EX-99 4 l20980aexv99.txt EX-99 FINANCIAL REPORT Exhibit 99 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN ---------- FINANCIAL REPORT DECEMBER 31, 2005 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
CONTENTS ---------- REPORT LETTERS 1 STATEMENT OF ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS 3 STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS 4 NOTES TO FINANCIAL STATEMENTS 5-8 SCHEDULE OF ASSETS HELD AT END OF YEAR Schedule 1 SCHEDULE OF REPORTABLE TRANSACTIONS Schedule 2
THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN Report of Independent Registered Public Accounting Firm To the Plan Administrator The Lorain National Bank Employee Stock Ownership Plan We have audited the accompanying statement of assets available for distribution to participants of The Lorain National Bank Employee Stock Ownership Plan (the "Plan") as of December 31, 2005 and related statement of changes in assets available for distribution to participants for the year then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our 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 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for distribution to participants of the Plan as of December 31, 2005 and the changes in those assets for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held at end of year as of December 31, 2005 and schedule of reportable transactions for the year ended December 31, 2005 are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Plante & Moran, PLLC Cleveland, Ohio June 12, 2006 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Plan Administrator The Lorain National Bank Sponsor of The Lorain National Bank Employee Stock Ownership Plan: We have audited the accompanying statement of assets available for distribution to participants of The Lorain National Bank Employee Stock Ownership Plan (Plan) as of December 31, 2004, and the related statement of changes in assets available for distribution to participants for the year then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets available for distribution to participants of the Plan as of December 31, 2004, and the changes in those assets for the year then ended in conformity with U.S. generally accepted accounting principles. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2004, and Schedule H, Line 4j - Schedule of Reportable Transactions for the year ended December 31, 2004 are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG LLP June 24, 2005 2 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN STATEMENT OF ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS DECEMBER 31, 2005
December 31 ----------------------- 2005 2004 ---------- ---------- ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS Short-term cash investments $ 77 $ 41,382 Investments - At fair value (Notes 3 and 6) - Common stock - LNB Bancorp, Inc. 3,562,432 4,479,603 ---------- ---------- Total investments 3,562,509 4,520,985 Receivables - Dividends and interest 35,873 40,911 ---------- ---------- ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS $3,598,382 $4,561,896 ========== ==========
See Notes to Financial Statements. 3 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS YEAR ENDED DECEMBER 31, 2005
Year Ended December 31 ----------------------- 2005 2004 ---------- ---------- ADDITIONS Investment income: Dividends $ 152,651 $ 167,860 Net realized and unrealized depreciation in fair value of investments - Common stock (Note 3) (515,331) (36,152) ---------- ---------- Total investment income (loss) (362,680) 131,708 ---------- ---------- DEDUCTIONS - Distributions to participants 600,834 999,105 ---------- ---------- DECREASE IN ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS (963,514) (867,397) ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS - December 31, 2004 4,561,896 5,429,293 ---------- ---------- ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS - December 31, 2005 $3,598,382 $4,561,896 ========== ==========
See Notes to Financial Statements. 4 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 1 - DESCRIPTION OF PLAN The following description of The Lorain National Bank Employee Stock Ownership Plan (the "Plan") provides only general information. Participants should refer to the plan agreement for a more complete description of the Plan's provisions. GENERAL - The Plan is a defined contribution plan sponsored by The Lorain National Bank (the "Bank"), a wholly owned subsidiary of LNB Bancorp, Inc. (the "Bancorp"), covering substantially all employees of the Bank and related Bancorp affiliates for which the Bank acts as common paymaster. An employee is eligible to participate in the Plan after the attainment of age 21 and completion of one year of service, as defined in the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Under the terms of the Plan, the Investment and Trust Services Division of the Bank acts as trustee for the Plan and, as such, manages a trust fund, which includes all of the Plan's assets. The trustee has been granted discretionary authority concerning purchases and sales of investments in the trust fund made from employer contributions. BANK CONTRIBUTIONS - The amount of the contribution is determined by the Bank's board of directors in its absolute discretion. The Bank is not required to make a contribution in any specific year. Contributions are allocated to participants' accounts in the proportion each participant's annual compensation bears to the total annual compensation of all participants for that plan year. There were no discretionary contributions made to the Plan during 2005 and 2004. PARTICIPANT CONTRIBUTIONS - The Plan does not permit participant contributions. DIVIDEND REINVESTMENT - All dividends received on common stock investments are reinvested in additional shares of common stock. VESTING - Each participant vests in the bank contribution after five years of service. Forfeitures of nonvested employer contributions are made available first to reinstate previously forfeited account balances of former participants who are reemployed by the plan sponsor within one year. The remaining forfeitures, if any, shall be allocated among the participants' accounts in the proportion each participant's annual compensation bears to the total annual compensation of all participants for that plan year. At December 31, 2005 and 2004 there were $4,009 and $685 of forfeitures, respectively, which were reallocated within the Plan. 5 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 1 - DESCRIPTION OF PLAN (CONTINUED) DISTRIBUTION UPON TERMINATION OF EMPLOYMENT - A participant whose employment terminates by reason of retirement on their early retirement date or on their normal retirement date, receives their vested benefits. The participant may elect distribution of their vested benefits either in a single distribution or in annual, semiannual, quarterly, or monthly installments of substantially equal amounts for not more than five years. A participant whose employment is terminated for any reason other than those designated above may receive a single distribution of their vested benefits. PLAN TERMINATION - Although it has not expressed any intention to do so, the Bank has the right to terminate the Plan subject to the provisions set forth in ERISA. In the event of plan termination, participants become 100 percent vested and the assets of the Plan will be allocated as prescribed by ERISA and its related regulations. PLAN ADMINISTRATOR - The plan administrator is president and chief executive officer of the Bank. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION - The accompanying financial statements of the Plan have been prepared under the accrual method of accounting. INVESTMENTS - The fair value of investments and changes therein are determined through the use of current quoted market values. Purchases and sales are recorded on a trade date basis. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires plan management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates. PAYMENT OF BENEFITS - Benefit payments to participants are recorded when paid. 6 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 3 - INVESTMENTS The following table presents the fair value of the Plan's investments at December 31, 2005 and 2004.
2005 2004 ---------------------- --------------------- Number Number of Shares of Shares or Units Fair Value or Units Fair Value --------- ---------- --------- ---------- Common stock - LNB Bancorp, Inc. 198,464 $3,562,432 222,644 $4,479,603 Money Market - Treasury Trust Fund 77 77 41,382 41,382 ---------- ---------- $3,562,509 $4,520,985 ========== ==========
During the years ended December 31, 2005 and 2004, the Plan's investments (including investments bought, sold, and held during the year) depreciated in value by $515,331 and $36,152, respectively. NOTE 4 - ADMINISTRATIVE EXPENSES The administrative expenses of the Plan are paid by the Bank. NOTE 5 - FEDERAL INCOME TAXES The Internal Revenue Service issued its latest determination letter on July 2, 2002, which stated that the Plan and its underlying trust, as designed, qualify under the applicable provisions of the Internal Revenue Code. In the opinion of the plan administrator, the Plan, and its underlying trust have operated within the terms of the Plan and remain qualified under the applicable provisions of the Internal Revenue Code. As long as the Plan continues to be qualified under present federal income tax laws and regulations, participants will not be taxed on Bank contributions or on investment earnings on such contributions at the time such contributions and investment earnings are received by the trustee, but may be subject to tax thereon at such time as they receive distributions under the Plan. 7 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 6 - PARTY-IN-INTEREST TRANSACTIONS The following is a summary of transactions in common stock of LNB Bancorp, Inc., 100 percent owner of the Bank, during the years ended December 31, 2005 and 2004:
Number of Shares Fair Value --------- ---------- Balance at December 31, 2003 264,175 $5,362,753 Purchases 8,535 174,711 Sales and Distributions (50,066) (958,332) Net depreciation -- (99,529) ------- ---------- Balance at December 31, 2004 222,644 4,479,603 Purchases 8,575 156,649 Sales and Distributions (32,755) (558,489) Net depreciation -- (515,331) ------- ---------- Balance at December 31, 2005 198,464 $3,562,432 ======= ==========
NOTE 7 - ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS The following is a summary of the assets available for distribution to participants as of December 31, 2005 and 2004:
2005 2004 ---------- ---------- Assets payable to terminated participants $ 850,278 $ 43,610 Assets available for continuing participants 2,748,104 4,518,286 ---------- ---------- Total $3,598,382 $4,561,896 ========== ==========
8 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN SCHEDULE OF ASSETS HELD AT END OF YEAR FORM 5500, SCHEDULE H, ITEM 4I EIN 34-0869480, PLAN NO. 002 DECEMBER 31, 2005
(a)(b) (c) Identity of Issuer, Description of Investment, Including (e) Borrower, Lessor, or Maturity Date, Rate of Interest, (d) Current Similar Party Collateral, Par, or Maturity Value Cost Value --------------------- ------------------------------------ ---------- ---------- LNB Bancorp, Inc.* Common stock - 198,464 shares $2,563,211 $3,562,432 Blackrock Treasury Trust Fund 77 77 ---------- ---------- Total investments $2,563,288 $3,562,509 ========== ==========
* Party-in-interest Schedule 1 Page 1 THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN SCHEDULE OF REPORTABLE TRANSACTIONS FORM 5500, SCHEDULE H, ITEM 4I EIN 34-0869480, PLAN 003 YEAR ENDED DECEMBER 31, 2005
(b) (h) Description of Current Asset (Including (f) Value of Interest Rate (c) (d) (e) Expense (g) Asset on (i) (a) and Maturity Purchase Selling Lease Incurred with Cost of Transaction Realized Net Identity of Party Involved in Case of a Loan) Price Price Rental Transaction Asset Date Gain (Loss) -------------------------- -------------------- -------- -------- ------ ------------- -------- ----------- ------------ A series of transactions (Category (iii)) that in the aggregate amount to more than 5 percent of the beginning value of plan assets: LNB Bancorp, Inc.* LNB Bancorp, Inc. common stock: 4 purchases $156,649 $ -- $-- $-- $156,649 $156,649 $ -- 12 sales 189,314 252,755 -- -- 189,314 252,755 63,441 8 distributions in kind 232,252 305,734 -- -- 232,252 305,734 73,482 Blackrock Treasury Trust Fund: 23 purchases 252,380 -- -- -- 252,380 252,380 -- 14 sales 293,685 293,685 -- -- 293,685 293,685 --
* Party-in-interest Schedule 2 Page 1