy of the Company’s press release was reported on Form 8-K/A. The only corrections made to the press release involve certain income and expense amounts reported under the “Financial Highlights” table for the three months ended September 30, 2003. It is the opinion of Management that these corrections are not material. The corrected table appears at the end of the press release. No corrections to the textual portion of the press release have been made.

November 18, 2003 – LNB Bancorp, Inc. issued a press release announcing the declaration of fourth quarter cash dividend.

November 19, 2003 – LNB Bancorp, Inc. published and released its Third Quarter 2003 Report to Shareholders.

November 21, 2003 – LNB Bancorp, Inc. issued a press release announcing additional restructuring actions.

December 10, 2003 – LNB Bancorp, Inc. issued a press release announcing former CEO James F. Kidd returns to full-time service – Gary C. Smith retires.

January 28, 2004 – LNB Bancorp, Inc. issued a press release reporting its financial results and earnings for the three and twelve month periods ended December 31, 2003.

(c) Exhibits required by Item 601 Regulation S-K

Reference is made to the Exhibit Index which is found on page 27 of this Form 10-K.

(d) See Item 15(a)(2) above.

SIGNATURES

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

	LNB Bancorp, Inc.
	(Registrant)
By	/s/Terry M. White
	Terry M. White
	Executive Vice President,
	Chief Financial Officer and
	Corporate Secretary

24

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

/s/ Daniel P. Batista Daniel P. Batista	Director	March 05, 2004
/s/ Robert M. Campana Robert M. Campana	Director	March 05, 2004
/s/ Terry D. Goode Terry D. Goode	Director	March 05, 2004
/s/ Lee C. Howley Lee C. Howley	Director	March 05, 2004
/s/ David M. Koethe David M. Koethe	Director	March 05, 2004
/s/ Benjamin G. Norton Benjamin G. Norton	Director	March 05, 2004
/s/ Jeffrey F. Riddell Jeffrey F. Riddell	Director	March 05, 2004
/s/ John W. Schaeffer, M.D. John W. Schaeffer, M.D.	Director	March 05, 2004
/s/ Eugene M. Sofranko Eugene M. Sofranko	Director	March 05, 2004
/s/ Stanley G. Pijor Stanley G. Pijor	Chairman of the Board and Director	March 05, 2004
/s/ James R. Herrick James R. Herrick	Vice Chairman of the Board and Director	March 05, 2004

25

/s/ James F. Kidd James F. Kidd	President, Chief Executive Officer and Director	March 05, 2004
/s/ Terry M. White Terry M. White	Executive Vice President and Chief Financial Officer	March 05, 2004
/s/ Mitchell J. Fallis Mitchell J. Fallis, CPA	Vice President and Chief Accounting Officer	March 05, 2004

26

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
(3)	(a)LNB Bancorp, Inc. Second Amended Articles of Incorporation. Previously filed under Item 6, Exhibit (3)i to Quarterly Report on Form 10-Q (Commission File No. 0-13202) for the quarter ended September 30, 2000, and incorporated herein by reference.	N/A
	(b)LNB Bancorp, Inc. Amended Code of Regulations. Previously filed under Item 7, Exhibit 3 to Form 8-K (Commission File No. 0-13203) filed January 4, 2001 and incorporated herein by reference.	N/A
(10)	Material Contracts
	(a)Amendment to Supplemental Retirement Benefits Agreement by and between Gary C. Smith and LNB Bancorp, Inc., and The Lorain National Bank dated October 6, 2003.	N/A
	(b)Severance Agreement and General Release and Amended Employment Agreement by and between Gregory D. Friedman and LNB Bancorp, Inc, and The Lorain National Bank dated November 21, 2003.	N/A
	(c)The Lorain National Bank Retirement Pension Plan amended and restated effective December 31, 2002, dated November 19, 2002.	N/A
	(d)Employment Agreement by and between Terry M. White and LNB Bancorp, Inc, and The Lorain National Bank dated January 23, 2002. Previously filed as Exhibit (10a) to Quarterly Report Form 10-Q (Commission File No. 0-13203) for the quarter ended March 31, 2002, and incorporated herein by reference.	N/A

27

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
	(e)Lorain National Bank Group Term Carve Out Plan, (the Plan), dated August 7, 2002. Previously filed as Exhibit (10a) to Quarterly Report Form 10-Q (Commission File No. 0-13203) for the quarter ended September 31, 2002, and incorporated herein by reference.	N/A
	(f)Restated and Amended (to conform with specific Employment Benefit Plans and Provisions) Employment Agreement by and between Gary C. Smith and LNB Bancorp, Inc, and The Lorain National Bank dated December 22, 2000. Previously filed as Exhibit (10a) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2001, and incorporated herein by reference.	N/A
	(g)Restated and Amended (to conform with specific Employment Benefit Plans and Provisions) Employment Agreement by and between Kevin W. Nelson and LNB Bancorp, Inc, and The Lorain National Bank dated December 22, 2000. Previously filed as Exhibit (10b) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2001, and incorporated herein by reference.	N/A
	(h)Restated and Amended (to conform with specific Employment Benefit Plans and Provisions) Employment Agreement by and between Gregory D. Friedman and LNB Bancorp, Inc, and The Lorain National Bank dated December 22, 2000. Previously filed as Exhibit (10c) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2001, and incorporated herein by reference.	N/A
	(i)Supplemental Retirement Benefits Agreement by and between Gary C. Smith and LNB Bancorp, Inc, and The Lorain National Bank dated December 22, 2000. Previously filed as Exhibit (10a) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2000, and incorporated herein by reference.	N/A

28

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
	(j)Supplemental Retirement Benefits Agreement by and between Thomas P. Ryan and LNB Bancorp, Inc. and The Lorain National Bank dated December 23, 2000. Previously filed as Exhibit (10b) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2000 and incorporated herein by reference.	N/A
	(k)Supplemental Retirement Benefits Agreement by and between Gregory D. Friedman and LNB Bancorp, Inc. and The Lorain National Bank dated December 22, 2000. Previously filed as Exhibit (10c) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2000 and incorporated herein by reference.	N/A
	(l)Non-qualified Incentive Stock Option Agreement by and between Gary C. Smith and LNB Bancorp, Inc. dated December 15, 2000. Previously filed as Exhibit (10d) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 2000 and incorporated herein by reference.	N/A
	(m) Rights Agreement between LNB Bancorp, Inc. and Registrar and Transfer Company dated October 24, 2000. Previously filed as Exhibit 1 to Form 8-A (Commission File No. 0-13203) filed November 11, 2000, and incorporated herein by reference.	N/A
	(n)Employment Agreement by and between Kevin W. Nelson and LNB Bancorp, Inc. and The Lorain National Bank dated February 13, 2000. Previously filed as Exhibit (10a) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1999, and incorporated herein by reference.	N/A
	(o)Incentive Stock Option Agreement by and between Kevin W. Nelson and LNB Bancorp, Inc. dated February 13, 2000. Previously filed as Exhibit (10b) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1999 and incorporated herein by reference.	N/A

29

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
	(p)Amended Supplemental Retirement Agreement by and between James F. Kidd and The Lorain National Bank dated June 15, 1999. Previously filed as Exhibit (10a) to Quarterly Report on Form 10-Q (Commission File No.0-13203) for the quarter ended June 30, 1999, and incorporated herein by reference.	N/A
	(q)Employment Agreement by and between Gary C. Smith and LNB Bancorp, Inc. and The Lorain National Bank dated March 16, 1999. Previously filed as Exhibit (10a) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1998, and incorporated herein by reference.	N/A
	(r)Incentive Stock Option Agreement by and between Gary C. Smith and LNB Bancorp, Inc. dated March 16, 1999. Previously filed as Exhibit (10b) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1998, and incorporated herein by reference.	N/A
	(s)Amended Employment Agreement by and between James F. Kidd and LNB Bancorp, Inc. And The Lorain National Bank dated March 3, 1999. Previously filed as Exhibit (10c) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1998, and incorporated herein by reference.	N/A
	(t) Amended Employment Agreement by and between Thomas P. Ryan and LNB Bancorp, Inc. and The Lorain National Bank dated March 3, 1999. Previously filed as Exhibit (10d) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1998, and incorporated herein by reference.	N/A
	(u) Branch Purchase and Assumption Agreement by and between KeyBank National Association and the Lorain National Bank dated April 10, 1997. Previously filed as Exhibit (99.1) to Form 8-K (Commission File No. 0-13203) filed October 3, 1997, and incorporated herein by reference.	N/A

30

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
	(v)Supplemental Retirement Agreement by and between James F. Kidd and The Lorain National Bank dated July 30, 1996. Previously filed as Exhibit (10a) to Quarterly Report on Form 10-Q (Commission File No.0-13203) for the quarter ended June 30, 1996, and incorporated herein by reference.	N/A
	(w)Supplemental Retirement Agreement by and between Thomas P. Ryan and The Lorain National Bank dated July 30, 1996. Previously filed as Exhibit (10b) to Quarterly Report on Form 10-Q (Commission File No. 0-13203) for the quarter ended June 30, 1996, and incorporated herein by reference.	N/A
	(x)Supplemental Retirement Agreement by and between Gregory D. Friedman and The Lorain National Bank dated July 30, 1996. Previously filed as Exhibit (10c) to Quarterly Report on Form 10-Q (Commission File No. 0-13203) for the quarter ended June 30, 1996, and incorporated herein by reference.	N/A
	(y)Employment Agreement by and between James F. Kidd and LNB Bancorp, Inc. and The Lorain National Bank dated September 11, 1995. Previously filed as Exhibit (10a) to Quarterly Report on Form 10-Q (Commission File No. 0-13203) for the quarter ended September 30, 1995, and incorporated herein by reference.	N/A
	(z)Employment Agreement by and between Thomas P. Ryan and LNB Bancorp, Inc. and The Lorain National Bank dated September 11, 1995. Previously filed as Exhibit (10b) to Quarterly Report on Form 10-Q (Commission File No. 0-13203) for the quarter ended September 30, 1995, and incorporated herein by reference.	N/A
	(aa)Consultant Agreement by and between Lorain National Bank, LNB Bancorp, Inc. and Stanley G. Pijor dated March 15, 1994. Previously filed as Exhibit (10) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1993 and incorporated herein by reference.	N/A

31

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
	(bb)Supplemental Retirement Agreement by and between Stanley G. Pijor and The Lorain National Bank dated December 31, 1987. Previously filed as Exhibit (10) to Annual Report on Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1987, and incorporated herein by reference.	N/A
	(cc)Employment Agreement by and between Lorain National Bank and Stanley G. Pijor dated December 31, 1987, Previously filed as Exhibit (10) to Annual Report Form 10-K (Commission File No. 0-13203) for the year ended December 31, 1987 and incorporated herein by reference.	N/A
	(dd)The Lorain National Bank 1985 Incentive Stock Option Plan dated April 16, 1985. Previously filed as Exhibit (10) to Annual Report on Form 10-K (Commission File No. 2-8867-1) for the year ended December 31, 1985, and incorporated herein by reference.	N/A
	(ee)Agreement To Join In The Filing of Consolidated Federal Income Tax Returns between LNB Bancorp, Inc. and The Lorain National Bank dated December 15, 1986. Previously filed as Exhibit (10) to Annual Report on Form 10-K (Commission File No. 2-8867-1) for the year ended December 31, 1986 and incorporated herein by reference.	N/A
(11)	Statements re: Computation of Per Share Earnings. (Incorporated herein by reference to Note 2 of the 2003 Annual Report)	N/A
(13)	LNB Bancorp, Inc. 2003 Annual Report to Shareholders.	N/A
(14)	LNB Bancorp, Inc. - Code of Business Conduct and Ethics	N/A
(21)	Subsidiaries of LNB Bancorp, Inc. (Incorporated herein by reference to IFC of 2003 Annual Report)	N/A
(23)	Consent of Independent Accountants.	N/A
(31(a))	Chief Executive Officer Sarbanes-Oxley Act 302 Certification dated March 10, 2004 for LNB Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003	N/A
(31(b))	Chief Financial Officer Sarbanes-Oxley Act 302 Certification dated March 10, 2004 for LNB Bancorp,	N/A
	Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003

32

LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K

S-K
Reference		Page
Number	Exhibit	Number
(32(a))	Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	N/A
(32(b))	Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	N/A
(99.1)	Annual report on Form 10-K/A of The Lorain National Bank Employee Stock Ownership Plan (registration number 33-65034) for the plan year ended December 31, 2003 to be filed as an amendment to this annual report on Form 10-K.	N/A
(99.2)	Annual report on Form 10-K/A of The Lorain National Bank 401(K) Plan (registration number 33-65034) for the plan year ended December 31, 2003 to be filed as an amendment to this annual report on Form 10-K.	N/A

33

EX-10.A

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (10a)

Amendment to Supplemental Retirement Benefits Agreement by and between Gary C. Smith and LNB Bancorp, Inc. and the Lorain National Bank dated October 6, 2003.

Exhibit 10(A)

AMENDMENT TO SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT
FOR
GARY C. SMITH

     This Amendment (the “Amendment”), made as of this 6th day of October, 2003, by and among LNB BANCORP, INC. (an Ohio corporation) and THE LORAIN NATIONAL BANK (a national banking association organized and existing under the laws of the United States of America), which together with their respective successors and assigns are herein collectively called “Employer”, and GARY C. SMITH, who is herein called “Executive”, is to EVIDENCE THAT:

     WHEREAS Executive and Employer have signed and executed a certain Supplemental Retirement Benefits Agreement dated December 15, 2000 (herein called the “Agreement”); and

     WHEREAS Employer and Executive now desire to amend the Agreement as stated in this Amendment;

     NOW, THEREFORE, in consideration of the mutual promises made in this Amendment and in the Agreement and for other valuable consideration (the receipt and sufficiency of which are hereby acknowledged), Employer and Executive hereby agree to amend the Agreement as follows, effective on the date hereof:

     1. Section 1 of the Agreement is amended to read as follows:

          1. Employment of Executive.

     1.1 In accordance with Executive’s employment agreement with Employer dated December 22, 2000 and all amendments thereto and replacement employment agreements therefor (herein collectively called the “Employment Agreement”), Executive shall continue to perform duties for Employer in such senior executive capacity as the Board of Directors of Employer may periodically designate. Executive shall devote Executive’s best efforts to performing conscientiously, faithfully and loyally all Executive’s duties for Employer as designated in the Employment Agreement. Executive’s employment with Employer shall continue until terminated pursuant to the Employment Agreement.

     1.2 If Employer terminates Executive’s employment with Employer without cause (as defined in Section 3.5 of this Agreement), Employer covenants that it will elect the two (2)-year Restricted Period (as defined in Section 8.1(G) of the Employment Agreement) pursuant to Section 7.8 of the Employment Agreement and, as a result of such election and in consideration for the two (2)-year Restricted Period, Employer shall continue to pay Executive’s total compensation (as reflected on Executive’s W-2

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Federal Income Tax Statement from Employer for the prior calendar year) for a period of two (2) years from the date of termination of employment in accordance with Section 7.8 of the Employment Agreement.

     2. Section 3.1 of the Agreement is hereby deleted and replaced with the following:

     3.1 Normal Retirement. If Executive remains in the continuous employ of Employer pursuant to the Employment Agreement and retires or is discharged by Employer (for any reason, with or without cause) from active employment with Employer on or after age 65 (herein called the “Normal Retirement Date”) or if Employer terminates Executive without cause (as defined in Section 3.5 of this Agreement) at any time before the Normal Retirement Date, Executive will be entitled to receive such supplemental annual retirement benefits (herein called the “Supplemental Retirement Benefits”) which, when added to (i) Executive’s LNB Pension Plan Benefits and (ii) the social security benefits to which Executive is eligible on the date of Executive’s employment termination and (iii) the benefits attributable to Employer’s contributions to its Section 401(k) Plan (and any successor qualified retirement plan) paid or accrued by Employer from and after the date the LNB Pension Plan was terminated and/or frozen (the “401(k) Plan Benefits”), shall provide an annual amount (pro-rated for any fraction of a calendar year) equal to seventy percent (70%) of Executive’s Compensation (as defined herein). For purposes of this Agreement, the term “Compensation” is limited to the largest annual Basic Salary (as defined in Section 2.1 of the Employment Agreement and as may be periodically increased pursuant to the Employment Agreement) and the largest annual bonus paid to Executive by Employer for the two (2) full calendar years of employment immediately preceding the date of Executive’s employment termination as reflected on Executive’s combined W-2 Federal Income Tax Statements from Employer. The Supplemental Retirement Benefits shall be payable by Employer for a period of ten (10) years in one hundred twenty (120) equal monthly payments (or, at Executive’s option, the same amount of Supplemental Retirement Benefits will be payable in a greater number of equal monthly payments but not to exceed two hundred forty (240)), commencing on the first day of the calendar month immediately following the later of the date of Executive’s employment termination or the Normal Retirement Date and continuing on the first day of each calendar month thereafter until the Supplemental Retirement Benefits are fully paid. For purposes of this Agreement: (i) Executive shall be under no obligation to elect to receive Social Security benefits as a condition to entitlement to the Supplemental Retirement Benefits, and

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(ii) Executive’s LNB Pension Plan benefits and 401(k) Plan Benefits shall each be separately calculated as though payable as a single life annuity for Executive’s life expectancy.

     3. A new Section 3.7 is hereby added to the Agreement and shall read as follows:

     3.7 Salary Continuation Benefits. If Employer terminates Executive’s employment without cause (as defined in Section 3.5 of this Agreement) at any time before the Normal Retirement Date (as defined in Section 3.1 of this Agreement), Employer will pay Executive an annual benefit (pro-rated for any fraction of a calendar year) equal to a portion of Executive’s Basic Salary (as defined in Section 2.1 of the Employment Agreement) for the immediately prior calendar year as reflected on Executive’s W-2 Federal Income Tax Statement from Employer, payable monthly until Executive reaches the Normal Retirement Date, which annual portion (herein called the “Salary Continuation Benefits”) shall be no less than fifty percent (50%) of the Basic Salary and no more than eighty percent (80%) of the Basic Salary as determined by Employer’s Board of Directors in its sole discretion but based upon Executive’s job performance prior to such employment termination; provided, however, that any such Salary Continuation Benefits shall be reduced by: (i) any income earned by Executive from any other source for services rendered by Executive prior to the Normal Retirement Date and after Executive’s employment termination, except that Executive may earn income from sources that are non-competitive to Employer and non-executive in status, without any reduction in Salary Continuation Benefits, as for example employment with a bed and breakfast, bait shop or other small entrepreneurial endeavor; and (ii) any Supplemental Retirement Benefits paid to Executive under this Agreement prior to the Normal Retirement Date, and (iii) all payments to Executive under Section 1.2 of this Agreement.

     4. A new Section 8 is hereby added to the Agreement and shall read as follows:

          8. Additional Benefits.

     8.1 In addition to any Supplemental Retirement Benefits and any Salary Continuation Benefits paid under this Agreement, if Employer terminates Executive’s employment without cause (as defined in Section 3.5 of this Agreement) prior to the Normal Retirement Date (as defined in Section 3.1 of this Agreement), Employer will: (i) as soon as practicable, transfer to Executive title (free and clear of all liens and encumbrances) to the vehicle then provided by Employer for Executive’s performance of his employment duties on the date of employment termination

- 3 -

(provided, however, that Executive shall assume and pay for all sales, income and other taxes resulting from such transfer), and (ii) continue to pay until the Normal Retirement Date hospitalization insurance in the same manner and containing the same terms and conditions as provided to the other members of Employer’s executive group, and (iii) after the Normal Retirement Date, permit Executive to participate (at Executive’s sole expense) in Employer’s group hospitalization coverage as may be periodically modified if (and to the extent that) so permitted by Employer’s hospitalization insurance carrier.

     8.2 In accordance with Ohio law, Employer’s governing documents (as may be periodically amended) and the Employment Agreement, Employer hereby indemnifies and saves Executive harmless from and against all claims, liabilities, judgments, decrees, fines, penalties, fees, amounts paid in settlement or any other costs, losses, expenses (including, but not limited to, reasonable attorneys’ fees and court costs) directly or indirectly arising or resulting from or in connection or association with any threatened or pending action, suit or proceeding (whether civil, criminal, administrative, investigatory or otherwise) based upon any alleged or actual violation of any Federal or State securities law, and any appeals related thereto, under which Executive is a party or participant because of Executive’s good faith actions or omissions arising from the performance of Executive’s employment duties and obligations, except for such claims (including court proceedings) brought by the respective Parties against each other.

     8.3 All shares of Employer’s stock issued to Executive pursuant to any non-qualified stock option agreement or plan shall be timely and properly registered by Employer for transfer in compliance with all relevant Federal and State securities laws.

     5. Employer also covenants and agrees that any compensation program for Executive adopted by Employer after the date of this Amendment shall include any non-qualified stock options granted to Executive but rescinded prior to the date of this Amendment.

     6. In Sections 3.3, 3.4 and 3.5 of the Agreement, the phrase “actuarial equivalent” is deleted and replaced with the phrase “discounted present value”.

     7. In all other respects, the Agreement is hereby ratified, approved and confirmed.

[Document Continued on Next Page]

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     IN WITNESS WHEREOF, Employer has caused this Amendment to be executed by its duly authorized Officers and Executive has set Executive’s hand, as of the day and year first above written.

In the presence of:	THE LORAIN NATIONAL BANK
/s/ Patricia J. Dahm	By: /s/ J. F. Kidd
(Signature of First Witness)
/s/ Janice L. Kane	Title: Vice Chairman
(Signature of Second Witness)
	LNB BANCORP, INC.
/s/ Patricia J. Dahm	By: /s/ J. F. Kidd
(Signature of First Witness)
/s/ Janice L. Kane	Title: Vice Chairman
(Signature of Second Witness)
	“Employer”
/s/ Evelyn France	/s/ Gary C. Smith
(Signature of First Witness)	Gary C. Smith
/s/ Ann E. Kaler
	“Executive”
(Signature of Second Witness)

- 5 -

EX-10.B

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (10b)

Severance Agreement and General Release and Amended Employment Agreement by and between Gregory D. Friedman and LNB Bancorp, Inc. and The Lorain National Bank dated November 21, 2003.

Exhibit 10(b)

SEVERANCE AGREEMENT AND GENERAL RELEASE
AND
AMENDMENT TO EMPLOYMENT AGREEMENT

     This Severance Agreement and General Release and Amendment to Employment Agreement (herein “Severance Agreement”) is entered into between LNB Bancorp, Inc. and Lorain National Bank (collectively herein “LNB”), their parents, affiliates, subsidiaries, successors and assigns, and Gregory D. Friedman (herein “Employee”), and his heirs, successors, agents, and assigns, (together herein the “Parties”), at Lorain, Ohio, to set forth the terms, conditions and consideration relating to the termination of Employee’s employment as Chief Financial Officer of LNB:

     1. Employee and LNB are parties to an Employment Agreement, a true copy of which is attached hereto and marked Exhibit A (“Employment Agreement”). This Severance Agreement modifies certain specific and enumerated provisions of said Employment Agreement and provides special severance benefits. Except as so specifically modified, the Employment Agreement remains in effect. Employee acknowledges that LNB does not have a severance plan or otherwise provide severance benefits and that such benefits, if provided, are at the sole discretion of LNB’s President and Chief Executive Officer.

     2. Employee’s Term of employment is terminated by the Board of Directors pursuant to Section 7.2 of the Employment Agreement, with 90-day notice given on November 21, 2003. Employee shall not continue to render services to LNB during said 90 days, but shall continue to receive all current compensation and benefits for the duration of said 90-day period.

     3. The Parties agree that, except as otherwise provided in this Severance Agreement, LNB waives and relieves Employee of his post-employment noncompetition obligations set forth in Section 8.2 of the Employment Agreement. In consideration for said waiver, LNB shall have no obligation under Section 7.8 of the Employment Agreement to pay Employee any compensation or benefits after the expiration of the above-mentioned 90-day notice period.

     4. However, in consideration for Employee’s general release and other undertakings contained in this Severance Agreement, LNB agrees to continue to pay Employee one year’s compensation, as reflected on Employee’s W-2 Federal Income Tax Statement for the year 2002 (copy of which is attached hereto as Exhibit B), in the form of salary continuation for the one-year period commencing on February 18, 2004 (“Severance Pay”). Employee acknowledges that the Severance Pay is subject to tax reporting and statutory withholdings. Employee further acknowledges and agrees that said Severance Pay is not a benefit to which he would otherwise be entitled and that said Severance Pay is good and sufficient consideration for Employee’s promises and releases set forth in this Severance Agreement. Nothing in this Severance Agreement shall affect Employee’s entitlement to accrued vacation pay and vested rights and benefits under

LNB employee benefit plans, including: The Lorain National Bank 401K Plan; The Lorain National Bank Retirement Pension Plan; The Lorain National Bank Employee Stock Ownership Plan; The Lorain National Bank Stock Purchase Plan; and BOLI (collectively, “Plans”). Employee’s rights under these Plans are governed by and shall be administered in accordance with the terms and conditions of the respective Plans. Further, noting in this Severance Agreement shall affect Employee’s rights under the Supplemental Retirement Benefits Agreement for Gregory D. Friedman, dated December 22, 2000, a true copy of which is attached hereto as Exhibit C.

     5. In consideration for LNB’s payment of the Severance Pay provided under this Severance Agreement, Employee and Employee’s heirs, legal representatives, agents, next of kin, successors in interest, executors, administrators, assigns and anyone who may take under or through him, hereby jointly and severally release and forever discharge LNB and its shareholders, directors, officers, predecessors, successors, agents, representatives, assigns, parents, affiliates, subsidiaries, and employees, from any and all claims, actions, suits, agreements, demands, or liabilities whatsoever, in law or in equity, whether known or unknown, which Employee has ever had or may now have, since the beginning of time to the effective date of this Severance Agreement, including but not limited to, any and all claims under the Age Discrimination in Employment Act, Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964 as amended, Americans With Disabilities Act, Family and Medical Leave Act, Title 41 of the Ohio Revised Code, and any and all other federal, state or local laws or regulations, and any and all claims based in common law, including but not limited to, infliction of emotional and/or mental distress, harassment, intentional tort, negligence, defamation, privacy, discrimination, retaliation, whistleblowing, wrongful discharge, interference with contract, outrage, public policy, and any and all other claims relating in any manner to or arising out of Employee’s employment with LNB or the termination of that employment or otherwise. Employee understands and acknowledges that LNB expressly denies any wrongdoing or that any liability exists under any such claim. Employee represents that he has filed no claim or action against LNB or any of its employees, officers, and/or directors. Employee further acknowledges and represents that he shall not encourage or assist any other person or entity in bringing a claim or action against LNB, and/or its employees, officers, and/or directors. Without limiting the generality of the foregoing, Employee acknowledges and agrees that Employee has knowingly, expressly and forever relinquished, waived, and released any and all remedies, including without limitation, back-pay, front pay, compensatory damages, interest, costs, punitive damages, liquidated damages, attorney’s fees, and any claims for employment or reemployment with LNB. Employee acknowledges and agrees that the Severance Pay is good and sufficient consideration for this release. The foregoing general release is an essential part of this Severance Agreement and provides necessary consideration for LNB’s payment of the Severance Pay. The fact of this Severance Agreement and the provisions herein shall not evidence any liability of LNB or any person to Employee under any law, regulation or common law, or an admission by LNB of any wrongdoing; LNB expressly denies any such liability or wrongdoing.

     6. Employee acknowledges and expressly agrees that he continues to be bound and shall abide by the following:

     (a) Confidentiality. Confidential Information, as defined in Section 8.1(D) of the Employment Agreement, is and, at all times now and in the future, shall remain the exclusive property of LNB, and Employee: (i) shall hold the Confidential Information in strictest confidence and in a position of trust for LNB and its Clients and Customers, and (ii) shall not (directly or indirectly) use for any purpose, copy, duplicate, disclose, convey to any third-party or convert any Confidential Information, at any time now and in the future, and (iii) shall immediately deliver to LNB all the Confidential Information in Employee’s possession and shall neither convey to any third-party nor retain any copies or duplicates thereof; and

     (b) Employee: (i) shall not disparage LNB or any of its officers, directors, agents, or employees to any LNB Client or Customer (as defined in Section 8.2(E) of the Employment Agreement), to any LNB employee or any other person, entity, or governmental agency; and (ii) shall not disclose or discuss any item or aspect of LNB business, any LNB Client or Customer’s business, or his employment or the termination of that employment, with any LNB Client or Customer, any LNB employee or any other person, entity, or governmental agency.

     7. Employee agrees that he shall not disclose to any person, entity, or agency, or make public to any person, entity or agency, any of the provisions of this Severance Agreement except as may be necessary in connection with seeking legal advice concerning execution of this Severance Agreement, filing necessary government tax returns, or responding to subpoena or other required court process, and except for his immediate family (who shall also be bound by this confidentiality clause). Employee understands that this nondisclosure provision is an essential and material provision of this Severance Agreement.

     8. Employee agrees and acknowledges that if he breaches any of his promises and covenants in this Severance Agreement or any continuing obligation under his Employment Agreement, then LNB’s obligation of Severance Pay ceases and Employee shall immediately repay to LNB said Severance Pay, plus Employee shall fully compensate LNB for any and all other damages which Employee’s breach causes to LNB.

     9. This Severance Agreement is governed by Ohio law. In the event of a dispute under this Severance Agreement, which results in litigation, the sole jurisdiction and venue for said litigation shall be in the Lorain County Court of Common Pleas, Ohio.

     10. This Severance Agreement (with and including the Exhibits hereto) represents the entire agreement between the Parties hereto and all prior or contemporaneous discussions and agreements between the Parties and/or their representatives are fully

merged into this Severance Agreement. No modification or change to this Severance Agreement shall be valid or enforceable unless put in writing and signed by both Parties.

     11. Statutory Notice. Employee expressly states that Employee has read this Severance Agreement and understands that it provides a general release of LNB, its shareholders, directors, officers, parents, affiliates, predecessors, successors, agents, representatives, assigns, and employees, from any and all claims, known and unknown, which Employee might assert against them, or any one of them, including without limitation any claim relating to Employee’s employment with LNB and/or the termination of that employment. Employee has had a minimum of forty-five (45) days, extended by mutual agreement to January 6, 2004, in which to consider whether to sign this Severance Agreement and has either used that full waiting period or has voluntarily and unilaterally decided to sign this Severance Agreement before the end of that period. Employee also understands and acknowledges that Employee may revoke this Severance Agreement within seven (7) days after the date of executing it. Therefore, this Severance Agreement will not be effective or enforceable until the expiration of that final seven-day period and the “effective date” of this Severance Agreement shall be the eighth (8th) day following Employee’s signature hereon.

     12. Right to Legal Counsel. Employee further acknowledges that LNB has not provided his any legal advice. Employee has been advised to consult with an attorney or other advisor of his choice before executing this Severance Agreement, and Employee agrees that he has been given a sufficient period of time to consider executing this Severance Agreement before doing so.

     IN WITNESS WHEREOF, the Parties hereto set their hands as dated below:

/s/ CRIT	/s/ Gregory D. Friedman
Witness to Employee Signature	Gregory D. Friedman
	EMPLOYEE
	January 6, 2004
	Date
	LNB BANCORP, INC.
	LORAIN NATIONAL BANK
/s/ Ann E. Koler
Witness to LNB Signature	By:  /s/ J. F. Kidd
	James Kidd
	President and CEO
	January 9, 2004
	Date

EX-13

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (13)

LNB Bancorp, Inc. 2003 Annual Report
to Shareholders.

Exhibit 13

CORPORATE INFORMATION

Corporate Profile

LNB Bancorp, Inc.(the Bancorp), is a $741 million financial holding company headquartered in Lorain,Ohio. The Bancorp is a public company whose stock is traded on The Nasdaq Stock Market^® under the ticker symbol LNBB. Its predecessor, The Lorain National Bank, was formed as a result of the merger of The Lorain Banking Company and The National Bank of Lorain on January 1, 1961. The Lorain Banking Company was a state chartered bank founded in 1905. The National Bank of Lorain was a national bank receiving its national charter in 1934. On March 30,1984, The Lorain National Bank became the wholly-owned subsidiary of LNB Bancorp,Inc. The Bancorp received its financial holding company status on March 13,2000.

The Bancorp’s primary subsidiary,The Lorain National Bank, specializes in personal,mortgage,and commercial banking products and services along with investment management and trust services. Lorain National Bank operates 20 banking centers and 23 ATMs in the nine communities of Lorain,Elyria, Amherst, Avon Lake, LaGrange, Oberlin, Olmsted Township,Vermilion and Westlake located in Ohio’s Lorain,eastern Erie, and western Cuyahoga counties.

Lorain National Bank offers products and services by telephone through its 24-hour TeleBanker and Telepay systems, (800)610-9033 and provides Internet banking at www.4LNB.com. Lorain National Bank also provides services to state and local governments, schools and colleges,foundations,and not-for-profit associations. Lorain National Bank is a member of the Federal Reserve Bank of Cleveland; a voluntary member of the Federal Home Loan Bank of Cincinnati, with its deposits insured by the Federal Deposit Insurance Corporation; and an Equal Employment Opportunity, Affirmative Action Employer and Equal Housing Lender.

LNB Bancorp,Inc. offers life, accident and health insurance, and fixed annuity products through its wholly-owned insurance subsidiary Charleston Insurance Agency,Inc.; and traditional title services through its 49 percent owned subsidiary Charleston Title Agency, LLC. In addition, pursuant to an agreement between Lorain National Bank and Raymond James Financial Services, Inc., member NASD/SIPC, Raymond James offers brokerage services including stocks, bonds, mutual funds and variable annuity products to Lorain National Bank customers through the LNB Investment Center.

On July 15, 2002, Lorain National Bank established a wholly-owned subsidiary, North Coast Community Development Corporation,which received its Community Development Entity (CDE) status from the United States Department of Treasury on December 10,2002. North Coast Community Development Corporation’s mission is to provide commercial investment in low- and moderate-income communities. North Coast Community Development Corporation was awarded $9 million in New Markets Tax Credit Allocation in 2002 and will start making investments during 2004 in low- and moderate-income census tracts in Lorain County.

Our Vision

The vision of LNB Bancorp, Inc. is to be recognized as the most progressive and dynamic, independent provider of financial services in our market.

Our Mission

The mission of LNB Bancorp, Inc. is to be a profitable, responsible, independent business that provides extraordinary service to our customers and community, while maximizing shareholder value and creating a high-quality and challenging work environment for our employees.

LNB Bancorp, Inc. – Investment Facts

With a heritage dating from 1905 and a strong tradition of growth, LNB Bancorp, Inc. has a long history of quality asset growth and increased dividends per share.

Here are just a few highlights. In 2003, LNB Bancorp, Inc.:

• Experienced stock price appreciation of 12%.

• Declared a three-for-two stock split on March 14.

• Increased cash dividends for the 20th consecutive year.

• Experienced a common stock dividend yield of 3.45%.

Contents
Corporate Information	IFC
Corporate and Investor Information	IFC
Corporate Organization Structure	IFC
LNB Bancorp, Inc. Common Stock and Dividend Information		1
Consolidated Financial Highlights		2
Message to Our Shareholders		3
Directors of LNB Bancorp,Inc. and Lorain National Bank		6
Directors Emeriti of Lorain National Bank		6
Officers of LNB Bancorp, Inc.		6
Directors and Officers of Charleston Insurance Agency, Inc.		7
Directors and Officers of North Coast Community Development Corporation		7
Management of Lorain National Bank		8
LNB Bancorp, Inc. and Subsidiary Locations		10
LNB Banking Centers, ATMs, LNB Investment and Trust Services and LNB Investment Center		11
Financial Information		12

LNB BANCORP, INC. • 2003 ANNUAL REPORT

CORPORATE AND INVESTOR INFORMATION

Corporate Headquarters

If you need to contact the corporate headquarters of LNB Bancorp, Inc., call, write or visit:

      LNB Bancorp, Inc.
      457 Broadway
      Lorain, Ohio
      44052-1739
      Telephone: (440) 244-6000
      Toll Free: (800) 860-1007

Corporate Website and E-mail Address

For up-to-date corporate, financial and product information.

      www.4LNB.com
      InvestorRelations@4LNB.com

Annual Meeting

The Annual Meeting of Shareholders of LNB Bancorp, Inc. will be held at 10:00 a.m., Eastern Daylight Savings Time, on Tuesday, April 20, 2004, at Lorain National Bank, 521 Broadway, Lorain, Ohio 44052.

Corporate Financial Information

The Annual Report on Form 10-K is filed with the Securities and Exchange Commission. Copies of form 10-K and other filings are available at www.4LNB.com or by contacting Investor Relations. Analysts, shareholders and investors seeking additional corporate and financial information about LNB Bancorp, Inc. should contact Investor Relations at:

      LNB Bancorp, Inc.
      Investor Relations
      457 Broadway
      Lorain, Ohio 44052-1739
      Telephone: (440) 244-7317
      Telefax: (440) 244-4815

Web Site Access to United States Securities and Exchange Commission Filings

All reports filled electronically by LNB Bancorp, Inc. with the United States Securities and Exchange Commission (SEC), including the annual report on Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost on the Corporation’s Web site at www.4LNB.com. These filings are also accessible on the SEC’s Web site at www.sec.gov.

Quarterly Earnings Reporting

For 2004, LNB Bancorp, Inc.’s quarterly earnings are anticipated to be announced on or about the fourth Tuesday of April, July, October 2004 and January 2005. Any investor desiring a copy of an earnings release can obtain one at www.4LNB.com or by calling (440) 244-7317.

Independent Auditors

      KPMG LLP
      One Cleveland Center
      1375 East 9th Street, Suite 2600
      Cleveland, Ohio 44114-1796

Privacy Policy

The Privacy Policy of LNB Bancorp, Inc. and subsidiary companies describes how we safeguard customers’financial privacy. For more information, visit our website at www.4LNB.com or call (440) 244-7126.

Stock Transfer Agent and Registrar

Shareholders who hold their shares in physical certification form and have requests for information about their share balances, a change in name or address, lost certificates, or other shareholder account matters should call or write:

      Registrar and Transfer Company
      Investor Relations Department
      10 Commerce Drive
      Cranford, New Jersey 07016-9982
      Toll Free: (800) 368-5948

Stock Listing

LNB Bancorp, Inc. common stock is traded on the Nasdaq Stock Market^® under the ticker symbol LNBB.

LNBB Direct Stock Purchase and Dividend Reinvestment Plan

You may buy LNB Bancorp, Inc. common stock directly from LNB Bancorp, Inc. through optional cash payments or automatic monthly deductions from your bank account. You also may have your dividends reinvested automatically. This is not an offer of LNB Bancorp, Inc. stock. To obtain a prospectus or more information about the LNBB Direct Stock Purchase and Dividend Reinvestment Plan, call (800) 368-5948 or complete the postage paid card titled “LNBB Direct Stock Purchase & Dividend Reinvestment Plan” located at the end of this Annual Report.

Russell 2000 Index Member

Included in the Russell 2000 Index

LNB Bancorp, Inc., a financial holding company, was added as a member of the Russell 2000 Index on June 30, 2003. Russell indexes are widely used by investment managers for index funds and as benchmarks for both passive and active strategies.

Membership in Russell 2000 is determined by objective rules such as market capitalization rankings. Annual reconstitution of the Russell indexes captures the 3,000 largest U.S. stocks as of the end of May, ranking them by total market capitalization to create the Russell 3000. The largest 1,000 companies in the ranking comprise the Russell 1000 while the remaining 2,000 companies become the widely used Russell 2000.

On June 30, 2003. LNB Bancorp, Inc., had a market capitalization of $141 million. This compares with a range of $116.6 million to $1.2 billion for the Russell 2000. The Russell 2000 market capitalization of the median company was $351.8 million with an average capitalization of $443.5 million.

LNB BANCORP, INC. • 2003 ANNUAL REPORT

CORPORATE ORGANIZATION STRUCTURE

LNB Bancorp, Inc.

LNB Bancorp, Inc. was established as a holding company on March 30, 1984 and became the parent company of The Lorain National Bank, a national chartered bank with roots back to 1905. LNB Bancorp, Inc. received its financial holding status in 2000 and created a wholly-owned subsidiary, Charleston Insurance Agency, Inc. and a 49-percent owned subsidiary, Charleston Title Agency, LLC.

Charleston Title Agency, LLC

LNB Bancorp, Inc.’s 49-percent-owned subsidiary, Charleston Title Agency, LLC, offers traditional title services. Individuals seeking additional information on title services should contact:

      Charleston Title Agency, LLC
      424 Middle Avenue
      Elyria, Ohio 44035
      Telephone:(440) 244-5212

Lorain National Bank

Lorain National Bank operates 20 banking centers and 23 ATMs in nine communities offering:

• Personal, mortgage and commercial banking products and services

• Investment Management and Trust Services

• 24-hour telephone banking

• Internet banking at www.4LNB.com

Individuals seeking additional information on banking products and services should contact:

      Lorain National Bank
      457 Broadway
      Lorain, Ohio 44052-1739
      Telephone:(440) 989-3348

Charleston Insurance Agency, Inc. and LNB Investment Center

In addition to traditional banking services, customers can access a wide range of insurance, investment products and services, including:

• Life, Long-term Care Insurance and Fixed-Annuity products offered through Charleston Insurance Agency, Inc. and

• Brokerage Services including stocks, bonds, mutual funds, variable annuity and variable-life insurance products offered through Raymond James Financial Services Inc. member NASD/SIPC at the LNB Investment Center.

Individuals seeking additional information on investment products and services should contact:

      Charleston Insurance Agency, Inc. and LNB Investment Center
      457 Broadway
      Lorain, Ohio 44052-1739
      Telephone: (800) 845-2152

North Coast Community Development Corporation

North Coast Community Development Corporation was created on July 15, 2002 as a wholly-owned subsidiary of The Lorain National Bank. It received its Community Development Entity (CDE) status from the United States Department of the Treasury on December 10, 2002. North Coast Community Development Corporation’s mission is to provide to low and moderate communities in Lorain County, Ohio:

• Commercial Loans and

• Financial Services

Individuals seeking additional information on investment products and financial services should contact:

       North Coast Community Development Corporation
       457 Broadway
       Lorain, Ohio 44052-1739
       Telephone: (440) 244-7212

LNB Financial Services, Inc.

LNB Financial Services, Inc., a wholly-owned subsidiary of The Lorain National Bank is a dormant Ohio Corporation.

      LNB Financial Services, Inc.
      457 Broadway
       Lorain, Ohio 44052-1739

LNB BANCORP, INC. COMMON STOCK AND DIVIDEND INFORMATION

Common Stock Trading Ranges and Cash Dividends Declared

	2003				2002
	Sales Price*				Sales Price*
	High		Low		High		Low
First Quarter	$	21.28	$	18.17	$	14.38	$	13.43
Second Quarter		23.95		20.50		17.50		12.93
Third Quarter		21.67		20.15		17.66		15.35
Fourth Quarter		21.00		20.17		18.10		16.20

	2003		2002
	Cash		Cash
	Dividends		Dividends
	Declared*		Declared*
First Quarter – regular	$	.17	$	.17
Second Quarter – regular		.17		.17
Third Quarter – regular		.17		.17
Fourth Quarter – regular		.17		.17
Fourth Quarter – extra		.02		.00
Total Dividends	$	.70	$	.68

* All sales prices and cash dividends declared have been adjusted to reflect the three-for-two stock split in 2003 and the two percent stock dividend in 2002.

The shares of LNB Bancorp, Inc. common stock, fixed par value $1.00 per share, are traded on The Nasdaq Stock Market® under the ticker symbol LNBB. The above prices represent the high and low sales prices reported on The Nasdaq Stock Market^®. All prices reflect inter-dealer prices without markup, markdown or commission and may not necessarily represent actual transactions.

LNB Bancorp, Inc. common stock, is usually listed in publications as “LNB Bancorp. “LNB Bancorp’s common stock CUSIP is 502100100. As of December 31, 2003. LNB Bancorp had 2,257 shareholders of record. Prospective shareholders may contact our Investor Relations Department at (440) 244-7317 for more information.

LNB Bancorp, Inc.

20-Year Cash Dividend Declared Per Share History
(Dollars*)

* Adjusted for stock dividends and splits

Dividend Information

LNB Bancorp, Inc. has increased the cash dividend paid to shareholders each year since becoming a Holding Company in 1984. The extra cash dividend is discretionary and varies based upon the Corporation’s current year and near-term profitability outlook.

Dividend Calendar

Cash dividends on common stock, if approved by the Board of Directors, are customarily paid to shareholders as follows:

       Record Dates:
       March 15, June 14, September 13, and December 13, 2004

      Dividend Payable Dates:
      April 1, July 1, October 1, 2004 and January 3, 2005

LNB Bancorp, Inc. Common Stock Market Makers

Friedman, Billings, Ramsey and Co., Inc.
Howe Barnes Investments, Inc.
McDonald Investments Inc./Trident Securities, Inc.
Sweney Cartwright and Company, Inc.

LNB Bancorp, Inc.

Five Year Historic Yields
(Yields*)

* The dividend yield is based upon sales price at year-end and dividends declared during that year.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    1

CONSOLIDATED FINANCIAL HIGHLIGHTS

December 31,							2002 to 2003
(Dollars in thousands, except per share data and corporate data)	2003			2002			% Change			1993
Financial Position
Assets	$	741,221		$	715,399			3.6	%	$	379,616
Investments		152,127			152,295			(0.1	)		103,086
Net loans		526,581			502,897			4.7			242,043
Deposits		581,344			566,127			2.7			321,012
Other borrowings		86,563			75,791			14.2			20,500
Shareholders’ equity		68,135			66,613			2.3			35,060
Financial Results for the Year
Interest income	$	37,945		$	41,364			(8.3	)%	$	25,892
Interest expense		9,196			12,095			(24.0	)		8,540
Net interest income		28,749			29,269			(1.8	)		17,352
Provision for loan losses		2,695			2,200			22.5			500
Noninterest income		11,541			11,068			4.3			4,009
Noninterest expense		26,449			24,772			6.8			15,017
Income taxes		3,411			4,200			(18.8	)		1,815
Net income		7,715			9,165			(15.8	)		4,029
Revenue		40,290			40,337			(0.1	)		21,361
Per Share Data*
Basic earnings	$	1.17		$	1.39			(15.8	)%	$	.61
Diluted earnings		1.17			1.39			(15.8	)		.61
Cash dividends		.70			.68			2.9			.26
Book value (year-end)		10.30			10.09			2.1			5.30
Market value (year-end)		20.30			18.10			12.2			12.31
Financial Performance Ratios
Return on average assets (ROAA)		1.05	%		1.33	%		(21.1	)%		1.08	%
Return on average shareholders’ equity (ROAE)		11.33			14.24			(20.4	)		11.90
Net interest margin		4.18			4.52			(7.5	)		5.10
Efficiency ratio		63.01			61.41			2.6			70.93
Loans/deposits		91.91			90.01			2.1			76.55
Dividend payout		59.83			48.75			22.7			42.81
Capital Ratios
Core capital (Tier I)/Risk-adjusted assets		11.32	%		11.64	%		(2.7	)%		16.38	%
Total capital (Tier I Plus Tier II)/Risk-adjusted assets		12.57			12.89			(2.5	)		17.57
Leverage ratio (Tier 1/Average assets)		8.92			9.04			(1.3	)		9.44
Equity/assets		9.19			9.31			(0.1	)		9.23
Market Ratios
Price/earnings (X)		17.41			13.04			33.5	%		20.18
Price/book (%)		197.16	%		179.38	%		9.9			231.89	%
Dividend yield (%)		3.45			3.76			(8.2	)		2.13
Corporate Data
Bank offices		20			21			(4.8	)%		17
Bank officers and staff		277			305			(9.2	)		299
Number of shareholders		2,257			2,210			2.1			1,740

* All per share data has been adjusted for the three-for-two stock split in 2003, the five-for-four stock splits in 1995 and 1993 and stock dividends.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    2

MESSAGE TO OUR SHAREHOLDERS

Stanley G. Pijor
Chairman of the Board James F. Kidd
President and
Chief Executive Officer

It is a pleasure to address you once again after a successful year of operations. All things considered, including a fluctuating economy, shrinking interest margins and increasing competitive pressures; we are very pleased with the direction in which our organization is headed.

And while not all of our expectations were met in 2003, we’ve strengthened our franchise in many ways. Internal restructuring, which took place throughout the year, will pay future dividends in the form of higher quality customer service, improved shareholder value, and increased operating efficiencies.

Though the changes we’ve undergone have, in some cases, been difficult, they remain necessary for us to remain competitive and to improve our organization. As we change, we will not lose sight of how we’ve become the largest independent community bank in our market area. What we haven’t changed is our focus on our core constituents, or four publics – our customers, shareholders, employees and communities we serve.

Our Customers

While we agree that each of these publics is highly important to our success, our entire organization recognizes we must perform in a customer-oriented manner for the other publics to mutually benefit. Our customers are very important to us, and as such, will remain the central focus of our operations. Due to their importance, in 2004 we will concentrate much energy in the areas of customer satisfaction measurement, relationship building and consultative selling.

Our banking subsidiary serves approximately 45,000 households in Lorain County and portions of Cuyahoga and Erie counties. It is our goal to provide the members of those households with service that meets or exceeds their expectations, utilizing the most competitive products available. Our High Performance Checking accounts, Market Access deposit account and Preferred Line home equity line of credit products provide our customers with excellent choices. New bank branch openings in 2004 will add more convenient banking locations for existing and new customers alike.

Our Shareholders

Though LNB Bancorp, Inc. did not reach its earnings goals in 2003, and reported lower earnings than in 2002, we believe strategies are in place to produce improved earnings in 2004 and beyond. While the severance costs in 2003 contributed substantially to the 2003 earnings result, we do not underestimate the need to address other fundamental earnings issues like net interest margin compression, sustainable asset growth in Lorain County and expense control.

On the bright side, the Corporation’s earnings were still respectable and contributed to a healthy capital position. This capital position provided the opportunity to declare not only the four quarterly cash dividends, but also an extra cash dividend in the fourth quarter. In addition, shareholders enjoyed a three-for-two stock split during the first quarter.

As mentioned earlier, several changes occurred in 2003, including the consolidation of branch banking facilities, outsourcing of selected back office functions, and a reduction in force of 20 staff positions. These separations and the retirement of Gary Smith at year-end, with their accompanying severance and retirement obligations, negatively impacted our fourth quarter and year-end earnings.

Our shareholder outlook is bright. With many of our changes behind us, we believe LNBB shares remain an excellent investment opportunity.

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   3

MESSAGE TO OUR SHAREHOLDERS continued

Our Employees

Our employees continue to provide our customers and shareholders with service that favorably sets us apart from the competition. Through diligent introduction of new products and services, such as High Performance Checking, our employees have more opportunities than ever before to meet our customers’needs.

Their consultative selling approach allows front line employees to get to know customers and their financial needs in greater depth. With that knowledge, our staff can provide appropriate solutions to our customers’needs.

Back office employees, while not directly serving customers, understand that their dedication to their work ultimately impacts our customers. As we say, “If you are not serving a customer directly, you are serving someone who is. ”

In 2004 we will implement a performance-based incentive program that will enable employees throughout the organization to benefit from successful sales consulting efforts, whether or not they serve on the front line.

Our Community

Our organization has historically served as one of our area’s leading community partners, providing financial support, volunteers and expertise to dozens of not-for-profit agencies in our market. That trend continued in 2003, led by our community reinvestment director, Evelyn France.

For example, Evelyn and her teams of bank volunteers worked in concert with Lorain County’s Second Harvest Food Bank, the Women’s Development Center and area housing authorities to distribute several thousand pounds of donated food on multiple occasions to low- to moderate-income housing residents.

Additionally, LNBB joined in partnership with the State of Ohio to help facilitate the Lorain County summer lunch program, which provided meals for thousands of area children last year.

We take our social responsibility in the communities we serve very seriously and look forward to helping improve the quality of more of our neighbors’lives in 2004.

2003 In Review

We are pleased to reflect on several positive events and achievements from 2003; many of which bode well for our future.

In March, shareholders enjoyed a three-for-two split of LNB Bancorp, Inc. common stock. As a result of the split, the number of common shares outstanding total approximately 6.6 million. Shareholders received one additional share of common stock for every two shares owned.

Lorain National Bank was recognized by the U.S. Department of Labor with a nomination for the Exemplary Voluntary Efforts (EVE) Award for demonstrating through programs and activities, exemplary and innovative efforts to create an inclusive American workforce. The Department of Labor recognized the bank for its efforts in increasing the employment opportunities of women, disabled individuals and veterans.

LNBB’s subsidiary, North Coast Community Development Corporation (NCCDC), in March was awarded $9 million in tax credit allocations to be used to provide qualified community businesses with debt financing, including commercial mortgage, construction, commercial equipment and working capital loans aimed at stimulating growth and job creation in low- and moderate-income census tracts in Lorain County. NCCDC was one of 66 organizations nationally and one of nine in the state of Ohio selected to receive the inaugural tax credit allocations.

In July, LNB Bancorp, Inc. was added to the Russell 2000 Index by the Frank Russell Company. Russell indexes are widely used by investment managers for index funds and as benchmarks for both passive and active strategies. About $220 billion is invested in index funds based on Russell’s indexes and an additional $850 billion is benchmarked to them.

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   4

In the fourth quarter we announced the installation of a new drive-up ATM and night depository in the village of Grafton, adjacent to a new multi-purpose convenience center called Grafton Station. Also completed during the fourth quarter was the expansion of business offices at our bank’s Ely Square office to accommodate business banking, trust and community reinvestment department needs.

Construction of two new bank branch offices in the cities of Avon and Avon Lake, respectively, began during the fourth quarter as well. The Avon branch, which will open March 1, 2004, is situated in one of northern Ohio’s fastest growing communities. Simultaneously we will close our Westlake office and transfer accounts from that office to Avon, a distance of approximately three miles. The Westlake property will be maintained and transformed into a commercial loan production office during the second quarter of 2004.

The Avon Lake office will be an improved location over our existing office to the west. Since the opening of our original facility in the 1960s, retail development and traffic patterns have emerged near the Towne Center development where LNB’s new office will open in May 2004. At that time, our former Avon Lake office will close.

Also as part of our delivery system restructuring, we closed our Midway Mall banking office due to redundancy of Lorain National Bank service in the area. The accounts and lease of that property were originally acquired by LNB from KeyBank in the 1990s.

In November, as part of our restructuring, the bank eliminated 20 salaried positions from the organization. At that time, Terry M. White was named executive vice president and chief financial officer of the Bancorp and bank. White formerly served as a chief financial officer of a $1.2 billion multi-banking holding company in Indiana. Prior to the promotion, White served our organization as chief investment officer.

Upon the request of our board of directors, James F. Kidd returned to LNBB as president and chief executive officer upon the retirement announcement of Gary C. Smith in December. Kidd served as the Bancorp’s president and CEO for five years and took a hiatus from full-time duty in 1999.

Looking Forward

We are very optimistic about our prospects for 2004, and we are particularly looking forward to the opening of our new branch locations in Avon and Avon Lake. While our neighbors in these communities are familiar to us, until this point, we have not been branched appropriately to meet their financial services needs.

There are signs that the economy is picking up momentum, which usually translates to greater loan demand. At year-end 2003, loan demand was steady and we anticipate that will carry into the first quarter of 2004. It is our hope that interest rates will begin a gradual climb, relieving some of the margin compression we have endured for the past couple of years.

As always, we appreciate your support of our activities. We look forward to addressing you at the close of the first quarter of 2004 and in person at this year’s annual meeting of shareholders in April.

Stanley G. Pijor	James F. Kidd
Chairman of the Board	President and
	Chief Executive Officer

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   5

DIRECTORS AND OFFICERS

Directors of LNB Bancorp, Inc. and Lorain National Bank

Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank

James F. Kidd
Vice Chairman of the Board
President and
Chief Executive Officer
LNB Bancorp, Inc. and
Lorain National Bank

Daniel P. Batista
Chairman of the Board
Wickens, Herzer, Panza,
Cook & Batista L.P.A.

Robert M. Campana
President
Campana Development

Terry D. Goode
Vice President
LandAmerica Financial
Group, Inc. and
Lorain County Title Company

Wellsley O. Gray
Retired

James R. Herrick
President
Liberty Auto Group, Inc.

Lee C. Howley
President
Howley Bread Group Ltd.

David M. Koethe
Retired
Former Chairman of the Board
The Lorain Printing Company

Benjamin G. Norton
Consultant
LTI Power Systems

Jeffrey F. Riddell
President and
Chief Executive Officer,
Consumeracq, Inc. and Consumers
Builders Supply Co.

John W. Schaeffer, M. D.
President
North Ohio Heart Center, Inc.

Eugene M. Sofranko
Chairman of the Board
Lorain Glass Company, Inc.

Directors Emeriti of Lorain National Bank

James L. Bardoner
Retired, Former President
Dorn Industries, Inc.

T. L. Smith, M. D.
Retired Physician

Leo Weingarten
Retired

Officers of LNB Bancorp, Inc.

Stanley G. Pijor
Chairman of the Board

James F. Kidd
Vice Chairman of the Board
President and
Chief Executive Officer

Kevin W. Nelson
Executive Vice President and
Chief Operating Officer

Terry M. White
Executive Vice President,
Chief Financial Officer and
Corporate Secretary

Debra R. Brown
Senior Vice President

Robert L. Cox
Senior Vice President

Paul A. Campagna
Senior Vice President

Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer

John D. Funderburg
Vice President
Loan Administrator

James W. Manning
Director of Audit

Carol M. Mesko
Vice President
Human Resources

David E. Nocjar
Senior Trust and
Investment Officer

Gerry L. Reynolds
Senior Operations Officer

James H. Weber
Senior Vice President

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   6

Directors and Officers of Charleston Insurance Agency, Inc.

Directors
James F. Kidd
Chairman of the Board,
President and
Chief Executive Officer
Charleston Insurance
Agency, Inc.

Stanley G. Pijor
Chairman of the Board
LNB Bancorp, Inc. and
Lorain National Bank

James R. Herrick
President
Liberty Auto Group, Inc.

Jeffrey F. Riddell
President and
Chief Executive Officer,
Consumeracq, Inc. and
Consumers Builders Supply Co.

Officers
James F. Kidd
Chairman of the Board,
President and
Chief Executive Officer

Terry M. White
Vice President,
Corporate Secretary
and Treasurer

Kevin W. Nelson
Vice President

Directors and Officers of North Coast Community Development Corporation

Directors
James F. Kidd
Chairman of the Board,
President and
Chief Executive Officer
North Coast Community
Development Corporation

Jose Candelario, Sr.
President
Candelario Accounting

Mitchell J. Fallis, CPA
Vice President,
Corporate Secretary and Treasurer
North Coast Community
Development Corporation

Joel A. Krueck
Vice President
North Coast Community
Development Corporation

Evelyn C. France
Director
Women’s Development Center

Sydney L. Lancaster
Manager Human Resources
Development and
Affirmative Action Officer
Lorain County
Community Collage

Daniel Martinez
Chairman of the Board and
President
South Lorain Community
Development Corporation

Benjamin G. Norton
Consultant
LTI Power Systems

Homer A. Virdon
Director
Lorain Metropolitan
Housing Authority

Officers
James F. Kidd
Chairman of the Board,
President and
Chief Executive Officer

Joel A. Krueck
Vice President

Mitchell J. Fallis, CPA
Vice President,
Corporate Secretary
and Treasurer

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   7

MANAGEMENT OF LORAIN NATIONAL BANK

Executive and Senior Officers
James F. Kidd
President and
Chief Executive Officer

Terry M. White
Executive Vice President,
Chief Financial Officer and
Corporate Secretary

Kevin W. Nelson
Executive Vice President and
Chief Operating Officer

Debra R. Brown
Senior Vice President
Banking Center Administration

Robert L. Cox
Senior Vice President
Retail Lending

Paul A. Campagna
Senior Vice President and
Senior Lending Officer

Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer

John D. Funderburg
Vice President
Loan Administrator

James W. Manning
Director of Audit

Jeanne C. Maschari
Vice President and
Senior Business Analyst

Carol M. Mesko
Vice President
Human Resources

David E. Nocjar
Senior Trust and
Investment Officer

Gerry L. Reynolds
Senior Operations Officer

James H. Weber
Senior Vice President and
Senior Marketing Officer

Banking Center Officers
Teresa E. George
Vice President
Banking Center Administration

Main & Sixth Street Drive-In
Charles A. DeAngelis
Vice President

Patti A. Klinar
Assistant Branch Manager

Amherst
G. Dale Rosenkranz
Vice President

Jennifer M. Nickolls
Senior Customer Service
Representative and Lender

Avon Lake
Diana L. Schmittgen
Assistant Vice President

Cleveland Street
Timothy J. Gallagher
Vice President

Ely Square & Elyria
United Methodist Village
James E. Schmittgen
Vice President

Kansas Avenue
Linda A. Buehner
Assistant Vice President

Village of LaGrange
Vanessa R. Walter
Senior Customer Service
Representative and Branch
Team Leader

Lake Avenue
Kara Odom
Branch Service Manager
and Team Leader

Oberlin Avenue &
West Park Drive-In
Christine M. Weber
Assistant Vice President

Oberlin & Kendal
at Oberlin
Marilyn R. Krasienko
Assistant Vice President

Olmsted Township
& The Renaissance
Carol Snyder
Assistant Cashier

Pearl Avenue
Cindy Waters
Senior CSR and
Branch Team Leader

Vermilion
Barbara M. Beres-Clark
Assistant Branch Manager

The Crossings of Westlake
& Westlake Village
Lora T. Graves
Senior Customer Service
Representative and
Branch Team Leader

Loan Officers
Commercial Loans
Kevin S. Miller
Vice President

Lee C. Myers
Vice President

Ellen M. Walsh
Vice President

Kenneth P. Wayton
Vice President

Retail Lending
Janice Hardwick
Assistant Administrator

Mortgage Loans
Keith H. Kapanke
Mortgage Loan Originator

Joel A. Krueck
Vice President

Credit Analysis
Denise M. Kosakowski
Vice President

Collections
Kelly A. Dunfee
Assistant Cashier

Loan Center
Kimberly S. Plzak
Assistant Vice President

Loan Review
Richard P. Vieritz
Vice President

Loan Services
Laura J. Campbell
Mortgage Loan
Servicing Officer

Joyce L. Wasela
Assistant Cashier

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   8

Administration and Operations Officers

Accounting
Mary L. Scaff
Fiscal Operations Officer

Auditing
Robert Heinrich
Auditor

Randy E. Lottman
Network and
Information Security Officer

Community Reinvestment
Evelyn France
Director of CRA

Cash Management
Diane DePould
Senior Product Manager

Compliance
Donna Jean Phillips
Vice President,
Compliance, BSA
and OFAC Officer

Customer Service
Janet Hatcher
Customer Service Manager

Electronic Banking &
Deposit Operations
Barb Balog
Operations Manager

Michael Lanzarotta
Operations Manager

E.D.P. Services
Larry R. Johnson
Vice President

Human Resources
Teresa E. Kreger
Assistant Vice President

Marketing
Steven F. Cooper
Vice President

Debra L. Temerario
Marketing Operations Officer

Professional Development
Marianne Kocak
Assistant Vice President

Purchasing
Susan I. Tuttle
Assistant Vice President

Security
James E. Long
Assistant Vice President

Technical Support
Michael O. Carmody
Network and Systems Engineer

LNB Investment and Trust Services Officers

Neal A. Conger
Vice President

Gerald S. Falcon
Vice President

Patrick E. Sheridan
Vice President

Georgia L. Bour
Vice President

Carol A. Cavanaugh
Assistant Vice President

Thomas H. Eschke
Assistant Vice President
Trust Operations Officer

LNB Investment Center Officer

Robert A. Carino
Senior Financial Advisor

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   9

LNB BANCORP, INC. AND SUBSIDIARY LOCATIONS

Lorain National Bank
457 Broadway
Lorain, Ohio 44052
(440) 244-6000
(800) 860-1007

Charleston Insurance
Agency, Inc.
457 Broadway
Lorain, Ohio 44052
(440) 244-7158
(800) 845-2152

Charleston Title
Agency, LLC
424 Middle Avenue
Elyria, Ohio 44035
(440) 284-5165
(800) 860-1007

North Coast Community
Development Corporation
457 Broadway
Lorain, Ohio 44052
(440) 244-7145
(440) 244-7212

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   10

LNB BANKING CENTERS, ATMs, INVESTMENT AND TRUST SERVICES AND INVESTMENT CENTER

Lorain Banking Centers
	Main
	457 Broadway
	Lorain, Ohio 44052
	(440) 244-7185
	Sixth Street Drive-In** 200 Sixth Street
	Lorain, Ohio 44052
	(440) 244-7242
	Kansas Avenue 1604 Kansas Avenue
	Lorain, Ohio 44052
	(440) 288-9151
	Oberlin Avenue 3660 Oberlin Avenue
	Lorain, Ohio 44053
	(440) 282-9196
	Pearl Avenue 2850 Pearl Avenue
	Lorain, Ohio 44055
	(440) 277-1103
	West Park Drive-In** 2130 West Park Drive
	Lorain, Ohio 44053
	(440) 989-3131
Amherst Banking Center
	Amherst 1175 Cleveland Avenue
	Amherst, Ohio 44001
	(440) 988-4423
Avon Banking Center
	Avon 2100 Center Road
	Avon, Ohio 44011
	(440) 934-7922
Avon Lake Banking Center
	Avon Lake 240 Miller Road
	Avon Lake, Ohio 44012
	(440) 933-2186
Elyria Banking Centers
	Ely Square 124 Middle Avenue
	Elyria, Ohio 44035
	(440) 323-4621
	Cleveland Street 801 Cleveland Street
	Elyria, Ohio 44035
	(440) 365-8397
	Lake Avenue 42935 North Ridge Road
	Elyria Township,
	Ohio 44035
	(440) 233-7196
	Elyria United
	Methodist Village
	807 West Avenue
	Elyria, Ohio 44035
	(440) 323-6488
Village of LaGrange Banking Center
	Village of LaGrange 546 North Center Street
	Village of LaGrange,
	Ohio 44050
	(440) 355-6734
Oberlin Banking Centers
	Kendal at Oberlin* 600 Kendal Drive
	Oberlin, Ohio 44074
	(440) 774-5400
	Oberlin 40 East College Street
	Oberlin, Ohio 44074
	(440) 775-1361
Olmsted Township Banking Centers
	Olmsted Township 27095 Bagley Road
	Olmsted Township,
	Ohio 44138
	(440) 235-4600
	The Renaissance*
	26376 John Road
	Olmsted Township,
	Ohio 44138
	(440) 427-0041
Vermilion Banking Center
	Vermilion 4455 East Liberty Avenue
	Vermilion, Ohio 44089
	(440) 967-3124
Westlake Banking Center
	WestlakeVillage* 28550 Westlake
	Village Drive
	Westlake, Ohio 44145
	(440) 808-0229
ATMs
	Captain Larry’s Shell 1317 State Route 60
	Vermilion, Ohio 44089
	Dad’s Sunoco 7580 Leavitt Road
	State Route 58
	Amherst, Ohio 44001
	Gateway Plaza 3451 Colorado Avenue
	Lorain, Ohio 44052
	Grafton Station 537 Main Street
	Grafton, Ohio 44044
	Lakeland Medical Center 3700 Kolbe Road
	Lorain, Ohio 44053
	Lorain County Community College
	1005 North Abbe Road
	Elyria, Ohio 44035
	Lowe’s Home Improvement Warehouse
	620 Midway Boulevard
	Elyria, Ohio 44035
Other Offices
	Executive 457 Broadway
	Lorain, Ohio 44052
	(440) 244-7123
	Accounting
	457 Broadway
	Lorain, Ohio 44052
	(440) 244-7145
	Banking Center
	Administration
	457 Broadway
	Lorain, Ohio 44052
	(440) 244-7253
	Commercial, Consumer
	and Mortgage Loans
	457 Broadway
	Lorain, Ohio 44052
	(440) 244-7219
	(440) 989-3348
	(440) 244-7216
	Customer Service
	2130 West Park Drive
	Lorain, Ohio 44053
	(440) 989-3348
	(800) 860-1007
	Human Resources
	2130 West Park Drive
	Lorain, Ohio 44053
	(440) 989-3139
	Purchasing
	2150 West Park Drive
	Lorain, Ohio 44053
	(440) 989-3327
	Technology Center
	2130 West Park Drive
	Lorain, Ohio 44053
	(440) 989-3301
	Electronic Banking
	2130 West Park Drive
	Lorain, Ohio 44053
	(440) 989-3348
LNB Investment and Trust Services
	457 Broadway
	Lorain, Ohio 44052
	(440) 244-7148
LNB Investment Center
	457 Broadway
	Lorain, Ohio 44052
	(440) 244-7241
	(800) 845-2152
All Other Offices Not Listed
	Toll Free (800) 860-1007
	Lorain (440) 244-6000
TeleBanker
	TeleBanker (440) 245-4562
	TeleBanker (800) 610-9033
Internet: www.4LNB.com
	(440) 989-3348

	ATM service available wherever you see this symbol
	* Restricted to residents, their visitors and employees
	** Drive-In service only

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   11

CONSOLIDATED BALANCE SHEETS

	December 31,
(Dollars in thousands)	2003			2002
Assets:
Cash and due from banks (note 3)	$	24,646		$	23,608
Federal funds sold and short-term investments		3,103			3,224
Securities (note 5):
Available for sale, at fair value		143,459			137,909
Held to maturity, at cost (fair value $4,952 and $10,904, respectively)		4,789			10,648
Federal Home Loan Bank and Federal Reserve Bank stock, at cost (note 1)		3,879			3,738
Total securities		152,127			152,295
Loans (notes 6, 7, 10 and 11):
Loans available for sale		6,215			8,999
Portfolio loans		528,096			500,551
Reserve for loan losses		(7,730	)		(6,653	)
Net loans		526,581			502,897
Bank premises and equipment, net (note 8)		11,009			10,748
Bank owned life insurance		12,702			11,930
Intangible assets (note 4)		3,245			3,358
Accrued interest receivable		2,818			3,045
Other assets (note 12)		4,401			4,272
Foreclosed assets		589			22
Total Assets	$	741,221		$	715,399
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits (note 9)
Demand and other noninterest-bearing deposits	$	86,693		$	80,879
Savings, Market Access and passbook accounts		277,197			280,616
Certificates of deposit		217,454			204,632
Total deposits		581,344			566,127
Securities sold under repurchase agreements and other short-term borrowings (note 10)		15,023			26,866
Federal Home Loan Bank advances, (note 11)		71,540			48,925
Accrued interest payable		875			983
Accrued taxes, expenses and other liabilities (notes 12 and 16)		4,304			5,885
Total Liabilities		673,086			648,786
Shareholders’ Equity: (notes 13 and 14)
Preferred stock, no par value: Shares authorized 1,000,000, and shares outstanding, none (note 13) Common stock, $1.00 par: Shares authorized 15,000,000 Shares issued 6,766,867 and 4,501,232, respectively and Shares outstanding 6,617,618 and 4,401,232, respectively (notes 13, 17, 18 and 19)		6,766			4,501
Additional capital		26,243			28,319
Retained earnings (note 15)		38,715			35,639
Accumulated other comprehensive income (loss)		(704	)		1,054
Treasury stock at cost, 149,249 and 100,000 shares, respectively		(2,885	)		(2,900	)
Total Shareholders’ Equity		68,135			66,613
Commitments and contingencies (notes 7, 8 and 20)
Total Liabilities and Shareholders’ Equity	$	741,221		$	715,399

See accompanying notes to consolidated financial statements.

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   12

CONSOLIDATED STATEMENTS OF INCOME

	For the Calendar Year
(Dollars in thousands except per share amounts)	2003			2002			2001
Interest Income:
Interest and fees on loans:
Taxable	$	32,844		$	34,314		$	37,557
Tax exempt		-0	-		-0	-		5
Interest and dividends on securities:
U.S. Government agencies and corporations		4,155			5,944			6,451
States and political subdivisions		610			583			446
Other debt and equity securities		296			423			405
U.S. Treasury securities		-0	-		6			91
Interest on Federal funds sold and short-term investments		40			94			146
Total Interest Income		37,945			41,364			45,101
Interest Expense:
Interest on deposits:
Certificates of deposit, $100 and over		1,447			1,394			2,393
Other deposits		5,814			8,504			12,225
Interest on Federal Home Loan Bank advances		1,737			1,790			1,528
Interest on securities sold under repurchase agreements and other short-term borrowings		198			407			852
Total Interest Expense		9,196			12,095			16,998
Net Interest Income		28,749			29,269			28,103
Provision for loan losses (note 7)		2,695			2,200			2,200
Net Interest Income After Provision for Loan Losses		26,054			27,069			25,903
Noninterest Income:
Investment and Trust Services Division income		1,762			2,080			2,379
Service charges on deposit accounts		4,260			4,083			3,529
Other service charges, exchanges and fees		3,019			3,162			3,056
Gains on sale of credit card portfolio		832			-0	-		-0	-
Gains on sales of securities, (note 5)		449			732			250
Gains on sales of loans		236			94			76
Other income		983			917			381
Total Noninterest Income		11,541			11,068			9,671
Noninterest Expenses:
Salaries and employee benefits (notes 16, 17, 18 and 19)		13,814			12,229			11,428
Net occupancy expense of premises (note 8)		1,585			1,476			1,471
Furniture and equipment expenses (note 8)		2,517			2,193			2,090
Card-related expenses		1,395			1,325			1,283
Supplies and postage		1,137			1,018			1,008
Outside services		1,441			1,306			899
Marketing and public relations		762			1,032			564
Ohio Franchise Tax		673			502			622
Other expenses		3,145			3,691			3,596
Total Noninterest Expenses		26,469			24,772			22,961
Income Before Income Taxes		11,126			13,365			12,613
Income Taxes (note 12)		3,411			4,200			4,048
Net Income	$	7,715		$	9,165		$	8,565
Basic Earnings Per Share (note 2) (*)	$	1.17		$	1.39		$	1.30
Diluted Earnings Per Share (note 2) (*)	$	1.17		$	1.39		$	1.30
Dividends Declared Per Share (*)	$	.70		$	.68		$	.66

See accompanying notes to consolidated financial statements.

(*) All share and per share data has been adjusted to reflect the three-for-two stock split in 2003 and the 2 percent stock dividends in 2002 and 2001.

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   13

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

										Accumulated
										Other						Total
	Common			Additional			Retained			Comprehensive			Treasury			Shareholders’
(Dollars in thousands except per share amounts)	Stock			Capital			Earnings			Income (Loss)			Stock			Equity
Balance at December 31, 2000.	$	4,313		$	24,336		$	30,584		$	192		$	(2,900	)	$	56,525
Comprehensive income:
Net income		-0	-		-0	-		8,565			-0	-		-0	-		8,565
Change in unrealized gain on securities available for sale, net of tax		-0	-		-0	-		-0	-		1,065			-0	-		1,065
Total comprehensive income																	9,630
Cash dividends declared, $.64 per share.		-0	-		-0	-		(4,365	)		-0	-		-0	-		(4,365	)
Issuance of 9,431 shares of common stock under stock option plans		10			123			-0	-		-0	-		-0	-		133
Issuance of 10,835 shares of common stock under LNBB Direct Stock Purchase and Dividend Reinvestment Plan		11			204			-0	-		-0	-		-0	-		215
Market value of stock issued in payment of 2% stock dividend, 84,225 shares		84			1,575			(1,659	)		-0	-		-0	-		-0	-
Balance at December 31, 2001	$	4,418		$	26,238		$	33,125		$	1,257		$	(2,900	)	$	62,138
Comprehensive income:
Net income		-0	-		-0	-		9,165			-0	-		-0	-		9,165
Change in unrealized (loss) on securities available for sale, net of tax		-0	-		-0	-		-0	-		(203	)		-0	-		(203	)
Total comprehensive income																	8,962
Cash dividends declared, $.68 per share.		-0	-		-0	-		(4,468	)		-0	-		-0	-		(4,468	)
Issuance of 200 shares of common stock under stock option plans		-0	-		3			-0	-		-0	-		-0	-		3
Payment of cash in lieu of fractional shares issued pursuant to 2% stock dividend		-0	-		-0	-		(22	)		-0	-		-0	-		(22	)
Market value of stock issued in payment of 2% stock dividend, 85,474 shares		83			2,078			(2,161	)		-0	-		-0	-		-0	-
Balance at December 31, 2002	$	4,501		$	28,319		$	35,639		$	1,054		$	(2,900	)	$	66,613
Comprehensive income:
Net income		-0	-		-0	-		7,715			-0	-		-0	-		7,715
Minimum pension liability net of tax of $197		-0	-		-0	-		-0	-		(381	)		-0	-		(381	)
Change in unrealized (loss) on securities available for sale, net of tax		-0	-		-0	-		-0	-		(1,377	)		-0	-		(1,377	)
Total comprehensive income																	5,957
Cash dividends declared, $.70 per share.		-0	-		-0	-		(4,626	)		-0	-		-0	-		(4,626	)
Issuance of 722 shares of Treasury Stock		-0	-		-0	-		-0	-		-0	-		15			15
Issuance of 15,425 shares of common stock under stock option plans		15			174			-0	-		-0	-		-0	-		189
Payment of cash in lieu of fractional shares issued under three-for-two stock split		-0	-		-0	-		(13	)		-0	-		-0	-		(13	)
Issuance of 2,250,210 shares of common stock under three-for-two stock split		2,250			(2,250	)		-0	-		-0	-		-0	-		-0	-
Balance at December 31, 2003	$	6,766		$	26,243		$	38,715		$	(704	)	$	(2,885	)	$	68,135

See accompanying notes to consolidated financial statements.

All share and per share data has been adjusted to reflect the three-for-two stock split in 2003.

Disclosure of Reclassification Amount:

The following discloses the reclassification adjustments for Accumulated Other Comprehensive Income:

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Unrealized holding gains (losses) arising during the year, net of tax.	$	(1,673	)	$	(686	)	$	1,230
Reclassification adjustment for gains included in net income, net of tax of $153, $249 and $85, for 2003, 2002 and 2001, respectively.		296			483			(165	)
Change in unrealized gain (loss) on securities available for sale, net of tax.	$	(1,377	)	$	(203	)	$	1,065

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   14

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Cash Flows from Operating Activities:
Interest received	$	39,129		$	42,280		$	45,744
Other income received		10,416			9,483			9,008
Interest paid		(9,304	)		(12,243	)		(17,768	)
Originations of loans available for sale		(24,544	)		(16,549	)		(9,341	)
Proceeds from sales of loans available for sale		25,842			17,787			6,136
Gains on sales of loans available for sale		(236	)		(94	)		(76	)
Cash paid for salaries and employee benefits		(15,361	)		(11,684	)		(11,517	)
Net occupancy expense of premises paid		(1,272	)		(1,165	)		(1,159	)
Furniture and equipment expenses paid		(1,233	)		(942	)		(777	)
Cash paid for supplies and postage		(1,137	)		(1,018	)		(1,008	)
Cash paid for other operating expenses		(8,100	)		(4,971	)		(5,654	)
Federal income taxes paid		(4,194	)		(4,522	)		(4,237	)
Net Cash Provided by Operating Activities		10,006			16,362			9,351
Cash Flows from Investing Activities:
Proceeds from maturities of securities held to maturity		5,859			6,045			29,559
Proceeds from sales and maturities of securities available for sale		134,756			101,234			46,210
Purchases of securities held to maturity		-0	-		(699	)		(983	)
Purchases of securities available for sale		(143,250	)		(121,894	)		(85,102	)
Net (increase) in loans made to customers		(25,457	)		(34,366	)		(24,699	)
Purchases of bank premises, equipment and intangible assets		(2,057	)		(1,790	)		(894	)
Proceeds from sales of bank premises and equipment		4			75			35
Purchase of bank owned life insurance		-0	-		(10,413	)		-0	-
Proceeds from liquidations of other foreclosed assets		22			187			296
Purchases of other foreclosed assets		(589	)		(86	)		(370	)
Net Cash Used in Investing Activities		(30,712	)		(61,707	)		(35,948	)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and other noninterest-bearing deposits		5,814			(6,609	)		4,395
Net increase (decrease) in savings, Market Access and passbook deposits		(3,419	)		27,110			33,888
Net increase (decrease) in certificates of deposit		12,822			27,359			(16,107	)
Net increase (decrease) in securities sold under repurchase agreements and other short-term borrowings		(11,843	)		(2,304	)		8,779
Proceeds from Federal Home Loan Bank advances		247,210			43,830			46,735
Cash paid on Federal Home Loan Bank advances		(224,595	)		(44,250	)		(40,735	)
Cash paid in lieu of fractional shares related to stock dividends and stock splits		(13	)		(22	)		-0	-
Proceeds from exercise of stock options and shares issued under LNBB Direct Stock Purchase and Dividend Reinvestment Plan		189			3			348
Issuance of Treasury Stock		15			-0	-		-0	-
Dividends paid		(4,557	)		(4,445	)		(4,337	)
Net Cash Provided by Financing Activities		21,623			40,672			32,966
Net Increase (Decrease) in Cash and Cash Equivalents		917			(4,673	)		6,369
Cash and Cash Equivalents at Beginning of Year		26,832			31,505			25,136
Cash and Cash Equivalents at End of Year	$	27,749		$	26,832		$	31,505
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net Income	$	7,715		$	9,165		$	8,565
Adjustments to reconcile net income to net cash provided by operating activities:
Originations of loans available for sale		(24,544	)		(16,549	)		(9,341	)
Proceeds from sales of loans available for sale		25,842			17,787			6,136
Gain on sales of investments and loans		(1,517	)		(732	)		(250	)
Depreciation and amortization		1,597			1,562			1,625
Amortization of intangible assets		113			112			377
Amortization (accretion) of deferred loan fees and costs, net		(382	)		(277	)		72
Provision for loan losses		2,695			2,200			2,200
Decrease (increase) in accrued interest receivable		227			751			898
Others, net		(1,740	)		2,343			(931	)
Net Cash Provided by Operating Activities	$	10,006		$	16,362		$	9,351

See accompanying notes to consolidated financial statements.

LNB BANCORP, INC. • 2003 ANNUAL REPORT   15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies:

(a) Principles of Consolidation:

The consolidated financial statements include the accounts of LNB Bancorp, Inc. (the Parent Company) and its wholly-owned subsidiaries, The Lorain National Bank (the Bank) and Charleston Insurance Agency, Inc. Charleston Title Agency, LLC., a 49%-owned subsidiary, is accounted for under the equity method. The term “the Corporation” refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries, The Lorain National Bank and Charleston Insurance Agency, Inc., and a 49% interest in Charleston Title Agency, LLC. All material intercompany transactions and balances have been eliminated in consolidation.

(b) Use of Estimates in the Preparation of Financial Statements:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas involving the use of Management’s estimates and assumptions include the reserve for loan losses, the realization of deferred tax assets, fair values of certain securities, the determination and carrying value of impaired loans, the carrying value of loans available for sale, the carrying value of other real estate, depreciation of premises and equipment, the projected benefit obligation, the actuarial present value of pension benefit obligations, net periodic pension expense and accrued pension costs recognized in the Corporation’s financial statements. Estimates that are more susceptible to change in the near term include the reserve for loan losses and the fair value of certain securities.

(c) Industry Segment Information:

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

(d) Cash and Cash Equivalents:

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

(e) Securities:

Debt securities are classified as held to maturity, trading, or available for sale. Securities which are classified as being held to maturity are stated at amortized cost based on the Corporation’s intent and ability to hold until maturity. Securities are adjusted for amortization of premiums and accretion of discounts using the interest method. Securities available for sale are carried at fair value with unrealized gains and losses, net of tax, included as a component of accumulated other comprehensive income, net of tax. Securities classified as trading are carried at fair value with unrealized gains and losses included in earnings. Gains or losses on dispositions are based on net proceeds and the carrying value of securities sold, using the specific identification method. A decline in fair value of any available for sale or held to maturity security below cost that is deemed other than temporary is charged to earnings resulting in establishment of a new cost basis for the security.

(f) Loans Available for Sale:

The Bank has identified certain mortgage and commercial loans which may be sold prior to maturity. These loans are carried at the lower of amortized cost or estimated fair value, determined on an aggregate basis for each type of loan available for sale. Net unrealized losses are recognized in a valuation allowance and by charges to income.

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

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

(h) Reserve for Loan Losses:

Because some loans may not be repaid in full, a reserve for loan losses is recorded. This reserve is increased by provisions charged to earnings and is reduced by loan charge-offs, net of recoveries. Estimating the risk of loss on any loan is necessarily subjective. Accordingly, the reserve is maintained by Management at a level considered adequate to cover probable loan losses inherent in the loan portfolio that are currently anticipated based on Management’s evaluation of several key factors including information about specific borrower situations, their financial position and collateral values, current economic conditions, changes in the mix and levels of the various types of loans, past chargeoff experience and other pertinent information. The reserve for loan losses is based on estimates using currently available information, and ultimate losses may vary from current estimates due to changes in circumstances. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. While Management may periodically allocate portions of the reserve for specific problem situations, the entire reserve is available for any charge-offs that may occur. Charge-offs are made against the reserve for loan losses when Management concludes that it is probable that all or a portion of a loan is uncollectible. After a loan is charged-off, collection efforts continue and future recoveries may occur.

A loan is considered impaired, based on current information and events, if it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of the expected future cash flows discounted at the loans initial effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. If the loan valuation is less than the recorded investment in the loan, an impairment reserve is established for the difference. The impairment reserve is established by either an allocation of the reserve for loan losses or by a provision for loan losses, depending upon the adequacy of the reserve for loan losses. The provision for loan losses is determined based on Management’s evaluation of the loan portfolio and the adequacy of the reserve or loan losses under current economic conditions and such other factors which, in Management’s judgment, deserve current recognition.

(i) Mortgage Servicing Assets:

The Corporation recognizes as separate assets rights to service fixed rate single-family mortgage loans that it has sold without recourse but services for others for a fee. Mortgage servicing assets are initially recorded at cost, based upon pricing multiples as determined by the purchaser, when the loans are sold. Mortgage servicing assets are carried at the lower of the initial carrying value, adjusted for amortization, or estimated fair value. Amortization is determined in proportion to and over the period of estimated net servicing income using the level yield method. For purposes of determining impairment, the mortgage servicing assets are stratified by interest rate.

LNB BANCORP, INC. • 2003 ANNUAL REPORT   16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The expected and actual rates of mortgage loan prepayments are the most significant factors driving the potential for the impairment of the value of mortgage servicing assets. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced. For the years presented, mortgage servicing assets and related amortization were not material.

(j) Bank Premises and Equipment:

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

(k) Goodwill and Core Deposit Intangibles:

Intangible assets arise from branch acquisitions and include goodwill and core deposit intangibles. Goodwill is the excess of purchase price over identified net assets in branch acquisitions. Core deposit intangibles represent the value of depositor relationships purchased. In the fourth quarter of 2002, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 147 “Accounting for Certain Financial Institutions” retroactive to January 1, 2002. Under the provisions of SFAS No. 142 and SFAS No. 147, goodwill is no longer rateably amortized into the income statement over an estimated life, but rather is tested at least annually for impairment. Core deposit intangible assets which have finite lives continue to be amortized using an accelerated method over ten years and also continue to be subject to annual impairment testing. Prior to the adoption of SFAS No. 142 and SFAS No. 147, the Corporation’s goodwill was amortized on a straight-line basis over a period of fifteen years and core deposit intangibles were amortized using an accelerated method over a period of ten years. Prior to 2002, goodwill and core deposit intangibles were reviewed for possible impairment, for events or changes in circumstances that indicate the carrying amount of the asset may not be recoverable, and written down if necessary. Note 4 includes a summary of the Corporation’s goodwill and core deposit intangible assets as well as further detail about the impact of the adoption of SFAS No. 142.

(l) Foreclosed Assets:

Foreclosed assets represents properties acquired through customer loan default. The real estate and other tangible assets acquired through foreclosure are carried as Foreclosed assets on the Balance Sheet at fair value, net of estimated costs to sell, not to exceed the cost of property acquired through foreclosure.

(m) Additional Capital and Retained Earnings:

The additional capital account includes amounts received in excess of par value of common stock sold and amounts voluntarily transferred from retained earnings. In the case of stock dividends, the Corporation transfers the market value of shares issued from retained earnings to the common stock and additional capital accounts.

(n) Interest and Fees on Loans:

Interest income on loans is accrued on the principal balances of loans outstanding on a “simple interest” basis. The Bank’s policy is to cease accruing interest on any loans where the principal and/or interest is past due for 90 days or more, unless the loan is both well secured and in the process of collection. Loan origination fees and certain direct origination costs are deferred and amortized over the contractual lives of the related loans using the interest method.

(o) Investment and Trust Services Division’s Assets and Income:

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

(p) Interest on Deposit Accounts:

Interest on deposit accounts is accrued and charged to expense monthly and is paid or credited in accordance with the terms of the respective accounts.

(q) Income Taxes:

The Corporation and its wholly-owned subsidiaries file a consolidated Federal income tax return. The provision for income taxes is based upon income in the financial statements, rather than amounts reported on the Corporation’s income tax return.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(r) Reclassifications:

Certain 2001 and 2002 amounts have been reclassified to conform to the 2003 presentation.

(s) Employee Stock Ownership Plan and 401(k) Plan:

These two qualified defined contribution plans are accounted for under the provisions of SFAS No. 87, “Employers’Accounting for Pensions” and under the provisions of Statement of Position 93-6 “Employers Accounting for Employee Stock Ownership Plans, “as applicable.

(t) Retirement Pension Plan:

The qualified defined benefit pension plan is accounted for under the provisions of SFAS No. 87 “Employers Accounting for Pensions. ”

(u) Reporting Comprehensive Income:

The Corporation adopted the provisions of SFAS No. 130, “Reporting Comprehensive Income.” This Statement requires companies to report all items that are recognized as components of comprehensive income under accounting standards. As required, the Corporation displays the accumulated balance of other comprehensive income as a separate component of shareholders’equity.

(v) Stock-Based Compensation:

The Corporation applies SFAS No.148,“ Accounting for Stock-Based Compensation. ” SFAS No. 148 was adopted in 2002. “Stock-Based Compensation, “allows a company to recognize stock-based compensation using a fair value based method of accounting if it so elects. The Corporation has elected to adopt the recognition provisions of SFAS No. 123 during 2002.

LNB BANCORP, INC.  •  2003 ANNUAL REPORT   17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) Earnings Per Share:

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares out- standing during the year. Diluted earnings per share is computed based on the weighted average number of shares outstanding plus the effects of dilutive stock options outstanding during the year. The weighted average number of shares outstanding and the earnings per share during each year presented has been adjusted to reflect the three-for-two stock split in 2003, and the two percent stock dividends in 2002 and 2001. Basic and diluted earnings per share is calculated as follows:

	For the Calendar Year
(Dollars in thousands except per share amounts)	2003		2002		2001
Weighted average shares outstanding used in
Basic Earnings Per Share calculation		6,605,560		6,601,619		6,575,597
Dilutive effect of incentive stock options		10,094		6,324		2,007
Weighted average shares outstanding used in
Diluted Earnings Per Share calculation		6,615,654		6,607,943		6,577,604
Net Income	$	7,715	$	9,165	$	8,565
Basic Earnings Per Share	$	1.17	$	1.39	$	1.30
Diluted Earnings Per Share	$	1.17	$	1.39	$	1.30

(3) Cash and Due from Banks:

In order to meet deposit reserve requirements, the Bank is required to maintain cash on hand and reserve balances at the Federal Reserve Bank. Cash and due from banks included approximately $12,390 and $10,919 at December 31, 2003 and 2002, respectively, to meet these deposit reserve requirements. The average balances maintained in cash on hand and in reserve balances at the Federal Reserve Bank to meet deposit reserve requirements approximated $12,387 and $10,916 during 2003 and 2002, respectively.

(4) Goodwill and Core Deposit Intangibles:

In the fourth quarter of 2002, the Corporation adopted SFAS No. 142 retroactive to January 1,2002. Upon the adoption of SFAS No. 142 the Corporation ceased amortizing its goodwill, which decreased noninterest expense and increased net income in 2002 as compared to 2001. The following table shows the pro forma effects of applying SFAS No. 142 to the 2001 year.

	For the Calendar Year
(Dollars in thousands except
per share amounts)	2003			2002			2001
Goodwill amortization:
Pretax	$	-0	-	$	-0	-		$	264
After tax		-0	-		-0	-			174
Net Income:
Reported		7,715			9,165				8,565
Add back after-tax goodwill per share		-0	-		-0	-			174
Adjusted	$	7,715		$	9,165			$	8,739
Basic net income per common share:
Reported	$	1.17		$	1.39			$	1.30
Add back goodwill amortization per share		-0	-		-0	-			.03
Adjusted	$	1.17		$	1.39			$	1.33
Diluted net income per common share:
Reported	$	1.17		$	1.39			$	1.30
Add back goodwill amortization per share		-0	-		-0	-			.03
Adjusted	$	1.17		$	1.39			$	1.33

The Corporation has intangible assets capitalized on its balance sheet in the form of core deposit intangibles. Core deposit intangibles continue to be amortized over their estimated useful life of 10 years in accordance with SFAS No. 142.

A summary of core deposit intangible assets follows:

	December 31,
(Dollars in thousands)	2003		2002
Core deposit intangibles	$	1,288	$	1,288
Less accumulated amortization		870		757
Net core deposit intangibles	$	418	$	531

The following intangible assets and related amortization arising from a 1997 branch acquisition and included in the accompanying consolidated financial statements are summarized as follows at December 31, net of accumulated amortization:

	December 31,
(Dollars in thousands)	2003		2002
Goodwill	$	2,827	$	2,827
Core deposit intangible		418		531
Total intangible assets	$	3,245	$	3,358

Amortization expense for intangible assets totaled $113, $112 and $377 in 2003, 2002 and 2001, respectively. Amortization expense on core deposit intangible assets is expected in the future as follows:

	Amortization
(Dollars in thousands)	Expense
Calendar Year 2004	$	113
Calendar Year 2005		113
Calendar Year 2006		113
Calendar Year 2007		79
Total	$	418

LNB BANCORP, INC. • 2003 ANNUAL REPORT   18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Securities:

The amortized cost, gross unrealized gains and losses and fair values of securities at December 31, 2003 and 2002 follows:

			Gross			Gross
	Amortized		Unrealized			Unrealized			Fair
December 31, 2003 (Dollars in thousands)	Cost		Gains			Losses			Value
Securities available for sale:
U.S. Government agencies and corporations	$	127,571	$	238		$	(1,148	)	$	126,661
States and political subdivisions		11,240		494			(10	)		11,724
Equity securities		5,137		76			(139	)		5,074
Total securities available for sale		143,948		808			(1,297	)		143,459
Securities held to maturity:
U.S. Government agencies and corporations		2,993		100			-0	-		3,093
States and political subdivisions		1,796		63			-0	-		1,859
Total securities held to maturity		4,789		163			-0	-		4,952
Federal Home Loan Bank and Federal Reserve Bank stock		3,879		-0	-		-0	-		3,879
Total securities	$	152,616	$	971		$	(1,297	)	$	152,290

December 31, 2002 (Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	120,599	$	1,659		$	(26	)	$	122,232
States and political subdivisions		10,515		373			(5	)		10,883
Equity securities		5,198		51			(455	)		4,794
Total securities available for sale		136,312		2,083			(486	)		137,909
Securities held to maturity:
U.S. Government agencies and corporations		7,335		169			-0	-		7,504
States and political subdivisions		3,313		98			(11	)		3,400
Total securities held to maturity		10,648		267			(11	)		10,904
Federal Home Loan Bank and Federal Reserve Bank stock		3,738		-0	-		-0	-		3,738
Total securities	$	150,698	$	2,350		$	(497	)	$	152,551

The amortized cost, fair values and yields of debt securities by contractual maturity date at December 31, 2003 follows:

					Fully-Tax
	Amortized		Fair		Equivalent
December 31, 2003 (Dollars in thousands)	Cost		Value		Yield
Securities available for sale:
Due within 1 year	$	1,156	$	1,184		5.81	%
After 1 but within 5 years		65,710		65,612		2.89
After 5 but within 10 years		63,923		63,266		4.37
After 10 years		8,022		8,323		5.26
Total securities available for sale		138,811		138,385		3.73
Securities held to maturity:
Due within 1 year		65		67		5.84
After 1 but within 5 years		3,253		3,367		4.24
After 5 but within 10 years		-0-		-0-		0.00
After 10 years		1,471		1,518		5.76
Total securities held to maturity		4,789		4,952		4.73
Total securities	$	143,600	$	143,337		3.76	%

LNB BANCORP, INC. • 2003 ANNUAL REPORT   19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The gross realized gains and proceeds from the sales of securities are as follows:

	For the Calendar Year
(Dollars in thousands)	2003		2002		2001
Gross realized gains on sales	$	449	$	732	$	250
Proceeds from sales of securities	$	28,488	$	51,719	$	28,064

All other redemptions during these three years were in the form of proceeds at maturity or calls by the issuers of debt. The carrying value of securities pledged to secure trust, public deposits, securities sold under repurchase agreements, line of credit, and for other purposes required by law amounted to $129,654 and $129,567 at December 31, 2003 and 2002, respectively. The fair value of securities is based on quoted market prices, where available. If quoted market prices are not available, fair value is estimated using the quoted market prices of comparable instruments. The securities portfolio contained approximately $1,223 and $2,206 in non-rated securities of states and political subdivisions at December 31, 2003 and 2002, respectively. Based upon yield, term to maturity and market risk, the fair value of these securities was estimated to be $1,250 and $2,254 at December 31, 2003 and 2002, respectively. The majority of these non-rated securities are short-term debt issues of local political subdivisions. Management has reviewed these non-rated securities and has determined that there is no impairment to their value as of December 31, 2003 and 2002.

The following is an analysis of the securities that had unrealized losses at December 31, 2003. The information is presented for securities that have been valued at less than amortized cost for less than 12 months and for more than 12 months. There are temporary and permanent reasons why securities may be valued at less than amortized cost. Temporary reasons would include a deterioration in the credit quality of a security issuer or a change in the tax law pertaining to tax free or preferred stock issues. Temporary reasons also include the current level of interest rates as compared to the coupons on the securities held by the Corporation. At December 31, 2003, the total unrealized losses of $1,297 were temporary in nature and due to the current level of interest rates.

	Less than 12 months					12 months or longer					Total
December 31, 2003	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Government agencies and corporations	$	27,958	$	(292	)	$	-0-	$	-0-		$	27,958	$	(292	)
U.S. Government agency mortgage backed securities		54,092		(845	)		2,014		(11	)		56,106		(856	)
State and political subdivisions		941		(10	)		-0-		-0-			941		(10	)
Subtotal, debt securities		82,991		(1,147	)		2,014		(11	)		85,005		(1,158	)
Equity securities		-0-		-0-			4,903		(139	)		4,903		(139	)
Total temporarily impaired securities	$	82,991	$	(1,147	)	$	6,917	$	(150	)	$	89,908	$	(1,297	)

(6) Transactions With Related Parties:

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

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Aggregate amount beginning of year	$	24,608		$	16,423		$	14,160
Additions (deductions):
New loans		12,145			5,735			3,899
Repayments		(12,915	)		(1,223	)		(1,705	)
Changes in directors and officers and/or their affiliations, net		(555	)		3,673			69
Aggregate amount end of year	$	23,283		$	24,608		$	16,423

LNB BANCORP, INC. • 2003 ANNUAL REPORT   20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) Loans and Reserve for Loan Losses:

Loan balances at December 31, 2003 and 2002 are summarized as follows:

	December 31,
(Dollars in thousands)	2003			2002
Real estate loans (includes loans secured primarily by real estate only):
Construction and land development	$	91,759		$	56,442
One to four family residential		188,033			202,847
Multi-family residential		4,125			3,803
Non-farm non-residential properties		148,053			150,936
Commercial and industrial loans		59,119			47,399
Personal loans to individuals:
Auto, single payment and installment		43,060			42,569
Credit card and related plans		-0	-		5,117
All other loans		162			437
Total loans		534,311			509,550
Reserve for loan losses		(7,730	)		(6,653	)
Net loans	$	526,581		$	502,897

Activity in the reserve for loan losses for 2003, 2002 and 2001 is summarized as follows:

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Balance at beginning of year	$	6,653		$	5,890		$	5,250
Provision for loan losses		2,695			2,200			2,200
Loans charged-off		(1,958	)		(1,783	)		(1,739	)
Recoveries on loans previously charged-off		340			346			179
Balance at end of year	$	7,730		$	6,653		$	5,890

At December 31, 2003 and 2002, $5,771 and $7,257 respectively, of commercial loans were available for sale in the secondary market. At December 31, 2003 and 2002 the market value of commercial loans available for sale equaled or exceeded its carrying value. At December 31, 2003 and 2002, $444 and $1,742, respectively of mortgage loans were available for sale in the secondary market. At December 31,2001, the market value of mortgage loans available for sale was less than its carrying value and was written down by $32. At December 31,2003 and 2002, the market value of mortgage loans available for sale equaled or exceeded their carrying value. At December 31, 2003, the Bank had firm commitments for the sale of mortgage loans of $444.

Information regarding impaired loans is as follows:

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Year-end impaired loans with no allowance for loan losses specifically allocated	$	8,901		$	8,094		$	2,977
Year-end impaired loans with allowance for loan losses specifically allocated		16,329			10,881			8,664
Amount of the allowance specifically allocated to impaired loans		2,272			1,711			1,957
Average of impaired loans during the year		21,742			16,454			978
Interest income recognized during impairment		258			95			60
Cash-basis interest income recognized		-0	-		-0	-		-0	-

LNB BANCORP, INC. • 2003 ANNUAL REPORT   21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Bank Premises, Equipment and Leases:

Bank premises and equipment are summarized as follows:

	For the Calendar Year
(Dollars in thousands)	2003		2002
Land	$	2,347	$	2,347
Buildings		9,863		9,765
Equipment		17,599		16,571
Leasehold improvements		749		688
Total costs		30,558		29,371
Less accumulated depreciation and amortization		19,549		18,623
Total	$	11,009	$	10,748

Depreciation and amortization of Bank premises and equipment charged to noninterest expenses amounted to $1,273 in 2003, $1,286 in 2002 and $1,368 in 2001. Amortization of purchased software charged to noninterest expenses amounted to $324 in 2003, $276 in 2002 and $257 in 2001.

At December 31, 2003, the Bank was obligated to pay rental commitments under noncancelable operating leases on banking centers and certain equipment as follows:

	Banking
(Dollars in thousands)	Centers		Equipment
Calendar Year 2004	$	234	$	37
Calendar Year 2005		100		33
Calendar Year 2006		76		22
Calendar Year 2007		66		-0	-
Calendar Year 2008		41		-0	-
Calendar Year 2009 and thereafter		17		-0	-
Total	$	534	$	92

Rentals paid under leases on banking centers and equipment, respectively, amounted to $295 and $43 in 2003, $256 and $15 in 2002, $241 and $5 in 2001.

(9) Deposits:

Deposit balances at December 31, 2003 and 2002 are summarized as follows:

	December 31,
(Dollars in thousands)	2003		2002
Demand and other noninterest-bearing deposits:
Individuals, partnerships and corporations	$	75,606	$	73,727
U.S. Government		149		136
States and political subdivisions		6,451		2,399
Certified, official, travelers checks and other		4,487		4,617
Total demand and other noninterest-bearing deposits		86,693		80,879
Savings, check invest, market access, money market and passbook accounts:
Individuals and non-profit organizations		226,384		227,224
Corporations and profit organizations		32,231		36,394
States and political subdivisions		18,582		16,998
Total savings, checkinvest, market access, money market and passbook accounts		277,197		280,616
Certificates of deposit:
Individuals, partnerships and corporations		167,780		165,434
States and political subdivisions		49,674		39,198
Total certificates of deposit		217,454		204,632
Total deposits	$	581,344	$	566,127

The aggregate amount of certificates of deposit in denominations of $100 or more amounted to $76,737 and $64,817 at December 31, 2003 and 2002, respectively. The maturity distribution of certificates of deposit as of December 31, 2003 and 2002 follows:

			After 3		After 6		After 1		After 2
			Months		Months		Year But		Years But
	Within 3		But Within		But Within		Within		Within
(Dollars in thousands)	Months		6 Months		1 Year		2 Years		5 Years		Total
December 31, 2003	$	55,838	$	55,037	$	45,428	$	27,453	$	33,698	$	217,454
December 31, 2002	$	60,748	$	33,021	$	36,702	$	50,351	$	23,810	$	204,632

LNB BANCORP, INC. • 2003 ANNUAL REPORT   22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10) Securities Sold Under Repurchase Agreements and Other Short-Term Borrowings:

Information relating to securities sold under repurchase agreements and other short-term borrowings for the years ended December 31, 2003, 2002 and 2001 follows:

	December 31,
(Dollars in thousands)	2003			2002			2001
Securities sold under repurchase agreements and other short-term borrowings
At December 31
Outstanding	$	15,023		$	26,866		$	29,170
Interest rate		.89	%		1.36	%		1.96	%
Average for the year:
Outstanding	$	18,185		$	22,604		$	26,916
Interest rate		.99	%		1.74	%		3.22	%
Maximum month-end outstanding	$	26,309		$	29,633		$	38,361

The Bank maintains a line of credit for advances and discounts with the Federal Reserve Bank of Cleveland. The amount of the line of credit varies on a monthly basis. The level of the line is equal to 85% of the balances of qualified second mortgage loans that are pledged as collateral for the line. At December 31, 2003,the Bank had pledged approximately $54,934 in second mortgage loans,resulting in an available line of credit of approximately $46,694. The Bank has not made a draw against this line of credit since December of 1999.

(11) Federal Home Loan Bank Advances: Short-Term Advances:

Information relating to Federal Home Loan Bank (FHLB) cash management, short-term and long-term advances as of and for the years ended December 31, 2003, 2002 and 2001 follows:

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Cash management advances average and maximums
Average for the year:
Outstanding	$	16,600		$	3,743		$	6,726
Interest rate		1.28	%		1.88	%		3.98	%
Maximum month-end outstanding	$	30,000		$	13,000		$	21,500

	December 31,
(Dollars in thousands)	2003			2002			2001
Cash management advances outstanding	$	15,000		$	5,500		$	19,000
Interest rate		1.09	%		1.40	%		1.90	%
Short-term advances outstanding	$	17,235		$	24,595		$	10,750
Interest rate		1.15 - 3.73	%		1.50 - 4.95	%		4.27 - 6.31	%

Long-term Advances:	Year
(Dollars in thousands)	Maturing
Amount		2003	$	-0	-	$	-0	-	$	19,595
Interest rate				0.00	%		0.00	%		3.16 - 4.95	%
Amount		2004		-0	-		6,000			-0	-
Interest rate				0.00	%		3.57 - 3.73	%		0.00	%
Amount		2005		28,190			11,830			-0	-
Interest rate				2.06 - 4.61	%		2.87 - 4.61	%		0.00	%
Amount		2006		11,000			1,000			-0	-
Interest rate				2.70 - 4.92	%		4.92	%		0.00	%
Amount		2014		115			-0	-		-0	-
Interest rate				3.55	%		0.00	%		0.00	%
Total long-term advances outstanding				39,305			18,830			19,595
Total FHLB advances outstanding			$	71,540		$	48,925		$	49,345

At December 31, 2003, collateral pledged for FHLB advances consisted of all shares of FHLB stock owned by the Bank and qualified mortgage loans totaling $259,746. The total borrowing capacity of the Bank, at December 31,2003, was $94,655 with unused collateral borrowing capacity of $23,115. The Bank maintains a $40,000 cash management line of credit with the FHLB which matures on August 1, 2004. At December 31,2003, the Bank had $15,000 in borrowings outstanding under this cash management line with $25,000 of available credit remaining under this line.

LNB BANCORP, INC. • 2003 ANNUAL REPORT   23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) Income Taxes:

The annual provision for income taxes consists of the following:

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Income Taxes:
Federal current expense	$	3,661		$	4,119		$	4,361
Federal deferred expense (benefit)		(254	)		81			(313	)
State and city current expense		4			-0	-		-0	-
Total Income Taxes	$	3,411		$	4,200		$	4,048

The following presents a reconciliation of the total income taxes as shown on the Consolidated Statements of Income with that which would be computed by applying the statutory Federal tax rate of 35 percent to income before income taxes.

	December 31,
(Dollars in thousands)	2003			2002			2001
Computed “expected” tax expense	$	3,896		$	4,678		$	4,414
Increase (reduction) in income taxes resulting from:
Tax exempt interest on obligations of states and political subdivisions		(201	)		(188	)		(139	)
Tax exempt interest on bank owned life insurance		(270	)		(171	)		(78	)
State income taxes net of Federal benefit		2			-0	-		-0	-
Other, net		(16	)		(119	)		(149	)
Total Income Taxes	$	3,411		$	4,200		$	4,048

Net deferred Federal tax assets are included in Other Assets on the Consolidated Balance Sheets. Management believes that it is more likely than not that the deferred Federal tax assets will be realized. The tax effects of temporary differences that give rise to significant portions of the deferred Federal tax assets and deferred Federal tax liabilities are presented below.

	December 31,
(Dollars in thousands)	2003			2002
Deferred Federal tax assets:
Reserve for loan losses	$	2,628		$	2,262
Deferred compensation		879			370
Minimum pension liability		197			-0	-
Accrued vacation payable		0			181
Intangible asset amortization		(72	)		9
Unrealized loss on securities available for sale		166			-0	-
Other, net		27			30
Total deferred Federal tax assets		3,825			2,852
Deferred Federal tax liabilities:
Bank premises and equipment depreciation		(525	)		(397	)
FHLB stock dividends		(398	)		(350	)
Unrealized gain on securities available for sale		-0	-		(543	)
Accrued loan fees and costs		(335	)		(267	)
Deferred charges		(95	)		(67	)
Prepaid pension		(123	)		(39	)
Total deferred Federal tax liabilities		(1,476	)		(1,663	)
Net Deferred Federal Tax Assets	$	2,349		$	1,189

LNB BANCORP, INC. • 2003 ANNUAL REPORT   24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Shareholders’ Equity:

Preferred Stock:

The Corporation is authorized to issue up to 1,000,000 shares of Voting Preferred Stock, no par value. As of December 31, 2003, no such stock had been issued. The Board of Directors of the Corporation is authorized to provide for the issuance of one or more series of Voting Preferred Stock and establish the dividend rate, dividend dates, whether dividends are cumulative, liquidation prices, redemption rights and prices, sinking fund requirements, conversion rights, and restrictions on the issuance of any series of Voting Preferred Stock. The Voting Preferred Stock may be issued with conversion rights to common stock and may rank prior to the common stock in dividends, liquidation preferences, or both. The Corporation has authorized 750,000 Series A Voting Preferred Shares none of which have been issued.

Common Stock:

The Corporation is authorized to issue up to 15,000,000 shares of common stock. Common shares outstanding were 6,617,618 and 4,401,232 at December 31, 2003, and December 31, 2002, respectively. The Board of Directors of LNB Bancorp, Inc. declared a three-for-two stock split in 2003, paid on April 1, 2003, to shareholders of record on March 17, 2003. This three-for-two stock split increased LNB Bancorp, Inc.’s common stock outstanding by 2,250,210 shares. The Board of Directors of LNB Bancorp, Inc. declared a two percent stock dividend, paid on July 2, 2002, to shareholders of record on June 17, 2002. The two percent stock dividend increased LNB Bancorp, Inc.’s common stock outstanding by 85,474 shares. Cash was issued in lieu of fractional shares. The Board of Directors of LNB Bancorp, Inc. declared a two percent stock dividend, paid on July 1, 2001, to shareholders of record on June 12, 2001. The two percent stock dividend increased LNB Bancorp, Inc.’s common stock outstanding by 84,225 shares.

Common Stock Repurchase Plan and Treasury Stock:

On May 20, 1997, the Board of Directors authorized the repurchase of up to 100,000 shares of common stock. The repurchased shares will be used primarily for qualified employee benefit plans, incentive stock option plans, stock dividends and other Corporate purposes. Treasury stock shares were adjusted to reflect the three-for-two stock split of April 1, 2003. At December 31, 2003 and at December 31, 2002, LNB Bancorp, Inc. held 149,249 shares and 100,000 shares of common stock as Treasury Stock under this plan for a total cost of $2,885 and $2,900 respectively. During 2003 and 2002, 722 and 0 shares were issued out of Treasury Stock.

Shareholder Rights Plan:

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

The Shareholder Rights Plan provided for the distribution of one Preferred Share Purchase Right as a dividend on each outstanding LNB Bancorp, Inc. Common Share held as of the close of business on November 6,2000. One Preferred Share Purchase Right will also be distributed for each Common Share issued after November 6, 2000. Each right entitles the registered holder to purchase from LNB Bancorp, Inc. Units of a new series of Voting Preferred Shares, no par value, at 50 percent of market value, if a person or group acquires 15 percent or more of LNB Bancorp, Inc.’s Common Shares. Each Unit of the new Preferred Shares has terms designed to make it the economic equivalent of one Common Share. A complete description of the distribution, exercise, and the terms of the rights are set forth in a Shareholder Rights Agreement dated October 24, 2000 between LNB Bancorp, Inc. and Registrar and Transfer Company as Rights Agent. The Shareholder Rights Agreement was filed with the Securities and Exchange Commission in a Form 8-A Filing on November 6, 2000.

Dividends:

Total cash dividends declared per share for 2003 increased $.02 or two percent, to $.70 per share, up from $.68 per share in 2002.

LNBB Direct Stock Purchase and Dividend Reinvestment Plan:

The Board of Directors adopted the LNBB Direct Stock Purchase and Dividend Reinvestment Plan (the Plan) effective June 2001, replacing the former LNB Bancorp, Inc. Dividend Reinvestment Plan. The Plan authorized the sale of 500,000 shares of the Corporation’s common shares to shareholders who choose to invest all or a portion of their cash dividends plus additional cash payments for LNB Bancorp, Inc. common stock. The Corporation did not issue shares pursuant to the Plan in 2003 while 45,560 shares were purchased in the open market at the current market price. The Corporation did not issue shares pursuant to the Plan in 2002 while 45,830 shares were purchased in the open market at the current market price. The Corporation issued 10,835 shares pursuant to the Plan in 2001 while 37,667 shares were purchased in the open market at the current market price.

Dividend Restrictions:

Dividends paid by the Bank are the primary source of funds available to the Corporation for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the Bank to the Corporation is subject to restrictions by the Office of the Comptroller of Currency. These restrictions generally limit dividends to the current and prior two years’ retained earnings. At December 31, 2003, approximately $12,145 of the Bank’s retained earnings were available for dividends to the Corporation. In addition to these restrictions, as a practical matter, dividend payments cannot reduce regulatory capital levels below the Corporation’s regulatory capital requirements and minimum regulatory guidelines. These restrictions do not presently limit the Corporation from paying normal dividends.

LNB BANCORP, INC. • 2003 ANNUAL REPORT   25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14) Regulatory Capital:

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

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

The prompt corrective action regulations provide for five categories which in declining order are:“well capitalized, “adequately capitalized, ” “undercapitalized, “significantly undercapitalized, ” and “critically under-capitalized.” To be considered “well capitalized, ” an institution must generally have a leverage capital ratio of at least 5 percent, a Tier I risk-based capital ratio of at least 6 percent, and a total risk-based capital ratio of at least 10 percent.

Total capital (Tier 1 and Tier 2) amounted to $72.8 million at December 31, 2003, representing 12.57% of net risk-adjusted assets compared with $68.9 million and 12.89%, respectively, at December 31, 2002. Tier 1 capital of $65.6 million at December 31, 2003 represented 11.32% of risk weighted assets, compared with $62.2 million and 11.64% at December 31, 2002.

At December 31, 2003 and 2002, the capital ratios for the Corporation and its wholly-owned subsidiary, Lorain National Bank, exceeded the ratios required to be “well capitalized.” The “well capitalized” status affords the Bank the ability to operate with the greatest flexibility under current laws and regulations. The Comptroller of the Currency’s most recent notification, with an examination date of September 30, 2003, categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that Management believes have changed the Bank’s category. Analysis of Lorain National Bank and LNB Bancorp, Inc.’s Regulatory Capital and Regulatory Capital Requirements follows:

	Minimum Required
Minimum Required	Actual					To Be Well Capitalized					Capital
December 31,
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
2003 Total capital (to risk weighted assets)
Consolidated	$	72,838		12.57	%	$	57,952		10.00	%	$	46,362		8.00	%
Bank		69,196		11.97			57,880		10.00			46,304		8.00
2003 Tier 1 capital (to risk weighted assets)
Consolidated		65,594		11.32			34,771		6.00			23,181		4.00
Bank		57,961		10.02			34,728		6.00			23,152		4.00
2003 Tier 1 capital (to average assets)
Consolidated		65,594		8.92			36,749		5.00			29,399		4.00
Bank		57,961		7.81			36,561		5.00			29,249		4.00
2002 Total capital (to risk weighted assets)
Consolidated	$	68,878		12.89	%	$	53,420		10.00	%	$	42,736		8.00	%
Bank		65,359		12.25			53,353		10.00			42,682		8.00
2002 Tier 1 capital (to risk weighted assets)
Consolidated		62,201		11.64			32,052		6.00			21,368		4.00
Bank		54,706		10.25			32,012		6.00			21,341		4.00
2002 Tier 1 capital (to average assets)
Consolidated		62,201		9.04			34,406		5.00			27,525		4.00
Bank		54,706		8.00			34,202		5.00			27,362		4.00

LNB BANCORP, INC. • 2003 ANNUAL REPORT   26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) Financial Holding Company:

Substantially all of the retained earnings of the Corporation represent undistributed net income of its subsidiaries. Condensed financial information of LNB Bancorp, Inc. (Financial Holding Company only) is as follows:

Condensed Balance Sheets	December 31,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	1,679	$	1,241
Short-term investments		3,103		3,224
Investment in subsidiary bank		60,452		59,084
Investment in subsidiary nonbanks		77		96
Securities available for sale		93		59
Note receivable - subsidiary bank (6.80% due 1/1/2007)		4,000		4,000
Other assets		52		170
Total assets	$	69,456	$	67,874
Liabilities and Shareholders’ Equity:
Liabilities	$	1,321	$	1,261
Shareholders’ equity		68,135		66,613
Total liabilities and shareholders’ equity	$	69,456	$	67,874

Condensed Statements of Income	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Income:
Cash dividends from subsidiary	$	4,626		$	4,468		$	4,365
Interest and other income		483			581			466
Total income		5,109			5,049			4,831
Expenses:
Other expenses		563			838			376
Income before income taxes and equity in undistributed net income of subsidiary		4,546			4,211			4,455
Income tax (benefit) expense		(27	)		(87	)		26
Equity in undistributed net income of subsidiary		3,142			4,867			4,136
Net Income	$	7,715		$	9,165		$	8,565

Condensed Statements of Cash Flows	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Cash Flows from Operating Activities:
Dividends from subsidiary	$	4,626		$	4,468		$	4,365
Other, net		57			(313	)		119
Net Cash Provided by Operating Activities		4,683			4,155			4,484
Cash Flows from Investing Activities:
Proceeds from maturity of securities available for sale		-0	-		80			-0	-
Purchases of securities available for sale		-0	-		(39	)		(64	)
Net cash (Used) in investing activities		-0	-		41			(64	)
Cash Flows from Financing Activities:
Cash paid in lieu of fractional shares related to stock dividends and stock splits		(13	)		(22	)		-0	-
Proceeds from exercise of stock options and shares issued under LNBB Direct Stock Purchase and Dividend Reinvestment Plan		189			3			348
Issuance of Treasury stock		15			-0	-		-0	-
Dividends paid to shareholders		(4,557	)		(4,445	)		(4,337	)
Net Cash (Used) in Financing Activities		(4,366	)		(4,464	)		(3,989	)
Net Increase (decrease) in Cash and Cash Equivalents		317			(268	)		431
Cash and Cash Equivalents at Beginning of Year		4,465			4,733			4,302
Cash and Cash Equivalents at End of Year	$	4,782		$	4,465		$	4,733

LNB BANCORP, INC. • 2003 ANNUAL REPORT   27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) Retirement Pension Plan:

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

The net periodic pension costs charged to other expenses amounted to $116 in 2003, $574 in 2002 and $313 in 2001. At December 31, 2003 there were 245 participants in the plan. The following table sets forth the defined benefit pension plan’s Change in Projected Benefit Obligation, Change in Plan Assets and Funded Status, including the Accrued Liability for the years ended December 31, 2003, 2002, and 2001. The Plan was amended and restated for GUST effective January 1, 2001 and amended for EGTRRA effective January 1, 2002. Effective December 31, 2002, the benefits under the Plan were frozen and no additional benefits will be accrued under the Plan after December 31, 2002. As a result of the Plan being frozen, the Corporation recorded, as a component of its net periodic pension cost, a loss due to the curtailment in the amount of $137 in 2002. Also as a result of the plan being frozen, the Corporation recorded a curtailment gain, as a component of the change in the projected benefit obligation, in the amount of $2,670 during 2002. The 2003 loss recognized due to settlement in the amount of $20 results from significant lump sum distributions paid in 2003, but not actuarially projected for 2003.

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	(8,415	)	$	(10,850	)	$	(10,100	)
Service cost		-0	-		(556	)		(531	)
Interest cost		(477	)		(643	)		(636	)
Actuarial gain (loss)		(283	)		(83	)		22
Curtailment gain		-0	-		2,670			-0	-
Settlement (loss)		(157	)		-0	-		-0	-
Benefits paid		1,389			1,047			395
Projected benefit obligation at end of year	$	(7,943	)	$	(8,415	)	$	(10,850	)
Change in plan assets:
Fair value of plan assets at beginning of year	$	7,741		$	9,665		$	10,101
Actual gain (loss) on plan assets		223			(877	)		(512	)
Employer contributions		652			-0	-		471
Benefits paid		(1,389	)		(1,047	)		(395	)
Fair value of plan assets at end of year	$	7,227		$	7,741		$	9,665
Funded status	$	(716	)	$	(674	)	$	(1,185	)
Unrecognized net (gain) subsequent to transition		-0	-		-0	-		1,207
Unrecognized actuarial loss		578			-0	-		-0	-
Unrecognized prior service cost (benefit)		-0	-		-0	-		(122	)
Accrued Liability	$	(138	)	$	(674	)	$	(100	)

	For the Calendar Year
Net Periodic Pension Cost (Dollars in thousands)	2003			2002			2001
Service cost	$	-0-		$	556		$	531
Interest cost on projected benefit obligation		477			643			636
Expected return on plan assets		(381	)		(743	)		(819	)
Amortization of unrecognized prior service liability		-0	-		(35	)		(35	)
Recognized actuarial (gain) or loss		-0	-		16			-0	-
Net periodic pension cost		96			437			313
Loss recognized due to curtailment		-0	-		137			-0	-
Loss recognized due to settlement		20			-0	-		-0	-
Total pension cost	$	116		$	574		$	313
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, 2003, 2002, and 2001.
Weighted average discount rate		5.75	%		6.00	%		6.00	%
Expected long-term rate of return on plan assets		5.00	%		7.88	%		7.88	%
Assumed rate of future compensation increases		0.00	%		5.00	%		5.00	%

LNB BANCORP, INC. • 2003 ANNUAL REPORT   28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts recognized in the consolidated balance sheet consist of:

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001
Accrued benefit cost	$	(716	)	$	(674	)	$	(100	)
Minimum pension liability		578			-0	-		-0	-
Net amount recognized	$	(138	)	$	(674	)	$	(100	)

	Pension Benefits
(Dollars in thousands)	2003		2002		2001
Increase in minimum liability included in other comprehensive income	$	381	$	-0-	$	-0-

The accumulated benefit obligation for the Lorain National Bank Retirement Pension Plan was $7,943, $8,415 and $7,570 at December 31, 2003, 2002 and 2001 respectively.

	December 31
(Dollars in thousands)	2003			2002			2001
Projected benefit obligation	$	(7,943	)	$	(8,415	)	$	(10,850	)
Accumulated benefit obligation		(7,943	)		(8,415	)		(10,850	)
Fair value of plan assets		7,227			7,741			9,665

Assumptions: Weighted-average assumptions used to determine projected and accumulated benefit obligations at December 31.

	December 31
	2003			2002			2001
Discount rate		5.75	%		6.00	%		6.00	%
Rate of compensation increase		0.00			5.00			5.00

The plan reviews Moody’s Aaa and Aa corporate bond yields as of each plan year-end to determine the appropriate discount rate to calculate the year-end benefit plan obligation and the following year’s net periodic pension cost.

Plan Assets:

Lorain National Bank’s Retirement Pension Plan’s weighted-average assets allocations at December 31, 2003, 2002 and 2001 by asset category are as follows:

	Plan Assets at December 31
Asset category	2003			2002			2001
Equity securities		18	%		53	%		59	%
Debt securities		82			42			37
Cash and cash equivalents		0			5			4
Total		100	%		100	%		100	%
LNB Bancorp, Inc. common stock to total plan assets		8.9	%		7.5	%		4.8	%

The investment strategy for 2004 is to achieve an equity security allocation percent of about 60% and a debt security position of about 40%. This strategy will be employed in order to position more assets to benefit from the anticipated increase in the equities market in 2004.

Cash flows of the Lorain National Bank Retirement Pension Plan Contributions:

Lorain National Bank expects to contribute $500 to the Lorain National Bank Retirement Pension Plan in 2004.

Estimated Future Benefit Payments:

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

(Dollars in thousands)	Pension Benefit
Calendar year 2004	$	245
Calendar year 2005		35
Calendar year 2006		547
Calendar year 2007		67
Calendar year 2008		111
Calendar year 2009 – 2045		9,938

LNB BANCORP, INC. • 2003 ANNUAL REPORT   29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(17) Stock Option Plans:

The Corporation sponsors four nonqualified incentive stock option agreements and two qualified incentive stock option plans. In 2003, the Corporation did not enter into an incentive stock option agreement.

The Corporation’s shareholders approved qualified incentive stock option plans on April 6, 1982 and April 16, 1985 for all officers at or above the position of Vice President or equivalent. Under each plan, 50,000 shares of stock were originally reserved. Options were granted at fair market value at the date of the grant and, accordingly, no charges are reflected in salaries and employee benefits expense due to the granting of stock options. The excess of the option price over the par value of the shares purchased through the exercise of stock options is credited to additional capital. Options granted under the plans may not be outstanding for periods exceeding 10 years from date of grant.

At December 31, 2003 all qualified stock options issued under these plans had expired or been exercised.

There were no new options granted or forfeitures under the qualified stock option plans during the three year period ended December 31, 2003. Stock options exercised under qualified plans were 15,425, 200 and 9,431 shares in 2003, 2002 and 2001, respectively.

An analysis of the qualified incentive stock option plans as of December 31, 2003 follows:

Incentive Stock Option Plan Year		1985			1982
Options outstanding:
	Total		-0	-		-0	-
	Vested		-0	-		-0	-
Options available for granting			-0	-		-0	-
Exercise price		$	0.00		$	0.00

There were no stock options granted or available for granting under any of the Corporation’s qualified incentive stock option plans during 2003, 2002 and 2001.

Qualified and Nonqualified Incentive Stock Option Plans

	2003					2002					2001
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
Outstanding at beginning of year		46,318		$	23.29		45,606		$	23.73		44,158		$	22.63
Granted		-0	-		N/A		-0	-		N/A		10,000			21.55
Expired		(3,092	)		12.31		-0	-		N/A		-0	-		N/A
Exercised		(15,425	)		12.31		(200	)		18.47		(9,431	)		14.07
Stock Dividend/Split		23,159			15.52		912			23.26		879			19.33
Outstanding at end of year		50,960			16.69		46,318			23.29		45,606			23.73
Exercisable at end of year		50,960		$	16.69		46,318		$	23.29		45,606		$	23.73

Exercise prices for nonqualified options outstanding as of December 31, 2003, ranged from $14.08 to $18.85. The weighted average remaining contractual life of the nonqualified incentive stock option agreements is 5 to 8 years.

The fair value of each option granted in 2001 is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2001: risk-free interest rate of 5.03%, dividend yield of 4.80%, volatility factors of the expected market price of LNB Bancorp, Inc.’s common stock of 38.4%; and a weighted average expected option life of 10 years. Weighted average fair value of options granted during 2001 was $6.04.

Had compensation cost for the Corporation’s stock-based compensation plans been determined consistent with SFAS No. 123, net income and net income per share would have been as summarized below. Additionally, no stock-based compensation, as defined by the provisions of Statement of Financial Accounting Standards No. 123,“Stock-Based Compensation” was generated under any of the Corporation’s stock-based benefit plans during 2003.

		For the Calendar Year
(Dollars in thousands
except per shares amounts)		2003		2002		2001
Pro forma net income		$	N/A	$	9,148	$	8,525
Pro forma net income per share:
	Basic	$	N/A	$	1.39	$	1.30
	Diluted		N/A		1.39		1.30

LNB BANCORP, INC. • 2003 ANNUAL REPORT    30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(18) Employee Stock Ownership Plan:

The Lorain National Bank Employee Stock Ownership Plan (ESOP) is a non-contributory plan that covers substantially all employees. Contributions by the Bank to the ESOP are discretionary and subject to approval by the Board of Directors. Contributions are expensed in the year in which they are approved and totaled $0, $263 and $0 in 2003, 2002, and 2001, respectively. At December 31, 2003 there were 292 participants in the plan. Under the terms of the ESOP agreement, the Corporation’s common stock is to be the Plan’s primary investment.

Transactions by the ESOP, relating to activity in the Corporation’s common stock, are summarized in the table to the right:

(Dollars in thousands
except per share amounts)		2003			2002			2001
Cash dividend income		$	189		$	184		$	172
Stock split/dividend shares			93,836			3,577			3,287
Shares purchased			18,110			7,421			22,953
Shares distributed/sold			29,110			6,142			2,690
Year end holdings:
	Shares		264,175			181,340			176,484
	Market value	$	5,363		$	4,923		$	3,816
	As a percentage of total plan assets		98.8	%		98.8	%		97.4	%

(19) 401(k) Plan:

The Bank adopted the Lorain National Bank 401(k) Plan (the Plan) effective January 1, 2001. The Plan amended and restated the Lorain National Bank Stock Purchase Plan. The Plan allows for the purchase of up to 80,000 shares of LNB Bancorp, Inc. treasury shares. During 2003, 2002, and 2001 the Plan purchased LNB Bancorp, Inc common stock on the open market.

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

The Bank’s matching contributions are expensed in the year in which the associated participant contributions are made and totaled $425,$209, and $202 in 2003, 2002 and 2001, respectively. At December 31, 2003, there were 280 participants in the Plan.

Transactions by the Plan relating to the activity in the Corporation’s common stock are summarized below:

(Dollars in thousands
except per share amounts)		2003			2002			2001
Cash dividend income		$	140		$	136		$	131
Stock split/dividend shares			68,079			2,577			2,509
Shares purchased			17,821			15,979			12,543
Shares rolled over			645			83			237
Shares distributed/sold			34,805			5,805			10,250
Year end holdings:
	Shares		194,252			142,512			129,678
	Market value	$	3,943		$	3,869		$	2,804
	As a percentage of total plan assets		72.6	%		81.9	%		84.9	%

(20) Commitments, Credit Risk, and Contingencies:

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

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

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on Management’s credit evaluation of the applicant. Collateral held is generally single-family residential real estate and commercial real estate. Substantially all of the obligations to extend credit are variable rate commitments except for commitments to sell mortgages which are fixed rate commitments.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

A summary of the contractual amount of commitments follows:

		December 31,
(Dollars in thousands)		2003			2002
Commitments to extend credit		$	58,434		$	75,408
Home equity lines			43,793			38,502
Credit card arrangements			-0	-		23,169
Commitments to sell mortgages			444			1,742
Standby letters of credit			1,774			1,864
	Total	$	104,445		$	140,685

Most of the Bank’s business activity is with customers located within the Bank’s defined market area. As of December 31, 2003, the Bank had no significant concentrations of credit risk in its loan portfolio. The Bank also has no exposure to highly leveraged transactions and no foreign credits in its loan portfolio.

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

LNB BANCORP, INC. • 2003 ANNUAL REPORT    31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(21) Estimated Fair Value of Financial Instruments:

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

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

Cash and due from banks and Federal funds sold and short-term investments and Accrued interest, accounts receivable and other financial assets:

For these short-term financial instruments, the carrying value is a reasonable estimate of fair value.

Securities:

The fair value of securities is based on quoted market prices, where available. If quoted market prices are not available, fair value is estimated using the quoted market prices of comparable instruments.

Portfolio loans, net and Loans available for sale, net:

For variable rate loans with interest rates that may be adjusted on a quarterly,or more frequent basis,the carrying amount is a reasonable estimate of fair market value. The fair value of other types of loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Bank owned life insurance:

The carrying value is the fair market value for bank owned life insurance.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, money market, checking and NOW accounts,is equal to the amount payable on demand as of December 31, for each year presented. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. For variable rate certificates of deposit, the carrying amount is a reasonable estimate of fair value.

Securities sold under repurchase agreements and other short-term borrowings and Accrued interest payable and other financial liabilities:

For these short-term financial instruments, the carrying value is a reasonable estimate of fair value.

Federal Home Loan Bank advances:

The fair value of these long-term financial instruments is estimated by discounting future cash flows using current FHLB rates for the remaining term to maturity.

Commitments to extend credit and standby letters of credit:

The fair value of these commitments to extend credit approximates the fees charged to make these commitments; since rates and fees of the commitment contracts approximates those currently charged to originate similar commitments. The carrying amount and fair value of off-balance sheet instruments is not significant as of December 31, 2003 and 2002.

Limitations:

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

Estimates of fair value are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Bank has a substantial Investment and Trust Services Division that contributes net fee income annually. The Investment and Trust Services Division is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial instruments include property, plant, and equipment and deferred tax liabilities. In addition, it is not practicable for the Corporation to estimate the tax ramifications related to the realization of the unrealized gains and losses and they have not been reflected in any of the estimates of fair value. The impact of these tax ramifications can have a significant effect on estimates of fair value. The estimated fair values of the Corporation’s financial instruments at December 31, 2003 and 2002 are summarized as follows:

		2003				2002
December 31,		Carrying		Estimated		Carrying		Estimated
(Dollars in thousands)		Value		Fair Value		Value		Fair Value
Financial assets:
	Cash and due from banks and Federal funds sold and short-term investments	$	27,749	$	27,749	$	26,832	$	26,832
	Securities		152,127		152,290		152,295		152,551
	Portfolio loans, net		520,366		531,857		493,898		502,205
	Loans available for sale, net		6,215		6,215		8,999		8,999
	Bank owned life insurance		12,702		12,702		11,930		11,930
	Accrued interest, accounts receivable and other financial assets		5,083		5,083		5,639		5,639
Financial liabilities:
Deposits:
	Demand deposits, savings accounts and money market deposits	$	363,890	$	363,890	$	361,495	$	361,495
	Certificates of deposit		217,454		219,878		204,632		207,676
	Total deposits		581,344		583,768		566,127		569,171
	Securities sold under repurchase agreements and other short-term borrowings		15,023		15,023		26,866		26,866
	Federal Home Loan Bank advances		71,540		70,748		48,925		49,536
	Accrued interest payable and other financial liabilities		5,083		5,083		5,639		5,639

LNB BANCORP, INC. • 2003 ANNUAL REPORT    32

REPORT OF MANAGEMENT

To The Shareholders of LNB Bancorp, Inc.

January 30, 2004

The Management of LNB Bancorp, Inc. is responsible for the preparation, integrity, and fair presentation of its financial statements presented in this annual report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and,as such,include amounts,some of which are based on judgments and estimates of Management.

LNB Bancorp, Inc. maintains a system of internal control over financial reporting designed to produce reliable financial statements. The system contains self-monitoring mechanisms,and compliance is tested and evaluated through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any internal control system has inherent limitations,including the possibility that controls can be circumvented or overridden. Further, because of changes in conditions, internal control system effectiveness may vary over time.

Management assessed the Corporation’s internal control over financial reporting presented in conformity with accounting principles generally accepted in the United States of America as of December 31, 2003. Based on this assessment,Management believes that,as of December 31, 2003, the Corporation maintained effective internal control over financial reporting presented in conformity with accounting principles generally accepted in the United States of America.

The Audit Committee of the Board of Directors is composed entirely of outside directors who are independent of Management and meets periodically with Management, internal auditors and independent auditors to review audit plans and the results and recommendations of their audits. The Audit Committee selects the independent auditor. KPMG LLP, independent auditors, and the internal auditors have direct and confidential access to the Audit Committee at all times to discuss the results of their examinations.

The accounting firm of KPMG LLP has been engaged by LNB Bancorp, Inc. to audit its financial statements and their report follows.

James F. Kidd	Terry M. White
President and	Executive Vice President,
Chief Executive Officer	Chief Financial Officer and Corporate Secretary

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
LNB Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of LNB Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LNB Bancorp, Inc. and subsidiaries at December 31, 2003 and 2002, and the results of their operations,shareholders’equity and cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Cleveland, Ohio
January 30,2004

LNB BANCORP, INC. • 2003 ANNUAL REPORT    33

SELECTED UNAUDITED QUARTERLY FINANCIAL DATA

Unaudited Quarterly Financial Data:

Selected unaudited quarterly financial data and per share data for 2003, 2002 and 2001 is presented below. There were intra-quarter fluctuations during the third quarter of 2003 in noninterest income from the gain on the sale of the credit card portfolio of $832. The increase in the provision for loan losses in the third quarter of 2003 resulted from changes in the mix and levels of loans and the softening of the local economy. There were intra-quarter fluctuations during the fourth quarter of 2003 in noninterest expense, net income and earnings per share from one-time severance expenses amounting to $1,712. There were intra-quarter fluctuations during the first, second and fourth quarters of 2002 in noninterest income from increased levels of gains on sales of securities compared with the third quarter of 2002. The decrease in the provision for loan losses in the fourth quarter of 2002 resulted from changes in the mix and levels of loans and current economic conditions. There were significant intra-quarter fluctuations during the fourth quarter of 2001 from increases in the provision for loan losses. The increase in the provision for loan losses in the fourth quarter of 2001 resulted from anticipated loan charge-offs and to increase the reserve for loan losses for changes in the mix and levels of loans. The 2001 second and third quarters noninterest income reflects gains on sales of securities.

			First		Second		Third		Fourth
(Dollars in thousands except per share amounts)			Quarter (1)		Quarter (1)		Quarter (1)		Quarter		Totals
Total interest income		2003	$	9,686	$	9,626	$	9,400	$	9,233	$	37,945
		2002		10,189		10,474		10,415		10,286		41,364
		2001		11,724		11,485		11,081		10,811		45,101
Total interest expense		2003		2,526		2,352		2,186		2,132		9,196
		2002		3,106		3,175		3,072		2,742		12,095
		2001		4,903		4,432		4,194		3,469		16,998
Net interest income		2003		7,160		7,274		7,214		7,101		28,749
		2002		7,083		7,299		7,343		7,544		29,269
		2001		6,821		7,053		6,887		7,342		28,103
Provision for loan losses		2003		564		570		991		570		2,695
		2002		600		525		600		475		2,200
		2001		450		450		450		850		2,200
Net interest income after provision		2003		6,596		6,704		6,223		6,522		26,045
	for loan losses	2002		6,483		6,774		6,743		7,069		27,069
		2001		6,371		6,603		6,437		6,492		25,903
Noninterest income		2003		2,699		2,858		3,536		2,448		11,541
		2002		2,694		2,723		2,624		3,027		11,068
		2001		2,098		2,439		2,593		2,541		9,671
Noninterest expenses		2003		6,139		6,082		6,419		7,829		26,469
		2002		6,050		6,178		6,001		6,543		24,772
		2001		5,454		5,805		5,693		6,009		22,961
Income taxes		2003		965		1,156		985		305		3,411
		2002		1,022		1,082		1,033		1,063		4,200
		2001		1,009		1,082		1,145		812		4,048
Net income		2003	$	2,191	$	2,324	$	2,355	$	845	$	7,715
		2002		2,105		2,237		2,333		2,490		9,165
		2001		2,006		2,155		2,193		2,211		8,565
Basic earnings per share (2)		2003	$	.33	$	.35	$	.36	$	.13	$	1.17
		2002		.32		.34		.35		.38		1.39
		2001		.31		.33		.33		.33		1.30
Diluted earnings per share (2)		2003	$	.33	$	.35	$	.36	$	.13	$	1.17
		2002		.32		.34		.35		.38		1.39
		2001		.31		.33		.33		.33		1.30
Dividends declared per share (3)		2003	$	.17	$	.17	$	.17	$	.19	$	.70
		2002		.16		.17		.17		.18		.68
		2001		.16		.16		.16		.18		.66

(1)	Certain amounts reported for the year 2002 have been restated as a result of the adoption of SFAS No. 142 and SFAS No. 147.
(2)	Basic and Diluted earnings per share is computed using the weighted average number of shares outstanding during each quarter and each year.
(3)	All share and per share data have been adjusted to reflect the three-for-two stock split in 2003, and the 2 percent stock dividend in 2002 and 2001.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    34

FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY

Condensed Statements of Income and Cash Dividends Declared

		For the Calendar Year
(Dollars in thousands)		2003		2002		2001		2000		1999
Total interest income		$	37,945	$	41,364	$	45,101	$	46,645	$	41,617
Total interest expense			9,196		12,095		16,998		19,209		15,593
	Net interest income		28,749		29,269		28,103		27,436		26,024
Provision for loan losses			2,695		2,200		2,200		1,700		2.000
Other income			10,024		10,242		9,122		8,369		7,936
Gains on sales of assets			1,517		826		326		1		162
Other expenses			26,469		24,772		22,738		21,276		20,639
Income before income taxes			11,126		13,365		12,613		12,830		11,483
Income taxes			3,411		4,200		4,048		4,400		3,842
Net income		$	7,715	$	9,165	$	8,565	$	8,430	$	7,641
Cash dividends declared		$	4,626	$	4,468	$	4,365	$	4,191	$	3,794

Condensed Balance Sheets

	December 31,
(Dollars in thousands)	2003		2002		2001		2000		1999
Cash and cash equivalents	$	27,749	$	26,832	$	31,505	$	25,136	$	37,343
Securities		152,127		152,295		138,401		127,101		123,319
Net loans		526,581		502,897		471,598		445,890		414,849
Other assets		34,764		33,375		23,022		23,983		24,100
Total assets	$	741,221	$	715,399	$	664,526	$	622,110	$	599,611
Total deposits	$	581,344	$	566,127	$	518,267	$	496,091	$	456,831
Other borrowings		86,563		75,791		78,515		63,736		86,467
Other liabilities		5,179		6,868		5,606		5,758		5,260
Total liabilities		673,086		648,786		602,388		565,585		548,558
Total shareholders’ equity		68,135		66,613		62,138		56,525		51,053
Total liabilities and shareholders’ equity	$	741,221	$	715,399	$	664,526	$	622,110	$	599,611

Per Share Data

	2003		2002		2001		2000		1999
Basic earnings (1) (2)	$	1.17	$	1.39	$	1.30	$	1.28	$	1.16
Diluted earnings (1) (2)		1.17		1.39		1.30		1.28		1.16
Cash dividends declared (2)		.70		.68		.66		.64		.58
Book value per share (2)		10.30		10.09		9.41		8.60		7.77
Shares outstanding at end of year (2)		6,617,618		6,601,848		6,601,548		6,571,119		6,569,133

Financial Ratios

	2003			2002			2001			2000			1999
Return on average assets (ROAA) (3)		1.05	%		1.33	%		1.35	%		1.39	%		1.33	%
Return on average shareholders’ equity (ROAE) (3)		11.33			14.24			14.36			15.83			15.29
Net interest margin (4)		4.24			4.59			4.75			4.85			4.88
Efficiency ratio (4)		63.01			61.41			60.96			59.42			60.61
Loans to deposits		91.91			90.01			92.13			90.94			91.83
Dividend Payout		59.98			48.75			50.96			49.72			49.65
Shareholders’ equity to assets (3)		9.22			9.31			9.35			8.77			8.67

Asset Quality Ratios

	2003			2002			2001			2000			1999
Net charge-offs to total loans		.30	%		.28	%		.33	%		.25	%		.19	%
Reserve for loan losses to total loans		1.46			1.31			1.23			1.16			1.11
Nonperforming loans to total loans		.96			.37			.30			.51			.33
Reserve for loan losses to nonperforming assets		135.00			352.94			409.30			226.60			348.50

(1)	Basic and diluted earnings per share is computed using the weighted average number of shares outstanding during each year.
(2)	All share and per share data has been adjusted to reflect the three-for-two stock split in 2003 and the 2 percent stock dividend in 2002, 2001 and 2000.
(3)	Ratios based on average annual balances.
(4)	Fully-Tax Equivalent (FTE) Basis.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    35

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following is management’s discussion and analysis of the financial condition and results of operations of LNB Bancorp, Inc. (the Corporation). The purpose of this analysis is to clearly describe, from management’s perspective, what primary factors contributed to the financial performance presented in the consolidated financial statements and the notes related to these statements. This discussion and analysis should be read in conjunction with the consolidated financial statements, notes and other materials contained in this 2003 annual report.

Introduction

This was a year of change for the Corporation. Prolonged economic weakness in our market, and the need to make fundamental changes to position the Corporation for the future, necessitated many changes. In order to continue to grow profitably, major personnel, technology, product line and branch office decisions were made in 2003. It was also a year in which the President and Chief Executive Officer announced his retirement. The full financial impact of all of these activities is discussed in detail in the Results of Operations section of this discussion.

The Corporation is a financial holding corporation serving Lorain County, extreme eastern Erie County and western Cuyahoga County in northern Ohio. As such the Corporation’s performance is impacted by general trends in the banking industry and by local economic conditions in the Federal Reserve Bank of Cleveland – Fourth District. At year-end, the banking industry was entering another period of consolidation, with several bank mergers announced that may impact the Corporation’s market. There has also been increased branching activity into Lorain County by super-regional banks and new competitors from Cuyahoga County. While it appeared that in late 2003 the national economy was quickly improving, the Corporation’s local economy was only slowly recovering. This is primarily due to the area’s strong dependence on the manufacturing sector. Within Lorain County, future population growth estimates are encouraging, but such growth will increasingly be in the eastern part of the county as opposed to traditional population centers.

The Corporation offers a full line of financial products and services through its wholly-owned subsidiary, Lorain National Bank. The Corporation’s delivery network includes 20 branch offices and 23 ATM’s. The Corporation also offers on-line banking services at its Internet site. The current business lines that are most critical to the Corporation’s continued success are commercial lending, retail lending, and core transaction deposit products. The Corporation continues to derive 71% of its revenues from net interest income, so the ability to achieve balance sheet growth and therefore net interest income growth is still the Corporation’s most critical revenue factor. Combining this dependence on asset growth with a weak local economy contributed to a decline in revenue in 2003.

A restructuring of the branch network was announced in 2003. Customer convenience plays a critical role in the Corporation’s success, and after completing an analysis of the current branch network and projected population trends, changes were announced involving three locations. In late 2003 the Midway Mall office was closed and plans were announced to close the Avon Lake office in 2004. New offices in Avon Lake and Avon will replace these two offices in early 2004. These new offices will serve two important growth areas in eastern Lorain County. The Corporation will also close its full service Westlake office in early 2004. After remodeling, this office will reopen as a loan production office staffed by commercial and mortgage lenders.

This was also the year that the Corporation’s backroom operations were reviewed and upgraded. An aggressive plan was completed to update obsolete processes and equipment. The Corporation’s computer network, debit card and ATM network,branch communications, and teller system were upgraded or replaced. Major work was completed to improve disaster planning, information security, overall process controls and better network monitoring. This work will continue in 2004 as the Corporation prepares for the technical challenges of geographic expansion.

From a strategic perspective the Corporation is addressing the issues that will enhance its ability to profitably grow and to meet the product demands of the market. With respect to growth, the changing demographics of Lorain County, and the prospects for future local economic growth pose the most important challenges for the Corporation. While significant opportunities exist within our current market area, geographic expansion outside Lorain County is critical. From a product standpoint, the primary challenge is from new competition. With Lorain County’s proximity to Cleveland, the Corporation is experiencing new competitors in our current market. Super-regional banks pose some challenges,but many of our pricing and product challenges are the result of more competition from non-regional banks.

The Corporation is a relatively large community bank. As such it has a mission to meet the demands of the market with unique customer solutions whether these are free personal checking accounts or multi-million dollar commercial loans. The Corporation strives to compete against the super-regional banks with superior customer service and to compete against other community banks by providing more creative and sophisticated products. To successfully implement this business plan many changes have occurred in the last two years to meet current and future challenges.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    36

MANAGEMENT’S DISCUSSION AND ANALYSIS

Key Indicators and Material Trends

One of the more difficult challenges in the banking industry is net interest margin compression. Management can affect balance sheet changes that can insulate the net interest margin from dramatic changes in interest rates. However, in absolute terms, assuming interest rates do not change, the Corporation will be dealing with smaller margins in the future. This is a competitive reality that has impacted 1-4 family real estate loans and installment loans in recent years, and is beginning to be felt in commercial loan pricing today. Since the Corporation is dependent on net interest income for 71% of its revenue, minimizing this compression is critical. The Corporation’s net interest margin has historically compared favorably with peer banks and this continued in 2003. This historical strength is primarily due to the ability to grow and maintain a strong retail deposit base and to grow and maintain a strong commercial lending operation. The Corporation’s balance sheet is structured to benefit when rates rise, so as rates continued to decline throughout much of 2003, the Corporation continued to experience net interest margin compression.

With the industry struggling with lower net interest margins, the generation of noninterest income has become more critical to long-term revenue growth. The Corporation has historically compared quite favorably to peers in this regard. While this positive comparison to peers continued in 2003, the composition of noninterest income is changing and challenges exist for the Corporation in 2004. There are components of noninterest income that are directly related to economic activity and others that are more predictable. Service charges on deposit accounts, electronic banking fees and other transaction fees are generally noncyclical types of income. The Corporation’s Trust revenues and mortgage banking income are examples of cyclical types of income. Trust revenues continue to be depressed after three years of difficult economic and stock market conditions. Mortgage banking income has improved in the last two years, but is still a challenge for the Corporation. In 2003, plans were developed to improve future noninterest income performance with particular emphasis on corporate cash management, investment and trust services and mortgage banking.

Asset quality is always a key indicator of financial strength, and the Corporation continues to manage credit risk aggressively. In 2003 the level of nonperforming assets and the loan loss reserve to total loans increased over prior years. The Corporation’s risk profile is changing with loan portfolio trends and current economic conditions. The market for 1-4 family mortgage lending has changed dramatically in recent years. It is estimated that 80% of all 1-4 family mortgages are originated through mortgage brokers today. This means that the number of 1-4 family loans that the Corporation is originating is declining. Additionally, since the Corporation must also manage its interest rate risk, most of the fixed rate 1-4 family loans it originates are sold in the secondary market. The result is a higher concentration of potentially higher risk commercial loans in the portfolio.

Expense control has been a challenge for the Corporation. Management has made changes in operations in 2002 and 2003 to aggressively address salaries and benefits, equipment and occupancy expenses and taxes. The Corporation has also pursued outsource solutions in some areas and renegotiated many of its vendor contracts to gain quality of service commitments and cost reductions.

One of the key indications of how well the Corporation competes is market share. This data is difficult to produce in the banking industry, but deposit market share data is readily available. Since the ability to generate deposits is a key indication of the Corporation’s ability to meet its liquidity needs and fund profitable asset growth, it is a significant measure of the success of the business plan. In 2003, as measured by the FDIC at June 30, 2002 and at June 30, 2003, the Corporation’s deposits grew by 6.4% as compared to 6.2% for the Lorain County market as a whole. This means that the Corporation’s market share of deposits grew slightly in 2003, and now stands at 17.8%.The Corporation continues to do very well in its historically strong city markets of Lorain, Elyria and Amherst. The branch initiatives that were announced in 2003 are designed to lower the delivery cost in these areas and redeploy resources into the rapidly growing markets in Lorain County.

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

Summary of Earnings

Net income was $7,715 or $1.17 per diluted share, down from $9,165 or $1.39 per diluted share in 2002, and $8,565 or $1.30 per diluted share in 2001. In 2003, the Corporation incurred $1,712 in one-time severance expenses as part of an overall restructuring of the Corporation and the retirement of its President and Chief Executive Officer. Also included in 2003 earnings was an $832 gain on the sale of the credit card portfolio. As a percent of average assets, net income in 2003 represents a return of 1.05%.This compares to 1.33% and 1.35% in 2002 and 2001 respectively. Return on assets is one measure of operating efficiency. As a percent of average shareholders’ equity this represents a return of 11.33% as compared to 14.24% and 14.36% in 2002 and 2001 respectively. Return on shareholders’ equity is a measure of how well the Corporation employs leverage to maximize the return on the capital it employs.

Net Interest Income

Net interest income is the difference between interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. Throughout this discussion net interest income is presented on a fully taxable equivalent (FTE) basis which restates interest on tax-exempt securities and loans as if such interest was subject to federal income tax at the statutory rate. This is the most significant component of the Corporation’s revenue and earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. The net interest margin is net interest income as a percentage of average earning assets. Table 1 summarizes net interest income and net interest margin for the three years ended December 31, 2003.

Table 1:

Net Interest Income	2003			2002			2001
Net Interest Income	$	28,749		$	29,269		$	28,103
Tax equivalent adjustments		383			415			179
Net Interest Income (FTE)		29,132			29,684			28,282
Net Interest Margin		4.18	%		4.52	%		4.72	%
Tax equivalent adjustments		.06	%		.07	%		.03	%
Net Interest Margin (FTE)		4.24	%		4.59	%		4.75	%

The Corporation’s net interest income (FTE) was $29,132 in 2003, which is a decline of $552 from 2002. This follows an increase in net interest income (FTE) of $1,402 in 2002 as compared to 2001. The net interest margin (FTE) was 4.24% in 2003, which is a decline of 35 basis points from 2002. This follows a decrease of 16 basis points in 2002 as compared to 2001. This decline in net interest income (FTE) was the result of three continuing factors,with unique factors impacting 2003. First, the Federal Reserve continued to reduce rates in 2003, this time lowering the Federal Funds Rate by 25 basis points. In general, a reduction in rates of 25 basis points compresses the Corporation’s annual net interest income by about $250. This has been a factor in the Corporation’s margin performance since 2000, but the impact was more pronounced in 2003 since many of the Corporation’s deposit rates reached practical rate floors and could not be lowered further. Second, the Corporation experienced only modest balance sheet growth during the year. In 2001 and

LNB BANCORP, INC. • 2003 ANNUAL REPORT 37

MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 2: Condensed Consolidated Average Balance Sheets

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

December 31,		2003									2002									2001
(Dollars in thousands)		Balance			Interest			Rate			Balance			Interest			Rate			Balance			Interest			Rate
Assets:
Securities-tax equivalent		$	143,505		$	4,572			3.19	%	$	132,140		$	6,559			4.96	%	$	121,179		$	7,073			5.84	%
Securities-tax exempt			14,268			871			6.10			13,135			812			6.18			9,691			498			5.14
Federal funds sold and short-term investments			3,261			39			1.20			5,456			94			1.72			3,811			146			3.83
Commercial loans			286,244			16,788			5.86			241,884			15,464			6.39			202,642			16,487			8.14
Commercial loans-tax exempt			-0	-		-0	-		0.00			-0	-		-0	-		0.00			65			6			9.23
Mortgage loans			127,244			9,196			7.23			148,489			11,199			7.54			156,724			12,299			7.85
Consumer loans			112,628			6,862			6.09			106,073			7,651			7.21			101,326			8,771			8.66
	Total Earning Assets	$	687,150		$	38,328			5.58	%	$	647,177		$	41,779			6.46	%	$	595,438		$	45,280			7.60	%
Reserve for loan losses			(7,215	)								(6,405	)								(5,347	)
Cash and due from banks			24,276									22,861									21,923
Bank owned life insurance			12,313									6,164									902
Other assets			21,696									21,689									22,095
	Total Assets	$	738,220								$	691,486								$	635,011
Liabilities and Shareholders’ Equity:
Certificates of deposit		$	213,743		$	5,627			2.63	%	$	194,461		$	6,394			3.29	%	$	195,656		$	9,800			5.01	%
Savings deposits			102,100			366			.36			95,893			800			.83			93,272			1,260			1.35
Interest-bearing demand			176,430			1,268			.72			175,101			2,704			1.54			141,134			3,558			2.52
Short-term borrowings			18,185			198			1.09			22,604			407			1.80			26,263			852			3.24
FHLB advances			64,880			1,737			2.68			50,609			1,790			3.54			32,649			1,528			4.68
	Total Interest- Bearing Liabilities	$	575,338		$	9,196			1.60	%	$	538,668		$	12,095			2.25	%	$	488,974		$	16,998			3.48	%
Noninterest-bearing deposits			89,928									82,665									81,097
Other liabilities			4,865									5,773									5,311
Shareholders’ equity			68,089									64,380									59,629
	Total Liabilities and Shareholders’ Equity	$	738,220								$	691,486								$	635,011
Net Interest Income (FTE)					$	29,132			4.24	%				$	29,684			4.59	%				$	28,282			4.75	%
Taxable equivalent adjustment						(383	)		(.06	)					(415	)		(.07	)					(179	)		(.03	)
Net Interest Income Per Financial Statements					$	28,749								$	29,269								$	28,103
Net Yield on Earning Assets									4.18	%								4.52	%								4.72	%

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

		2003 and 2002									2002 and 2001
		Increase (Decrease) In									Increase (Decrease) In
Years ended December 31,		Interest Income/Expense									Interest Income/Expense
(Dollars in thousands)		Volume			Rate			Total			Volume			Rate			Total
Securities-tax equivalent		$	564		$	(2,551	)	$	(1,987	)	$	640		$	(1,154	)	$	(514	)
Securities-tax exempt			70			(11	)		59			177			137			314
Federal funds sold and short-term investments			(38	)		(17	)		(55	)		63			(115	)		(52	)
Commercial loans			2,836			(1,512	)		1,324			3,193			(4,216	)		(1,023	)
Commercial loans-tax exempt			-0	-		-0	-		-0	-		(6	)		-0	-		(6	)
Mortgage loans			(1,602	)		(401	)		(2,003	)		(646	)		(454	)		(1,100	)
Consumer loans			473			(1,262	)		(789	)		411			(1,531	)		(1,120	)
	Total Interest Income		2,303			(5,754	)		(3,451	)		3,832			(7,333	)		(3,501	)
Certificates of deposit			634			(1,401	)		(767	)		(60	)		(3,346	)		(3,406	)
Savings deposits			52			(486	)		(434	)		35			(495	)		(460	)
Interest-bearing demand			21			(1,457	)		(1,436	)		856			(1,710	)		(854	)
Short-term borrowings			(80	)		(129	)		(209	)		(119	)		(326	)		(445	)
FHLB advances			505			(558	)		(53	)		841			(579	)		262
	Total Interest Expense		1,132			(4,031	)		(2,899	)		1,553			(6,456	)		(4,903	)
Net Interest Income		$	1,171		$	(1,723	)	$	(552	)	$	2,279		$	(877	)	$	1,402

LNB BANCORP, INC. • 2003 ANNUAL REPORT    38

MANAGEMENT’S DISCUSSION AND ANALYSIS

2002 the Corporation offset some of the net interest margin (FTE) compression caused by declining rates with balance sheet growth. However, in 2003 assets grew by only 3.5%, as compared to 7.6% and 6.8% respectively in 2002 and 2001. This slowing of asset growth is an indication of the general economic conditions in the market. Finally, the Corporation is becoming more dependent on non-core funding sources. This trend is highlighted in Table 8. While these funds are not necessarily more expensive than other funding of comparable term, the degree to which our funding mix shifts from such extremely low cost sources like money market accounts, to these alternative funding sources, the potential for further margin compression increases.

The Corporation endeavored in 2003 to keep asset maturities relatively short-term to be positioned for rising rates. At December 31, 2003, 58% of the Corporation’s assets were available for repricing in 2004. Consequently the Corporation is structured to materially benefit when economic conditions improve and the Board of Governors of the Federal Reserve system begins to increase interest rates.

Table 2 reflects the detailed components of the Corporation’s net interest income for each of the three years ended December 31, 2003. Rates are computed on a tax equivalent basis and non-accrual loans are included in the average loan balances. As mentioned earlier, one of the unique factors in 2003 was many of the Corporation’s deposit products reaching practical interest rate floors. This can be seen in the average rates that were paid on accounts such as savings and interest-bearing demand accounts in 2003. Should rates fall further in 2004, these floors, combined with competitive loan pricing pressure, will be major factors in further net interest margin compression.

Net interest income may also be analyzed by segregating the volume and rate components of interest income and interest expense. Table 3 presents an analysis of increases and decreases in interest income and expense in terms of changes in volume and interest rates during the two years ended December 31, 2003. Changes that are not due solely to either a change in volume or a change in rate have been allocated proportionally to both changes due to volume and rate. The table is presented on a tax-equivalent basis.

Noninterest income

Noninterest income increased $473 or 4.3% in 2003 compared with an increase of $1,397 or 14.4% in 2002. Included in the 2003 results is the sale of the Corporation’s credit card portfolio. This sale was completed in the third quarter after considering the level of loan losses experienced in this portfolio, the changing nature of the credit card business and the limited prospects for profitable growth in this card base. The proceeds of this sale were redeployed into other loan products. In Table 4 the sources of noninterest income are presented for the last three years ended December 31, 2003. Totals are presented including and excluding the gain on sale of the credit card portfolio.

Excluding this sale, noninterest income was $10,709, or a decrease of $359 as compared to 2002. As can been seen in Table 4, gains on the sale of securities, weakness in Trust revenue and a decline in electronic banking fees occurred in 2003. Trust revenue continues to be depressed by the general economic and stock market conditions. This is expected to improve in 2004. Electronic banking fees are being impacted by changes in the interchange income earned from VISA and MasterCard on debit card and ATM transactions. The Corporation expects that initiatives to stimulate card usage in 2003 will offset this factor and enhance future revenue growth. The change in other income is primarily earnings on the Corporation’s investment in bank owned life insurance (BOLI) in 2002. Also in 2002, the Corporation developed a line of High Performance Checking products, in response to adverse trends in demand deposits that management identified. The success of these products contributed to a $554 increase in service charges on deposit accounts in 2002 as compared to 2001. In 2003 this trend continued as service charges on deposit accounts increased $177 as compared to 2002. The $236 in gains on the sale of loans was primarily gains on sale of mortgages in the secondary market. Although the contribution of the secondary market mortgage activity increased substantially in 2003, it was less than expected with the very strong refinance activity in the market. The Corporation is developing strategies to better compete in the mortgage market through expanded product offerings and sales efforts.

									2003			2002
									versus			versus
Table 4: Noninterest Income (Dollars in thousands)	2003		2002			2001			2002(%)			2001(%)
Trust services income	$	1,762	$	2,080		$	2,379			(15.3	)%		(12.6	)%
Services charges on deposit accounts		4,260		4,083			3,529			4.3			15.7
Other services charges		516		585			627			(11.8	)		(6.7	)
Electronic banking fees		2,503		2,577			2,429			(1.0	)		6.0
Gains on the sale of loans		236		94			76			151.1			23.7
Gains on sale of securities		449		732			250			(38.7	)		192.8
Other income		983		917			381			7.2			140.7
Total excluding credit card sale	$	10,709	$	11,068		$	9,671			(3.2	)%		14.4	%
Gain on sale of credit card portfolio		832		-0	-		-0	-		N/M			0.0
Total Noninterest Income	$	11,541	$	11,068		$	9,671			4.3	%		14.4	%

LNB BANCORP, INC. • 2003 ANNUAL REPORT    39

MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest expense

Noninterest expense was $26,469 in 2003, an increase of $1,697 or 6.8% over the prior year. This result includes $1,712 in severance expenses. Beginning in 2002 and continuing into 2003 a series of expense initiatives were completed that better position the Corporation to address long-term strategic issues. In addition to these initiatives, other events also occurred which had a material impact on 2003 earnings. The Corporation acknowledged the desire of its President and CEO to retire early. The Corporation’s Chief Financial Officer also ceased employment with the Corporation. Under the terms of the CFO’s employment contract, the Corporation recognized a one-time pretax charge of $166 in 2003. In the course of its discussion with the president and CEO, the Board of Directors accepted his retirement and put in place a “salary continuation” plan for him. The recognition of the future expense for this plan was accounted for under SFAS 146, and the Corporation recognized a pretax charge of $1,164 in 2003 earnings. In addition to these two executive level changes, the Corporation also acceded to the early retirement requests of two senior vice presidents. In these cases, the Corporation provided severance packages totaling $289. This amount is also included in 2003 earnings.

In 2003 the Corporation made a complete review of staffing and compensation. Based on this analysis it was determined that technology advancements and changing product offerings had resulted in an overstaffing situation. Management also considered industry statistics that compared the number of Bank employees with that of banks of similar size and complexity. This comparison also indicated that the Corporation was overstaffed. This was an across the board review and resulted in the elimination of nineteen clerical and management level positions. The severance packages included in 2003 earnings for these nineteen employees totaled $93. The annual salary and benefits eliminated by these 19 layoffs were approximately $760.

In 2002 a similar analysis was completed with regard to the employee benefit plans of the Corporation. As a result, the Corporation froze the defined benefit pension plan, restructured the life insurance provided to employees and financed this restructured benefit with bank owned life insurance (BOLI). Additionally, the Corporation more aggressively managed health care benefits. Excluding severance expenses, these 2003 and 2002 actions resulted in a $127 reduction in salary and benefit costs in 2003 as compared to 2002.

Furniture and equipment expenses totaled $2,517, an increase of $324 as compared to 2002. This increase was primarily due to increased software maintenance and amortization related to the upgrade of obsolete systems and additional licensing of server software. Marketing and public relations expense was $762, a decrease of $270 compared to 2002. This decrease was primarily due to start-up costs incurred in 2002 related to the Corporation’s High Performance Checking products that did not reoccur in 2003. The Corporation expects marketing expenses will increase from the 2003 level in support of the new branch offices planned in the first half of 2004. The Ohio Franchise Tax increased $171 in 2003. The 2003 expense was a more normal expense level, as in 2002 the Corporation received refunds on Franchise taxes paid in 2000, 1999 and 1998. The Corporation also experienced a $135 increase in outside services over 2002. This followed a $407 increase in 2002 over 2001. The Corporation has incurred increased outside services as it addresses legal, audit and compliance issues related to the implementation of the provisions of The Sarbanes Oxley Act of 2002 and The Gramm-Leach-Bliley Act of 1999. There will be continued pressure on expenses related to health care, legal, audit, compliance and telecommunications. Initiatives in the last two years should provide cost containment on salaries, non-health benefits and core data processing.

The efficiency ratio is expressed as noninterest expense (excluding non-recurring expenses) as a percentage of the sum of net interest income (FTE) plus noninterest income (excluding non-recurring income). The efficiency ratio for 2003 increased to 63.01% from 61.41% for 2002 and 60.96% for 2001. The higher efficiency during 2003 was due to net interest income compression.

Pretax Income and Taxes

Pretax income was $11,126 in 2003 representing a decrease of $2,239 or 16.8% from 2002. The Corporation’s average tax rate was 30.7% in 2003, 31.4% in 2002 and 32.1% in 2001. This trend reflects the impact of the BOLI investment in 2002. The Corporation expects this trend to continue in 2004 with the award of $9 million of new market tax credits to North Coast Community Development Corporation (NCCDC), a wholly-owned subsidiary of Lorain National Bank. On December 29, 2003, NCCDC received official notification of this tax credit award. Over the next seven to twelve years, it is expected that projects will be financed which will improve the overall economic conditions in Lorain County, and generate additional net interest income and material tax savings for the Corporation.

Loans

Commercial loans comprised 56.8% of the total loan portfolio at December 31, 2003, increasing from 51.0% in 2002. This growth in the portfolio represents business development efforts in the existing market. The amount of collateral required on commercial loans is generally determined on a loan-by-loan basis. Loan-to-value ratios for commercial loans typically range from 50% to 100%. Other factors include the purpose of the loan, the current financial status of the borrower and the prior credit history of the borrower.

Installment and home equity loans comprised 21.9% of the total loan portfolio at December 31, 2003, increasing from 20.2% in 2002. The Corporation makes installment loans on a secured and unsecured basis, based on the term and purpose of the loan. In 2003 the Corporation sold its credit card portfolio with loans outstanding totaling $5,297. The proceeds from this sale were absorbed into new home equity loans and secured installment loans that the Corporation purchases from another financial institution on a periodic basis.

Real estate loans, including construction and mortgage loans, comprised 21.3% of the total loan portfolio at December 31, 2003, decreasing from 27.8% in 2002. This decline was the result of two factors. First, the volume of refinance activity in the market continued to be very high in 2003. Second, the Corporation’s mortgage portfolio consists of very seasoned adjustable rate mortgages. With fixed mortgage rates at 40-year lows there was a migration of our adjustable rate portfolio to our fixed rate mortgage product. The Corporation sells its fixed rate mortgage production in the secondary market resulting in the decline in the overall portfolio balances. The Corporation generally requires a loan-to-value ratio of 80% or private mortgage insurance for loan-to-value ratios in excess of 80%.

In Table 5 loan balances and loan mix are presented by type for the five years ended December 31, 2003.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    40

MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 5: Loan Portfolio Distribution

	December 31,
(Dollars in thousands)	2003			2002			2001			2000			1999
Commercial	$	303,683		$	259,993		$	219,511		$	186,866		$	157,897
Mortgage		113,649			141,405			158,221			157,575			152,825
Installment		59,217			54,219			57,886			69,821			74,682
Home equity lines		57,762			48,816			37,008			31,662			29,001
Credit cards		-0	-		5,117			4,862			5,216			5,111
Total loans		534,311			509,550			477,488			451,140			419,516
Reserve for loan losses		(7,730	)		(6,653	)		(5,890	)		(5,250	)		(4,667	)
Net loans	$	526,581		$	502,897		$	471,598		$	445,890		$	414,849

Loan mix percent at December 31,	2003			2002			2001			2000			1999
Commercial		56.8	%		51.0	%		46.0	%		41.4	%		37.6	%
Mortgage		21.3			27.8			33.1			34.9			36.4
Installment		11.1			10.6			12.1			15.5			17.8
Home Equity		10.8			9.6			7.8			7.0			6.9
Credit cards		0.0			1.0			1.0			1.2			1.3
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Table 6 shows the amount of commercial loans outstanding as of December 31, 2003, based on the remaining scheduled principal payments or principal amounts due in the periods indicated. Amounts due after one year which are subject to more frequent repricing are included in the due in 1-year classification.

Table 6: Commercial Loan Maturity and Repricing Analysis

	December 31
(Dollars in thousands)	2003
Maturing and repricing in one year or less	$	247,216
Maturing and repricing after one year but within five years		19,927
Maturing and repricing beyond five years		36,540
Total Commercial Loans	$	303,683
Loans repricing beyond one year:
Fixed rate	$	30,732
Variable rate		5,808
Total	$	36,540

Provision and Reserve for Loan Losses

The reserve for loan losses is maintained by the Corporation at a level considered adequate to cover probable losses. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in the estimation of management, to maintain the reserve for loan losses at an adequate level. Management determines the adequacy of the reserve based on past experience, changes in portfolio size and mix, relative quality of the loan portfolio and the rate of loan growth, assessments of current and future economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors, which are subject to change over time. While Management’s periodic analysis of the reserve for loan losses may dictate portions of the reserve be allocated to specific problem loans, the entire amount is available for any loan charge-offs that may occur. Table 7 presents the detailed activity in the reserve for loans losses and related charge-off activity for the five years ended December 31, 2003.

The reserve for loan losses on December 31, 2003, was $7,730 or 1.46% of outstanding loans, compared to $6,653, or 1.31% at year-end 2002. The provision charged to operating expense was $2,695 and $2,200 in 2003 and 2002, respectively.

Net charge-offs for 2003 were $1,618, as compared to $1,437 for 2002, while net charge-offs as a percentage of average loans outstanding for 2003 was .31%, compared to .29% for 2002.

Table 7: Reserve for Loan Losses

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001			2000			1999
Balance at beginning of year	$	6,653		$	5,890		$	5,250		$	4,667		$	3,483
Charge-offs:
Commercial		(1,207	)		(738	)		(490	)		(25	)		(23	)
Real estate		(1	)		(15	)		(26	)		(59	)		(359	)
Consumer		(750	)		(1,030	)		(1,223	)		(1,249	)		(668	)
Total charge-offs		(1,958	)		(1,783	)		(1,739	)		(1,333	)		(1,050	)
Recoveries:
Commercial		87			163			64			14			23
Real estate		-0	-		1			14			9			108
Consumer		253			182			101			193			103
Total recoveries		340			346			179			216			234
Net charge-offs		(1,618	)		(1,437	)		(1,560	)		(1,117	)		(816	)
Provision for loan losses		2,695			2,200			2,200			1,700			2,000
Balance at end of year	$	7,730		$	6,653		$	5,890		$	5,250		$	4,667

LNB BANCORP, INC. • 2003 ANNUAL REPORT    41

MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 8: Net charge-offs (recoveries)

	For the Calendar Year
(Dollars in thousands)	2003			2002			2001			2000			1999
Commercial	$	1,120		$	575		$	426		$	11		$	-0-
Real estate		1			14			12			50			251
Consumer		497			848			1,122			1,056			565
Total net charge-offs	$	1,618		$	1,437		$	1,560		$	1,117		$	816
Net charge-offs to:
Average total loans		.31	%		0.29	%		0.34	%		0.26	%		0.20	%
Total loans at year end		.30			0.28			0.33			0.25			0.19
Provision for loan losses		60.04			65.32			70.91			65.71			40.80
Reserve for loan losses		20.93			21.60			26.49			21.28			17.48
Reserve for loan losses to:
Average total loans		1.47			1.34			1.28			1.20			1.16
Total loans at year end		1.46			1.31			1.23			1.16			1.11

Table 9: Allocation of Year-end Reserve for Loan Losses

	December 31,
(Dollars in thousands)	2003		2002		2001		2000		1999
Commercial	$	5,495	$	4,145	$	3,750	$	2,729	$	1,803
Real estate		405		412		363		338		530
Consumer		1,237		1,475		1,351		1,738		1,236
Off-balance sheet risk		113		113		113		150		150
Unallocated		480		508		313		295		948
Total	$	7,730	$	6,653	$	5,890	$	5,250	$	4,667

Nonperforming Assets

Total nonperforming assets consist of nonperforming loans, loans which have been restructured, and other foreclosed assets. Nonperforming loans are loans which are 90 days past due and, in management’s estimation, collection of interest is doubtful. These loans no longer accrue interest and are accounted for on a cash basis. Loans are classified as restructured when, due to deterioration of a customer’s financial ability, the original terms have been favorably modified or either principal or interest has been forgiven.

Nonperforming assets at year-end 2003 were $5,743 compared to $1,885 at year-end 2002. At December 31, 2003, 1% of nonperforming loans were commercial loans, 3% were personal loans and 96% were mortgage loans. This compares to 8% for commercial loans, 9% for personal loans and 83% for mortgage loans at year-end 2002.

The level of nonperforming assets increased by $3,858 during 2003. This increase is the result from the net increase in nonaccrual loans of $3,291 and the net increase in other foreclosed assets in the amount of $567. The increase in other foreclosed assets results from the acquisition of four commercial properties in the amount of $589 less liquidations of repossessed vehicles of $22. The increase in nonaccrual loans is due to decreases in nonaccrual principal balances of $2,772 which have been paid off or brought current, loans charged-off in the amount of $1,144, liquidation of nonaccrual loans of $448 and increases in nonaccrual principal balances of $5,654. The increase in nonaccrual loans during 2003 was due primarily to twenty-three commercial loan customers, five mortgage loan customers and several personal loan customers. Management does not believe that this increase in non- accrual loans is indicative of a failing local economy and that this change did not result from any change in underwriting standards.

The nonperforming loans at December 31, 2003 were substantially secured by commercial real estate. Nonperforming loans did not have a material impact on interest income during 2003, 2002 and 2001. For additional information on nonperforming assets, see Note 7. The overall quality of the portfolio remains good, although the ratio of nonperforming loans to total loans increased to .96% at year-end 2003, as compared to ..37% and .30% at year-end 2002 and 2001 respectively. While this is a higher level of nonperforming loans than in 2002 and 2001, it compares to a ratio of .76% for banks of similar size at September 30, 2003, the last date available for peer group information. There were no particular industry or geographic concentrations in non-performing or delinquent loans or net charge-offs.

The Corporation’s credit policies are reviewed and modified on an ongoing basis in order to remain suitable for the management of credit risks within the loan portfolio as conditions change. At December 31, 2003, there were no significant concentrations of credit risk in the loan portfolio. More information about the loan portfolio is presented in Note 7 to the consolidated financial statements.

Table 10: Nonperforming Assets

	December 31,
(Dollars in thousands)	2003			2002			2001			2000			1999
Mortgage loans	$	4,938		$	1,554		$	1,152		$	1,652		$	816
Commercial loans		76			142			51			378			42
Consumer loans		140			167			113			189			385
Total nonperforming loans		5,154			1,863			1,316			2,219			1,243
Other foreclosed assets		589			22			123			98			96
Total nonperforming assets	$	5,743		$	1,885		$	1,439		$	2,317		$	1,339
Loans 90 days past due accruing interest	$	46		$	45		$	149		$	306		$	555
Reserve for loan losses to nonperforming loans		150.0	%		357.1	%		447.6	%		236.6	%		375.5	%

LNB BANCORP, INC. • 2003 ANNUAL REPORT    42

MANAGEMENT’S DISCUSSION AND ANALYSIS

Securities

The maturity distribution of the securities portfolio for the year ended December 31, 2003 is presented in Note 5 to the consolidated financial statements. In addition to the information contained in this note, the mortgage backed securities portfolio has an average life of approximately 3.6 years,and is expected to generate approximately $18 million of cashflow in 2004. The Corporation continues to utilize the securities portfolio for management of its interest rate risk and liquidity needs. The Corporation currently has a portfolio that consists of approximately 45% U.S. government agencies, 40% U.S. agency mortgage backed securities, 8% municipals and 7% in other securities. Other securities consist of Federal Home Loan Bank stock, Federal Reserve Bank stock and U.S. Federal agency preferred stock. At December 31, 2003, the securities portfolio had a net $326 unrealized loss. This represents .26% of total securities at December 31, 2003. New investment is primarily in shortterm agencies and short average life mortgage backed securities and intermediate, high quality municipal bonds.

Table 11: Maturity Distribution of Debt Securities at Amortized Cost

									December 31,
									2003		2002		2001
	From 1		From 5			After
(Dollars in thousands)	to 5 years		to 10 years			10 years			Total		Total		Total
Securities available for sale:
U.S, Government agencies and corporations	$	66,176	$	59,061		$	2,334		$	127,571	$	120,599	$	122,232
State and political subdivisions		690		4,862			5,688			11,240		10,515		10,883
Total securities available for sale		66,866		63,923			8,022			138,811		131,114		133,115
Securities held to maturity:
U.S, Government agencies and corporations		2,993		-0	-		-0	-		2,993		7,335		13,386
State and political subdivisions		325		-0	-		1,471			1,796		3,313		3,805
Total securities held to maturity		3,318		-0	-		1,471			4,789		10,648		17,191
Total securities	$	70,184	$	63,923		$	9,493		$	143,600	$	141,762	$	150,306

The weight-average yield for each range of maturities of debt securities is shown below as of December 31, 2003:

	December 31,
										2003			2002			2001
	From 1			From 5			After
	to 5 years			to 10 years			10 years			Total			Total			Total
Securities available for sale:
U.S, Government agencies and corporations		2.97	%		4.37	%		4.76	%		3.63	%		4.92	%		5.47	%
State and political subdivisions (1)		4.37			4.34			5.47			4.91			5.05			6.75
Total securities available for sale		2.98			4.37			5.26			3.73			4.93			5.49
Securities held to maturity:
U.S, Government agencies and corporations		4.17			0.00			0.00			4.17			6.21			5.65
State and political subdivisions (1)		5.18			0.00			5.76			5.66			5.10			7.62
Total securities held to maturity		4.27			0.00			5.76			4.73			5.86			6.09
Total securities		3.04	%		4.37	%		5.33	%		3.76	%		5.00	%		5.57	%

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

LNB BANCORP, INC. • 2003 ANNUAL REPORT    43

MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 12: Funding Sources

	Annual Average Outstanding							Average Rate Paid
(Dollars in thousands)	2003		2002		2001			2003			2002			2001
Demand deposits	$	89,928	$	82,665	$	81,097			.00	%		.00	%		.00	%
Now Accounts		59,041		58,068		57,736			.27			.77			1.08
Interest Checking		13,754		6,708		-0	-		.21			.55			N/A
Money Market		15,434		16,706		14,949			.82			2.86			3.06
Market Access		88,201		93,619		68,449			1.08			1.86			3.62
Savings Deposits		102,100		95,893		93,272			.36			.83			1.35
Time Deposits		213,743		194,461		195,656			2.63			3.29			5.01
Total Deposits	$	582,201	$	548,120	$	511,159			1.60	%		2.25	%		3.48	%
Short-term borrowings		18,185		22,604		26,263			1.09			1.80			3.24
FHLB borrowings		64,880		50,609		32,649			2.68			3.54			4.68
Total borrowings		83,065		73,213		58,912			2.33			3.00			4.04
Total Funding	$	665,266	$	621,333	$	570,071			1.69	%		2.34	%		3.54	%

Funding Sources

The Corporation obtains funding through many sources. The primary source of funds continues to be the generation of deposit accounts in its primary market. This is achieved by offering retail and business customers a full line of deposit products. These include checking accounts, savings accounts, money market investment accounts and time certificates of deposit. The Corporation also generates funds through local and national market borrowings arrangements. Local borrowings consist primarily of business sweep accounts and fixed rate term repurchase agreements. National market borrowings are lines of credit with correspondent banks, the Federal Home Loan Bank of Cincinnati and the Federal Reserve Bank of Cleveland. Table 12 highlights the average balances and the average rates paid on these sources of funds for the three years ended December 31, 2003.

Average deposit balances grew 5.8% in 2003 compared to increases of 8.2% in 2002 and 5.3% in 2001. The Corporation continues to benefit from a large concentration of low cost deposit funding. Sources such as demand deposit accounts, savings accounts and interest checking accounts comprised 48.4% of the Corporation’s average funding in 2003, and grew by 2.7% in 2003 and by 15.6% in 2002. These funds had an average yield of ..59% in 2003. Although the rates on these funds have reached practical floors they still represent the primary reason for the strength in the net interest margin. The Corporation introduced new High Performance demand and interest bearing products in 2002, and the success of these products is reflected in 2002 and 2003 average balances. Average certificate of deposit balances increased 9.9% in 2003 after declining .6% in 2002 and by 5.0% in 2001. The current interest rate environment, and the prospects for higher rates have made these deposits less attractive to customers in the last two years. The increase in certificates of deposit that was experienced in 2003 was the result of increased public fund investment rather than a substantial change in the preferences of retail customers for term investments.

Average borrowings increased 13.5% in 2003 as compared to an increase of 24.3% in 2002 and a decline of .7% in 2001. Trends in borrowings can be attributed to two factors. The Corporation is pursuing local borrowing sources such as sweep accounts and fixed rate repurchase accounts. These products are relatively inexpensive and a necessary component of our initiatives to improve our corporate cash management product. The other factor is interest rate risk management. To the extent that the market demands fixed rate loans, prudent risk management demands that we find term funding to assure a stable margin over the life of the loan. In the last two years, with rates at 40-year lows, fixed rate loan demand has been increasing. The increases that have occurred in our national market borrowings are primarily the result of the Corporation’s management of this risk. The Corporation expects that these trends will continue.

Liquidity

Lorain National Bank (the Bank)

Management of liquidity is a continual process in the banking industry. The liquidity of the Bank reflects its ability to meet loan demand, the possible outflow of deposits and to take advantage of market opportunities made possible by potential rate environments. Assuring adequate liquidity is achieved by managing the cashflow characteristics of the assets the Bank originates and the availability of alternative funding sources. The Bank monitors liquidity according to limits established in the liquidity policy. This policy establishes minimums for the ratio of cash and cash equivalents to total assets and the loan to deposit ratio. At December 31, 2003 the Bank was in compliance with these policy limits.

In addition to maintaining a stable source of core deposits, the Bank manages adequate liquidity by assuring continual cashflow in the securities portfolio. At December 31, 2003, securities with maturies or expected cash flow in one year or less totaled $68.3 million.

The Bank maintains borrowing capacity at the Federal Home Loan Bank of Cincinnati, the Federal Reserve Bank of Cleveland and Federal Funds lines with correspondent banks. Table 13 highlights the total capacity, current unused capacity and collateral pledged for each borrowing arrangement.

Table 13: Liquidity

	Borrowing		Unused		Collateral
Lender	Capacity		Capacity		Pledged
FHLB Cincinnati	$	94,655	$	23,115	$	259,746
FRB Cleveland		46,694		46,694		54,934
Federal Funds Lines		24,000		24,000		-0	-
Total	$	165,349	$	93,809	$	314,680

LNB Bancorp, Inc.

LNB Bancorp, Inc. is the financial holding company of Lorain National Bank and conducts no operations. Its only need for liquidity is the payment of the quarterly shareholder dividend, and miscellaneous expenses related to the regulatory and reporting requirements of a publicly traded corporation. The holding corporation’s only source of operating liquidity is the dividend that it receives from Lorain National Bank. Lorain National Bank has regulatory established capital limits that limit the payment of dividends to the holding corporation. At December 31, 2003 there was $12.1 million available for payment of dividends to the holding corporation. The holding corporation has access to additional sources of liquidity through correspondent lines of credit, but no such agreements were in place as of December 31, 2003.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    44

MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital Resources

Shareholders’ equity at year-end 2003 totaled $68,135, compared to $66,613 and $62,138 at year-end 2002 and 2001 respectively. This increase in 2003 resulted from net income of $7,715, less the payment of dividends of $4,626, less a $1,758 change in comprehensive income and a slight decline in treasury stock. The comprehensive income change was due to the change in the fair value of securities classified as available for sale and the minimum pension liability.

Total cash dividends declared in 2003, including the $.02 extra dividend declared by the Board of Directors in November, rose to $4,626. In each of the last 20 years, the Board of Directors has approved an increase in the regular cash dividend, with the 2003 dividend representing a 168% increase from 1993 when $1,725 in total cash dividends were declared.

The dividend payout ratio, representing dividends per share divided by earnings per share, was 59.98% and 48.75% for the years 2003 and 2002, respectively. The increase in the dividend payout ratio is attributable to the decrease in earnings in 2003.

At December 31, 2003, the Corporation’s market capitalization was $134.3 compared to $119.4 at December 31, 2002. There were 2,257 shareholders of record at the 2003 year-end. LNB Bancorp, Inc.’s common stock is traded on the Nasdaq Stock Market under the ticker symbol “LNBB.”

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

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

Note 20 to the consolidated financial statements presents, as of December 31, 2003, the Corporation’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments. In addition, the Corporation has commitments under a defined benefit pension plan as described in Note 16 to the consolidated financial statements.

Table 14: Contractual Obligations

			One		Two			Four			Over
	Note		Year		and Three			and Five			Five
(Dollars in thousands)	Ref.		or Less		Years			Years			Years			Total
Deposits		9	$	197,573	$	166,317		$	-0	-	$	-0	-	$	363,890
Certificates of deposit		9		156,282		43,122			17,530			520			217,454
Short-term borrowings		10		15,023		-0	-		-0	-		-0	-		15,023
FHLB advances		11		32,235		39,190			-0	-		115			71,540
Operating leases		8		271		231			107			17			626
Benefit Payments		16		245		582			178			9,938			10,943
Severance payments		N/A		514		384			247			453			1,598

Forward-looking Statements

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 21A of the Securities and Exchange Act of 1934. Forward-looking statements which are based on various assumptions, some of which are beyond the control of the Corporation, may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Corporation operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Corporation does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    45

MANAGEMENT’S DISCUSSION AND ANALYSIS

Market Risk Management

Market risk is the risk that a financial institution’s earnings and capital, or it’s ability to meet its business objectives will be adversely affected by movements in market rates or prices. These include interest rates, foreign exchange rates, equity prices, credit spreads and commodity prices. For the Corporation, the dominant market risk is exposure to changes in interest rates. The negative effect of this exposure is felt through the net interest spread, mortgage banking revenues and the market values of various assets and liabilities.

The Corporation manages market risk through its Asset/Liability Management Committee (ALCO) at the Bank level. This committee assesses interest rate risk exposure through two primary measures: rate sensitive assets divided by rate sensitive liabilities and earnings-at-risk simulation of net interest income.

The difference between a financial institution’s interest rate sensitive assets and interest rate sensitive liabilities is referred to as the interest rate gap. An institution that has more interest rate sensitive assets than interest rate sensitive liabilities in a given period is said to be asset sensitive or has a positive gap. This means that if interest rates rise a corporation’s net interest income may rise and if interest rates fall its net interest income may decline. If interest sensitive liabilities exceed interest sensitive assets then the opposite impact on net interest income may occur. The usefulness of the gap measure is limited. It is important to know the gross dollars of assets and liabilities that reprice in various time horizons, but without knowing the frequency and basis of the potential rate changes its predictive power is limited. The gap information for the Corporation is presented in Table 15 for the year ended December 31, 2003.

A much more useful tool is earnings-at-risk simulation. This is a dynamic modeling approach that combines the repricing information from gap analysis, with forecasts of balance sheet growth and changes in future interest rates. The result of this simulation provides management with a range of possible net interest margin outcomes, given changes in customer preference and interest rates. Market risk management is a gradual and continuous process. Trends that are identified in earnings-at-risk simulation can help identify product and pricing decisions that can be made currently to assure stable net interest income performance in the future. The most recent earnings-at-risk simulation indicates that if rates rise by 100 basis points over the next 12 months, net interest income will be enhanced $1.2 million assuming current pricing strategies. A “shock” treatment of the balance sheet, in which all rates increased immediately, indicates that in a +100 basis point shock net interest income would increase $307 and in a +200 basis point shock, net interest income would increase $507. The Corporation would normally shock test -100 and -200 basis point decreases in rates but such tests would be meaningless given the current historically low interest rate environment.

Table 15: Gap Analysis

	Expected Maturity/Repricing Date
																						Fair
(Dollars in thousands):	2004			2005			2006			2007			2008			Thereafter			Total			Value (1)
Securities and other (3)	$	68,327		$	28,921		$	34,169		$	12,507		$	2,508		$	6,184		$	152,616		$	152,290
Weighted average yield		2.65	%		3.35	%		2.94	%		3.74	%		4.34	%		4.34	%		2.96	%
Commercial loans		247,216			10,671			4,187			2,546			2,523			36,540			303,683			305,527
Weighted average yield		5.51	%		5.25	%		6.49	%		5.94	%		5.87	%		5.87	%		5.51	%
Mortgage loans (2)		7,959			5,704			4,859			4,846			4,839			85,442			113,649			114,642
Weighted average yield		6.64	%		6.75	%		6.64	%		6.74	%		6.15	%		6.15	%		6.00	%
Consumer loans		17,806			15,185			10,961			6,996			5,957			2,312			59,217			59,710
Weighted average yield		6.86	%		6.46	%		6.74	%		6.91	%		6.94	%		6.94	%		6.05	%
Home equity lines of credit		57,762			-0	-		-0	-		-0	-		-0	-		-0	-		57,762			58,193
Weighted average yield		4.11	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		4.11	%
Total interest-earning assets		399,070			60,481			54,176			26,895			15,827			130,478			686,927			690,362
Certificates of deposit		156,282			27,450			15,672			17,530			-0	-		520			217,454			219,878
Weighted average yield		2.14	%		2.82	%		3.72	%		3.80	%		0.00	%		3.60	%		2.48	%
Savings deposits		41,324			41,324			20,662			-0	-		-0	-		-0	-		103,310			103,310
Weighted average yield		.30	%		.30	%		.30	%		0.00	%		0.00	%		0.00	%		.30	%
Interest-bearing demand		69,556			69,555			34,776			-0	-		-0	-		-0	-		173,887			173,887
Weighted average yield		.53	%		.53	%		.53	%		0.00	%		0.00	%		0.00	%		.53	%
Short-term borrowings		15,023			-0	-		-0	-		-0	-		-0	-		-0	-		15,023			15,023
Weighted average yield		.70	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		.70	%
Federal Home Loan Bank advances		32,235			28,190			11,000			-0	-		-0	-		115			71,540			70,748
Weighted average yield		1.72	%		2.17	%		2.90	%		0.00	%		0.00	%		6.03	%		2.33	%
Total interest-bearing liabilities		314,420			166,519			82,110			17,530			-0	-		635			581,214			582,846
Interest-earning assets less Interest-bearing liabilities		84,650			(106,038	)		(27,934	)		9,365			15,827			129,843			105,713
Cumulative interest-rate gap	$	84,650		$	(21,388	)	$	(49,322	)	$	(39,957	)	$	(24,130	)	$	105,713
Cumulative interest-rate gap as a percentage of total earning assets at December 31, 2003		12.32	%
Cumulative interest-rate gap as a percentage of total earning assets at December 31, 2002		26.77	%
Cumulative interest-rate gap as a percentage of total earning assets at December 31, 2001		16.35	%

(1) Fair value of loans are gross of deferred fees and costs and allowance for loan losses.

(2) Mortgage loans include mortgages in which the loan is fixed for the first three or five years of the loan and its interest rate is adjustable thereafter.

(3) Securities available for sale are shown at amortized cost.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    46

MANAGEMENT’S DISCUSSION AND ANALYSIS

Critical Accounting Policy and Estimates

The Corporation’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. It follows general practices within the industries in which it operates. Application of these principles requires Management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. These assumptions, estimates and judgments are based on information available as of the date of the financial statements. As this information changes, the financial statements could reflect different assumptions, estimates and judgments. Certain policies inherently have a greater reliance on assumptions, estimates and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Examples of critical assumptions, estimates and judgments are when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not required to be recorded at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability must be recorded contingent upon a future event.

The most significant accounting policies followed by the Corporation are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the notes to the consolidated financial statements and in the management discussion and analysis of financial condition and results of operations, provide information on how significant assets and liabilities are valued and how those values are determined for the financial statements. Based on the valuation techniques used and the sensitivity of financial statement amounts to assumptions, estimates and judgments underlying those amounts, management has identified the determination of the reserve for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be the most subject to revision as new information becomes available.

Note 1 to the consolidated financial statements discusses new accounting policies adopted by the Corporation in 2003. The following accounting policies have been recently issued or proposed but are not yet required to be adopted.

Impacts of Accounting and Regulatory Pronouncements:

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

Financial Accounting Standards Board:

The Financial Accounting Standards Board (FASB) has issued:

SFAS No. 143, “Accounting for Asset Retirement Obligations”

In August 2001, the FASB issued SFAS No. 143,“Accounting for Asset Retirement Obligations.” SFAS No. 143 requires an entity to record a liability for an obligation associated with the retirement of an asset at the time the liability is incurred by capitalizing the cost as part of the carrying value of the related asset and depreciating it over the remaining useful life of that asset. The provisions of SFAS No. 143 became effective for the Corporation beginning January 1, 2003, and its adoption did not have a material impact on our financial position, results of operations, or liquidity.

SFAS No. 145, “Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections”

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” which updates, clarifies, and simplifies certain existing accounting pronouncements beginning at various dates in 2002 and 2003. The Statement rescinds SFAS No. 4 and SFAS No. 64, which required net gains or losses from the extinguishment of debt to be classified as an extraordinary item in the income statement. These gains and losses will now be classified as extraordinary only if they meet the criteria for such classification as outlined in APB Opinion 30, which allows for extraordinary treatment if the item is material and both unusual and infrequent in nature. The Statement also rescinds SFAS No. 44 related to the accounting for intangible assets for motor carriers and amends SFAS No. 13 to require certain lease modifications that have economic effects similar to sale-leaseback transactions to be accounted for as such. The changes required by SFAS No. 145 did not have a material impact on our financial position, results of operations, or liquidity.

SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires a cost associated with an exit or disposal activity, such as the sale or termination of a line of business, the closure of business activities in a particular location, or a change in management structure, to be recorded as a liability at fair value when it becomes probable the cost will be incurred and no future economic benefit will be gained by the corporation for such cost. Applicable costs include employee termination benefits, contract termination costs, and costs to consolidate facilities or relocate employees. SFAS No. 146 supersedes EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” which in some cases required certain costs to be recognized before a liability was actually incurred. The provisions of SFAS No. 146 became effective for the Corporation beginning January 1, 2003, and adoption was applied during the fourth quarter of 2003 to the calculation of the severance expense for the former chief executive officer.

SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133 “Accounting for Derivatives Instruments and Hedging Activities.” The provisions of SFAS No. 149 became effective for the Corporation for contracts entered into or modified after June 30, 2003. The Corporation adopted SFAS No. 149 during the third quarter of 2003 and its adoption did not have a material impact on our financial position, results of operations, or liquidity.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    47

MANAGEMENT’S DISCUSSION AND ANALYSIS

SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 provides guidance on how an issuer classifies and measures in its statement of financial position the following financial instruments with characteristics of both liabilities and equity: mandatory redeemable shares, put options and forward purchase contracts and obligations that can be settled with shares. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. The provisions of SFAS No. 150 became effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003 except for certain provisions which have been deferred. The Corporation adopted SFAS No. 150 during the third quarter of 2003 and its adoption did not have a material impact on our financial position, results of operations, or liquidity.

FASB Interpretation No. 45 (FIN No. 45), “Guarantor’s
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others”
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN No. 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under a guarantee. FIN No. 45 clarifies the requirements of SFAS No. 5,“Accounting/or Contingencies,” relating to guarantees. In general, FIN No. 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party. Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation, including, among others, guarantees relating to employee compensation, residual value guarantees under capital lease arrangements, commercial letters of credit, loan commitments, subordinated interests in an SPE, and guarantees of a corporation’s own future performance. Other guarantees are subject to the disclosure requirements of FIN No. 45 but not to the recognition provisions.

The disclosure requirements of FIN No. 45 are effective for the Corporation as of December 31, 2002. The recognition requirements of FIN No. 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. Significant guarantees that have been entered into by the Corporation are disclosed in Note 20 of the consolidated financial statements. The Corporation adopted FIN No. 45 on December 31, 2002 and its adoption did not have a material impact during 2003 on our financial position, results of operations, or liquidity.

FASB Interpretation No. 46 (FIN No. 46), “Consolidation of Variable Interest Entities”

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), “Consolidation of Variable Interest Entities.” The objective of this Interpretation is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a corporation’s consolidated financial statements. A corporation that holds variable interests in an entity will need to consolidate the entity if the corporation’s interest in the VIE is such that the corporation will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. The provisions of this Interpretation became effective upon issuance. As of December 31, 2003, the Corporation had no variable interests entities and therefore, the Interpretation had no impact on the financial position, results of operations, or liquidity.

Other Statements of Financial Accounting Standards

All other applicable Statements of Financial Accounting Standards that have been issued and have effective dates impacting 2003 and prior years financial statements were adopted by the Corporation. Corporate management believes there are no Statements of Financial Accounting Standards, which have been issued and have implementation dates in the future that will materially impact the financial statements of future years.

Significant actions by the Federal government and its agencies, affecting the financial institutions industry in general, are currently having and will continue to have an impact on the Corporation. A discussion of these actions follows:

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Senate and the House of Representatives of the United States (Congress) enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. The Nasdaq National Stock Exchange has also proposed corporate governance rules that were presented to the Securities and Exchange Commission for review and approval. The proposed changes are intended to allow stockholders to more easily and efficiently monitor the performance of companies and directors.

Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley, LNB Bancorp, Inc.’s chief executive officer and chief financial officer are each required to certify that LNB Bancorp, Inc.’s Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of LNB Bancorp, Inc.’s internal controls; they have made certain disclosures to LNB Bancorp, Inc.’s auditors and the audit committee of the Board of Directors about LNB Bancorp, Inc.’s internal controls; and they have included information in LNB Bancorp, Inc.’s Quarterly and Annual Reports about their evaluation and whether there have been significant changes in LNB Bancorp, Inc.’s internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

Gramm-Leach-Bliley Act

The enactment of the Gramm-Leach-Bliley Act of 1999 (the GLB Act) represented a pivotal point in the history of the financial services industry. The GLB Act removed large parts of a regulatory framework that had its origins in the Depression Era of the 1930s. Effective March 11, 2000, new opportunities became available for banks, other depository institutions, insurance companies, and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for regulation through the financial holding corporation, which has as its umbrella regulator the Federal Reserve Board. Functional regulation of the financial holding corporation’s separately regulated subsidiaries is conducted by their primary functional regulator. The GLB Act requires “satisfactory” or higher Community Reinvestment Act compliance for insured depository institutions and their financial holding companies in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy of non-public personal information of individual customers. LNB Bancorp, Inc. and its subsidiaries are also subject to certain state laws that deal with the use and distribution of non-public personal information.

LNB BANCORP, INC. • 2003 ANNUAL REPORT    48

Mail: LNB Bancorp, Inc. • 457 Broadway • Lorain, Ohio 44052-1739
E-Mail: InvestorRelations@4LNB.com • Internet: www.4LNB.com
Telephone: (440) 244-6000 • Toll Free: (800) 860-1007
Telefax: (440) 244-4815

EX-14

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (14)

LNB Bancorp, Inc. - Code of Business Conduct and Ethics

Exhibit 14

LNB BANCORP, INC.
Code of Business Conduct and Ethics

Adopted March 5, 2004

I.	Purpose
	The honesty, integrity and sound judgment of our directors, officers and employees is fundamental to the reputation and success of LNB Bancorp, Inc. (the “Company”). This Code of Business Conduct and Ethics (the “Code”) provides a statement of Company’s expectations regarding the ethical standards that each director, officer and employee should adhere to while acting on the behalf of Company and its subsidiaries. This Code applies to all directors, officers and employees of Company and our subsidiaries, including the following (the “Senior Financial Officers”): the Company’s Chief Executive Officer, Chief Financial Officer, principal accounting officer, Director of Audit and other senior financial or policy making officers performing accounting, auditing, financial management or similar functions as well as other critical policy making functions. Each director, officer and employee is expected to read and become familiar with the ethical standards described in this Code and will be required, from time to time, to affirm his or her agreement to adhere to such standards by signing the Compliance Certificate that appears at the end of this Code.
	This Code is intended to deter wrongdoing and to promote:

• honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest in personal and professional relationships;

• full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities Exchange Commission, any banking regulatory agency, and in other public communications made by Company;

• compliance with applicable governmental laws, rules and regulations;

• the prompt internal reporting to an appropriate person or persons identified in the Code of violations of the Code; and

• personal accountability for adherence to the Code.

II.	Compliance with Laws, Rules and Regulations
	The Company will comply with all laws and governmental regulations that are applicable to the Company’s activities, and all directors, officers and employees acting on behalf of the Company will obey the law. While the law prescribes a minimum standard of conduct, this Code requires conduct that often exceeds the legal standards. Specifically, the Company is committed to:

• conducting its activities in full compliance with all applicable banking laws;

• keeping the political activities of Company’s directors, officers and employees separate from Company’s business and prohibiting any illegal payments to any governmental entity, government officials or political party representatives; and

• complying with all applicable state and federal securities laws.

	Directors, officers and employees are prohibited from illegally trading the Company’s securities while in possession of material, nonpublic (“inside”) information about the Company. A specific insider trading policy has been adopted (the “policy”), which describes the nature of inside information and the related restrictions on trading, and has distributed the policy to its directors, executive officers and other Senior Financial Officers.
III.	Conflicts of Interest
	A “conflict of interest” occurs when your personal interests or personal relationships interfere or appear to interfere in any way with the interests of the Company. Any position or interest, financial or otherwise, which could materially conflict with your performance as an employee, officer or director of the Company, or which affects or could reasonably be expected to affect your independence or judgment concerning transactions between the Company, its customers, suppliers or competitors or otherwise reflects negatively on Company would be considered a conflict of interest and should be avoided.
	At the same time, it is customary and routine for directors, officers and employees of community banks and their spouses, family members and associates to do business with their community bank. Such a relationship, including specifically routine banking business, is viewed as beneficial to the Company and its subsidiaries and should be encouraged, so long as such relationships are fair and reasonable to the Company and its subsidiaries and are entered into upon terms and conditions generally available to the public or similar to that which could be obtained from an independent third party. All employees, officers and directors are expected to demonstrate the ability to properly manage their personal finances.
	The Company and its subsidiaries may do business and have financial dealings with directors, officers and employees and their respective spouses, family members and associates if:

• such business or financial dealings involve the Company or Lorain National Bank providing banking or financial services to such person in the ordinary course of business upon terms and conditions generally available to the public, to the extent such arrangements are made in compliance with all applicable banking and securities laws and regulations; or

2

• all terms and conditions of such relationship have been presented to and approved by the Audit Committee of Company’s Board of Directors. If any member of the Audit Committee, or any associate or family member of such member, proposes to provide products or services to the Company, he or she shall excuse themselves from the discussion and decision about the appropriateness of such arrangement.

	Lorain National Bank may extend credit to any executive officer or director on substantially the same terms as those prevailing for comparable transactions with other persons or that may be available to bank employees generally as permitted by and in accordance with Regulation O of the Board of Governors of the Federal Reserve System.
	In order to avoid a conflict of interest or the appearance of a conflict of interest, no director, officer or employee shall be a consultant to, or a director, officer or employee of, or otherwise operate an outside business that markets products or services in competition with Company’s products and services.
	Directors and officers shall notify the Company’s Chief Executive Officer and employees who are not officers shall notify the Company’s Director of Audit of the existence of any actual or potential conflict of interest.
IV.	Confidentiality
	Using confidential information about the Company or its businesses, employees, officers, directors, customers or suppliers for personal benefit or disclosing such information to others outside your normal duties is prohibited. Directors, officers and employees shall maintain the confidentiality of all information entrusted to them by the Company, its subsidiaries, their customers or business partners, except when disclosure is authorized by the Company or legally required.
	Confidential information includes (1) information marked “Confidential,” “Private,” “For Internal Use Only,” or similar legends, (2) business or marketing plans or projections, (3) earnings and other internal financial data, (4) personnel information, (5) customer lists or other personal or nonpublic information of customers, and (6) other nonpublic information that, if disclosed, might be of use to the Company’s competitors, or harmful to Company or its customers or other business partners.
	To avoid inadvertent disclosure of confidential information, directors, officers and employees shall not discuss confidential information with or in the presence of any unauthorized persons, including family members and friends.
V.	Corporate Opportunities; Protection and Proper Use of Company’s Assets
	Employees, officers and directors are prohibited from:

(i) Personally benefiting from opportunities that are discovered through the use of the Company property, contacts, information or position.

3

(ii)	Accepting employment or engaging in a business (including consulting or similar arrangements) that may conflict with the performance of your duties or the Company’s interest.
(iii)	Soliciting, demanding, accepting or agreeing to accept anything of value from any person in conjunction with the performance of your employment or duties at the Company.
(iv)	Acting on behalf of the Company in any transaction in which you or your immediate family has a significant direct or indirect financial interest.
(v)	Offering something of value to someone with whom you transact business if the benefit is not otherwise available to other similarly situated the Company customers or suppliers under the same conditions.

	All employees, officers and directors should protect the Company’s property and assets and ensure their efficient and proper use. Theft, carelessness and waste can directly impact the Company’s profitability, reputation and success. Permitting Company property (including data transmitted or stored electronically and computer resources) to be damaged, lost, or used in an unauthorized manner is strictly prohibited. Employees, officers and directors may not use corporate, bank or other official stationary for personal purposes.
VI.	Outside Business Relationships
	Before agreeing to act as a director, officer, consultant, or advisor for any other business organization, employees will notify their immediate supervisor.
	Directors should disclose all new directorships or potential directorships to the Chairman of the Governance and Nominating Committee in order to avoid any conflicts of interest and to maintain independence.
	The Company encourages civic, charitable, educational and political activities as long as they do not interfere with the performance of your duties at the Company. Before agreeing to participate in any civic or political activities, all employees will contact their immediate supervisor.
	Employees who are considering outside employment will notify their manager or supervisor. Managers will review outside employment requests for potential conflicts of interest.
VII.	Fair Dealing
	The Company is committed to promoting the values of honesty, integrity and fairness in the conduct of its business and sustaining a work environment that fosters mutual respect, openness and individual integrity. Directors, officers and employees are expected to deal

4

honestly and fairly with the Company’s customers, suppliers and other third parties. To this end, directors, officers and employees shall not:

• make false or misleading statements to customers, suppliers or other third parties;

• solicit or accept from any person that does business with the Company, or offer or extend to any such person,

– cash of any amount; or

– gifts, gratuities, meals or entertainment that could influence or reasonably give the appearance of influencing Company’s business relationship with that person or go beyond common courtesies usually associated with accepted business practice;

• solicit or accept any fee, commission or other compensation for referring customers to third-party vendors; or

• otherwise take unfair advantage of the Company’s customers or suppliers, or third-parties, through manipulation, concealment, and abuse of confidential information or any other unfair-dealing practice.

Employees must disclose prior to their hire the existence of any employment agreement, non-compete or non-solicitation agreement, confidentiality agreement or similar agreement with a former employer that in any way restricts or prohibits the performance of any duties or responsibilities of their positions with the Company. Copies of such agreements should be provided to the Human Resources Department to permit evaluation of the agreement in light of the employee’s position. In no event shall an employee use any trade secrets, proprietary information or other similar property, acquired in the course of his or her employment with another employer, in the performance of his or her duties for or on behalf of the Company.

Lorain National Bank is engaged in the business of serving as executor, trustee and guardian of estates of individuals. Employees are encouraged to recommend these services to qualified individuals. Employees may serve as fiduciaries for members of their own families. With respect to any other person, employees should not seek nor accept appointment to any fiduciary or co-fiduciary position without the written approval of the officer in charge of Lorain National Bank’s trust department. Due to the danger of customer misunderstandings, potential liability to the Company, Lorain National Bank, or their employees, and inherent conflicts of interest, such approval will not normally be given.

Directors, officers and employees should not directly or indirectly accept bequests under a will or trust if such bequests have been made to them because of their employment or association with the Company.

5

VIII.	Accurate and Timely Periodic Reports
	The Company is committed to providing investors with full, fair, accurate, timely and understandable disclosure in the periodic reports that it is required to file with, or submit to the Securities and Exchange Commission. To this end, all employees, directors and officers, within the scope of their respective roles and duties, will act to assist and promote the Company’s:

• compliance with generally accepted accounting principles at all times;

• maintenance of a system of internal accounting controls that will provide reasonable assurances to management that all transactions are properly recorded;

• maintenance of books and records that accurately and fairly reflect the Company’s transactions;

• maintenance of a system of internal controls and procedures that will provide reasonable assurances to management that material information about the Company is properly recorded, processed and made known to management, so that information required to be disclosed or submitted by the Company in its reports to the Securities and Exchange Commission is properly reported; and

• presentation of information in a clear and orderly manner and avoid the use of legal and financial jargon in the Company’s periodic reports.

IX.	Reporting and Effect of Violations
	Directors and officers shall report, in person or in writing, any known or suspected violations of laws, governmental regulations or this Code that involves any director, officer or employee to Company’s Chief Executive Officer, unless the known or suspected violation involves Company’s Chief Executive Officer, in which case such matters shall be reported to the Audit Committee of the Board of Directors. Employees who are not directors or officers shall report such violations to Company’s Director of Audit. The Company will not allow any retaliation against a director, officer or employee who acts in good faith in reporting any such violation.
	The Company’s Chief Executive Officer, Director of Audit or Audit Committee, as the case may be, will investigate any reported violations and will oversee an appropriate response, including corrective action and preventative measures. Directors, officers and employees that violate any laws, governmental regulations or this Code will face appropriate, case specific disciplinary action, which may include demotion or discharge.
X.	Administration and Waiver of this Code
	The Audit Committee of Company’s Board of Directors is responsible for setting the standards of ethical business conduct contained in this Code and updating these standards as it deems appropriate to reflect changes in the legal and regulatory framework

6

applicable to the Company, the business practices within the banking and financial services industry, the Company’s own business practices, and the prevailing ethical standards of the communities in which the Company operates. While the Company’s Chief Executive Officer will oversee the procedures designed to implement this Code to ensure that they are operating effectively, it is the individual responsibility of each director, officer and employee of the Company to comply with this Code. Any questions on this Code shall be directed to the Lorain National Bank Audit Department.

The provisions of this Code may be waived for directors, executive officers or other Senior Financial Officers only by a resolution of the Audit Committee of the Company’s Board of Directors. The provisions of this Code may be waived for employees who are not directors, executive officers or other Senior Financial Officers by Company’s Chief Executive Officer or the Director of Audit.

Any waiver of the provisions of this Code or any amendment (other than a technical, administrative or non-substantive amendment) to the provisions of this Code will be reported or disclosed in accordance with the regulations of the Securities and Exchange Commission and the rules of The NASDAQ Stock Market.

All managers and direct supervisors are responsible for reviewing this Code with their subordinates each time a new edition of the Code is published. This Code is also available on the Company web site at: www.4LNB.com.

It is also the responsibility of the Human Resources Department annually to reaffirm compliance with this Code by all employees and officers, and to obtain a signed certificate that each employee and officer has read and understands the guidelines and will comply with them. The provisions of the Code will be included in the Company Employee Handbook. The Employee Handbook will be issued to all new employees and officers at the time of employment and reissued to existing employees and officers from time to time. Employees will be required to sign a receipt form for the Employee Handbook indicating they have read this Code and comply with its provisions.

Employees, officers and directors of the Company are expected to follow this Code at all times. Generally, there should be no waivers to this Code, however, in rare circumstances conflicts may arise that necessitate waivers.

7

COMPLIANCE CERTIFICATE

     I have read and understand the Company’s Code of Ethics and Business Conduct (the “Code”). I will adhere in all respects to the ethical standards described in the Code. I further confirm my understanding that any violation of the Code will subject me to appropriate disciplinary action, which may include demotion or discharge.

     I certify to the Company that I am not in violation of the Code, unless I have noted such violation in a signed Statement of Exceptions attached to this Compliance Certificate.

Date:
	Name:
	Title/Position:

Check one of the following:

o A Statement of Exceptions is attached.

o No Statement of Exceptions is attached.

8 EX-23 7 l06118aexv23.htm CONSENT

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (23)

Consent of Independent Accountants.

Exhibit 23

Consent of Independent Accountants

The Board of Directors
LNB Bancorp, Inc.:

We consent to incorporation by reference in the registration statements No. 33-64034 and No. 33-53210 on Form S-8 and No. 333-43441 and No. 333-58414 on Form S-3 of LNB Bancorp, Inc. of our report dated January 30, 2004, relating to the consolidated balance sheets of LNB Bancorp, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, cash flows and shareholders’ equity for each of the years in the three-year period ended December 31, 2003, which report appears in the December 31, 2003 annual report on Form 10-K of LNB Bancorp, Inc.

/s/KPMG LLP
Cleveland, Ohio
March 10, 2004

EX-23

Consent

EX-31.A

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (31(a))

Chief Executive Officer Sarbanes-Oxley Act 302 Certification dated March 10, 2004 for LNB Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.

Exhibit 31(a)
Certifications

     I, James F. Kidd, President and Chief Executive Officer of LNB Bancorp, Inc., certify that:

     1. I have reviewed this annual report on Form 10-K of LNB Bancorp, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) (This paragraph intentionally left blank.)

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent

functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date March 10, 2004

By /s/James F. Kidd
James F. Kidd, President and Chief Executive Officer

EX-31.B

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(for the fiscal year ended December 31, 2003)

S - K Reference Number (31(b))

Chief Financial Officer Sarbanes-Oxley Act 302 Certification dated March 10, 2004 for LNB Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2003.

Exhibit 31(b)
Certifications

     I, Terry M. White, Executive Vice President and Chief Financial Officer of LNB Bancorp, Inc., certify that:

     1. I have reviewed this annual report on Form 10-K of LNB Bancorp, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) (This paragraph intentionally left blank.)

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent

functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date March 10, 2004

By /s/Terry M. White
Terry M. White, Executive Vice President and Chief Financial Officer

EX-32.A

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(For the twelve months ended December 31, 2003)

Exhibit Number (32(a))

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of LNB Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James F. Kidd, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James F. Kidd

James F. Kidd
President and
Chief Executive Officer
March 10, 2004

EX-32.B

LNB Bancorp, Inc.

Exhibit to Form 10 - K

(For the twelve months ended December 31, 2003)

Exhibit Number (32(b))

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of LNB Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry M. White, Executive Vice President, Chief Financial Officer and Corporate Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Terry M. White

Terry M. White
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
March 10, 2004