EX-99 3 l14795bexv99.txt EX-99 FINANCIALS [KPMG LLP LOGO] THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Financial Statements and Schedules December 31, 2004 and 2003 (With Report of Independent Registered Public Accounting Firm Thereon) THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN TABLE OF CONTENTS PAGE Report of Independent Registered Public Accounting Firm 1 Statements of Assets Available for Distribution to Participants, December 31, 2004 and 2003 2 Statements of Changes in Assets Available for Distribution to Participants, Years ended December 31, 2004 and 2003 3 Notes to Financial Statements 4 SCHEDULES 1 Schedule H, Line 4i - Schedule of Assets (Held at End of Year) - December 31, 2004 7 2 Schedule H, Line 4j - Schedule of Reportable Transactions - Year ended December 31, 2004 8 All other schedules required to be filed in accordance with the Employee Retirement Income Security Act of 1974 are not applicable and accordingly, have been omitted.
[KPMG LLP LETTERHEAD] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Plan Administrator The Lorain National Bank Sponsor of The Lorain National Bank Employee Stock Ownership Plan: We have audited the accompanying statements of assets available for distribution to participants of The Lorain National Bank Employee Stock Ownership Plan (Plan) as of December 31, 2004 and 2003, and the related statements of changes in assets available for distribution to participants for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for distribution to participants of the Plan as of December 31, 2004 and 2003, and the changes in those assets for the years then ended in conformity with U.S. generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2004, and Schedule H, Line 4j - Schedule of Reportable Transactions for the year ended December 31, 2004 are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG LLP June 24, 2005 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Statements of Assets Available for Distribution to Participants December 31, 2004 and 2003
ASSETS 2004 2003 ---------- ---------- Assets available for distribution to participants: Short-term cash investments $ 41,382 $ 16,335 Investment, at fair value (notes 3 and 6): Common stock: LNB Bancorp, Inc. 4,479,603 5,362,753 ---------- ---------- 4,520,985 5,379,088 ---------- ---------- Receivables: Dividends and interest 40,911 50,205 ---------- ---------- Total receivables 40,911 50,205 ---------- ---------- Assets available for distribution to participants $4,561,896 $5,429,293 ========== ==========
See accompanying notes to financial statements. 2 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Statements of Changes in Assets Available for Distribution to Participants Years ended December 31, 2004 and 2003
2004 2003 ----------- ----------- Additions: Investment income: Dividends $ 167,860 $ 189,383 Interest - 272 Net realized and unrealized appreciation (depreciation) in fair value of investments (note 3) (36,152) 569,836 ----------- ----------- Total investment income 131,708 759,491 Employer contribution - 560 ----------- ----------- Total additions 131,708 760,051 Deductions: Distributions to participants (999,105) (588,766) ----------- ----------- Increase (decrease) in assets available for distribution to participants (867,397) 171,285 Assets available for distribution to participants: Beginning of year 5,429,293 5,258,008 ----------- ----------- End of year $ 4,561,896 $ 5,429,293 =========== ===========
See accompanying notes to financial statements. 3 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Notes to Financial Statements December 31, 2004 and 2003 (1) DESCRIPTION OF THE PLAN The following description of The Lorain National Bank Employee Stock Ownership Plan (Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. (a) GENERAL The Plan is a defined contribution plan sponsored by The Lorain National Bank (Bank), a wholly owned subsidiary of LNB Bancorp, Inc., covering substantially all employees of the Bank and the related Bancorp affiliates for which the Bank acts as common paymaster. An employee is eligible to participate in the Plan after the attainment of age 21 and completion of one year of service, as defined in the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Under the terms of the Plan, the Investment and Trust Services Division of the Bank acts as trustee for the Plan and, as such, manages a trust fund which includes all of the Plan's assets. The trustee has been granted discretionary authority concerning purchases and sales of investments in the trust fund made from employer contributions. (b) BANK CONTRIBUTIONS The amount of the contribution is determined by the Bank's board of directors in its absolute discretion. The Bank is not required to make a contribution in any specific year. Contributions are allocated to participants' accounts in the proportion each participant's annual compensation bears to the total annual compensation of all participants for that plan year. (c) PARTICIPANT CONTRIBUTIONS The Plan does not permit participant contributions. (d) VESTING Each participant vests in the bank contribution after 5 years of service. Forfeitures of nonvested employer contributions are made available first to reinstate previously forfeited account balances of former participants who are reemployed by the Plan sponsor, within one year. The remaining forfeitures, if any, shall be allocated among the participants' accounts in the proportion each participant's annual compensation bears to the total annual compensation of all participants for that plan year. At December 31, 2004, there were $685 of forfeitures which were reallocated within the Plan. (e) DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT A participant whose employment terminates by reason of retirement on their early retirement date or on their normal retirement date, receives their vested benefits. The participant may elect distribution of their vested benefits either in a single distribution or in annual, semiannual, quarterly, or monthly installments of substantially equal amounts for not more than five (5) years. 4 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Notes to Financial Statements December 31, 2004 and 2003 A participant whose employment is terminated for any reason other than those designated above may receive a single distribution of their vested benefits. (f) PLAN TERMINATION Although it has not expressed any intention to do so, the Bank has the right to terminate the Plan subject to the provisions set forth in ERISA. In the event of Plan termination, the assets of the Plan will be allocated as prescribed by ERISA and its related regulations. (g) PLAN ADMINISTRATOR The plan administrator is the President and Chief Executive Officer of the Bank. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PRESENTATION The accompanying financial statements of the Plan have been prepared under the accrual method of accounting. (b) INVESTMENTS The fair value of investments and changes therein are determined through the use of current quoted market values. Purchases and sales are recorded on a trade date basis. Interest income is recorded on the accrual method of accounting. (c) 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, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. (d) PAYMENT OF BENEFITS Benefit payments to participants are recorded when paid. (3) INVESTMENT The following table presents the fair values of the Plan's investment at December 31, 2004 and 2003. Items that represented 5% or more of the Plan's assets are separately identified.
2004 2003 ----------------------------- --------------------------- NUMBER NUMBER OF SHARES FAIR OF SHARES FAIR OR UNITS VALUE OR UNITS VALUE ------------- ------------- ----------- ------------- Common stock: LNB Bancorp, Inc. 222,644 $4,479,603 264,175 $5,362,753
(Continued) 5 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Notes to Financial Statements December 31, 2004 and 2003 During the years ended December 31, 2004 and 2003, the Plan's investments (including investments bought, sold, and held during the year) appreciated (depreciated) in value by $(36,152) and $569,836, respectively. (4) ADMINISTRATIVE EXPENSES The administrative expenses of the Plan are paid by the Bank. (5) FEDERAL INCOME TAXES The Internal Revenue Service issued its latest determination letter on July 2, 2002, which stated that the Plan and its underlying Trust, as designed, qualify under the applicable provisions of the Internal Revenue Code. In the opinion of the plan administrator, the Plan and its underlying Trust have operated within the terms of the Plan and remain qualified under the applicable provisions of the Internal Revenue Code. As long as the Plan continues to be qualified under present federal income tax laws and regulations, participants will not be taxed on Bank contributions or on investment earning on such contributions at the time such contributions and investment earnings are received by the trustee, but may be subject to tax thereon at such time as they receive distributions under the Plan. (6) PARTY-IN-INTEREST TRANSACTIONS The following is a summary of transactions in common stock of LNB Bancorp, Inc., 100% owner of the Bank, during the year ended December 31, 2004:
NUMBER FAIR OF SHARES VALUE ----------- ----------- Balance at December 31, 2003 264,175 $ 5,362,753 Purchases 8,535 174,711 Distributions (50,066) (958,332) Net depreciation -- (99,529) ----------- ----------- Balance at December 31, 2004 222,644 $ 4,479,603 =========== ===========
(7) ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS
2004 2003 ---------- ---------- Assets payable to terminated participants $ 43,610 $ 73,924 Assets available for continuing participants 4,518,286 5,355,369 ---------- ---------- $4,561,896 $5,429,293 ========== ==========
6 SCHEDULE 1 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN EIN: 34-0869480 Plan Number: 002 Schedule H, Line 4i - Schedule of Assets (Held at End of Year) December 31, 2004
(a) (b) (c) (d) (e) IDENTITY OF ISSUE, DESCRIPTION OF INVESTMENT INCLUDING BORROWER, LESSOR, MATURITY DATE, RATE OF INTEREST, CURRENT OR SIMILAR PARTY COLLATERAL, PAR, OR MATURITY VALUE COST VALUE ----- ---------------------- -------------------------------------- ------------------- ------------------- * LNB Bancorp, Inc. 222,644 shares of common stock $ 2,828,127 $ 4,479,603 * Lorain National Bank Treasury Trust Fund 41,382 41,382 ------------------- ------------------- $ 2,869,509 $ 4,520,985 =================== ===================
* Party in interest See accompanying of independent registered public accounting firm. 7 SCHEDULE 2 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN EIN: 34-0869480 Plan Number: 002 Schedule H, Line 4j - Schedule of Reportable Transactions Year ended December 31, 2004 Series transactions, when aggregated, involving an amount in excess of 5% of the current value of Plan assets:
(a) (b) (c) (d) (e) (f) (g) (h) (i) CURRENT EXPENSE VALUE OF INCURRED ASSET ON IDENTITY OF PARTY DESCRIPTION OF PURCHASE SELLING LEASE WITH COST OF TRANSACTION NET GAIN INVOLVED ASSETS PRICE PRICE RENTAL TRANSACTION ASSET DATE OR (LOSS) ---------------------- --------------------- ------------- ---------- ------- ----------- --------- ----------- --------- * LNB Bancorp, Inc. LNB Bancorp, Inc. common stock, 4 purchases $ 174,711 - - - 174,711 174,711 - 4 sales 299,891 363,267 - - 299,891 363,267 63,376 * Lorain National Treasury Trust Fund, Bank 17 purchases 348,367 - - - 348,367 348,367 - 13 sales 323,320 323,320 - - 323,320 323,320 - * Party in interest
See accompanying of independent registered public accounting firm.