UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission file number: 0-13203

LNB Bancorp, Inc.

(Exact name of the registrant as specified on 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)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     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, and (2) has been subject to such filing requirements for the past 90 days. YES þ      NO 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

     The number of common shares of the registrant outstanding on April 30, 2007 was 6,443,673.

LNB Bancorp, Inc.
Table of Contents

 EX-31.1

 EX-31.2

 EX-32.1

 EX-32.2

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Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

	March 31, 2007			December 31, 2006
	(unaudited)
	(Dollars in thousands except share amounts)
ASSETS
Cash and due from banks	$	22,785		$	29,122
Federal funds sold and short-term investments		4,000			—
Securities:
Trading securities		48,615			—
Available for sale, at fair value		110,493			155,810
Federal Home Loan Bank and Federal Reserve Bank Stock		3,248			3,248
Total securities		162,356			159,058
Loans:
Loans held for sale, at lower of cost or fair value		5,981			—
Portfolio loans		621,940			628,333
Allowance for loan losses		(7,258	)		(7,300	)
Net loans		620,663			621,033
Bank premises and equipment, net		12,769			12,599
Other real estate owned		1,073			1,289
Bank owned life insurance		14,922			14,755
Goodwill and intangible assets, net		3,268			3,157
Accrued interest receivable		4,169			3,939
Other assets		6,836			6,146
Total Assets	$	852,841		$	851,098
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Demand and other noninterest-bearing	$	78,361		$	91,216
Savings, money market and interest-bearing demand		289,432			278,401
Certificates of deposit		354,799			347,644
Total deposits		722,592			717,261
Short-term borrowings		21,054			22,163
Federal Home Loan Bank advances		32,083			35,086
Accrued interest payable		3,821			3,698
Accrued taxes, expenses and other liabilities		4,158			4,193
Total Liabilities		783,708			782,401
Shareholders’ Equity
Common stock, par value $1 per share, authorized 15,000,000 shares, issued 6,771,867 shares at March 31, 2007 and December 31, 2006		6,772			6,772
Additional paid-in capital		26,393			26,382
Retained earnings		42,915			43,728
Accumulated other comprehensive loss		(855	)		(2,093	)
Treasury shares at cost, 328,194 shares at March 31, 2007 and December 31, 2006		(6,092	)		(6,092	)
Total Shareholders’ Equity		69,133			68,697
Total Liabilities and Shareholders’ Equity	$	852,841		$	851,098

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Income (unaudited)

	Three Months Ended March 31,
	2007			2006
	(Dollars in thousands except share and per share amounts)
Interest Income
Loans	$	11,088		$	10,078
Securities:
U.S. Government agencies and corporations		1,564			1,339
State and political subdivisions		135			103
Other debt and equity securities		55			52
Federal funds sold and short-term investments		30			36
Total interest income		12,872			11,608
Interest Expense
Deposits:
Certificates of deposit, $100 and over		2,167			1,370
Other deposits		3,314			2,434
Federal Home Loan Bank advances		326			400
Short-term borrowings		236			201
Total interest expense		6,043			4,405
Net Interest Income		6,829			7,203
Provision for Loan Losses		383			150
Net interest income after provision for loan losses		6,446			7,053
Noninterest Income
Investment and trust services		522			509
Deposit service charges		1,082			968
Other service charges and fees		506			451
Income from bank owned life insurance		167			145
Other income		67			46
Total fees and other income		2,344			2,119
Loss on loans HFS		(33	)		—
Gain on trading securities		473			—
Gains on sale of loans		184			—
Gains on sale of other assets, net		21			2
Total noninterest income		2,989			2,121
Noninterest Expense
Salaries and employee benefits		3,823			3,578
Furniture and equipment		707			737
Net occupancy		555			478
Outside services		355			419
Marketing and public relations		262			391
Supplies, postage and freight		310			298
Telecommunications		188			199
Ohio Franchise tax		215			232
Electronic banking expenses		189			145
Loan and collection expense		94			87
Other expense		660			645
Total noninterest expense		7,358			7,209
Income before income tax expense		2,077			1,965
Income tax expense		542			517
Net Income	$	1,535		$	1,448
Net Income Per Common Share
Basic	$	0.24		$	0.22
Diluted		0.24			0.22
Dividends declared		0.18			0.18
Average Common Shares Outstanding
Basic		6,443,673			6,504,981
Diluted		6,443,673			6,504,981

See accompanying notes to consolidated financial statements

4

Consolidated Statements of Shareholders’ Equity (unaudited)

								Accumulated
			Additional					Other
			Paid-In		Retained			Comprehensive			Treasury
	Common Stock		Capital		Earnings			Income (Loss)			Stock			Total
			(Dollars in thousands except share and per share amounts)
Balance, January 1, 2006	$	6,772	$	26,334	$	42,945		$	(2,996	)	$	(4,649	)	$	68,406
Comprehensive income:
Net Income						1,448									1,448
Other comprehensive income, net of tax:
Change in unrealized gains and losses on securities									(495	)					(495	)
Total comprehensive income															953
Share-based comprehensive income				12											12
Purchase of 42,500 shares of Treasury Stock												(824	)		(824	)
Common dividends declared, $.18 per share						(1,158	)								(1,158	)
Balance, March 31, 2006	$	6,772	$	26,346	$	43,235		$	(3,491	)	$	(5,473	)	$	67,389
Balance, January 1, 2007	$	6,772	$	26,382	$	43,728		$	(2,093	)	$	(6,092	)	$	68,697
Cumulative affect of adoption of SFAS 159					$	(1,192	)	$	1,192					$	—
Comprehensive income:
Net Income						1,535									1,535
Other comprehensive income, net of tax:
Change in unrealized gains and losses on securities									46						46
Total comprehensive income															1,581
Share-based comprehensive income				11											11
Common dividends declared, $.18 per share						(1,156	)								(1,156	)
Balance, March 31, 2007	$	6,772	$	26,393	$	42,915		$	(855	)	$	(6,092	)	$	69,133

See accompanying notes to consolidated financial statements

5

Consolidated Statements of Cash Flows (unaudited)

	Three Months Ended March 31,
	2007			2006
	(Dollars in thousands)
Operating Activities
Net income	$	1,535		$	1,448
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		383			150
Depreciation and amortization		408			413
Amortization of premiums and discounts		9			68
Amortization of intangibles		33			39
Amortization of deferred loan fees		(162	)		101
Federal deferred income tax benefit		(18	)		(230	)
Net gain from loan sales		(184	)		—
Securities gains, net		(473	)		—
Net losses from loans held for sale		33			—
Net gains on sale of other assets		(21	)		—
Net decrease in accrued interest receivable and other assets		(510	)		(1,254	)
Net decrease (increase) in accrued interest payable, taxes and other liabilities		98			(332	)
Net cash provided by operating activities		1,131			403
Investing Activities
Proceeds from sales of available-for-sale securities		—			—
Purchase of available-for-sale securities		(24,450	)		(9,989	)
Proceeds from maturities of available-for-sale securities		21,684			2,797
Purchase of Federal Home Loan Bank Stock		—			(46	)
Redemption of Federal Home Loan Bank Stock		—			570
Net increase in loans made to customers		(12,873	)		(415	)
Proceeds from the sale of other real estate owned		198			118
Purchase of bank premises and equipment		(1,274	)		(633	)
Proceeds from sale of bank premises and equipment		—			—
Net cash used in investing activities		(16,715	)		(7,598	)
Financing Activities
Net increase (decrease) in demand and other noninterest-bearing		(12,855	)		400
Net increase (decrease) in savings, money market and interest-bearing demand		11,031			9,474
Net increase in certificates of deposit		7,155			23,967
Net decrease in short-term borrowings		(1,109	)		(10,715	)
Proceeds from loan sales		13,173			—
Proceeds from Federal Home Loan Bank advances		97,000			16,000
Prepayment of Federal Home Loan Bank advances		(100,003	)		(28,803	)
Share-based compensation expense, net of tax		11			12
Purchase of treasury stock		—			(824	)
Dividends paid		(1,156	)		(1,158	)
Net cash provided by financing activities		13,247			8,353
Net increase in cash and cash equivalents		(2,337	)		1,158
Cash and cash equivalents, January 1		29,122			23,923
Cash and cash equivalents, March 31	$	26,785		$	25,081
Supplemental cash flow information
Interest paid	$	5,341		$	4,424
Income taxes paid		—			—
Transfer of loans to other real estate owned		—			318

See accompanying notes to consolidated financial statements

6

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 subsidiary, The Lorain National Bank (the “Bank”). The consolidated financial statements also include the accounts of North Coast Community Development Corporation which is a wholly-owned subsidiary 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 the Corporation’s management (“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 being sold in the near term are deemed trading securities with any related unrealized gains and losses reported in earnings. LNB Bancorp, Inc. held trading securities as of March 31, 2007 and did not hold any trading securities as of December 31, 2006. Securities that the Corporation has a positive intent and ability to hold to maturity are classified as held to maturity. As of March 31, 2007 and December 31, 2006, 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. Securities classified as available for sale 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

7

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.

     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. 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 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.

8

     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 “Acquisitions of 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 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

A broad based stock option incentive plan, the 2006 Stock Incentive Plan, was adopted by the Corporation’s shareholders on April 18, 2006. No awards are currently outstanding under the plan; however, at March 31, 2007 and December 31, 2006 the Corporation did have stock option agreements with two individuals outside of the 2006 Stock Incentive Plan. The Corporation also issued Stock Appreciation Rights (SAR’s) on January 20, 2006 to eight employees. SFAS No. 123R has been adopted for the accounting and disclosure of the stock option agreements and the SAR’s.

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Common stock issued in 2005 under an employment agreement was charged to expense at the fair value of the common stock issued.

(2) Earnings Per Share

Basic earnings per share are computed by dividing income available to common shareholders 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:

	Three Months Ended March 31,
	2007		2006
	(Dollars in thousands except per share amounts)
Weighted average shares outstanding used in Basic Earnings per Share		6,443,673		6,504,981
Dilutive effect of incentive stock options		—		—
Weighted average shares outstanding used in Diluted Earnings Per Share		6,443,673		6,504,981
Net Income	$	1,535	$	1,448
Basic Earnings Per Share	$	0.24	$	0.22
Diluted Earnings Per Share	$	0.24	$	0.22

All outstanding options were anti-dilutive at March 31, 2007 and March 31, 2006.

(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 $13,159 for the first three months of 2007 and $12,654 during 2006. The required ending reserve balance on March 31, 2007 was $13,116 and $12,692 on December 31, 2006.

(4) Goodwill and Intangible Assets

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.

The Corporation recorded core deposit intangibles in 1997, related to the acquisition of three branch offices from another bank. These core deposit intangibles are 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:

	March 31, 2007		December 31, 2006
	(Dollars in thousands)
Core deposit intangibles	$	1,287	$	1,287
Less: accumulated amortization		1,236		1,208
Carrying value of core deposit intangibles	$	51	$	79

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The following intangible assets are included in the accompanying consolidated financial statements and are summarized as follows at March 31, 2007 and December 31, 2006 net of accumulated amortization:

	March 31, 2007		December 31, 2006
	(Dollars in thousands)
Goodwill	$	2,827	$	2,827
Mortgage servicing rights		390		251
Core deposit intangibles		51		79
Total goodwill and intangible assets	$	3,268	$	3,157

(5) Securities

The amortized cost, gross unrealized gains and losses and fair values of securities available for sale at March 31, 2007 and December 31, 2006 follows:

	At March 31, 2007
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	98,458	$	102	$	(909	)	$	97,651
State and political subdivisions		12,476		288		(42	)		12,722
Equity securities		52		68		—			120
Federal Home Loan Bank and Federal Reserve Bank stock		3,248		—		—			3,248
Total securities available for sale:	$	114,234	$	458	$	(951	)	$	113,741

	At December 31, 2006
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	146,632	$	25	$	(2,736	)	$	143,921
State and political subdivisions		11,494		308		(35	)		11,767
Equity securities		52		70		—			122
Federal Home Loan Bank and Federal Reserve Bank stock		3,248		—		—			3,248
Total securities available for sale	$	161,426	$	403	$	(2,771	)	$	159,058

There are reasons why securities may be temporarily valued at less than amortized cost. One such reason is that the current levels of interest rates as compared to the coupons on the securities held by the Corporation may be higher and therefore impairment is not due to credit deterioration. The Corporation has the ability to hold these securities until their value recovers. At March 31, 2007, the total unrealized losses of $951 on available for sale securities were temporary in nature due to the current level of interest rates.

In order to better manage its assets and liabilities, the Corporation elected early adoption of SFAS No. 159. The Corporation selected the fair value measurement option for approximately $51 million of its aggregate $156 million available-for-sale investment securities as of January 1, 2007. The securities chosen for the fair value measurement option were substantially all of the Corporation’s well-seasoned

11

seven-year balloon and 15-year mortgage-backed securities having an average duration of 2.4 years. In addition, in connection with its anticipated acquisition of Morgan Bank, N.A., the Corporation intends to restructure Morgan Bank’s investment portfolio. The Corporation believes that the adoption of SFAS 159, when combined with the expected restructuring in the Morgan Bank investment portfolio, will put the Corporation in a better position to manage the net interest margin in a falling rate environment.

As of January 1, 2007, the date of the initial fair value measurement of these securities as required under SFAS No. 159, the carrying value of these securities exceeded their fair value by approximately $1,192, net of tax. This cumulative-effect adjustment was recorded as a charge to beginning retained earnings at January 1, 2007. Under SFAS 159, this one-time charge will not be recognized in current earnings.

The cost, gross unrealized gains and losses and fair values of trading securities at March 31, 2007 follows:

	At March 31, 2007
			Aggregate Unrealized Gains		Aggregate FAS 159 Losses
			recorded to income for the		recorded to equity at			Fair
	Cost		quarter ended March 31, 2007		January 1, 2007			Value
	(Dollars in thousands)
Trading Securities	$	49,948	$	473	$	(1,806	)	$	48,615
Adjustment to Retained Earnings at January 1, 2007, net of tax @ 34%					$	(1,192	)

(6) Loans and Allowance for Loan Losses

Loan balances at March 31, 2007 and December 31, 2006 are summarized as follows:

	March 31, 2007			December 31, 2006
	(Dollars in thousands)
Commercial	$	378,621		$	374,055
Real estate mortgage		90,273			99,182
Real estate mortgage loans held for sale, at lower of cost or fair value		5,981			—
Home equity lines of credit		70,940			70,028
Purchased installment		38,418			43,019
Installment		43,688			42,049
Total Loans		627,921			628,333
Allowance for loan losses		(7,258	)		(7,300	)
Net Loans	$	620,663		$	621,033

Activity in the allowance for loan losses for the period ended March 31, 2007 and March 31, 2006 is summarized as follows:

	March 31, 2007			March 31, 2006
	(Dollars in thousands)
Balance at the beginning of period	$	7,300		$	6,622
Provision for loan losses		383			150
Loans charged-off		(500	)		(295	)
Recoveries on loans previously charged-off		75			91
Balance at end of period	$	7,258		$	6,568

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Nonaccrual loans at March 31, 2007 were $16,675, as compared to $12,812 at December 31, 2006, and $6,481 at March 31, 2006.

(7) Stock Options and Stock Appreciation Rights

At March 31, 2007 and December 31, 2006, the Corporation had nonqualified stock option agreements with two executives granted in 2005, 2006, and 2007. On January 20, 2006, the Corporation issued an aggregate of 30,000 Stock Appreciation Rights (SAR’s) to 8 employees. The expense recorded as of March 31, 2007 was $1 for SAR’s and $18 for stock options. The number of options or SAR’s and the exercise prices for these nonqualified incentive options or SAR’s outstanding as of March 31, 2007 follows:

	Year Issued
	2005			2005			2006			2007			2006
Type	Option			Option			Option			Option			SAR’s
Number of Options		2,500			30,000			30,000			30,000			30,000
Strike Price	$	16.50			$19.17			$19.10			$16.00			$19.00
Number of Options Vested		2,500			20,000			10,000			—			—
Assumptions:
Risk free interest rate		4.50	%		3.92	%		3.66	%		4.73	%		4.46	%
Dividend yield		4.36	%		3.76	%		3.77	%		4.50	%		4.65	%
Volatility		18.48	%		17.30	%		17.66	%		16.52	%		14.46	%
Expected Life — years		6			7			7			7			6

A summary of the status of stock options at March 31, 2007, and changes during the quarter then ended, is presented in the table below:

			Weighted Average
			Exercise
	Shares		Price per Share
Options outstanding, December 31, 2006		62,500	$	19.03
Granted		30,000		16.00
Exercised		—		—
Forfeited, expired or cancelled		—		—
Options outstanding, March 31, 2007		92,500	$	18.05
Options vested and exercisable, March 31, 2007		32,500	$	18.94

(8) Deposits

Deposit balances at March 31, 2007 and December 31, 2006 are summarized as follows:

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	March 31, 2007		December 31, 2006
	(Dollars in thousands)
Demand and other noninterest-bearing	$	78,361	$	91,216
Interest checking		96,822		88,541
Savings		77,366		80,086
Money market accounts		115,244		109,774
Consumer time deposits		238,559		225,947
Public time deposits		70,374		56,604
Brokered time deposits		45,866		65,093
Total deposits	$	722,592	$	717,261

The aggregate amount of certificates of deposit in denominations of $100,000 or more amounted to $164,503 and $161,655 at March 31, 2007 and December 31, 2006, respectively. Brokered time deposits totaling $45,866 and $65,093 at March 31, 2007 and December 31, 2006, respectively, are included in these totals.

The maturity distribution of certificates of deposit as of March 31, 2007 follows:

			After		After
			12 months but		36 months but
	Within 12		within 36		within 60		After
	months		months		months		5 years		Total
	(Dollars in thousands)
Consumer time deposits	$	198,449	$	34,994	$	5,116	$	—	$	238,559
Public time deposits		66,049		4,325		—		—		70,374
Brokered time deposits		35,030		10,836		—		—		45,866
Total time deposits	$	299,528	$	50,155	$	5,116	$	—	$	354,799

(9) 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 March 31, 2007, the Bank had pledged approximately $7,739 in qualifying home equity lines of credit, resulting in an available line of credit of approximately $6,578. No amounts were outstanding at March 31, 2007 or December 31, 2006.

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 periods ended March 31, 2007 and December 31, 2006.

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	March 31, 2007		December 31, 2006
	(Dollars in thousands)
Securities sold under agreements to repurchase	$	21,054	$	20,663
Federal funds purchased		—		1,500
Total short-term borrowings	$	21,054	$	22,163

(10) Federal Home Loan Bank Advances

Federal Home Loan Bank advances amounted to $32,083 and $35,086 at March 31, 2007 and December 31, 2006 respectively. All advances are bullet maturities with no call features. At March 31, 2007, collateral pledged for FHLB advances consisted of qualified real estate mortgage loans, home equity lines of credit and investment securities of $94,031, $34,065 and $1,000 respectively. The maximum borrowing capacity of the Bank, at March 31, 2007, was $79,200 with unused collateral borrowing capacity of $47,118. The Bank maintains a $40,000 cash management line of credit (CMA) with the FHLB. There was a balance of $7,000 under the CMA at March 31, 2007.

	March 31, 2007		December 31, 2006
	(Dollars in thousands)
FHLB advance - 2.95%, due January 30, 2007	$	—	$	10,000
FHLB advance - 5.42%, due April 3, 2007		7,000		—
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- 4.99%, due November 28, 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		83		86
Total FHLB advances	$	32,083	$	35,086

(11) 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.

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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 March 31, 2007 follows:

	Amount
	(Dollars in thousands)
Commitments to extend credit	$	90,837
Home equity lines of credit		66,701
Standby letters of credit		7,431
Total	$	164,969

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

LNB Bancorp, Inc. (the “Corporation”) is a financial holding company headquartered in Lorain, Ohio, deriving substantially all of its revenue from its subsidiary, The Lorain National Bank. The Corporation provides a range of products and services to commercial customers and the community, and currently operates 23 banking centers throughout Lorain, eastern Erie and western Cuyahoga counties in Ohio.

On January 16, 2007, LNB Bancorp, Inc. and Morgan Bancorp, Inc., of Hudson, Ohio announced the signing of a definitive agreement for LNB to acquire Morgan and its wholly-owned subsidiary, Morgan Bank, N.A., in a stock and cash merger transaction valued at approximately $26.5 million. It is anticipated that this acquisition will be completed in May of this year.

This Management’s Discussion and Analysis (“MD&A”) section discusses the financial condition and results of operations of the Corporation for the three months ended March 31, 2007. This MD&A should be read in conjunction with the financial information contained in the Corporation’s Form 10-K for the fiscal year ended December 31, 2006 and in the accompanying consolidated financial statements and notes contained in this Form 10-Q.

Forward-Looking Statements

This Form 10-Q 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;

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• 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;

• customer reaction to and unforeseen complications with respect to the Corporation’s integration of acquisitions;

• difficulties in realizing expected cost savings from acquisitions; and

• difficulties associated with data conversions in acquisitions.

Critical Accounting Policies and Estimates

The Corporation’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Corporation follows general practices within the banking industry and application of these principles requires the Corporation’s management (“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 evaluated collectively 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 Statement of Financial Accounting Standards (SFAS) No. 5 “Accounting for Contingencies,” or SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.”

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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 the 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 that exceeds the general allowance loss factor from these loans. 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.

• 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.

New Accounting Pronouncements

FASB Statement No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”, which generally permits the measurement of selected eligible financial instruments at fair value at specified election dates.

After a detailed analysis of SFAS No. 159 by the Corporation’s Accounting Department and its Asset/Liability Committee, during the first quarter of 2007, the Corporation elected early adoption of SFAS No. 159 in connection with the anticipated closing of its merger with Morgan Bank, N.A. in May 2007 and the restructuring of a portion of the Corporation’s balance sheet that is intended to be undertaken as a result of the merger. This restructuring is intended to improve the asset-liability structure of the balance sheet so that the net interest margin is more stable across a wider range of rate environments.

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The Corporation has historically been asset sensitive. The Corporation experienced a 50 basis point reduction in its net interest margin between 2002 and 2004 when rates fell rapidly. This outcome was driven by the Corporation’s commercial lending focus, customer preference for variable rate loans and competitive factors. This asset sensitivity is further accentuated by the Corporation’s high loan to asset ratio, and the resulting need to hold primarily short-term investments in its investment portfolio in order to provide general liquidity for the bank. The Corporation’s asset sensitivity has decreased somewhat over the last two years by adding more fixed rate assets to the balance sheet and encouraging shorter maturity deposits. The Corporation has also actively added new funding sources like broker CD’s and CDARS CD’s for public fund deposits. However, at December 31, 2006 we estimated that, if interest rates were decreased by 200 basis points, our net interest income would decline by about 5%, and possibly more, since market competition and effective rate floors make it unlikely that we would be able to drop the rates on accounts like money markets and interest bearing checking accounts to the same degree as general rates. Given the current economic conditions, an exposure to falling rates is a primary concern of management.

The Corporation’s balance sheet structure will be complicated further upon completion of the Corporation’s acquisition of Morgan Bank.. Morgan’s liability structure is similar to Lorain National Bank and is not expected to improve the Corporation’s asset sensitive position. However, Morgan’s loan portfolio consists primarily of four-year indirect automobile loans with an estimated average duration of only 28 months. This portfolio totaled approximately $55.9 million at December 31, 2006. We expect that these types of loans will continue as a component of the combined Corporation’s loan portfolio. As such they will contribute to a greater exposure to falling rates. In a rapidly falling rate environment the cash flow from this portfolio has the potential to rapidly accelerate to a much shorter duration than even 28 months. While we anticipate restructuring the Morgan investment portfolio in connection with our acquisition of Morgan Bank, N.A. to mitigate some of this exposure, this portfolio is only about $16 million, so the mitigating effects of the restructuring will be somewhat limited.

In order to address this asset/liability management issue, the Corporation elected early adoption of SFAS No. 159. The Corporation selected the fair value measurement option for approximately $51 million of its aggregate $156 million available-for-sale investment securities as of January 1, 2007. The securities chosen for the fair value measurement option were substantially all of the Corporation’s well-seasoned seven-year balloon and 15-year mortgage-backed securities having an average duration of 2.4 years. When combined with the expected restructuring in the Morgan Bank investment portfolio, the Corporation believes that it will be in a much better position to manage the net interest margin in a falling rate environment.

As of January 1, 2007, the date of the initial fair value measurement of these securities as required under SFAS No. 159, the carrying value of these securities exceeded their fair value by approximately $1,192, net of tax. This cumulative-effect adjustment was recorded as a charge to beginning retained earnings at January 1, 2007. Under SFAS 159, this one-time charge will not be recognized in current earnings. While the adjustment to retained earnings is a permanent adjustment, there is no material impact to shareholders’ equity because the Corporation had already recorded the market value adjustment in “accumulated other comprehensive loss” at December 31, 2006. Because market yields at March 31, 2007, were lower than yields at January 1, 2007, the fair value measurement of the selected investment securities was in excess of the carrying value of such investment securities, which allowed the Corporation to record trading gains in the first quarter for the change in fair value from January 1, 2007, to March 31, 2007.

Subsequent to quarter-end and before the closing of its acquisition of Morgan, the Corporation intends to complete this restructuring of the balance sheet. The Corporation expects that this repositioning will

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include the sale of investment securities and the purchase of a mixture of well-structured Collateralized Mortgage Obligations (CMO) and Mortgage Backed Securities (MBS’s) and municipal bonds, as well as agency securities. The Corporation is evaluating the investment securities that may be purchased and other financial assets and liabilities to determine the specific instruments that may be carried at fair value in accordance with the asset-liability management activities. The Corporation believes that this repositioning, together with other possible restructuring of the combined Corporation’s assets and liabilities will enable the Corporation to more effectively manage the combined Corporation’s net interest margin. In addition to this realignment of the asset-liability position of the Corporation, we believe that the securities that we expect to purchase will materially improve the yield of the Corporation’s portfolio.

Management is not aware of any other 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 requires the Corporation to expense share-based payments, including employee stock options, based on their fair value. The Corporation adopted SFAS No. 123R effective as of January 1, 2006. Accordingly, the impact of the adoption of SFAS No. 123R’s fair value method is included in the Corporation’s results of operations. The adoption of SFAS No. 123R did not have a material impact on the Corporation’s results of operations, financial position or liquidity.

FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – An Intrepretation of FASB Statement No. 109”

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“Fin No. 48”). The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Specifically, Fin No. 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Fin No. 48 also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. Fin No. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material effect on our consolidated balance sheet, results of operations or cash flows.

FASB Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132R

In September 2006, the FASB issued Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132R (“SFAS 158”). SFAS 158 requires an entity to recognize in its balance sheet the funded status of its defined benefit postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation. SFAS 158 also requires an entity to recognize changes in the funded status of a defined benefit postretirement plan within accumulated other comprehensive income, net of tax, to the

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extent such changes are not recognized in earnings as components of periodic net benefit cost. SFAS 158 is effective as of the end of the fiscal year ending after December 15, 2006. The adoption of FASB Statement No. 158 did not have a material effect on our consolidated balance sheet, results of operations or cash flows.

FASB Statement No. 156, Accounting for Servicing of Financial Assets, an Amendment of FAS 140.

In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assets, an Amendment of FAS 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. FAS 156 clarifies when to separately account for servicing rights, requires separately recognized servicing rights to be initially measured at fair value, and provides the option to subsequently account for those servicing rights either under the amortization method previously required under FAS 140 or at fair value. The provision of FAS 156 is effective January 1, 2007. The Corporation has elected the amortization method. The adoption of FASB Statement 156 did not have a material effect on our consolidated balance sheet, results of operations or cash flows.

FASB Statement No. 157, Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of FASB Statement No. 157 did not have a material effect on our consolidated balance sheet, results of operations or cash flows.

Summary of Earnings (Dollars in thousands except per share data)

Net income for the first quarter 2007 was $1,535 or $.24 per diluted share. This compares to $1,448 or $.22 per diluted share for the first quarter 2006. This is an increase in net income of $87, or 6.0% over the same period in 2006. The return on average assets and return on average equity for the first quarter of 2007 were .73% and 8.98%, respectively, compared to .73% and 8.47%, respectively, for the first quarter 2006. The increase in net income in the first quarter of 2007 is primarily attributable to a gains recorded during the first quarter on trading securities and on the sale of mortgage loans to Freddie Mac. Net interest income decreased $374, or 5.2%, during the same period. Net interest income for the three months ended March 31, 2007 was $6,829, and the net interest margin was 3.50%. This compares to net interest income of $7,203 and a net interest margin of 3.89% for the first quarter 2006. During the fourth quarter of 2006 and into the first quarter of 2007, asset quality issues negatively impacted the Corporation’s overall performance, having the effect of decreasing net interest margin by 8 basis points. The remaining decline in net interest margin can be attributed to the flat yield curve, and the competitive local environment for loans and deposits. The margin compression has stabilized at 3.50 percents in both the fourth quarter of 2006 and the first quarter of 2007. Noninterest income was $2,989 for the first quarter 2007 compared to $2,121 for the same period 2006. This was an increase of $868, or 40.9%. In addition to net gains recorded in the amount of $645, service fees increased $169, as well as positive increases in trust management and brokerage fees, and interest from the investment in life insurance. Noninterest expense was $7,358 for the first quarter 2007 or an increase of $149 over the same period in 2006, due primarily to an increase of $245 in salaries and benefits.

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Results of Operations

     Net Interest Income

Net interest income is the difference between interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. Net interest income is the Corporation’s principal source of revenue, accounting for 69.6% of the revenues for the three months ended March 31, 2007. The amount of net interest income is affected by changes in the volume and mix of earning assets and interest bearing liabilities, the level of rates earned or paid on those assets and liabilities and the amount of loan fees earned. 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. 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.

     Three Months Ended March 31, 2007 versus Three Months Ended March 31, 2006

Net interest income was $6,829 for the first quarter 2007 as compared to $7,203 during the same quarter 2006. This was a decrease of $374, or 5.2%. Adjusting for tax-exempt income, consolidated net interest income for the first quarter 2007 and 2006 was $6,918 and $7,251 respectively. The net interest margin, determined by dividing tax equivalent net interest income by average earning assets, was 3.54% for the three months ended March 31, 2007 compared to 3.91% for the three months ended March 31, 2006.

The yield on average earning assets was 6.64% in the first quarter as compared to 6.29% for the same period in 2006. While the yield on earning assets was up 35 basis points, the yield on average portfolio loans was up only 22 basis points for the first quarter 2007. That translates to 7.15% for the first quarter 2007 from 6.93% for the same period 2006. This was due to competitive pressure on new and renewing loans and the flat yield curve. The flat yield curve materially impacted the pricing and repricing of intermediate term installment and commercial loans. The cost of interest-bearing liabilities was 3.56% in the first quarter as compared to 2.78% for the same period 2006. Higher rates impacted the cost of all components of interest-bearing liabilities. Compounding this was a shift of existing noninterest bearing demand and interest-bearing demand deposits to money market accounts, consumer time deposits and the Corporation’s commercial sweep repurchase accounts. Further impacting this was competition in the market.

Average earning assets increased $40,626, or 5.4%, to $792,163 for the first quarter 2007 as compared to $751,537 for the first quarter 2006. Overall, average portfolio loans increased $40,926, or 6.9%, over the same period 2006. The increase was primarily in commercial loans which averaged $378,040 for the quarter ending March 31, 2007 as compared to $360,409 for the same quarter 2006. In addition, home equity lines of credit, and mortgage loans increased by 6.8% and 23.3%, respectively, while installment loans remained consistent with the first quarter of 2006.

Average interest-bearing liabilities increased $47,261, or 7.4%, to $689,319 for the first quarter 2007 as compared to $642,058 for the first quarter 2006. On an average balance basis, savings accounts, which have historically provided a stable low-cost source of funds for the Corporation, declined $12,920, or 14.2% in the first quarter of 2007. These savings deposits migrated to money market accounts and to consumer time deposits. These two categories increased $13,496 and $24,283 respectively, as compared to the first quarter 2006. In addition, noninterest-bearing deposits which decreased $6,188 as compared to the first quarter of 2006, migrated to interest-bearing demand which increased $8,173 during the same period. The Corporation was also somewhat more dependent on wholesale funding in the first quarter. Wholesale funding is defined as brokered time deposits, public time deposits, short-term borrowings and

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FHLB borrowings. These funding sources averaged $181,558 in the first quarter 2006 and had an average cost of 4.90%. In the first quarter 2006, they averaged $167,329, and had an average cost of 3.99%. The cost of public time deposits and short-term borrowings are particularly sensitive to short-term national market rates because of their short duration.

Table 1 displays the components of net interest income for the three months ended March 31, 2007 and 2006. Rates are computed on a tax equivalent basis and nonaccrual loans are included in the average loan balances.

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Table 1: Condensed Consolidated Average Balance Sheets

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

	Three Months Ended March 31,
	2007									2006
	Average									Average
	Balance			Interest			Rate			Balance			Interest			Rate
	(Dollars in thousands)
Assets:
U.S. Govt agencies and corporations	$	146,371		$	1,619			4.49	%	$	148,530		$	1,391			3.80	%
State and political subdivisions		12,561			195			6.30	%		9,497			151			6.45	%
Federal funds sold and short-term investments		2,417			30			5.03	%		3,622			36			4.03	%
Commercial loans		378,040			6,952			7.46	%		360,409			6,578			7.40	%
Real estate mortgage loans		98,411			1,494			6.16	%		79,839			1,226			6.23	%
Home equity lines of credit		70,301			1,366			7.88	%		65,851			1,159			7.14	%
Purchased installment loans		41,316			510			5.01	%		40,743			427			4.25	%
Installment loans		42,746			795			7.54	%		43,046			688			6.48	%
Total Earning Assets	$	792,163		$	12,961			6.64	%	$	751,537		$	11,656			6.29	%
Allowance for loan loss		(7,407	)								(6,596	)
Cash and due from banks		22,033									22,252
Bank owned life insurance		14,841									14,060
Other assets		26,578									23,300
Total Assets	$	848,208								$	804,553
Liabilities and Shareholders’ Equity
Interest-bearing demand	$	86,544		$	179			0.84	%	$	78,371		$	103			0.53	%
Savings deposits		77,756			62			0.32	%		90,676			76			0.34	%
Money market accounts		111,767			987			3.58	%		98,271			675			2.79	%
Consumer time deposits		231,694			2,623			4.59	%		207,411			1,905			3.72	%
Brokered time deposits		56,863			718			5.12	%		50,077			487			3.94	%
Public time deposits		69,526			915			5.34	%		48,736			557			4.64	%
Short-term borrowings		21,696			233			4.36	%		20,375			199			3.96	%
FHLB advances		33,473			326			3.95	%		48,141			403			3.40	%
Total Interest-Bearing Liabilities	$	689,319		$	6,043			3.56	%	$	642,058		$	4,405			2.78	%
Noninterest-bearing deposits		81,474									87,662
Other liabilities		8,106									5,494
Shareholders’ Equity		69,309									69,339
Total Liabilities and Shareholders’ Equity	$	848,208								$	804,553
Net interest Income (FTE)				$	6,918			3.54	%				$	7,251			3.91	%
Taxable Equivalent Adjustment					(89	)		-0.04	%					(48	)		-0.02	%
Net Interest Income Per Financial Statements				$	6,829								$	7,203
Net Yield on Earning Assets								3.50	%								3.89	%

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     Rate/Volume

Net interest income may also be analyzed by comparing the volume and rate components of interest income and interest expense. Table 2 is an analysis of the changes in interest income and expense between March 31, 2007 and March 31, 2006. 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 2: Rate/Volume Analysis of Net Interest Income (FTE)

	Three Months Ended March 31,
	Increase (Decrease) in Interest Income/Expense 2007 and 2006
	Volume			Rate			Total
	(Dollars in thousands)
U.S. Govt agencies and corporations	$	(24	)	$	252		$	228
State and political subdivisions		49			(5	)		44
Federal funds sold and short-term investments		(10	)		4			(6	)
Commercial loans		322			52			374
Real estate mortgage loans		285			(17	)		268
Home equity lines of credit		83			124			207
Purchased installment loans		7			76			83
Installment loans		(6	)		113			107
Total Interest Income		706			599			1,305
Interest-bearing demand		16			60			76
Savings deposits		(11	)		(3	)		(14	)
Money market accounts		110			202			312
Consumer time deposits		256			462			718
Brokered time deposits		79			152			231
Public time deposits		249			109			358
Short-term borrowings		14			20			34
FHLB advances		(113	)		36			(77	)
Total Interest Expense		600			1,038			1,638
Net Interest Income (FTE)	$	106		$	(439	)	$	(333	)

Consolidated net interest income (FTE) for the first quarter 2007 and 2006 was $6,918 and $7,251 respectively. Interest income increased $1,305 during the first quarter of 2007, with 45.9% of the increase attributed to rate. For the same period, interest expense increased $1,638 with 63.4% attributed to rate. While rising rates remain a benefit to the Corporation, competitive margin pressure and stiff competition in our markets resulted in a $439 reduction in rate as a result of rising rates. The decreases in net interest income (FTE) due to rate were partially offset by increased in volume of $706 and $600 in interest income and interest expense, respectively. Overall, net interest income (FTE) decreased $333, or 4.6%.

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     Noninterest Income

Table 3: Details on Noninterest Income

	Three Months Ended March 31,
	2007			2006
	(Dollars in thousands)
Investment and trust services	$	522		$	509
Deposit service charges		1,082			968
Electronic banking fees		436			364
Income from bank owned life insurance		167			145
Other income		137			133
Total fees and other income		2,344			2,119
Securities gains, net		473			—
Loss on loans held for sale		(33	)		—
Gains on sale of loans		184			—
Gains on sale of other assets		21			2
Total noninterest income	$	2,989		$	2,121

     Three Months Ended March 31, 2007 as compared to the Three Months Ended March 31, 2006

Noninterest income was $2,989 for the first quarter 2007, an increase of $868 as compared to $2,121 for the same period 2006. Income generated from fees increased $186, or 14.0%, over the first quarter of 2006. While average noninterest-bearing deposits decreased during the first quarter of 2007 as compared to the same period 2006, overdraft and return item fees increased $153 over the first quarter 2006. In addition, income from trust and brokerage fees, and the investment in life insurance increased $65 in comparison to the first quarter of 2006.

During the first quarter of 2007, the Corporation established a secondary marketing mortgage sales program, through which the Corporation sold $13,155 in mortgage loans to Freddie Mac. These were primarily 15- and 30-year fixed rate mortgages originated in 2006. The Corporation retained the mortgage servicing rights for these mortgages, and the resulting gain was $184. In addition, mortgage loans held for sale at March 31, 2007 were adjusted to their estimated fair value, and the resulting loss of $33 was recorded against noninterest income.

After a detailed analysis of SFAS No. 159 as explained in the Summary of Significant Accounting Policies, the Corporation elected early adoption of SFAS No. 159 and intends to restructure of a portion of its balance sheet in connection with the anticipated closing of its acquisition of Morgan Bank, N.A. This restructuring is intended to improve the asset-liability structure of the balance sheet so that the net interest margin is more stable across a wider range of rate environments. As a result, certain available for sale securities were reclassified to trading securities. Securities that are held for the sole purpose of being sold in the near term are deemed trading securities with any related unrealized gains and losses reported in earnings. As such, a gain of $473 was recorded during the first quarter of 2007 on these securities.

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     Noninterest Expense

Table 4: Details on Noninterest Expense

	Three Months Ended March 31,
	2007		2006
	(Dollars in thousands)
Salaries and employee benefits	$	3,823	$	3,578
Furniture and equipment		707		737
Net occupancy		555		478
Outside services		355		419
Marketing and public relations		262		391
Supplies and postage		310		298
Telecommunications		188		199
Ohio Franchise tax		215		232
Electronic banking expense		189		145
Loan and collection expense		94		87
Other expense		660		645
Total noninterest expense	$	7,358	$	7,209

Three Months Ended March 31, 2007 as compared to the Three Months Ended March 31, 2006

Noninterest expense was $7,358 for the three months ended March 31, 2007 as compared to $7,209 for the same period 2006. This is an increase of $149, or 2.0%.

During 2006 and into the first quarter of 2007, the Corporation continued to strengthen its commitment for better customer service and visibility by expanding market presence in Lorain County as well as Cuyahoga County. Full service offices were opened at North Ridgeville, Ohio during 2006 as well as Chestnut Commons in a growing area of Elyria, Ohio in January 2007. In addition, during 2006, a Cuyahoga County loan production office was opened. During the first quarter of 2007, the Westlake, Ohio loan production office was relocated to Avon Pointe plaza in the Avon, Ohio area. Both the Cuyahoga County and Avon offices are staffed with commercial banking and treasury management professionals. In this regard, salaries and employee benefits during the first quarter 2007 increased $245, or 6.8%, over the same period 2006. Net occupancy expense increased $77 over the same period last year.

Other real estate owned expense increased $100 over the first quarter of 2007, primarily due to the revaluation of this property which was reappraised a lower cost than that at which the property was originally recorded.

Management continues to place a strong emphasis on control of expenses. Expenses, other than those mentioned above, were lower in comparison to the first quarter of 2006 by 8.6%.

     Income taxes

The Corporation recognized tax expense of $542 during the first quarter 2007 and $517 for the same period 2006. Income taxes increased $25, or 4.8%, for the three months ended March 31, 2007 versus the three months ended March 31, 2006. The Corporation’s effective tax rate was 26.1% for the first quarter 2007 as compared to 26.3% for the same period 2006.

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Balance Sheet Analysis

     Overview

The Corporation’s assets at March 31, 2007 were $852,841 as compared to $851,098 at December 31, 2006. This is an increase of $1,743, or 0.2%. Total securities increased $3,298 or 2.1% over December 31, 2006 while the loan portfolio level decreased $6,393, or 1.0% from December 31, 2006. Total deposits at March 31, 2007 were $722,592 as compared to $717,261 at December 31, 2006. Total interest-bearing liabilities were $697,368 as compared to $683,294.

     Securities

The distribution of the Corporation’s securities portfolio at March 31, 2007 and December 31, 2006 is presented in Note 5 to the Consolidated Financial Statements contained within this Form 10-Q. The Corporation continues to use the securities portfolio to manage interest rate risk and liquidity needs. Currently, the portfolio is comprised of 50.0% U.S. Government agencies, 41.9% U.S. agency mortgage backed securities, and 8.0% municipal securities. Other securities represent less than 1% of the portfolio and consist of Federal Home Loan Bank stock and Federal Reserve Bank stock. At March 31, 2007, available for sale securities had a net temporary unrealized loss of $493, representing 0.4% of the total amortized cost of the Bank’s available for sale securities. Trading securities held at fair value on March 31, 2007 were $48,615, and included $473 in gain recorded to income.

     Loans

The detail of loan balances are presented in Note 6 to the Consolidated Financial Statements contained within this Form 10-Q. Table 5 provides further detail by loan purpose.

Table 5: Details on Loan Balances

	March 31, 2007			December 31, 2006
	(Dollars in thousands)
Real estate loans (includes loans secured primarily by real estate only):
Construction and land development	$	110,762		$	105,633
One to four family residential		191,753			190,884
Multi-family residential		21,719			21,754
Non-farm non-residential properties		195,953			195,547
Commercial and industrial loans		40,855			40,820
Personal loans to individuals:
Auto, single payment and installment		59,134			65,780
All other loans		7,745			7,915
Total loans		627,921			628,333
Allowance for loan losses		(7,258	)		(7,300	)
Net loans	$	620,663		$	621,033

Total portfolio loans at March 31, 2007 were $621,940 which decreased from total portfolio loans at December 31, 2006 of $628,333. At March 31, 2007, commercial loans represented 60.9% of total loans. Commercial loans increased $4,566, or 1.2%, over the prior quarter. Consumer loans, consisting

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of installment loans and home equity loans, comprised 18.4% of total portfolio loans and increased $2,551, or 2.3% over the prior quarter. Consumer loans are made to borrowers on both secured and unsecured terms dependent on the maturity and nature of the loan. The Corporation has also purchased consumer loans from Morgan Bank, N.A, consisting primarily of high quality car loans.

Real estate mortgages comprise 14.5% of total portfolio loans. These loans decreased $8,909, or 8.9%, for the period ended March 31, 2007 as compared to December 31, 2006. As of March 31, 2007, $5,981 of mortgage loans were removed from the portfolio and reclassified as held for sale at fair market value. In addition, mortgage loans totaling $13,155 were sold to Freddie Mac during the first quarter of 2007.

Deposits

Table 6: Deposits

	Average Balances Outstanding
	For the Three Months Ended March 31,
	2007								2006
	Average		Percent of						Average		Percent of
	Balance		Deposits			Rate			Balance		Deposits			Rate
	(Dollars in thousands)
Interest-bearing demand	$	86,544		13.65	%		0.84	%	$	78,371		13.66	%		0.53	%
Savings deposits		77,756		12.26			0.32			90,676		15.81			0.34
Money market accounts		111,767		17.62			3.58			98,271		17.13			2.79
Consumer time deposits		231,694		36.54			4.59			207,411		36.16			3.72
Brokered time deposits		56,863		10.96			5.12			50,077		8.73			3.94
Public time deposits		69,526		8.97			5.34			48,736		8.51			4.64
Total Deposits	$	634,150		100.00	%		3.51	%	$	573,542		100.00	%		2.78	%

Total deposits at March 31, 2007 were $722,592, an increase of $5,331, or 0.7% over December 31, 2006. On a linked-quarter basis, there was a shift from demand deposits of $12,855 to higher yielding interest checking accounts, money markets and certificates of deposit. Deposit accounts and the generation of deposit accounts continue to be the primary source of funds within our market area. The Corporation offers various deposit products to both retail and business customers. The Corporation also utilizes its business sweep accounts to generate funds as well as the brokered CD market to provide funding comparable to other national market borrowings, which include the Federal Home Loan Bank of Cincinnati and the Federal Reserve Bank of Cleveland.

     Borrowings

The Corporation utilizes both short-term and long-term borrowings to assist in the growth of earning assets. For the Corporation, short-term borrowings include federal funds purchased and repurchase agreements. As of March 31, 2007, the Corporation had $21,054 of short-term borrowings. This was a decrease of $1,109, or 5.0% from December 31, 2006. Long-term borrowings for the Corporation were at $32,083, a decrease of $3,003, or 8.6%, from December 31, 2006. Maturities of long-term borrowings are presented in Note 10 to the Consolidated Financial Statements contained within this Form 10-Q.

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     Regulatory Capital

The Corporation continues to maintain a strong capital position. Total shareholders’ equity was $69,133 at March 31, 2007. This is an increase of 0.6% from December 31, 2006.

As discussed earlier in this MD&A, the Corporation has elected early adoption of SFAS No. 159. The Corporation selected the fair value measurement option for approximately $51 million of its aggregate $156 million available-for-sale investment securities as of January 1, 2007. The securities chosen for the fair value measurement option were substantially all of the Corporation’s well-seasoned seven-year balloon and 15-year mortgage-backed securities having an average duration of 2.4 years.

As of January 1, 2007, the date of the initial fair value measurement of these securities as required under SFAS No. 159, the carrying value of these securities exceeded their fair value by approximately $1,192, net of tax. This cumulative-effect adjustment was recorded as a charge to beginning retained earnings at January 1, 2007. Under SFAS 159, this one-time charge will not be recognized in current earnings. While the adjustment to retained earnings is a permanent adjustment, there is no material impact to shareholders’ equity because the Corporation had already recorded the market value adjustment in “accumulated other comprehensive loss” at December 31, 2006.

Net income increased total shareholders’ equity by $1,535. Other increases in equity included a decrease of $46 in accumulated other comprehensive loss resulting from an increase in the fair value of available for sale securities, net of tax, as well as a $11 increase for share-based payment arrangements, net of tax. The factors decreasing total shareholders’ equity in the first quarter of 2007 were cash dividends payable to shareholders of $1,156. There were no repurchases of common stock during the first quarter. The Corporation currently holds 328,194 shares of common stock as treasury stock at a cost of $6,092.

The Corporation and the Bank continue to monitor growth to stay within the guidelines established by applicable regulatory authorities. Under Federal banking regulations, at March 31, 2007 and December 31, 2006, the Corporation and Bank maintained capital ratios consistent with guidelines to be deemed well-capitalized.

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. As of March 31, 2007, the Corporation had repurchased an aggregate of 202,500 shares under this program.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

RISK ELEMENTS

Risk management is an essential aspect in operating a financial services company successfully and effectively. The most prominent risk exposures, for a financial services company, are credit, operational, interest rate, market, and liquidity risk. Credit risk involves the risk of uncollectible interest and principal balance on a loan when it is due. Fraud, legal and compliance issues, processing errors, technology and the related disaster recovery, and breaches in business continuation and internal controls

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are types of operational risks. Changes in interest rates affecting net interest income are considered interest rate risks. Market risk is the risk that a financial institution’s earnings and capital or its ability to meet its business objectives are adversely affected by movements in market rates or prices. Such movements include fluctuations in interest rates, foreign exchange rates, equity prices that affect the changes in value of available-for-sale securities, credit spreads, and commodity prices. The inability to fund obligations due to investors, borrowers, or depositors is liquidity risk. For the Corporation, the dominant risks are market risk and credit risk.

     Credit Risk Management

Uniform underwriting criteria, ongoing risk monitoring and review processes, and well-defined, centralized credit policies dictate the management of credit risk for the Corporation. As such, credit risk is managed through the Bank’s allowance for loan loss policy which requires the loan officer, lending officers, and the loan review committee 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. The Corporation uses a loan rating system to properly classify and assess the credit quality of individual commercial loan transactions. The loan rating system is used to determine the adequacy of the allowance for loan losses for regulatory reporting purposes and to assist in the determination of the frequency of review for credit exposures.

Credit quality measures deteriorated during the fourth quarter of 2006 and into the first quarter of 2007. Weaker general economic conditions, especially in residential and commercial development lending, combined with the need to further strengthen underwriting and portfolio management controls resulted in higher levels of nonperforming loans and potential problem loans.

     Nonperforming Assets

Total nonperforming assets consist of nonperforming loans, loans which have been restructured, and other foreclosed assets. As such, a loan is considered nonperforming if it is 90 days past due and/or in Management’s estimation the collection of interest on the loan is doubtful. Nonperforming loans no longer accrue interest and are accounted for on a cash basis. The classification of restructured loans involves the deterioration of a borrower’s financial ability leading to original terms being favorably modified or either principal or interest being forgiven.

Nonperforming loans at March 31, 2007 were $16,675 as compared to $12,812 at December 31, 2006, an increase of $3,863. Of this total, commercial loans were $13,516 as compared to $10,322 at December 31, 2006. These are commercial loans that 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 March 31, 2007, specific reserves on these loans totaled $1,432 as compared to $1,115 specifically reserved at December 31, 2006. Approximately 60% of the $3,194 increase in commercial nonperforming loans was the result of one commercial relationship being classified as non-performing. This loan was well secured by real estate, and had no specific reserve established at March 31, 2007. 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. At March 31, 2007, potential problem loans declined $1,937, to $20,166. This compares to $22,103 at December 31, 2006. Other foreclosed assets were $1,073 as of March 31, 2007, a decrease of $216 from December 31, 2006. The $1,073 is comprised of three commercial properties totaling $634 and five 1-4 family residential properties

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totaling $439. This compares to $344 in 1-4 family residential properties with the remainder in commercial properties as of December 31, 2006.

Table 7 sets forth nonperforming assets for the period ended March 31, 2007 and December 31, 2006.

Table 7: Nonperforming Assets

	March 31, 2007			December 31, 2006
	(Dollars in thousands)
Commercial loans	$	13,516		$	10,322
Real estate mortgage		2,697			2,165
Home equity lines of credit		351			168
Purchased installment		—			—
Installment loans		111			157
Total nonperforming loans		16,675			12,812
Other foreclosed assets		1,073			1,289
Total nonperforming assets	$	17,748		$	14,101
Nonperforming loans to total loans		2.68	%		2.04	%
Nonperforming assets to total assets		2.08	%		1.66	%

     Provision and Allowance for Loan Losses

The allowance for loan losses is maintained by the Corporation at a level considered by Management to be adequate to cover probable credit losses inherent in the loan portfolio. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in the estimation of Management, to maintain the allowance for loan losses at an adequate level. Management determines the adequacy of the allowance based upon past experience, changes in portfolio size and mix, relative quality of the loan portfolio and the rate of loan growth, assessments of current and future economic conditions, and information about specific borrower situations, including their financial position and collateral values, and other factors, which are subject to change over time. While Management’s periodic analysis of the allowance for loan losses may dictate portions of the allowance be allocated to specific problem loans, the entire amount is available for any loan charge-offs that may occur. Table 8 presents the detailed activity in the allowance for loan losses and related charge-off activity for the three months ended March 31, 2007 and March 31, 2006.

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Table 8: Analysis of Allowance for Loan Losses

	Three Months Ended March 31,
	2007			2006
	(Dollars in thousands)
Balance at beginning of year	$	7,300		$	6,622
Charge-offs:
Commercial		(259	)		(87	)
Real estate mortgage		(99	)		(41	)
Home equity lines of credit		—			(25	)
Purchased installment		—			(26	)
Installment		(83	)		(65	)
DDA overdrafts		(59	)		(51	)
Total charge-offs		(500	)		(295	)
Recoveries:
Commercial		28			—
Real estate mortgage		—			1
Home equity lines of credit		—			—
Purchased installment		—			—
Installment		30			31
Credit Cards		—			1
DDA overdrafts		17			58
Total Recoveries		75			91
Net Charge-offs		(425	)		(204	)
Provision for loan losses		383			150
Balance at end of period	$	7,258		$	6,568

The allowance for loan losses at March 31, 2007 was $7,258 or 1.17%, of outstanding loans, compared to $6,568 or 1.12% of outstanding loans at March 31, 2006. The provision charged to expense was $383 for the three months ended March 31, 2007 and $150 for the same period 2006. The allowance for loan losses was 43.53% and 101.34% of nonperforming loans at March 31, 2007 and 2006, respectively.

     Market Risk Management

The Corporation manages market risk through its Asset/Liability Management Committee (“ALCO”) at the Bank level governed by policies set forth and established by the Board of Directors. 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 over the one year planning cycle and the longer term strategic horizon in order to provide a stable and steadily increasing flow 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 may re-price in various time horizons, but without knowing the frequency and basis of the potential rate changes the predictive power of the gap measure is limited.

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Two more useful tools in managing market risk are earnings-at-risk simulation and economic value of equity simulation. An earnings-at-risk analysis is a 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 March 31, 2007, 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 $1,764, or 5.14%, and in a -200 basis point shock, net interest income would decrease $1,677, or 5.41%. 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 and other factors are likely to produce different results.

The economic value of equity 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. March 31, 2007, this analysis indicated that a +200 basis point change in rates would reduce the value of the Corporation’s equity by 12.77% while a -200 basis point change in rates would increase the value of the Corporation’s equity by 11.88%.

ITEM 4. 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 the Corporation’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 amended (the “Exchange Act”)) as of March 31, 2007. Based upon that evaluation, the chief executive officer along with the chief financial officer concluded that the Corporation’s disclosure controls and procedures as of March 31, 2007 were: (1) designed to ensure that material information relating to the Corporation and its subsidiaries is made known to the chief executive officer and chief financial officer by others within the 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

As the Corporation previously reported, as of December 31, 2006, the Corporation had a material weakness in its internal control over financial reporting. The material weakness identified resulted from the aggregation of significant deficiencies arising out of the lack of comprehensive procedural documentation of the loan grading process, the system of monitoring the collateral values of impaired loans and the controls on preventing the improper recognition of interest income on nonperforming loans. Management, with the oversight of the Audit and Finance Committee, has been systematically addressing these issues and is committed to effective remediation of this weakness. The Corporation has taken the following remediation measures:

• Additional training is being completed to reinforce the existing procedures to assure that adequate evidence exists to support all decisions made regarding classification of individual loans.

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• Additional training is being completed to reinforce the requirement that once a loan meets the impairment criteria, such loans are deemed impaired and the impairment is valued based on a current appraisal of the collateral securing the loan.

• Training has been completed to reinforce the documentation requirements for the recognition of interest income once a loan is classified as nonperforming. Management has also revised the approval process for recording all nonperforming loan transactions.

In addition to these specific responses to these control deficiencies, the Corporation has contracted with an independent third party to assess the completeness of the commercial loan documentation supporting the current grade classifications of most commercial relationships greater than $500,000. This represents approximately 75 percent of the commercial loan portfolio balances.

Other than as noted above in this Item 4, no change in the Corporation’s internal control over financial reporting (as defined by 13a-15(f) and 15(d)-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

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 purchased 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. There was no repurchase activity during the quarter ended March 31, 2007. As of March 31, 2007, the Corporation had repurchased an aggregate of 202,500 shares under this program.

Item 6. Exhibits.

(a) The exhibits to this Form 10-Q are referenced in the Exhibit Index attached hereto.

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SIGNATURES

Pursuant to the requirements 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)
Date: May 10, 2007		/s/ Sharon L. Churchill
		Sharon L. Churchill Chief Financial Officer (Duly Authorized Officer, and Principal Financial Officer)

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

Exhibit
31(i)(a)	Chief Executive Officer Rule 13a -14(a)/15d -14(a) Certification.
31(i)(b)	Chief Financial Officer Rule 13a -14(a)/15d -14(a) Certification.
32(a)	Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32(b)	Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

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