LNB Bancorp. Inc. 10-K

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WU5ZpZaV57+C5U/bfnqWsUbRJH0kcW/TtCsI9OH8p3v6tTfwWtu1Tg0GghETtjWu 03UnESu7SMPTrT14I0tdgQ== 0000950152-06-002009.txt : 20060313 0000950152-06-002009.hdr.sgml : 20060313 20060313120545 ACCESSION NUMBER: 0000950152-06-002009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060313 DATE AS OF CHANGE: 20060313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LNB BANCORP INC CENTRAL INDEX KEY: 0000737210 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341406303 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13203 FILM NUMBER: 06681287 BUSINESS ADDRESS: STREET 1: 457 BROADWAY CITY: LORAIN STATE: OH ZIP: 44052-1769 BUSINESS PHONE: 800-860-1007 10-K 1 l17869ae10vk.htm LNB BANCORP, INC. 10-K LNB Bancorp. Inc. 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2005		Commission file number 0-13203

LNB Bancorp, Inc.

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


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

(440) 244-6000

(Registrant’s telephone number, including area code)

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


Title of Each Class		Name of Each Exchange on Which Registered

None		None

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


Title of Each Class		Name of Each Exchange on Which Registered

Common Shares
Par Value $1.00 Per Share		NASDAQ — National Market
Preferred Share Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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 þ No o

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer o	Accelerated Filer þ	Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the common shares held by non-affiliates of the registrant at June 30, 2005 was approximately $114,646,484.

The number of common shares of the registrant outstanding on February 27, 2006 was 6,486,173.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2006 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS


		Page

PART I
Item 1.	Business		1
Item 1A.	Risk Factors		3
Item 1B.	Unresolved Staff Comment Letters		4
Item 2.	Properties		4
Item 3.	Legal Proceedings		5
Item 4.	Submission of Matters to a Vote of Security Holders		5
	Supplemental Item: Executive Officers of the Registrant		6
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		7
Item 6.	Selected Financial Data		9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 8.	Financial Statements and Supplementary Data		37
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		69
Item 9A.	Controls and Procedures		69
Item 9B.	Other Information		71
PART III
Item 10.	Directors, Executive Officers, Promoters and Control Persons of the Registrant		71
Item 11.	Executive Compensation		71
Item 12.	Security Ownership of Certain Beneficial Owners and Management		71
Item 13.	Certain Relationships and Related Transactions		72
Item 14.	Principal Accounting Fees and Services		72
PART IV
Item 15.	Exhibits and Financial Statement Schedules		73

Exhibit Index			74

Signatures			76

Certifications			79
EX-3(a) LNB Second Amendment Article
EX-3(b) LNB Amended Code of Regulations
EX-10(N) SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT-SMITH
EX-10(O) SUPPLEMENTAL RETIREMENT BENEFITS
EX-10(P) AMENDED SUPPLEMENTAL RETIREMENT AGREEMENT
EX-10(Q) AMENDED SUPPLEMENTAL RETIREMENT AGREEMENT
EX-10(R) RIGHTS AGREEMENT
EX-10(S) BRANCH PURCHASE AND ASSUMPTION AGREEMENT
EX-10(T) SUPPLEMENTAL RETIREMENT AGREEMENT
EX-10(U) SUPPLEMENTAL RETIREMENT AGREEMENT
EX-10(V) SUPPLEMENTAL RETIREMENT AGREEMENT
EX-10(W) AGREEMENT IN FILING FEDERAL INCOME TAX
EX-21.1 SUBSIDIARIES
Exhibit 23.1 Consent of KPMG
Exhibit 31.1 Certification of CEO
Exhibit 31.2 Certification of CFO
Exhibit 32.1 Certification of CEO
Exhibit 32.2 Certification of CFO

PART I


Item 1.	Business

Overview

General. LNB Bancorp, Inc., (the “Corporation”), is a diversified financial services company headquartered in Lorain, Ohio. It is organized as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Corporation celebrated its 100th anniversary in 2005. Its predecessor, the Lorain Banking Company was a state chartered bank founded in 1905. It merged with the National Bank of Lorain in 1961, and in 1984 became a wholly-owned subsidiary of LNB Bancorp, Inc. The Corporation received its financial holding company status on March 13, 2000.

The Corporation engages in banking, mortgage, brokerage and insurance services. These services are generally offered through its wholly-owned subsidiaries — The Lorain National Bank (the “Bank”) and Charleston Insurance Agency. For brokerage services the Bank operates under an agreement with Investment Centers of America, Inc. Charleston Insurance Agency offers term life, whole life, universal life and term care insurance, and fixed annuity products. Investment Centers of America, Inc. is a member of NASD/SIPC and offers mutual funds, variable annuity investment, variable annuity and life insurance products, along with investment in stocks and bonds.

The Bank specializes in personal, mortgage and commercial banking products along with investment management and trust services. The Lorain National Bank operates 20 banking centers and 23 ATMs in the Ohio communities of Lorain, Elyria, Amherst, Avon, Avon Lake, LaGrange, Oberlin, Olmsted Township, Vermilion and Westlake. The Corporation announced in 2005, plans to open offices in North Ridgeville and Elyria in Lorain County, and a business development office in Cuyahoga County.

The Bank’s commercial lending activities consist of commercial real estate loans, construction and equipment loans, letters of credit, revolving lines of credit, Small Business Administration loans and government guaranteed loans. The Bank’s wholly-owned subsidiary, North Coast Community Development Corporation, offers commercial loans with preferred interest rates on projects that meet the standards for the federal government’s New Markets Tax Credit Program.

The Bank’s residential mortgage lending activities consist of loans originated for portfolio. These loans are for the purchase of personal residences. Installment lending activities consist of traditional forms of financing for automobile and personal loans, indirect automobile loans, second mortgages, home equity lines of credit, and automobile loans that are purchased from another financial institution.

The Bank’s deposit services include traditional transaction and time deposit accounts as well as cash management services for corporate and municipal customers. The Bank supplements local deposit generation with time deposits generated through a broker relationship. Deposits of the Bank are insured by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation (the “FDIC”).

Other bank services offered include safe deposit boxes, night depository, U.S. savings bonds, travelers’ checks, money orders, cashiers checks, ATM’s, debit cards, wire transfer, ACH, foreign drafts, foreign currency, electronic banking by phone or through the internet, lockbox and other services tailored for both individuals and businesses.

Competition. The Corporation competes with seventeen other financial institutions in Lorain County, Ohio, which range in size from approximately $1 million to over $384 billion in deposits. These competitors, as well as credit unions and financial intermediaries operating in Lorain County, compete for county deposits in excess of $3.2 billion. The Bank’s market share of total deposits in Lorain County was 18.8% in 2005 and 18.0% in 2004, and the Bank ranked number two in market share in Lorain County in 2005 and 2004.

Business Strategy. The Bank competes with larger financial institutions by providing exceptional local service that emphasizes direct customer access to the Bank’s officers. It competes against smaller local banks by providing distribution channels that are more convenient and by providing a wider array of products. It

endeavors to provide informed and courteous personal services. The Corporation’s management team (“Management”) believes that the Bank is well positioned to compete successfully in its 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 the Bank to provide quality personal service and its local community involvement give the Bank a competitive advantage.

Supervision and Regulation. The Corporation 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 prior approval of the Federal Reserve Board before acquiring or holding more than a 5% voting interest in any bank. It also restricts interstate banking activities.

The Bank is subject to extensive regulation, supervision and examination by applicable federal banking agencies, including the FDIC, the Officer of the Comptroller of the Currency (the “OCC”) and the Federal Reserve Board. Brokerage and Trust management are subject to supervision by the National Association of Securities Dealers (the “NASD”) and SPIC.

Employees. As of December 31, 2005, the Corporation employed 257 full-time equivalent employees. The Corporation is not a party to any collective bargaining agreement. Management considers its relationship with its employees to be good. Employee benefits programs are considered by the Corporation to be competitive with benefits programs provided by other financial institutions and major employers within the current market area.

Industry Segments

The Corporation and subsidiary companies are engaged in one line of business which is banking services. The subsidiaries, except for The Lorain National Bank, did not represent a material part of LNB Bancorp, Inc. at December 31, 2005.

Available Information

LNB Bancorp, Inc.’s internet website is www.4LNB.com. Copies of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are made available through this website, or directly through the Securities and Exchange Commission (“SEC”) website which is www.sec.gov.

Forward-Looking Statements

This Form 10-K contains forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Terms such as “will,” “should,” “plan,” “intend,” “expect,” “continue,” “believe,” “anticipate” and “seek,” as well as similar comments, are forward-looking in nature. Actual results and events may differ materially from those expressed or anticipated as a result of risks and uncertainties which include but are not limited to:


	•	significant increases in competitive pressure in the banking and financial services industries;

	•	changes in the interest rate environment which could reduce anticipated or actual margins;

	•	changes in political conditions or the legislative or regulatory environment;

	•	general economic conditions, either nationally or regionally (especially in northeastern Ohio), becoming less favorable than expected resulting in, among other things, a deterioration in credit quality of assets;

	•	changes occurring in business conditions and inflation;

	•	changes in technology;


	•	changes in monetary and tax policies;

	•	changes in the securities markets;

	•	changes in economic conditions and competition in the geographic and business areas in which the Corporation conducts its operations; as well as the risks and uncertainties described from time to time in the Corporation’s reports as filed with the Securities and Exchange Commission.

We undertake no obligation to review or update any forward-looking statements, whether as a result of new information, future events or otherwise.


Item 1A.	Risk Factors

As a competitor in the banking and financial services industries, the Corporation and its business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report on Form 10-K and in the Corporation’s other filings with the SEC, before making any investment decision with respect to the Corporation’s securities. In particular, you should consider the discussion contained in Item 7 of this annual report, which contains Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The risks and uncertainties described below may not be the only ones the Corporation faces. Additional risks and uncertainties not presently known by the Corporation or that the Corporation currently deems immaterial may also affect the Corporation’s business. If any of these known or unknown risks or uncertainties actually occur or develop, the Corporation’s business, financial condition, results of operations and future growth prospects could change. Under those circumstances, the trading prices of the Corporation’s securities could decline, and you could lose all or part of your investment.

Competition. Strong competition may reduce our ability to generate loans and deposits in our market.

The Corporation competes in a consolidating industry. Increasingly the Corporation’s competition is large regional companies which have the capital resources to substantially impact such things as loan and deposit pricing, delivery channels and products. This may allow those companies to offer what may be perceived in the market as better products and better convenience relative to smaller competitors like the Corporation, which could impact the Corporation’s ability to grow its assets and earnings.

Interest Rate Risk. Changes in interest rates could adversely affect the Corporation’s earnings and financial condition.

The Corporation derives the majority of its revenue from net interest income. Net interest income may be reduced if more rate sensitive assets than interest-bearing liabilities reprice or mature during a time when rates are declining, or if more interest-bearing liabilities than rate sensitive assets reprice or mature during a time when rates are rising; however, the Corporation has historically experienced improved net interest income during periods of rising rates, so if rates fall, the Corporation’s revenue may be adversely impacted. Interest rate changes also impact customer preferences for products. Changing rates can lead to unpredicted cashflow from assets and liabilities, which can impact net interest income.

Government Policies. The Corporation’s business may be adversely affected by changes in government policies.

The Corporation competes in a highly regulated environment. Changes in regulation are continually being proposed which can substantially impact the Corporation’s products and cost of delivery. Regulatory burdens imposed by legislation such as The Sarbanes-Oxley Act of 2002, The USA Patriot Act of 2001, The International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, The Equal Credit Opportunity Act, The Fair Housing Act, The Community Reinvestment Act and the Home Mortgage Disclosure Act can materially impact the ability of the Corporation to grow should the Corporation fail to develop the systems to adequately comply with these regulations. Failure to comply with these regulations can lead to loss of customer confidence, substantial fines and regulatory constraints on the Corporation’s

operations. These burdens can also materially impact the earnings of the Corporation as additional resources are expended to comply with these requirements. The government, through the open market activities of the Federal Reserve Board, can also adversely impact our business. The Federal Reserve Board can change the discount rate which impacts the composition of the Corporation’s balance sheet by influencing the rates that the Corporation earns on its assets and pays on its liabilities.

General Economic Conditions. The Corporation may be adversely impacted by weakness in the local economies we serve.

The Corporation is geographically concentrated in Lorain County, Ohio. Commercial activity is not expanding at a rate that is being experienced in other parts of Ohio or nationally. This is the result of continued reliance on a weak manufacturing sector, especially steel and automobiles. This can lead to unexpected deterioration in commercial loan quality, slower asset and deposit growth and increased operating losses.

Credit Risk. The Corporation’s earnings and reputation may be adversely affected if credit risk is not properly managed.

Originating and underwriting loans is critical to the success of the Corporation. This activity exposes the Corporation to credit risk, which is the risk of losing principal and interest income because the borrower cannot repay the loan in full. The Corporation depends on collateral in underwriting loans, and the value of this collateral is impacted by interest rates and economic conditions.

Concentration of Credit Risk. The Corporation’s earnings may be adversely affected if management does not understand and properly manage loan concentrations.

The Corporation’s loan portfolio is not concentrated in one industry sector but has a number of significant customers. The Corporation’s loan portfolio is primarily real estate lending. Commercial real estate, commercial business and construction lending have historically been a specialty of the Corporation, and generally involve more risk than single-family residential lending. These loans involve greater risk because they generally are not fully amortizing over the loan period, but have a balloon payment due at maturity. The borrower’s ability to make a balloon payment typically will depend on being able to refinance the loan or to sell the underlying collateral. This factor, combined with others, including our geographic concentration, can lead to unexpected credit deterioration and higher provisions for loan losses.

Dependence on Technology and Systems. If the Corporation’s technology and systems are damaged, its ability to service customers, comply with regulation and grow asset and liabilities may be adversely impacted.

The Corporation is dependent on the proper functioning of its hardware, software and communications. Security breaches, terrorist events, and natural disasters can all have a material impact on the Corporation’s ability to maintain accurate records which is critical to the Corporation’s operations.

Item 1B. Unresolved Staff Comment Letters

Not applicable.


Item 2.	Properties

The Corporate Offices are located at the Corporation’s Main Banking Center, 457 Broadway, Lorain, Ohio, 44052. The Corporation owns the land and buildings occupied by eleven of its banking centers, and it leases the other nine banking centers from various parties on varying lease terms. The Corporation also owns the land and buildings housing its Westlake LPO, operations, training, maintenance and purchasing functions. There is no outstanding mortgage debt on any of the properties which the Corporation owns. Listed below are

the banking centers, loan production offices and service facilities of the Corporation and their addresses, all of which are located in Lorain, eastern Erie and western Cuyahoga counties of Ohio:


Main Banking Center & Corporate Offices		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		32960 Walker Road, Avon Lake
Kansas Avenue		1604 Kansas Avenue, Lorain
Sixth Street Drive-In		200 Sixth Street, Lorain
Pearl Avenue		2850 Pearl Avenue, Lorain
Oberlin Office		40 East College Street, Oberlin
West Park Drive-In		2130 West Park Drive, Lorain
Ely Square		124 Middle Avenue, Elyria
Cleveland Street		801 Cleveland Street, Elyria
Oberlin Avenue		3660 Oberlin Avenue, Lorain
Olmsted Township		27095 Bagley Road, Olmsted Township
Kendal at Oberlin		600 Kendal Drive, Oberlin
The Renaissance		26376 John Road, Olmsted Township
Village of LaGrange		546 North Center Street, LaGrange
Westlake Village		28550 Westlake Village Drive, Westlake
Westlake LPO		30210 Detroit Road, Westlake
Elyria United Methodist Village		807 West Avenue, Elyria
Operations		2130 West Park Drive, Lorain
Maintenance		2140 West Park Drive, Lorain
Purchasing		2150 West Park Drive, Lorain
Training Center		521 Broadway, Lorain

The Corporation also owns and leases equipment for use in its business. The Corporate headquarters at 457 Broadway is currently 75% occupied. The remaining space is expected to be utilized as the Corporation continues to grow. The Corporation considers all its facilities to be in good condition, well maintained and more than adequate to conduct the business of banking.


Item 3.	Legal Proceedings

There are no material legal proceedings pending to which the Corporation or its subsidiaries is a party or to which any of its property is subject. The Corporation is occasionally involved in ordinary routine litigation incidental to its business which it does not consider to be material.


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

During the fourth quarter of the year ended December 31, 2005 there were no matters submitted to a vote of security holders.

SUPPLEMENTAL ITEM — EXECUTIVE OFFICERS OF THE REGISTRANT

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

Principal Occupation For Past Five

Positions and Offices Held with LNB

Officer

Name

Age

Years

Bancorp, Inc.

Since

Daniel E. Klimas

President and Chief Executive Officer, LNB Bancorp, Inc., February 2005 to present. President, Northern Ohio Region, Huntington Bank from 2001 to February 2005.

President and Chief Executive Officer

2005

Paul A. Campagna

Senior Vice President, LNB Bancorp, Inc. April 2002 to present. Vice President, Premier Bank and Trust from 1998 to 2002.

Senior Vice President

2004

Richard E. Lucas

Executive Vice President, LNB Bancorp, Inc. June 2005 to present. Senior Vice President, Retail Banking, Fifth Third Bancorp from April 2000 to 2005.

Executive Vice President

2005

Mary E. Miles

Senior Vice President, LNB Bancorp, Inc. April 2005 to present. President, Miles Consulting, Inc. from 2001 to 2005, Vice President, Tire Center, LLC prior to 2001.

Senior Vice President

2005

David E. Nocjar

Senior Trust Officer, LNB Bancorp, Inc., September 2002 to present. Trust Officer, The Lorain National Bank, August 2000 to September 2002.

Senior Trust Officer

2002

Frank A. Soltis

Senior Vice President, LNB Bancorp, Inc. July 2005 to present. Senior Vice President, Lakeland Financial Corporation, 1997 to 2005.

Senior Vice President

2005

Terry M. White

Chief Financial Officer, LNB Bancorp, Inc. April 2002 to present. Senior Vice President, Austin Associates, LLC, June 2000 to March 2002.

Chief Financial Officer and Corporate Secretary

2002

Lawrence D. Wickter, Jr.

Senior Vice President, LNB Bancorp, Inc., May 2005 to present. Self-employed Attorney, May 2003 to May 2005. Chief Credit Officer, Metropolitan Bank and Trust, June 1999 to May 2003.

Senior Vice President and Chief Credit Officer

2005

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information; Equity Holders; Dividends 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 prices below represent the high and low sales prices reported on The NASDAQ Stock Market^® for each specified period. All prices reflect inter-dealer prices without markup, markdown or commission and may not necessarily represent actual transactions. LNB Bancorp, Inc. has paid a cash dividend to shareholders each year since becoming a holding company in 1984. At present, the Corporation expects to pay comparable cash dividends to shareholders in 2006 if approved by the Board of Directors.

The common stock of LNB Bancorp, Inc. is usually listed in publications as “LNB Bancorp”. LNB Bancorp Inc.’s common stock CUSIP is 502100100.

As of February 27, 2006, LNB Bancorp, Inc. had 2,127 shareholders of record and a closing price of $19.25 on February 27, 2006. Prospective shareholders may contact our Investor Relations Department at (440) 244-7317 for more information.

Common Stock Trading Ranges and Cash Dividends Declared


	2005

					Cash Dividends
	High		Low		Declared per share

First Quarter	$	20.55	$	17.64	$	0.18
Second Quarter		19.30		16.00		0.18
Third Quarter		19.25		16.40		0.18
Fourth Quarter		19.00		16.62		0.18


	2004

					Cash Dividends
	High		Low		Declared per share

First Quarter	$	21.60	$	20.30	$	0.18
Second Quarter		21.13		18.28		0.18
Third Quarter		20.60		19.26		0.18
Fourth Quarter		20.70		19.45		0.18

Issuer Purchases of Equity Securities

The following table summarizes share repurchase activity for the quarter ended December 31, 2005:


					(c) Total Number of		(d) Maximum
					Shares (or Units)		Number of Shares (or
	(a) Total Number of		(b) Average Price		Purchased as Part of		Units) that May Yet
	Shares (or units)		Paid per Share (or		Publicly Announced		Be Purchased Under
Period	Purchased		Unit)		Plans or Programs		the Plans or Programs

October 1, 2005 - October 31, 2005		0	$	0.00		0		262,000

November 1, 2005 - November 30, 2005		55,000		18.08		55,000		207,000

December 1, 2005 - December 31, 2005		0		0.00		0		207,000

Total		55,000	$	18.08		55,000		207,000

On July 28, 2005 the Corporation announced a share repurchase program of up to 5 percent, or about 332,000, of the common shares outstanding. Repurchased shares can be used for a number of corporate purposes, including the Corporation’s stock option and employee benefit plans. Under the share repurchase program, share repurchases are expected to be made primarily on the open market from time-to-time until the 5 percent maximum is repurchased or the earlier termination of the repurchase program by the Board of Directors. Repurchases under the program will be made at the discretion of Management based upon market, business, legal and other factors. At December 31, 2005, the Corporation had repurchased 125,000 shares under this program.


Item 6.	Selected Financial Data

Five Year Consolidated Financial Summary


			Year Ended December 31,

			2005			2004			2003			2002			2001

			(Dollars in thousands, except per share amounts and ratios)
Total interest income			$	43,432		$	37,224		$	37,860		$	41,327		$	45,101
Total interest expense				13,402			9,102			9,196			12,095			16,998

		Net interest income		30,030			28,122			28,664			29,232			28,103
Provision for loan losses				1,248			1,748			2,695			2,200			2,200
Other income				10,092			10,660			10,105			10,278			9,343
Net gain (loss) on sale of assets				285			(218	)		1,519			808			313
Other expenses				30,267			26,290			26,467			24,753			22,946

Income before income taxes				8,892			10,526			11,126			13,365			12,613
Income taxes				2,479			3,051			3,411			4,200			4,048

		Net income	$	6,413		$	7,475		$	7,715		$	9,165		$	8,565

Cash dividend declared			$	4,760		$	4,777		$	4,626		$	4,468		$	4,365

Per Common Share(1)(2)
	Basic earnings		$	0.97		$	1.13		$	1.17		$	1.39		$	1.30
	Diluted earnings			0.97			1.13			1.17			1.39			1.30
	Cash dividends declared			0.72			0.72			0.70			0.68			0.66
	Book value per share		$	10.45		$	10.64		$	10.30		$	10.09		$	9.41
Financial Ratios(3)
	Return on average assets			0.81	%		0.98	%		1.05	%		1.33	%		1.35	%
	Return on average common equity			9.11			10.75			11.33			14.24			14.36
	Net interest margin (FTE)(4)			4.09			4.01			4.23			4.58			4.75
	Efficiency ratio			75.44			67.82			63.01			61.41			60.96
	Loans to deposits			92.31			93.77			91.91			90.01			92.13
	Dividend payout			74.22			63.72			59.98			48.75			50.96
	Average shareholders’ equity to average assets			8.88			9.15			9.22			9.31			9.35
	Net charge-offs to average loans			0.34			0.38			0.31			0.29			0.34
	Allowance for loan losses to total loans			1.12			1.28			1.46			1.31			1.23
	Nonperforming loans to total loans			1.10			0.86			0.96			0.37			0.30
	Allowance for loan losses to nonperforming loans			101.97			150.09			149.98			357.11			447.57
At Year End
	Cash and cash equivalents		$	23,923		$	26,818		$	27,749		$	26,832		$	31,505
	Securities			155,274			149,621			152,127			152,295			138,401
	Gross loans			591,011			575,224			533,975			509,376			477,488
	Allowance for loan losses			6,622			7,386			7,730			6,653			5,890
	Net loans			584,389			567,838			526,245			502,723			471,598
	Other assets			37,535			37,372			35,100			33,549			23,022
	Total assets			801,121			781,649			741,221			715,399			664,526
	Total deposits			640,216			605,543			581,344			566,127			518,267
	Other borrowings			86,512			100,915			86,563			75,791			78,515
	Other liabilities			5,987			4,617			5,179			6,868			5,606
	Total liabilities			732,715			711,075			673,086			648,786			602,388
	Total shareholders’ equity			68,406			70,574			68,135			66,613			62,138
Total liabilities and shareholders’ equity			$	801,121		$	781,649		$	741,221		$	715,399		$	664,526


(1)	Basic and diluted earnings per share are computed using the weighted-average number of shares outstanding during each year.

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

(3)	Financial Ratios based on average balances.

(4)	Tax exempt income was converted to a fully taxable equivalent basis at a 35% statutory Federal income tax rate in all years except 2005 which was converted at a 34% statutory Federal income tax rate.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

During 2005, the Board of Directors of LNB Bancorp, Inc. (the “Corporation”) made several key management changes and additions in order to lay the groundwork for improved financial performance in 2006. The most significant of these changes was the selection of Daniel E. Klimas as President and CEO. Subsequent to his arrival in February 2005, the Corporation conducted several key strategic activities. These were:


	•	assembling a high quality, experienced leadership team,

	•	broadening our retail product offerings and making a strategic decision to close LNB Mortgage, LLC and reestablish the mortgage lending operation in the Bank,

	•	identifying the risk profile of the Corporation and making improvements to the internal audit function, the credit function and to loan underwriting,

	•	committing resources to the portions of the market that are growing rapidly by announcing plans for two new offices, and

	•	adjusting staffing levels throughout the Corporation to balance the needs of sales and support.

The Corporation made key additions to the leadership team in 2005. In addition to the recruitment of Mr. Klimas, the Corporation added new managers in retail banking, credit administration, operations, human resources and marketing. The individuals hired bring many years of experience to their respective areas and are integral to achieving the long-term earnings objectives of the Corporation.

The Corporation has renewed its commitment to growing its retail businesses. Many changes were made to retail lending, mortgage lending and deposit products during the year. These changes, combined with the announcement of two new offices, are designed to improve financial performance by more appropriately balancing the revenue contribution of the retail businesses with the Corporation’s commercial business.

Management examined the Corporation’s risk profile which had developed in recent years and sought to enhance several areas to better understand and mitigate such risks. During the year, the Corporation outsourced its internal audit function in order to enhance regulatory compliance and the internal audit of operations. The Corporation also recruited a new Chief Credit Officer. During the year, the loan portfolio was analyzed and credit quality stabilized. Improvements were made to loan underwriting, documentation and processing. The Corporation also continued to work towards ensuring compliance with a myriad of corporate governance requirements.

The Corporation currently serves Lorain County, 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 within the Cleveland area. In 2005, portions of our historical market continued to struggle, while portions of the market in the eastern part of Lorain County were expanding rapidly with high levels of residential construction. The Corporation opened two offices in 2004 in this part of Lorain County, and plans to open offices in Elyria and North Ridgeville in 2006. Efforts have also been made to align the retail products to be more competitive and successful in these markets, and sales oriented people have been added at many of the offices. The Corporation also announced plans for a business development office in Cuyahoga County, Ohio in 2006.

In the second quarter of 2005 the Corporation examined its staffing levels and made a number of difficult personnel decisions. The cost of these staff reductions was recognized in the second quarter of 2005. However, the Corporation also successfully recruited a number of talented sales people to implement the retail business plan.

The Corporation’s mission continues to be to meet the demands of the market with attractive 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 by offering superior customer service, and to compete against other community banks by providing more creative and sophisticated products.

Key Indicators and Material Trends (Dollars in thousands)

Net interest income growth continues to be a challenge in the banking industry. In absolute terms the Corporation, like most banks, is dealing with smaller margins. Since the Corporation is highly dependent on net interest income for its revenue, minimizing net interest margin compression is critical. Historically, the Corporation has experienced net interest margin strength from the ability to grow and maintain a strong, low-cost retail deposit base, and to grow and maintain a strong commercial lending operation. The Corporation’s balance sheet generally is structured to benefit from rising rates, so as rates rose in 2005, the Corporation experienced net interest margin improvement as anticipated. While the Corporation continues to see improvement in its share of the deposit market in Lorain County, it is increasingly becoming more dependent on wholesale funding sources to supplement local retail deposits. While marketing and sales efforts have been expanded to attract and retain local retail deposits, a higher dependence on alternative funding sources is anticipated as the Corporation grows.

Generation of noninterest income is important to the long-term success of the Corporation. In the last few years, total noninterest income has been fairly stable in total, but quite volatile in its components. Consequently, the focus in the future is expected to be on developing noninterest income sources that generate continuing revenue over time rather than from single transactions like loan sales and asset sales.

An important change in strategic direction in 2005 involved the Corporation’s subsidiary LNB Mortgage, LLC. When this company was purchased in September 2004, its financial performance was dependent upon fees generated by placing mortgages with other banks. When interest rates increased in 2005, there was a negative impact on mortgage company activity. Since this subsidiary was fee-based during the fourth quarter of 2004 and the first three quarters of 2005, there were few 1-4 family real estate loans generated for the Corporation’s loan portfolio. The origination of 1-4 family mortgages is a critical relationship building product for the Corporation. The new business plan for this product is to reintegrate the delivery of mortgages through the Bank. It is the Corporation’s view that long-term profitability of mortgage lending will be through the interest income it can generate as part of the loan portfolio, combined with the potential gains on sale of mortgages into the secondary market if liquidity needs dictate. In consideration of these factors, LNB Mortgage, LLC was wound up as a separate business.

Asset quality generally is a key indicator of financial strength, and the Corporation continues to manage credit risk aggressively. There are indications that the Corporation’s credit quality has stabilized. In 2005, net charge-offs were ..34% of average loans. This compares to .38% and .31% in 2004 and 2003, respectively. The Corporation perceives that credit quality has stabilized for several reasons. Over the last five years, the majority of the net charge-offs occurred in the credit card, indirect loan, and commercial and industrial (C&I) portfolios. During this five year period, the Corporation had net charge-offs of approximately $8.7 million and these three portfolios represented about 86% of these charge-offs. The Corporation is no longer in the credit card business, it has substantially reduced its presence in the indirect installment loan market and believes it has improved its underwriting and monitoring of C&I loans. However, nonperforming loans are still at levels that are not acceptable. In 2005, the level of nonperforming loans increased over the prior year from $4,921 at December 31, 2004 to $6,494 at December 31, 2005. Approximately 80% of these loans are commercial loans. The balance of any one of these loans is relatively small (less than $200), and they are generally well secured and have either been written down to their estimated collateral value or have had a specific reserve established. The Corporation also monitors the level of potential problem loans. Potential problem loans are loans that the Corporation monitors very closely for performance and potential deterioration. Potential problem loans declined from $21.6 million at December 31, 2004 to $14.4 million at December 31, 2005. This was accomplished through more aggressive management of potential problem loans. Approximately $4.6 million of this decline was due the sale of substandard loans. The Corporation’s risk profile is slowly improving with a more disciplined loan underwriting on new loans and improved credit administration.

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 2005, as measured by the FDIC at June 30, 2005, the Corporation’s market share of deposits grew to 18.8% from 18.0% in 2004. This compares to 17.4% five years ago. The Corporation continues to do well in its historically strong city markets of Lorain, Elyria and Amherst, but has only recently begun to open new offices in the faster growing parts of the county. The performances of the new offices in Avon and Avon Lake that were opened in 2004 have begun to contribute to market share improvement. However, the Corporation has growth objectives that require deposits to grow at a faster pace. The alternative is more costly wholesale funds. New branches are planned in 2006 and beyond, and are an indication of Management’s commitment to deploy resources into those areas of Lorain County that are growing rapidly.

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


	*Summary of Earnings*

Net income in 2005 was $6,413 or $.97 per diluted share, down from $7,475 or $1.13 per diluted share in 2004, and down from $7,715 or $1.17 per diluted share in 2003. Included in 2005 earnings were approximately $1,218 of expenses associated with the recruitment of senior management, severance costs, a goodwill impairment charge related to the Corporation’s subsidiary LNB Mortgage, LLC and the write-off of several telecommunications contracts. Included in 2004 earnings was a $1,158 non-cash pretax charge to recognize other than temporary impairment of the Corporation’s investment in FNMA and FHLMC preferred securities which were sold in 2005. Included in 2003 earnings was an $832 gain on the sale of the Corporation’s credit card portfolio.

In 2005, net interest income increased 6.8% due to the growth in assets, and an improvement in the net interest margin throughout the year. Towards year-end the benefits from rising short-term rates were being substantially offset by the flattening of the Treasury yield curve and the impact of competition on loan and deposit pricing. Noninterest income was nearly unchanged, as lower trust fees and merchant services fees offset improved mortgage banking revenue and deposit service fees in 2005. The provision for loan losses decreased to $1,248 in 2005 from $1,748 in 2004 primarily due to improving charge-off trends, improving trends in potential problem loans, and better asset quality management. Noninterest expenses increased in 2005 by 15.1% due mainly to the costs associated with the recruitment of new management and expenses related to changes to the Corporation’s business strategy, products and processes.

As a percent of average assets, net income in 2005 represents a return of .81%. This compares to .98% and 1.05% in 2004 and 2003, respectively. Return on assets is one measure of operating efficiency. As a percent of average shareholders’ equity this represents a return of 9.11% as compared to 10.75% and 11.33% in 2004 and 2003, respectively. Return on shareholders’ equity is a measure of how well the Corporation employs leverage to maximize the return on the capital it employs.


	*2005 versus 2004 Net Interest Income Comparison*

Net interest income is the difference between interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. The Corporation reviews net interest income on a fully taxable equivalent basis, which presents interest income with an adjustment for tax-exempt interest income on an equivalent pre-tax basis assuming a 34% statutory Federal tax rate in 2005 and a 35% statutory Federal tax rate in 2004 and 2003. These rates may differ from the Corporation’s actual effective tax rate. Net interest income is affected by changes in the volumes, rates and the 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 the net interest margin for the three years ended December 31, 2005.

Table 1: Net Interest Income


	Year Ended December 31,

	2005			2004			2003

	(Dollars in thousands)
Net interest income	$	30,030		$	28,122		$	28,664
Tax equivalent adjustments		201			215			383
Net interest income (FTE)	$	30,231		$	28,337		$	29,047
Net interest margin		4.06	%		3.98	%		4.17	%
Tax equivalent adjustments		0.03	%		0.03	%		0.06	%
Net interest margin (FTE)		4.09	%		4.01	%		4.23	%


	*Yields*

Table 2 reflects the detailed components of the Corporation’s net interest income for each of the three years ended December 31, 2005. Rates are computed on a tax equivalent basis and nonaccrual loans are included in the average loan balances.

The Corporation’s net interest income was $30,231 in 2005, which compares to $28,337 in 2004, and is an increase of $1,894, or 6.7%, from 2004. This follows a decrease in net interest income of $710 in 2004 as compared to 2003. The net interest margin, which is determined by dividing tax equivalent net interest income by average earning assets, was 4.09% in 2005, or an increase of 8 basis points from 2004. This follows a decrease of 22 basis points in 2004 as compared to 2003. Net interest income improvement in 2005 was the result of the rising interest rate environment and an increase in average earning assets. Offsetting a portion of this improvement was competitive pricing pressures on loan and deposit yields. The positive impact of rates is evident in 2005 as compared to the negative impact of rates in 2004. The rise in short-term interest rates, triggering a 200 basis point increase in the Corporation’s prime lending rate in 2005, produced an increase in the yield on earning assets. The yield on earnings assets was 5.90% in 2005, or 60 basis points higher, as compared to 5.30% in 2004. The yield on loans was 6.52% in 2005, or 62 basis points higher, as compared to 5.90% in 2004. The rise in short-term interest rates also produced an increase in the cost of total interest-bearing liabilities. The cost of total interest-bearing liabilities was 2.15% in 2005, or 61 basis points higher, as compared to 1.54% in 2004.

Table 2: Condensed Consolidated Average Balance Sheets

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


	Year Ended December 31

	2005							2004							2003

	Average							Average							Average
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate

	(Dollars in thousands)
Assets:
U.S. Govt agencies and corporations	$	140,677	$	4,761		3.38	%	$	139,646	$	4,085		2.93	%	$	143,505	$	4,572		3.19	%
State and political subdivisions		11,437		640		5.60			10,581		674		6.37			14,268		871		6.10
Federal funds sold and short-term investments		2,644		87		3.29			5,289		120		2.27			3,261		39		1.20
Commercial loans		358,705		24,139		6.73			321,154		18,663		5.81			286,244		16,788		5.86
Real estate mortgage loans		87,422		5,438		6.22			105,485		7,051		6.68			127,244		9,111		7.16
Home equity lines of credit		64,727		3,996		6.17			60,466		2,730		4.51			53,540		2,245		4.19
Purchased installment loans		35,786		1,706		4.77			18,032		683		3.79			2,011		74		3.68


			Year Ended December 31

			2005									2004									2003

			Average									Average									Average
			Balance			Interest			Rate			Balance			Interest			Rate			Balance			Interest			Rate

			(Dollars in thousands)
Installment loans				38,122			2,866			7.52			46,378			3,433			7.40			57,077			4,543			7.96

		Total Earning Assets	$	739,520		$	43,633			5.90	%	$	707,031		$	37,439			5.30	%	$	687,150		$	38,243			5.57	%

Allowance for loan loss				(7,760	)								(7,878	)								(7,215	)
Cash and due from banks				24,288									24,737									24,276
Bank owned life insurance				13,646									13,030									12,313
Other assets				23,593									22,617									21,696

		Total Assets	$	793,287								$	759,537								$	738,220

Liabilities and Stockholders’ Equity
Consumer time deposits			$	179,825		$	5,675			3.16	%	$	164,421		$	4,221			2.57	%	$	165,541		$	4,881			2.95	%
Public time deposits				47,145			1,551			3.29			45,576			730			1.60			48,202			746			1.55
Brokered time deposits				40,942			1,429			3.49			7,012			196			2.79			—			—			0.00
Savings deposits				101,808			332			0.33			105,883			322			0.30			102,100			366			0.36
Interest-bearing demand				173,335			1,934			1.12			174,150			1,345			0.77			176,430			1,268			0.72
Short-term borrowings				19,892			618			3.11			18,013			205			1.14			18,185			198			1.09
FHLB advances				61,283			1,863			3.04			77,760			2,083			2.68			64,880			1,737			2.68

	Total Interest-Bearing Liabilities		$	624,230		$	13,402			2.15	%	$	592,815		$	9,102			1.54	%	$	575,338		$	9,196			1.60	%

Noninterest-bearing deposits				92,730									92,305									89,928
Other liabilities				5,900									4,910									4,865
Shareholders’ Equity				70,427									69,507									68,089

		Total Liabilities and Shareholders’ Equity	$	793,287								$	759,537								$	738,220

Net Interest Income (FTE)						$	30,231			4.09	%				$	28,337			4.01	%				$	29,047			4.23	%
Taxable Equivalent Adjustment							(201	)		(0.03	)					(215	)		(0.03	)					(383	)		(0.06)

Net Interest Income Per Financial Statements						$	30,030								$	28,122								$	28,664

Net Yield on Earning Assets										4.06	%								3.98	%								4.17	%


	*Average Balances*

Average earning assets increased $32.5 million, or 4.6%, to $739.5 million in 2005 as compared to $707.0 million for the same period of 2004. Average loans increased $33.3 million, or 6.0%, to $584.8 million in 2005 as compared to $551.5 million in 2004. The average increase of $33.3 million is due primarily to an increase in the commercial loan portfolio of $37.6 million, an increase in home equity loans of $4.3 million and an increase of $17.8 million in purchased installment loans. Partially offsetting this growth was runoff of real estate mortgages, direct installment and indirect installment loans. Commercial and home equity loan growth in 2005 was comparable with 2004 and 2003. The large increase in purchased loans is comprised of high-quality new automobile loans originated by another bank in the Cleveland area. Since 2001 the Corporation has been reducing its presence in the indirect installment loan market due to excessive losses. It also had not fully developed its retail loan products such as home equity lines to be competitive in the market. The purchased loan program has been utilized as a short-term substitute for the lack of locally generated installment loans. In 2005, the retail loan products were redesigned, and it is anticipated that the Corporation’s dependence on this source of loans will be less in future years. The increase in average loans was primarily funded with growth in deposits. Noninterest-bearing deposit growth was $.4 million, or .5%, and interest-

bearing deposits grew $46.0 million, or 9.3%. The interest-bearing deposit growth was composed of retail time deposit growth of $15.4 million, or 9.4%, brokered time deposit growth of $33.9 million, or 483.9% and public time deposit growth of $1.6 million, or 3.4%. The Bank began to use brokered time deposits in 2004 as an alternative wholesale funding source. Brokered time deposits have become an important and comparably priced substitute for FHLB advances, and they require no collateralization as compared to FHLB advances which require collateral in the form of real estate mortgage loans and securities.

Historically, the Corporation has been structured to experience better net interest income performance when interest rates rise. This basic balance sheet structure is evident in improved 2005 net interest income performance. Conversely, this structure was the primary reason for the margin deterioration experienced by the Corporation during the falling rate environment in 2001-2004. In 2005, the Corporation began to take measures to better manage the balance sheet structure to provide for less volatility when rates change. Some of these initiatives included the promotion of money market deposits to better match the variable rate loans that have been the historical emphasis of the Corporation, as well as less aversion to the origination of fixed rate or adjustable rate loans. This is expected to provide some benefit when rates begin to decline again.


	*Rate/Volume*

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, 2005 and during the two years ended December 31, 2004. 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.

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


		Year Ended December 31,

		Increase (Decrease) In									Increase (Decrease) In
		Interest Income/Expense									Interest Income/Expense
		in 2005 over 2004									in 2004 over 2003

		Volume			Rate			Total			Volume			Rate			Total

		(Dollars in thousands)
U.S. Government agencies and corporations		$	35		$	641		$	676		$	(115	)	$	(372	)	$	(487	)
State and political subdivisions			40			(74	)		(34	)		(224	)		27			(197	)
Federal funds sold and short term investments			(48	)		15			(33	)		36			45			81
Commercial loans			2,377			3,099			5,476			2,049			(174	)		1,875
Real estate mortgage loans			(1,185	)		(428	)		(1,613	)		(1,531	)		(529	)		(2,060	)
Home equity lines of credit			249			1,017			1,266			299			186			485
Purchased installment loans			723			300			1,023			656			(47	)		609
Installment loans			(610	)		43			(567	)		(837	)		(273	)		(1,110	)

	Total Interest Income		1,581			4,613			6,194			333			(1,137	)		(804	)

Consumer time deposits			458			996			1,454			(29	)		(631	)		(660	)
Public time deposits			50			771			821			(39	)		23			(16	)
Brokered time deposits			993			240			1,233			144			52			196
Savings deposits			(15	)		25			10			11			(55	)		(44	)
Interest bearing demand			(9	)		598			589			(18	)		95			77
Short-term borrowings			54			359			413			(2	)		9			7
FHLB advances			(394	)		174			(220	)		345			1			346

	Total Interest Expense		1,137			3,163			4,300			412			(506	)		(94	)

Net Interest Income (FTE)		$	444		$	1,450		$	1,894		$	(79	)	$	(631	)	$	(710	)

The impact of balance sheet growth and changing rates can be seen in Table 3, which segments the change in net interest income into volume and rate components. Total interest income was $43,633 in 2005 as compared to $37,439 in 2004. This is an increase of $6,194, or 16.5%. Of this increase, $1,581 was due to volume and $4,613 to rate. When comparing 2005 to 2004, the contribution from balance sheet growth improved, and rates provided a positive contribution as well, as compared to 2004 when total interest income was adversely impacted by rates. Total interest expense was $13,402 in 2005 as compared to $9,102 in 2004. This is an increase of $4,300, or 47.2%. Of this increase, $1,137 was due to volume and $3,163 to rate. In 2004, the impact of volume increased interest expense while the rates reduced interest expense.

Although difficult to isolate, changing customer preferences and competition impact the rate and volume factors. In the fourth quarter of 2005, despite short-term rates that were substantially higher than at the same time in 2004, the Corporation experienced flat net interest margin performance as compared to the same period last year. The Corporation still benefits from rising rates, but increasingly pricing pressures on loans and deposits, and a customer preference for time deposits, has reduced this benefit. Also impacting the net interest margin is a continuing shift of savings accounts to higher cost money market accounts and retail time deposits. Additionally, the Corporation continues to increase its use of brokered time deposits. While these funds are not more expensive than other wholesale funding sources, they are more expensive than deposits generated through our retail branch system.


	*2004 versus 2003 Net Interest Income Comparison*

The Corporation’s net interest income was $28,337 in 2004, which was a decline of $710 from 2003. This follows a decrease in net interest income of $600 in 2003 as compared to 2002. The Corporation reviews net interest income on a fully taxable equivalent basis, which presents interest income with an adjustment for tax-exempt interest income on an equivalent pre-tax basis assuming a 34% statutory Federal tax rate in 2005 and a 35% statutory Federal tax rate in 2004 and 2003. These rates may differ from the Corporation’s actual effective tax rate. The net interest margin was 4.01% in 2004, which is a decline of 22 basis points from 2003. This follows a decrease of 35 basis points in 2003 as compared to 2002. Declining net interest income was primarily the result of the continued low interest rate environment through the first nine months of 2004, coupled with the slow recovery of the local economy. The negative impact of rates is much more pronounced in 2003 and 2004 than the impact of volume. In 2002 and early 2003, the Corporation offset some of the net interest margin compression caused by declining rates with balance sheet growth. However, for much of 2003 and into the middle of 2004, assets grew much more slowly than the 7.6% average asset growth rate in 2002. Asset growth for 2004 did not occur until the latter part of the year, indicating that general economic conditions in the market were slowly improving. Net interest income and the net interest margin in the fourth quarter of 2004 were $7,353 and 4.10% as compared to $7,121 and 4.05% for the same period in 2003. Also impacting the Corporation’s net interest income was a higher dependence on non-core funding sources. This trend is highlighted in Table 12. Although these funds are not necessarily more expensive than other funding sources of comparable term, as our funding mix shifts from such extremely low cost sources, like savings accounts, to these alternative funding sources, the potential for further margin compression increases.

In 2004, the Corporation attempted to keep asset maturities short and loan volume on a variable rate basis to be properly positioned for the rising rate environment that began late in the year. At December 31, 2004, the Corporation’s cumulative twelve month GAP position was a positive $129 million, which means that assets that could potentially reprice in the next twelve months exceeded liabilities by this amount. Consequently, the Corporation was positioned to materially benefit from increases in interest rates in 2005.

Table 4: Details of Noninterest Income


											2005			2004
											versus			versus
			2005			2004			2003		2004			2003

			(Dollars in thousands)
Investment and trust services			$	1,940		$	2,091		$	1,762		(7.2	)%		18.7	%
Deposit services charges				4,219			4,187			4,260		0.8			(1.7	)
Electronic banking fees				1,895			2,794			3,104		(32.2	)		(10.0	)
Mortgage banking revenue				959			364			—		163.5			NM
Income from bank owned life insurance				600			632			772		(5.1	)		(18.1	)
Other income				479			592			207		(19.1	)		186.0

	Total fees and other income			10,092			10,660			10,105		(5.3	)		5.5

Gain on sale of loans				132			181			1,068		(27.1	)		(83.1	)
Gain (loss) on sale of securities				173			(777	)		449		122.3			(273.1	)
Gain (loss) on sale of other assets				(20	)		378			2		(105.3	)		NM

		Total Noninterest income	$	10,377		$	10,442		$	11,624		(0.6	)%		(10.2	)%


	*2005 versus 2004 Noninterest Income Comparison*

Total noninterest income was $10,377 in 2005 as compared to $10,442 in 2004. This is a decrease of $65, or .6%. Total fees and other income, which is total noninterest income before gains and losses on the sale of assets, was $10,092 in 2005 as compared to $10,660 in 2004. This is a decrease of $568, or 5.3%.

Investment and trust services were $1,940 in 2005 as compared to $2,091 in 2004. Approximately one-third of this decrease was due to the loss of three accounts, while the remaining difference was the result of competitive pricing pressures and mediocre market conditions during the year.

Deposit service charges were $4,219 in 2005 as compared to $4,187 in 2004. Deposit services charges are influenced by economic activity and were weaker in the first two quarters of 2005, before improving in the second half of 2005 and ending the year up $32, or .8%.

Electronic banking fees were $1,895 in 2005 as compared to $2,794 in 2004. This is a decline of $899, or 32.2%. Electronic banking fees include debit, ATM and merchant services. In the fourth quarter of 2004, the Corporation exited the merchant services business due to anticipated lower margins, higher operating costs and escalating risk. In 2005 the Corporation offered an outsource solution for this product for which it receives a small fee. These fees were $27 in 2005 as compared to $945 in 2004. Excluding this factor, the fees on ATM and debit transactions were up $19 in 2005 as compared to 2004.

Mortgage banking revenue was $959 in 2005 as compared to $364 in 2004, increasing $595, or 163.5%. 2005 was the first full year of operations for LNB Mortgage, LLC which began business in September 2004. The Corporation has reevaluated this business line and the decision was made in mid 2005 to wind up the business of LNB Mortgage, LLC and to re-establish the mortgage operation in the Bank. The focus of this business in the future is expected to be interest income through portfolio growth.

Income from bank owned life insurance was $600 in 2005, as compared to $632 in 2004. This decline of $32, or 5.1%, was due to lower crediting rates. These rates are tied to long-term rates which started to improve in the second half of 2005.

Other income was $479 in 2005 as compared $592 in 2004. This is a decrease of $113, or 19.1%, from 2004. Other income includes revenue from safe deposit box rental, EDP services and many small customer fees. Also included in other income are transaction lending fees. In the normal course of business, the Corporation has lenders calling on the fringes of our current market. In some cases potential loans are developed that are not appropriate for the Corporation’s portfolio. These loans are referred to as transaction loans since the loan is placed with another financial institution for a fee. In 2005 this activity generated

revenue of $196 as compared to $265 in 2004, a decrease of $69, or 26.0%. This is not a major focus of the Corporation and the activity is unpredictable. The rest of the decline is attributable primarily to reductions in the small dollar customer fees which are increasingly free as part of our totally free checking products.

Positively impacting 2005 were gains on the sale of securities which were $173, as compared to a loss of $777 in 2004. The gains in 2005 were from the sale of several small equity securities and non-rated municipal bonds. In 2004, the Corporation recorded an other than temporary impairment charge of $1,158 related to the write-down of variable rate, agency preferred stock which was sold in 2005. The sale of these securities in 2005 was at their carrying value, so no additional gain or loss was recognized. Gain on the sale of loans was $132 in 2005, a decrease of $49, or 27.1%, from 2004. In 2004, these gains were generated on loans originated by the Bank and sold to FHLMC and other investors. Both activities were deemphasized in 2005. In 2005, losses on sale of assets were $20, as compared to gains of $378 in 2004. In 2004, the Corporation recognized gains on the sale of its former Avon Lake office after the new office opened in May and the sale of a parking lot in the fourth quarter of 2004.


	*2004 versus 2003 Noninterest Income Comparison*

Noninterest income decreased $1,182, or 10.2%, in 2004 as compared to 2003. Included in 2004 results is a non-cash write-down of $1,158, to recognize an other than temporary impairment on FNMA and FHLMC equity securities owned by the Corporation. Although these securities are still investment grade, the accounting troubles at these two agencies impacted the value of the equity securities issued by these agencies. Also impacting the value of these securities was the interest rate environment. Although these securities have variable rate structures, they have long reset periods.

Investment and trust services improved 18.7% in 2004 versus 2003. This reflected improved business development efforts, general stock market conditions, and pricing changes in 2004. Offsetting a portion of this improvement were declines in deposit service charges and electronic banking fees. The decline in deposit service charges was attributable to local economic conditions.

Electronic banking fees in 2004 were impacted by changes in the interchange income earned on VISA debit card and ATM transactions. The Corporation experienced increased card usage in 2004, but this was offset by reductions in VISA’s per transaction pricing. Electronic banking fees were lower in 2004 as the Corporation made changes to its merchant service processing. Due to changes in MasterCard pricing and capital requirements, the Corporation outsourced the delivery of merchant processing in the fourth quarter. This service had generated annual revenue in excess of $1 million in prior years. However, the profit margin was relatively low, resulting in a pre-tax profit of only about 10% per year. The changes that would have been required to remain a MasterCard merchant processor would have made this service unprofitable.

The gain on the sale of loans was $181 in 2004, representing an $887 decrease from 2003. In 2004 these gains were primarily due to the sale of SBA loans. In 2003, the sale of SBA loans was supplemented by the sale of 1-4 family real estate loans to FHLMC and the sale of the credit card portfolio. The Corporation did not sell 1-4 family loans in the third or fourth quarter of 2004. The loss on the sale of securities in 2004 was $777, a decrease of $1,226 from 2003. The 2004 losses were primarily caused by an other than temporary impairment charge on adjustable rate agency sponsored preferred stock, partially offset by gains on the sale of non-rated municipal bonds. In 2004, the Corporation sold its former Avon Lake office after the new Avon Lake office opened in the second quarter. The Corporation also sold one of its parking lots in downtown Lorain. The sale of these two assets resulted in a $378 gain on sale of other assets in 2004 as compared to $2 in 2003. The change in other income in 2004 of $385, as compared to 2003, was primarily revenue earned by the Corporation’s new mortgage company in the last four months of 2004.

Table 5: Details of Noninterest Expense


		Year Ended December 31,

								2005			2004
								versus			versus
		2005		2004		2003		2004			2003

		(Dollars in thousands)
Salaries and employee benefits		$	15,057	$	12,995	$	13,814		15.9%			(5.9	)%
Furniture and equipment			3,001		2,784		2,517		7.8			10.6
Net occupancy			1,830		1,633		1,585		12.1			3.0
Outside services			1,925		1,182		1,441		62.9			(18.0	)
Marketing and public relations			1,249		1,047		762		19.3			37.4
Supplies and postage			1,245		1,208		1,137		3.1			6.2
Telecommunications			1,167		713		540		63.7			32.0
Ohio Franchise tax			772		729		673		5.9			8.3
Electronic banking expense			542		1,257		1,395		(56.9	)		(9.9	)
Other expense			3,479		2,742		2,603		26.9			5.3

	Total Noninterest expense	$	30,267	$	26,290	$	26,467		15.1%			(0.7	)%


	*2005 versus 2004 Noninterest Expense Comparison*

Total noninterest expense in 2005 was $30,267, an increase of $3,977, or 15.1%, as compared to $26,290 in 2004. Of this total increase, salaries and employee benefits were $15,057 in 2005 as compared to $12,995 in 2004. This is a $2,062, or 15.9% increase. This increase partially reflects the recruitment of new management, severance costs related to staff reductions and the operations for nine months in 2005 of LNB Mortgage, LLC before it ceased operations on December 31, 2005. These factors resulted in approximately $1,089 of the $2,062 increase. Of the remaining increase of $973, $467 was due to new commission programs in the trust, retail and commercial divisions, as well as bonuses to senior management. The remaining increase of $506 was due to normal merit increases and higher healthcare costs.

Furniture and equipment was $3,001 in 2005 as compared to $2,784 in 2004. This is an increase of $217, or 7.8%. This was primarily due to higher leased equipment costs associated with a new mainframe computer and telephone equipment which was up $209 in 2005 as compared to 2004.

Net occupancy was $1,830 in 2005, as compared to $1,633 in 2004, an increase of $197, or 12.1%. Depreciation was up $68 and is attributable to the full year impact of the two new offices. Also contributing to this increase was utilities which were up $30 and other occupancy such as snow removal, landscaping and maintenance which was up $99.

Outside services were $1,925 in 2005 as compared to $1,182 in 2004. This is an increase of $743, or 62.9%. Of this increase, $358 was due to internal audit expenses. In 2005 the Corporation outsourced internal audit services. Legal expenses were approximately $200 higher due to corporate governance and executive compensation work. Also contributing to this increase was approximately $150 for consulting work in the technology area and an outside credit review of the commercial portfolio.

Marketing and public relations expense was $1,249 in 2005, as compared to $1,047 in 2004. This is an increase of $202, or 19.3%, for the year. This was due to higher production costs, increased media advertising for deposits and costs associated with the 100th anniversary celebration.

Supplies, postage and freight were $1,245 in 2005 as compared to $1,208 in 2004. This is an increase of $37, or 3.1%. Postage expense increased $54 in 2005 as compared to 2004, reflecting more direct mail advertising. Supplies were well controlled during the year.

Telecommunications expense was $1,167 in 2005 as compared to $713 in 2004. This is a $454, or 63.7% increase. Included in this increase was a $129 write-off of telecommunications contracts. Also impacting this

expense in 2005 was the conversion to an IP telephony phone system. During the conversion, for a portion of the year, there were duplicate circuits and equipment costs. The Corporation is approaching the end of this project and these costs are beginning to moderate.

Ohio franchise tax was $772 in 2005, as compared to $729 in 2004. This is an increase of $43, or 5.9%. This is an equity based tax paid by the Corporation and its subsidiaries.

Electronic banking expense was $542 in 2005 as compared to $1,257 in 2004. This is a reduction of $715, or 56.9%. This reduction is the result of the exiting of the merchant service business. As mentioned in the “2005 versus 2004 Noninterest Income Comparison” section of this report, the revenue from this business declined $899 in 2005. Consequently the net impact to the Corporation in 2005 was a reduction in pretax income of $184.

Other expense was $3,479 in 2005 as compared to $2,742 in 2004. This is a $737, or 26.9% increase. Operating charge-offs were $565 in 2005 as compared to $400 in 2004. This is an increase of $165, or 41.3% in 2005. This is primarily the result of an increase in overdraft charge-offs of $40 and losses associated with a branch robbery and an ATM loss. Also impacting other expense was an impairment charge for the goodwill related to LNB Mortgage, LLC. This charge totaled $311. Loan and collection expenses were $835 in 2005, as compared to $603 in 2004. This is a $232, or 38.5% increase. Of this total, $75 were fees related to a substandard loan sale in the fourth quarter. Also contributing were legal services related to loan collections which were up $53 in 2005 as compared to 2004. The remaining increase is primarily attributable to the nine months of operations by LNB Mortgage LLC before it ceased operations in the fourth quarter of 2005.


	*2004 versus 2003 Noninterest Expense Comparison*

Noninterest expense was $26,290 in 2004, a decrease of $177, or ..7% from the prior year. In 2003 noninterest expense included $1,712 in severance expenses. Excluding this expense, noninterest expense in 2004 would have increased $1,535 over 2003. The largest increases in 2004 were in salaries and employee benefits, furniture and equipment expense, marketing, and other expenses.

Salaries and employee benefits expense was $12,995 in 2004, which if severance costs are excluded from the 2003 totals, increased $893 over 2003. The salary component of this expense was primarily driven by the salaries associated with the LNB Mortgage, LLC addition, which added $467 to salaries in 2004. Benefit costs were up $323, or 12.2% in 2004 versus 2003. Most benefit costs were well controlled in 2004; however, the Corporation did experience a $206 increase in employment services related to the CEO and other management searches, and a $64 increase in pension cost related to the minimum pension liability.

Furniture and equipment expenses totaled $2,784 in 2004, an increase of $267 as compared to 2003. This increase was primarily due to increased software maintenance and amortization related to the upgrade of core systems, the replacement of the mainframe computer and licensing fees as a result of increased users and the necessity to increase servers and server capacity. The continuing trend in equipment expense stems from a technology upgrade of $4.5 million that began in 2002 and was completed in 2005.

Electronic banking expenses were $1,257 in 2004, down 9.9% from 2003. The change in 2004 as compared to 2003 was the result of the outsourcing of merchant processing. As discussed in the noninterest income section of this report, this change in processing reduces card related revenue in future years, but the cost associated with this operation is also reduced.

Outside services decreased 18% to $1,182 in 2004, from $1,441 in 2003. Outside services include general corporate legal expenses, compliance, audit, trust processing, technology consulting and other services. In 2004, the SEC late day trading complaint was resolved and legal fees moderated as a result. Technology consulting and compliance costs also returned to more normal levels after increasing in 2003 as the Corporation updated its technology platform and compliance programs.

Marketing and public relations expense was $1,047 in 2004, an increase of $285 compared to 2003. This increase was primarily due to continuing marketing costs related to the High Performance Checking products and marketing expenses in support of the new branch offices opened in 2004. Also impacting marketing costs

were $104 incurred in support of the new mortgage operation. This expense was direct mail and billboard advertising.


	*2005 versus 2004 Income Tax Comparison*

Income tax expense was $2,479 in 2005 as compared to $3,051 in 2004. This represents a decrease of $572 or 18.7% from 2004. The Corporation’s effective tax rate was 27.9% in 2005 as compared to 29.0% in 2004. This trend reflects the impact of the Corporation’s BOLI investment and the impact in 2005 and 2004 of new markets tax credits being generated by North Coast Community Development Corporation (NCCDC), a wholly-owned subsidiary of The Lorain National Bank. On December 29, 2003, NCCDC received official notification of this tax credit award. Over the next ten years, it is expected that projects will be financed, which should improve the overall economic conditions in Lorain County, and generate additional interest income through the funding of qualified loans to these projects and tax credits for the Corporation. The Corporation had total qualified investments in NCCDC of $5,500 at December 31, 2005, generating a tax credit of $276.


	*2004 versus 2003 Income Tax Comparison*

In 2004 income tax expense was $3,051 as compared to $3,411 in 2003. This represents a decrease of $360 or 10.6% from 2003. The Corporation’s effective tax rate was 29.0% in 2004 as compared to 30.7% in 2003. The Corporation had $4.5 million of qualified investments in NCCDC in 2004 which generated a tax credit of $225. There were no qualified investments in NCCDC in 2003 and therefore no tax credit that year.

Balance Sheet Analysis (Dollars in thousands)


	*Securities*

The maturity distribution of the securities portfolio for the year ended December 31, 2005 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 duration of approximately 5.2 years, and is expected to generate approximately $32.3 million of cashflow in 2006. 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 46.8% U.S. Government agencies, 44.7% U.S. Government agency mortgage backed securities, 6.1% State and political subdivisions and 2.4% in other securities. At December 31, 2005, the securities portfolio had a net $3,664 temporary unrealized loss. This represents 2.3% of total securities at December 31, 2005. New investments are primarily in two to three year average life agencies and short average life mortgage backed securities and intermediate, high quality municipal bonds. Tables 6 and 7 present the maturity distribution of securities and the weighted average yield for each maturity range for the year ended December 31, 2005.

Table 6: Maturity Distribution of Securities at Amortized Cost


								At December 31,

		From 1 to		From 5 to		After		2005		2004		2003
		5 Years		10 Years		10 Years		Total		Total		Total

		(Dollars in thousands)
Securities available for sale:
	U.S. Government agencies and corporations	$	105,816	$	35,416	$	4,778	$	146,010	$	131,789	$	127,571
	State and political subdivisions		1,912		2,688		4,631		9,231		11,148		11,240
	Equity Securities		52		—		—		52		3,938		5,137
	FHLB and Federal Reserve stock		3,645		—		—		3,645		4,033		—

Total securities available for sale			111,425		38,104		9,409		158,938		150,908		143,948

Securities held to maturity:
	U.S. Government agencies and corporations		—		—		—		—		—		2,993
	State and political subdivisions		—		—		—		—		—		1,796
	Equity Securities		—		—		—		—		—		—
	FHLB and Federal Reserve stock		—		—		—		—		—		3,879

Total securities held to maturity			—		—		—		—		—		8,668

Total Securities		$	111,425	$	38,104	$	9,409	$	158,938	$	150,908	$	152,616

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


											At December 31,

		From 1 to			From 5 to			After			2005			2004			2003
		5 Years			10 Years			10 Years			Total			Total			Total

Securities available for sale:
	U.S. Government agencies and corporations		3.33	%		4.16	%		5.21	%		3.59	%		3.28	%		2.99	%
	State and political subdivisions		5.47			6.10			5.93			5.88			5.29			6.43
	Equity securities		6.00			—			—			6.00			5.67			5.67
	FHLB and Federal Reserve stock		5.77			—			—			5.77			4.36			—

Total securities available for sale			3.45	%		4.30	%		5.56	%		3.78	%		3.54	%		3.35	%

Securities held to maturity:
	U.S. Government agencies and corporations		—			—			—			—			—			4.25	%
	State and political subdivisions		—			—			—			—			—			8.37
	Equity securities		—			—			—			—			—			—
	FHLB and Federal Reserve stock		—			—			—			—			—			4.14

Total securities held to maturity			0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		5.05	%

Total Securities			3.45	%		4.30	%		5.56	%		3.78	%		3.54	%		3.45	%


(1)	Yields on tax-exempt obligations are computed on a tax equivalent basis based upon a 34% statutory Federal income tax rate in 2005 and a 35% statutory Federal income tax rate in prior years.


	*Loans*

Commercial loans comprised 61.4% of the total loan portfolio at December 31, 2005, increasing from 59.1% in 2004. Growth in the portfolio represents business development efforts in emerging markets. As

mentioned earlier, the Corporation’s traditional Lorain market has been slow to recover from recession. However, improving economic conditions and expanded lending efforts in Cuyahoga County provided much of the commercial loan growth in 2005. The commercial loan portfolio totaled $363.1 million at December 31, 2005 as compared to $339.4 million at year-end 2004. In 2005 approximately $63.8 million of this total was commercial and industrial as compared to $64.7 million in 2004. The portfolio continues to be primarily real estate based. The amount of collateral required on commercial loans is generally determined on a loan-by-loan basis with loan-to-value ratios for commercial loans typically ranging from 50% to 100%. Factors in determining the amount of collateral include the purpose of the loan, the current financial status of the borrower and the prior credit history of the borrower.

Installment loans comprised 6.5% of the total loan portfolio at December 31, 2005, increasing from 5.7% in 2004. The Corporation makes installment loans on a secured and unsecured basis, based on the term and purpose of the loan. The increase in 2005 is attributable to the demand for fixed rate second mortgages. Home equity lines of credit comprised 11.2% of the total loan portfolio at December 31, 2005, increasing from 10.8% at December 31, 2004. The increase in 2005 is attributable to more competitive pricing on these variable rate lines. The Corporation also purchases installment loans from another financial institution in the Cleveland area. These loans comprised 7.1% of the loan portfolio at December 31, 2005 as compared to 4.8% at December 31, 2004. These loans are high quality automobile loans having an average life of approximately 21 months.

Real estate mortgages are construction and 1-4 family mortgage loans. They comprised 13.8% of the total loan portfolio at December 31, 2005, decreasing from 19.6% in 2004. Construction loans comprised only $2.1 million of the $81.4 million real estate loan portfolio at December 31, 2005. The Corporation generally requires a loan-to-value ratio of 80% or private mortgage insurance for loan-to-value ratios in excess of 80%.

Loan balances and loan mix are presented by type for the five years ended December 31, 2005 in Table 8.


Table 8:	Loan Portfolio Distribution


		At December 31,

		2005			2004			2003			2002			2001

		(Dollars in thousands)
Commercial		$	363,144		$	339,439		$	303,347		$	259,819		$	219,511
Real Estate Mortgage			81,367			112,787			113,649			141,405			158,221
Home equity lines of credit			66,134			62,143			57,762			48,816			37,008
Purchased installment			42,023			27,833			7,218			—			—
Installment			38,343			33,022			51,999			54,219			57,886
Credit cards			—			—			—			5,117			4,862

	Total Loans		591,011			575,224			533,975			509,376			477,488
Allowance for loan losses			(6,622	)		(7,386	)		(7,730	)		(6,653	)		(5,890	)

	Net Loans	$	584,389		$	567,838		$	526,245		$	502,723		$	471,598


	At December 31,

	2005			2004			2003			2002			2001

Loan Mix Percent

Commercial		61.4	%		59.1	%		56.8	%		51.0	%		46.0	%
Real Estate Mortgage		13.8			19.6			21.3			27.8			33.1
Home equity lines of credit		11.2			10.8			10.8			9.6			7.8
Purchased installment		7.1			4.8			1.4			0.0			0.0
Installment		6.5			5.7			9.7			10.6			12.1
Credit cards		0.0			0.0			0.0			1.0			1.0

Total Loans		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Table 9 shows the amount of commercial loans outstanding as of December 31, 2005 based on the remaining scheduled principal payments or principal amounts repricing in the periods indicated. Amounts due after one year which are subject to more frequent repricing are included in the due in the one year or less classification.


Table 9:	Commercial Loan Maturity and Repricing Analysis


	December 31,
	2005

	(Dollars in
	thousands)
Maturing and repricing in one year or less	$	216,430
Maturing and repricing after one year but within five years		70,637
Maturing and repricing beyond five years		73,491

Total Commercial Loans	$	360,558

Risk Elements


(1)	Nonperforming Loans and Potential Problem Loans

Nonperforming loans were $6,494 at December 31, 2005 as compared to $4,921 at December 31, 2004. This is a $1,573, or 32.0% increase in 2005. Among the total nonperforming loans, there are 51 commercial loans that comprise $5,128 of the total. The average loan balance is $103, and the largest single loan is approximately $553. They are primarily secured by real estate and, in some cases, by SBA guarantees, and have either been charged-down to their realizable value or a specific reserve has been established for any collateral short-fall. At December 31, 2005, specific reserves on these loans totaled $356. At December 31, 2004 there were specific reserves of $1,865 on nonperforming and impaired loans. The decline is attributable to the sale of four substandard loans for which specific reserves had been identified at December 31, 2004.

Potential problem loans are substandard and special mention loans other than nonperforming loans. A summary of potential problem loans at December 31 follows:


	2005		2004		2003		2002		2001

	(Dollars in thousands)
Potential Problem Loans	$	14,440	$	21,576	$	21,747	$	15,549	$	8,579

Potential problem loans are loans identified on Management’s classified credits list which include both loans that Management has concern with the borrowers’ ability to comply with the present repayment terms and loans that 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 before stabilizing in the second quarter of 2004. This trend was due to local economic conditions and re-grading of commercial credits using a new, more formal risk management process. The economic factors which began as a general weakening of the local economy in 2002 began improving in 2005. The risk management process changes during the last three years have included the hiring of a new Chief Credit Officer, the continued development of an independent loan administration function, additional loan review resources, and the adoption of a formal loan grading system.

At December 31, 2005, potential problem loans totaled $14.4 million, a $7.1, or 33.1% decrease from one year ago. This decline was primarily due to the combination of a sale of approximately $5.7 million of substandard loans, and the resolution of two large classified credits during the year. At December 31, 2005, there are no particular industry concentrations of potential problem loans.


(2)	Loan Concentrations

Due to the nature of its commercial customer base, the Corporation has historically and predominately been a secured real estate lender. At December 31, 2005, approximately $455.4 million, or 77.1% of total portfolio loans was secured by real estate. Of this total, $169.0 million was construction and land development and $117.1 million was non-farm, non-residential loans. This type of loan activity has lead to substantial relationships with developers in the Corporation’s market area.

Credit risk is managed through the bank’s loan loss review policy which provides the Chief Credit Officer, 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. For the five years ended December 31, 2005, there were no significant industry concentrations of credit risk in the loan portfolio.

The Corporation’s operations are limited to three counties in Ohio, so its loan portfolio is geographically concentrated in this three county area. The Corporation has no foreign loans outstanding and therefore no exposure to cross border lending.


(3)	Loan Quality

Provision and Allowance for Loan Losses

The allowance for loan losses is Management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. The Corporation’s determination of the allowance, and the resulting provision, is based on judgments and assumptions, including general economic conditions, loan portfolio composition, loan loss experience, Management’s evaluation of credit risk relating to pools of loans and individual borrowers, sensitivity analysis and expected loss models, value of underlying collateral, and observations of internal loan review staff or banking regulators.

The provision for loan losses is determined based on the Corporation’s evaluation of the loan portfolio and the adequacy of the allowance for loan losses under current economic conditions and such other factors which, in Management’s judgment, deserve current recognition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations. Table 10 presents the detailed activity in the allowance for loans losses and related charge-off activity for the five years ended December 31, 2005.

Allowance for Loan Losses and Provision for Loan Losses Comparison (2005 versus 2004)

The allowance for loan losses on December 31, 2005 was $6,622, or 1.13% of outstanding loans, compared to $7,386, or 1.28% at year-end 2004. The allowance reflects trends in net charge-offs, nonperforming loans and potential problem loans, among other factors. The decline in the allowance for loan losses in 2005 as compared to 2004 reflects the Corporation’s assessment that asset quality has stabilized.

The provision charged to operating expense was $1,248 and $1,748 in 2005 and 2004, respectively. The higher 2004 provision was recorded when potential problem loan trends that began to develop in 2002 persisted into 2004. These trends have begun to moderate and this is reflected in the provision for loan losses in 2005.

Net charge-offs for 2005 were $2,012, as compared to $2,092 for 2004, while net charge-offs as a percentage of average loans outstanding for 2005 was .34%, compared to .38% for 2004. Included in 2005 was $1,173 in charge-offs related to the sale of four substandard loans. These charge-offs were in line with the specific reserves estimated at December 31, 2004. Net charge-offs in 2005, excluding those associated with the loan sale, were $839, or .14%. Over the last five years the majority of net charge-offs occurred in the credit card, indirect loan and commercial and industrial (C&I) portfolios. During this five year period the Corporation had net charge-offs of approximately $8.7 million, and these three portfolios represented about 86% of total net charge-offs. In the last three years, steps have been taken to address the net charge-offs in these three portfolios. The Corporation is no longer in the credit card business after selling its portfolio in 2003. The Corporation also substantially curtailed its indirect installment loan business. These loans totaled $20.2 million at December 31, 2005, as compared to $33.1 million at December 31, 2002. This is a decline of $12.9, or 39.0%. The Corporation’s exposure to C&I lending has also stabilized. After rapidly increasing from $47.4 million at December 31, 2002, to $59.1 million at December 31, 2003, this portfolio has stabilized. The C&I balances were at the same level in 2005 at $63.8 million as compared to $64.7 million at December 31, 2004. This type of lending was monitored more closely until the underwriting and credit administration were in place to manage this type of lending.

In 2005, the level of nonperforming loans increased over the prior year from $4,921 at December 31, 2004 to $6,494 at December 31, 2005. Approximately 80% of these loans are commercial loans. The average balance of these loans is relatively low, and they are well secured, and those that might have collateral deficiencies have either been written down to their estimated collateral value or have had a specific reserve established. Approximately 11% of these loans involve an SBA guarantee. The process to be reimbursed by the SBA for these loans occurs after the collateral has been liquidated and the paperwork has been submitted to the SBA. This process can take many months.

Potential problem loans are loans that the Corporation monitors very closely for performance and potential deterioration. Potential problem loans declined from $21.6 million at December 31, 2004 to $14.4 million at December 31, 2005. This was accomplished through more aggressive management of potential problem loans. The Corporation’s risk profile is slowly improving with a more disciplined loan underwriting on new credits and improved credit administration.

Allowance for Loan Losses and Provision for Loan Losses Comparison (2004 versus 2003)

The allowance for loan losses on December 31, 2004 was $7,386, or 1.28% of outstanding loans, compared to $7,730, or 1.46% at year-end 2003. The decline in the allowance for loan losses in 2004 as compared to 2003 reflected improving delinquency, potential problem loan balances and slowly improving economic conditions. The provision charged to operating expense was $1,748 and $2,695 in 2004 and 2003, respectively. Net charge-offs for 2004 were $2,092, as compared to $1,618 for 2003, while net charge-offs as a percentage of average loans outstanding for 2004 was .38%, compared to .31% for 2003. The charge-offs in 2004 were primarily commercial and industrial loans and indirect installment.


Table 10:	Analysis of Allowance for Loan Losses


		Year Ended December 31,

		2005			2004			2003			2002			2001

		(Dollars in thousands)
Balance at beginning of year		$	7,386		$	7,730		$	6,653		$	5,890		$	5,250
Charge-offs:
	Commercial		(1,582	)		(1,619	)		(1,207	)		(738	)		(490	)
	Real Estate Mortgage		(28	)		(21	)		(1	)		(15	)		(16	)
	Home equity lines of credit		(146	)		(109	)		(22	)		—			(9	)
	Purchased installment		(65	)		—			—			—			—
	Installment		(435	)		(586	)		(595	)		(889	)		(1,078	)
	Credit cards		—			(5	)		(133	)		(141	)		(145	)

	Total charge-offs		(2,256	)		(2,340	)		(1,958	)		(1,783	)		(1,738	)

Recoveries:
	Commercial		75			71			87			163			64
	Real Estate Mortgage		—			—			—			1			5
	Home equity lines of credit		1			1			—			—			9
	Purchased installment		3			—			—			—			—
	Installment		160			158			219			157			76
	Credit cards		5			18			34			25			24

	Total recoveries		244			248			340			346			178

Net charge-offs			(2,012	)		(2,092	)		(1,618	)		(1,437	)		(1,560	)

Provision for loan losses			1,248			1,748			2,695			2,200			2,200

Balance at end of year		$	6,622		$	7,386		$	7,730		$	6,653		$	5,890

Allocation of Year-end Allowance for Loan Losses


	At December 31,

	2005		2004		2003		2002		2001

	(Dollars in thousands)
Commercial	$	5,195	$	5,436	$	5,495	$	4,145	$	3,750
Real Estate Mortgage		264		161		405		412		363
Home equity lines of credit		216		109		—		—		—
Purchased installment		143		—		—		—		—
Installment		381		700		1,237		1,475		1,351
Unallocated		423		980		593		621		426

Total	$	6,622	$	7,386	$	7,730	$	6,653	$	5,890

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 2005 were $6,926 compared to $5,341 at year-end 2004. This is an increase of $1,585 or 29.7%. This is the result from a net increase in nonaccrual loans of $1,573 and other foreclosed assets in the amount of $12. Nonperforming loans at December 31, 2005 were $6,494 as compared to $4,921 at December 31, 2004. Of the total nonperforming loans, 79.5% were commercial loans, 17.8% were mortgage loans, 2.4% were installment loans and .3% were home equity lines. This compares to 66.2% for commercial loans, 22.7% for mortgage loans, 3.0% for installment loans and 8.1% for home equity lines at year-end 2004.

Nonperforming loans at December 31, 2005 and 2004 have been charged-down to their estimated collateral values or if required a specific reserve has been established for any collateral shortfall. Substantially all are secured by commercial real estate. Nonperforming loans did not have a material impact on interest income during 2005, 2004 and 2003. The ratio of nonperforming loans to total loans was 1.10% at year-end 2005, as compared to .85% in 2004 and .96% in 2003. There were no particular industry or geographic concentrations in nonperforming or delinquent loans or net charge-offs.

The Corporation’s credit policies are reviewed and modified on an ongoing basis in order to manage the credit risks within the loan portfolio as conditions change. At December 31, 2005 there were no significant industry 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 11: Nonperforming Assets


		At December 31,

		2005			2004			2003			2002			2001

		(Dollars in thousands)
Commercial loans		$	5,129		$	3,255		$	4,104		$	1,213		$	546
Real Estate Mortgage			1,182			1,116			821			461			644
Home equity lines of credit			25			400			89			22			13
Purchased installment			—			—			—			—			—
Installment loans			158			150			140			167			113
	Total nonperforming loans		6,494			4,921			5,154			1,863			1,316
Other foreclosed assets			432			420			589			22			123

	Total nonperforming assets	$	6,926		$	5,341		$	5,743		$	1,885		$	1,439

Loans 90 days past due accruing interest		$	—		$	—		$	46		$	45		$	149

Allowance for loan losses to nonperforming loans			102.0	%		150.1	%		150.0	%		357.1	%		447.6	%

Funding Sources

The following table shows the various sources of funding for the Corporation:

Table 12: Funding Sources


	Average Balances Outstanding						Average Rates Paid

	2005		2004		2003		2005			2004			2003

	(Dollars in thousands)
Demand deposits	$	92,730	$	92,305	$	89,928		0.00	%		0.00	%		0.00	%
Interest checking		173,335		174,150		176,430		1.12			0.77			0.72
Savings deposits		101,808		105,883		102,100		0.33			0.30			0.36
Consumer time deposits		179,825		164,421		165,541		3.16			2.57			2.95
Public time deposits		47,145		45,576		48,202		3.29			1.60			1.55
Brokered time deposits		40,942		7,012		—		3.49			2.79			0.00

Total Deposits		635,785		589,347		582,201		1.72			1.16			1.25

Short-term borrowings		19,892		18,013		18,185		3.11			1.14			1.90
FHLB borrowings		61,283		77,760		64,880		3.04			2.68			2.68

Total borrowings		81,175		95,773		83,065		3.06			2.39			2.51

Total Funding	$	716,960	$	685,120	$	665,266		1.87	%		1.33	%		1.41	%

The Corporation obtains funding through many sources. The primary source of funds continues to be the generation of deposit accounts within our primary market. In order to achieve deposit account growth, the Corporation offers retail and business customers a full line of deposit products that includes checking accounts, interest checking, savings accounts, and time deposits. The Corporation also generates funds through wholesale sources that include local borrowings generated by a business sweep product. The Corporation utilizes brokered time deposits to provide term funding at rates comparable to other wholesale funding sources. Wholesale funding sources include lines of credit with correspondent banks, advances through the Federal Home Loan Bank of Cincinnati, and a secured line of credit with 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, 2005.

Average deposit balances grew 7.9% in 2005 compared to increases of 1.2% in 2004 and 5.8% in 2003. The Corporation continues to benefit from a large concentration of low-cost local deposit funding, however these sources declined slightly in 2005 as compared to 2004. Sources such as demand deposit accounts, interest checking accounts and savings accounts comprised 51.3% of the Corporation’s average funding in 2005, as compared to 54.3% and 55.4% in 2004 and 2003 respectively. On an average balance basis, these sources declined by 1.2% in 2005 as compared to 2004, following and increase of 1.1% in 2004 as compared to 2003. These funds had an average yield of .62% in 2005 as compared to .45% in 2004 and .44% in 2003. Included in these funds are the Corporation’s money market accounts. These were much more aggressively priced in 2005 which accounts for the increase in the average cost of these low-cost sources. Although these remain important sources of funds, the Corporation is more dependent, at varying times and amounts, on brokered time deposits, public fund time deposits and borrowings. Average time deposits were $267.9 million, an increase of $50.9 million or 23.5% in 2005 as compared to 2004. This follows an increase of $3.3 million, or 1.5% in 2004 as compared to 2003. The increase in time deposits resulted from increased consumer, brokered and public fund time deposit balances.

Average borrowings decreased 15.2% in 2005 as compared to an increase of 15.3% in 2004 and an increase of 13.5% in 2003. The Corporation’s borrowings are primarily sweep accounts and Federal Home Loan Bank advances. In 2005 the Corporation increased its use of brokered time deposits and reduced its use of FHLB borrowings. These time deposits are priced comparably to FHLB advances and are not collateral-

ized. These products continue to be an important part of the Corporation’s interest rate risk management strategy. The Corporation expects these trends to continue.

Liquidity

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 its ability 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 its liquidity policy. The policy establishes minimums for the ratio of cash and cash equivalents to total assets and the loan to deposit ratio. At December 31, 2005 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, 2005, the Corporation expects the securities portfolio to generate cash flow in the next 12 months of $32.3 million and $111.6 million in the next 36 months.

The Bank maintains borrowing capacity at the Federal Home Loan Bank of Cincinnati, the Federal Reserve Bank of Cleveland and Federal Fund lines with correspondent banks. Table 13 highlights the liquidity position of the Bank including total borrowing capacity and current unused capacity for each borrowing arrangement at December 31, 2005.

Table 13: Liquidity


	Borrowing		Unused
	Capacity		Capacity

	(Dollars in thousands)
FHLB Cincinnati	$	70,559	$	16,663
FRB Cleveland		10,945		10,945
Federal Funds Lines		47,750		31,250

Total	$	129,254	$	58,858

LNB Bancorp, Inc. is the financial holding company of The Lorain National Bank and conducts no operations. Its only ongoing need for liquidity is the payment of the quarterly shareholder dividend if declared and miscellaneous expenses related to the regulatory and reporting requirements of a publicly traded corporation. The holding company’s main source of operating liquidity is the dividend that it receives from The Lorain National Bank. Dividends from The Lorain National Bank are restricted by regulation. At December 31, 2005, the Corporation also had certain short-term investments in the amount of $568 which may be used for dividends and other corporate purposes. The holding company from time-to-time, has access to additional sources of liquidity through correspondent lines of credit, but no such agreements were in place and there was no amount outstanding as of December 31, 2005.

Capital Resources

Shareholders’ equity at year-end 2005 totaled $68,406, compared to $70,574 and $68,135 at year-end 2004 and 2003 respectively. This decrease in 2005 resulted from net income of $6,413, less the payment of dividends of $4,760, less a $1,699 change in comprehensive income, an increase in common stock and additional paid-in capital of $97, less an increase of $2,219 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 change in the minimum pension liability. The change in treasury stock is part of a previously disclosed program to buyback up to 5% of the Corporation’s outstanding common shares. The Corporation purchased 125,000 shares pursuant to this plan in 2005.

Total cash dividends declared in 2005 by the Board of Directors was $4,760 as compared to $4,777 in 2004. In each of the last 20 years, the Board of Directors has approved a regular cash dividend. Any future dividend is subject to Board approval.

The dividend payout ratio, representing dividends per share divided by earnings per share, was 74.2% and 63.7% for the years 2005 and 2004, respectively. The increase in the dividend payout ratio is above the long-term target ratio established by the Board of Directors, but represents the Corporation’s expectation for the near-term recovery of both revenue and earnings growth.

At December 31, 2005, the Corporation’s market capitalization was $121.6 million compared to $133.6 million at December 31, 2004. There were 2,152 shareholders of record at December 31, 2005. 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, The 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 and Commitments

Contractual obligations and commitments of the Corporation at December 31, 2005 are as follows:

Table 14: Contractual Obligations

One Year

Two and

Four and

Over Five

or Less

Three Years

Five Years

Years

Total

(Dollars in thousands)

Short-term borrowings

32,616

—

32,616

FHLB advances

23,800

20,000

10,000

53,896

Operating leases

764

1,408

708

810

3,690

Benefit payments

720

623

896

2,942

5,181

Severance payments

180

247

255

198

880

Total

58,080

22,278

11,859

4,046

96,263

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 banking industry and application of these principles requires Management to make assumptions, estimates and judgments that affect the financial statements and accompanying notes. These assumptions, estimates and judgments are based on information available as of the date of the financial statements.

The most significant accounting policies followed by the Corporation are presented in Note 1 to the Consolidated Financial Statements. These policies are fundamental to the understanding of results of operation and financial conditions. The accounting policies considered to be critical by Management are as follows:


	•	Allowance for loan losses

The allowance for loan losses is an amount that Management believes will be adequate to absorb probable credit losses inherent in the loan portfolio taking into consideration such factors as past loss experience, changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, and current economic conditions that affect the borrower’s ability to pay. Determination of the allowance is subjective in nature. Loan losses are charged off against the allowance when Management believes that the full collectibility of the loan is unlikely. Recoveries of amounts previously charged-off are credited to the allowance.

A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. Residential mortgage, installment and other consumer loans are collectively evaluated for impairment. Individual commercial loans exceeding size thresholds established by Management are evaluated for impairment. Impaired loans are written down by the establishment of a specific allowance where necessary. The fair value of all loans currently evaluated for impairment is collateral-dependent and therefore the fair value is determined by the fair value of the underlying collateral.

The Corporation maintains the allowance for loan losses at a level adequate to absorb Management’s estimate of probable credit losses inherent in the loan portfolio. The allowance is comprised of a general allowance, a specific allowance for identified problem loans and an unallocated allowance representing estimations pursuant to either Standard of Financial Accounting Standards (SFAS) No. 5 “Accounting for Contingencies,” or SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.”

The general allowance is determined by applying estimated loss factors to the credit exposures from outstanding loans. For commercial and commercial real estate loans, loss factors are applied based on internal risk grades of these loans. Many factors are considered when these grades are assigned to individual loans such as current and past delinquency, financial statements of the borrower, current net realizable value of collateral and the general economic environment and specific economic trends affecting the portfolio. For residential real estate, installment and other loans, loss factors are applied on a portfolio basis. Loss factors are based on Corporation’s historical loss experience and are reviewed for appropriateness on a quarterly basis, along with other factors affecting the collectibility of the loan portfolio.

Specific allowances are established for all classified loans when Management has determined that, due to identified significant conditions, it is probable that a loss has been incurred. The unallocated allowance recognizes the estimation risk associated with the allocated general and specific allowances and incorporates Management’s evaluation of existing conditions that are not included in the allocated allowance determinations. These conditions are reviewed quarterly by Management and include general economic conditions, credit quality trends and internal loan review and regulatory examination findings.

Management believes that it uses the best information available to determine the adequacy of the allowance for loan losses. However, future adjustments to the allowance may be necessary and the results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations.


	•	Pension accounting

Four key variables are used for calculating the annual pension cost:


	1. Size of employee population has stayed more or less stagnant over the last few years, thereby causing pension cost relating to this variable to be more or less the same.

	2. Actuarial assumptions are required for mortality rate, turnover rate, retirement rate, disability rate and the rate of compensation increases. These factors do not change over time, so the range of assumptions and their impact on pension expense is generally narrow.

	3. Expected long-term rate of return on plan assets are based on the balance in the pension asset portfolio at the beginning of the plan year and the expected long-term rate of return on that portfolio. The expected long-term rate of return is designed to approximate the actual long term rate of return on plan assets over time. The expected long-term rate of return is generally held constant so the pattern of income/expense recognition more closely matches the stable pattern of services provided by the employees over the life of pension obligation. At December 31, 2005 the expected long term rate of return on plan asset was 7.50%.

	4. A discount rate is used to determine the present value of the future benefit obligations. It reflects the rates available on long-term high quality fixed income debt instruments, reset annually on the measurement date. The discount rate used in 2005 was 5.75%.


	•	Income Taxes

The Corporation’s income tax expense and related current and deferred tax assets and liabilities are presented as prescribed in SFAS No. 109 “Accounting for Income Taxes”. SFAS No. 109 requires the periodic review and adjustment of tax assets and liabilities based on many assumptions. These assumptions include predictions as to the Corporation’s future profitability, as well as potential changes in tax laws that could impact the deductibility of certain income and expense items. Since financial results could be significantly different than these estimates, future adjustments may be necessary to tax expense and related balance sheet accounts.

Impacts of Recent Accounting Pronouncements

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 pronouncements warrants further discussion.


	*SFAS No. 123(revised) “Share Based Payments”*

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004) (SFAS No. 123R), Share Based Payments. SFAS No. 123R will require the Corporation to expense share-based payments, including employee stock options, based on their fair value. SFAS No. 123R permits public companies to adopt its requirements using one of two methods. The first adoption method is a “modified prospective” method in which compensation cost is recognized beginning with the effective date (i) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (ii) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. The second adoption method is a “modified retrospective” method, which includes the requirements of the modified prospective method described above, but also permits entities to restate, based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures, either (i) all prior periods presented or (ii) prior interim periods in the year of adoption.

The Corporation is required to adopt SFAS No. 123R effective as of January 1, 2006. As permitted by SFAS No. 123, the Corporation currently accounts for share-based payments to employees under APB Opinion 25 using the intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123R’s fair value method will impact the Corporation’s results of operations. The impact of adoption of SFAS No. 123R cannot be estimated at this time because it will depend on levels of share-based payments granted in the future. However, had the Corporation adopted SFAS No. 123R in prior years, the impact of that adoption would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma earnings in the section titled “Stock-Based Compensation”.


	*AICPA Statement of Position (SOP) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”*

In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer,” (“SOP 03-3”). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. The provisions of this SOP are effective for loans acquired in fiscal years beginning after December 15, 2004. The Corporation adopted the requirements of SOP 03-3 on January 1, 2005, and the adoption did not have a material impact on the results of operations, financial position, or liquidity.


	*EITF No 03-01 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”*

In March 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force in Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-01”). EITF 03-01 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless the investor has the ability and intent to hold the investment for a reasonable period of time sufficient for the forecasted recovery of fair value up to (or beyond) the cost of the investment, and evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized through earnings equal to the difference between the investment’s cost and its fair value. In September 2004, the FASB delayed the accounting requirements of EITF 03-01 until additional implementation guidance was issued and placed into effect. In June 2005, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, but directed the FASB staff to issue a FASB Staff Position (FSP) which will be re-titled FSP 115-1,“The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The final FSP will supersede EITF 03-1 and EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value”. FSP FAS 115-1 will replace guidance in EITF 03-1 on loss recognition with references to existing other-than-temporary impairment guidance, such as FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS No. 115). FSP FAS 115-1 will clarify that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made.

FSP FAS 115-1 will be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company has consistently followed the loss recognition guidance in SFAS No. 115, so the adoption of FSP FAS 115-1 did not have a significant impact on the Company’s financial condition or results of operation.


	*SFAS No. 154 “Accounting Changes and Error Corrections”*

This Statement replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. This applies to accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a material impact on the Corporation’s results of operations, financial position or liquidity.


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

Market risk is the risk that a financial institution’s earnings and capital or its 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, 2005.

Two more useful tools are earnings-at-risk simulation and economic value of equity simulation. An earnings at risk analysis 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. 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. At December 31, 2005, a “shock” treatment of the balance sheet, in which a parallel shift in the yield curve occurs and all rates increase immediately, indicates that in a +200 basis point shock, net interest income would increase 7.2% and in a -200 basis point shock, net interest income would decrease 10.2%. The reason for the lack of symmetry in these results is the implied floors in many of the Corporation’s core funding which limits their downward adjustment from current offering rates. This analysis is done to describe a best or worst case scenario. Factors such as non-parallel yield curve shifts, Management pricing changes, customer preferences, competitive pressures and other factors are likely to produce different results.

The economic value of equity (EVE) approach measures the change in the value of the Corporation’s equity as the value of assets and liabilities on the balance sheet change with interest rates. At December 31, 2005, this analysis indicated that a +200 basis point change in rates would reduce the value of the Corporation’s equity by 6.6% while a -200 basis point change in rates would increase the value of the Corporation’s equity by 4.5%.

Table 15: GAP Analysis


	At December 31, 2005

													After
	1 Year			2-3 Years			4-5 Years			5-15 Years			15 Years			Total

	(Dollars in thousands)
Securities and short-term investments	$	32,320		$	79,258		$	24,710		$	18,986		$	—		$	155,274
Commercial loans		216,430			38,824			31,813			52,888			20,603			360,558
Real estate mortgage loans		32,137			34,791			9,157			2,478			2,804			81,367
Home equity lines of credit		66,134			—			—			—			—			66,134
Purchased installment loans		11,855			23,711			6,457			—			—			42,023
Installment loans		9,232			14,581			8,652			5,878			—			38,343

Total earning assets	$	368,108		$	191,165		$	80,789		$	80,230		$	23,407		$	743,699

Consumer time deposits	$	134,801		$	50,715		$	13,646		$	28		$	—		$	199,190
Public time deposits		32,332			—			—			—			—			32,332
Brokered time deposits		38,526			16,740			—			—			—			55,266
Savings deposits		18,925			37,851			37,852			—			—			94,628
Interest-bearing demand deposits		34,241			68,481			68,481			—			—			171,203
Short-term borrowings		32,616			—			—			—			—			32,616
FHLB advances		23,800			21,863			8,233			—			—			53,896

Total interest-bearing liabilities	$	315,241		$	195,650		$	128,212		$	28		$	—		$	639,131

Cumulative interest rate gap	$	52,868		$	48,383		$	959		$	81,161		$	104,568		$	104,568

RSA/RSL		116.8	%		109.5	%		100.2	%		112.7	%		116.4	%		—


Item 8.	Financial Statements and Supplementary Data

Table of Contents


Consolidated Balance Sheets as of December 31, 2005 and 2004			38
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003			39
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003			40
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003			41
Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003			42
Report of Independent Registered Public Accounting Firm			68

CONSOLIDATED BALANCE SHEETS


		At December 31,

		2005			2004

		(Dollars in thousands
		except share amounts)
ASSETS
Cash and due from banks		$	23,923		$	23,123
Federal funds sold and short-term investments			—			3,695
Securities:
	Available for sale, at fair value		151,629			145,588
	Federal Home Loan Bank and Federal Reserve stock		3,645			4,033

Total securities			155,274			149,621

Loans:
	Loans held for sale		2,586			3,067
	Portfolio loans		588,425			572,157
	Allowance for loan losses		(6,622	)		(7,386	)

Net loans			584,389			567,838

Bank premises and equipment, net			10,833			11,493
Other real estate owned			432			420
Bank owned life insurance			13,935			13,335
Goodwill and intangible assets, net			3,321			3,801
Accrued interest receivable			3,053			2,594
Other assets			5,961			5,729

Total Assets		$	801,121		$	781,649


LIABILITIES
Deposits
	Demand and other noninterest-bearing	$	87,597		$	96,280
	Savings, money market and interest-bearing demand		265,831			280,169
	Certificates of deposit		286,788			229,094

Total deposits			640,216			605,543

Short-term borrowings			32,616			31,619
Federal Home Loan Bank advances			53,896			69,296
Accrued interest payable			2,126			1,172
Accrued taxes, expenses and other liabilities			3,861			3,445

Total Liabilities			732,715			711,075

Shareholders’ Equity
	Common stock, par value $1 per share, authorized 15,000,000 shares, issued 6,771,867 shares at December 31, 2005 and 6,766,867 shares at December 31, 2004		6,772			6,766
	Additional paid-in capital		26,334			26,243
	Retained earnings		42,945			41,292
	Accumulated other comprehensive loss		(2,996	)		(1,297	)
	Treasury stock at cost, 250,694 shares in 2005 and 125,694 shares in 2004		(4,649	)		(2,430	)

Total Shareholders’ Equity			68,406			70,574

Total Liabilities and Shareholders’ Equity		$	801,121		$	781,649

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME


			Year Ended December 31,

			2005			2004			2003

			(Dollars in thousands except share
			and per share amounts)
Interest Income
	Loans		$	38,145		$	32,560		$	32,759
	Securities:
		U.S. Government agencies and corporations		4,487			3,784			4,155
		State and political subdivisions		439			459			610
		Other debt and equity securities		224			301			296
	Federal funds sold and short-term investments			137			120			40

Total interest income				43,432			37,224			37,860
Interest Expense
	Deposits:
		Certificates of deposit, $100 and over		3,937			1,448			1,447
		Other deposits		6,976			5,366			5,814
	Federal Home Loan Bank advances			1,862			2,066			1,737
	Short-term borrowings			627			222			198

Total interest expense				13,402			9,102			9,196

Net Interest Income				30,030			28,122			28,664
Provision for Loan Losses				1,248			1,748			2,695

		Net interest income after provision for loan losses		28,782			26,374			25,969
Noninterest income
	Investment and trust services			1,940			2,091			1,762
	Deposit service charges			4,219			4,187			4,260
	Other service charges and fees			1,895			2,794			3,104
	Mortgage banking revenue			959			364			—
	Income from bank owned life insurance			600			632			772
	Other income			479			592			207

Total fees and other income				10,092			10,660			10,105
	Securities gains (losses), net			173			(777	)		449
	Gain on sale of loans			132			181			236
	Gain on sale of credit card portfolio			—			—			832
	Gain (loss) on sale of other assets, net			(20	)		378			2

Total noninterest income				10,377			10,442			11,624
Noninterest Expense
	Salaries and employee benefits			15,057			12,995			13,814
	Furniture and Equipment			3,001			2,784			2,517
	Net occupancy			1,830			1,633			1,585
	Outside services			1,925			1,182			1,441
	Marketing and public relations			1,249			1,047			762
	Supplies, postage and freight			1,245			1,208			1,137
	Telecommunications			1,167			713			540
	Ohio Franchise tax			772			729			673
	Electronic banking expenses			542			1,257			1,395
	Other expense			3,479			2,742			2,603

Total noninterest expense				30,267			26,290			26,467

Income before income tax expense				8,892			10,526			11,126
Income tax expense				2,479			3,051			3,411

Net Income			$	6,413		$	7,475		$	7,715

Net Income Per Common Share
	Basic		$	0.97		$	1.13		$	1.17
	Diluted			0.97			1.13			1.17
	Dividends declared			0.72			0.72			0.70
Average Common Shares Outstanding
	Basic			6,612,803			6,631,392			6,605,560
	Diluted			6,612,852			6,632,324			6,615,654

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


											Accumulated
											Other
					Additional						Comprehensive
			Common		Paid-In			Retained			Income			Treasury
			Stock		Capital			Earnings			(Loss)			Stock			Total

			(Dollars in thousands except share and per share amounts)
Balance, December 31, 2002			$	4,501	$	28,319		$	35,639		$	1,054		$	(2,900	)	$	66,613
	Comprehensive income:
		Net income							7,715									7,715
	Other comprehensive loss, net of tax:
		Minimum pension liability										(381	)					(381	)
		Change in unrealized gains and losses on securities										(1,377	)					(1,377	)

Total comprehensive income																		5,957
Common dividends declared, $.70 per share									(4,626	)								(4,626	)
Issuance of 722 shares of Treasury Stock															15			15
Issuance of 15,425 common shares under stock option plans				15		174												189
Payment of cash in lieu of fractional shares issued under three-for-two stock split									(13	)								(13	)
Issuance of 2,250,210 common shares under three-for-two stock split				2,250		(2,250	)

Balance, December 31, 2003			$	6,766	$	26,243		$	38,715		$	(704	)	$	(2,885	)	$	68,135
	Comprehensive income:
		Net income							7,475									7,475
	Other comprehensive loss, net of tax:
		Minimum pension liability										(67	)					(67	)
		Change in unrealized gains and losses on securities										(526	)					(526	)

Total comprehensive income																		6,882
Issuance of 23,103 shares of Treasury stock for stock options									(121	)					454			333
Issuance of 460 shares of Treasury stock for employee benefit plans															1			1
Common dividends declared, $.72 per share									(4,777	)								(4,777	)

Balance December 31, 2004			$	6,766	$	26,243		$	41,292		$	(1,297	)	$	(2,430	)	$	70,574
	Comprehensive income:
		Net income							6,413									6,413
	Other comprehensive loss, net of tax:
		Minimum pension liability										(129	)					(129	)
		Change in unrealized gains and losses on securities										(1,570	)					(1,570	)

Total comprehensive income																		4,714
Issuance of common stock under employment agreement				6		91												97
Purchase of 125,000 shares of Treasury stock															(2,219	)		(2,219	)
Common dividends declared, $.72 per share									(4,760	)								(4,760	)

Balance December 31, 2005			$	6,772	$	26,334		$	42,945		$	(2,996	)	$	(4,649	)	$	68,406

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS


		Year Ended December 31,

		2005			2004			2003

		(Dollars in thousands)
Operating Activities
	Net income	$	6,413		$	7,475		$	7,715
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Provision for loan losses		1,248			1,748			2,695
	Depreciation and amortization		1,776			1,808			1,597
	Amortization of premiums and discounts		999			1,006			1,257
	Amortization of intangibles		169			130			113
	Impairment of goodwill		311			—			—
	Amortization of deferred loan fees		297			99			382
	Federal deferred income tax expense (benefit)		291			183			(254	)
	Issuance of stock under employment agreement		97			—			—
	Origination of loans held for sale		—			—			(24,544	)
	Proceeds from the sale of loans held for sale		—			—			28,564
	Securities (gains) losses, net		(173	)		777			(449	)
	Net gain from loan sales		(132	)		(181	)		(236	)
	Net (gain) loss on sale of other assets		20			(378	)		(2	)
	Net decrease in accrued interest receivable and other assets		(1,582	)		(1,919	)		(420	)
	Net decrease (increase) in accrued interest payable, taxes and other liabilities		1,370			(562	)		(1,689	)

Net cash provided by operating activities			11,104			10,186			14,729

Investing Activities
	Proceeds from maturities of held-to-maturity securities		—			1,330			5,859
	Proceeds from sales of available-for-sale securities		26,343			34,941			28,488
	Proceeds from maturities of available-for-sale securities		4,576			29,537			106,646
	Purchase of held-to-maturity securities		—			(16,596	)		—
	Purchase of available-for-sale securities		(39,198	)		(48,928	)		(143,250	)
	Purchase of Federal Home Loan Bank Stock		(210	)		(154	)		(141	)
	Sale of Federal Home Loan Bank Stock		598			—			—
	Net increase in loans made to customers		(23,529	)		(47,587	)		(30,132	)
	Proceeds from the sale of other real estate owned		692			1,185			22
	Purchases of bank premises and equipment		(1,191	)		(2,604	)		(2,057	)
	Proceeds from sale of bank premises and equipment		55			672			199
	Net cash paid in acquisitions		—			(350	)		—

Net cash used in investing activities			(31,864	)		(48,554	)		(34,366	)

Financing Activities
	Net increase (decrease) in demand and other noninterest-bearing		(8,683	)		9,587			5,814
	Net increase (decrease) in savings, money market and interest-bearing demand		(14,338	)		2,972			(3,419	)
	Net increase in certificates of deposit		57,694			11,640			12,822
	Net increase (decrease) in short-term borrowings		997			16,596			(11,843	)
	Proceeds from loan sales		4,574			3,329			—
	Proceeds from Federal Home Loan Bank advances		148,000			104,256			247,210
	Prepayment of Federal Home Loan Bank advances		(163,400	)		(106,500	)		(224,595	)
	Cash paid in lieu of fractional shares related to three-for-two split		—			—			(13	)
	Proceeds from exercise of stock option plans		—			—			189
	Purchase of treasury stock		(2,219	)		—			—
	Redemption of treasury stock		—			334			15
	Dividends paid		(4,760	)		(4,777	)		(4,626	)

Net cash provided by financing activities			17,865			37,437			21,554

Net increase (decrease) in cash and cash equivalents			(2,895	)		(931	)		1,917
Cash and cash equivalents, January 1			26,818			27,749			26,832

Cash and cash equivalents, December 31		$	23,923		$	26,818		$	28,749

Supplemental cash flow information:
Interest paid			12,448			9,376			9,304
Income taxes paid			2,355			2,060			4,194
Transfer of loans to other real estate owned			704			999			589
Transfer of held to maturity securities to available for sale			—			19,909			—

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)	Summary of Significant Accounting Policies


	Basis of Presentation

The consolidated financial statements include the accounts of LNB Bancorp, Inc. (the “Corporation”) 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 consolidated financial statements also include the accounts of North Coast Community Development Corporation and LNB Mortgage LLC which are wholly-owned subsidiaries of the Bank. All intercompany transactions and balances have been eliminated in consolidation.


	Use of Estimates

LNB Bancorp Inc. prepares its financial statements in conformity with U.S. generally accepted accounting principles (GAAP). As such, GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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 allowance for loan losses, the realization of deferred tax assets, fair values of certain securities, net periodic pension expense, and accrued pension costs recognized in the Corporation’s consolidated financial statements. Estimates that are more susceptible to change in the near term include the allowance for loan losses and the fair value of certain securities.


	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.


	Statement of Cash Flows

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.


	Securities

Securities that are bought and held for the sole purpose of selling them in the near term are deemed trading securities with any related unrealized gains and losses reported in earnings. As of December 31, 2005 and December 31, 2004, LNB Bancorp, Inc. did not hold any trading securities. Securities that the Corporation has a positive intent and ability to hold to maturity are classified as held to maturity. As of December 31, 2005 and December 31, 2004, LNB Bancorp, Inc. did not hold any held to maturity securities. Securities that are not classified as trading or held to maturity are classified as available for sale. As of December 31, 2005 and 2004 all securities held by the Corporation are classified as available for sale and are carried at their fair value with unrealized gains and losses, net of tax, included as a component of accumulated other comprehensive income, net of tax. A decline in the fair value of securities below cost, that is deemed other than temporary, is charged to earnings, resulting in establishment of a new cost basis for the security. Interest and dividends on securities, including amortization of premiums and accretion of discounts using the effective interest method over the period to maturity or call, are included in interest income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	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. These stocks are recorded at redemption value which approximates fair value.


	Loans

Loans are reported at the principal amount outstanding, net of unearned income and premiums and discounts. Unearned income includes deferred fees net of deferred direct incremental loan origination costs. Unearned income is amortized to interest income, over the contractual life of the loan, using the interest method. Deferred direct loan origination fees and costs are amortized to interest income, over the contractual life of the loan, using the interest method.

Held for sale 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 by charges to income. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income.

Loans are generally placed on nonaccrual status when they are 90 days past due for interest or principal or when the full and timely collection of interest or principal becomes uncertain. When a loan has been placed on nonaccrual status, the accrued and unpaid interest receivable is reversed against interest income. Generally, a loan is returned to accrual status when all delinquent interest and principal becomes current under the terms of the loan agreement and when the collectibility is no longer doubtful.

A loan is impaired when full payment under the original loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as real estate mortgages and installment loans, and on an individual loan basis for commercial loans that are graded substandard. Factors considered by Management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis. If a loan is impaired, a portion of the allowance may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.


	Allowance for Loan Losses

The allowance for loan losses is Management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. Management’s determination of the allowance, and the resulting provision, is based on judgments and assumptions, including general economic conditions, loan portfolio composition, loan loss experience, Management’s evaluation of credit risk relating to pools of loan and individual borrowers, sensitivity analysis and expected loss models, value of underlying collateral, and observations of internal loan review staff or banking regulators.

The provision for loan losses is determined based on Management’s evaluation of the loan portfolio and the adequacy of the allowance or loan losses under current economic conditions and such other factors which, in Management’s judgment, deserve current recognition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Mortgage Servicing Rights

The Corporation recognizes as separate assets, rights to service fixed rate single-family mortgage loans that have been sold without recourse. The Corporation services these loans for others for a fee. Mortgage servicing assets are initially recorded at cost, based upon pricing multiples as determined by the purchaser. 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.

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.


	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.


	Goodwill and Core Deposit Intangibles

Intangible assets arise from acquisitions and include goodwill and core deposit intangibles. Goodwill is the excess of purchase price over the fair value of identified net assets in acquisitions. Core deposit intangibles represent the value of depositor relationships purchased. The Corporation follows Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 147 “Accounting for Certain Financial Institutions”. Goodwill is tested at least annually for impairment.

Core deposit intangible assets are amortized using the straight-line method over ten years and are subject to annual impairment testing.


	Other Real Estate Owned

Other real estate owned (OREO) represent properties acquired through customer loan default. Real estate and other tangible assets acquired through foreclosure are carried as OREO on the Consolidated Balance Sheet at fair value, net of estimated costs to sell, not to exceed the cost of property acquired through foreclosure.


	Investment and Trust Services Assets and Income

Property held by the Corporation in fiduciary or agency capacity for its customers is not included in the Corporation’s 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.


	Income Taxes

The Corporation and its wholly-owned subsidiaries file a consolidated Federal 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when necessary to reduce deferred tax assets to amounts which are deemed more likely than not to be realized.


	Comprehensive Income

The Corporation displays the accumulated balance of other comprehensive income as a separate component of shareholders’ equity.


	Stock-Based Compensation

The Corporation does not have a broad based stock option incentive plan; however, at December 31, 2005 and 2004 it did have stock option agreements with two individuals. SFAS No. 123 has been adopted for the disclosure of these two stock option agreements. Pro Forma net income, assuming the expensing of the fair value of these options, has been disclosed in Note 17.

Common stock issued under an employment agreement is charged to expense at the fair value of the common stock issued.


	Reclassifications

Certain amounts for 2004 and 2003 have been reclassified to conform to the 2005 presentation.


(2)	Earnings Per Share

Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares outstanding 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. Basic and diluted earnings per share are calculated as follows:


		Year Ended December 31,

		2005		2004		2003

		(Dollars in thousands except
		per share amounts)
Weighted average shares outstanding used in Basic
	Earnings Per Share		6,612,803		6,631,392		6,605,560
Dilutive effect of incentive stock options			49		932		10,094

Weighted average shares outstanding used in
	Diluted Earnings Per Share		6,612,852		6,632,324		6,615,654

Net Income		$	6,413	$	7,475	$	7,715

Basic Earnings Per Share		$	0.97	$	1.13	$	1.17

Diluted Earning Per Share		$	0.97	$	1.13	$	1.17


(3)	Cash and Due from Banks

Federal Reserve Board regulations require the Bank to maintain reserve balances on deposits with the Federal Reserve Bank of Cleveland. The average required reserve balance was $13,116 and $13,406 during 2005 and 2004 respectively. The ending reserve balance on December 31, 2005 was $12,619 and $13,849 on December 31, 2004.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(4)	Goodwill and Intangibles

The Corporation assesses goodwill for impairment annually and more frequently in certain circumstances. Goodwill was assessed at a reporting unit level by applying a fair-value based test using discounted estimated future net cash flows. During 2005 it was determined that goodwill relating to LNB Mortgage, LLC had been impaired and all goodwill relating to this entity in the amount of $311 has been written off.

The Corporation recorded core deposit intangibles in 1997, related to the acquisition of three branch offices from another Bank. These core deposit intangibles are also tested annually for impairment.

Core deposit intangibles are amortized over their estimated useful life of 10 years in accordance with SFAS No. 142. A summary of core deposit intangible assets follows:


		At December 31,

		2005		2004

		(Dollars in
		thousands)
Core deposit intangibles		$	1,288	$	1,288
Less: accumulated amortization			1,095		983

	Carrying value of core deposit intangibles	$	193	$	305

The following intangible assets are included in the accompanying consolidated financial statements and are summarized as follows at December 31, net of accumulated amortization:


	At December 31,

	2005		2004

	(Dollars in
	thousands)
Goodwill	$	2,827	$	3,138
Mortgage servicing rights		301		358
Core deposit intangibles		193		305

Total goodwill and intangible assets	$	3,321	$	3,801

Amortization expense for intangible assets was $169, $130 and $113 for the years ended December 31, 2005, 2004 and 2003, respectively. The following table shows the estimated future amortization expense for amortizable intangible assets based on existing asset balances and the interest rate environment as of December 31, 2005. The Company’s actual amortization expense in any given period may be significantly different from the estimated amounts depending upon the addition of new intangible assets, changes in mortgage interest rates, prepayment rates and market conditions.


	Core Deposit		Mortgage Servicing
	Intangibles		Rights		Total

	(Dollars in thousands)
2006	$	113	$	49	$	162
2007		80		45		125
2008		—		42		42
2009		—		39		39
2010		—		36		36
2011 and beyond		—		90		90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(5)	Securities

The amortized cost, gross unrealized gains and losses and fair values of securities at December 31, 2005 and 2004 follows:

At December 31, 2005

Amortized

Unrealized

Cost

Gains

Losses

Fair Value

(Dollars in thousands)

Securities available for sale:

U.S. Government agencies and corporations

146,010

(3,965

)

142,053

State and political subdivisions

9,231

249

(24

)

9,456

Equity securities

—

120

Federal Home Loan Bank and Federal Reserve Bank stock

3,645

—

3,645

Total Securities

158,938

325

(3,989

)

155,274


		At December 31, 2004

		Amortized		Unrealized		Unrealized
		Cost		Gains		Losses			Fair Value

		(Dollars in thousands)
Securities available for sale:
	U.S. Government agencies and corporations	$	131,789	$	168	$	(2,080	)	$	129,877
	State and political subdivisions		11,148		349		(8	)		11,489
	Equity securities		3,938		284		—			4,222
	Federal Home Loan Bank and Federal Reserve Bank stock		4,033		—		—			4,033

Total Securities		$	150,908	$	801	$	(2,088	)	$	149,621

The amortized cost, fair values and weighted average yields of debt securities by contractual maturity date at December 31, 2005 follows:

At December 31, 2005

Weighted

Within

1 to

5 to

After

Average

1 Year

5 Years

10 Years

Total

Yield

(Dollars in thousands)

U.S. Government agencies and corporations

17,501

88,315

35,416

4,778

146,010

3.59

State and political subdivisions

358

1,554

2,688

4,631

9,231

5.88

Equity securities

—

6.00

Federal Home Loan Bank and Federal Reserve Bank stock

3,645

—

3,645

5.77

Amortized cost

21,556

89,869

38,104

9,409

158,938

3.78

Fair Value

21,390

87,357

37,497

9,030

155,274

3.87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Realized gains and losses related to securities available for sale for each of the three years ended December 31 follows:


	2005			2004			2003

	(Dollars in thousands)
Gross realized gains	$	202		$	395		$	449
Gross realized losses		(29	)		(14	)		—
Other than temporary impairment losses		—			(1,158	)		—

Net Securities Gains (Losses)	$	173		$	(777	)	$	449

Proceeds from the sale of available for sale securities	$	26,343		$	34,941		$	28,488

U.S. Government agencies and corporations include callable and bullet agency issues and agency-backed mortgage backed securities. The maturity of mortgage backed securities is shown based on contractual maturity of the security although repayments occur each year. The carrying value of securities pledged to secure trust deposits, public deposits, line of credit, and for other purposes required by law amounted to $136,143 and $120,297 at December 31, 2005 and 2004, 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. In 2004, the Corporation reclassified all held to maturity securities to available for sale. This transfer was made recognizing that the primary purpose of the securities portfolio is liquidity. The Corporation does not anticipate classifying any securities as held to maturity in the future. The securities portfolio contained approximately $490 and $539 in non-rated securities of state and political subdivisions at December 31, 2005 and 2004, respectively. Based upon yield, term to maturity and market risk, the fair value of these securities was estimated to be $490 and $536 at December 31, 2005 and 2004, respectively. The majority of these non-rated securities are short-term debt issues of local political subdivisions. Management reviewed these non-rated securities and has determined that there was no other than temporary impairment to their value at December 31, 2005 and 2004.

At December 31, 2004, the Corporation recorded a $1,158 pre-tax charge to earnings to recognize other than temporary impairment of the Corporation’s investment in FNMA and FHLMC preferred securities which were subsequently sold in 2005. Management has reviewed the securities portfolio and has determined that there is no other than temporary impairment to their value as of December 31, 2005.

The following is a summary of securities that had unrealized losses at December 31, 2005. The information is presented for securities that have been in an unrealized loss position for less than 12 months and for more than 12 months. There are temporary reasons why securities may be valued at less than amortized cost. Temporary reasons are that the current levels of interest rates as compared to the coupons on the securities held by the Corporation are higher and impairment is not due to credit deterioration. The Corporation has the ability to hold these securities until their value recovers. At December 31, 2005, the total unrealized losses of $3,989 were temporary in nature and due to the current level of interest rates.


	Less than 12 months					12 months or longer					Total

	Fair		Unrealized			Fair		Unrealized					Unrealized
	Value		Losses			Value		Losses			Fair Value		Losses

	(Dollars in thousands)
U.S. Government agencies and corporations	$	29,873	$	(451	)	$	107,153	$	(3,514	)	$	137,026	$	(3,965	)
State and political subdivisions		—		—			1,170		(24	)		1,170		(24	)

Total	$	29,873	$	(451	)	$	108,323	$	(3,538	)	$	138,196	$	(3,989	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(6)	Transactions with Related Parties

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


		At December 31,

		2005			2004			2003

		(Dollars in thousands)
Amount at beginning of year		$	22,399		$	23,283		$	24,608
Additions (deductions)
	New Loans		4,616			9,021			12,145
	Repayments		(4,361	)		(9,464	)		(12,915	)
	Changes in directors and officers and/or affiliations, net		2,147			(441	)		(555	)

Amount at end of year		$	24,801		$	22,399		$	23,283


(7)	Loans and Allowance for Loan Losses

Loan balances at December 31, 2005 and 2004 are summarized as follows:


		At December 31,

		2005			2004

		(Dollars in thousands)
Real estate loans (includes loans secured primarily by real estate only):
	Construction and land development	$	169,007		$	137,830
	One to four family residential		164,671			170,582
	Multi-family residential		4,676			4,348
	Non-farm non-residential properties		117,090			135,528
Commercial and industrial loans			63,834			64,740
Personal loans to individuals:
	Auto, single payment and installment		71,132			60,855
All other loans			601			1,341

Total loans			591,011			575,224
	Allowance for loan losses		(6,622	)		(7,386	)

Net loans		$	584,389		$	567,838

Activity in the allowance for loan losses for 2005, 2004 and 2003 is summarized as follows:


	Year Ended December 31,

	2005			2004			2003

	(Dollars in thousands)
Balance at the beginning of year	$	7,386		$	7,730		$	6,653
Provision for loan losses		1,248			1,748			2,695
Loans charged-off		(2,256	)		(2,340	)		(1,958	)
Recoveries on loans previously charged-off		244			248			340

Balance at the end of year	$	6,622		$	7,386		$	7,730

In 2005, substandard loans totaling $5.7 million were sold. As a result, loans charged-off include $1,173 from the sale of these loans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information regarding impaired loans is as follows:


	At December 31,

	2005		2004		2003

	(Dollars in thousands)
Year-end impaired loans with allowance for loan losses specifically allocated	$	6,494	$	6,030	$	16,329
Amount of allowance specifically allocated to impaired loans		356		1,865		2,272
Average of impaired loans during the year		9,961		7,077		21,742
Interest income recognized during impairment		174		300		258
Nonaccrual loans at year end		6,494		4,921		5,154


(8)	Bank Premises, Equipment and Leases

Bank premises and equipment are summarized as follows:


	At December 31,

(Dollars in thousands)	2005		2004

Land	$	2,322	$	2,322
Buildings		10,848		10,503
Equipment		11,656		12,741
Purchased software		2,938		2,648
Leasehold improvements		865		850

Total cost		28,629		29,064
Less: accumulated depreciation and amortization		17,796		17,571

Net bank premises and equipment	$	10,833	$	11,493

Depreciation of Bank premises and equipment charged to noninterest expense amounted to $1,503 in 2005, $1,460 in 2004 and $1,273 in 2003. Amortization of purchased software charged to noninterest expense amounted to $273 in 2005, $348 in 2004 and $324 in 2003.

At December 31, 2005, the Bank was obligated to pay rental commitments under noncancelable operating leases on certain Bank premises and equipment as follows:


	Amount

	(Dollars in
	thousands)
2006	$	764
2007		740
2008		668
2009		449
2010		259
2011 and thereafter		810

Total	$	3,690

Rentals paid under leases on Corporation premises and equipment amounted to $663 in 2005, $378 in 2004 and $338 in 2003, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(9)	Deposits

Deposit balances at December 31, 2005 and 2004 are summarized as follows:


	At December 31,

	2005		2004

	(Dollars in thousands)
Demand and other interest-bearing	$	87,597	$	96,280
Interest checking		171,925		176,314
Savings		93,906		103,855
Consumer time deposits		199,190		167,192
Public time deposits		32,332		39,078
Brokered time deposits		55,266		22,824

Total deposits	$	640,216	$	605,543

The aggregate amount of certificates of deposit in denominations of $100,000 or more amounted to $124,626 and $89,770 at December 31, 2005 and 2004, respectively. Brokered time deposits are included in these totals.

The maturity distribution of certificates of deposit as of December 31, 2005 follows:

Within 12

After 12 months but

After 36 months but

After

months

within 36 months

within 60 months

5 years

Total

(Dollars in thousands)

Consumer time deposits

134,801

50,715

13,646

199,190

Public time deposits

32,332

—

32,332

Brokered time deposits

38,526

16,740

—

55,266

Total time deposits

205,659

67,455

13,646

286,788


(10)	Short-Term Borrowings

The Corporation has a line of credit for advances and discounts with the Federal Reserve Bank of Cleveland. The amount of this line of credit varies on a monthly basis. The line is equal to 85% of the balances of qualified home equity lines of credit that are pledged as collateral. At December 31, 2005, the Bank had pledged approximately $12.9 million in qualifying home equity lines of credit, resulting in an available line of credit of approximately $10.9 million. No amounts were outstanding at December 31, 2005 or 2004.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Short-term borrowings include securities sold under repurchase agreements and Federal funds purchased from correspondent banks. The table below presents information for short-term borrowings for the three years ended December 31, 2005.


			Year Ended December 31,

			2005			2004			2003

			(Dollars in thousands)
Securities sold under repurchase agreements
Period End:
		Outstanding	$	16,116		$	11,619		$	15,023
		Interest rate		3.90	%		2.23	%		0.89	%
Average:
		Outstanding	$	13,960		$	14,749		$	16,815
		Interest rate		2.81	%		1.39	%		0.99	%
Maximum month-end balance			$	19,198		$	18,997		$	26,309

Federal funds purchased
Period End:
	Outstanding		$	16,500		$	20,000		$	—
	Interest rate			4.45	%		2.44	%		0.00	%
Average:
	Outstanding		$	5,921		$	3,264		$	1,370
	Interest rate			3.81	%		1.48	%		1.35	%
Maximum month-end balance			$	30,000		$	20,000		$	7,000


(11)	Federal Home Loan Bank Advances

Federal Home Loan Bank advances amounted to $53,896 and $69,296 at December 31, 2005 and 2004 respectively. All advances are bullet maturities with no call features. At December 31, 2005, collateral pledged for FHLB advances consisted of qualified real estate mortgage loans, home equity lines of credit and investment securities of $80,013, $35,439 and $1,000 respectively. The total borrowing capacity of the Bank, at December 31, 2005, was $70,559 with unused collateral borrowing capacity of $16,664. The Bank maintains a $40,000 cash management line of credit (CMA) with the FHLB. The following table presents the activity on this line of credit for the three years ended December 31, 2005.


		Year Ended December 31,

		2005			2004			2003

		(Dollars in thousands)
Cash management advances (CMA) from the Federal Home Loan Bank (FHLB)
Period End:
	Outstanding	$	—		$	—		$	15,000
	Interest rate		0.00	%		0.00	%		1.09	%
Average:
	Outstanding	$	12,125		$	10,961		$	16,600
	Interest rate		2.93	%		1.16	%		1.28	%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Maturities of FHLB advances outstanding at December 31, 2005 and 2004 are as follows:


		2005		2004

		(Dollars in thousands)
FHLB advance — 4.61%, repaid in 2005		$	—	$	2,230
FHLB advance — 4.40%, repaid in 2005			—		1,500
FHLB advance — 4.36%, repaid in 2005			—		2,100
FHLB advance — 4.44%, repaid in 2005			—		1,000
FHLB advance — 2.06%, repaid in 2005			—		16,000
FHLB advance — 2.21%, repaid in 2005			—		360
FHLB advance — 2.87%, repaid in 2005			—		5,000
FHLB advance — 4.27%, due January 13, 2006			12,801		—
FHLB advance — 4.92%, due April 28, 2006			1,000		1,000
FHLB advance — 2.70%, due June 19, 2006			10,000		10,000
FHLB advance — 2.95%, due January 30, 2007			10,000		10,000
FHLB advance — 3.55%, due November 21, 2007			5,000		5,000
FHLB advance — 3.33%, due February 8, 2008			5,000		5,000
FHLB advance — 3.36%, due March 27, 2009			10,000		10,000
FHLB advance — 3.55%, due January 1, 2014			95		106

	Total FHLB advances	$	53,896	$	69,296


(12)	Income Taxes

The provision for income taxes consists of the following:


		Year Ended December 31,

		2005		2004		2003

		(Dollars in thousands)
Income Taxes:
	Federal current expense	$	2,188	$	2,868	$	3,661
	Federal deferred expense (benefit)		291		183		(254	)
	State and city expense		—		—		4

Total Income Taxes		$	2,479	$	3,051	$	3,411

The following presents a reconciliation of income taxes as shown on the Consolidated Statements of Income with that which would be computed by applying the statutory Federal tax rate of 34% to income before income taxes in 2005 and 35% to income before income taxes in 2004 and 2003.


			Year Ended December 31,

			2005			2004			2003

			(Dollars in thousands)
Computed “expected” tax expense			$	3,023		$	3,685		$	3,896
	Increase (reduction) in income taxes resulting from:
		Tax exempt interest on obligations of state and political subdivisions		(136	)		(152	)		(201	)
		Tax exempt interest on bank owned life insurance		(204	)		(215	)		(270	)
		New markets tax credit		(276	)		(225	)		—
		Other, net		72			(42	)		(14	)

Total Income Taxes			$	2,479		$	3,051		$	3,411

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. At December 31, 2005 and 2004 there was no valuation allowance required. 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.


		At December 31,

		2005			2004

		(Dollars in thousands)
Deferred Federal tax assets:
	Allowance for loan losses	$	2,251		$	2,511
	Deferred compensation		544			681
	Minimum pension liability		297			231
	Securities writedown		—			394
	Unrealized loss on securities available for sale		1,246			438
	Other, net		9			25

Total deferred Federal tax assets		$	4,347		$	4,280

Deferred Federal tax liabilities:
	Bank premises and equipment depreciation	$	(320	)	$	(488	)
	FHLB stock dividends		(440	)		(450	)
	Intangible asset amortization		(125	)		(157	)
	Accrued loan fees and costs		(181	)		(386	)
	Deferred charges		(93	)		(184	)
	Prepaid pension		(136	)		(147	)

Total deferred Federal tax liabilities			(1,295	)		(1,812	)

Net deferred Federal tax assets		$	3,052		$	2,468


(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, 2005 and 2004, 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 6,771,867 and 6,766,867 at December 31, 2005 and December 31, 2004, respectively.


	Common Stock Repurchase Plan and Treasury Stock

On July 28, 2005, the Board of Directors authorized the repurchase of up to 5% of the outstanding shares of the common stock of the Corporation, or approximately 332,000 shares. The repurchased shares will be used primarily for qualified employee benefit plans, incentive stock option plans, stock dividends and other

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

corporate purposes. At December 31, 2005 and December 31, 2004, LNB Bancorp, Inc. held 250,694 shares and 125,694 shares of common stock as Treasury Stock under this plan at a total cost of $4,649 and $2,430 respectively. During 2004, 23,563 shares were issued out of Treasury to satisfy employee benefit plan requirements.


	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 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% of market value, if a person or group acquires 15% 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.


	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 2005 while 12,538 shares were purchased in the open market at the current market price. Similarly, the Corporation did not issue shares pursuant to the Plan in 2004 while 53,233 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, 2005, approximately $8.6 million of the Bank’s retained earnings was 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.


(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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 five percent, a Tier I risk-based capital ratio of at least six percent, and a total risk-based capital ratio of at least ten percent.

Total capital (Tier 1 and Tier 2) amounted to $75.0 million at December 31, 2005, representing 11.39% of net risk-adjusted assets and $75.8 million and 11.72%, respectively, at December 31, 2004. Tier 1 capital of $68.4 million at December 31, 2005 represented 10.38% of risk weighted assets, and $68.4 million and 10.58% at December 31, 2004.

At December 31, 2005 and 2004, the capital ratios for the Corporation and its wholly-owned subsidiary, The 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 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 The Lorain National Bank and LNB Bancorp, Inc.’s Regulatory Capital and Regulatory Capital Requirements follows:

December 31, 2005

December 31, 2004

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

Total capital (risk weighted)

Consolidated

74,975

11.39

75,814

11.72

Bank

74,259

11.28

71,931

11.13

Tier 1 capital (risk weighted)

Consolidated

68,383

10.38

68,428

10.58

Bank

63,637

9.67

60,461

9.36

Tier 1 capital (average assets)

Consolidated

68,383

8.57

68,428

9.05

Bank

63,637

7.84

60,461

7.86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2005

December 31, 2004

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

Well Capitalized:

Total capital (risk weighted)

Consolidated

65,830

10.00

64,688

10.00

Bank

65,828

10.00

64,428

10.00

Tier 1 capital (risk weighted)

Consolidated

39,498

6.00

38,806

6.00

Bank

39,497

6.00

38,757

6.00

Tier 1 capital (average assets)

Consolidated

39,900

5.00

37,806

5.00

Bank

40,582

5.00

38,461

5.00

Minimum Required:

Total capital (risk weighted)

Consolidated

52,664

8.00

51,750

8.00

Bank

52,662

8.00

51,702

8.00

Tier 1 capital (risk weighted)

Consolidated

26,332

4.00

25,871

4.00

Bank

26,331

4.00

25,838

4.00

Tier 1 capital (average assets)

Consolidated

31,920

4.00

30,244

4.00

Bank

32,465

4.00

30,769

4.00


(15)	Parent Company Financial Information

LNB Bancorp, Inc.’s (parent company only) condensed balance sheets as of December 31, 2005 and 2004, and the condensed statements of income and cashflows for the years ended December 31, 2005, 2004 and 2003 are as follows:


	At December 31,

Condensed Balance Sheets	2005		2004

	(Dollars in thousands)
Assets:
Cash	$	568	$	207
Short-term investments		—		3,674
Investment in The Lorain National Bank		63,690		62,489
Investment in Charleston Insurance, Inc.		127		91
Other investments		7		116
Note receivable — The Lorain National Bank		4,000		4,000
Other assets		34		34

Total Assets	$	68,426	$	70,611


Liabilities and Shareholder’s Equity
Other liabilities	$	21	$	37
Shareholders’ equity		68,405		70,574

Total Liabilities and Shareholders’ Equity	$	68,426	$	70,611

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Year Ended December 31,

Condensed Statements of Income	2005		2004		2003

	(Dollars in thousands)
Income
Interest income	$	321	$	324	$	312
Cash dividends from The Lorain National Bank		3,575		4,777		4,626
Other income		72		45		171
Gain on sale of available for sale securities		73		—		—

Total Income		4,041		5,146		5,109

Expenses
Other expenses		341		397		563

Income before income taxes and equity in undistributed net income of subsidiaries		3,700		4,749		4,546
Income tax (benefit) expense		35		7		(27	)

Equity in undistributed net income of subsidiary		2,748		2,733		3,142

Net Income	$	6,413	$	7,475	$	7,715


		Year Ended December 31,

Condensed Statements of Cash Flows		2005			2004			2003

		(Dollars in thousands)
Net Income		$	6,413		$	7,475		$	7,715
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Equity in undistributed net income of The Lorain National Bank		(2,748	)		(2,733	)		(3,142	)
	Gain on sale of available for sale securities		(73	)		—			—
	Issuance of common stock under employment agreements		97			—			—
	Equity in undistributed net income of non-bank subsidiaries		36			35			53
	Net change in other assets and liabilities		(132	)		(1,235	)		126

	Net cash provided by operating activities		3,593			3,542			4,752

Cash Flows from Investing Activities:
	Proceeds from sales of available for sale securities		73			—			—

	Net cash provided by investing activities		73			—			—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		Year Ended December 31,

Condensed Statements of Cash Flows — (continued)		2005			2004			2003

		(Dollars in thousands)
Cash Flows from Financing Activities:
	Cash paid in lieu of fractional shares related to stock dividends and stock splits		—			—			(14	)
	Proceeds from exercise of stock options and shares issued under LNBB Direct Stock Purchase and Dividend Reinvestment Plan		—			1			190
	Purchase of treasury stock		(2,219	)		—			—
	Issuance of treasury stock for stock options		—			333			15
	Dividends paid		(4,760	)		(4,777	)		(4,626	)

	Net cash used in financing activities		(6,979	)		(4,443	)		(4,435	)

Net increase (decrease) in cash equivalents			(3,313	)		(901	)		317
Cash and cash equivalents at beginning of year			3,881			4,782			4,465

Cash and cash equivalents at end of year		$	568		$	3,881		$	4,782


(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 expense amounted to $32 in 2005, $179 in 2004 and $116 in 2003. 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 Prepaid Asset or Accrued Liability for the years ended December 31, 2005, 2004, and 2003. Effective December 31, 2002, the benefits under the Plan were frozen and no additional benefits are accrued under the Plan after December 31, 2002. The losses recognized

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

due to settlement in the amount of $135, $105 and $20 results from significant lump sum distributions paid in 2005, 2004 and 2003, but not actuarially projected.


		Year Ended December 31,

		2005			2004			2003

		(Dollars in thousands)
Change in projected benefit obligation
Projected benefit obligation at beginning of year		$	(7,390	)	$	(7,943	)	$	(8,415	)
	Interest cost		(398	)		(450	)		(477	)
	Actuarial gain (loss)		111			108			(283	)
	Settlement loss		(210	)		(159	)		(157	)
	Benefits paid		1,546			1,054			1,389

Projected benefit obligation at the end of year		$	(6,341	)	$	(7,390	)	$	(7,943	)

Change in plan assets
Fair value of plan assets at beginning of year		$	6,895		$	7,227		$	7,741
	Actual gain on plan assets		269			222			223
	Employer contributions		250			500			652
	Benefits paid		(1,546	)		(1,054	)		(1,389	)

Fair value of plan assets at end of year		$	5,868		$	6,895		$	7,227

Funded Status
	Unrecognized net gain subsequent to transition	$	(473	)	$	(495	)	$	(716	)
	Unrecognized actuarial loss		874			678			—
	Unrecognized prior service cost		—			—			578

Prepaid Asset (Accrued Liability)		$	401		$	183		$	(138	)


	Year Ended December 31,

	2005			2004			2003

	(Dollars in thousands)
Net Periodic Pension Cost (Benefit)
Interest cost on projected benefit obligation	$	398		$	450		$	477
Expected return on plan benefits		(501	)		(376	)		(381	)

Net periodic pension cost (benefit)		(103	)		74			96

Loss recognized due to settlement		135			105			20

Total pension costs	$	32		$	179		$	116


Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, 2005, 2004 and 2003

Weighted average discount rate		5.75	%		5.75	%		5.75	%

Expected long-term rate of return on plan assets		7.50	%		5.00	%		5.00	%

Assumed rate of future compensation increases		0.00	%		0.00	%		0.00	%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amounts recognized in the consolidated balance sheets consist of:


	At December 31,

	2005			2004			2003

	(Dollars in thousands)
Accrued benefit cost	$	(473	)	$	(495	)	$	(716	)
Minimum pension liability		874			678			578

Net amount recognized	$	401		$	183		$	(138	)

Year Ended

December 31,

2005

2004

2003

(Dollars in thousands)

Increase in minimum liability included in other comprehensive income

129

381

The actuarial assumptions used in the pension plan valuation are reviewed annually. The expected long-term rate of return on plan assets is determined as follows. The current weighted average asset allocation for equities and bonds are assigned the 30 year average return on the S&P 500 (net of inflation) and the 30 year average return on government and corporate bonds, respectively. In 2005 these were 5.50% and 3.00%, respectively. An inflation factor is added to this weighted average return to arrive at the 7.50% long-term expected return on plan assets. Although past performance is no guarantee of future results, the Corporation is not aware of any reasons why it should not be able to achieve the assumed future average annual returns of 7.50% over complete market cycles. 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

The Lorain National Bank’s Retirement Pension Plan’s weighted-average assets allocations at December 31, 2005, 2004 and 2003 by asset category are as follows:


	Plan Assets at December 31,

	2005			2004			2003

Asset Category:
Equity securities		61.0	%		41.0	%		18.0	%
Debt securities		38.8			58.0			82.0
Cash and cash equivalents		0.2			1.0			0.0

Total		100.0	%		100.0	%		100.0	%

LNB Bancorp, Inc. common stock to total plan assets		9.7	%		9.2	%		8.9	%

The investment strategy for 2006 will continue to be an equity security allocation percent of 60% and a debt security position of 40%. This strategy will be employed in order to position more assets to benefit from the anticipated increase in the equities market in 2006.

The Lorain National Bank expects to contribute $250 to The Lorain National Bank Retirement Pension Plan in 2006.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	Amount

	(Dollars in thousands)
2006	$	720
2007		312
2008		311
2009		563
2010		333
2011 — 2015		2,942


(17)	Stock Options

At December 31, 2005 all options under qualified incentive stock option plans had been exercised or had expired.

At December 31, 2005, the Corporation had nonqualified stock option agreements with two executives granted in 2005. The number of options and the exercise prices for these nonqualified incentive options outstanding as of December 31, 2005, were 30,000 options at an exercise price of $19.17 and 2,500 options at an exercise price of $16.50. The average remaining contractual life of these nonqualified incentive stock options is 9.1 years and 9.5 years respectively. The vesting of the 30,000 options is in equal amounts on the first, second and third year anniversaries of the grant date. The vesting of the 2,500 options is on the first anniversary of the grant date. The stock options granted to these two individuals are not yet vested or exercisable. The expected life of the all stock options is 10 years from the date that the option vests. At December 31, 2005 all options were not vested.

The activity in stock options outstanding for the three years ended December 31, 2005 follows:


	2005					2004					2003

				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price

Outstanding at beginning of year		21,939		$	19.39		50,960		$	16.69		46,318		$	23.29
Granted		32,500			18.96		10,000			19.60		—			—
Forfeited		(21,939	)		19.39		(15,918	)		14.09		(3,092	)		12.31
Exercised		—			—		(23,103	)		14.09		(15,425	)		12.31
Stock dividend or split		—					—					23,159			15.52

Outstanding at end of year		32,500		$	18.96		21,939		$	19.39		50,960		$	16.69

Exercisable at end of year		—		$	—		21,939		$	19.39		50,960		$	16.69

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. No stock based compensation, as defined by the provisions of Statement of Financial Accounting Standards No. 123; “Accounting for Stock Based Compensation” was generated under any of the Corporation’s stock-based benefit plans during 2005 and 2004.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of the options granted in 2005 and 2004 were estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:


	2005			2004

Risk free interest rate		4.23	%		4.35	%
Dividend yield		5.00			3.67
Volatility		32.57			14.61

The table below shows the pro Forma net income effect, if the fair value of these stock options were expensed.


		Year Ended December 31,

		2005			2004			2003

		(Dollars in thousands except
		per share amounts)
Net Income as reported		$	6,413		$	7,475		$	7,715
Add: Stock-based compensation,
net of tax, as reported			62			—			—
Deduct: Stock-based compensation, net of tax, that would have been reported if the fair value based method had been applied to all awards			(123	)		(23	)		—

Pro forma net income		$	6,352		$	7,452		$	7,715

Pro forma net income per share:
	Basic — as reported	$	0.97		$	1.13		$	1.17
	Basic — pro forma		0.96			1.12			1.17
	Diluted — as reported		0.97			1.13			1.17
	Diluted — pro forma		0.96			1.12			1.17


(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. No contributions were made to this plan in 2005, 2004 and 2003. Under the terms of the ESOP agreement, the Corporation’s common stock is to be the Plan’s primary investment.


(19)	401(k) Plan

The Bank adopted the The Lorain National Bank 401(k) Plan (the Plan) effective January 1, 2001. This Plan amended and restated the previous plan — 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. No shares were purchased out of Treasury during 2005, 2004 or 2003.

Under provisions of the Plan, a participant can contribute a percentage of their compensation to the Plan. The Bank makes a non-discretionary 50% contribution to match each employee’s contribution. The Bank’s match is limited to the first six percent of an employee’s 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 $252, $221, and $425, in 2005, 2004 and 2003, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(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. 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 at December 31, 2005 follows:


		Amount

		(Dollars
		in
		thousands)
Commitments to extend credit		$	78,514
Home equity lines of credit			52,913
Standby letters of credit			4,384

	Total	$	135,811

Most of the Bank’s business activity is with customers located within the Bank’s defined market area. As of December 31, 2005 and 2004, 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 may result 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.


(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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:


	•	The carrying value of Cash and due from banks, Federal funds sold, short-term investments and accrued interest receivable and other financial assets is a reasonable estimate of fair value due to the short-term nature of the asset.

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

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

	•	The carrying value approximates the fair value for bank owned life insurance.

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

	•	Securities sold under repurchase agreements, other short-term borrowings, accrued interest payable and other financial liabilities approximate fair value due to the short-term nature of the liability.

	•	The fair value of Federal Home Loan Bank advances is estimated by discounting future cash flows using current FHLB rates for the remaining term to maturity.

	•	The fair value of commitments to extend credit approximates the fees charged to make these commitments; since rates and fees of the commitment contracts approximates those currently charged to originate similar commitments. The carrying amount and fair value of off-balance sheet instruments is not significant as of December 31, 2005 and 2004.

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 judgment 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

estimates of fair value. The estimated fair values of the Corporation’s financial instruments at December 31, 2005 and 2004 are summarized as follows:

At December 31,

2005

2004

Carrying

Estimated

Carrying

Estimated

Value

Fair Value

Value

Fair Value

(Dollars in thousands)

Financial assets

Cash and due from banks, Federal funds sold and short-term investments

23,923

26,818

Securities

155,274

149,621

Portfolio loans, net

581,803

578,773

564,771

574,662

Loans held for sale

2,586

3,067

Bank owned life insurance

13,935

13,335

Accrued interest receivable

3,053

2,594

Financial liabilities

Deposits:

Demand, savings and money market

353,428

376,449

Certificates of deposit

286,788

229,094

Total deposits

640,216

605,543

Short-term borrowings

32,616

31,619

Federal Home Loan Bank advances

53,896

52,945

69,296

68,757

Accrued interest payable

2,126

1,172

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(22)	Quarterly Financial Data (Unaudited)

First

Second

Third

Fourth

Full Year

(Dollars in thousands, except per share amounts)

2005

Total interest income

10,052

10,555

11,095

11,730

43,432

Total interest expense

2,720

2,998

3,625

4,059

13,402

Net interest income

7,332

7,557

7,470

7,671

30,030

Provision for loan losses

399

300

150

1,248

Net interest income after provision for loan losses

6,933

7,158

7,170

7,521

28,782

Noninterest income

2,927

2,639

2,608

2,203

10,377

Noninterest expense

7,671

8,472

6,764

7,360

30,267

Income tax

618

473

857

531

2,479

Net income

1,571

852

2,157

1,833

6,413

Basic earnings per share

0.24

0.13

0.33

0.27

0.97

Diluted earnings per share

0.24

0.13

0.33

0.27

0.97

Dividends declared per share

0.18

0.72


	First		Second		Third		Fourth		Full Year

	(Dollars in thousands, except per share amounts)
2004
Total interest income	$	8,952	$	9,036	$	9,451	$	9,785	$	37,224
Total interest expense		2,106		2,185		2,310		2,501		9,102
Net interest income		6,846		6,851		7,141		7,284		28,122
Provision for loan losses		525		425		399		399		1,748
Net interest income after provision for loan losses		6,321		6,426		6,742		6,885		26,374
Noninterest income		2,879		2,612		3,003		1,948		10,442
Noninterest expense		5,975		6,263		6,760		7,292		26,290
Income tax		969		795		911		376		3,051
Net income		2,256		1,980		2,074		1,165		7,475
Basic earnings per share		0.34		0.30		0.31		0.18		1.13
Diluted earnings per share		0.34		0.30		0.31		0.18		1.13
Dividends declared per share		0.18		0.18		0.18		0.18		0.72

During the second quarter of 2005, the Corporation recorded expenses totaling $1,218 associated with the recruitment of senior management, severance costs, a goodwill impairment charge related to the Corporation’s subsidiary LNB Mortgage, LLC and the write-off of several telecommunications contracts. During the fourth quarter of 2004, the Corporation recorded an other than temporary impairment charge on an investment security that reduced noninterest income by $1,258.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
LNB Bancorp, Inc.:

We have audited the accompanying consolidated balance sheets of LNB Bancorp, Inc. and subsidiaries (Company) as of December 31, 2005 and 2004, 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, 2005. These consolidated financial statements are the responsibility of the Company’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 the standards of the Public Company 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Cleveland, Ohio

March 13, 2006


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

None


Item 9a.	Controls and Procedures


1.	Disclosure Controls and Procedures

The Corporation’s Management carried out an evaluation, under the supervision and with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of LNB Bancorp, Inc.’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of December 31, 2005, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the chief executive officer along with the chief financial officer concluded that LNB Bancorp, Inc.’s disclosure controls and procedures as of December 31, 2005 were (1) designed to ensure that material information relating to the Corporation and its subsidiaries is made known to the chief executive officer and the chief financial officer by others within those entities, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.


2.	Internal Control over Financial Reporting

Management’s Report on Internal Control Over Financial Reporting

The Management of LNB Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over its financial reporting. LNB Bancorp, Inc.’s internal control over financial reporting is a process designed under the supervision of the Corporation’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

LNB Bancorp, Inc.’s Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2005 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control Integrated Framework.” Based on this assessment, Management determined that at December 31, 2005, the Corporation’s internal control over financial reporting was effective. Management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, and KPMG LLP has issued an attestation report, which is included herein, regarding Management’s assessment.



Daniel E. Klimas		Terry M. White
President and Chief Executive Officer		Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

LNB Bancorp, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that LNB Bancorp, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of LNB Bancorp, Inc. and subsidiaries as of December 31, 2005 and 2004, 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, 2005, and our report dated March 13, 2006 expressed an unqualified opinion on those consolidated financial statements.

Cleveland, Ohio

March 13, 2006

Changes in Internal Control Over Financial Reporting

No change in the Corporation’s internal control over financial reporting occurred during the fiscal quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.


Item 9B.	Other Information

Not Applicable.

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons of the Registrant

Information regarding the executive officers of the Corporation is set forth in Part I, Item 4 of this Form 10-K. Other information required to be included under this item is incorporated by reference herein from the information about our directors provided in the section captioned “Election of Directors,” the information provided in the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance,” and the information about the Corporation’s Audit and Finance Committee, audit committee financial expert and procedures for recommending nominees to the Board of Directors provided in the section captioned “Committees of the Board” in the Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed with the SEC.

The Corporation has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees. The Code of Business Conduct and Ethics is available on the Corporation’s website at www.4lnb.com. The Corporation intends to post on its website all disclosures that are required by law or Nasdaq national market listing standards concerning any amendments to, or waivers from, the Code of Business Conduct and Ethics. Shareholders may request a copy of the Code of Business Conduct and Ethics by written request directed to LNB Bancorp, Inc., Attention: Corporate Secretary, 457 Broadway, Lorain, OH 44052.

Item 11. Executive Compensation

The information required by this item is incorporated by reference herein from the information provided in the sections captioned “Executive Compensation and Other Information,” in the Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed with the SEC.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information about security ownership of certain beneficial owners and management required by this item is incorporated by reference herein from the information provided in the section captioned “Ownership of Voting Shares” in the Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed with the SEC. The following table shows information about the Corporation’s common shares that may be issued

upon the exercise of options, warrants and rights under all of the Corporation’s equity compensation plans as of December 31, 2005:

Equity Compensation Plan Table

Number of securities

remaining available for future

to be issued upon

Weighted-average

issuance under equity

exercise of

exercise price of

compensation plans

outstanding options,

(excluding securities reflected

Plan Category

warrants and rights(1)

warrants and rights

in column(a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

—

Equity compensation plans not approved by security holders(2)

32,500

18.96

60,000

Total

32,500

18.96

60,000


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

(2)	All common shares included in equity compensation plans not approved by shareholders are covered by outstanding options awarded to two current officers under agreements having the same material terms. Each of these options is a nonqualified option, meaning a stock option that does not qualify under Section 422 of the Internal Revenue Code for the special tax treatment available for qualified, or “incentive,” stock options. Mr. Klimas has an option to purchase 30,000 shares which vest in 10,000 increments on the first, second and third anniversaries of the date of grant. Mr. Klimas’ employment agreement also contemplates that he will be issued options to purchase 30,000 shares on each of the first and second anniversaries of the commencement of his employment. Mr. Soltis has an option to purchase 2,500 shares which vest on the first year anniversary of the date of grant. Each option may be exercised for a term of 10 years from the date the option vests, 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. The 30,000 shares awarded to Mr. Klimas have an exercise price of $19.17, and the 2,500 shares awarded Mr. Soltis have an exercise price of $16.50. The remaining contractual terms of the options are 10 years from the date of vesting.

Item 13. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference from the information provided in section captioned “Certain Transactions” in the Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed with the SEC.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated by reference herein from the information provided in section captioned “Principal Accounting Firm Fees” in the Corporation’s Proxy Statement for the 2006 Annual Meeting of Shareholders filed with the SEC.

PART IV


Item 15.	Exhibits, Financial Statement Schedules

(a) The following Consolidated Financial Statements and related Notes to Consolidated Financial Statements, together with the report of Independent Registered Public Accounting Firm date March 6, 2006, appear on pages 37 through 68 of this annual report on Form 10-K:


	(1) Financial Statements

Consolidated Balance Sheets

December 31, 2005 and 2004

Consolidated Statements of Income for the Years Ended

December 31, 2005, 2004 and 2003

Consolidated Statements of Shareholders’ Equity for the Years

Ended December 31, 2005, 2004 and 2003

Consolidated Statements of Cash Flows for the Years Ended

December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements for the Years

Ended December 31, 2005, 2004 and 2003

Report of Independent Registered Public Accounting Firm


	(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 74 of this Form 10-K.

(b) the following exhibits required by Item 601 of Regulation S-K are filed as part of this report:

Form 10-K Exhibit Index

Exhibit Index


S-K
Reference
Number			Exhibit

	3	(a)	LNB Bancorp, Inc. Second Amended Articles of Incorporation.
	3	(b)	LNB Bancorp, Inc. Amended Code of Regulations.
	10	(a)*	Form of Stock Appreciation Right Agreement. Incorporated by reference herein from Exhibit 10.1 to the Corporation’s Form 8-K filed January 25, 2006.
	10	(b)*	LNB Bancorp, Inc. 2005 Management Incentive Plan. Incorporated by reference herein from Exhibit 10.1 of the Corporation’s Form 8-K filed December 22, 2005.
	10	(c)*	LNB Bancorp, Inc. 2006 Management Incentive Plan for Key Executives. Incorporated by reference herein from Exhibit 10.2 of the Corporation’s Form 8-K filed December 22, 2005.
	10	(d)*	LNB Bancorp, Inc. Stock Appreciation Rights Plan. Incorporated by reference from Exhibit 10.3 of the Corporation’s Form 8-K filed December 22, 2005.
	10	(e)*	Employment Agreement, dated June 20, 2005, between LNB Bancorp, Inc. and Richard E. Lucas. Incorporated by reference herein from Exhibit 10.1 to the Corporation’s quarterly report on Form 10-Q for the quarter ended September 30, 2005.
	10	(f)*	Stock Option Agreement, effective as of June 27, 2005, between the Corporation and Frank A. Soltis. Incorporated by reference herein from Exhibit 10.2 to the Corporation’s quarterly report on Form 10-Q for the quarter ended September 30, 2005.
	10	(g)*	Employment Agreement by and between Daniel E. Klimas and LNB Bancorp, Inc. dated January 28, 2005. Incorporated by reference herein from Exhibit 10(a) to the Corporation’s annual report Form 10-K for the fiscal year ended December 31, 2004.
	10	(h)	Asset Purchase Agreement by and between LNB Mortgage, LLC., The Lorain National Bank and Mortgage One Services, Inc. dated July 1, 2004. Incorporated by reference herein from Exhibit 2 to the Corporation’s quarterly report on Form 10-Q for the quarter ended June 30, 2004.
	10	(i)	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. Incorporated by reference herein from Exhibit (10a) to the Corporation’s annual report on Form 10-K for the year ended December 31, 2003.
	10	(j)*	The Lorain National Bank Retirement Pension Plan amended and restated effective December 31, 2002, dated November 19, 2002. Incorporated by reference herein from Exhibit 10 to the Corporation’s annual report on Form 10-K for the year ended December 31, 2002.
	10	(k)*	Employment Agreement by and between Terry M. White and LNB Bancorp, Inc, and The Lorain National Bank dated January 23, 2002. Incorporated by reference herein from Exhibit (10a) to the Corporation’s quarterly report on Form 10-Q for the quarter ended March 31, 2002.
	10	(l)	Lorain National Bank Group Term Carve Out Plan dated August 7, 2002. Incorporated by reference herein from Exhibit (10a) to the Corporation’s quarterly report on Form 10-Q for the quarter ended September 30, 2002.
	10	(m)	Restated and Amended Employment Agreement by and between Gary C. Smith and LNB Bancorp, Inc, and The Lorain National Bank dated December 22, 2000. Incorporated by reference herein from Exhibit (10a) to the Corporation’s annual report on Form 10-K for the year ended December 31, 2001.
	10	(n)	Supplemental Retirement Benefits Agreement by and between Gary C. Smith and LNB Bancorp, Inc, and The Lorain National Bank dated December 22, 2000.
	10	(o)	Amended Supplemental Retirement Agreement by and between Thomas P. Ryan and LNB Bancorp, Inc. and The Lorain National Bank dated December 23, 2000.
	10	(p)	Amended Supplemental Retirement Agreement by and between Gregory D. Friedman and LNB Bancorp, Inc. and The Lorain National Bank dated December 23, 2000.
	10	(q)*	Amended Supplemental Retirement Agreement by and between James F. Kidd and The Lorain National Bank dated June 15, 1999.


S-K
Reference
Number			Exhibit

	10	(r)	Rights Agreement between LNB Bancorp, Inc. and Registrar and Transfer Corporation dated October 24, 2000.
	10	(s)	Branch Purchase and Assumption Agreement by and between KeyBank National Association and the Lorain National Bank dated April 10, 1997.
	10	(t)*	Supplemental Retirement Agreement by and between James F. Kidd and The Lorain National Bank dated July 30, 1996.
	10	(u)	Supplemental Retirement Agreement by and between Thomas P. Ryan and The Lorain National Bank dated July 30, 1996.
	10	(v)	Supplemental Retirement Agreement by and between Gregory D. Friedman and The Lorain National Bank dated July 30, 1996.
	10	(w)	Agreement To Join In The Filing of Consolidated Federal Income Tax Returns between LNB Bancorp, Inc. and The Lorain National Bank dated February 27, 2004.
	21.1		Subsidiaries of LNB Bancorp, Inc.
	23.1		Consent of KPMG, LLP.
	31.1		Rule 13a-14(a)/15-d-14(a) Certification of Chief Executive Officer, dated March 13, 2006 for LNB Bancorp, Inc.’s annual report on Form 10-K for the year ended December 31, 2005.
	31.2		Rule 13a-14(a)/15-d-14(a) Certification of Chief Financial Officer, dated March 13, 2006 for LNB Bancorp, Inc.’s annual report on Form 10-K for the year ended December 31, 2005.
	32.1		Section 1350 Certification of Chief Executive Officer, dated March 13, 2006 for LNB Bancorp, Inc.’s annual report on Form 10-K for the year ended December 31, 2005.
	32.2		Section 1350 Certification of Chief Financial Officer, dated March 13, 2006 for LNB Bancorp, Inc.’s annual report on Form 10-K for the year ended December 31, 2005.

* Management contract, compensatory plan or arrangement

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
	Chief Financial Officer

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:



Daniel P. Batista	Director	March 13, 2006

/s/ Robert M. Campana Robert M. Campana	Director	March 13, 2006

/s/ Terry D. Goode Terry D. Goode	Director	March 13, 2006

/s/ James F. Kidd James F. Kidd	Vice Chairman and Director	March 13, 2006

/s/ David M. Koethe David M. Koethe	Director	March 13, 2006

/s/ Kevin C. Martin Kevin C. Martin	Director	March 13, 2006

/s/ Benjamin G. Norton Benjamin G. Norton	Director	March 13, 2006

/s/ Jeffrey F. Riddell Jeffrey F. Riddell	Director	March 13, 2006

John W. Schaeffer, M.D.	Director	March 13, 2006

Eugene M. Sofranko	Director	March 13, 2006

Stanley G. Pijor	Director	March 13, 2006

/s/ Lee C. Howley Lee C. Howley	Director	March 13, 2006

/s/ Donald F. Zwilling Donald F. Zwilling	Director	March 13, 2006



/s/ James R. Herrick James R. Herrick	Director	March 13, 2006

/s/ Daniel E. Klimas Daniel E. Klimas	Director and Chief Executive Officer	March 13, 2006

/s/ Terry M. White Terry M. White	Chief Financial Officer	March 13, 2006

77 EX-3.A 2 l17869aexv3wa.htm EX-3(A) LNB SECOND AMENDMENT ARTICLE EX-3(a)

Exhibit 3(a)

SECOND AMENDED ARTICLES OF INCORPORATION
OF
LNB BANCORP, INC.

These Second Amended Articles of Incorporation (the “Articles”) of LNB Bancorp, Inc. (“Corporation”) hereby supersede Corporation’s existing Amended Articles of Incorporation and shall read as follows:

FIRST. The name of Corporation shall be LNB Bancorp, Inc.

SECOND. The place in Ohio where Corporation’s principal office is to be located is the City of Lorain, Lorain County.

THIRD. The purpose for which Corporation is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 through 1701.98, inclusive, of the Ohio Revised Code, including (but not limited to) to qualify and act as a “financial holding company” as defined by the Gramm-Leach-Bliley Act of 1999.

FOURTH. The number of shares (collectively, the “Shares”) which Corporation is authorized to have outstanding is 16,000,000 Shares consisting of: (i) 15,000,000 of common Shares, One Dollar ($1.00) par value (the “Common Shares”); and (ii) 1,000,000 of voting preferred Shares, no par value (the “Voting Preferred Shares”) as follows:

A. Common Shares:

The holders of the Common Shares are entitled at all times to one (1) vote for each Share and to such dividends as the Board of
Directors (herein called the “Board”) may in its discretion periodically declare, subject, however, to the voting and dividend rights of the holders of the Voting Preferred Shares. In the event of any liquidation, dissolution or winding up of Corporation, the remaining assets of Corporation after the payment of all debts and necessary expenses shall be distributed among the holders of the Common Shares pro rata in accordance with their respective Share holdings, subject, however, to the rights of the holders of the Voting Preferred Shares then outstanding. The Common Shares are subject to all of the terms and provisions of the Voting Preferred Shares as established by the Board in accordance with this Article FOURTH.

B. Voting Preferred Shares:

The Board is hereby expressly authorized in its discretion to adopt amendments to the Articles to provide for the issuance of one
(1) or more series of Voting Preferred Shares; to establish periodically the number of Shares to be included in each such series; and to fix the designation, powers, preferences, dividend rights and other rights of the Voting Preferred Shares of each such series and any qualifications, limitations or restrictions thereof, to the fullest extent permitted by law. When voting as a class, the holders of the Voting Preferred Shares shall be entitled at all times to one (1) vote for each Voting Preferred Share. Voting Preferred Shares redeemed or otherwise acquired by Corporation shall become authorized but unissued

Voting Preferred Shares, shall be unclassified as to series, and may thereafter be reissued in the same manner as other authorized but unissued Voting Preferred Shares.

C. Series A Voting Preferred Shares:

From the authorized number of Voting Preferred Shares of corporation, a series of Voting Preferred Shares designated as “Series A Voting Preferred Shares” is hereby created and shall consist of 750,000 Shares, without par value, of which the preferences, relative and other rights, and the qualifications, limitations or restrictions thereof shall be (in addition to those set forth elsewhere in these Articles) as follows:

1. Dividends and Distribution.

(a) In preference to the holders of Common Shares and of any outstanding junior Shares of Corporation, but subject to the prior and superior rights of the holders of any Shares of any series of Voting Preferred Shares ranking prior and superior to the Shares of Series A Voting Preferred Shares with respect to dividends, the holders of Series A Voting Preferred Shares shall be entitled to receive (when, as and if declared by the Board) from funds legally available for the purpose, quarterly dividends payable in cash on the first Business Day of January, April, July and October in each year (each such date being referenced herein as a “Quarterly Dividend Payment Date”, and “Business Day” meaning any day other than a Saturday, Sunday or a day on which banking institutions in the State of Ohio are authorized or obligated by law or executive order to close), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Share or fraction of a Share of Series A Voting Preferred Shares. Such dividends shall be in an amount per Share (rounded to the nearest cent) equal to the greater of: (a) One Dollar ($1.00), or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per Share amount of all cash dividends and 100 times the aggregate per Share amount (payable in kind) of all non-cash dividends or other distributions (other than a dividend payable in Common Share or other subdivision of the outstanding Common Shares, by reclassification or otherwise, declared on the Common Shares) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Share or fraction of a Share of Series A Voting Preferred Shares. If Corporation shall, on or after November 6, 2000 (the “Rights Declaration Date”), (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the outstanding Common Shares into a smaller number of Shares, then (in each such case) the amount to which holders of Series A Voting Preferred Shares were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares outstanding immediately prior to such event.

(b) The Board shall declare a dividend or distribution on the Series A Voting Preferred Shares as provided in paragraph (a) above

immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Shares of Common Shares); provided that, subject to the requirements of applicable law, in the event no dividend or distribution has been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of One Dollar ($1.00) per Share on the Series A Voting Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(c) Dividends shall accrue and be cumulative on outstanding Series A Voting Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Shares of Series A Voting Preferred Shares, unless: (i) the date of issue of such Shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such Shares shall accrue from the date of issue of such Shares, or (ii) the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Voting Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on Series A Voting Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such Shares shall be allocated pro rata on a Share-by-Share basis among all such Shares at the time outstanding. The Board may fix a record date for the determination of holders of Series A Voting Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than sixty (60) days prior to the date fixed for the payment thereof.

2. Voting Rights. The holders of Series A Voting Preferred Shares shall have the following voting rights, in addition to
those set forth elsewhere in this Article FOURTH:

(a) Subject to the provision for adjustment hereinafter set forth, each Series A Voting Preferred Share shall entitle the holder thereof to one hundred (100) votes on all matters submitted to a vote of the shareholders of Corporation. If Corporation shall at any time on or after the Rights Declaration Date: (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the outstanding Common Shares into a small number of Shares, then (in each such case) the number of votes per Share to which holders of Series A Voting Preferred Shares were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares outstanding immediately prior to such event.

(b) Except as otherwise provided herein or by law, the holders of Series A Voting Preferred Shares and the holders of Common Shares shall vote together as one class on all matters submitted to a vote of shareholders of Corporation.

Series A Voting Preferred Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in these Articles or by law) for taking any corporate action.

3. Certain Restrictions.

(a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Voting Preferred Shares as
provided in Section 1 of paragraph C. (Series A Voting Preferred Shares)of Article FOURTH are in arrears, thereafter and until all accrued and unpaid dividends and distributions (whether or not declared) on Series A Voting Preferred Shares outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends or make any other distributions on Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Voting Preferred Shares;

(ii) declare or pay dividends or make any other distributions on any Shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Voting Preferred Shares,
except dividends paid ratably on the Series A Voting Preferred Shares and all such parity Shares on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such Shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Voting Preferred Shares; provided, however, that Corporation may at any time redeem, purchase or otherwise acquire any such junior Shares in exchange for any Shares of Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Voting Preferred Shares; and

(iv) purchase or otherwise acquire for consideration any Series A Voting Preferred Shares or any Shares ranking on a parity with the Series A Voting Preferred Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such Shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, determines in good faith will result in fair and equitable treatment among the respective series or classes.

b) Corporation shall not permit any subsidiary of Corporation to purchase or otherwise acquire for consideration any Shares of Corporation unless, pursuant to paragraph (a) of this Section 3, Corporation could purchase or otherwise acquire such Shares at such

time and in such manner.

4. Reacquired Shares. Any Series A Voting Preferred Shares purchased or otherwise acquired by Corporation in any manner whatsoever shall be retired and cancelled promptly after such acquisition. All such Shares, upon their cancellation, shall become authorized but unissued Voting Preferred Shares, without designation as to series, and may be reissued as part of any series of Voting Preferred Shares created by the Board (including Series A Voting Preferred Shares)subject to the condition and restrictions on issuance set forth herein.

5. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of Corporation, no distribution
shall be made to:

(a) The holder of Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Voting Preferred Shares, unless (prior thereto) the holders of Series A Voting Preferred Shares have received the greater of: (i) One Dollar ($1.00) per Share ($0.001 per one one-hundredth of a Share), plus an amount equal to accrued and unpaid dividends and distributions thereon (whether or not declared) to the date of such payment, or (ii) an aggregate amount per Share, subject to the provision for adjustment herein set forth, equal to 100 times the aggregate amount to be distributed per Share to holders of Common Shares; or

(b) The holders of Shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Voting Preferred Shares, except distributions made ratably on the Series A Voting Preferred Shares and all other such parity Shares in proportion to the total amounts to which the holders of all such Shares are entitled upon such liquidation, dissolution or winding up.

If Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a greater or lesser number of Common Shares, then (and in each such event) the aggregate amount to which the holder of each Share of Series A Voting Preferred Shares was entitled immediately prior to such event under paragraph (a)of this Section 5 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

6. Combination. If Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock, securities, cash or any other property, then (in each such event) the Series A Voting Preferred Shares shall at the same time be similarly exchanged or changed in an amount per Share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged. If, at any time on or after the Rights

Declaration Date, Corporation (i) declares any dividend on Common Shares payable in Common Shares, (ii) subdivides the outstanding Common Shares; or (iii) combines the outstanding Common Shares into a smaller number of Shares, then (in each such case) the amount set forth in the preceding sentence with respect to the exchange or change of Series A Voting Preferred Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

7. No Redemption. The Series A Voting Preferred Shares shall not be redeemable; provided, however, that Corporation may acquire Series A Voting Preferred Shares in any other manner permitted by law or these Articles.

8. Ranking. Unless otherwise provided in these Articles or any subsequent amendment of these Articles relating to a subsequent series of preferred Shares of Corporation, the Series A Voting Preferred Shares shall rank junior to all other series of Corporation’s Voting Preferred Shares as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and shall rank senior to the Common Shares.

9. Amendment. These Articles shall not be further amended in any manner which would materially and adversely alter or change the powers, preference or special rights of the Series A Voting Preferred Shares without the affirmative vote of the holders of at least a majority of the outstanding Series A Voting Preferred Shares, voting together as a single series.

10. Fractional Shares. Series A Voting Preferred Shares may be issued in fractions of a Share (in one one-hundredth (1/100) of a Share and integral multiples thereof) that shall entitle the holder (in proportion to such holder’s fractional Shares) to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Voting Preferred Shares.

FIFTH. Except as otherwise provided in these Articles, Corporation is hereby authorized to purchase through action of the Board, without the approval of the holders of any Shares of any class and upon such terms and conditions as the Board determines: (1) Shares of any class or series issued by Corporation, subject to express terms of such Shares; (2) any security or other obligation of the Corporation which may confer upon the holder thereof the right to convert such security or obligation into Shares of any class or series authorized by these Articles; (3) any security or other obligation which may confer upon the holder thereof the right to purchase Shares of any class or series authorized by these Articles; and (4) Shares of any class issued by Corporation if and when any holder of such Shares desires to (or, upon the happening of any event, is required to) sell such Shares.

SIXTH. No holder of any Shares of any class shall have the right to vote cumulatively in the election of Directors to the Board.

SEVENTH. No holder of the Shares of any class shall have any

preemptive right to subscribe for or to purchase any Shares of any class whether now or hereafter authorized.

EX-3.B 3 l17869aexv3wb.htm EX-3(B) LNB AMENDED CODE OF REGULATIONS EX-3(b)

Exhibit 3(b)

AMENDED
CODE OF REGULATIONS
OF
LNB BANCORP, INC.

TABLE OF CONTENTS


ARTICLE I — DEFINITIONS AND USAGE

SECTION 1.
Definitions			1
SECTION 2.
Word Usage			2
SECTION 3.
Ohio Law			2

ARTICLE II — SHAREHOLDER MEETINGS

SECTION 1.
Annual Shareholder Meetings			2
SECTION 2.
Special Shareholder Meetings			2
SECTION 3.
Record Dates			3
SECTION 4.
Notice			3
SECTION 5.
Quorum and Attendance			4
SECTION 6.
Voting			4
SECTION 7.
Proxies			4
SECTION 8.
Parliamentary Procedure and Minutes			4
SECTION 9.
Action by Shareholders in Writing Without a Meeting			5

ARTICLE III — BOARD MEETINGS

SECTION 1.
Annual Reorganizational Board Meeting			5
SECTION 2.
Regular Board Meetings			5
SECTION 3.
Special Board Meetings			5
SECTION 4.
Notice			6
SECTION 5.
Quorum and Attendance			6
SECTION 6.
Voting			6
SECTION 7.


Election of Officers			7
SECTION 8.
Parliamentary Procedure			7
SECTION 9.
Action by Directors in Writing Without a Meeting			7
SECTION 10.
Amendments to Article III			7

ARTICLE IV — BOARD OF DIRECTORS

SECTION 1.
Number, Election, Qualification and Term			8
SECTION 2.
Board Vacancies			9
SECTION 3.
Board Powers and Duties			9
SECTION 4.
Voting			10
SECTION 5.
Board Committees			10
SECTION 6.
Compensation and Expenses			10
SECTION 7.
Bylaws			10
SECTION 8.
Amendment of Article IV			10

ARTICLE V — OFFICERS

SECTION 1.
Designation and Qualification			11
SECTION 2.
Officer Vacancies and Succession			11
SECTION 3.
Powers and Duties of Officers			12

ARTICLE VI — INDEMNIFICATION OF SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS

SECTION 1.
Definitions			13
SECTION 2.
Indemnification for Third-Party Claims			13
SECTION 3.
Indemnification for Claims by or in the Right of the Corporation			13
SECTION 4.
Release from Liability and Contribution			14
SECTION 5.
Subrogation			14
SECTION 6.
Insurance and Similar Protection			14
SECTION 7.
Other Rights			14
SECTION 8.
Conditions and Limitations			15

ARTICLE VII — SHARES


SECTION 1.
Certificates and Share Records			15
SECTION 2.
Lost, Stolen or Destroyed Share Certificates			15
SECTION 3.
Cancellation of Share Certificates			16
SECTION 4.
Transfer of Shares			16

ARTICLE VIII — OTHER INSTRUMENTS

SECTION 1.
Prior Instruments			16
SECTION 2.
Conflicts of Instruments			16

ARTICLE IX — FAIR PRICE AND SUPER VOTE REQUIREMENTS IN CERTAIN BUSINESS COMBINATIONS

SECTION 1.
Definitions			16
SECTION 2.
Supermajority Vote to Effect Business Combination			18
SECTION 3.
Conditions Required to Effect Business Combination			18
SECTION 4.
Conditions and Requirements to Fair Price			19
SECTION 5.
Other Applicable Voting Requirements			20
SECTION 6.
Continuing Directors			20
SECTION 7.
Effects on Fiduciary Obligations of Interested Shareholders			20
SECTION 8.
Further Considerations to Effect Business Combination			20
SECTION 9.
Repeal			21

ARTICLE X — AMENDMENTS AND MISCELLANEOUS

SECTION 1.
Amendments			21
SECTION 2.
Miscellaneous			21

AMENDED
CODE OF REGULATIONS
OF
LNB BANCORP, INC.

ARTICLE I

DEFINITIONS AND USAGE

SECTION 1. DEFINITIONS.

For purposes of these Regulations, the following words and phrases have the meanings designated below:

a. “Articles of Incorporation” herein means the Corporation’s articles of incorporation filed with the Secretary of State of Ohio on October 11, 1983, all amendments thereto and restatements thereof, and all amended articles of incorporation.

b. “Board” herein means the Board of Directors of the Corporation.

c. “Board Meeting” herein means any Annual Reorganizational Board Meeting, Regular Board Meeting or Special Board Meeting (as defined in Article III, Sections 1, 2 and 3, respectively).

d. “Committees” herein means those Board Committees designated in Article IV of these Regulations.

e. “Common Shares” herein means the Corporation’s issued and outstanding common shares as defined in the Articles of Incorporation.

f. “Corporation” herein means LNB Bancorp, Inc.

g. “Days” herein means calendar days.

h. “Director” herein means any person properly elected or

appointed to the Board and holding the office as a Director as described in Article IV of these Regulations.

i. “Interested Shareholder” herein means any Shareholder of the Corporation (as defined in Article IX, Section 1g.).

j. “Officer” herein means any person properly elected or appointed to an Officership designated in Section 1 of Article V of these Regulations.

k. “Person” herein means an individual, partnership, trust, corporation, limited liability company, or other entity.

l. “Regulations” herein means these amended Regulations.

m. “Share” herein means a unit of the Corporation’s issued and outstanding voting shares as evidenced by a share certificate and shall consist of: (i) Common Shares, and (ii) Voting Preferred Shares.

n. “Shareholder” herein means any Person who or which hereafter owns at least one (1) Share; provided, however, any such Person shall cease being a “Shareholder” for purposes of these Regulations immediately when such Person no longer owns at least one (1) Share.

o. “Shareholder Meeting” herein means any Annual Shareholder Meeting or any Special Shareholder Meeting (as defined in Article II, Sections 1 and 2, respectively).

p. “Voting Preferred Shares” herein means the Corporation’s issued and outstanding voting preferred shares as defined in the Articles of Incorporation.

SECTION 2. WORD USAGE.

Where the context of these Regulations require, words used in the masculine shall include the feminine and neuter; words in the singular, the plural; and vice-versa.

SECTION 3. OHIO LAW.

These Regulations are adopted in the State of Ohio and Ohio’s laws shall govern all matters of interpretation, construction and validity and all disputes, controversies and litigation arising hereunder.

ARTICLE II

SHAREHOLDER MEETINGS

SECTION 1. ANNUAL SHAREHOLDER MEETINGS.

a. The annual meeting of the Shareholders (herein called the “Annual Shareholder Meeting”) shall be held at the Corporation’s principal office on the third Tuesday in April of each year (but, if a legal holiday, then on the next following business day), or on such other day and at such other time and place (within or without the State of Ohio) as the Board determines and calls in its sole discretion; provided, however, that the Annual Shareholder Meeting must be held each year no later than six (6) months after the close of the Corporation’s fiscal year.

b. The purposes of the Annual Shareholder Meeting are to elect Directors, receive all Corporation’s annual financial statements as required by law, receive and act upon annual and other reports of the Officers and the Board, transact other Shareholder business and activities, and take any other Shareholder actions.

SECTION 2. SPECIAL SHAREHOLDER MEETINGS.

a. Special meetings of the Shareholders (herein called a “Special Shareholder Meeting”) may be called by the registered holders of at least twenty-five percent (25%) of the Corporation’s Shares, by the Chairman of the Board, by the Vice-Chairman of the Board, by the Chief Executive Officer (as designated by the Board under Section 1 of Article V of these Regulations), by the Chief Operating Officer (if any is so designated by the Board under Section 1 of Article V), or by the Board (by action at any Board Meeting or by a majority of the Directors acting without a Board Meeting) through a written request delivered either in person or by registered United States mail to the President or the Secretary of the Corporation.

b. All Special Shareholder Meetings shall be held within sixty (60) days of call, on the day, at the time and at the place (within or without the State of Ohio) as the Board determines.

c. The purpose(s) of any Special Shareholder Meeting may be to transact any Shareholder business and activities and to take any Shareholder actions.

SECTION 3. RECORD DATES.

a. For purposes of determining those Shareholders entitled to (1) receive Notice (as defined in Section 3 hereof) of any Shareholder Meeting, or (2) receive dividends or distributions, or (3) exercise any other Shareholder rights, the Board shall fix record dates (herein called “Record Dates”) not earlier than the date on which the Record Date is established and not more than sixty (60) days prior to the designated event. If the Board fails to fix a Record Date, the Record Date shall be deemed to be the date immediately preceding the day on which either the Notice is given or, if applicable, on which the Shareholder Meeting is held.

b. Unless otherwise provided by law, only holders of Shares actually registered in the holder’s name on the Corporation’s Share records at the close of business on the Record Date shall be recognized and counted for the applicable purposes designated in Section 3a., above.

SECTION 4. NOTICE.

a. The President or Secretary of the Corporation shall prepare written notice (herein called “Notice”) stating the date, time, place and purpose(s) of each Shareholder Meeting. Not less than ten (10) nor more than sixty (60) days before any Shareholder Meeting, the President or Secretary of the Corporation either shall cause personal delivery of the Notice or shall mail (by ordinary United States mail, postage prepaid) the Notice to each registered holder (as of the Record Date) of the Corporation’s Shares at the address then appearing on the Corporation’s Share records. All Notices with respect to any Shares in the names of two (2) or more Persons may be given to any of such Persons and the Notice so given shall be effective as to all holders of such Shares. Any Person who becomes a Shareholder after the Notice has been delivered or mailed shall be deemed to have received and shall be bound by such Notice.

b. Notwithstanding any contrary provision herein, a Shareholder’s attendance (in person or by proxy) at any Shareholder Meeting waives any lack of or deficiency in Notice of such Meeting and a Shareholder may further waive Notice (before, after or during any Shareholder Meeting) through a written document signed by such Shareholder.

c. Notice of adjournment of any Shareholder Meeting need not be given if the date, time and place to which the Meeting is adjourned are fixed and announced at such Meeting.

SECTION 5. QUORUM AND ATTENDANCE.

a. The Shareholders present (in person or by proxy) constitute a quorum for the transaction of business at any Shareholder Meeting, unless otherwise expressly provided in the Articles of Incorporation or these Regulations unless otherwise required by law.

b. Whether or not a quorum exists, a majority of the Shares (represented in person or by proxy) at any Shareholder Meeting may adjourn the Meeting.

SECTION 6. VOTING.

a. Except as otherwise modified by the express terms of any Shares, by the Articles of Incorporation, or by these Regulations, each holder of a Share shall be entitled to one (1) vote for each Share registered in such holder’s name on the Corporation’s Share records as of the Record Date.

b. At any Shareholder Meeting, all matters properly submitted to the Shareholders shall be decided by a majority vote of the Shares represented in person or by proxy, unless otherwise provided in these Regulations or in the Articles of Incorporation or otherwise required by law.

SECTION 7. PROXIES.

a. A Shareholder may be represented and vote at any Shareholder Meeting by written proxy signed by such Shareholder (or by the Shareholder’s duly authorized officer) and submitted to the Secretary or the President of the Corporation at or before the Shareholder Meeting. Such Proxy shall be valid for only the Shareholder Meeting designated therein and shall name as proxy only another Shareholder.

b. A Shareholder may exercise any Shareholder consents, waivers, releases or other Shareholder rights by written proxy signed by such Shareholder (or by the Shareholder’s duly authorized officer) and submitted to the Secretary or the President of the Corporation prior to the exercise thereof.

SECTION 8. PARLIAMENTARY PROCEDURE AND MINUTES.

a. Robert’s Rules of Order (as periodically revised) constitute the final authority for parliamentary procedures at all Shareholder Meetings, except where such Rules conflict with law or with these Regulations.

At all Shareholder Meetings, the order of business shall be as follows:

	(1)		Roll call or attendance record;

	(2)		Presentation and action upon Minutes of previous Shareholder Meeting;

	(3)		Unfinished (old) business;

	(4)		Review of Annual Financial Statements of the Corporation;

	(5)		Financial or other reports of the Board;

	(6)		Financial or other reports of Officers;

	(7)		Reports of Committees (if any);

	(8)		Election of Directors (if applicable);

	(9)		New or miscellaneous business; and

	(10)		Adjournment.

The order of business may be periodically changed for any Shareholder Meeting by the Chairman of the Meeting or by a majority vote of the Shares present (in person or by proxy) at such Meeting.

c. The Secretary of the Corporation shall cause to be recorded Minutes of all Shareholder Meetings.

SECTION 9. ACTION BY SHAREHOLDERS IN WRITING WITHOUT A MEETING.

Notwithstanding any contrary provision in these Regulations, Shareholders may properly and officially act without a Meeting through a written document or documents signed by the registered holders of all Shares as of the Record Date for such action and all such documents shall be filed with or entered upon the records of the Corporation.

ARTICLE III

BOARD MEETINGS

SECTION 1. ANNUAL REORGANIZATIONAL BOARD MEETING.

a. The annual reorganizational meeting of the Board (herein called the “Annual Reorganizational Board Meeting”) shall be held each year following the Annual Shareholder Meeting at such time and place (within or without the State of Ohio) as determined by the Board but, in no event, later than six (6) months after the close of the Corporation’s fiscal year.

b. The purposes of the Annual Reorganizational Board Meeting are to elect Officers, receive and act upon any reports, transact any other Board business and activities, and take any other Board actions.

SECTION 2. REGULAR BOARD MEETINGS.

Regular meetings of the Board (herein called “Regular Board Meetings”) shall be periodically held on the days and at the times and places (within or without the State of Ohio) as the Board (in its sole discretion) determines.

SECTION 3. SPECIAL BOARD MEETINGS.

a. Special meetings of the Board (herein called “Special Board Meetings”) may be called by any two (2) Directors, the Chairman of the Board, or the President.

b. All Special Board Meetings shall be held within seven (7) days of call, at the time and at the place (within or without the State of Ohio) as the Board, the Chairman of the Board or the President determines.

c. The purpose(s) of any Special Board Meeting may be to transact any Board business and activities and to take any Board actions.

SECTION 4. NOTICE.

a. The Secretary of the Corporation or any other Officer shall give to each Director written or oral notice (herein called “Notice”) stating the date, time and place (but not necessarily the purposes) of each Board Meeting. At least two (2) days before each Board Meeting (or such shorter time period as the Chairman of the Board or the President determines to be reasonably necessary), the Secretary of the Corporation (or any other Officer) shall cause personal delivery or other communication of the Notice or shall mail (by ordinary United States mail, postage prepaid) the Notice to each Director.

b. Notwithstanding any contrary provision herein, a Director’s attendance at any Board Meeting constitutes such Director’s waiver of any failure to give or deficiency in Notice of such Meeting and a Director may further waive Notice (before, after or during any Board Meeting) through a written document signed by such Director.

c. Notice of adjournment of any Board Meeting need not be given if the date, time and place to which the Meeting is adjourned are fixed and announced at such Meeting.

SECTION 5. QUORUM AND ATTENDANCE.

a. A majority of the Directors in office (who must be present in person) constitutes a quorum for the transaction of business at any Board

Meeting. A quorum must exist as a condition precedent to (and at the time of) the transaction of any Board business or the vote upon any matter submitted to the Board.

b. Whether or not a quorum exists, a majority of the Directors present in person at any Board Meeting may adjourn the Meeting.

SECTION 6. VOTING.

a. Upon all matters properly submitted to the Board, each Director in office shall be entitled to one (1) vote but Directors shall vote and act as a Board.

b. At any Board Meeting, all matters properly submitted to the Board shall be decided by a majority vote of all the Directors present in person at the Board Meeting, unless otherwise provided in these Regulations or required by law.

c. A Director may not vote, consent, take any action as a Director or be represented at a Board Meeting by proxy. Only Directors present in person at a Board Meeting during the actual transaction of a matter may vote thereon.

d. For purposes of these Regulations, a Director shall be deemed to be “present in person” at any Board Meeting if such Director: (i) participates at the Board Meeting by means of communications equipment but only if all Directors participating at the Board Meeting can hear each other Director, or (ii) is actually physically present at the Board Meeting; provided, however, that a Director who is deemed to be present in person at any Board Meeting pursuant to subitem (i) of this Section 6d. shall not be entitled to Director’s fees or compensation for such Board Meeting.

SECTION 7. ELECTION OF OFFICERS.

a. At each Annual Reorganizational Board Meeting, the Board shall elect Officers to serve until their respective successors are elected at the next Annual Reorganizational Board Meeting, or until their earlier death, disqualification, resignation or removal from office.

b. If no Annual Reorganizational Board Meeting is held or if all Officers are not elected at the Annual Reorganizational Board Meeting, the Board shall elect any remaining unelected Officers at a Special or Regular Board Meeting and such Officers shall serve until their respective successors are elected at the next Annual Reorganizational Board Meeting, or until their earlier death, disqualification, resignation or removal from office.

c. Any Director in office may designate Persons (qualified under Section 1 of Article V of these Regulations) as nominees for Officers. Only nominees are eligible to be elected Officers and nominees receiving the greatest number of votes shall be so elected.

d. Any Person (who is qualified as designated in Section 1 of Article V) shall be eligible to serve and to be elected for an unlimited number of consecutive or non-consecutive terms as an Officer.

SECTION 8. PARLIAMENTARY PROCEDURE.

a. Robert’s Rules of Order (as periodically revised) constitute the final authority for parliamentary procedures at all Board Meetings, except where such Rules conflict with law or with these Regulations.

b. The Secretary of the Corporation shall cause to be recorded Minutes of all Board Meetings.

SECTION 9. ACTION BY DIRECTORS IN WRITING WITHOUT A MEETING.

Notwithstanding any contrary provision in these Regulations, the Board may properly and officially act without a Meeting through a written document or documents signed by all Directors then serving on the Board and all such documents shall be filed with or entered upon the records of the Corporation.

SECTION 10. AMENDMENTS TO ARTICLE III.

Notwithstanding any contrary provision in these Regulations, amendments to any provision of this Article III shall require the affirmative vote of the holders of seventy-five percent (75%) of the Shares; provided, however, that any such amendments shall, instead, be governed by the Shareholder voting requirements of Section 1 of Article X of these Regulations if: (i) the Corporation has no Interested Shareholder (as defined in Section 1 of Article IX) and the proposed amendment is first approved by a majority vote of the whole Board, or (ii) the Corporation has an Interested Shareholder and the proposed amendment is first approved by a two-thirds (2/3) majority of the Continuing Directors (as defined in Section 1 of Article IX).

ARTICLE IV

BOARD OF DIRECTORS

SECTION 1. NUMBER, ELECTION, QUALIFICATION AND TERM.

a. The number of Directors on the Board shall be fixed at fifteen (15) unless and until changed by the Board as provided in these Regulations.

b. At each Annual Shareholder Meeting, the Shareholders shall elect Directors by ballot (in accordance with these Regulations) to serve for a Term (as defined in Section 1e. of this Article) and until their respective successors are elected or until their earlier death, disqualification, resignation or removal from the Board.

c. If no Annual Shareholder Meeting is held or if all Directors are not elected at the Annual Shareholder Meeting, the Shareholders shall elect (by ballot in

accordance with these Regulations) Persons to the Board at a Special Shareholder Meeting and such Directors shall serve for a Term (as defined in Section 1e. of this Article) and until their respective successors are elected or until their earlier death, disqualification, resignation or removal from the Board.

d. Notwithstanding any contrary provision in the Regulations, the number of Directors on the Board may be periodically changed by the Board (in its sole discretion) either (i) by a two-thirds (2/3) majority vote of the Continuing Directors (as defined in Section 1 of Article IX of these Regulations), if the Corporation has an Interested Shareholder (as defined in Section 1 of Article IX of these Regulations), or (ii) by a majority vote of the whole Board, if the Corporation has no Interested Shareholder. The Board shall fill (at any time in its sole discretion) any Directorship created by the Board either (i) by a two-thirds (2/3) majority vote of the Continuing Directors, if the Corporation has an Interested Shareholder, or (ii) by a majority of the whole Board, if the Corporation has no Interested Shareholder. New Directors so elected by the Board shall be assigned to one or more Director Classes in accordance with Section 1e. of this Article.

e. The Directorships shall be divided into three (3) classes (herein the “Director Classes”), Class I, Class II, Class III, and each Director shall be assigned to a Director Class. Each Director Class shall consist of approximately an equal number of Directors and the terms of office for each Director Class shall expire in succeeding years. At each annual election of Directors by the Shareholders, the Directors so elected shall be identified as to Director Class and as to the Directorships succeeded and shall be elected for a term (herein called the “Term”) expiring at the third (3rd) following Annual Shareholder Meeting and the election of their respective successors. If the number of Directorships is changed by the Board pursuant to Section 1d. of this Article, any increase or decrease in the Directorships shall be apportioned among the Director Classes as equally as possible and each additional Director’s Term shall coincide with the terms of such Director Class.

f. Nominations for election to the Board may be made by the Board (by a majority vote thereof) or any Shareholder. Nominations (other than those made by the Board) shall be made in writing and shall be delivered or mailed to the President or the Secretary not less than fourteen (14) days nor more than fifty (50) days prior to any Shareholder Meeting called for the election of Directors; provided, however, that if less than twenty-one (21) days Notice of the Shareholder Meeting is given to the Shareholders, such nominations shall be mailed or delivered to the President or the Secretary not later than the close of business on the seventh (7th) day following the day on which the Notice of the Shareholder Meeting was mailed. Such notification shall contain the following information: (i) the name and address of each proposed nominee; and (ii) the principal occupation of each proposed nominee; and (iii) if known, the total number of Shares that will be noted for each proposed nominee; and (iv) the name and residence address of the notifying Shareholder(s); and (v) the number of Shares owned by the notifying Shareholder(s). Nominations not made in accordance with this Section 1f. shall not qualify and shall be disregarded at the Shareholder Meeting.

g. Subject to this Section 1, a Person may serve as a Director for an unlimited number of consecutive or non-consecutive Terms.

SECTION 2. BOARD VACANCIES.

a. Board vacancies shall occur from the disqualification, death, or resignation of any Director; from the removal (with or without cause) of a Director from the Board; or from the Shareholders’ failure to elect the entire fixed and authorized number of Directors; provided, however, that a vacancy shall not occur if, as a result of any of the foregoing, the Board determines to reduce the corresponding number of Directorships pursuant to its authority under Section 1d. of this Article IV.

b. Any Director may be removed from the Board (with or without cause) at any time and without notice or demand by the vote of the holders of at least seventy-five percent (75%) of the Shares.

c. At any time, a Director may resign from the Board by delivering or mailing (by certified, United States mail) written notice of the resignation to the President or the Secretary. The resignation shall be effective upon actual receipt of the notice by the Officer, unless the notice specifies a later resignation date.

d. The vote of the majority of the remaining Directors (even if such Directors are less than a majority of the whole authorized number of Directors) shall fill all Board vacancies (when and as determined by such remaining Directors) by electing successor Directors to fill the unexpired Term of the vacated Directorships and to serve until their respective successors are elected, or until their earlier resignation, disqualification, death or removal from the Board.

SECTION 3. BOARD POWERS AND DUTIES.

a. Except as otherwise expressly provided in these Regulations, all policy and administrative powers and authority of the Corporation are vested in and shall be exercised solely and exclusively by (or under the direction of) the Board which, in its sole discretion, shall have charge, control and management of the Corporation’s property, affairs, businesses, activities and funds. In accordance with these Regulations, the Board also shall elect Officers, create and disband Board Committees, appoint Board agents, authorize and empower the Corporation to negotiate and execute contracts, and perform all other acts and functions permitted by law and consistent with the Articles of Incorporation and these Regulations.

b. Except as otherwise expressly designated by the Board, individual Directors shall have no powers and authority to act on the Board’s behalf or on the Corporation’s behalf and all Directors shall act and vote as a Board.

SECTION 4. VOTING.

a. Each Director shall be entitled to one (1) vote on all matters properly submitted to the Board for its vote, consent, waiver, release or other action.

b. Unless otherwise provided in these Regulations or by law, the Board shall act by a majority vote of those Directors actually present in person at any Board Meeting when a quorum of Directors then exists.

SECTION 5. BOARD COMMITTEES.

a. The Board may create Board Committee(s) and appoint, remove and reappoint all members to such Committee(s). Such Committee(s) shall act at the

Board’s direction and the Board shall have exclusive authority to designate the duties, functions and powers of the Committee(s).

b. By resolution adopted by a majority of the whole Board, the Board may create (from its membership) and define the powers and duties of an Executive Committee and may determine that, during the intervals between Board Meetings, the Executive Committee may possess and may exercise all of the powers of the Board in the management and control of the business of the Corporation to the extent permitted by law. All action taken by the Executive Committee shall be reported to the Board at its first Meeting thereafter.

c. Unless otherwise provided by the Board, a majority of the members of any Committee appointed by the Board (pursuant to this Section) shall constitute a quorum at any meeting thereof and the act of a majority of the members present at a meeting at which a quorum exists shall be the act of such Committee. Action may be taken by any such Committee without a meeting by a writing signed by all its members. Any such Committee shall prescribe its own rules for calling and holding meetings and its methods of procedure, subject to any rules prescribed by the Board, and shall keep a written record of all action taken by the Committee.

SECTION 6. COMPENSATION AND EXPENSES.

Directors shall be entitled to such compensation in their capacities as Directors and to reimbursement for such expenses as the Board periodically determines in its sole discretion. Members of Board Committees shall be entitled to such additional compensation in their capacities as Committee members and to reimbursement for such additional expenses as the Board periodically determines in its sole discretion.

SECTION 7. BYLAWS.

For its own government, the Board may adopt bylaws consistent with the Articles of Incorporation and these Regulations.

SECTION 8. AMENDMENT OF ARTICLE IV.

Notwithstanding any contrary provision in the Regulations, amendments to any provisions of this Article IV shall require the affirmative vote of the holders of seventy-five percent (75%) of the Shares; provided, however, that any such amendments shall, instead, be governed by the Shareholder voting requirements of Section 1 of Article X of these Regulations if: (i) the Corporation has no Interested Shareholder (as defined in Section 1 of Article IX) and the proposed amendment is first approved by a majority vote of the whole Board, or (ii) the Corporation has an Interested Shareholder and the proposed amendment is first approved by a two-thirds (2/3) majority of the Continuing Directors (as defined in Section 1 of Article IX).

ARTICLE V

OFFICERS

SECTION 1. DESIGNATION AND QUALIFICATION.

a. The Officers of the Corporation may consist of: (i) a Chairman of the Board (who must be a Director), (ii) a Vice-Chairman of the Board (who must also be a Director), (iii) a President (who must also be a Director), (iv) a Secretary, (v) a Treasurer, and (vi) one or more Executive Vice-Presidents and Senior Vice-Presidents, Assistant Officers and such other Officers as the Board periodically determines. The same Person may hold any two (2) or more Officerships. The President or the Chairman of the Board shall serve as the Corporation’s Chief Executive Officer (CEO) as periodically determined by the Board. In its discretion, the Board may also designate an Executive Vice-President or a Senior Vice-President as the Corporation’s Chief Operating Officer (COO).

b. At the Annual Reorganizational Board Meeting (or at any other Special or Regular Board Meeting called for the purpose of electing Officers), the Board shall elect all Officers to serve until the expiration of their respective terms of office (as determined by the Board) and until their respective successors are elected, or until their earlier death, resignation, disqualification, or removal from office. The terms of office for each Officership shall be periodically determined by the Board.

c. Subject to the qualifications designated in this Section 1, any person may serve or be elected as an Officer for an unlimited number of consecutive or non-consecutive terms.

SECTION 2. OFFICER VACANCIES AND SUCCESSION.

a. Officer vacancies shall occur from an Officer’s disqualification, death, resignation or removal (with or without cause) from office.

b. Without prior notice or demand, any Officer may be removed at any time from office (with or without cause) by the Board, unless such removal is subject to the terms of a written contract between the Officer and the Corporation.

c. Unless an Officer’s resignation is subject to the terms of a written contract between the Officer and the Corporation, an Officer may resign from office at any time by delivering or mailing (by certified, United States mail) written notice of the resignation to the Board or to any Officer (other than the resigning Officer) and, unless the notice specifies a later resignation date, the resignation shall be effective upon actual receipt of the notice.

d. The Board shall fill all Officer vacancies, however created, by electing (when and as determined by the Board) successor Officers to serve until the expiration of their respective terms of office. Prior to any such action by the Board, the Vice-Chairman shall fill any vacancy in the office of the Chairman of the Board and the President shall fill any vacancy in the office of the Vice-Chairman of the Board.

SECTION 3. POWERS AND DUTIES OF OFFICERS.

a. Chairman of the Board. The Chairman of the Board shall preside at all Shareholder and Board Meetings; may serve as the Chief Executive Officer (CEO) of the Corporation, if the Board so determines; and generally shall perform all duties incident to the office and such other duties and responsibilities as the Board periodically requires.

b. Vice-Chairman of the Board. The Vice-Chairman of the Board shall perform all duties and responsibilities of the Chairman of the Board during the Chairman’s absence or incapacity, until the Board otherwise directs, and shall perform such other duties and responsibilities as the Board periodically requires.

c. President. The President of the Corporation shall perform all duties and responsibilities of the Vice-Chairman of the Board during the Vice-Chairman’s absence or incapacity; ensure that all Board orders and actions are implemented; sign the Corporation’s documents; exercise general executive supervision, management and control over the Corporation’s affairs, property, personnel, businesses, activities, other Officers and funds; may serve as the Chief Executive Officer (CEO) of the Corporation, if the Board so determines; and generally shall perform all duties incident to the office and such other duties and responsibilities as the Board periodically requires.

d. Executive and Senior Vice-President(s). Any Executive and Senior Vice-President(s) of the Corporation shall, upon request of the Board, perform such portion or all of the duties and responsibilities of the President during the President’s absence or incapacity, until the Board otherwise directs; shall otherwise report to the President; and shall perform such other duties and responsibilities as the Board or the President periodically requires.

e. Secretary. The Secretary of the Corporation shall: take and maintain (or cause to be taken and maintained) Minutes of all Shareholder Meetings and all Board Meetings; unless otherwise provided herein, give (or cause to be given) Notice of all Shareholder Meetings and all Director Meetings as required by these Regulations; maintain (or cause to be maintained) the Corporation’s Seal (if any) and all books, records and other documents of the Corporation; maintain (or cause to be maintained) a record of all Share Certificates and all Shareholders; report to the President; and generally perform all duties incident to the office and such other duties and responsibilities as the Board or the President periodically requires.

f. Treasurer. The Treasurer of the Corporation shall: maintain (or cause to be maintained) custody of the Corporation’s funds, securities, properties, and other assets as periodically required by the Board; prepare (or cause to be prepared) accurate financial accounts and statements of the Corporation’s financial condition, as periodically required by the Board; maintain (or cause to be maintained) accurate accounts of all funds received and paid by the Corporation and all other financial transactions of the Corporation; report to the President; and generally perform all duties incident to the office and such other duties and responsibilities as the Board or the President periodically requires.

g. Other Officers. Any other Officer(s) of the Corporation shall report to the President and shall have such duties and responsibilities and such titles as the Board or the President periodically requires.

ARTICLE VI

INDEMNIFICATION OF SHAREHOLDERS, DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS

SECTION 1. DEFINITIONS.

For purposes of this Article, the following words and phrases shall have the meanings designated below:

a. “Claim” means, with respect to any Indemnified Individual, any and all threatened, pending or completed claims, actions, suits or proceedings (whether civil, criminal, administrative, investigative or otherwise and whether under State or Federal law) and any and all appeals related thereto; and

b. “Indemnified Individual” means, subject to Section 8 of this Article, such of the following as the Board may determine (by a majority vote of a quorum of disinterested Directors): all past, present and future Shareholders, Directors, Officers, employees and other agents of the Corporation acting in any capacity at the request of or on behalf of the Corporation; and

c. “Liabilities” means any and all judgments, decrees, fines, investigation costs, penalties, expenses, fees, amounts paid in settlement, costs, losses, expenses (including, but not limited to, attorneys’ fees and court costs), charges, and any other liabilities actually and reasonably incurred by an Indemnified Individual with respect to any Claim, either before or after final disposition of the Claim.

SECTION 2. INDEMNIFICATION FOR THIRD-PARTY CLAIMS.

To the fullest extent authorized or permitted by law, the Shareholders hereby determine that the Corporation shall indemnify and save harmless any and all Indemnified Individuals from and against all Liabilities arising or resulting from any Claim (other than a Claim by or in the right of the Corporation), under which the Indemnified Individual is a party or participant because of actions or omissions of the Corporation or of the Indemnified Individual or of any Shareholder, Director, Officer, employee, agent or other Person acting in any capacity at the request of or on behalf of the Corporation, if such Indemnified Individual has acted in good faith and in a manner the Indemnified Individual reasonably believed to be in and not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, if the Indemnified Individual had no reasonable cause to believe the Indemnified Individual’s conduct was unlawful; provided, however, that (unless otherwise determined by a majority vote of a quorum of disinterested Directors) the Corporation shall not indemnify or save harmless an Indemnified Individual for such Person’s willful misconduct.

SECTION 3. INDEMNIFICATION FOR CLAIMS BY OR IN THE RIGHT OF THE CORPORATION.

party or participant because of actions or omissions of the Corporation or of the Indemnified Individual or of any Shareholder, Director, Officer, employee, agent or other Person acting in any capacity at the request of or on behalf of the Corporation, if the Indemnified Individual acted in good faith and in a manner the Indemnified Individual reasonably believed to be in (or not opposed to) the best interests of the Corporation; provided, however, that the Corporation shall not indemnify or save harmless an Indemnified Individual for (i) such Person’s adjudicated negligence or misconduct in the performance of the Indemnified Individual’s duty to the Corporation, or (ii) a violation of Section 1701.95 of the Ohio Revised Code.

SECTION 4. RELEASE FROM LIABILITY AND CONTRIBUTION.

To the fullest extent authorized or permitted by law, no Indemnified Individual shall be liable to the Corporation or to any other Person and no Claim shall be maintained against any Indemnified Individual by the Corporation (or, for the Corporation’s benefit, by any other Shareholder) because of any action or omission (except for willful misconduct, unless otherwise determined by a majority vote of a quorum of disinterested Directors) of such Indemnified Individual in any capacity at the request of or on behalf of the Corporation; provided, however, that an Indemnified Individual shall be liable to the Corporation for the Indemnified Individual’s willful misconduct, unless otherwise determined by a majority vote of a quorum of disinterested Directors. To the fullest extent authorized or permitted by law, no Indemnified Individual shall be responsible for or be required to contribute to the payment of any Liabilities incurred by the Corporation or by any other Indemnified Individual because of the actions or omissions (except for willful misconduct, unless otherwise determined by a majority vote of a quorum of disinterested Directors) of any Indemnified Individual serving in any capacity at the request of or on behalf of the Corporation; provided, however, that an Indemnified Individual shall be liable to the Corporation and to any other Indemnified Individual for the Indemnified Individual’s willful misconduct, unless otherwise determined by a majority vote of a quorum of disinterested Directors.

SECTION 5. SUBROGATION.

To the extent of any payment by the Corporation under this Article, the Corporation: (i) shall be subrogated to all the Indemnified Individual’s rights of recovery from any other Person and, as a condition precedent to any indemnification or other rights under this Article, such Indemnified Individual shall execute all reasonable documents and take all reasonable actions requested by the Corporation to implement the Corporation’s right of subrogation, and (ii) hereby waives any right of subrogation against or contribution from an Indemnified Individual.

SECTION 6. INSURANCE AND SIMILAR PROTECTION.

Whether or not the indemnification, release and other provisions of Section 2, Section 3 or Section 4 of this Article apply, the Corporation may purchase and maintain insurance upon and/or furnish similar protection (including, but not limited to: trust funds, letters of credit and self-insurance) for any Indemnified Individual to cover any Liabilities such Indemnified Individual might incur from the exercise of the Indemnified

Individual’s duties for the Corporation or from such Indemnified Individual’s capacity as an agent or representative of the Corporation.

SECTION 7. OTHER RIGHTS.

The provisions of this Article shall be in addition to and shall not exclude or limit any rights or benefits to which any Indemnified Individual is or may be otherwise entitled: (a) as a matter of law or statute; (b) by the Articles of Incorporation, Regulations or any bylaws; (c) by any agreement; (d) by the vote of Shareholders or Directors; or (e) otherwise.

SECTION 8. CONDITIONS AND LIMITATIONS.

a. As a condition precedent to the indemnification, release and/or performance of any other obligation of the Corporation under this Article, the Indemnified Individual must first: (1) promptly notify the President or Secretary of the Corporation of any actual or potential Claim; and (2) authorize and permit the Corporation, in its sole discretion, to choose any legal counsel to defend and otherwise handle the Claim and all proceedings and matters related thereto (including, but not limited to, any counter-claims, cross-claims and defenses); and (3) permit the Corporation to assume total, complete and exclusive control of the Claim and all proceedings and matters related thereto (including, but not limited to, any counter-claims, cross-claims and defenses); and (4) in all respects, cooperate with the Corporation and its counsel in the defense of the Claim and in the prosecution of any counter-claims, cross-claims and defenses.

b. At the Corporation’s option, the Corporation’s obligations under this Article may cease and terminate (without notice or demand): (i) if the Indemnified Individual is an employee of the Corporation, upon termination of the Indemnified Individual’s employment with the Corporation, or (ii) if the Indemnified Individual is a Director or Officer, upon removal of such Director or Officer for cause (as determined by the Board) in accordance with these Regulations.

ARTICLE VII

SECTION 1. CERTIFICATES AND SHARE RECORDS.

a. Certificates (herein called “Certificates” or “Share Certificates”) evidencing ownership of Shares shall be issued and registered (on the Corporation’s Share records) to the lawful owner or holder of such Shares upon full payment therefor. All Certificates shall contain such signatures and information as required by these Regulations and Ohio law and shall be of such tenor and design as the Board periodically determines.

b. The Secretary of the Corporation shall maintain (or cause to be maintained) a record of all Share Certificates, the registered owner or holder thereof, the date of issuance and cancellation, and any other information the Board periodically requires.

c. A Person in whose name Shares are recorded on the books of the Corporation shall conclusively be deemed the unqualified owner of such Shares for all purposes and to have capacity to exercise all rights of ownership. Neither the Corporation nor any transfer agent of the Corporation shall be obligated to recognize any equitable interest in or claim to such Shares by any other Person, whether disclosed upon the Share Certificate or otherwise.

d. All Share Certificates shall be transferable in person or by attorney; provided, however, that (except as otherwise provided in Section 2 of this Article) no Share transfer shall be entered upon the Corporation’s records until the previous Share Certificates for such Shares have been surrendered and cancelled.

SECTION 2. LOST, STOLEN OR DESTROYED SHARE CERTIFICATES.

The Board may issue new Share Certificates to replace lost, stolen or destroyed Certificates. In its sole discretion, the Board may first require the registered Shareholder to indemnify the Corporation and/or to furnish a bond to the Corporation from such sureties, for such amount, and with such terms and conditions as the Board determines to protect the Corporation, its Shareholders, Directors, Officers, employees, agents and/or any other Person from injury or damage by issuance of a new Share Certificate.

SECTION 3. CANCELLATION OF SHARE CERTIFICATES.

In its sole discretion, the Board shall determine whenever any outstanding Share Certificates shall be cancelled and exchanged for other Share Certificates and shall order and require the holders of such outstanding Share Certificates to surrender them for such purposes. Until compliance with the Board’s order, all rights of the holder (as a Shareholder) of any such Share Certificates shall be suspended with respect to the Share(s) represented thereby.

SECTION 4. TRANSFER OF SHARES.

a. Shares may be transferred on the Corporation’s Share records by the registered holder, by the Shareholder’s legally empowered attorney, or by the Shareholder’s legal representative upon surrender and cancellation of the Share Certificates with duly-executed assignment and power of transfer endorsed thereon (or attached thereto) and with such proof of signatures as the Board requires.

b. After the Board fixes a Record Date for any Shareholder Meeting, for the payment of a dividend or for the exercise of any Shareholder rights, no Shares shall be transferred on the Corporation’s Share records until immediately after the occurrence of such event.

ARTICLE VIII

OTHER INSTRUMENTS

SECTION 1. PRIOR INSTRUMENTS.

These Regulations supersede and nullify any and all prior regulations, constitutions, bylaws and similar instruments previously adopted by the Shareholders and/or the Board.

SECTION 2. CONFLICTS OF INSTRUMENTS.

In the event of a conflict between these Regulations and any other instrument, bylaw, rule, regulation, document or policy of the Corporation, these Regulations shall be superior to any such other instrument, bylaw, rule, document, regulation and policy of the Corporation (except as expressly stated herein), and the Articles of Incorporation shall be superior to these Regulations.

ARTICLE IX

FAIR PRICE AND SUPER VOTE REQUIREMENTS
IN CERTAIN BUSINESS COMBINATIONS

SECTION 1. DEFINITIONS.

a. “Affiliate” or “Associate” shall have the respective meanings given to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1989, or as may thereafter be amended.

b. A Person shall be a “Beneficial Owner” of any Voting Shares (as defined in this Article): (i) which such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (ii) which such Person or any of its Affiliates or Associates has by itself or with others (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which is beneficially owned, directly or indirectly, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Voting Shares.

c. “Business Combination” shall include: (i) any merger or consolidation of the Corporation or any of its subsidiaries with or into an Interested Shareholder (as defined in this Article), regardless of which Person is the surviving entity; (ii) any sale, lease, exchange, mortgage, pledge, or other disposition (in one transaction or a series of transactions) from the Corporation or any of its subsidiaries to an Interested Shareholder, or from an Interested Shareholder to the Corporation or any of its subsidiaries, of assets having an aggregate Fair Market Value (as defined in this

Article) of ten percent (10%) or more of the Corporation’s total shareholders equity; (iii) the issuance, sale or other transfer by the Corporation or any subsidiary thereof of any securities of the Corporation or any subsidiary thereof to an Interested Shareholder (other than an issuance or transfer of securities which is effected on a pro rata basis to all holders of Shares of the Corporation); (iv) the acquisition by the Corporation or any of its subsidiaries of any securities of an Interested Shareholder; (v) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder; (vi) any reclassification or recapitalization of the Voting Shares or other securities of the Corporation if the affect, directly or indirectly, of such transaction is to increase the relative voting power of an Interested Shareholder; or (vii) any agreement, contract or other arrangement providing for or resulting in any of the transactions described in this definition of Business Combination.

d. “Continuing Director” shall mean any member of the Board who is unaffiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder; any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is approved to succeed a Continuing Director by the Continuing Directors; any member of the Board who is appointed to fill a vacancy on the Board, who is unaffiliated with the Interested Shareholder, and who is approved by the Continuing Directors.

e. “Fair Market Value” shall mean: (i) in the case of securities listed on a national securities exchange or quoted in the National Association of Securities Dealers Automated Quotations System (or any successor thereof), the highest sales price or bid quotation, as the case may be, reported for securities of the same class or series traded on the national securities exchange or in the over-the-counter market during the thirty (30) day period immediately prior to the date in question or, if no such report or quotation is available, the Fair Market Value as determined by the Continuing Directors; and (ii) in the case of other securities and of other property or consideration (except cash), the Fair Market Value as determined by the Continuing Directors; provided, however, if the power and authority of the Continuing Directors ceases and terminates pursuant to Section 6 of this Article as a result of there being less than five (5) Continuing Directors at any time, then (a) for purposes of clause (ii) of the definition of “Business Combination,” any sale, lease, exchange, mortgage, pledge, or other disposition of assets from the Corporation or any of its subsidiaries to an Interested Shareholder or from an Interested Shareholder to the Corporation or any of its subsidiaries, regardless of the Fair Market Value thereof, shall constitute a Business Combination, and (b) for purposes of paragraph 1 of Section 4 of this Article, in determining the amount of consideration received or to be received per Share by the Independent Shareholders in a Business Combination, there shall be excluded all consideration other than cash and the Fair Market Value of securities listed on a national securities exchange or quoted in the National Association of Securities Dealers Automated Quotations System (of any successor thereof) for which there is a reported sales price or bid quotation, as the case may be, during the thirty (30) day period immediately prior to the date in question.

f. “Independent Shareholder” shall mean all holders of Shares of the Corporation other than the Interested Shareholder engaged in or proposing the Business Combination.

g. “Interested Shareholder” shall mean: (a) any Person (other than the Corporation or any of its subsidiaries), and (b) the Affiliates and Associates of such Person, who (or which together) are: (i) the Beneficial Owner, directly or indirectly, of ten percent (10%) or more of the then outstanding Voting Shares; or (ii) an assignee of or other Person who has succeeded to any Voting Shares which were at any time within the two (2) year period immediately prior to the date in question beneficially owned by an Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. Notwithstanding any contrary provision in this Section 1(g): (i) no Trust Department or designated fiduciary or other trustee of such Trust Department of the Corporation or a subsidiary of the Corporation, or similar fiduciary capacity of the Corporation with direct voting control of the outstanding Voting Shares shall be included or considered as an Interested Shareholder, and (ii) no profit sharing, employee stock ownership, employee stock purchase and savings, employee pension, or other employee benefit plan of the Corporation or any of its subsidiaries and no trustee of any such plan (in its capacity as such trustee) shall be included or considered as an Interested Shareholder.

h. A “Person” shall mean an individual, partnership, trust, corporation, limited liability company or other entity and further includes any two (2) or more of the foregoing acting in concert.

i. “Voting Shares” shall mean all outstanding Common Shares and Voting Preferred Shares of the Corporation.

j. All definitions contained in Article I of these Regulations shall also apply to this Article IX, unless (and to the extent that) such definitions conflict with the definitions in this Section 1.

SECTION 2. SUPERMAJORITY VOTE TO EFFECT BUSINESS COMBINATION.

No Business Combination shall be effected or consummated unless: (1) authorized and approved by Continuing Directors and, if otherwise required by law to authorize or approve the transaction, by the affirmative vote of the holders of such Shares as are mandated by the Ohio Revised Code; or (2) authorized and approved by the affirmative vote of holders of not less than seventy-five percent (75%) of the outstanding Voting Shares voting together as a single class. The authorization and approval required by this Section 2 are in addition to any authorization and approval required by Section 3 of this Article.

SECTION 3. CONDITIONS REQUIRED TO EFFECT BUSINESS COMBINATION.

No Business Combination shall be effected or consummated unless: (1) all the fair price and other conditions and requirements set forth in Section 4 of this Article have been satisfied; or (2) authorized and approved by the Continuing Directors; or (3) authorized and approved by the affirmative vote of holders of not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding Voting Shares held by all Independent Shareholders voting together as a single class. Any authorization and approval required by this Section 3 are in addition to any authorization and approval required by Section 2 of this Article.

SECTION 4. CONDITIONS AND REQUIREMENTS TO FAIR PRICE.

All the following conditions and requirements must be complied with in order for subitem (1) of Section 3 of this Article to be satisfied:

a. The cash and Fair Market Value of the property, securities or other consideration to be received by the Independent Shareholders in the Business Combination per Share for each Share of the Corporation must not be less than the sum of: (i) the highest per Share price (including brokerage commissions, transfer taxes, soliciting dealer’s fees and similar payments)paid by the Interested Shareholder in acquiring any Shares; and (ii) the amount, if any, by which interest on the per Share price, calculated at the Treasury Bill rate periodically in effect (from the date the Interested Shareholder first became an Interested Shareholder until the Business Combination has been consummated) exceeds the per Share amount of cash dividends received by the Independent Shareholders during such period (for purposes of this Subparagraph,

the “Treasury Bill Rate” mean, for each calendar quarter or part thereof, the interest rate of the last auction in the preceding calendar quarter of ninety-one (91)-day United States Treasury Bills expressed as a bond equivalent yield); for purposes of this Section 4a., per Share amounts shall be appropriately adjusted for any recapitalization, reclassification, Share dividend, Share split, reverse split, or other similar transaction. Any Business Combination which does not result in the Independent Shareholders’ receiving consideration for or in respect of their Shares shall not be treated as complying with the requirements of this Section 4a.

b. The form of the consideration to be received by the Independent Shareholders owning the Shares must be the same as was previously paid by the Interested Shareholder(s); provided, however, that if the Interested Shareholder previously paid for such Shares with different forms of consideration, the form of the consideration to be received by the Independent Shareholders must be in the form as was previously paid by the Interested Shareholder in acquiring the largest number of Shares. The provisions of this Section 4b. are not intended to diminish the aggregate amount of cash and Fair Market Value of any other consideration that any holder of Shares is otherwise entitled to receive upon the liquidation or dissolution of the Corporation, under the terms of any contract with the Corporation or an Interested Shareholder, or otherwise.

c. From the date the Interested Shareholder first becomes an Interested Shareholder until the Business Combination has been consummated, the following requirements must be complied with unless the Continuing Directors otherwise determine: (i) the Interested Shareholder has not received, directly or indirectly, the benefit (except proportionately as a holder of Shares) of any loan, advance, guaranty, pledge, or other financial assistance, tax credit or deduction, or other benefit from the Corporation or any of its subsidiaries; (ii) there shall have been no failure to declare and pay in full (when and as due or scheduled) any dividends required to be paid on any class or series of Shares; (iii) there shall have been (a) no reduction in the annual rate of dividends paid on Common Shares (except as necessary to reflect any split of the Common Shares), and (b) an increase in the annual rate of dividends as necessary to reflect reclassification (including a reverse split), recapitalization or any similar transaction which has the effect of reducing the number of outstanding Common Shares; and (iv) there shall have been no amendment or other modification to any profit-sharing,

employee stock ownership, employee stock purchase and savings, employee pension or other employee benefit plan of the Corporation or any of its subsidiaries the effect of which is to change in any manner the provisions governing the voting of any Shares of the Corporation in or covered by such plan.

d. A proxy or information statement describing the Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing that Act and the rules and regulations thereunder) has been mailed at least thirty (30) days prior to the completion of the Business Combination to the holders of all outstanding Voting Shares. If deemed advisable by the Continuing Directors, the proxy or information statement shall contain a recommendation by the Continuing Directors as to the advisability (or inadvisability)of the Business Combination and/or an opinion by an investment banking firm, selected by the Continuing Directors and retained at the expense of the Corporation, as to the fairness (or unfairness) of the Business Combination to the Independent Shareholders.

SECTION 5. OTHER APPLICABLE VOTING REQUIREMENTS.

The affirmative votes or approvals required to be received from holders of the Shares of the Corporation under Sections 2, 3, and 9 of this Article shall apply even though no vote of a lesser percentage vote may be required by law or by other provisions of these Regulations, or otherwise. Any authorization, approval or other action of the Continuing Directors under this Article is in addition to any required authorization, approval or other action of the Board.

SECTION 6. CONTINUING DIRECTORS.

All actions required or permitted to be taken in these Regulations by the Continuing Directors shall be taken with or without a meeting by the vote or written consent of two-thirds (2/3) of the Continuing Directors, regardless of whether the Continuing Directors constitute a quorum of the members of the Board then in office. If the number of Continuing Directors is at any time less than five (5), all power and authority of the Continuing Directors under this Article shall thereupon cease and terminate, including (without limitation) the authority of the Continuing Directors to authorize and approve a Business Combination Sections 2 and 3 of this Article and to approve a successor Continuing Director. Two-thirds (2/3) of the Continuing Directors shall have the power and duty (consistent with their fiduciary obligations) to determine for the purpose of this Article, on the basis of information known to them: (1) whether any Person is an Interested Shareholder; (2) whether any Person in an Affiliate or Associate ; (3) whether any Person has an agreement, arrangement, or understanding with another or is acting in concert with another; and (4) the Fair Market Value of property, securities or other considerations (other than cash). The good faith determination of the Continuing Directors on such matters shall be binding and conclusive for purposes of this Article.

SECTION 7. EFFECTS ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS.

Nothing contained in this Article shall be construed to relieve any Interested Shareholder from any fiduciary obligations imposed by law.

SECTION 8. FURTHER CONSIDERATIONS TO EFFECT BUSINESS COMBINATION.

No Business Combination (as defined in this Article) shall be effected or consummated unless, in addition to the consideration set forth in Sections 2, 3, 4, 5 and 6 of this Article, the Board (including the Continuing Directors) shall consider all of the following factors and any other factors which the Board deems relevant: (1) the social and economic effects of the transaction on the Corporation and its subsidiaries, employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its subsidiaries operate or are located; (2) the business and financial conditions and earnings prospects of the Interested Shareholder, including (but not limited to) debt services another existing or likely financial obligations of the Interested Shareholder, and the possible effect thereof on other elements of the communities in which the Corporation and its subsidiaries operate or are located, and (3) the competence, experience and integrity of the Interested Shareholder and his, its or their management.

SECTION 9. REPEAL.

Notwithstanding any other provisions of these Regulations and notwithstanding the fact that a lesser percentage vote may be required by law or other provision of these Regulations, the provisions of this Article may not be repealed, amended, supplemented or otherwise modified, unless: (1) the Continuing Directors (or, if there is no Interested Shareholder, a majority vote of the whole Board) recommend such repeal, amendment, supplement or modification and such repeal, amendment, supplement or modification is approved by the affirmative vote of the holders of not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding Voting Shares; or (2) such repeal, amendment, supplement or modification is approved by the affirmative vote of holders of (a) not less than seventy-five percent (75%) of the outstanding Voting Shares voting together as a single class, and (b) not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding Voting Shares held by all Independent Shareholders voting together as a single class.

ARTICLE X

AMENDMENTS AND MISCELLANEOUS

SECTION 1. AMENDMENTS.

a. Except as otherwise expressly provided in these Regulations, the Shareholders may repeal or amend these Regulations or adopt amended regulations: (i) at any Shareholder Meeting (with previous notice of such amendment, repeal or adoption), by the affirmative vote of the registered holders of a majority of the Shares represented in person or by proxy at such Shareholder Meeting, or (ii) without a Shareholder Meeting, by the written consent of the registered holders of a majority of the Shares.

b. If these Regulations are amended or amended regulations are adopted without a Shareholder Meeting, the Secretary of the Corporation (or any other

Officer) shall forthwith mail a copy of the amendment to these Regulations or the amended regulations to each Shareholder who did not participate in the adoption of the amendment or the amended regulations.

SECTION 2. MISCELLANEOUS.

a. When acting on the Corporation’s behalf, no Shareholder, Director, Officer, employee, or other agent of the Corporation shall discriminate against any Person because of race, religion, color, creed, sex, national origin, or handicap.

b. If any provision or Article of these Regulations is ever judicially determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other provision or Article of these Regulations.

Dated: April 18, 2000

EX-10.N 4 l17869aexv10wn.htm EX-10(N) SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT-SMITH EX-10(O)

Exhibit 10 (n)

SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT

FOR

GARY C. SMITH

This Supplemental Retirement Benefits Agreement (the Agreement”), made as of this 15th day of December, 2000, 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), which together with their respective successors and assigns are herein collectively called “Employer”, and GARY C. SMITH, hereinafter called “Executive”, is to EVIDENCE THAT:

WHEREAS Executive has rendered valuable services to Employer and has performed Executive’s duties in a capable and efficient manner and has generated substantial growth and progress to Employer; and

WHEREAS Employer desires to retain the services of Executive and acknowledges that, if Executive were to leave Employer’s employment, Employer could suffer a substantial financial loss; and

WHEREAS Employer desires to provide Executive with certain supplemental retirement benefits (as defined in Section 3) in addition to the retirement benefits provided to Executive under The Lorain National Bank Retirement Pension Plan as restated on January 1, 1989 (herein called the “LNB Pension Plan”); and

WHEREAS Employer further desires to provide Executive with certain benefits in the event of a “Change in Control” (as defined in Section 4); and

WHEREAS Executive is willing to continue in the employ of Employer if Employer agrees to pay the benefits in accordance with the provisions and conditions of this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants contained herein, Employer and Executive (herein collectively called the “Parties”) agree as follows:

1. Employment of Executive.

In accordance with Executive’s employment agreement with Employer dated March 16, 1999, as may be amended (herein 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 the performance of Executive’s duties for Employer. Executive’s employment with Employer shall continue until terminated pursuant to the Employment Agreement.

2. Compensation.

Executive shall be compensated for the performance of Executive’s duties in accordance with the Employment Agreement.

3. Supplemental Retirement Benefits.

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”), Executive will be entitled to receive such supplemental retirement benefits (herein called the “Supplemental Retirement Benefits”) which, when added to Executive’s LNB Pension Plan benefits and the social security benefits (to which Executive is eligible on the date of Executive’s employment termination), would equal seventy percent (70%) of Executive’s Compensation (as defined herein). For purposes of this Agreement, the term “Compensation” is limited to the largest annual base salary and the largest annual bonuses paid to Executive by Employer and by any Subsidiary (as defined in Section 4.1[i] of this Agreement) 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 and from any Subsidiary for such years. The Supplemental Retirement Benefit shall be payable by Employer in one hundred twenty (120) equal monthly installments commencing on the first day of the calendar month immediately following the date of Executive’s employment termination and continuing for one hundred nineteen (119) equal installments on the first day of each calendar month thereafter. Executive shall be under no obligation to elect to receive Social Security benefits as a condition to entitlement to the Supplemental Retirement Benefits. For purposes of this Agreement, Executive’s LNB Pension Plan benefits shall be calculated as though payable as a single life annuity for Executive’s life expectancy.

3.2 Early 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) prior to the Normal Retirement Date but after attaining age 62 (herein called the “Early Retirement Date”), Executive shall be entitled to receive an applicable percentage of the Supplemental Retirement Benefits as follows:

Early Retirement Ages: Applicable Percentage:

62                25%
63                50%
64                75%

The Supplemental Retirement Benefits determined under this Section 3.2 shall be paid by Employer in one hundred twenty (120) equal monthly installments, commencing on the first day of the calendar month after the date of Executive’s employment termination and continuing in one hundred nineteen (119) equal installments on the first day of each calendar month thereafter.

3.3 Disability. If Executive incurs a Disability (as defined in this Section 3.3) while employed by Employer under the
Employment Agreement and prior to the Normal Retirement Date, Executive

will be entitled to receive the actuarial equivalent of the Supplemental Retirement Benefits but payable by Employer commencing on the first day of the calendar month immediately following the date Executive’s employment terminates because of such Disability and continuing for one hundred nineteen (119) equal installments on the first day of each calendar month thereafter. For purposes of this Agreement, the term “Disability” shall mean physical or mental impairment which prevents Executive from engaging in further employment by Employer under the Employment Agreement as a senior executive on a full-time basis and which, on the basis of medical evidence satisfactory to the Board of Directors of Employer, is expected to continue for a period of at least six (6) months.

3.4 Death. If Executive dies while receiving Supplemental Retirement Benefits, any amounts due or remaining to be paid shall be paid in the same manner to such beneficiary or beneficiaries (herein called the “Designated Beneficiaries”) as Executive may have designated by filing with Employer a written notice in a form acceptable to Employer. In the absence of any such designation, such unpaid amounts shall be paid to Executive’s surviving spouse or, if Executive has no surviving spouse, to Executive’s estate. If Executive dies prior to the Normal Retirement Date while employed by Employer under the Employment Agreement, Executive’s Designated Beneficiaries will be entitled to receive the actuarial equivalent of the Supplemental Retirement Benefit but payable by Employer commencing on the first day of the calendar month immediately following the date of Executive’s death and continuing for one hundred nineteen (119) equal installments on the first day of each calendar month thereafter.

3.5 Discharge Without Cause. If Executive is discharged without cause (as defined in this Section 3.5) at any time after the date of this Agreement and before the Normal Retirement Date, Executive shall be entitled to receive the actuarial equivalent of the Supplemental Retirement Benefits but payable by Employer commencing on the first day of the calendar month immediately following the date of Executive’s discharge and continuing in one hundred nineteen (119) equal installments on the first day of each calendar month thereafter. For purposes of this Agreement, the term “discharged without cause” shall mean a termination of Executive’s employment for any reason other than Executive’s commission of any material act of dishonesty during the period of Executive’s employment, or Executive’s breach of any material term of the Employment Agreement which (in the good faith opinion of the Board of Directors of Employer) adversely affects the interests of Employer, or Executive’s conviction by a court (whose decision is final, binding and not subject to appeal) of a felony committed during the period of Executive’s employment.

3.6 No Duplication of Benefits. Notwithstanding any contrary provision in this Agreement, if Executive and Executive’s Designated Beneficiaries become entitled to the payment of the Supplemental Retirement Benefits under any particular Section of this Agreement, such persons shall not be entitled to additional Supplemental Retirement Benefits under any other Section of this Agreement.

4. Change in Control Benefits.

4.1 Definitions. For purposes of solely this Section 4, the following terms shall have the respective meanings set forth below:

(a) “Company” means LNB Bancorp, Inc. and its successors.

(b) “Cause” means any one or more of the following: (i) the willful and continued failure of Executive to perform substantially Executive’s duties with Employer (other than any such failure resulting from Executive’s Disability as defined in Section 4.1(e) or any such failure subsequent to Executive’s being delivered a Notice of Termination without Cause by Employer or after Executive’s delivering a Notice of Termination for Good Reason to Employer) after a written demand for substantial performance is delivered to Executive by Employer’s Board of Directors which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties and provides Executive with three (3) days to correct such failure, or (ii) the willful engaging by Executive in illegal conduct or gross misconduct which is injurious to Company or its Subsidiaries, or (iii) the conviction of Executive of, or a plea by Executive of nolo contendere to, a felony, or (iv) Executive’s breach of or failure to perform any material provision of the Employment Agreement (as defined in Section 1) which, in the good faith opinion of Employer’s Board of Directors, adversely affects Employer’s interests, or (v) Executive’s commission of a material act of dishonesty. For purposes of this paragraph (b), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interests of Employer. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by Employer’s Board of Directors, based upon the advice of counsel for Employer, or based upon the instructions of Employer’s chief executive officer or another senior officer of Employer shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of Employer.

(ii) if any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended [the “Exchange Act”]

and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the

Exchange Act), directly or indirectly, of securities of Company representing twenty percent (20%) or more of the combined voting power of Company’s then-outstanding securities eligible to vote for the election of Company’s Board of Directors (the “Company Voting Securities”); provided, however, that the events described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by Company or any Subsidiary or by any employee stock benefit trust created by Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in clause (iii) of this paragraph (c), below), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or by any group of persons including Executive), or (F) a transaction (other than one described in clause (iii) of this paragraph (c), below) in which Company Voting Securities are acquired from Company, if a majority of the Incumbent Directors approves a resolution providing expressly that the acquisition pursuant to this subparagraph (F) does not constitute a Change in Control under this clause (ii);

(iii) upon the consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving Company or any of its Subsidiaries that requires the approval of Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than fifty percent (50%) of the total voting power of either (x) the corporation resulting from the consummation of such Business Combination (the “Surviving Corporation”) or, if applicable, (y) the ultimate parent corporation that directly or indirectly has beneficial ownership of one hundred percent (100%) of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation), and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of

the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or

(iv) if the shareholders of Company approve a plan of complete

liquidation or dissolution of Company or a sale of all or substantially all of Company’s assets but only if, pursuant to such liquidation or sale, the assets of Company are transferred to an entity not owned (directly or indirectly) by Company’s shareholders.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than twenty percent (20%) of Company Voting Securities as a result of the acquisition of Company Voting Securities by Company which reduces the number of Company Voting Securities outstanding; provided, however, that if (after such acquisition by Company) such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur. Notwithstanding anything in this Agreement to the contrary, if (A) Executive’s employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control, (B) Executive reasonably demonstrates that such termination (or event constituting Good Reason) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control, and (C) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then (for purposes of this Agreement) the date immediately prior to the date of such termination of employment (or event constituting Good Reason) shall be treated as a Change in Control.

(d) “Date of Termination” means (1) the effective date on which Executive’s employment by Company and its Subsidiaries terminates as specified in a prior written notice by Company, a Subsidiary or Executive (as the case may be) to the other, or (2) if Executive’s employment by Company terminates by reason of death, the date of death of Executive, or (3) if the Executive incurs a Disability (as defined in Section 4.1(e)), the date of such Disability as determined by a physician chosen by Company. For purposes of determining the timing of payments and benefits to Executive under this Section 4, the date of the actual Change in Control shall be treated as Executive’s Date of Termination.

(e) “Disability” means Executive’s inability to perform Executive’s then-existing duties with Company or its Subsidiaries on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive’s incapacity due to physical or mental illness.

(f) “Good Reason” means, without Executive’s express written consent, the occurrence of any of the following events after a Change in Control:

(i) (A) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive’s positions, duties,

responsibilities or status with Employer immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities), or (B) a material and adverse change in Executive’s titles or offices (including, if applicable, membership on Employer’s Board of Directors) with Employer as existing immediately prior to such Change in Control;

(ii) (A) a reduction by Employer in Executive’s rate of annual base salary as in effect immediately prior to such Change in Control (or as such annual base salary may be increased from time to time thereafter), or (B) the failure by Employer to pay Executive an annual bonus in respect of the year in which such Change in Control occurs or any subsequent year in an amount greater than or equal to the annual bonus earned for the year ended prior to the year in which such Change in Control occurs;

(iii) any requirement of Employer that Executive: (A) be based anywhere more than fifty (50) miles from the office where Executive is located at the time of the Change in Control, or (B) travel on Employer business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control; or

Notwithstanding any contrary provision in this Agreement: (A) an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by Employer within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason; and (B) Executive’s right to terminate employment for Good Reason shall not be affected by Executive’s Disability; and (C) Executive’s continued employment shall not constitute a consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason (provided, however, that Executive must provide notice of termination of employment within thirty (30) days following Executive’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement).

(g) “Qualifying Termination” means a termination of Executive’s employment after a Change in Control (i) by Employer other than for Cause, or (ii) by Executive for Good Reason. Termination of Executive’s employment on account of death, Disability (as defined in Section 4(e)) or Retirement shall not constitute a Qualifying Termination.

(h) “Retirement ” means the termination of Executive’s employment with Employer: (A) on or after the first of the month coincident with or next following Executive’s attainment of age sixty-five (65), or (B) on such later date as may be provided in a written agreement between
Employer and Executive.

(i) “Subsidiary” means any corporation or other entity in which Company: (A) has a direct or indirect ownership interest of fifty percent (50%) or more of the total combined voting power of the then-outstanding securities or interests of such corporation or other entity entitled to vote generally in the election of directors, or (B) has the right to receive fifty percent (50%) or more of the distribution of profits or fifty percent (50%) of the assets upon liquidation or dissolution.

(j) “Termination Period” means the period of time beginning with a Change in Control and ending two (2) years following such Change in Control.

4.2 Obligation of Executive. In the event of a tender or exchange offer, proxy contest, or the execution of any agreement which, if consummated, would constitute a Change in Control, Executive agrees (as a condition to receiving any payments and benefits hereunder) not to voluntarily leave the employ of Employer (other than as a result of Disability, Retirement or an event which would constitute Good Reason if a Change in Control had occurred) until the Change in Control occurs or, if earlier, such tender or exchange offer, proxy contest, or agreement is terminated or abandoned.

4.3 Benefits Upon Termination of Employment. If during the Termination Period Executive’s employment with Employer terminates pursuant to a Qualifying Termination, then Employer shall pay to Executive the Supplemental Retirement Benefits commencing on Executive’s Normal Retirement Date and payable pursuant to Section 3.1; provided, however, that Employer shall not be obligated under this Section 4.3 to pay the Supplemental Retirement Benefits if Executive is entitled to or is receiving the Supplemental Retirement Benefits under any other Section of this Agreement.

4.5 Reimbursement of Expenses. If any contest or dispute shall arise under this Section 4 involving the alleged failure or refusal of Employer to perform fully in accordance with the terms of Section 4, Employer shall reimburse Executive for all reasonable legal fees and expenses (if any) incurred by Executive with respect to such contest or dispute, together with interest in an amount equal to the prime rate of Lorain National Bank from time to time in effect (but, in no event, higher than the legal rate permissible under applicable law), such interest to accrue from the date Employer becomes obligated to pay such fees and expenses through the date of payment thereof; provided, however, that this Section 4.5 shall apply only if (and to the extent that) Employer is held to have breached or violated its duties and

obligations hereunder to Executive.

4.6 Binding Agreement and Successors.

(a) This Section 4 shall not be terminated by any Business Combination. In the event of any Business Combination, the provisions of this Section 4 shall be binding upon the Surviving Corporation and such Surviving Corporation shall be treated as Employer hereunder.

(b) Employer agrees that, in connection with any Business Combination, Employer will cause any successor entity to Employer unconditionally to assume (and, for any Parent Corporation in such Business Combination, to guaranty), by written instrument delivered to Executive (or Executive’s Designated Beneficiaries), all of the obligations of Employer under this Section 4. Failure of Employer to obtain such assumption or guaranty prior to the effectiveness of any such Business Combination that constitutes a Change in Control shall be a breach of this Agreement and shall constitute Good Reason under this Section 4. For purposes of implementing this Section 4.6(b), the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs and shall be the Date of Termination, if so requested by Executive.

(c) This Section 4 shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

4.7 Employment with Subsidiaries. For purposes of this Section 4, any and all references to Executive’s employment with Employer shall be deemed to include Executive’s employment by any Subsidiary and, with respect to such employment by a Subsidiary, the term “Employer” as used in this Section 4 shall be deemed to include any Subsidiary which employs Executive.

5. Non-Alienation of Benefits.

The right of Executive, the Designated Beneficiaries or any other person to the payment of benefits under this Agreement shall not be assigned, transferred, pledged or encumbered, and any attempt to do so shall be void.

6. Status of Rights to Benefits.

The rights of Executive and the Designated Beneficiaries to any benefits under this Agreement shall be solely those of an unsecured general creditor of Employer. Nothing contained in this Agreement and no action taken pursuant to this Agreement shall create or be construed to create a trust of any kind or a fiduciary relationship between Employer and Executive or the Designated Beneficiaries. Any funds, insurance contracts or other assets of Employer (whether or not designated by Employer to provide the benefits contemplated herein) shall at all times continue to remain a part of the general funds of Employer and no person other than Employer shall have any interest in such funds or assets.

7. General Provisions.

7.1 This Agreement shall not be deemed to constitute a contract of employment between the Parties and no provisions hereof shall restrict the right of Employer to terminate the Executive’s services or restrict the right of the Executive to terminate Executive’s services in accordance with the Employment Agreement.

7.2 The Board of Directors of Employer shall have the full power and authority to interpret, construe and administer this Agreement, and all actions taken by the Board of Directors of Employer in good faith shall be binding and conclusive on all Parties and other interested persons. No member of the Board of Directors of Employer shall be liable to any person for any action taken or omitted in connection with the interpretation or administration of this Agreement unless attributable to said member’s own willful misconduct or lack of good faith.

7.3 This Agreement shall be binding upon and inure to the benefit of Employer, its successors and assigns, and Executive and Executive’s Designated Beneficiaries, heirs, executors, administrators and legal representatives.

7.4 This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio. All Parties hereby agree that exclusive venue for all litigation arising under this Agreement lies solely with the State Courts of Lorain County, Ohio, and each Party hereby submits to the personal jurisdiction of such Lorain County State Courts.

7.5 Except as otherwise expressly provided herein, this Agreement represents the entire agreement among the Parties regarding
the subject matter hereof and all prior or contemporaneous written or oral statements, negotiations, representations, arrangements and/or agreements regarding the subject matter hereof are merged into and superseded by this Agreement. All Parties acknowledge that there are no oral or other written understandings, arrangements and/or agreements among the Parties relating to the subject matter of this Agreement.

7.6 This Agreement may be amended only by a written document signed by all Parties, which document must clearly indicate that it constitutes an amendment to this specific Agreement and/or to a specific provision or provisions herein.

7.7 No course of action by any Party and no refusal or neglect of any Party to exercise any right granted under this Agreement or to enforce compliance with any provision of this Agreement shall constitute a waiver of any provision of or right under this Agreement, unless such waiver is expressed in a written document which is clearly designated as a waiver to a specific provision or provisions of this Agreement and unless such document is signed by the waiving Party.

7.8 For purposes of this Agreement, the singular includes the plural and vice-versa and the feminine, masculine and neuter include each other.

7.9 All provisions of this Agreement are severable and

neither this Agreement nor any provision herein shall be affected by the invalidity or inapplicability of any other provision of this Agreement.

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


In The Presence Of:		THE LORAIN NATIONAL BANK

/s/ Denise Harmych		By: /s/ Thomas P. Ryan

/s/ Ann Koler		Title: Exec. V.P. & Secretary

		LNB BANCORP, INC.

/s/ Denise Harmych		By: /s/ Thomas P. Ryan

/s/ Ann Koler		Title: Exec. V.P. & Secretary & Treas.

		“Employer”

/s/ Denise Harmych		/s/ Gary C. Smith
		Gary C. Smith, President and Chief Executive Officer

/s/ Ann Koler
		“Executive”

EX-10.O 5 l17869aexv10wo.htm EX-10(O) SUPPLEMENTAL RETIREMENT BENEFITS EX-10(O)

Exhibit 10(o)

SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT
FOR
THOMAS P. RYAN

This Supplemental Retirement Benefits Agreement (the “Agreement”), made as of this 22^nd day of December, 2000, 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), which together with their respective successors and assigns are herein collectively called “Employer”, and THOMAS P. RYAN, hereinafter called “Executive”, is to EVIDENCE THAT:

WHEREAS Employer desires to retain the services of Executive and acknowledges that, if Executive were to leave Employer’s employment, Employer could suffer a substantial financial loss; and

WHEREAS Employer further desires to provide Executive with certain benefits in the event of a “Change in Control” (as defined in Section 4); and

WHEREAS Executive is willing to continue in the employ of Employer if Employer agrees to pay the benefits in accordance with the provisions and conditions of this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants contained herein, Employer and Executive (herein collectively called the “Parties”) agree as follows:

1. Employment of Executive.

In accordance with Executive’s employment agreement with Employer dated September 11, 1995, as may be amended (herein 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 the performance of Executive’s duties for Employer. Executive’s employment with Employer shall continue until terminated
pursuant to the Employment Agreement.

2. Compensation.

Executive shall be compensated for the performance of Executive’s duties in accordance with the Employment Agreement.

3. Supplemental Retirement Benefits.

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”), Executive will be entitled to receive such supplemental retirement benefits (herein called the “Supplemental Retirement Benefits”) which, when added to Executive’s LNB Pension Plan benefits and the social security benefits (to which Executive is eligible on the date of Executive’s employment termination), would equal seventy percent (70%) of Executive’s Compensation (as defined herein). For purposes of this Agreement, the term “Compensation” is limited to the largest annual base salary, plus the largest annual bonuses, plus the largest annual Directors fees paid to Executive by Employer and by any Subsidiary (as defined in Section 4.1[i] of this Agreement) 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 and Form 1099s from Employer and from any Subsidiary for such years. The Supplemental Retirement Benefit shall be payable by Employer in one hundred twenty (120) equal monthly installments commencing on the first day of the calendar month immediately following the date of Executive’s employment termination and continuing for one hundred nineteen (119) equal installments on the first day of each calendar month thereafter. Executive shall be under no obligation to elect to receive Social Security benefits as a condition to entitlement to the Supplemental Retirement Benefits. For purposes of this Agreement, Executive’s LNB Pension Plan benefits shall be calculated as though payable as a single life annuity for Executive’s life expectancy.


Early Retirement Ages:		Applicable Percentage:
62		25%
63		50%
64		75%

3.3 Disability. If Executive incurs a Disability (as defined in this Section 3.3) while employed by Employer under the Employment Agreement and prior to the Normal Retirement Date, Executive will be entitled to receive the actuarial equivalent of the Supplemental Retirement Benefits but payable by Employer commencing on the first day of the calendar month immediately following the date Executive’s employment terminates because of such Disability and continuing for one hundred

nineteen (119) equal installments on the first day of each calendar month thereafter. For purposes of this Agreement, the term “Disability” shall mean physical or mental impairment which prevents Executive from engaging in further employment by Employer under the Employment Agreement as a senior executive on a full-time basis and which, on the basis of medical evidence satisfactory to the Board of Directors of Employer, is expected to continue for a period of at least six (6) months.

4. Change in Control Benefits.

4.1 Definitions. For purposes of solely this Section 4, the following terms shall have the respective meanings set forth below:

(a) “Company” means LNB Bancorp, Inc. and its successors.

(ii) if any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended [the “Exchange Act"] and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Company representing twenty percent (20%) or more of the combined voting power of Company’s then-outstanding securities eligible to vote for the

election of Company’s Board of Directors (the “Company Voting Securities”); provided, however, that the events described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by Company or any Subsidiary or by any employee stock benefit trust created by Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in clause (iii) of this paragraph (C), below), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or by any group of persons including Executive), or (F) a transaction (other than one described in clause (iii) of this paragraph (C), below)in which Company Voting Securities are acquired from Company, if a majority of the Incumbent Directors approves a resolution providing expressly that the acquisition pursuant to this subparagraph (F) does not constitute a Change in Control under this clause (ii);

(iii) upon the consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving Company or any of its Subsidiaries that requires the approval of Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than fifty percent (50%) of the total voting power of either (x) the corporation resulting from the consummation of such Business Combination (the “Surviving Corporation”) or, if applicable, (y) the ultimate parent corporation that directly or indirectly has beneficial ownership of one hundred percent (100%) of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation), and ^© at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or

(iv) if the shareholders of Company approve a plan of complete liquidation or dissolution of Company or a sale of all or substantially all of Company’s assets but only if, pursuant to such liquidation or sale, the assets of Company are transferred to an entity not owned

(directly or indirectly) by Company’s shareholders. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than twenty percent (20%) of Company Voting Securities as a result of the acquisition of Company Voting Securities by Company which reduces the number of Company Voting Securities outstanding; provided, however, that if (after such acquisition by Company) such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur. Notwithstanding anything in this Agreement to the contrary, if (A)Executive’s employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control, (B) Executive reasonably demonstrates that such termination (or event constituting Good Reason) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control, and (C) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then (for purposes of this Agreement) the date immediately prior to the date of such termination of employment (or event constituting Good Reason) shall be treated as a Change in Control. (d)“Date of Termination” means (1) the effective date on which Executive’s employment by Company and its Subsidiaries terminates as specified in a prior written notice by Company, a Subsidiary or Executive (as the case may be) to the other, or (2) if Executive’s employment by Company terminates by reason of death, the date of death of Executive, or (3) if the Executive incurs a Disability (as defined in Section 4.1(e)), the date of such Disability as determined by a physician chosen by Company. For purposes of determining the timing of payments and benefits to Executive under this Section 4, the date of the actual Change in Control shall be treated as Executive’s Date of Termination.

(f) “Good Reason” means, without Executive’s express written consent, the occurrence of any of the following events after a Change in Control:

(i) (A) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive’s positions, duties, responsibilities or status with Employer immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities), or (B) a material and adverse change in Executive’s titles or offices (including, if applicable, membership on Employer’s Board of Directors) with Employer as existing immediately prior to such Change in Control;

or (B) the failure by Employer to pay Executive an annual bonus in respect of the year in which such Change in Control occurs or any subsequent year in an amount greater than or equal to the annual bonus earned for the year ended prior to the year in which such Change in Control occurs;

(iv) the failure of Employer to: (A) continue in effect any material employee benefit plan, compensation plan, welfare benefit plan or other material fringe benefit plan in which Executive is participating immediately prior to such Change in Control or the taking of any action by Employer which would materially and adversely affect Executive’s participation in or reduce Executive’s benefits under any such plan, unless Executive is permitted to participate in other plans providing Executive with substantially equivalent benefits in the aggregate, or (B) provide Executive with paid vacation in accordance with the most favorable vacation policies of Employer as in effect for Executive immediately prior to such Change in Control, including the crediting of all service for which Executive had been credited under such vacation policies prior to the Change in Control. Notwithstanding any contrary provision in this Agreement: (A) an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by Employer within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason; and (B) Executive’s right to terminate employment for Good Reason shall not be affected by Executive’s Disability; and (C) Executive’s continued employment shall not constitute a consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason (provided, however, that Executive must provide notice of termination of employment within thirty (30) days following Executive’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement).

(h) “Retirement “ means the termination of Executive’s employment with Employer: (A) on or after the first of the month coincident with or next following Executive’s attainment of age sixty-five (65), or (B) on such later date as may be provided in a written agreement between
Employer and Executive.

has the right to receive fifty percent (50%) or more of the distribution of profits or fifty percent (50%) of the assets upon liquidation or dissolution.

(j) “Termination Period” means the period of time beginning with a Change in Control and ending two (2) years following such Change in Control.

4.4 Withholding Taxes. Employer shall withhold from all payments due to Executive (or Executive’s Designated Beneficiaries) under this Agreement all taxes which, by applicable federal, state, local or other law, Employer is required to withhold therefrom. 4.5 Reimbursement of Expenses. If any contest or dispute shall arise under this Section 4 involving the alleged failure or refusal of Employer to perform fully in accordance with the terms of Section 4, Employer shall reimburse Executive for all reasonable legal fees and expenses (if any) incurred by Executive with respect to such contest or dispute, together with interest in an amount equal to the prime rate of Lorain National Bank from time to time in effect (but, in no event, higher than the legal rate permissible under applicable law), such interest to accrue from the date Employer becomes obligated to pay such fees and expenses through the date of payment thereof; provided, however, that this Section 4.5 shall apply only if (and to the extent that) Employer is held to have breached or violated its duties and obligations hereunder to Executive.

4.6 Binding Agreement and Successors.

Executive (or Executive’s Designated Beneficiaries), all of the obligations of Employer under this Section 4. Failure of Employer to obtain such assumption or guaranty prior to the effectiveness of any such Business Combination that constitutes a Change in Control shall be a breach of this Agreement and shall constitute Good Reason under this Section 4. For purposes of implementing this Section 4.6(b), the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs and shall be the Date of Termination, if so requested by Executive.

(c) This Section 4 shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

5. Non-Alienation of Benefits.
The right of Executive, the Designated Beneficiaries or any other person to the payment of benefits
under this Agreement shall not be assigned, transferred, pledged or encumbered, and any attempt to do
so shall be void.

6. Status of Rights to Benefits.

7. General Provisions.

good faith.

7.5 Except as otherwise expressly provided herein, this Agreement represents the entire agreement among the Parties regarding the subject matter hereof and all prior or contemporaneous written or oral statements, negotiations, representations, arrangements and/or agreements regarding the subject matter hereof (including, but not limited to, a certain Supplemental Retirement Agreement dated July 30, 1999) are merged into and superseded by this Agreement. All Parties acknowledge that there are no oral or other written understandings, arrangements and/or agreements among the Parties relating to the subject matter of this Agreement.

7.8 For purposes of this Agreement, the singular includes the plural and vice-versa and the feminine, masculine and neuter include each other.

7.9 All provisions of this Agreement are severable and neither this Agreement nor any provision herein shall be affected by the invalidity or inapplicability of any other provision of this Agreement.

IN WITNESS WHEREOF, Employer has caused this Agreement to be executed by its duly authorized officers, and Executive has set Executive’s hand as of the date first above written.
In The Presence Of: THE LORAIN NATIONAL BANK


/s/Mary Ann Elmore		By:Gary C. Smith

/s/Denise M. Harmych		Title: President & CEO


		LNB BANCORP, INC.

/s/Mary Ann Elmore		By:Gary C. Smith

/s/Denise M. Harmych		Title:President & CEO

		“Employer”

/s/Mary Ann Elmore		/s/Thomas P. Ryan
		Thomas P. Ryan, Executive Vice President
		and Secretary/Treasurer
/s/Denise M. Harmych
		“Executive”

EX-10.P 6 l17869aexv10wp.htm EX-10(P) AMENDED SUPPLEMENTAL RETIREMENT AGREEMENT EX-10(P)

Exhibit 10(p)

SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT
FOR
GREGORY D. FRIEDMAN

Supplemental Retirement Benefits Agreement (the “Agreement”), made as of this 22^nd day of December, 2000, 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), which together with their respective successors and assigns are herein collectively called “Employer”, and GREGORY D. FRIEDMAN, hereinafter called “Executive”, is to EVIDENCE THAT:

WHEREAS Employer desires to retain the services of Executive and acknowledges that, if Executive were to leave Employer’s employment, Employer could suffer a substantial financial loss; and

WHEREAS Employer further desires to provide Executive with certain benefits in the event of a “Change in Control” (as defined in Section 4); and

WHEREAS Executive is willing to continue in the employ of Employer if Employer agrees to pay the benefits in accordance with the provisions and conditions of this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants contained herein, Employer and Executive (herein collectively called the “Parties”) agree as follows:

1. Employment of Executive.

In accordance with Executive’s employment agreement with Employer (herein 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 the performance of Executive’s duties for Employer. Executive’s employment with Employer shall continue until terminated pursuant to the Employment Agreement.

2. Compensation.

Executive shall be compensated for the performance of Executive’s duties in accordance with the Employment Agreement.

3. Supplemental Retirement Benefits.

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”), Executive will be entitled to receive such supplemental retirement benefits (herein called the “Supplemental Retirement Benefits”) which, when added to Executive’s LNB Pension Plan benefits and the social security benefits (to which Executive is eligible on the date of Executive’s employment termination), would equal seventy percent (70%) of Executive’s Compensation (as defined herein). For purposes of this Agreement, the Term “Compensation” is limited to the largest annual base salary and the largest annual bonuses paid to Executive by Employer and by any Subsidiary (as defined in Section 4.1[i] of this Agreement) 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 and from any Subsidiary for such years. The Supplemental Retirement Benefit shall be payable by Employer in one hundred twenty (120) equal monthly installments commencing on the first day of the calendar month immediately following the date of Executive’s employment termination and continuing for one hundred nineteen (119) equal installments on the first day of each calendar month thereafter. Executive shall be under no obligation to elect to receive Social Security benefits as a condition to entitlement to the Supplemental Retirement Benefits. For purposes of this Agreement, Executive’s LNB Pension Plan benefits shall be calculated as though payable as a single life annuity for Executive’s life expectancy.


Early Retirement Ages:		Applicable Percentage:
62		25%
63		50%
64		75%

month thereafter. For purposes of this Agreement, the term “Disability” shall mean physical or mental impairment which prevents Executive from engaging in further employment by Employer under the Employment Agreement as a senior executive on a full-time basis and which, on the basis of medical evidence satisfactory to the Board of Directors of Employer, is expected to continue for a period of at least six (6) months.

4. Change in Control Benefits.

4.1 Definitions. For purposes of solely this Section 4, the following terms shall have the respective meanings set forth below:

(a) “Company” means LNB Bancorp, Inc. and its successors.

(b) “Cause” means any one or more of the following: (i) the willful

and continued failure of Executive to perform substantially Executive’s duties with Employer (other than any such failure resulting from Executive’s Disability as defined in Section 4.1(e) or any such failure subsequent to Executive’s being delivered a Notice of Termination without Cause by Employer or after Executive’s delivering a Notice of Termination for Good Reason to Employer) after a written demand for substantial performance is delivered to Executive by Employer’s Board of Directors which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties and provides Executive with three (3) days to correct such failure, or (ii) the willful engaging by Executive in illegal conduct or gross misconduct which is injurious to Company or its Subsidiaries, or (iii) the conviction of Executive of, or a plea by Executive of nolo contendere to, a felony, or (iv) Executive’s breach of or failure to perform any material provision of the Employment Agreement (as defined in Section 1) which, in the good faith opinion of Employer’s Board of Directors, adversely affects Employer’s interests, or (v) Executive’s commission of a material act of dishonesty. For purposes of this paragraph (b), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interests of Employer. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by Employer’s Board of Directors, based upon the advice of counsel for Employer, or based upon the instructions of Employer’s chief executive officer or another senior officer of Employer shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of Employer.

(i) if individuals who, on the date of this Agreement, constitute Company’s Board of Directors (the “Incumbent Directors”) cease for any reason to constitute at least a majority of Company’s Board of Directors; provided, however, that: (A) any person becoming a director subsequent to the date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds (2/3) of the Incumbent Directors then on Company’s Board of Directors (either by a specific vote or by approval of the proxy statement of Company in which such person is named as a nominee for director, without written objection by such Incumbent Directors to such nomination), shall be deemed to be an Incumbent Director, and (B) no individual elected or nominated as a director of Company initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies by or on behalf of any person other than Company’s Board of Directors shall be deemed to be an Incumbent Director; (ii) if any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended [the “Exchange Act"] and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Company representing twenty percent (20%) or more of the combined voting power of Company’s then-outstanding securities eligible to vote for the election of Company’s Board of Directors (the “Company Voting Securities”); provided, however, that the events described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue

of any of the following acquisitions: (A) by Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by Company or any Subsidiary or by any employee stock benefit trust created by Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in clause (iii) of this paragraph (C), below), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or by any group of persons including Executive), or (F) a transaction (other than one described in clause (iii) of this paragraph (C), below) in which Company Voting Securities are acquired from Company, if a majority of the Incumbent Directors approves a resolution providing expressly that the acquisition pursuant to this subparagraph (F) does not constitute a Change in Control under this clause (ii); (iii)upon the consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving Company or any of its Subsidiaries that requires the approval of Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than fifty percent (50%) of the total voting power of either (x) the corporation resulting from the consummation of such Business Combination (the “Surviving Corporation”) or, if applicable, (y) the ultimate parent corporation that directly or indirectly has beneficial ownership of one hundred percent (100%) of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation), and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or (iv) if the shareholders of Company approve a plan of complete liquidation or dissolution of Company or a sale of all or substantially all of Company’s assets but only if, pursuant to such liquidation or sale, the assets of Company are transferred to an entity not owned (directly or indirectly) by Company’s shareholders. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than twenty percent (20%) of Company Voting Securities as a result of the acquisition of Company Voting Securities by Company which reduces the number of Company Voting

Securities outstanding; provided, however, that if (after such acquisition by Company) such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur. Notwithstanding anything in this Agreement to the contrary, if (A)Executive’s employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control, (B) Executive reasonably demonstrates that such termination (or event constituting Good Reason) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control, and (C)a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then (for purposes of this Agreement) the date immediately prior to the date of such termination of employment (or event constituting Good Reason) shall be treated as a Change in Control.

(f) “Good Reason” means, without Executive’s express written consent, the occurrence of any of the following events after a Change in Control:

(j) “Termination Period” means the period of time beginning with a Change in Control and ending two (2) years following such Change in

Control.

4.6 Binding Agreement and Successors.

Section 4. For purposes of implementing this Section 4.6(b), the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs and shall be the Date of Termination, if so requested by Executive.

5. Non-Alienation of Benefits.

6. Status of Rights to Benefits.

7. General Provisions.

7.3 This Agreement shall be binding upon and inure to the benefit of Employer, its successors and assigns, and Executive and Executive’s

Designated Beneficiaries, heirs, executors, administrators and legal representatives.

7.5 Except as otherwise expressly provided herein, this Agreement represents the entire agreement among the Parties regarding the subject matter hereof and all prior or contemporaneous written or oral statements, negotiations, representations, arrangements and/or agreements regarding the subject matter hereof (including, but not limited to, a certain Supplemental Retirement Agreement dated July 31, 1996) are merged into and superseded by this Agreement. All Parties acknowledge that there are no oral or other written understandings, arrangements and/or agreements among the Parties relating to the subject matter of this Agreement.

7.8 For purposes of this Agreement, the singular includes the plural and vice-versa and the feminine, masculine and neuter include each other.

7.9 All provisions of this Agreement are severable and neither this Agreement nor any provision herein shall be affected by the invalidity or inapplicability of any other provision of this Agreement.


/s/Ann E. Koler		By:/s/Gary C. Smith

/s/Mary Ann Elmore		Title:President and Chief Executive
		Officer
LNB BANCORP, INC.
/s/Ann E. Koler		By:/s/Gary C. Smith


/s/Mary Ann Elmore		Title:President and Chief Executive
		Officer
		“Employer”

/s/Ann E. Koler		/s/Gregory D. Friedman
		Gregory D. Friedman, Executive
		Vice President and Chief Financial
		Officer
/s/Mary Ann Elmore
“Executive”

EX-10.Q 7 l17869aexv10wq.htm EX-10(Q) AMENDED SUPPLEMENTAL RETIREMENT AGREEMENT EX-10(Q)

Exhibit 10(q)

SUPPLEMENTAL RETIREMENT AGREEMENT

FOR JAMES F. KIDD

THIS AGREEMENT, made and entered into this 15th day of June, 1999, by and between LORAIN NATIONAL BANK (hereinafter referred to as the “Bank”), a national banking association organized and existing under the laws of the United States, whose principal place of business is Lorain, Ohio, and JAMES F. KIDD (hereinafter referred to as the “Executive”).

WHEREAS, the Executive has rendered valuable services to the Bank for many years and it is the desire of the Bank to provide him with certain Supplemental Retirement Benefits in addition to the retirement benefits provided to him under the Lorain National Bank Retirement Pension Plan; and

WHEREAS, the Executive has performed his duties in a capable and efficient manner, resulting in substantial growth and progress to the
Bank; and

WHEREAS, the Bank desires to retain the services of the Executive, and realizes that if the Executive were to leave the Bank it could suffer a substantial financial loss; and

WHEREAS, the Executive is willing to continue in the employ of the Bank if the Bank will agree to pay certain benefits in accordance with the provisions and conditions hereinafter set forth; and

WHEREAS, Bank and Executive entered into a Supplemental Retirement Agreement dated July 30, 1996, and amended March 3, 1999; and

WHEREAS, The Board of Directors of Bank has authorized the Bank to enter into a new and restated Supplemental Retirement Agreement with Executive.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein, this Agreement is to be effective as of June 1, 1999, and the parties agree as follows:

1. Employment of the Executive

The Executive shall continue to perform duties for the Bank in such senior executive capacity as its Board of Directors may designate from time to time. The Executive’s employment shall continue until terminated pursuant to Employment Agreement entered into between Bank and Executive, dated September 11, 1995. The Executive shall devote his best efforts to the performance of his duties for the Bank.

2. Compensation

The Executive shall be compensated for the performance of his duties as provided for in the above referred to Employment Agreement.

3. Supplemental Retirement Benefit

If the Executive’s employment with Bank should cease for any reason other than discharge for cause (as hereinafter defined), the Executive or his beneficiary, as the case may be, shall be entitled to receive the Supplemental Retirement Benefit or a form thereof.

(a) Retirement

If the Executive remains in the continuous employ of the Bank and retires from active employment with the Bank on or after January 1, 2000, the Executive and/or his beneficiary will be entitled to receive a Supplemental Retirement Benefit in the amount of Fifty Three Thousand Four Hundred Seventy Four Dollars ($53,474.00), per annum for a period of ten (10) years. Provided Executive has retired by said date, the first annual payment shall be due and payable to Executive on March 1, 2000, and thereafter payable on the first day of March of each year until March 1, 2009, which shall be the date of payment of the last installment. In the event Executive has not retired by March 1, 2000, then in that event, the first annual payment shall be due and payable on the first day of the second month following his retirement, and thereafter payable on the first day of the same month each year until Executive shall have received ten (10) annual payments.

(b) Death Benefit

In the event the Executive should die at any time after the date of this Agreement, he shall be entitled to the full benefit as provided for in subparagraph (a) hereof, and any amounts due or remaining to be paid shall be paid to such beneficiary or beneficiaries as the Executive may have designated by filing with the Bank a notice in writing in a form acceptable to the Bank. In the absence of any such designation, such unpaid amounts shall be paid to the Executive’s surviving spouse, or, if the Executive should die without a spouse surviving, to the Executive’s estate, and shall be payable in the same manner as provided for in subparagraph (a) hereof.

If the Executive is discharged without cause, the Executive shall be entitled to receive the Supplemental Retirement Benefit provided for in subparagraph (a) hereof. Supplemental Retirement Benefit payments shall commence to be paid to Executive on March 1, 2000, and thereafter at the same time and in the same amounts as provided for in subparagraph (a)above.

(d) Resignation Due to Change in Control

In the event the Executive resigns due to a change in control of the Bank, the Supplemental Retirement Benefit shall be the total amount payable for the 10-year period as provided for in paragraph (a) above reduced by a 6% “present value” discount and payable to Executive within sixty (60) days of his resignation.

For purposes of this Agreement, the term “discharge without cause” shall mean a termination of the Executive’s employment by reason of his commission of any material act of dishonesty during his employment, or

breach of the terms of his Employment Agreement, which, in the good faith opinion of the Board of Directors of the Bank, adversely affects the interests of the Bank or his conviction by a court of last resort of a felony involving moral turpitude committed during his employment.

The Agreement does not contain a provision with respect to “permanent disability” as Bank has in place a plan of compensation and benefits for employees who become permanently disabled during employment with Bank, and to which Executive is entitled.

It is intended that the events which shall give rise to an entitlement on the part of the Executive or his beneficiary to receive the Supplemental Retirement Benefit or a form thereof shall include:

(i)		The retirement of the Executive on or after January 1, 2000.

(ii)		The death of the Executive.

(iii)		Discharge of the Executive without cause.

(iv)		Resignation due to change in control of the Bank.

For purposes of this Agreement, “change in control of the Bank” shall mean the occurrence of any one of the following events:

(i.) Individuals who, on August 1, 1995, constitute the Employer’s Board of Directors (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Employer’s Board of Directors, provided that any person becoming a director subsequent to August 1, 1995, whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Employer in which such person is named as a nominee for director, without written objection by such Incumbent Directors to such nomination) shall be deemed to be an Incumbent Director; provided, however, that no individual elected or nominated as a director of the Employer initially as a result of an actual or threatened election contest with respect to directors of any other actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies by or on behalf of any persons other than the Board shall be deemed to be an Incumbent Director;

(ii.) Any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Employer representing 15% or more of the combined voting power of the Employer’s then outstanding securities eligible to vote for the election of the Board (the “Employer Voting Securities”); provided, however, that the event described in this paragraph 2 shall not be deemed to be a Change in Control of the Employer by virtue of any of the following acquisitions: (a) by the Employer or any Subsidiary, (b) by any employee benefit plan sponsored or maintained by the Employer or any Subsidiary, or by an employee stock benefit trust created by the Employer or any Subsidiary, by any underwriter temporarily holding securities pursuant to an offering of such securities; or (d) a

transaction (other than one described in 3 below) in which Employer Voting Securities are acquired from the Employer, if a majority
of the Incumbent Directors approves a resolution providing expressly that the acquisition pursuant to this clause (d) does not constitute a Change in Control under this paragraph 2;

(iii.) The consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving the Employer, or any of its Subsidiaries that requires the approval of the Employer’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (a) more than 50% of the total voting power of the corporation resulting from the consummation of such Business Combination (the “Surviving Corporation”), or if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Employer Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, represented by shares into which such Employer Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Employer Voting Securities among the holders thereof immediately prior to the Business Combination, (b) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 15% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation); and at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board’s approval for the execution of the initial agreement providing for such Business Combination (any Business Combination must satisfy the criteria specified in (a), (b) and above so as to not constitute a “Change in Control of the Corporation”); or

(iv.) The occurrence of a complete liquidation or dissolution of the Employer or any of its Subsidiaries, or a sale of all or substantially all of the assets of the Employer, or any of its Subsidiaries.

Notwithstanding the foregoing, a Change in Control of the Employer shall not be deemed to occur solely because any persons acquire beneficial ownership of more than 15% of the Employer Voting Securities as a result of the acquisition of Employer Voting Securities by the Employer, which reduces the number of Employer Voting Securities outstanding; provided, that if after such acquisition by the Employer, such person becomes the beneficial owner of additional Employer Voting Securities that increases the percentage of outstanding Employer Voting Securities beneficially owned by such person, a Change in Control of the Employer shall then occur.

4. Non-alienation of Benefits

The right of the Executive, or any other person, to the payment of benefits under this Agreement shall not be assigned, transferred, pledged or encumbered, any attempt to do so shall be void.

5. Executive’s Rights Under This Agreement to be Those of an Unsecured Creditor of the Bank.

The rights of the Executive under this Agreement, and of any beneficiary of the Executive, shall be solely those of an unsecured
creditor of the Bank. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind or a fiduciary relationship between the Bank and the Executive or his beneficiaries. Any funds, insurance contracts or other assets of the Bank, whether designated by the Bank to provide the benefits contemplated herein or not, shall at all times continue to be a part of the general funds of the Bank and no person other than the Bank shall, by virtue of this Agreement, have any interest in such funds or assets.

6. General Provisions

This Agreement shall not be deemed to constitute a contract of employment between the parties, nor shall any provisions hereof restrict the right of the Bank to terminate the Executive’s services or restrict the right of the Executive to terminate his services.

The Board of Directors shall have the full power and authority to interpret, construe and administer this Agreement, and all actions taken by the Board of Directors in good faith shall be binding and conclusive on all persons concerned. No member of the Board of Directors shall be liable to any person or any action taken or omitted in connection with the interpretation or administration of this Agreement unless attributable to his own willful misconduct or lack of good faith.

This Agreement shall be binding upon and inure to the benefit of the Bank, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives.

This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio.

IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto set his hand as of the date first above written.


IN THE PRESENCE OF:		BANK
		LORAIN NATIONAL BANK:
/s/Daniel Batista		/s/Stanley G. Pijor
	BY:

		Chairman
/s/Suzanne M. Ludwig


	EXECUTIVE
/s/Daniel Batista	/s/James F. Kidd


	James F. Kidd
/s/Suzanne M. Ludwig

SUPPLEMENTAL RETIREMENT AGREEMENT

DESIGNATION OF BENEFICIARY

EXECUTIVE: JAMES F. KIDD

I designate the following as Beneficiary or Beneficiaries to receive, in accordance with the method indicated, any payments to which my Beneficiary or Beneficiaries may be entitled under my Supplemental Retirement Agreement, in the event of my death, either prior to or after my retirement. This designation is subject to my right at any time to change such Beneficiary or Beneficiaries as provided in the Plan.

For the purposes of this form, a “primary” beneficiary is the first person to receive these benefits if I die, and a “secondary” beneficiary is a person who will take only if the primary beneficiary is not surviving at the time of my death.

þ Method No. 1 — Designation of one primary beneficiary. In the event of the death of the primary beneficiary, then 100% to the first person then living in the following list of secondary beneficiaries. If this method is used, name the beneficiaries in the order of your preference and leave the “Share of Payment” blank.

o Method No. 2 — Designation of two or more primary beneficiaries, (i.e., to the persons designated in the proportions indicated). In the event of the death of any one or more of these beneficiaries, their share(s) shall be apportioned to the remaining living beneficiaries in proportion to the shares provided for each of them. If this method is used, name each beneficiary and show the “Share of Payment” for each beneficiary.

o Method No. 3 — Designation of a primary beneficiary and two or more secondary beneficiaries, (i.e., to the person first named if
surviving; if not, to the remaining persons designated in the proportions indicated). In the event of the death of any one or more of these beneficiaries, their shares shall be apportioned to the remaining living beneficiaries in proportion to the shares provided for each of them. If this method is used, name each of the beneficiaries and show for the primary beneficiary (for example, your wife) 100% and also the “Share of Payment” for each secondary beneficiary.

DESIGNATION OF BENEFICIARIES
(Continued)

NOTE: (If your Beneficiary is a trust, please state the name and address of the trustee).


			Share of
			Payment %
	JoLyn Kidd	###-##-####


Primary	Name	SSN
	1027 E. Erie Ave., Lorain, Oh


	Address


Primary	Name	SSN


	Address

	James Kidd Trust UTD 7694


Secondary	Name	SSN
	L.N.B. Trust Dept., 457 Broadway, Lorain OH


	Address


Primary	Name	SSN


	Address


Secondary	Name	SSN


	Address

DESIGNATION OF BENEFICIARIES
(Continued)

I have designated my Beneficiary or Beneficiaries and the method of payment to such on the upper half of this form. This Beneficiary Designation shall be applicable to the sums, if any, payable to my Beneficiaries under my Supplemental Retirement Agreement.


/s/James F. Kidd		###-##-####


James F. Kidd		Social Security Number
6-15-99


Date

		Spouse’s signature (if community property state and Primary Beneficiary other than Spouse is to receive more than a 50% share).

EX-10.R 8 l17869aexv10wr.htm EX-10(R) RIGHTS AGREEMENT EX-10(R)

Exhibit 10(r)

LNB BANCORP, INC.

AND

REGISTRAR AND TRANSFER COMPANY

Rights Agreement

Dated as of October 24, 2000

TABLE OF CONTENTS


Section		Page
1.	Certain Definitions	1

2.	Appointment of Rights Agent	5

3.	Issuance of Rights Certificates	5

4.	Form of Rights Certificates	7

5.	Countersignature and Registration	7

6	Transfer, Split-up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates	8

7.	Exercise of Rights; Purchase Price; Expiration Date of Rights	9

8.	Cancellation and Destruction of Rights Certificates	10

9.	Reservation and Availability of Capital Stock	11

10.	Preferred Shares Record Date	12

11.	Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights	12

12.	Certificate of Adjusted Purchase Price or Number of Shares	20

13.	Consolidation, Merger or Sale or Transfer of Assets or Earning Power	20

14	Fractional Rights and Fractional Shares	23

15.	Rights of Action	23

16.	Agreement of Rights Holders	24

17.	Rights Certificate Holder Not Deemed a Shareholder	24

18.	Concerning the Rights Agent	25


Section		Page
19.	Merger or Consolidation or Change of Name of Rights Agent	25

20.	Duties of Rights Agent	26

21.	Change of Rights Agent	28

22.	Issuance of New Rights Certificates	28

23.	Redemption and Termination	29

24.	Notice of Certain Events	30

25.	Notices	31

26.	Supplements and Amendments	31

27.	Successors	32

28.	Determinations and Actions by the Board of Directors, etc.	32

29.	Benefits of This Agreement	32

30.	Severability	32

31.	Governing Law	33

32.	Counterparts	33

33.	Descriptive Headings	33

Exhibit A — Form of Amended Articles of Incorporation

Exhibit B — Form of Rights Certificate

Exhibit C — Form of Summary of Rights

RIGHTS AGREEMENT

RIGHTS AGREEMENT, dated as of October 24, 2000 (the “Agreement”), between LNB Bancorp, Inc., an Ohio corporation (the “Company”), and Registrar and Transfer Company, a New Jersey corporation (the “Rights Agent”).

WITNESSETH

WHEREAS, on October 24, 2000 (the “Rights Dividend Declaration Date”), the Board of Directors of the Company authorized and declared a dividend distribution of one Right for each Common Share (as hereinafter defined) of the Company outstanding at the close of

business on November 6, 2000 (the “Record Date”), and has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(o) hereof) for each Common Share of the Company issued between the Record Date (whether originally issued or delivered from the Company’s treasury) and the Distribution Date (as hereinafter defined), each Right representing the right to purchase one one-hundredth of a Series A Voting Preferred Share of the Company having the rights, powers and preferences set forth in the form of Amended Articles of Incorporation of the Company attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth (the “Rights”);

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated:

(a) “Act” shall mean the Securities Act of 1933.

(b) “Acquiring Person” shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the Common Shares then outstanding, but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an Acquiring Person solely as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person, together with all Affiliates and Associates of such Person, to 15% or more of the Common Shares then outstanding; provided, however, that if a Person who would be an Acquiring Person but for this sentence, or such Person’s Affiliates or Associates, shall thereafter become, as a result of actions taken by such Person
or its Affiliates or Associates, the Beneficial Owner of additional Common Shares equal to 1.0% or more of the then outstanding Common Shares, then such Person shall thereupon be deemed to be an Acquiring Person.

(d) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and in effect on the date of this Agreement.

(e) A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities:

(i) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person’s Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the “Original Rights”) or pursuant to Section 11(a)(i) hereof in connection with an adjustment made with respect to any Original Rights;

(ii) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on Schedule 13D or Schedule 13G under the Exchange Act (or any comparable or successor report); or

(iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), to act together for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii)of this paragraph (d)) or disposing of any voting securities of the Company; provided, however, that nothing in this paragraph (d) shall cause a person engaged in business as an underwriter of securities to be the “Beneficial Owner” of, or to “beneficially own,” any securities acquired through such person’s participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition.

Notwithstanding anything in this definition of Beneficial Ownership to the contrary, no Person shall be deemed to be the Beneficial Owner of, or to beneficially own, any security Beneficially

Owned by another Person solely by reason of any agreement, arrangement or understanding with such other Person relating to the solicitation of revocable proxies made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations
under the Exchange Act, provided that such other Person retains the right at any time to withdraw from, revoke or terminate any such agreement, arrangement or understanding and further provided that such Persons would not otherwise be deemed to be a group under Section 13(d) of the Exchange Act or otherwise be deemed to be acting in concert.

(f) “Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of Ohio are authorized or obligated by law or executive order to close.

(g) “Close of business” on any given date shall mean 5:00 P.M., Lorain, Ohio time, on such date; provided however, that if such date is not a Business Day it shall mean 5:00 P.M., Lorain, Ohio time, on the next succeeding Business Day.

(h) “Common Shares,” each a “Common Share,” shall mean the common shares, par value $1.00 per share, of the Company, except that “Common Shares” when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest aggregate voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person.

(i) “Current market price” shall have the meaning set forth in Section 11(d)(i) hereof.

(j) “Current Value” shall have the meaning set forth in Section 11(a)(iii) hereof.

(k) “Distribution Date” shall have the meaning set forth in Section 3(a) hereof.

(l) “Exchange Act” shall have the meaning set forth in Section l(d) hereof.

(m) “Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

(n) “Final Expiration Date” shall mean the close of business on October 23, 2010.

(o) “NASDAQ” shall have the meaning set forth in Section 11(d)(i) hereof.

(p) “Original Rights” shall have the meaning set forth in Section l(d)(i) hereof.

(q) “Person” shall mean any individual, firm, corporation, partnership or other entity.

(r) “Preferred Shares,” each a “Preferred Share,” shall mean shares of Series A Voting Preferred Shares, no par value, of the Company and, to the extent that there is not a sufficient number of

Series A Voting Preferred Shares authorized to permit the full exercise of the Rights, any other series of Preferred Shares, no par value, of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Voting Preferred Shares.

(s) “Preferred share equivalents” shall have the meaning set forth in Section 11(a)(iii) hereof.

(t) “Principal Party” shall have the meaning set forth in Section 13(b) hereof.

(u) “Purchase Price” shall have the meaning set forth in Section 4(a) hereof.

(v) “Record Date” shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement.

(w) “Redemption Price” shall have the meaning set forth in Section 23(a) hereof.

(x) “Rights” shall have the meaning set forth in the WHEREAS clause at the beginning of this Agreement.

(y) “Rights Certificates” shall have the meaning set forth in Section 3(a) hereof.

(z) “Rights Dividend Declaration Date” shall have the meaning set forth in Section 3(a) hereof.

(aa) “Section 11(a)(ii) Event” shall have the meaning set forth in Section 11(a)(ii) hereof.

(bb) “Section 11(a)(ii) Trigger Date” shall have the meaning set forth in Section 11(a)(iii) hereof.

(cc) “Section 13 Event” shall mean any event described in clause (x), (y) or (z) of Section 13(a) hereof .

(dd) “Spread” shall have the meaning set forth in Section 11(a)(iii) hereof.

(ee) “Share Acquisition Date” shall mean the first date of a public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such.

(ff) “Subsidiary” shall mean, with reference to any Person, any corporation or financial institution of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation or financial institution is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person.

(gg) “Substitution Period” shall have the meaning set forth in Section 11(a)(iii) hereof.

(hh) “Trading Day” shall have the meaning set forth in Section 11(d)(i) hereof.

(ii) “Triggering Event” shall mean any Section 11(a)(ii) Event or any Section 13 Event.

Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable.

Section 3. Issuance of Rights Certificates.

(a) Until the earlier of (i) the close of business on the tenth business day after the Share Acquisition Date or (ii) the close of business on the tenth business day after the latest of (A) the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) that, if consummated, would result in such Person being an Acquiring Person is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act as in effect on the date hereof, or (B) the date upon which all regulatory approvals required for the acquisition of shares pursuant to the tender or exchange offer referred to in clause (A) have been obtained or waived, or (C) the date upon which any approval required of the security holders of the Person publishing or sending or giving the tender or exchange offer referred to in clause (A), for the acquisition of shares pursuant to such tender or exchange offer, is obtained or waived (the earlier of (i) and (ii) being herein referred to as the “Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Shares registered in the names of the holders of the Common Shares (which certificates for Common Shares shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying Common Shares (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit B hereto (the “Rights Certificates”), evidencing one Right for each of the Common Shares so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per Common Share has been made pursuant to Section 11(o) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the

Distribution Date, the Rights will be evidenced solely by such Rights Certificates.

(b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in substantially the form attached hereto as Exhibit C, by first-class, postage prepaid mail, to each record holder of the Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Shares and the registered holders of the Common Shares shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date the transfer of any certificates representing Common Shares in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with
such Common Shares.

(c) Rights shall be issued in respect of all Common Shares which are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing such Common Shares shall also be deemed to be certificates for Rights, and shall bear the following legend:

This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between LNB Bancorp, Inc. (the “Company”) and Registrar and Transfer Company (the “Rights Agent”) dated as of October 24, 2000 (the “Rights Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void.

With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Shares shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Shares represented by such certificates.

Section 4. Form of Rights Certificates.

(a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof)

shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-hundredths of a Preferred Share as shall be set forth therein at the price set forth therein (such exercise price per one one-hundredth of a share, the “Purchase Price”), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein.

(b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by any Person known to be: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person; (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such; or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person (or from any such Associate or Affiliate) to holders of equity interests in such Acquiring Person (or in any such Associate or Affiliate) or to any Person with whom such Acquiring Person (or any such Associate or Affiliate) has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall when issued contain (to the extent feasible in the circumstances) the following legend, modified as applicable to apply to such Person:

The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement.

Section 5. Countersignature and Registration.

(a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President, or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company’s seal or a facsimile thereof which shall be attested by the Treasurer or an Assistant Treasurer or by the Secretary or an Assistant Secretary of the Company, either

manually or by facsimile signature. The Rights Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

(b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its office designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the certificate number and the date of each of the Rights Certificates.

Section 6. Transfer, Split-up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.

(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-hundredths of a Preferred Share (or other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum

sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split-up, combination or exchange of Rights Certificates.

(b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.

(a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-hundredths of a Preferred Share (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) the Final Expiration Date, or (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the earlier of (i) and (ii) being herein referred to as the “Expiration Date”).

(b) The Purchase Price for each one-hundredth of a Preferred Share pursuant to the exercise of a Right shall initially be $60 and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below.

(c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-hundredth of a Preferred Share (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i)(A) requisition from any transfer agent of the Preferred Shares (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-hundredths of a Preferred Share to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of Preferred Shares issuable upon exercise of the Rights hereunder with a depositary agent,

requisition from the depositary agent depositary receipts representing such number of one one-hundredths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made in cash or by certified bank check or money order payable to the order of the Company. In the event that the Company is obligated to issue other securities of the Company, pay cash or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash or other property are available for distribution by the Rights Agent, if and when appropriate.

(d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof.

(e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person (or from any such Associate or Affiliate) to holders of equity interests in such Acquiring Person (or in any such Associate or Affiliate) or to any Person with whom the Acquiring Person (or any such Associate or Affiliate) has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined (whether before or after such transfer) is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or any of its respective Affiliates, Associates or transferees hereunder.

(f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request.

Section 8. Cancellation and Destruction of Rights Certificates.

All Rights Certificates surrendered for the purpose of exercise, transfer, split-up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation, and the Rights Agent shall so cancel, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

Section 9. Reservation and Availability of Capital Stock.

(a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares, the number of Preferred Shares that, as provided in this Agreement, including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights, provided that, prior to the occurrence of a Triggering Event, the number of such shares to be reserved shall be only that number as shall be sufficient for that purpose prior to such an event.

(b) So long as the Preferred Shares issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange or The NASDAQ Stock Market, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange or The NASDAQ Stock Market upon official notice of issuance upon such exercise.

(c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a )(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, or as soon as is required by law following the Distribution Date, as the case may be, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to

become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction, unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement has been declared effective.

(d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all one one-hundredths of a Preferred Share delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and non-assessable.

(e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-hundredths of a Preferred Share (or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-hundredths of a Preferred Share (or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of one one-hundredths of a Preferred Share (or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company’s satisfaction that no such tax is due.

Section 10. Preferred Share Record Date.

Each person in whose name any certificate for a number of one one-hundredths of a Preferred Share (or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional Preferred Shares (or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights

Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Share (or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Share (or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate, as such, shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights.

The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

(a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of Preferred Shares or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of Preferred Shares or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Share transfer books of the Company were open, he would have owned upon such exercisee and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

(ii) A Section 11(a)(ii) Event shall be deemed to occur in the event any Person, alone or together with its Affiliates and Associates, shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof. Promptly following the first occurrence of a Section 11(a)(ii)Event, proper provision shall be made so that each

holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-hundredths of a Preferred Share, such number of one one-hundredths of a Preferred Share as shall equal the result obtained by (x) multiplying the then-current Purchase Price by the then-number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a) ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the “Purchase Price” for each Right and for all purposes of this Agreement) by 50% of the current market price (determined pursuant to Section 11(d) hereof) per Common Share on the date of such first occurrence (such number of shares, the “Adjustment Shares”).

(iii) In the event that the number of Preferred Shares which are authorized by the Company’s Articles of Incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the “Current Value”) over (2) the Purchase Price (such excess, the “Spread”), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other equity securities of the Company (including, without limitation, preferred shares, or units of preferred shares, which the Board of Directors of the Company has deemed to have the same value as one one-hundredth of a Preferred Share (such preferred shares, “preferred share equivalents”)), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such value has been determined by the Board of Directors of the Company based upon the advice of one or more investment or financial advisors selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company’s right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger Date”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Preferred Shares (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional Preferred Shares could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the “Substitution Period”). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply

uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of one one-hundredth of a Preferred Share shall be deemed to be the current market price per Common Share (as determined pursuant to Section 11(d) hereof) on the Section 11(a)(ii) Trigger Date and the value of any “preferred share equivalent” shall be deemed to have the same value as one one-hundredth of a Preferred Share on such date.

(iv) In lieu of issuing Preferred Shares in accordance with subparagraph (ii) of this Section 11(a), the Company may with respect to each Right, if a majority of members of the Board of Directors determine that such action is in the best interests of the Company and not contrary to the interests of the holders of Rights, make adequate provision to substitute for the Adjustment Shares, (x) upon the surrender for exercise of a Right and payment of the applicable Purchase Price (1) cash, (2) a reduction in Purchase Price, (3) Common Shares, or other equity securities of the Company (including without limitation preferred share equivalents), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing having an aggregate value equal to the Current Value where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of one or more investment or financial advisers selected by the Board of Directors of the Company or (y) upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, (1) cash, (2) Preferred Shares, Common Shares or other equity securities of the Company (including, without limitation, preferred share equivalents), (3) debt securities of the Company, (4) other assets or (5) any combination of the foregoing, having an aggregate value equal to the Spread where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of one or more investment or financial advisors selected by the Board of Directors of the Company.

(b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares (“equivalent preferred shares”)) or securities convertible into Preferred Shares or equivalent preferred shares at a price per Preferred Share or per share of equivalent preferred shares (or having a conversion price per share, if a security convertible into Preferred Share or equivalent preferred share) less than the current market price (as determined pursuant to Section 11(d)(ii) hereof) per share of Preferred Shares on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record date, plus the number of Preferred Shares which the aggregate offering price of

the total number of Preferred Shares and/or equivalent preferred shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of Preferred Shares outstanding on such record date, plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

(c) In case the Company shall fix a record date for a distribution to all holders of Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Shares, but including any dividend payable in shares other than Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b)hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Share and the denominator of which shall be such current market price (determined pursuant to Section 11(d) hereof) per share of Preferred Shares. Such adjustments shall be made successively whenever such a record-date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed.

(d) (i) For the purpose of any computation hereunder, the “current market price” per share of Common Shares on any date shall be deemed to be the average of the daily closing prices per share of such Common Shares for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, provided, however, that in the event that the current market price per share of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (A) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights),

or (B) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of the requisite thirty (30) Trading Day period after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the “current market price” shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System (“Nasdaq”) or such other system then in use, or, if applicable, the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not reported by Nasdaq or such other system then in use and are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not reported by Nasdaq or such other system then in use and are not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Shares, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Shares are not publicly held or not so listed or traded, “current market price” per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

(ii) For the purpose of any computation hereunder, the “current market price” per share of Preferred Shares shall be determined in the same manner as set forth above for the Common Shares in clause (i) of this Section 11(d) (other than the last sentence thereof). If the current market price per share of Preferred Shares cannot be determined in the manner provided above or if the Preferred Shares are not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the “current market price” per share of Preferred Shares shall be conclusively deemed to be an amount equal to 100 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Shares occurring after the date of this Agreement) multiplied by the current market price per share of the Common Shares. If neither the Common Shares nor the Preferred Share are publicly held or so listed or traded, “current market price” per share of the Preferred Shares shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the

Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the “current market price” of one one-hundredth of a Preferred Share shall be equal to the “current market price” of one Preferred Share divided by 100.

(e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a Common Share or other share or one-millionth of a Preferred Share, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date.

(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13 (a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), and (l), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Shares shall apply on like terms to any such other shares.

(g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-hundredths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

(h) Unless the Company shall have exercised its election as provided in Section 11 (i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11 (b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-hundredths of a Preferred Share (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

(i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-hundredths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall

be exercisable for the number of one one-hundredths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement.

(j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-hundredths of a Preferred Share issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-hundredth of a share and the number of one one-hundredths of a share which were expressed in the initial Rights Certificates issued hereunder.

(k) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-hundredths of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-hundredths of a Preferred Share and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment.

(l) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly

required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at less than the current market price, (iii) issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, (iv) share dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Shares shall not be taxable to such shareholders.

(m) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(n) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(n) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(n) hereof), if (x) at the time of or immediately after such consolidation, merger, sale or transfer there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger, sale or transfer, the shareholders of the Person who constitutes, or would constitute, the “Principal Party” for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates.

(n) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

(o) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time on or after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding Common Shares payable in Common Shares, (ii) subdivide the outstanding shares of Common Shares, or (iii) combine the outstanding shares of Common Shares into a smaller number of shares, the number of Rights associated with each Common Share then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each Common Share following any such event shall equal the result obtained by multiplying the number of Rights associated with each Common Share immediately prior to such event by a fraction the numerator of which shall be the total number of Common Shares outstanding immediately prior to the occurrence of the event and the denominator of which

shall be the total number of shares of Common Shares outstanding immediately following the occurrence of such event.

Section 12. Certificate of Adjusted Purchase Price or Number of Shares.

Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Shares and the Common Shares, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing Common Shares) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of such adjustment unless and until it shall have received such certificate.

Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.

(a) In the event that, following the Share Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(n) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(n) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding Common Shares shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(n) hereof), then, and in each such case, proper provision shall be made so that: (i) each holder of a Right, except holders described in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable Common Shares of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-hundredths of a Preferred Share for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such one one-hundredths

of a Preferred Share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the “Purchase Price” for each Right and for all purposes of this Agreement) by (2) 50% of the current market price (determined pursuant to Section 13(d) hereof) per Common Share of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event.

(b) “Principal Party” shall mean

(i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and

(ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Shares of such Person are not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Shares of which are and have been so registered, “Principal Party” shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Shares of two or more of which are and have been so registered, “Principal Party” shall refer to whichever of such Persons is the issuer of the Common Shares having the greatest aggregate market value.

(c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized Common Shares which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further

providing that, as soon as practicable after the date of any consolidation, merger, sale or transfer mentioned in paragraph (a) of this Section 13, the Principal Party will

(i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and

(ii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a).

(d) For purposes of Section 13(a), the “current market price” per Common Share of a Principal Party shall be deemed to be the average of the daily closing prices per Common Share for the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current market price per share of the Principal Party’s Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (A) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the “current market price” shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq or such other system then in use, or, if applicable, the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Principal Party’s Common Shares are not reported by Nasdaq or such other system then in use and are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not reported by Nasdaq or such other system then in use and are not listed or admitted to trading on any national securities exchange, the average of the closing

bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Principal Party’s Common Shares, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the shares of the Principal Party’s Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Business Day. If the Principal Party’s Common Shares are not publicly held or not so listed or traded, “current market price” per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

Section 14. Fractional Rights and Fractional Shares.

(a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(o) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there may be paid to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system then in use, or, if applicable, the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not reported by Nasdaq or such other system then in use and are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not reported by Nasdaq or such other system then in use and are not listed or admitted to trading on any national securities exchange, or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used.

(b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share) upon exercise of the Rights or

to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-hundredth of a Preferred Share). In lieu of fractional Preferred Shares that are not integral multiples of one one-hundredth of a Preferred Share, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-hundredth of a Preferred Share. For purposes of this Section 14(b), the current market value of one one-hundredth of a Preferred Share shall be the current market price of a Common Share (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise.

(c) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14.

Section 15. Rights of Action.

All rights of action in respect of this Agreement, other than rights of action vested in the Rights Agent pursuant to Section 18 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement.

Section 16. Agreement of Rights Holders.

Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

(a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Shares;

(b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed;

(c) subject to Section 6 (a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Share certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and

(d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible.

Section 17. Rights Certificate Holder Not Deemed a Shareholder. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one-hundredths of a Preferred Share or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof.

Section 18. Concerning the Rights Agent.

(a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises.

(b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.

Section 19. Merger or Consolidation or Change of Name of Rights Agent.

(a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

(b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

Section 20. Duties of Rights Agent.

The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights

Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

(b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only.

(e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after receipt of the certificate described in Section 12 hereof setting forth any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Common Shares or Preferred Shares to be issued pursuant to this Agreement or any Rights Certificate or as to whether any Common Shares or Preferred Shares will, when so issued, be validly authorized and issued, fully paid and non-assessable.

(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice

President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer.

(h) Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Rights Agreement and the date on or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business Days after the date the Chairman of the Board, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted.

(i) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.

(j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

(k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.

Section 21. Change of Rights Agent.

The Rights Agent or any successor Rights Agent may resign and thereby be discharged from its duties under this Agreement upon thirty (30) days’ notice in writing mailed to the Company, and to each transfer agent of the Common Share and Preferred Shares, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any

successor Rights Agent upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares and Preferred Shares, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation or financial institution organized and doing business under the laws of the United States or of the State of Ohio (or of any other state of the United States so long as such corporation is authorized to act as Rights Agent in the State of Ohio), in good standing, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an affiliate of a corporation or financial institution described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver, and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Share and the Preferred Share, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

Section 22. Issuance of New Rights Certificates.

Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Shares following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to Common Shares so issued or sold pursuant to the exercise of stock options or under any employee benefit plan or arrangement, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of

Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.

Section 23. Redemption and Termination.

(a)(i) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (x) the close of business on the tenth Business Day following the Share Acquisition Date (or, if the Share Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth Business Day following the Record Date), or (y) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $.001 per Right, as such amount may be appropriately adjusted, as determined by the Board of Directors, to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “Redemption Price”).

(ii) If, following the occurrence of a Share Acquisition Date or following the expiration of the right of redemption hereunder but prior to any Triggering Event, (x) a Person who is an Acquiring Person shall have transferred or otherwise disposed of a number of Common Shares in one transaction or series of transactions, not directly or indirectly involving the Company or any of its Subsidiaries, which did not result in the occurrence of a Triggering Event such that such Person, together with such Person’s, Affiliates and Associates, is thereafter a Beneficial Owner of less than 15% of the outstanding Common Shares, and (y) there are no other Persons, immediately following the occurrence of the event described in clause (x), who are Acquiring Persons, then the right of redemption shall be reinstated and thereafter be subject to the provisions of this Section 23.

(iii) Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of an event described in Section 11(a)(ii) until such time as the Company’s right of redemption hereunder has expired.

(iv) The Company may, at its option, pay the Redemption Price in cash, Common Shares (based on the “current market price,” as defined in Section 11(d)(i) hereof, of the Common Shares at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors.

(c) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall

be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder’s last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.

Section 24. Notice of Certain Events.

(a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in shares of any class to the holders of Preferred Shares or to make any other distribution to the holders of Preferred Shares (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Shares rights or warrants to subscribe for or to purchase any additional shares of Preferred Shares or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(n) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any of its Subsidiaries in one or more transactions each of which complies with Section 11(n) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such share dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Preferred Shares, whichever shall be the earlier.

(b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under

Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Shares shall be deemed thereafter to refer to Common Shares and/or, if appropriate, other securities.

Section 25. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if delivered by hand, sent by overnight courier or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052
Attention: Corporate Secretary

Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if delivered by hand, sent by overnight courier or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows:

Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Attention: Vice President, Corporate Relations
800-866-1340

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Share) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

Section 26. Supplements and Amendments.

Prior to the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Share. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of any Acquiring Person); provided, this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period

relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening of such other time period is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of one one-hundredths of a Preferred Share for which a Right is exercisable. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Shares.

Section 27. Successors.

All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

Section 28. Determinations and Actions by the Board of Directors, etc.

For all purposes of this Agreement, any calculation of the number of Common Shares outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding Common Shares of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as in effect on the date hereof. The Board of Directors of the Company (or, as set forth herein, certain specified members thereof) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including, but not limited to, a determination to redeem or not redeem the Rights or to amend this Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors of the Company in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights.

Section 29. Benefits of This Agreement.

Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent

and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Shares).

Section 30. Severability.

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth business day following the date of such determination by the Board of Directors of the Company.

Section 31. Governing Law.

This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Ohio and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State.

Section 32. Counterparts.

This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

Section 33. Descriptive Headings.

Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.


Attest:		LNB BANCORP, INC.


By	/s/ Thomas P. Ryan	By	/s/ Gary C. Smith

	Thomas P. Ryan Secretary		Gary C. Smith President and Chief Executive Officer


Attest:		REGISTRAR AND TRANSFER COMPANY


By	/s/ William P. Tatler	By	/s/ Diane Sayek

	Name: William P. Tatler		Name: Diane Sayek
	Title: Vice President & Assistant Secretary		Title: Vice President

Exhibit A

SECOND AMENDED ARTICLES OF INCORPORATION
OF
LNB BANCORP, INC.

FIRST. The name of Corporation shall be LNB Bancorp, Inc.

SECOND. The place in Ohio where Corporation’s principal office is to be located is the City of Lorain, Lorain County.

THIRD. The purpose for which Corporation is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 through 1701.98, inclusive, of the Ohio Revised Code, including (but not limited to) to qualify and act as a “financial
holding company” as defined by the Gramm-Leach-Bliley Act of 1999.

A. Common Shares:

B. Voting Preferred Shares:

otherwise acquired by Corporation shall become authorized but unissued Voting Preferred Shares, shall be unclassified as to series, and may thereafter be reissued in the same manner as other authorized but unissued Voting Preferred Shares.

C. Series A Voting Preferred Shares:

From the authorized number of Voting Preferred Shares of Corporation, a series of Voting Preferred Shares designated as “Series A Voting Preferred Shares” is hereby created and shall consist of 750,000 Shares, without par value, of which the preferences, relative and other rights, and the qualifications, limitations or restrictions thereof shall be (in addition to those set forth elsewhere in these Articles) as follows:

1. Dividends and Distribution.

(b) The Board shall declare a dividend or distribution on the Series A Voting Preferred Shares as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Shares of Common Shares); provided that, subject to the requirements of applicable law, in the event no dividend or distribution has been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of One Dollar ($1.00) per Share on the Series A Voting Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

2. Voting Rights. The holders of Series A Voting Preferred Shares shall have the following voting rights, in addition to
those set forth elsewhere in this Article FOURTH:

(c) Except as set forth herein, the holders of Series A Voting Preferred Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in these Articles or by law) for taking any corporate action.

3. Certain Restrictions.

(i) declare or pay dividends or make any other distributions on Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Voting Preferred Shares;

b) Corporation shall not permit any subsidiary of Corporation to purchase or otherwise acquire for consideration any

Shares of Corporation unless, pursuant to paragraph (a) of this Section 3, Corporation could purchase or otherwise acquire such Shares at such time and in such manner.

5. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of Corporation, no distribution
shall be made to:

kind), as the case may be, into which or for which each Common Share is changed or exchanged. If, at any time on or after the Rights Declaration Date, Corporation (i) declares any dividend on Common Shares payable in Common Shares, (ii) subdivides the outstanding Common Shares; or (iii) combines the outstanding Common Shares into a smaller number of Shares, then (in each such case) the amount set forth in the preceding sentence with respect to the exchange or change of Series A Voting Preferred Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.

SIXTH. No holder of any Shares of any class shall have the right to vote cumulatively in the election of Directors to the Board.

SEVENTH. No holder of the Shares of any class shall have any preemptive right to subscribe for or to purchase any Shares of any class whether now or hereafter authorized.

EXHIBIT B

[Form of Rights Certificate]

Certificate No. R-
Rights

NOT EXERCISABLE AFTER OCTOBER 23, 2010 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*

Rights Certificate

LNB BANCORP, INC.

This certifies that, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of October 24, 2000 (the “Rights Agreement”), between LNB Bancorp, Inc., an Ohio corporation (the “Company”), and Registrar and Transfer Company, a New Jersey corporation, (the “Rights Agent”), to purchase from the Company at any time prior to 5:00 P.M. (Lorain, Ohio time) on October 24, 2000 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-hundredth of a fully paid, non-assessable share of Series A Voting Preferred Shares (the “Preferred Shares”) of the Company, at a purchase price of $60 per one one-hundredth of a share (the “Purchase Price”), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The Purchase Price may be paid in cash or by certified bank check or money order payable to the order of the Company. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of October 23, 2010, based on the Preferred Shares as constituted at such date.


*		The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence.

Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person or an Affiliate or Associate of any Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii)Event.

As provided in the Rights Agreement, the Purchase Price and the number and kind of Preferred Shares or other securities which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events (as such term is defined in the Rights Agreement).

This Rights Certificate is subject to all of the terms, provisions, and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are available upon written request to the Company.

This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-hundredths of a Preferred Share as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.001 per Right at any time prior to the earlier of the close of business on (i) the tenth business day following the Share Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), and (ii) the Final Expiration Date. After the expiration of the redemption period, the Company’s right of redemption may be reinstated if an Acquiring Person reduces his beneficial ownership to less than 15% of the outstanding Common Shares in a transaction or series of transactions not involving the Company and there are no other Acquiring Persons.

The Company may (but shall not be required to) issue fractional Preferred Shares upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-hundredth of a Preferred Shares, which may, at the election of the Company, be evidenced by depositary receipts), and in lieu thereof a cash payment may be made, as provided in the Rights Agreement.

No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or, to receive notice of meetings or other actions affecting shareholders except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS, the facsimile signature of the proper officers of the Company and its corporate seal.

Dated as of ,


ATTEST:		LNB BANCORP, INC.

		By:

Secretary		Name:
		Title:

Countersigned:

REGISTRAR AND TRANSFER COMPANY

By:

	Authorized Signature

[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if
such holder desires to transfer the Rights
Certificate.)

FOR VALUE RECEIVED
hereby

sells, assigns and transfers unto

(Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution.


Dated:

		Signature

Signature Guaranteed:

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) this Rights Certificate o is o is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

(2) after due inquiry and to the best knowledge of the undersigned, it o did o did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.


Dated: ,
		Signature

Signature Guaranteed:

NOTICE

The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)

To: LNB BANCORP, INC.

The undersigned hereby irrevocably elects to exercise Rights represented by this Rights Certificate to purchase the Preferred Shares issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to:

Please insert social security or other identifying number

(Please print name and address)

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to:

Please insert social security or other identifying number

(Please print name and address)


Dated: ,
		Signature

Signature Guaranteed:

Certification

The undersigned hereby certifies by checking the appropriate boxes that:

(1) the Rights evidenced by this Rights Certificate o are o are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

(2) after due inquiry and to the best knowledge of the undersigned, it o did o did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.


Dated: ,
		Signature

Signature Guaranteed:

NOTICE

The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT C

SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES

On October 24, 2000, the Board of Directors of LNB Bancorp, Inc. (the “Company”) declared a dividend distribution of one Right for each outstanding Common Share of the Company to shareholders of record at the close of business on November 6, 2000. One Right will also be distributed for each Common Share issued after November 6, 2000 until the Distribution Date (which is described in the next paragraph). Each Right entitles the registered holder to purchase from the Company units (“Units”) of Series A Voting Preferred Shares, no par value (the “Preferred Shares”), at an exercise price of $60 per Right. The description and terms of the Rights are set forth in a Rights Agreement dated as of October 24, 2000 (the “Rights Agreement”) between the Company and Registrar and Transfer Company as Rights Agent. The exercise price has been set at $60 based upon the advice of the Company’s financial adviser.

The Rights Agreement provides that the Rights will be evidenced by the share certificates representing the Common Shares and no separate Rights Certificates will be distributed until the “Distribution Date” which will be the earlier to occur of (i) the close of business 10 business days following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding Common Shares (an “Acquiring Person”) or (ii) the close of business 10 business days after the latest of (A) the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in a person or group becoming an Acquiring Person, (B) the date on which all regulatory approvals required for the acquisition of shares pursuant to the tender or exchange offer have been obtained or waived, or (C) the date on which any approval required of shareholders of the person making the tender or exchange offer is obtained. The definition of Acquiring Person excludes the Company, any subsidiary of the Company or any of the Company’s employee benefit plans.

Until the Distribution Date (A) the Rights will be evidenced by the Common Share certificates and will be transferred with and only with the Common Share certificates, (B) new Common Share certificates issued after November 6, 2000 will contain a notation incorporating the Rights Agreement by reference and (C) the surrender for transfer of any certificates for Common Shares outstanding will also constitute the transfer of the Rights associated with the Common Shares represented by the certificate.

The Rights are not exercisable until the Distribution Date and will expire at the close of business on October 23, 2010, unless the Company redeems them at an earlier date. The Company’s ability to redeem the Rights is described below.

As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and thereafter, the separate Rights Certificates alone will represent the Rights. Except for the issuance of Common Shares in connection with outstanding options, convertible securities and as otherwise determined by the Board of Directors, only Common Shares issued prior to the Distribution Date will be issued with Rights.

Subject to the right of the Company to redeem the Rights as explained below, in the event that any person becomes an Acquiring Person, each holder of a Right, other than the Acquiring Person, will then have the right (the “Flip-In Right”) to receive upon exercise the Units of Preferred Shares (or, in certain circumstances, other securities of the Company) having a value (immediately prior to such triggering event) equal to two times the exercise price of the Right. For this purpose, a Unit of Preferred Shares is deemed to have the same value as the market price of the Company’s Common Shares at that time. One Unit of Preferred Shares has rights which are comparable in terms of dividends and voting power and upon liquidation to one Common Share. Each Flip-In Right will entitle the holder, other than the Acquiring Person, to purchase from the Company Units of Preferred Shares at 50% of market value.

All Rights that are beneficially owned by any Acquiring Person will be null and void.

In the event that, at any time following the acquisition of 15% or more of the Company’s Common Shares by a person or group, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation, or (ii) 50% or more of the Company’s assets or earning power is sold or transferred, each holder of a Right, other than the Acquiring Person, will then have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right.

A person or group of affiliated persons will not trigger the separation and exercisability of the Rights if that person or group becomes the beneficial owner of 15% or more of the Common Shares solely as a result of the Company’s reducing the number of outstanding shares, unless that person or group subsequently acquires an additional 1.0% or more of the then outstanding Common Shares.

The Company may redeem the Rights in whole, but not in part, at a price of $.001 per Right, at any time until the close of business 10 business days following acquisition of 15% or more of the Company’s Common Shares by a person or group.

Until a Right is exercised, the holder of the Right, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends.

Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the

Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption shall be made when the Rights are not redeemable.

The inability of a person or group that acquires 15% or more of the Company’s Common Shares to exercise the Rights will result in a substantial dilution of that person’s ownership level and voting power if there is any significant exercise of the Rights by other shareholders. The ability of the Board of Directors to redeem the Rights, and other provisions of the Rights Plan, will enable the Board of Directors to avoid the effect of the Rights in any negotiated acquisition of the Company that is first approved by the Board of Directors.

A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference.

EX-10.S 9 l17869aexv10ws.htm EX-10(S) BRANCH PURCHASE AND ASSUMPTION AGREEMENT EX-10(S)

Exhibit 10(s)

Branch Purchase and Assumption Agreement

by and between

KeyBank National Association

and

Lorain National Bank

Dated as of

April 10, 1997

Index of Definitions

Agreed Value shall mean, with regard to the Owned Real Estate and the Leasehold Estate, its value as reflected by the Appraisal. Agreed Value shall mean, with regard to the furniture, fixture and equipment which constitute part of the Assets, the net book value determined as of the most recent month end preceding the Closing Date under generally accepted accounting principles (the “Net Book Value”) of such furniture, fixture and equipment. In no event shall the Agreed Value of the furniture, fixtures and equipment at any Branch be less than $5,000.00.

Appraisal shall mean, with regard to the Owned Real Estate and the Leasehold Estate, a limited summary format appraisal of its Fair Market Value furnished by an Appraiser reasonably acceptable to Seller and Purchaser. For purposes of this Agreement, “Appraiser” shall mean a reputable appraiser certified as an MIA appraiser with at least five (5) years’ experience within the previous ten (10) years as a real estate appraiser working in the geographic region in which the Owned Real Estate or Leasehold Estate to be appraised is located, with knowledge of market values and practices. The cost of the Appraisal shall be paid equally by each party hereto.

Branch(es)shall mean each of Seller’s branches identified on Schedule A hereto.

Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

Encumbrance shall mean all mortgages, claims, liens, encumbrances, easements, limitations, restrictions, commitments and security interests, except for statutory liens securing payments not yet due, liens incurred in the ordinary course of business and such other liens or encumbrances which do not materially adversely affect the use of the properties or assets subject thereto or affected thereby or which otherwise do not materially impair business operations at such properties.

ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.

Excluded Deposits shall mean: (a) any individual retirement account or similar account created by a trust for the exclusive benefit of an individual or his beneficiaries in accordance with the provisions of Section 408 of the Code and any simplified employee pension account established in accordance with Section 408(k) of the Code which hold investments in non-deposit instruments; (b) deposits which have been pledged to secure, or as to which the owner is an obligor with regard to, any extension of credit by Seller or an affiliate of Seller other than a Loan, (c) in the event that the Loans are rejected by Purchaser pursuant to Section 1.08(b) hereof, deposits which have been pledged to secure any Loan, and (d) any deposits obtained directly or indirectly through a “deposit broker” (as that term is defined in Section 337.6(a)(5) of the Rules and Regulations of the FDIC, 12 CFR 337.6(a)(5)).

Fair Market Value shall mean, with regard to the Owned Real Estate and the Leasehold Estate, the price in terms of money which it will bring, free and clear of all indebtedness and, in the case of the Leasehold Estate, subject to all of the terms of the Lease creating such Leasehold Estate, if exposed to the open market, allowing a reasonable time to find a purchaser, who buys with the intention of using the Owned Real Estate or the Leasehold Estate for conducting the business of banking.

Federal Funds Rate shall mean the “near closing bid” federal funds rate published in the Wall Street Journal on the first business day following the Closing.

Knowledge shall mean, with regard to Article X hereof, the actual present knowledge as of the date hereof, without further investigation, of any Vice President in KeyCorp’s Corporate Real Estate Group and, with regard to Sections 3.01(j) and 5.01 hereof, the actual present knowledge as of the date hereof, without further investigation, of any officer that holds the title of Senior Vice President or above of Seller and has responsibility with respect to the operations conducted at the Branches.

Mediator shall mean the firm of Deloitte & Touche LLP.

Permitted Exceptions shall mean, with respect to the Owned Real Estate or the Leasehold Estate, (a) those standard printed exceptions appearing as Schedule B items in a standard American Land Title Association (“ALTA”) owner’s or leasehold title insurance policy, as the case may be, (provided, however, that if Purchaser elects to obtain a survey as to any of the Owned Real Estate or Leasehold Estate, the Permitted Exceptions for such Owned Real Estate or Leasehold Estate shall not include the standard exception for matters that would be disclosed by a survey, but shall include specific exceptions, if any, disclosed by such survey provided that such specific exceptions are otherwise included in the definition of Permitted Exceptions), (b) statutory liens for current real estate taxes or assessments, both general and special, not yet due, or if due not yet delinquent, or the validity of which is being contested in good faith by appropriate proceedings; (c) all zoning laws and rulings, easements, rights of way, and restrictions of record; (d) such other liens, imperfections in title, charges, easements, restrictions, and encumbrances (but in all cases excluding those which secure borrowed money) which individually and in the aggregate are not material in character, amount, or extent, or do not materially detract from the value of, or materially interfere with, the present use of, any Owned Real Estate or any Leasehold Estate subject thereto or affected thereby; (e) any exceptions to title arising from the action, inaction, or status of Purchaser; and (f) such other exceptions as are approved in writing by Purchaser.

Regulatory Approvals shall mean all approvals, permits, authorizations, waivers, or consents of governmental agencies or authorities necessary or appropriate to permit consummation of the transaction contemplated hereby.

BRANCH PURCHASE AND ASSUMPTION AGREEMENT

This Branch Purchase and Assumption Agreement (“Agreement”), dated as of April 10, 1997, is made by and between KeyBank National Association, a national banking association (“Seller”), and Lorain National Bank, a national banking association (“Purchaser”). Certain definitions used herein are set forth in the Index of Definitions of this Agreement.

In consideration of the mutual promises hereinafter contained and other good and valuable consideration, Seller and Purchaser hereby agree as follows:

ARTICLE I
The Transaction

1.01 The Transaction. Subject to the terms and conditions set forth in this Agreement, at the Closing, (a) Purchaser shall purchase the Assets and shall assume the Liabilities, and Seller shall assign, transfer, convey, and deliver to Purchaser, free and clear of all Encumbrances, all of Seller’s right, title and interest in and to such Assets and such Liabilities and (b) Purchaser shall assume and thereafter honor and fully and timely pay, perform and discharge all of Seller’s obligations and liabilities of every type and character relating to the Assets and Liabilities. Purchaser understands and agrees that it is purchasing only the Assets (and assuming only the Liabilities) specified in this Agreement and, except as may be expressly provided for in this Agreement, Purchaser has no interest in, right to, or obligations relating to any other business relationship which Seller may have with any customer of any of the Branches.

1.02 Assets and Liabilities Purchased and Assumed.

(a) Assets. For purposes of this Agreement, “Assets” shall mean:

(i) all real property owned by Seller on which Branches are located, including all of Seller’s rights in and to all improvements thereon (“Owned Real Estate”) and all leasehold estates held by Seller (“Leasehold Estate”) in and to any real estate on which any of the Branches is situated, including all of Seller’s rights in and to all improvements thereon (“Leased Real Estate”);

(ii) all furniture, fixtures and equipment that are located n or necessary for the conduct of business in the ordinary course at any Branch (including Automated Teller Machines (“ATMs”), if any, and branch teller and platform automation equipment, if any);

(iii) safe deposit agreements relating to safe deposit boxes located at the Branches;

(iv) all loans (exclusive of any reserve for possible loan losses) that are attributable to the Branches, including all loans made in the ordinary course of business consistent with Seller’s credit standards between the date of this Agreement and the Closing, including all documents executed or delivered in connection with any loan and any and all collateral relating to any such loan and all rights in relation thereto

attributable to the Branches at the Closing (the “Loans”) (unless the Loans are rejected by Purchaser pursuant to Section 1.08(b) hereof);

(v) all rights of Seller under any service or similar contracts in effect as of the Closing Date with non-affiliated third-party service providers which relate solely to the operations of the Branches to the extent such contracts are assignable;

(vi) all cash on hand (i.e., all petty cash, vault cash, teller cash, ATM cash, and prepaid postage) at the Branches as of the Closing; and

(vii) all prepaid expenses identified as an asset on the final closing statement.

(b)

Liabilities. For purposes of this Agreement, “Liabilities” shall mean all of Seller’s obligations and liabilities of every type and character relating to all deposit accounts, including accrued interest, which are reflected on the books of Seller as of the Closing and are attributable to the Branches, including, without limitation, all passbook accounts, statement savings accounts, checking, Money Market and NOW accounts, certificates of deposit, individual retirement accounts, simplified employee pension accounts, saving incentive match plan for employees accounts, Keogh accounts, and repurchase agreements except for the Excluded Deposits (the “Assumed Deposits”). Liabilities shall also include:

(i) all obligations due under any service or similar contracts, in effect at the Closing, relating to the operations of the Branches, to the extent such contracts are included in 1.02(a)(v);

(ii) all of Seller’s obligations and liabilities, arising from and after the Closing Date, to the extent attributable to the Assets and the Assumed Deposits; and

(iii) all accrued and unpaid expenses identified as a liability on the final closing statement.

1.03 Preliminary Closing Statement and Payment.

	(a)		Preliminary Closing Statement. Not less than five (5) days prior to the Closing Date, Seller shall deliver to Purchaser a proposed preliminary closing statement, in the form of Schedule B to this Agreement, completed as at a date mutually agreed to by the parties. The parties shall agree upon the preliminary closing statement before the Closing Date, and it shall be the basis of a preliminary payment to be made to Purchaser’s account, or to Seller’s account, as the case may be, on the Closing Date (the “Preliminary Payment”).

	(b)		Preliminary Payment. Subject to the terms and conditions hereof, at the Closing, Seller shall wire transfer to Purchaser immediately available funds equal to: (i) the sum of (A) the amount of the Assumed Deposits (including accrued and unpaid interest thereon) reflected on the preliminary closing statement and (B) the amount of all accrued and unpaid expenses reflected as a liability on the preliminary closing statement; less (ii) an amount equal to the sum of: (A) X.X% of the Assumed Deposits based on a 30-day average prior to Closing; (provided, however, that for purposes of this Section 1.03(b)(ii)(A), “Assumed Deposits” shall not be deemed to include (1) any public funds or (2) any amounts relating to repurchase agreements); (B) the amount of cash on hand at the Branches as of the Closing; the Agreed Value of all furniture, fixtures, and equipment constituting part of the Assets; (D) the Agreed Value of the Owned Real Estate and the Leased Real Estate; (E) the amount of all prepaid expenses of Seller as reflected as an asset on the preliminary closing statement; (F) the Net Book Value of all Loans, plus accrued and unpaid interest thereon as reflected on the preliminary closing statement; and (G) the amount of estimated sales taxes, if any, to be paid by Purchaser in connection with the transaction contemplated hereby.

	(c)		Purchaser Payment. In the event that the amount equal to subclause (b)(ii) above exceeds the amount equal to subclause (b)(i) above, the amount of such excess shall constitute an amount due from Purchaser to Seller and shall be paid to Seller at the Closing.

1.04 Final Closing Statement and Adjustment Payment. Not more

than fifteen (15) days after the Closing Date, Seller shall provide Purchaser with a proposed final closing statement, which shall be calculated as of the Closing Date and the parties shall promptly agree upon the final closing statement. The final closing statement shall be in a form consistent with the preliminary closing statement. On the first business day after Purchaser agrees to the final closing statement or Seller is notified of any determination as to the final closing statement under Section 1.05 below, Seller shall wire transfer to Purchaser (or Purchaser shall wire transfer to Seller, as the case may be) in immediately available funds an amount equal to the amount by which the final payment reflected on the final closing statement indicates an amount in excess of (or any amount less than) the Preliminary Payment paid at Closing (the “Adjustment Payment”), plus interest, at a rate per annum equal to the Federal Funds Rate.

1.05 Disputes and Mediation; Payment of Fees. If Purchaser disagrees with the final closing statement, then Purchaser shall contact Seller and Purchaser and Seller shall cooperate to resolve the matters in dispute. If the parties are unable to agree on a final closing statement, then Purchaser or Seller may submit the matter to the Mediator which shall determine all disputed portions of the final closing statement; provided, however, that if the fees of the Mediator as estimated by the Mediator would exceed 50% of the net amount in dispute, the parties agree that such firm will not be engaged by either party and that such net amount in dispute will be equally apportioned between Seller and Purchaser. The parties shall each pay one-half of the fees and expenses of the Mediator. The final closing statement, as agreed upon by the parties and/or determined under this subsection, shall be final and binding upon the parties.

1.06 Proration of Certain Expenses. All prepaid expenses and all accrued and unpaid expenses shall be prorated between Purchaser and Seller as of the Closing Date; provided, however, that (I) all property Taxes as to the Owned Real Estate shall be prorated on the basis of the most recently certified tax duplicate and rates; (ii) all real property taxes and other expenses or charges required to be paid by Seller as tenant

under any lease pursuant to which Seller leases any of the Leased Real Property (“Lease”) shall be prorated based upon amounts paid by Seller

during the current lease year as to any period that includes but extends after the Closing Date; (iii) all utility payments paid (excluding any such payment paid by Seller to a landlord, which shall be covered by clause (ii) hereof) shall be prorated on the basis of the best information available at the Closing Date. All security deposits under any Lease, together with any accrued but unpaid interest payable thereon, shall be credited to Seller. All prepaid expenses that are allocable to Purchaser hereunder shall appear as an asset on the preliminary or final closing statement. To the extent that expenses allocable to Seller hereunder have been accrued and not paid by Seller prior to the Closing Date, they shall appear as a liability on the preliminary or final closing statement. There shall be no post-closing adjustment for any of the foregoing.

1.07 Allocation and Reimbursement of Real Estate Expenses. All expenses attributable to the Owned Real Estate and the Leasehold Estate incurred in connection with the acquisition of the Branches by Purchaser shall be allocated to and solely borne by Purchaser except for standard title insurance commitment fees and title examination fees for the Owned Real Estate which shall be paid by Seller.

1.08 Loans.

	(a)		Loan Information. Prior to the date hereof, Seller provided to Purchaser certain information relating to the Loans to be transferred to Purchaser, which included, among other data, summary information relating to loan delinquencies.

	(b)		Opportunity to Review and Reject Loans. Following the date hereof, Purchaser shall be provided with the opportunity to conduct a limited due diligence review of the Loans for the purpose of determining whether Purchaser desires to purchase the Loans in their entirety. Purchaser shall complete such due diligence review within a period of fourteen (14) days after the date upon which Purchaser is first provided access to documentation relating to the Loans. Within seven (7) days following the end of the fourteen (14) day period referred to in the immediately preceding sentence, Purchaser shall notify Seller as to whether Purchaser shall accept or reject the Loans, provided however, that Purchaser shall only be permitted to accept or reject all of the Loans other than overdraft lines directly attributable to the Assumed Deposits. In the event that Purchaser notifies Seller that it intends to reject the Loans, the payment under Section 1.03(b) shall be calculated without giving effect to any amounts described in (F) thereunder.

(c)

Loan Documentation. Seller shall indemnify Purchaser for any and all losses which arise as a direct result of the failure of Seller to have delivered to Purchaser all necessary documentation with respect to any Loan, provided, however, that Seller shall not be obligated to indemnify Purchaser pursuant to this Section 1.08(c) in the event that Purchaser shall not have notified Seller of the missing documentation within sixty (60) days following the Closing. For purposes of this provision, a “loss” shall mean a loss of the principal balance of the affected Loan outstanding as of the Closing Date and any interest accrued thereon.

1.09 Successor Custodian. Effective at the Closing, Seller hereby appoints Purchaser as the successor custodian to Seller under the Liabilities consisting of individual retirement accounts, simplified employee pension accounts, saving incentive match plan for employee accounts, and Keogh accounts and Purchaser hereby accepts from Seller the appointment to serve in such capacity from and after the Closing Date.

ARTICLE II

Obligations of the Parties Prior to the Closing Date

2.01 Covenants of Seller. Seller hereby covenants to Purchaser that, from the date hereof until the Closing Date or by such earlier time as may be specified in this Agreement, it will do or cause the following to occur:

	(a)		Operation of Branches. Seller shall continue to operate and maintain the Branches in a manner consistent with its customary practices and in a condition substantially the same as exists on the date hereof (ordinary wear and tear and casualty excepted).

	(b)		Information Concerning Branches. Seller shall use its reasonable efforts to furnish Purchaser, its agents, or representatives reasonable access to, and permit Purchaser to make or cause to be made such reasonable investigation of, information and materials relating to the financial and physical condition of the Branches as Purchaser reasonably deems necessary or advisable; provided, further, that nothing in this Section 2.01(b) shall be deemed to require Seller to breach any obligation of confidentiality or to reveal any proprietary information, trade secrets, or marketing or strategic plans.

	(c)		Creation of Encumbrances. Seller shall not voluntarily create any Encumbrances affecting the Owned Real Estate.

	(d)		Insurance. Seller will maintain in effect until and including the Closing Date all casualty and public liability policies relating to the Branches and maintained by Seller on the date hereof or procure comparable replacement policies and maintain such replacement policies in effect until and including the Closing Date.

	(e)		Right to Intervene. In the event that any claim, protest, suit or other proceeding is instituted against Purchaser under this Agreement, Seller shall have the right, at its discretion and expense, to intervene in such litigation, and Purchaser hereby consents to such intervention.

	(f)		Retention of Certain Assets. Seller shall retain all Assets as to which it has received notification pursuant to Section 2.02(c) hereof and the Book Value of such Assets shall not be included in the calculation of the Preliminary Payment or the Adjustment Payment.

2.02 Covenants of Purchaser. Purchaser hereby covenants to Seller that, from the date hereof until the Closing Date or by such earlier time as may be specified in this Agreement, it will do or cause the following to occur:

(a)

Certain Applications. Not later than twenty-one (21) days after the date hereof, Purchaser shall prepare and submit for filing, at no expense to Seller, applications to all regulatory agencies required by Purchaser to obtain the Regulatory Approvals. Purchaser shall promptly deliver to Seller a copy of such applications and any supplement, amendment, or item of additional information in connection therewith. Purchaser shall also promptly deliver to Seller a copy of each material notice, order, opinion, approval or denial and other item of correspondence received by Purchaser from the regulatory agencies and shall keep Seller promptly informed of developments and progress with respect to such matters. Purchaser hereby

			represents that it knows of no reason why it should not obtain all Regulatory Approvals in a timely manner.

	(b)		Real Estate Lease Consents. In connection with the consent and release noted in Section 2.03 hereof, Purchaser shall provide to Seller within five (5) days after the date hereof current financial information concerning Purchaser for Seller’s transmittal to the landlord under each Lease and shall provide promptly to Seller any other information requested by such landlord.

	(c)		Notice Regarding Certain Assets. In connection with the branch teller and platform automation equipment described in Section 1.02(a)(ii) hereof, Purchaser shall notify Seller, in writing, within forty-five (45) days of the date hereof, of any such Assets that Purchaser shall not purchase.

2.03 Covenants of Both Parties. Seller hereby covenants to Purchaser, and Purchaser hereby covenants to Seller, that, from the date hereof until the Closing, such party shall cooperate fully in obtaining, and make all reasonable efforts to obtain, any third party consents which are required to consummate the transaction contemplated by this Agreement, including, without limitation, (a) an estoppel certificate of each landlord in the form attached hereto as Schedule G, if the landlord agrees to execute such estoppel certificate, (b) the written consent of each landlord under a Lease to the assignment and assumption by Purchaser of such Lease or, if the landlord does not so consent, and if such consent is necessary to validly effect such assignment or assumption or sublease, to a sublease of the premises demised by such Lease, and (c) in either case, the release of Seller from all obligations and liabilities under any such Lease from and after the Closing Date (provided, however, that this Section 2.03 shall not obligate Seller to make any payment or to execute any indemnification or guaranty or other similar instrument which would render Seller liable for any obligations, liabilities or duties of Purchaser arising out of such Lease from and after the Closing Date). Each of Seller and Purchaser also hereby covenant to the other that it shall cooperate fully in promptly selecting an Appraiser and shall make all reasonable efforts to obtain an Appraisal of the Owned Real Property and the Leasehold Estate within thirty (30) days of the date hereof.

2.04 Seller’s and Purchaser’s Rights and Obligations Regarding Title Matters.

	(a)		Title Commitments. Seller, at its sole expense, shall deliver to Purchaser not later than thirty (30) days after the date hereof, with respect to the Owned Real Estate, title commitments for issuance of ALTA Owner’s Policies of Title Insurance (collectively, the “Title Commitments” and individually, a

			Title Commitment”) issued not earlier than thirty (30) days prior to the execution of this Agreement and issued by a title insurance company authorized to do business in the state in which the Owned Real Estate is located designated by Seller (the “Title Company”).

	(b)		Surveys. For thirty (30) days from the date hereof, Purchaser shall have the right, but not the obligation, to obtain, at Purchaser’s sole cost and expense, (i) surveys as to any or all of the Owned Real Estate or the Leasehold Estate and (ii) title commitments for issuance of ALTA Leasehold Policies of Title Insurance as to the Leasehold Estate from the Title Company (“Leasehold Title Commitment”). Purchaser shall cause a true and complete copy of each survey to be promptly delivered to Seller and to the Title Company. Purchaser shall cause a true and complete copy of each Leasehold Title Commitment to be promptly delivered to Seller.

	(c)		Title Defects. (i) Ten (10) days after receipt by Purchaser of an original Title Commitment or any survey or Leasehold Title Commitment obtained pursuant to Section 2.04(b) hereof, Purchaser shall give Seller and the Title Company written notice of any defect(s) disclosed in such Title Commitment, survey or Leasehold Title Commitment that: (w) is (are) not included in the exceptions specifically identified on the Title Commitment or Leasehold Title Commitment; (x) is(are) not included in clauses (a)-(d) of the definition of Permitted Exceptions related to the applicable Owned Real Estate or Leased Real Estate; (y) that materially adversely affect(s) the business of the Branch situated upon such Owned Real Estate or Leased Real

			Estate; and (z) which Purchaser does not approve. Failure of Purchaser to provide such notice on a timely basis shall constitute a waiver by Purchaser of any matter(s) disclosed in such Title Commitment, survey or Leasehold Title Commitment and thereupon such matter(s) shall be deemed included in clause (b) of the definition of Permitted Exceptions set forth in this Agreement.

	(ii)		If the notice referred to in (i) above is timely given by Purchaser, Seller shall, within ten (10) days of such notice, notify Purchaser and the Title Company as to whether Seller shall cure or remove any defect(s). Following Seller’s notice to Purchaser and the Title Company that Seller elects not to cure any defect(s), Purchaser must elect, within five (5) days, as its sole remedy hereunder with respect to such defect(s), to terminate this Agreement as to the Assets and Liabilities attributable to the Branch situated upon the affected Owned Real Estate and/or Leased Real Estate. Purchaser’s failure to make such an election shall be deemed to be a waiver of such defect(s) and such defect(s) shall be included in the Permitted Exceptions and shown as Permitted Exceptions in the deed and the title policy relating to such Owned Real Estate or Leasehold Estate.

	(iii)		Seller shall cause the Title Company to update the Title Commitments and Purchaser may, at its sole cost and expense, cause the Title Company to update Leasehold Title Commitments, as of the business day prior to the Closing Date. In the event that the updated Title Commitment or Leasehold Title Commitment as to any Owned Real Estate or Leasehold Estate discloses any defect(s) not included in the original Title Commitment, survey or Leasehold Title Commitment, the procedure set forth in (ii) above shall apply.

ARTICLE III

Representations and Warranties

3.01 Representations and Warranties of Seller. Seller represents and warrants to Purchaser as follows:

	(a)		Corporate Organization and Authority. Seller is a national banking association duly organized, validly existing, and in good standing under the laws of the United States of America with corporate power to carry on its business as presently conducted at the Branches. Seller is an insured bank, as defined in the Federal Deposit Insurance Act and applicable regulations thereunder (“FDIA”). Seller is a member of the Bank Insurance Fund of the FDIC (“BIF”) and pays deposit insurance assessments to BIF and the Savings Association Insurance Fund. Seller is in compliance in all material respects with all applicable fair lending laws, rules and regulations, including without limitation the Community Reinvestment Act of 1977, as amended. Seller has all requisite corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transaction contemplated hereby, and this Agreement is a valid and binding obligation of Seller in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditor’s rights generally, whether applied at law or equity, and to general equity principals.

	(b)		Effective Agreement. Subject to the receipt of any and all Regulatory Approvals and required third party consents, the execution, delivery, and performance of this Agreement by Seller and the consummation of the transaction contemplated hereby, will not conflict with, result in the breach of, constitute a violation or default, result in the acceleration of payment or other obligations, or create an Encumbrance, under any of the provisions of the Charter or By-Laws of Seller, under any judgment, decree, or order, under any law, rule, or regulation of any government or agency thereof, or under any material contract or instrument to which Seller is subject, where such conflict, breach, violation, default, acceleration, or Encumbrance would have a material adverse effect on the business of any Branch or Seller’s ability to perform its obligations hereunder.

	(c)		Individual Retirement Accounts. The Individual Retirement Custodial Account Agreement (i.e. Internal Revenue Service Model Form 5305-A with certain supplementary provisions) used at the Branches materially meets the criteria for the establishment of an “individual retirement account” as specified in Section

			408(a) of the Code in all material respects.
	(d)		Simplified Employee Pension Accounts. The Simplified Employee Pension — Individual Retirement Account Agreement (i.e. Internal Revenue Service Model Form 5305-SEp with certain supplementary provisions) and the Salary Reduction and Other Elective Simplified Employee Pension — Individual Retirement Account Agreement (i.e. Internal Revenue Service Model Form 5305A-SEP with certain supplementary provisions) used at the Branches materially meets the criteria for the establishment of a “simplified employee pension” as specified in Section 408(k) of the Code in all material respects.

	(e)		Saving Incentive Match Plan for Employees Accounts. The Saving Incentive Match Plan for Employees of Small Employers Agreement (i.e. Internal Revenue Service Model Form 5305-SIMPLE with certain supplementary provisions) used at the Branches materially meets the criteria for the establishment of a “saving incentive match plan for employees” as specified in Section 408(p) of the Code in all material respects.

	(f)		Keogh Accounts. The custodial agreement for the retirement plan for self-employed individuals used at the Branches materially meets the criteria for the establishment of a “Keogh plan” as specified in Section 401(a) and Section 401(c) of the Code in all material respects.

	(g)		No Broker. No broker or finder, or other party or agent performing similar functions, has been retained by Seller or is entitled to be paid based upon any agreements, arrangements, or understandings made by Seller in connection with the transaction contemplated hereby, and no brokerage fee or other commission has been agreed to be paid by Seller on account of such transaction.

	(h)		Environmental. Seller makes the representations and warranties to Purchaser set forth in Section 10.01 hereof.

	(i)		Assets. The fixed Assets material to the operations of each of the Branches are in adequate working condition for the conduct of the business at each of the Branches currently conducted by Seller except for ordinary wear and tear.

	(j)		Deposits. All of the Assumed Deposits have been administered and, to Seller’s knowledge, originated, in material compliance with the documents governing the relevant type of deposit account and all applicable laws. The Assumed Deposits are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC up to the current applicable maximum limits, and no action is pending or, to Seller’s knowledge, threatened by the FDIC with respect to the termination of such insurance.

	(k)		Limitation of Warranties. Except as otherwise specifically provided for in this Agreement, Seller makes no representations or warranties whatsoever with respect to the Assets or the Liabilities, express or implied, including, without limitation, any warranties with respect to merchantability, fitness, title, enforceability, collectibility, documentation or freedom from liens or encumbrances (in whole or in part).

3.02 Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller as follows:

(a)

Corporate Organization, Authority and Compliance. Purchaser is a national bank duly organized, validly existing, and in good standing under the laws of the United States of America with corporate power to own its properties and to carry on its business as presently conducted, except where the failure of Purchaser to have such corporate power would not have a material adverse effect on the ability of Purchaser to perform its obligations hereunder. Purchaser is an insured bank, as defined in the FDIA. Purchaser has all requisite corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transaction contemplated hereby, and this Agreement is a valid and binding obligation of Purchaser in accordance with its terms subject, as to enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditor’s rights generally, whether applied at law or equity, and to general equity principals. Purchaser is in compliance with all applicable fair lending laws, rules and regulations including but not limited to the Community Reinvestment Act of 1977, as

			amended.
	(b)		Effective Agreement. Subject to the receipt of any and all Regulatory Approvals and required third party consents, the execution, delivery, and performance of this Agreement by Purchaser and the consummation of the transaction contemplated hereby, will not conflict with, result in the breach of, constitute a violation or default, result in the acceleration of payment or other obligations, or create an Encumbrance, under any of the provisions of the Articles of Association or By-Laws of Purchaser, under any judgment, decree, or order, under any law, rule, or regulation of any government or agency thereof, or under any material contract or instrument to which Purchaser is subject, where such conflict, breach, violation, default, acceleration, or lien would have a material adverse effect on Purchaser’s ability to perform its obligations hereunder.

	(c)		No Broker. No broker or finder, or other party or agent performing similar functions, except Austin Associates, Inc., has been retained by Purchaser or is entitled to be paid based upon any agreements, arrangements, or understandings made by Purchaser in connection with the transaction contemplated hereby, and no brokerage fee or other commission has been agreed to be paid by Purchaser on account of such transaction.

	(d)		Regulatory Matters. (i) Except as previously disclosed in writing to Seller, there are no pending, or, to Purchaser’s knowledge, threatened or contemplated, disputes or controversies (including any written order, decree, agreement or memorandum of understanding, or Commitment Letter or similar submission) with, to or between Purchaser and any federal, state or local governmental agency or authority that, individually or in the aggregate, would have a material adverse effect on Purchaser’s ability to perform any of its obligations hereunder.

(ii) Purchaser is, and on a pro forma basis giving effect to the transaction contemplated hereby will be, (A) at least “well capitalized”, as defined for purposes of the FDIA, and (B) in compliance with all capital requirements, standards and ratios required by each state or federal bank regulator with jurisdiction over Purchaser, including, without limitation, any such higher requirements, standard or ratio as shall apply to

institutions engaging in the acquisition of insured institution deposits, assets or branches, and no such regulator is likely to, or has indicated that it will, condition any of the Regulatory Approvals upon an increase in Purchaser’s capital or compliance with any capital requirements, standard or ratio.

(iii) Purchaser has no knowledge that it will be required to divest deposit liabilities, branches, loans or any business or line of business as a condition to the receipt of any of the Regulatory Approvals.

(iv) Each of the subsidiaries or affiliates of Purchaser that is an insured depository institution was rated “Outstanding” following its most recent Community Reinvestment Act examination by the regulatory agency responsible for its supervision. Purchaser has received no notice of and has no knowledge of any planned or threatened objection by any community group to the transactions contemplated hereby.

(e)

Financing Available. Purchaser’s ability to consummate the transactions contemplated by this Agreement is not contingent on raising any equity capital, obtaining specific financing thereof, obtaining the consent of any lender or any other matter.

3.03 Survivability; No Indemnification. The representations and warranties of Seller and Purchaser contained or referred to in this Agreement or in any certificate, schedule, or other instrument delivered or to be delivered pursuant to this Agreement shall not survive beyond the Closing and neither Seller nor Purchaser shall have any obligation whatsoever after the Closing to indemnify, defend, or hold the other harmless for any loss, cost, charge, liability or expense arising as a result of the inaccuracy or breach of any such representation or warranty. Nothing in this provision shall affect the rights and obligations of the parties provided for in Sections 1.08(c), 4.02(a), 6.03 and 10.02 hereof.

ARTICLE IV

Employee Benefits

4.01 List of Branch Employees; Handbook. Names of all employees (including full and part-time employees, employees on short term disability and employees on leave of absence and excluding employees on long-term disability) employed by the Seller and assigned to the Branches

as of the date hereof (the “Branch Employees”), and, as to each Branch Employee, such employee’s date of hire and current compensation are listed on attached Schedule C. At least ten days prior to the Closing Date, Seller shall update Schedule C to a date within 15 days prior to the Closing Date.

4.02 Actions to be Taken by Purchaser with Respect to Branch Employees. Purchaser covenants to Seller that it will do or cause the
following to occur:

	(a)		Offer of Employment. Seller shall make available and Purchaser shall hire, as of the Closing Date, all Branch Employees, at salaries, or at base wages, not less than the current salaries or base wages paid to such Branch Employees as of the Closing Date. Purchaser shall be responsible for all obligations (including any obligation to provide notices) or liabilities, if any, which may arise in connection with any Branch Employee under the Workers Adjustment and Retraining Notification Act (the “WARN Act”) and Purchaser shall indemnify Seller for any and all losses which Seller may incur under the WARN Act in connection with any Branch Employee due to actions taken by Purchaser.

	(b)		Employee Benefits. All Branch Employees shall be eligible to participate in Purchaser’s employee benefit plans and fringe benefit plans (including, without limitation, pension and profit sharing plans, retirement income and post retirement welfare benefits, health insurance benefits (medical and dental), disability, life and accident insurance, sickness benefit, vacation, employees’ loans, and banking privileges) on the same basis as such plans and benefits exist and are offered to employees of Purchaser with comparable positions with Purchaser. Purchaser shall credit such Branch Employees for their length of service with Seller, its predecessors, or its affiliates, for all purposes under each employee benefit and fringe benefit plan to be provided by Purchaser to such Branch Employees and for purposes of vesting and eligibility (but not for purposes of benefit accrual) under any pension benefit plan as defined in Section 3(2) of ERISA.

	(c)		Credited Sickness Days. If Purchaser offers a salary continuation or similar program for employees unable to work for medical reasons, the Branch Employees shall be credited under any program of Purchaser with at least the number of sickness

			and/or personal benefit days accrued under Seller’s program at the Closing Date. After the Closing Date, the Branch Employees shall accrue additional sickness and/or personal benefit days in accordance with the terms of Purchaser’s program.

	(d)		Pre-existing Condition. Purchaser agrees that any pre-existing condition clause in any of Purchaser’s health or disability insurance coverage shall not be applicable to the Branch Employees or their dependents.

	(e)		Severance Pay. Seller’s severance policy is attached hereto as Schedule D. Effective as of the Closing Date, Purchaser shall assume liability for all severance benefits payable to any Branch Employee who is terminated by Purchaser after the Closing Date. For a period of one (1) year following the Closing Date, Purchaser shall provide such benefit pursuant to individual separation pay agreements entered into with each Branch Employee on terms and conditions consistent in all respects with Seller’s severance policy (provided, however, that for purposes of determining whether the terms of Purchaser’s separation pay agreements are consistent with Seller’s severance policy (i) the second sentence of Section 2.11 of Seller’s severance policy shall be read exactly as such sentence is currently contained therein, except that for purposes of determining whether a position is comparable, the reference to a reduction in a Branch Employee’s Base Weekly Salary (as defined under Seller’s severance policy) shall be revised to require a 12% or greater reduction, as compared to 10% or greater reduction and (ii) references to certain types of benefits to be paid in addition to the separation pay benefit to be provided in accordance with the Separation Pay Schedule included in Section 3.3(c) shall refer to those benefits offered to current employees of the Purchaser), and Purchaser shall compute severance benefits by giving all Branch Employees full credit for all years of service with Seller, its affiliates, and predecessors, in accordance with Section 4.02(b). After the initial one-year period, Purchaser shall provide Branch Employees with severance benefits in accordance with Purchaser’s severance policy, if any, in accordance with their years of service as credited under this Agreement.

	(f)		Successor Employer. Purchaser agrees it will qualify as a successor employer of Branch Employees for withholding tax purposes.

	(g)		Payment of Claims. Purchaser assumes responsibility for (I) payment of any medical, dental, health and disability claims incurred by Branch Employees on or after the Closing Date and (ii) Continuation Coverage (as defined in Section 4.03(d) below) to any Branch Employee (and each Branch Employee’s qualified beneficiaries) whose qualifying event occurs on or after the Closing Date.

4.03 Actions to be Taken by Seller with Respect to Branch Employees. Seller covenants to Purchaser that it will do or cause the following to occur:

	(a)		Accrued Benefits. Seller agrees to remain responsible for the payment of all accrued benefits to such Branch Employees who are participants or retirees in accordance with the terms of Seller’s retirement income plans. Purchaser shall not at any time assume any liability for the benefits of any active or any terminated, vested, or retired participants whose benefit accrued prior to the Closing Date under Seller’s retirement income plans.

	(b)		Payment of Claims. Seller shall retain the responsibility for payment of all medical, dental, health and disability claims incurred by a Branch Employee prior to the Closing Date, and Purchaser shall not assume any liability with respect to such claims.

	(c)		Continuation Coverage. Seller shall be responsible for providing any Branch Employee whose “qualifying event,” within the meaning of Section 4980B(f) of the Code, occurs prior to the Closing Date (and such Branch Employee’s “qualified beneficiaries” within the meaning of Section 4980B(g) of the Code) with the continuation of group health coverage required by Section 4980B(f) of the Code (“Continuation Coverage”) under the terms of the health plan maintained by Seller.

	(d)		Retired or Terminated Branch Employees. Seller agrees that it shall retain, consistent with its normal employment practices, all liability and obligation, if any (including, without

limitation, the liability and obligation for all wages, salary, vacation pay and unemployment, medical, dental, health and disability benefits), for those former employees of the Branches who retired or terminated employment prior to the Closing Date, but shall in all other instances cease to have any liability for Branch Employees with regard to the foregoing provisions on or after the Closing Date, except as otherwise required by law.

4.04 Seller’s Pension and Savings Plan. On and after the Closing Date, Seller shall vest all of the Branch Employees in the KeyCorp Cash Balance Pension Plan (“Seller’s Pension Plan”) and the KeyCorp 401(K) Savings Plan (“Seller’s Savings Plan”).

ARTICLE V

Tax Matters

5.01 Deposit Accounts Documentation. To Seller’s Knowledge, with respect to the Assumed Deposits, Seller is in compliance with the law and IRS regulations relative to obtaining from depositors executed IRS Forms W-8 and W-9 or is back-up withholding on the applicable account.

5.02 Assistance and Cooperation; Tax Matters. After the Closing Date, each of Seller and Purchaser shall, with respect to the Assets or income therefrom, the Assumed Deposits or payments in respect thereof, or the operation of the Branches:

	(a)		Tax Information. Make available to the other and, subject to attorney-client privilege, to any taxing authority as reasonably requested all relevant information, records, and documents relating to taxes.

	(b)		Audits and Assessments. Provide timely notice to the other party in writing of any pending or proposed tax audits (with copies of all relevant correspondence received from any taxing authority in connection with any tax audit or information request) or assessments for taxable periods for which the other party may have a liability.

The party requesting assistance or cooperation shall bear the other party’s reasonable out-of-pocket expenses in complying with such request to the extent that those expenses are attributable to fees and other costs of unaffiliated third-party service providers.

ARTICLE VI

Conditions Precedent to Closing

6.01 Conditions to Both Parties’ Obligations. The obligations of each party to consummate the transaction contemplated hereby are subject to the satisfaction, or the waiver by such party to the extent permitted, of each of the following conditions at or prior to the Closing:

	(a)		Prior Regulatory Approval of the Transaction Contemplated Hereby. All filings and registrations with, and notifications to, all federal and state authorities required for consummation of the transaction contemplated hereby and Purchaser’s operation of the Branches shall have been made, all Regulatory Approvals shall have been received and shall be in full force and effect, and all applicable waiting periods shall have passed. A Regulatory Approval will be deemed to have been received, and the condition to closing set forth in this Section 6.01 shall be deemed to have been met notwithstanding the fact that such Regulatory Approval requires Purchaser to effect any divestiture of any of the Branches.

	(b)		Representations and Warranties. The representations and warranties of the other party set forth in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though all such representations and warranties had been made on and as of such time (unless a different date is specifically indicated in such representations and warranties), and each party shall have delivered to the other a certificate, dated as of the Closing Date, to the effect that this condition has been satisfied with respect to such party, provided, however, that the representation of Seller set forth in Section 3.01(i) hereof shall be deemed to be true and correct in accordance with this Section 6.01 unless Purchaser shall have notified Seller at least 10 days prior to the Closing Date of any potential breach of Section 3.01(i), or within twenty-four (24) hours of knowledge of any potential breach of Section 3.01(i) which occurs within the 10 days prior to the Closing Date, and Seller shall have had sufficient opportunity to correct such potential breach.

	(c)		Covenants. Each and all of the covenants and agreements of the other party to be performed or complied with at or prior to the Closing Date pursuant to this Agreement shall have been duly performed or complied with in all material respects by such party, or shall have been waived in accordance with the terms hereof, and such party shall have delivered a certificate, dated as of the Closing Date, to the effect that this condition has been satisfied with respect to such party; provided, however, that the covenant of Seller set forth in Section 2.01(a) hereof shall be deemed to have been duly performed and complied with in accordance with this Section 6.01(c) unless Purchaser shall have notified Seller at least 10 days prior to the Closing Date of any potential breach of Section 2.01(a), or within twenty-four (24) hours of knowledge of any potential breach of Section 2.01(a) which occurs within the 10 days prior to the Closing Date, and Seller shall have had sufficient opportunity to correct such potential breach.

	(d)		No Proceeding or Prohibition. At the time of the Closing, no court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced, or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect to restrain, enjoin, or prohibit consummation of the transaction contemplated hereby or which might result in rescission in connection with such transaction, and Purchaser shall have delivered to Seller a certificate, dated as of the Closing Date, to that effect.

6.02 Additional Condition to Purchaser’s Obligations. The Updated Title Commitments shall have been delivered to Purchaser in accordance with Section 2.04. Subject to the provisions of Section 2.04, the Title Company shall be ready and willing, upon the recording of the applicable deeds, to issue to Purchaser, at Purchaser’s sole cost and expense, an ALTA Owner’s Policy of Title Insurance as to each parcel of Owned Real Estate, showing as exceptions to title only the Permitted Exceptions.

6.03 Overriding Provisions Relating to the Leases. Notwithstanding anything to the contrary herein, if, by no later than five (5) days prior to the Closing Date, a landlord under a Lease shall not have consented to

the assignment to and assumption by Purchaser of that Lease or to a sublease by Seller to Purchaser of the Leased Real Estate demised by the Lease and such consent is required under the terms of the Lease, the Seller shall have the right, exercisable by written notice no later than the Closing Date, to terminate the Agreement: (a) as to the Leasehold Estate demised by such Lease and all furniture, fixtures and equipment located thereon; or (b) as to the Assets and Liabilities relating to the Branch situated upon such Leased Real Estate. Furthermore, and also notwithstanding anything to the contrary herein, if, by not later than five (5) days prior to the Closing Date, a landlord under a Lease shall not have agreed to the release of Seller from all obligations and liabilities under the Lease from and after the Closing Date, but either the landlord shall have consented to a sublease by Seller to Purchaser of the Leased Real Estate demised by the Lease (if the Lease requires such consent) or such a sublease does not require the landlord’s consent, then Seller and Purchaser agree to proceed with the transactions contemplated by this Agreement as to the Branch located at the Leased Real Estate demised by such Lease, except that Seller and Purchaser shall enter into a sublease agreement by which Seller shall sublease the Leased Real Estate and Purchaser shall agree to indemnify Seller for any loss, cost, charge or liability incurred by Seller as a result of the failure to obtain the landlord’s release. If the parties are to enter into a sublease, then Seller shall provide to Purchaser promptly after the lapse of such deadline a form of sublease which shall contain substantially the same terms and conditions as the corresponding Lease, with appropriate modifications to reflect the sublease nature.

ARTICLE VII

Closing

7.01 Closing and Closing Date. The transaction contemplated hereby shall be effective at a closing (the “Closing”) to be held in the offices of Seller, located at 127 Public Square, Cleveland, Ohio 44114, or via courier or facsimile transmission as Seller may designate. The Closing shall be effective at 11:59 p.m. on Friday, September 12, 1997, or such other date as Seller in its discretion may designate, which date shall be reasonably acceptable to Purchaser. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

7.02 Parties’ Actions at the Closing. At the Closing, Seller and Purchaser shall, except as otherwise provided in this Agreement, take such actions, including the execution and delivery of certain documentation, all as set forth on Schedule E, and including the filing or recording of any and all documents (including, without limitation, deeds) necessary in order to transfer legal and equitable title to the Owned Real Estate to Purchaser as of the Closing Date.

ARTICLE VIII

Certain Transitional Matters

Transitional Action by Purchaser and Seller. Purchaser and Seller shall cooperate in good faith and will use all reasonable efforts to comply with the various transitional matters set forth in Schedule F hereto.

ARTICLE IX

General Covenants

9.01 Information. Except as otherwise set forth in this Agreement, for a period of three (3) years following the Closing, Seller and Purchaser mutually agree, subject to any limitations imposed by law, to provide each other, upon written request, with reasonable access to, or copies of, information and records relating to the Branches, including, without limitation, Branch Employee and customer files which are in the possession or control of Purchaser or Seller reasonably necessary to permit Seller or Purchaser or any of their affiliates to comply with or contest any applicable legal, tax, banking, accounting, or regulatory policies or requirements, any legal or regulatory proceedings, or inquiries by customers or Branch Employees. The provisions of this Section 9.01 shall survive the Closing for a period of three (3) years and any claim for the breach of this Section 9.01 must be brought within such three (3) year period.

9.02 Confidentiality Obligations. From and after the date hereof, each party shall, and shall cause its affiliates to, treat all information received from the other party concerning the business, assets, operations, and financial condition of the other party as well as any other material which is included in the definition of “Evaluation Material” as such term is defined under the confidentiality agreement between Purchaser and Seller dated as of March 11, 1997, as Evaluation Material in accordance with the terms of such confidentiality agreement. From and after the Closing Date, Seller shall assign to Purchaser all of Seller’s rights under any confidentiality agreements executed by or on behalf of parties other than Purchaser.

9.03 Allocation of Consideration. Purchaser and Seller agree that the consideration payable hereunder at the Closing shall be allocated

among the Assets on the basis of an allocation to be mutually agreed upon by Purchaser and Seller within thirty (30) days after the Closing, and that is consistent with Section 1060 of the Code.

9.04 Confidential Information.

9.05 Further Assurances. From and after the date hereof, each party hereto agrees to execute and deliver such instruments and to take such other actions as the other party hereto may reasonably request or as may be reasonably necessary, including obtaining all required consents of third parties, in order to carry out and implement this Agreement. Purchaser shall use its best efforts to pursue all applications filed in connection with obtaining the Regulatory Approvals diligently and in good faith.

9.06 Operation of Branches. Not later than the Closing Date, Purchaser: (a) shall change the legal name of the Branches to a name that does not include the word Key, and (b) except for any documents or materials in possession of the customers of the Branches (including, but not limited to, deposit tickets and checks), shall not use and shall cause the Branches to cease using (i) any signage, stationery, advertising, documents, or printed or written materials that refer to such Branches by any name that includes the word Key and (ii) any logo, trademark or service mark or trade name registered in the name of, or otherwise owned by Seller or any of its affiliates, except as otherwise provided in this Agreement or permitted pursuant to any written agreement(s) between Purchaser and Seller or its affiliates.

9.07 Notices of Default. Each of Seller and Purchaser shall promptly give written notice to the other upon becoming aware of the impending or threatened occurrence of any event which could reasonably be expected to cause or constitute a breach of any of their respective representations, warranties, covenants or agreements contained in this Agreement.

9.08 Fire, Casualty and Takings. If any Owned Real Estate, Leasehold Estate or Leased Real Estate or any fixtures or leasehold improvements composing part thereof shall be damaged by fire or other casualty and such damage materially affects the operations of the Branch related thereto,

whether insured or uninsured, and shall not be substantially repaired or restored by the Closing Date, or if the land where any of the Branches is located or any building thereon or any part thereof shall be taken by condemnation or exercise of the power of eminent domain, or if proceedings therefor have commenced or been threatened, on or prior to the Closing Date and such taking materially affects or would materially affect the operations of the Branch related thereto, Purchaser shall have the right and option exercisable within 10 days of notification of such damage or taking to elect (i) to terminate this Agreement with respect to the affected Branch, and the purchase price shall be adjusted to reflect the decrease in the value of the assets and liabilities of the affected Branch assigned thereto pursuant to the terms hereof, or (ii) to cause Seller to assign to Purchaser as of the Closing Date all of Seller’s rights and claims against any third party by reason of such fire or other casualty, including without limitation, any insurance claims.

ARTICLE X

Environmental Matters

10.01 Environmental Representations and Warranties.

	(a)		Prior to the date hereof, Seller shall have provided to Purchaser Phase I audit reports, as of a date no earlier than January 1, 1994, undertaken by Seller with respect to the Owned Real Estate (the “Phase I Reports”). Except as set forth in the Phase I Reports, to the Knowledge of Seller, the Branches are in compliance with all environmental laws, rules and regulations of the United States of America and of states and localities in which the Branches are located, except for any such noncompliance which, individually or in the aggregate, has not had, and is not expected to have, to the Knowledge of Seller, a material adverse effect on the business of any Branch.

	(b)		Except as may be set forth in the Phase I Reports, to the Knowledge of Seller, Seller has no liability with respect to the Branches which, taken singularly or as a whole, if adversely determined, would have a material adverse effect on the business of any Branch (i) relating to the handling, storage, treatment,

use, disposal, discharge or release into the environment of any hazardous material or waste at, on or from the Owned Real Estate or the Leased Real Estate, (ii) for the release or emission of any hazardous material from, on, under, or within the Owned Real Estate or Leased Real Estate into the air, water, surface water, ground water, land surface, or subsurface strata, (iii) for the disposal of any hazardous material on the Owned Real Estate or Leased Real Estate or (iv) for the contamination of the Owned
Real Estate or Leased Real Estate with any hazardous material.

10.02 Environmental Investigation.

(a)

If any Phase I Report indicates the presence of any hazardous substance with respect to any Owned Real Estate, and such presence is a condition that requires remediation pursuant to appropriate governmental standards, then, at Purchaser’s request made in writing to Seller within ten (10) days after the date of this Agreement, and at Purchaser’s sole cost and expense, Seller shall arrange to cause a consultant approved by both Seller and Purchaser to conduct a Phase II environmental audit as to such hazardous substance and deliver to Seller and Purchaser the results of such audit within forty-five days after the request by Purchaser. If the Phase II audit report confirms that such presence requires remediation pursuant to appropriate governmental standards and if such presence, if not remediated, would materially adversely affect the business of the Branch situated upon the Owned Real Estate and Purchaser requests that Seller take remedial action with respect thereto, then Purchaser shall so notify Seller in writing promptly after receipt of the Phase II environmental audit report, whereupon Seller shall have the right to (i) terminate this Agreement as it relates to the Assets and Liabilities of the affected Branch, (ii) undertake remedial action as to such presence at its sole cost and expense so that no material continuing violation of any

			environmental law exists (provided, however, that the timing of any such remediation shall be coordinated with Purchaser to minimize any resulting business interruption), or (iii) agree to indemnify Purchaser for all actual costs and expenses incurred by Purchaser to remediate the Owned Real Estate as to such presence so that no material continuing violation of any environmental law exists.

	(b)		If Purchaser fails to request a Phase II environmental audit or to exercise its right to make a request that Seller remediate any Owned Real Estate in each case as and when required above, then Purchaser shall be bound to the terms of this Agreement without a right of termination except as provided in Article XI and without a further right to request or to require any Seller remediation or indemnification. Any termination by Seller under this Article X shall neither create nor result in any liability of the Seller to the Purchaser.

ARTICLE XI

Termination

11.01 Methods of Termination. This Agreement may be terminated in any of the following ways:

	(a)		By either Purchaser or Seller, in writing, if the Closing has not occurred on or before the earlier of the nine (9) month anniversary of this Agreement;

	(b)		At any time prior to the Closing Date by the mutual consent in writing of Purchaser and Seller;

	(c)		By Purchaser or Seller as to the Owned Real Estate and/or Leasehold Estate and all furniture, fixture and equipment located thereon, all of the Assets and Liabilities relating to the affected Branch, or as to the Agreement in its entirety, as provided, in each case, in Section 2.04(c), 6.03 or 10.02;

	(d)		By Purchaser in writing if and when, at any time prior to the Closing, any condition of its obligations hereunder set forth in Section 6.01 of this Agreement becomes incapable of being

			fulfilled and such condition has not been waived by Purchaser;
	(e)		By Seller in writing if and when, at any time prior to the Closing, any condition of its obligations hereunder set forth in Section 6.01 of this Agreement becomes incapable of being fulfilled and such condition has not been waived by Seller;

	(f)		At any time prior to the Closing Date by Purchaser or Seller in writing if the other continues to be in breach of any representation and warranty (as if such representation and warranty had been made on and as of the date of the notice of breach referred to below unless a different time is specified in any such representation and warranty), covenant, or agreement in any material respect and such breach has not been cured within twenty-five (25) days after the giving of notice to the breaching party of such breach; or

	(g)		By Purchaser or Seller in writing at any time after any applicable regulatory authority has denied approval of any application of Purchaser for approval of the transaction contemplated hereby.

11.02 Effect of Termination. Except as otherwise specifically provided in this Agreement, in the event of termination of this Agreement pursuant to this Article XI, neither Purchaser nor Seller nor their respective officers, directors, or agents shall have any liability or obligation to the other of any nature whatsoever except liabilities and obligations arising from Section 9.02 of this Agreement and liabilities and obligations arising from any material breach of any provision of this Agreement occurring prior to the termination hereof.

ARTICLE XII

Miscellaneous Provisions

12.01 Expenses. Except as otherwise specifically allocated herein, each of the parties hereto shall bear its own expenses, whether or not the
transaction contemplated hereby is consummated.

12.02 Transfer of Loans Without Recourse; Limitation on Warranties. Except as may be provided in Section 1.08, all Loans transferred to Purchaser pursuant to this Agreement shall be transferred without recourse and without any representations or warranties whatsoever (including, without limitation, any representations or warranties as to the enforceability or collectibility of any such Loans, the creditworthiness

of any obligors or guarantors thereunder, or the value or adequacy of such collateral). EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH RESPECT TO THE ASSETS OR THE LIABILITIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES WITH RESPECT TO MERCHANTABILITY,

FITNESS, TITLE, ENFORCEABILITY, COLLECTIBILITY, DOCUMENTATION OR FREEDOM FROM LIENS OR ENCUMBRANCES (IN WHOLE OR IN PART).

12.03 Amendment, Modifications and Waivers. The parties hereto, by mutual consent of their duly authorized officers, may amend, modify, and supplement this Agreement in such manner as may be agreed upon by them in writing. Each party hereto, by written instrument signed by an officer of such party, may extend the time for the performance of any of the obligations or other acts of the other party hereto and may waive, but only as affects the party signing such instrument: (a) any inaccuracies in the representations or warranties of the other party; (b) compliance with any of the covenants or agreements of the other party; (c) the performance by the other party of such of its obligations set out herein; and (d) satisfaction of any condition to the obligations of the waiving party pursuant to this Agreement.

12.04 Notices. Any notice or other communication required or permitted pursuant to this Agreement shall be effective only if it is in writing and delivered personally, by facsimile transmission, or by registered or certified return receipt mail, postage prepaid, addressed as follows:

If to Purchaser:

Lorain National Bank
457 Broadway
Lorain, OH 44050
Facsimile: 216-282-3242
Attention: James F. Kidd, President & CEO

with a copy to:

Thomas Blank, Esq.
Werner & Blank Co.
7205 W. Central Avenue
Toledo, OH 43617
Facsimile: 419-841-8380

If to Seller:

KeyCorp
127 Public Square
Cleveland, Ohio 44114
Facsimile: 216-689-3610
Attention: Matthew M. Nickels

with a copy to the following:

KeyCorp
127 Public Square
Cleveland, Ohio 44114
Facsimile: 216-689-4121
Attention: Daniel R. Stolzer, Esq.

or such other person or address as any such party may designate by notice to the other parties, and shall be deemed to have been given as of the date received.

12.05 Parties in Interest; Assignment. This Agreement is binding upon and is for the benefit of the parties hereto and their respective successors, legal representatives, and assigns, and no person, including a Branch Employee, who is not a party hereto (or a successor or assignee of such party) shall have any rights or benefits under this Agreement, either as a third party beneficiary or otherwise. This Agreement cannot be assigned except by a written agreement executed by the parties hereto or their respective successors and assigns. Notwithstanding the foregoing, Seller acknowledges that Purchaser may intend to arrange for resales of certain of the Branches simultaneously with the Closing; provided, however, that no third party beneficiary relationship or any contractual relationship between Seller and any other third party shall be deemed to exist or to be created hereunder by virtue of the resale of any of the Branches by Purchaser hereunder.

12.06 Press Releases. Seller and Purchaser shall mutually agree as to the form, timing and substance of any press release of any matters relating to this Agreement; provided, however, that nothing in this Section 12.06 shall be deemed to prohibit any party hereto from making any press release which its legal counsel deems necessary in order to fulfill such party’s disclosure obligations imposed by law.

12.07 Entire Agreement. This Agreement supersedes any and all oral or written agreements and understandings heretofore made relating to the subject matter hereof and contains the entire agreement of the parties relating to the subject matter hereof. All Schedules to this Agreement are incorporated into this Agreement by reference and made a part hereof.

12.08 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio. If any part of this Agreement is declared illegal by a court of competent jurisdiction, the remaining parts shall remain in full force and effect.

12.09 Counterparts. This Agreement and any Schedule hereto may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officer whose signature appears below as of the date first above written.


PURCHASER:		SELLER:

Lorain National Bank		KeyBank National Association

By: /s/ James F. Kidd		By: /s/ Matthew M. Nickels

ATTEST: /s/ Gregory D. Friedman TITLE: President & CEO		ATTEST: /s/ Kathryn L. Hale TITLE: Vice President

SCHEDULES

BRANCH PURCHASE AND ASSUMPTION AGREEMENT


Schedule A Branches to be Purchased			S-2
Schedule B Form of Preliminary Closing Statement			S-3
Schedule C Employee List			S-4
Schedule D Severance Plan			S-5
Schedule E Actions to be Taken At Closing			S-6
Attachment 1 - Instrument of Assumption			S-7
Attachment 2 - Bill of Sale and Receipt			S-8
Attachment 3 - Limited Warranty Deed for Ohio			S-9
Attachment 4 - Assignment and Assumption of Lease			S-12
Schedule F Transitional Matters			S-14
Schedule G Landlord Estoppel Certificate			S-18
Schedule H (“Confidential Information”)			S-21

NOTE: Schedules to Branch Purchase and Assumption Agreement are not included as part of this filing.

AMENDMENT NO. 1

BRANCH PURCHASE AND ASSUMPTION AGREEMENT

This Amendment No. 1 (this “Amendment”) dated as of September 9, 1997, is entered into by and between KeyBank National Association, a national banking association (the “Seller”) and Lorain National Bank, a national banking association (the “Purchaser”).

SECTION 1. BRANCH PURCHASE AND ASSUMPTION AGREEMENT

Reference is made to the Branch Purchase and Assumption Agreement dated as of April 10, 1997 (the “Agreement”) regarding Purchaser’s purchase of certain assets and assumption of certain liabilities of three (3) branches from Seller. Unless otherwise changed in this Amendment, terms used herein, which are defined in the Agreement, are used herein with the meanings therein described to them. The Agreement as amended by this Amendment is and shall continue to be in full force and effect and shall not be affected by this Amendment except and only to the extent specified herein.

The Agreement provided that the Closing of the transaction would be effective at 11:59 p.m. on Friday, September 12, 1997. The primary purpose of this Amendment is to modify the Agreement to reflect that the transaction will close on Friday, September 12, 1997, but will have an Effective Time (as that term is defined herein) as of 12:01 a.m. Monday, September 15, 1997. This Amendment also removes the requirement that Purchaser obtain new telephone numbers for the Branches in Purchaser’s name.

SECTION 2. AMENDMENTS TO THE AGREEMENT

2.1. Amendments to Article I; The Transaction. Article I of the Agreement shall be and hereby is amended as follows:

2.1.1. Section 1.01 is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.2. Section 1.02(a)(iv) is amended, such that each reference to the term “Closing” is deleted and in place thereof, in each instance, is inserted the term “Effective Time”.

2.1.3. Section 1.02(a)(v) is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.4. Section 1.02(a)(vi) is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.5. Section 1.02(b) is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.6. Section 1.02(b)(i) is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.7. Section 1.02(b)(ii) is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.8. Section 1.03(b) is amended and restated as follows:

Preliminary Payment. Subject to the terms and conditions hereof, by no later than 12:00 p.m. on the Closing Date, Seller shall wire transfer to Purchaser immediately available funds equal to: (i) the sum of (A) the amount of the Assumed Deposits (including accrued and unpaid interest thereon) reflected on the preliminary closing statement; (B) the amount of all accrued and unpaid expenses reflected as a liability on the preliminary closing statement; and (C) the aggregate of all prepaid safe deposit rental payments prorated to the Effective Time; less (ii) an amount equal to the sum of: (A) X.X% of the Assumed Deposits based upon an estimated 30-day average prior to the Effective Time; (provided, however, that for purposes of this Section 1.03(b)(ii)(A), “Assumed Deposits” shall not be deemed to include (1) any public funds or (2) any amounts relating to repurchase agreements); (B) the amount of cash on hand at the Branches as reflected on the preliminary closing statement; (C) the Agreed Value of all furniture, fixtures, and equipment constituting part of the Assets; (D) the Agreed Value of the Owned Real Estate and the Leased Real Estate; (E) the amount of all prepaid expenses of Seller as reflected as an asset on the preliminary closing statement; (F) the Net Book Value of all Loans, plus accrued and unpaid interest thereon as reflected on the preliminary closing statement; and (G) the

amount of estimated sales taxes, if any, to be paid by Purchaser in connection with the transaction contemplated hereby.

2.1.9. Section 1.04 is amended, such that the reference to the phrase “at Closing” in the last sentence of this Section 1.04 is deleted and in place thereof is inserted the phrase “on the Closing Date or at the Closing, as the case may be”.

2.1.10. Section 1.08(c) is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Closing Date”; and Section 1.08(c) is further amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.1.11. Section 1.09 is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Effective Time”.

2.2. Amendments to Article II; Obligations of the Parties Prior to the Closing Date. Article II of the Agreement shall be and hereby is amended as follows:

2.2.1. Section 2.01(d) is amended and restated in its entirety as follows:

(d) Insurance. Seller will maintain in effect until the Effective Time all casualty and public liability policies relating to the Branches and maintained by Seller on the date hereof or procure comparable replacement policies and maintain such replacement policies in effect until the Effective Time.

2.2.2. Section 2.02 is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Closing”.

2.3. Amendments to Article III; Representations and Warranties. Article III of the Agreement shall be and hereby is amended as follows:

2.3.1. Section 3.03 is amended, such that each reference to the term “Closing” is deleted and in place thereof, in each instance, is inserted the term “Closing Date”.

2.4. Amendments to Article IV; Employee Benefits. Article IV of the

Agreement shall be and hereby is amended as follows:

2.4.1. Section 4.02(c) is amended, such that each reference to the term “Closing Date” is deleted and in place thereof, in each instance, is inserted the term “Effective Time”.

2.4.2. The second sentence of Section 4.02(e) is amended and restated in its entirety as follows:

Effective as of the Closing Date, Purchaser shall assume liability for all severance benefits payable to any Branch Employee who is terminated by Purchaser on or after the Closing Date.

2.4.3. Section 4.04 is amended, such that the initial phrase “On and after the Closing Date” is deleted and in place thereof is inserted the phrase “Effective upon the Closing Date”.

2.5 Amendments to Article VI; Conditions Precedent to Closing. Article VI of the Agreement shall be and hereby is amended as follows:

2.5.1. Section 6.01(b) is amended, such that the first and third references to the term “Closing Date” are deleted and in place thereof, in each instance, is inserted the term “Closing”.

2.5.2. Section 6.01(c) is amended, such that the first, third, and fourth references to the term “Closing Date” are deleted and in place thereof, in each instance, is inserted the term “Closing”.

2.5.3. Section 6.03 is amended, such that each reference to the term “Closing Date” in the first sentence of this Section 6.03 is deleted and in place thereof, in each instance, is inserted the term “Closing”; and Section 6.03 is further amended, such that the first reference to the term “Closing Date” in the second sentence of this Section 6.03 is deleted and in place thereof is inserted the term “Closing”.

2.6. Amendments to Article VII; Closing. Article VII of the Agreement shall be and hereby is amended as follows:

2.6.1. Section 7.01 is amended and restated in its entirety to read as follows:

7.01 Closing, Closing Date and Effective Time. The Transaction

contemplated hereby shall occur at a closing (the “Closing”) to be held in the offices of Seller, located at 127 Public Square, Cleveland, Ohio 44114, or via courier or facsimile transmission as Seller may designate, on Friday, September 12, 1997, or such other date as Seller in its discretion may designate, which date shall be reasonably acceptable to Purchaser. The “Closing Date” shall be Monday, September 15, 1997. The “Effective Time” of this Agreement for purposes of making calculations and for other purposes specifically referred to in this Agreement shall be as of 12:01 a.m. on Monday, September 15, 1997. In addition, the Closing shall be deemed to have been consummated and final as of the Effective Time. All actions taken and documents delivered at the Closing will be deemed to have been taken and executed simultaneously, and no action will be deemed taken nor any document deemed delivered until all have been taken and delivered. Both parties acknowledge that time is of the essence with respect to consummating the transactions contemplated hereby.

2.6.2. Section 7.03 is added to Article VII as follows:

7.03 Recorded Instruments. If any instrument of transfer contemplated herein shall be filed or recorded in any public record before the Closing Date and thereafter the transaction is not consummated, then at the request of Seller, Purchaser will deliver (or execute and deliver) such instruments and take such other action as Seller shall reasonably request to revoke such purported transfer and to record any additional transfers as are necessary to record property in the name of the Seller.

2.7. Amendments to Article IX; General Covenants. Article IX of the Agreement shall be and hereby is amended as follows:

2.7.1. Section 9.03 is amended, such that the first reference to the phrase “at the Closing” is deleted and in place thereof is inserted the phrase “on the Closing Date or at the Closing, as the case may be”; and Section 9.03 is further amended, such that the second reference to the term “Closing” is deleted and in place thereof is inserted the phrase “Closing Date or the Closing,

respectively,”.

2.7.2. Section 9.06 is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.8. Amendments to Article XI; Termination. Article XI of the Agreement shall be and hereby is amended as follows:

2.8.1. Section 11.01(a) is amended, such that the phrase “the earlier of” is deleted.

2.8.2. Section 11.01(d) is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Closing Date”.

2.8.3. Section 11.01(e) is amended, such that the reference to the term “Closing” is deleted and in place thereof is inserted the term “Closing Date”.

2.9. Amendments to Schedule E. Schedule E to the Agreement shall be and hereby is amended as follows:

2.9.1. The paragraph entitled “Delivery of Documentation” set forth under the Section “Seller’s Actions at the Closing” is amended and restated as follows:

Delivery of Documentation. Execute, acknowledge, and/or deliver to Purchaser, dated as of the Closing Date, the certificates of Seller contemplated by Section 6.01, the Bill of Sale and Receipt in the form of Attachment 2, Limited Warranty Deed in the form of Attachment 3 for the Owned Real Estate upon which each Branch is situated dated as of the Closing, the Assignment and Assumption of Lease in the form of Attachment 4 for the Leased Real Estate upon which each Branch is situated, all other documents required to be delivered to Purchaser by Seller at the Closing pursuant to the terms of this Agreement, and any other documents which Purchaser has identified to Seller at a reasonable time prior to the Closing that are necessary or reasonably advisable to consummate the transaction contemplated by the Agreement.

2.9.2. The paragraph entitled “Delivery of Funds” set forth under the Section “Seller’s Actions at the Closing” is amended and

restated as follows:

Delivery of Funds. Deliver to Purchaser any funds required to be paid by Seller to Purchaser no later than 12:00 p.m. on the Closing Date pursuant to the terms of this Agreement.

2.9.3. Attachment 1: Instrument of Assumption, paragraph (b) is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.10. Amendments to Schedule F; Transitional Matters. Schedule F to the Agreement shall be and hereby is amended as follows:

2.10.1. Schedule F, paragraph (a) under the heading “Transitional Actions by Purchaser” is amended, such that the first sentence is restated as follows: “From and after the Effective Time, Purchaser shall:(i). . .”

2.10.2. Schedule F, paragraph (b) under the heading “Transitional Actions by Purchaser” is amended such that the reference to the term “Closing Date” in the first sentence is deleted and in place thereof is inserted the term “Effective Time”.

2.10.3. Schedule F, paragraph (c) under the heading “Transitional Actions by Purchaser” is amended, such that the second reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.10.4. Schedule F, paragraph (d) under the heading “Transitional Actions by Purchaser” is amended, such that each reference to the term “Closing Date” is deleted and in place thereof, in each instance, is inserted the term “Effective Time”.

2.10.5. Schedule F, paragraph (e) under the heading “Transitional Actions by Purchaser” is amended, such that each reference to the term “Closing Date” is deleted and in place thereof, in each instance, is inserted the term “Effective Time”.

2.10.6. Schedule F, paragraph (g) under the heading “Transitional Actions by Purchaser” is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.10.7. Schedule F, paragraph (h) under the heading

“Transitional Actions by Purchaser” is deleted.

2.10.8. Schedule F, paragraph (i) under the heading “Transitional Actions by Purchaser” is amended, such that the second sentence is restated as follows: “Purchaser shall notify affected customers to destroy the old ATM/Debit cards and shall notify customers of standard withdrawal limits beginning on the date of the Closing.

2.10.9. Schedule F, the second paragraph of paragraph (a)

under the heading “Transitional Actions by Seller” is amended, such that the phrase “As early as practicable after the Closing Date” is deleted and in place thereof is inserted the phrase “No later than the Closing Date”.

2.10.10. Schedule F, paragraph (f) under the heading “Transitional Actions by Seller” is amended, such that the reference to the term “Closing Date” is deleted and in place thereof is inserted the term “Effective Time”.

2.10.11. Schedule F, paragraph (g) under the heading “Transitional Actions by Seller” is amended such that the phrase “on the Closing Date” is deleted and in place thereof is inserted the phrase “on the date of the Closing”.

2.10.12. Schedule F, under the heading “Transitional Actions by Seller” is amended, such that a new paragraph (h) is inserted to read as follows:

(h) Operation of the Branches. During the weekend immediately preceding the Closing Date, Seller shall not open the Branches for the conduct of business.

2.10.13. Schedule F, paragraph (b) under the heading “Transitional Action by Both Parties” is amended, such that the reference to the term “Closing Date” in the first sentence is deleted and in place thereof is inserted the term “Effective Time”.

2.10.14. Schedule F, paragraph (e) under the heading “Transitional Action by Both Parties” is amended, such that each reference to the term “Closing Date” in the last sentence is deleted and in place thereof, in each instance, is inserted the term “Effective Time”.

2.10.15. Schedule F, paragraph (f) under the heading

“Transitional Action by Both Parties” is amended, such that each reference to the term “Closing Date” is deleted and in place thereof, in each instance, is inserted the term “Effective Time”.

SECTION 3. MISCELLANEOUS

3.1 Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be an original, by all of which shall constitute one and the same agreement.

3.2 Headings. The section headings set forth in this Amendment are for convenience only and shall not affect the construction hereof.

3.3 Entire Agreement. The Agreement as amended by this Amendment is and shall continue to be in full force and effect and shall not be affected by this Amendment except and only to the extent specified herein. The Agreement as amended by this Amendment contains the entire agreement and understanding of the parties and supersedes all prior agreements and understandings between the parties, both written and oral, with respect to its subject matter.

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed as a relevant instrument by their duly authorized officer as of the day and year first written above.


		LORAIN NATIONAL BANK

		By: /s/ James F. Kidd
		Title: President & CEO

		KEYBANK NATIONAL ASSOCIATION

		By: /s/ Matthen M. Nickels
		Title: Senior Vice President

EX-10.T 10 l17869aexv10wt.htm EX-10(T) SUPPLEMENTAL RETIREMENT AGREEMENT EX-10(T)

Exhibit 10(t)

SUPPLEMENTAL RETIREMENT AGREEMENT

FOR JAMES F. KIDD

THIS AGREEMENT, made and entered into this 30th day of July, 1996, by
and between LORAIN NATIONAL BANK (hereinafter referred to as the “Bank”), a national banking association organized and existing under the laws of the United States, whose principal place of business is Lorain, Ohio, and JAMES F. KIDD (hereinafter referred to as the “Executive”).

WHEREAS, the Executive has performed his duties in a capable and efficient manner, resulting in substantial growth and progress to the Bank; and

WHEREAS, the Bank desires to retain the services of the Executive, and realizes that if the Executive were to leave the Bank it could suffer a substantial financial loss; and

WHEREAS, the Executive is willing to continue in the employ of the Bank if the Bank will agree to pay certain benefits in accordance with the provisions and conditions hereinafter set forth; and

WHEREAS, it is understood and agreed that this Agreement is to be effective as of June 4, 1996; and

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Employment of the Executive

2. Compensation

The Executive shall be compensated for the performance of his duties as provided for in the above referred to Employment Agreement.

3. Supplemental Retirement Benefit

If the Executive’s employment with the Bank should cease for any reason other than discharge for cause (as hereinafter defined) or a retirement prior to April 1, 2000, the Executive or his beneficiary, as the case may be, shall be entitled to receive the Supplemental Retirement Benefit or a form thereof.

(a) Normal Retirement

pension benefits and social security benefits would equal seventy percent (70%) of the Executive’s Lorain National Bank compensation for the full calendar year of employment preceding Executive’s retirement as reflected on the Executive’s W-2 Federal Income Tax Statement for such year and payable each year for a ten (10) year period commencing one (1) month after Executive’s retirement date. The Supplemental Retirement Benefit shall be paid annually or ratably in twelve (12) equal monthly installments each year during the ten (10) year period as the Executive or his beneficiary may elect.

(b) Early Retirement

In the event the Executive retires prior to April 1, 2003, the Executive and/or his beneficiary shall be entitled to receive an applicable percentage of the aforementioned Supplemental Retirement Benefit. The applicable percentage for the corresponding early retirement ages are as follows:


Early
Retirement		Applicable
Ages		Percentage
57-61		0%
62		25% of the full benefit (70%)
63		50% of the full benefit (70%)
64		75% of the full benefit (70%)

The corresponding benefits will be paid on a per year basis payable over a ten (10) year period.

If the Executive should become disabled while employed by the Bank and prior to reaching age sixty-five (65), the Executive will be eligible to receive his Supplemental Retirement Benefit commencing at age 65, as if he had retired on or after April 1, 2003.

(d) Death Benefit

In the event the Executive should die after having established eligibility for benefits (based on meeting either the early or normal

retirement age requirements) set forth under this Agreement, any amounts due or remaining to be paid shall be paid to such beneficiary or beneficiaries as the Executive may have designated by filing with the Bank a notice in writing in a form acceptable to the Bank. In the absence of any such designation, such unpaid amounts shall be paid to the Executive’s surviving spouse, or, if the Executive should die without a spouse surviving, to the Executive’s estate.

(e) Discharge Without Cause

If the Executive is discharged without cause, the Executive shall be entitled to receive the Supplemental Retirement Benefit equal to the corresponding amount as if he had retired on or after April 1, 2003. Supplemental retirement benefit payments shall commence to be paid to Executive at such time as Executive elects to begin receiving pension benefits and shall be based upon Executive’s compensation for the last full calendar year of employment preceding Executive’s discharge as reflected on Executive’s W-2 Federal Income Tax Statement for such year.

Executive shall be under no obligation to elect to receive Social Security benefits at any specific time during the Agreement term. For purposes of this Agreement, Executive’s pension benefit offset shall be calculated as though payable as a single life annuity for Executive’s life expectancy.

For purposes of this Agreement, the term “discharge for cause” shall mean a termination of the Executive’s employment by reason of his commission of any material act of dishonesty during his employment, or breach of the terms of his Employment Agreement, which, in the good faith opinion of the Board of Directors of the Bank, adversely affects the interests of the Bank or his conviction by a court of last resort of a felony involving moral turpitude committed during his employment.

For the purposes of this Agreement, the term “permanent disability” shall mean physical or mental impairment which prevents the Executive from engaging in further employment by the Bank as a senior executive on a full time basis and which, on the basis of medical evidence satisfactory to the Board of Directors, is expected to continue for a period of six (6) months. It is intended that the events which shall give rise to an entitlement on the part of the Executive or his beneficiary to receive the Supplemental Retirement Benefit or a form thereof shall include:

(i) The normal retirement of the Executive on or after April 1, 2003.

(ii) The early retirement of the Executive on or after April 1, 2000.

(iii) The permanent disability of the Executive.

(iv) The death of the Executive after reaching early retirement age.

(v) Discharge of the Executive without cause.

4. Non-alienation of Benefits

The right of the Executive, or any other person, to the payment of benefits under this Agreement shall not be assigned, transferred, pledged or encumbered, any attempt to do so shall be void.

5. Executive’s Rights Under This Agreement to be Those of an Unsecured Creditor of the Bank

The rights of the Executive under this Agreement, and of any beneficiary of the Executive, shall be solely those of an unsecured creditor of the Bank. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind or a fiduciary relationship between the Bank and the Executive or his beneficiaries. Any funds, insurance contracts or other assets of the Bank, whether designated by the Bank to provide the benefits contemplated herein or
not, shall at all times continue to be a part of the general funds of the Bank and no person other than the Bank shall, by virtue of this Agreement, have any interest in such funds or assets.

6. General Provisions

This Agreement shall be binding upon and inure to the benefit of the Bank, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives.

This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio.

IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto set his hand as of the date first above written.

IN THE PRESENCE OF:



	BANK
	LORAIN NATIONAL BANK:

/s/ Paulette Mager	BY:	/s/ Thomas P. Ryan

/s/ Denise DeVito		Executive Vice President


	EXECUTIVE

/s/ Paulette Mager	/s/ James F. Kidd

/s/ Denise DeVito	James F. Kidd

EX-10.U 11 l17869aexv10wu.htm EX-10(U) SUPPLEMENTAL RETIREMENT AGREEMENT EX-10(U)

Exhibit 10(u)

SUPPLEMENTAL RETIREMENT AGREEMENT

FOR THOMAS P. RYAN

THIS AGREEMENT, made and entered into this 30th day of July, 1996, by
and between LORAIN NATIONAL BANK (hereinafter referred to as the “Bank”), a national banking association organized and existing under the laws of the United States, whose principal place of business is Lorain, Ohio, and THOMAS P. RYAN (hereinafter referred to as the “Executive”).

WHEREAS, the Executive has performed his duties in a capable and efficient manner, resulting in substantial growth and progress to the Bank; and

WHEREAS, the Bank desires to retain the services of the Executive, and realizes that if the Executive were to leave the Bank it could suffer a substantial financial loss; and

WHEREAS, the Executive is willing to continue in the employ of the Bank if the Bank will agree to pay certain benefits in accordance with the provisions and conditions hereinafter set forth; and

WHEREAS, it is understood and agreed that this Agreement is to be effective as of June 4, 1996; and

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Employment of the Executive

2. Compensation

The Executive shall be compensated for the performance of his duties as provided for in the above referred to Employment Agreement.

3. Supplemental Retirement Benefit

(a) Normal Retirement

If the Executive remains in the continuous employ of the Bank and retires from active employment with the Bank on or after April 1, 2003, the Executive and/or his beneficiary will be entitled to receive a Supplemental Retirement Benefit which when added to the Executive’s pension benefits and social security benefits would equal seventy percent (70%) of the Executive’s Lorain National Bank compensation for the full calendar year of employment preceding Executive’s retirement as reflected on the Executive’s W-2 Federal Income Tax Statement for such year and payable each year for a ten (10) year period commencing one (1) month after Executive’s retirement date. The Supplemental Retirement Benefit shall be paid annually or ratably in twelve (12) equal monthly installments each year during the ten (10) year period as the Executive or his beneficiary may elect.

(b) Early Retirement


Early
Retirement		Applicable
Ages		Percentage
57-61		0%
62		25% of the full benefit (70%)
63		50% of the full benefit (70%)
64		75% of the full benefit (70%)

The corresponding benefits will be paid on a per year basis payable over a ten (10) year period.

(d) Death Benefit

In the event the Executive should die after having established eligibility for benefits (based on meeting either the early or normal

(e) Discharge Without Cause

(i) The normal retirement of the Executive on or after April 1, 2003.

(ii) The early retirement of the Executive on or after April 1, 2000.

(iii) The permanent disability of the Executive.

(iv) The death of the Executive after reaching early retirement age.

(v) Discharge of the Executive without cause.

4. Non-alienation of Benefits

The right of the Executive, or any other person, to the payment of benefits under this Agreement shall not be assigned, transferred, pledged or encumbered, any attempt to do so shall be void.

5. Executive’s Rights Under This Agreement to be Those of an Unsecured Creditor of the Bank

The rights of the Executive under this Agreement, and of any beneficiary of the Executive, shall be solely those of an unsecured creditor of the Bank. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind or a fiduciary relationship between the Bank and the Executive or his beneficiaries. Any funds, insurance contracts or other assets of the Bank, whether designated by the Bank to provide the benefits contemplated herein or
not, shall at all times continue to be a part of the general funds of the Bank and no person other than the Bank shall, by virtue of this Agreement, have any interest in such funds or assets.

6. General Provisions

This Agreement shall be binding upon and inure to the benefit of the Bank, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives.

This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio.

IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto set his hand as of the date first above written.

IN THE PRESENCE OF:



	BANK
	LORAIN NATIONAL BANK:

/s/ Paulette Mager	BY:	/s/ J. F. Kidd

/s/ Denise DeVito		President


	EXECUTIVE

/s/ Paulette Mager	/s/ Thomas P. Ryan

/s/ Denise DeVito	Thomas P. Ryan

EX-10.V 12 l17869aexv10wv.htm EX-10(V) SUPPLEMENTAL RETIREMENT AGREEMENT EX-10(V)

Exhibit 10(l)

SUPPLEMENTAL RETIREMENT AGREEMENT

FOR GREGORY D. FRIEDMAN

THIS AGREEMENT, made and entered into this 30th day of July, 1996, by and between LORAIN NATIONAL BANK (hereinafter referred to as the “Bank”), a national banking association organized and existing under the laws of the United States, whose principal place of business is Lorain, Ohio, and GREGORY D. FRIEDMAN (hereinafter referred to as the “Executive”).

WHEREAS, the Executive has performed his duties in a capable and efficient manner, resulting in substantial growth and progress to the Bank; and

WHEREAS, the Bank desires to retain the services of the Executive, and realizes that if the Executive were to leave the Bank it could suffer a substantial financial loss; and

WHEREAS, the Executive is willing to continue in the employ of the Bank if the Bank will agree to pay certain benefits in accordance with the provisions and conditions hereinafter set forth; and

WHEREAS, it is understood and agreed that this Agreement is to be effective as of June 4, 1996; and

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Employment of the Executive

2. Compensation

The Executive shall be compensated for the performance of his duties as provided for in the above referred to Employment Agreement.

3. Supplemental Retirement Benefit

(a) Normal Retirement

(b) Early Retirement


Early
Retirement		Applicable
Ages		Percentage
57-61		0%
62		25% of the full benefit (70%)
63		50% of the full benefit (70%)
64		75% of the full benefit (70%)

The corresponding benefits will be paid on a per year basis payable over a ten (10) year period.

(d) Death Benefit

In the event the Executive should die after having established eligibility for benefits (based on meeting either the early or normal

(e) Discharge Without Cause

(i) The normal retirement of the Executive on or after April 1, 2003.

(ii) The early retirement of the Executive on or after April 1, 2000.

(iii) The permanent disability of the Executive.

(iv) The death of the Executive after reaching early retirement age.

(v) Discharge of the Executive without cause.

4. Non-alienation of Benefits

The right of the Executive, or any other person, to the payment of benefits under this Agreement shall not be assigned, transferred, pledged or encumbered, any attempt to do so shall be void.

5. Executive’s Rights Under This Agreement to be Those of an Unsecured Creditor of the Bank

The rights of the Executive under this Agreement, and of any beneficiary of the Executive, shall be solely those of an unsecured creditor of the Bank. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind or a fiduciary relationship between the Bank and the Executive or his beneficiaries. Any funds, insurance contracts or other assets of the Bank, whether designated by the Bank to provide the benefits contemplated herein or
not, shall at all times continue to be a part of the general funds of the Bank and no person other than the Bank shall, by virtue of this Agreement, have any interest in such funds or assets.

6. General Provisions

This Agreement shall be binding upon and inure to the benefit of the Bank, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives.

This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio.

IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its duly authorized officer, and the Executive has hereunto set his hand as of the date first above written.

IN THE PRESENCE OF:



	BANK
	LORAIN NATIONAL BANK:

/s/ Paulette Mager	BY:	/s/ J. F. Kidd

/s/ Denise DeVito		President


	EXECUTIVE

/s/ Paulette Mager	/s/ Gregory D. Friedman

/s/ Denise DeVito	Gregory D. Friedman

EX-10.W 13 l17869aexv10ww.htm EX-10(W) AGREEMENT IN FILING FEDERAL INCOME TAX EX-10(W)

Exhibit 10(w)

AGREEMENT TO JOIN IN THE FILING OF

CONSOLIDATED FEDERAL INCOME TAX RETURNS

This agreement (the “Agreement”) is made and entered into this 27 day of February, 2001, between LNB Bancorp, Inc. (the “Holding Company”), and The Lorain National Bank and Charleston Insurance Agency, Inc. (the “Subsidiaries”).

WITNESSETH:

WHEREAS, the Holding Company is the owner of 80% or more of the outstanding shares of stock of these Subsidiaries and may, therefore, include the income and expense of the Subsidiaries in the Holding Company’s consolidated Federal income tax returns; and

WHEREAS, the parties desire to set forth their agreement as to the filing of such returns and the payment of the related consolidated Federal income tax liability;

NOW, THEREFORE, in consideration of the initial agreements herein set forth, the parties hereto do hereby agree as follows:

1. Filing and Preparation of Future Returns. The Subsidiaries agree to consent to joining with the Holding Company and its consolidated subsidiaries in the filing of consolidated Federal income tax returns for the taxable year ending December 31, 2001 and each taxable year thereafter in accordance with applicable income tax laws and regulations. The Holding Company agrees that it will prepare and file in a timely manner all Federal and other income tax returns required to be filed on behalf of the Holding Company and its consolidated subsidiaries, including the Subsidiaries, and will pay the taxes shown to be due thereon.

2. Estimated Payments. For the taxable year ending December 31, 2001 and each taxable year thereafter, the parties shall cause to be prepared, on the Subsidiaries’ tax basis of accounting, a computation of the minimum estimated quarterly income tax payments which would be required to be paid by the Subsidiaries if it were to report its income and expenses to the Internal Revenue Service as a separate entity and avoid the imposition of an addition to its tax for underpayment of estimated income tax payments. The Subsidiary shall pay to the Holding Company an amount equal to each such estimated income tax payment on the date on which the Subsidiaries would have been required to make such estimated income tax payment if it were reporting to the Internal Revenue Service as a separate entity. Such payments shall be made to the Holding Company irrespective of whether or not the Holding Company shall have any liability for estimated income tax payments with respect to any

such period.

Year End Taxes

	a.		For the taxable year ending December 31, 2001 and every taxable year thereafter, the parties shall cause to be prepared, on the Subsidiaries’ tax basis of accounting, a computation of the Federal income tax liability for such year of the Subsidiaries as if the Subsidiaries were reporting its income and expenses to the Internal Revenue Service as a separate entity.

	b.		The Subsidiaries shall pay to the Holding Company an amount equal to the income tax liability computed under paragraph 3(a) above, reduced by the amount of any credits attributable to the assets or operations of the Subsidiaries and further reduced by the amount of any estimated tax payments made to the Holding Company under the provisions of paragraph 2 above.

	c.		In the event the computation of the Subsidiaries’ income tax liability under paragraph 3(a) above shall reflect that the Subsidiaries incurred a loss for any year, and that the Subsidiaries would have been due a Federal income tax refund as a result of certain loss carry-back provisions of the Internal Revenue Code, then the Holding Company shall pay to the Subsidiaries an amount equal to such hypothetical income tax refund plus the amount of any estimated tax payments for such year made by the Subsidiaries to the Holding Company; provided, however, in no event shall the Holding Company be required to make any payment hereunder in excess of the aggregate of all payments made by the Subsidiaries to the Holding Company under paragraphs 2 and 3(a) hereof.

	d.		Payments required under paragraph 3(b) or paragraph 3(c) above shall be made on the date on which the Subsidiaries would have been required to make a final income tax payment with respect to such year on the assumption that the Subsidiaries would have had income tax liability for such year.

Other Income Taxes. In the event there shall be imposed on the Subsidiaries any state or local tax based on net income to which the principles of consolidated income taxation such as those presently in effect under Federal income tax rules may be applied and practical, the Subsidiary and the Holding Company agree that the above agreements shall also be applicable with respect to such state or local income taxes.

5. Deferred Taxes. The Subsidiaries will not transfer to the Holding Company it’s deferred tax liabilities along with the cash or earning assets to pay these liabilities, prior to the reversal of the timing differences generating the deferrals.

6. Termination. This Agreement shall continue in effect until terminated by mutual agreement of the parties and supersedes any and all prior agreements, written or oral, concerning the subject matter thereof.

7. Amendment. This Agreement is intended to comply with all rules and regulations pertaining to Financial Holding Companies and related Subsidiaries and in the event the Federal Reserve Board or other regulatory agency shall promulgate rules and regulations that affect this Agreement, then this Agreement shall automatically be amended to conform to such rules and regulations and such amendments shall be submitted to the respective boards for ratification.

IN WITNESS WHEREOF, we have executed this Agreement this 27th day of February 2001.


		FOR: LNB BANCORP, INC.

		BY:		/s/ Gary C. Smith

				Gary C. Smith
				President and
				Chief Executive Officer

		FOR: THE LORAIN NATIONAL BANK

		BY:		/s/ Thomas P. Ryan

				Thomas P. Ryan
				Executive Vice President

		FOR: CHARLESTON INSURANCE AGENCY, INC.

		BY:		/s/ Thomas P. Ryan

				Thomas P. Ryan
				President and
				Chief Executive Officer

EX-21.1 14 l17869aexv21w1.htm EX-21.1 SUBSIDIARIES EX-21.1

Exhibit 21.1

Subsidiaries of LNB Bancorp, Inc.
December 31, 2005


		Jurisdiction of
Entity Name and Location		Incorporation
A.	Bank and Bank-owned Subsidiaries of the Issuer

	The Lorain National Bank	Ohio
	457 Broadway
	Lorain, Ohio 44052

	North Coast Community Development Corporation	Ohio
	457 Broadway
	Lorain, Ohio 44052

	LNB Mortgage, LLC	Ohio
	457 Broadway
	Lorain, Ohio 44052

B.	Financial Services Subsidiaries of the Issuer

	Charleston Insurance Agency, Inc.	Ohio
	457 Broadway
	Lorain, Ohio 44052

	Charleston Title Agency, LLC	Ohio
	457 Broadway
	Lorain, Ohio 44052
	(LNB Bancorp, Inc. owns 49% of Charleston
	Title Agency, LLC.)

EX-23.1 15 l17869aexv23w1.htm EXHIBIT 23.1 CONSENT OF KPMG Exhibit 23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

LNB Bancorp, Inc.:

We consent to the incorporation by reference in the registration statements No. 33-64034 No. 333-125288, No. 333-115385, and No. 333-53210 on Form S-8 and No. 333-43441 and No. 333-58414 on Form S-3 of LNB Bancorp, Inc. of our reports dated March 13, 2006, with respect to the consolidated balance sheets of LNB Bancorp, Inc. and subsidiaries as of December 31, 2005 and 2004, 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, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of LNB Bancorp, Inc.

Cleveland, Ohio

March 13, 2006

EX-31.1 16 l17869aexv31w1.htm EXHIBIT 31.1 CERTIFICATION OF CEO Exhibit 31.1

Exhibit 31.1

Chief Executive Officer Rule 13a-14(a)/ 15d-14(a) Certification

I, Daniel E. Klimas, President and Chief Executive Officer of LNB Bancorp, Inc. (the “registrant”) 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	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 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.


		/s/ Daniel E. Klimas



	Daniel E. Klimas,
	President and Chief Executive Officer

Date: March 13, 2006

79 EX-31.2 17 l17869aexv31w2.htm EXHIBIT 31.2 CERTIFICATION OF CFO Exhibit 31.2

Exhibit 31.2

Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification

I, Terry M. White, Chief Financial Officer of LNB Bancorp, Inc. (the “registrant”) certify that:

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


	(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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(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


	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.


	/s/ Terry M. White

	Terry M. White
	Chief Financial Officer

Date: March 13, 2006

80 EX-32.1 18 l17869aexv32w1.htm EXHIBIT 32.1 CERTIFICATION OF CEO Exhibit 32.1

Exhibit 32.1

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 on Form 10-K of LNB Bancorp, Inc. (the “Corporation”) for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel E. Klimas, President and Chief Executive Officer of the Corporation, 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 Corporation.


	/s/ Daniel E. Klimas

	Daniel E. Klimas
	President and Chief Executive Officer

March 13, 2006

81 EX-32.2 19 l17869aexv32w2.htm EXHIBIT 32.2 CERTIFICATION OF CFO Exhibit 32.2

Exhibit 32.2

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 on Form 10-K of LNB Bancorp, Inc. (the “Corporation”) for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry M. White, Chief Financial Officer of the Corporation, 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 Corporation.


	/s/ Terry M. White

	Terry M. White
	Chief Financial Officer

March 13, 2006

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