10-Q

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 September 30, 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 November 8, 2007 was 7,295,663.

LNB Bancorp, Inc.
Table of Contents

Part I — Financial Information
	Item 1. Financial Statements.
		Consolidated Balance Sheets September 30, 2007 (unaudited) and December 31, 2006
		Consolidated Statements of Income (unaudited) For the three and nine months ended September 30, 2007 and September 30, 2006
		Consolidated Statements of Changes in Shareholders’ Equity (unaudited) For the nine months ended September 30, 2007 and September 30, 2006
		Consolidated Statements of Cash Flows (unaudited) For the nine months ended September 30, 2007 and September 30, 2006
		Notes to the Consolidated Financial Statements (unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures about Market Risk.
	Item 4. Controls and Procedures.
Part II — Other Information
	Item 1A. Risk Factors.
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
	Item 6. Exhibits.
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

Consolidated Balance Sheets

	September 30, 2007			December 31, 2006
	(unaudited)
	(Dollars in thousands except share amounts)
ASSETS
Cash and due from Banks	$	23,887		$	29,122
Federal funds sold and short-term investments		500			—
Securities:
Trading securities		32,000			—
Available for sale, at fair value		167,524			155,810
Federal Home Loan Bank and Federal Reserve Stock		4,537			3,248
Total securities		204,061			159,058
Loans:
Loans held for sale		2,703			—
Portfolio loans		728,624			628,333
Allowance for loan losses		(7,951	)		(7,300	)
Net loans		723,376			621,033
Bank premises and equipment, net		13,647			12,599
Other real estate owned		3,053			1,289
Bank owned life insurance		15,286			14,755
Goodwill and intangible assets, net		23,492			3,157
Accrued interest receivable		4,279			3,939
Other assets		7,616			6,146
Total Assets	$	1,019,197		$	851,098
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Demand and other noninterest-bearing	$	87,218		$	91,216
Savings, money market and interest-bearing demand		360,107			278,401
Certificates of deposit		386,998			347,644
Total deposits		834,323			717,261
Short-term borrowings		28,039			22,163
Federal Home Loan Bank advances		45,206			35,086
Junior subordinated debentures		20,620			—
Accrued interest payable		4,190			3,698
Accrued taxes, expenses and other liabilities		5,479			4,193
Total Liabilities		937,857			782,401
Shareholders’ Equity
Common stock, par value $1 per share, authorized 15,000,000 shares, issued 7,623,857 shares at September 30, 2007 and 6,771,867 at December 31, 2006		7,624			6,772
Additional paid-in capital		37,691			26,382
Retained earnings		42,597			43,728
Accumulated other comprehensive loss		(480	)		(2,093	)
Treasury shares at cost, 328,194 shares at September 30, 2007 and December 31, 2006		(6,092	)		(6,092	)
Total Shareholders’ Equity		81,340			68,697
Total Liabilities and Shareholders’ Equity	$	1,019,197		$	851,098

See accompanying notes to consolidated financial statements.

3

Consolidated Statements of Income (unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
	(Dollars in thousands except share and per share amounts)
Interest Income
Loans	$	13,437	$	11,164	$	36,610	$	31,690
Securities:
U.S. Government agencies and corporations		2,148		1,488		5,310		4,249
State and political subdivisions		157		124		443		330
Other debt and equity securities		78		49		204		150
Federal funds sold and short-term investments		51		10		338		73
Total interest income		15,871		12,835		42,905		36,492
Interest Expense
Deposits:
Certificates of deposit, $100 and over		2,278		1,864		6,576		4,818
Other deposits		4,427		2,913		11,860		8,073
Federal Home Loan Bank advances		635		492		1,235		1,227
Short-term borrowings		347		246		812		655
Other interest expense		356		—		567		—
Total interest expense		8,043		5,515		21,050		14,773
Net Interest Income		7,828		7,320		21,855		21,719
Provision for Loan Losses		441		600		1,677		915
Net interest income after provision for loan losses		7,387		6,720		20,178		20,804
Noninterest Income
Investment and trust services		547		482		1,593		1,537
Deposit service charges		1,239		1,224		3,457		3,334
Other service charges and fees		605		504		1,706		1,444
Income from bank owned life insurance		182		187		531		474
Other income		128		56		273		160
Total fees and other income		2,701		2,453		7,560		6,949
Securities gains, net		2		—		261		—
Gains on sale of loans		277		—		546		—
Gains (losses) on sale of other assets, net		24		—		59		2
Total noninterest income		3,004		2,453		8,426		6,951
Noninterest Expense
Salaries and employee benefits		4,104		3,770		11,862		10,986
Furniture and equipment		952		737		2,566		2,227
Net occupancy		593		484		1,683		1,413
Outside services		488		406		1,317		1,260
Marketing and public relations		321		311		936		1,069
Supplies, postage and freight		353		311		986		912
Telecommunications		232		207		623		577
Ohio Franchise tax		188		207		604		636
Other real estate owned		58		28		305		59
Electronic banking expenses		150		160		593		466
Other charge-offs and losses		192		131		387		291
Loan and collection expense		236		212		644		620
Other expense		467		315		1,195		1,163
Total noninterest expense		8,334		7,279		23,701		21,679
Income before income tax expense		2,057		1,894		4,903		6,076
Income tax expense		384		475		1,059		1,570
Net Income	$	1,673	$	1,419	$	3,844	$	4,506
Net Income Per Common Share
Basic	$	0.23	$	0.22	$	0.56	$	0.70
Diluted		0.23		0.22		0.56		0.70
Dividends declared		0.18		0.18		0.54		0.54
Average Common Shares Outstanding
Basic		7,295,663		6,450,086		6,889,953		6,468,032
Diluted		7,295,663		6,450,235		6,889,953		6,468,291

See accompanying notes to consolidated financial statements

4

Consolidated Statements of Shareholders’ Equity (unaudited)

								Accumulated
			Additional					Other
	Common		Paid-In		Retained			Comprehensive			Treasury
	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						4,506									4,506
Other comprehensive income, net of tax:
Change in unrealized gains and losses on securities, net of reclassification adjustment of $119 for gains on sale of securities, net of tax									551						551
Total comprehensive income															5,057
Share-based compensation income				36											36
Purchase of 42,500 shares of Treasury Stock												(1,443	)		(1,443	)
Common dividends declared, $.36 per share						(3,485	)								(3,485	)
Balance, September 30, 2006	$	6,772	$	26,370	$	43,966		$	(2,445	)	$	(6,092	)	$	68,571
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						3,844									3,844
Other comprehensive income, net of tax:
Change in unrealized gains and losses on securities									421						421
Total comprehensive income															4,265
Share-based compensation income				37											37
Issuance of 851,990 shares of common stock		852		11,272								—			12,124
Common dividends declared, $.54 per share						(3,783	)								(3,783	)
Balance, September 30, 2007	$	7,624	$	37,691	$	42,597		$	(480	)	$	(6,092	)	$	81,340

See accompanying notes to consolidated financial statements

5

Consolidated Statements of Cash Flows (unaudited)

	Nine Months Ended September 30,
	2007			2006
	(Dollars in thousands)
Operating Activities
Net income	$	3,844		$	4,506
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,677			915
Depreciation and amortization		1,292			1,227
Amortization of premiums and discounts		(28	)		232
Amortization of intangibles		208			120
Amortization of deferred loan fees		297			279
Federal deferred income tax expense (benefit)		582			121
Net gain from loan sales		(546	)		—
Securities gains, net		(261	)		—
Share-based compensation expense, net of tax		37			36
Net loss on sale of other assets		(59	)		—
Net increase in accrued interest receivable and other assets		(5,976	)		(2,886	)
Net decrease in accrued interest payable, taxes and other liabilities		1,715			141
Net cash provided by operating activities		2,782			4,691
Investing Activities
Purchase of available-for-sale securities		(94,174	)		(29,005	)
Proceeds from maturities of available-for-sale securities		35,428			20,989
Purchase of trading securities		(31,582	)		—
Proceeds from sale of trading securities		47,632			—
Purchase of Federal Home Loan Bank Stock		(495	)		(129	)
Redemption of Federal Home Loan Bank Stock		—			570
Purchase of Federal Reserve Bank Stock		(794	)		—
Acquisition, net of cash and cash equivalents acquired		(4,912	)		—
Net increase in loans made to customers		(79,912	)		(22,022	)
Proceeds from the sale of other real estate owned		561			1,097
Purchase of bank premises and equipment		(1,735	)		(1,979	)
Net cash used in investing activities		(129,983	)		(30,479	)
Financing Activities
Net decrease in demand and other noninterest-bearing		(13,345	)		(7,459	)
Net increase in savings, money market and interest-bearing demand		26,443			12,302
Net increase in certificates of deposit		2,095			43,430
Net increase (decrease) in short-term borrowings		4,156			(14,641	)
Proceeds from loan sales		68,160			—
Proceeds from Federal Home Loan Bank advances		213,450			91,000
Repayment of Federal Home Loan Bank advances		(207,454	)		(94,808	)
Proceeds from issuance of junior subordinated debentures		20,620			—
Issuance of stock in acquisition		12,124			—
Purchase of treasury stock		—			(1,443	)
Dividends paid		(3,783	)		(3,485	)
Net cash provided by financing activities		122,466			24,896
Net decrease in cash and cash equivalents		(4,735	)		(892	)
Cash and cash equivalents, January 1		29,122			23,923
Cash and cash equivalents, September 30	$	24,387		$	23,031
Supplemental cash flow information
Interest paid	$	20,558		$	14,825
Income taxes paid		1,968			2,768
Transfer of loans to other real estate owned		2,372			2,395

See accompanying notes to consolidated financial statements

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)

(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, western Cuyahoga, and Summit 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 September 30, 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 September 30, 2007 and December 31, 2006, LNB Bancorp, Inc. did not hold any securities classified as held to maturity. 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

7

security. Interest and dividends on securities, including amortization of premiums and accretion of discounts using the effective interest method over the period to maturity or call, are included in interest income.

     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. Loans which were acquired from the acquisition of Morgan Bank, NA on May 10, 2007 were valued at fair market value on or near the date of acquisition. The difference between the principal amount outstanding and the fair market valuation is being amortized over the aggregate average life of each class of loan. 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

8

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.

     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 subsidiary 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. One award was outstanding under the plan at September 30, 2007; however, the Corporation did have stock option agreements outside of the 2006 Stock

9

Incentive Plan at September 30, 2007 and December 31, 2006 with two individuals. 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.

(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 September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(Dollars in thousands except per share amounts)
Weighted average shares outstanding used in Basic Earnings per Share		7,295,663		6,450,086		6,889,953		6,468,032
Dilutive effect of incentive stock options		—		149		—		259
Weighted average shares outstanding used in Diluted Earnings Per Share		7,295,663		6,450,235		6,889,953		6,468,291
Net Income	$	1,673	$	1,419	$	3,844	$	4,506
Basic Earnings Per Share	$	0.23	$	0.22	$	0.56	$	0.70
Diluted Earnings Per Share	$	0.23	$	0.22	$	0.56	$	0.70

The dilutive effect of incentive stock options for the three months and nine months ended September 30, 2006 was 149 and 259, respectively. All outstanding options were anti-dilutive for the three months and nine months ended September 30, 2007.

(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 required ending reserve balance on September 30, 2007 was $500 and $12,692 on December 31, 2006.

(4) Goodwill and Intangible Assets

On May 10, 2007, LNB Bancorp, Inc. completed the acquisition of Morgan Bancorp, Inc., of Hudson, Ohio and its wholly-owned subsidiary, Morgan Bank, NA. Under the terms of the transaction, the Corporation acquired all of the outstanding stock of Morgan Bancorp, Inc. in a stock and cash merger transaction valued at $27,864. The acquisition was accounted for using the purchase method of accounting, and accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition. The purchase accounting fair values are being amortized under various methods and over the lives of the corresponding assets and liabilities. Goodwill recorded for the acquisition amounted to $18,632. The Corporation recorded $1,367 in core deposit intangibles related to the acquisition of Morgan Bank, NA. These core deposit intangibles were amortized $54 in the period since acquisition to September 30, 2007.

The estimated fair values of significant assets purchased and liabilities assumed related to the acquisition of Morgan Bank, NA were as follows:

10

	(Dollars in thousands)
Cash	$	20,652
Loans, net of reserve for loan losses		92,019
Bank premises and equipment, net		731
Acquisition Intangibles		19,999
Deposits		101,870
Short Term Borrowings		1,720
FHLB Borrowings		4,124

The consolidated statements of income reflect the operating results of the Morgan Bank division since the effective date of the acquisition. The following table presents pro forma information for the nine months ended September 30, 2007 as if the acquisition of Morgan Bancorp, Inc. had occurred at the beginning of 2007. The pro forma information includes adjustments for the amortization of core deposit intangibles arising from the transaction, the elimination of acquisition related expenses and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations as they would have been, had the transaction been effected on the assumed dates.

Consolidated Pro forma Statement of Income (unaudited)

Nine Months Ended September 30, 2007
(Dollars in thousands except per share amounts)
Total interest income	$	45,478
Total interest expense		22,508
Net Interest Income		22,970
Provision for Loan Losses		1,992
Net interest income after provision for loan losses		20,978
Noninterest Income		8,566
Noninterest Expense		26,990
Income before income tax expense		2,554
Income tax expense		370
Net Income	$	2,184
Net Income Per Common Share
Basic	$	0.32
Diluted	$	0.32

The loss recorded on the Morgan Bancorp, Inc. statement of income for the period ended May 10, 2007 primarily consisted of the loss on sale of securities of $739, and other employee expenses not previously accrued.

The Corporation recorded core deposit intangibles in 1997, related to the acquisition of three branch offices from another bank. These core deposit intangibles were fully amortized during the third quarter of 2007. Core deposit intangibles are amortized over their estimated useful life of 10 years. A summary of core deposit intangible assets, including those from the Morgan acquisition, follows:

	September 30, 2007		December 31, 2006
	(Dollars in thousands)
Core deposit intangibles	$	2,655	$	1,288
Less: accumulated amortization		1,341		1,209
Carrying value of core deposit intangibles	$	1,314	$	79

11

The Corporation assesses goodwill for impairment annually and more frequently in certain circumstances. Goodwill existing prior to the Morgan acquisition was assessed at a reporting unit level by applying a fair-value based test using discounted estimated future net cash flows.

The following intangible assets are included in the accompanying consolidated financial statements and are summarized as follows at September 30, 2007 and December 31, 2006 net of accumulated amortization:

	September 30, 2007		December 31, 2006
	(Dollars in thousands)
Goodwill	$	21,459	$	2,827
Loan servicing rights		719		251
Core deposit intangibles		1,314		79
Total goodwill and intangible assets	$	23,492	$	3,157

(5) Securities

The amortized cost, gross unrealized gains and losses and fair values of securities available for sale at September 30, 2007 and December 31, 2006 follows:

			At September 30, 2007
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	152,031	$	493	$	(637	)	$	151,887
State and political subdivisions		15,266		217		(68	)		15,415
Equity and other securities		222		—		—			222
Federal Home Loan Bank and Federal Reserve Bank stock		4,537		—		—			4,537
Total Securities	$	172,056	$	710	$	(705	)	$	172,061

			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	$	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, in which case impairment may not be due to credit deterioration. The Corporation has the ability to hold these securities until their value recovers. At September 30, 2007, the total unrealized losses of $705 on available for sale securities were temporary in nature due to the current level of interest rates.

The cost, gross unrealized gains and losses and fair values of trading securities at September 30, 2007 follows:

12

	At September 30, 2007
			Aggregate Unrealized Gains		Aggregate Unrealized Losses
			recorded to income for the		recorded to income for the
			quarter ended		quarter ended		Fair
	Cost		September 30, 2007		September 30, 2007		Value
			(Dollars in thousands)
Trading Securities	$	32,000	$	—	$	—	$	32,000

(6) Loans and Allowance for Loan Losses

     Loan balances at September 30, 2007 and December 31, 2006 are summarized as follows:

	September 30, 2007			December 31, 2006
	(Dollars in thousands)
Loans Held for Sale, at lower of cost or fair value:
Real estate mortgage loans held for sale	$	319		$	—
Installment loans held for sale		2,384			—
Total Loans Held for Sale	$	2,703		$	—
Portfolio Loans:
Commercial	$	407,415		$	374,055
Real estate mortgage		101,916			99,182
Home equity lines of credit		78,611			70,028
Installment		140,682			85,068
Total Portfolio Loans		728,624			628,333
Allowance for loan losses		(7,951	)		(7,300	)
Net Loans	$	720,673		$	621,033

Activity in the allowance for loan losses for the nine-month periods ended September 30, 2007 and September 30, 2006 is summarized as follows:

	September 30, 2007			September 30, 2006
	(Dollars in thousands)
Balance at the beginning of period	$	7,300		$	6,622
Provision for loan losses		1,677			915
Allowance from merger		1,098
Loans charged-off		(2,520	)		(1,613	)
Recoveries on loans previously charged-off		396			380
Balance at end of period	$	7,951		$	6,304

Nonaccrual loans at September 30, 2007 were $10,942, as compared to $12,812 at December 31, 2006, and $7,023 at September 30, 2006.

(7) Stock Options and Stock Appreciation Rights

At September 30, 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 September 30, 2007 was $4 for SAR’s and $56 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 September 30, 2007 follows:

13

	Year Issued
	2005			2005			2006			2007			2007			2006
Type	Option			Option			Option			Option			Option			SAR's
Number of Options		2,500			30,000			30,000			30,000			20,000			30,000
Strike Price	$	16.50		$	19.17		$	19.10		$	16.00		$	15.35		$	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	%		4.72	%		4.26	%
Dividend yield		4.36	%		3.76	%		3.77	%		4.50	%		4.69	%		4.87	%
Volatility		18.48	%		17.30	%		17.66	%		16.52	%		15.33	%		15.84	%
Expected Life — years		6			7			7			7			6			5.43

A summary of the status of stock options at September 30, 2007, and changes during the nine months 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		50,000		15.74
Exercised		—		—
Forfeited, expired or cancelled		—		—
Options outstanding, September 30, 2007		112,500	$	17.57
Options vested and exercisable, September 30, 2007		32,500	$	18.94

(8) Deposits

Deposit balances at September 30, 2007 and December 31, 2006 are summarized as follows:

	September 30, 2007		December 31, 2006
	(Dollars in thousands)
Demand and other noninterest-bearing	$	87,218	$	91,216
Interest checking		114,618		88,541
Savings		80,900		80,086
Money market accounts		131,450		109,774
Consumer time deposits		320,043		225,947
Public time deposits		72,473		56,604
Brokered time deposits		27,621		65,093
Total deposits	$	834,323	$	717,261

The aggregate amount of certificates of deposit in denominations of $100,000 or more amounted to $169,654 and $166,165 at September 30, 2007 and December 31, 2006, respectively. Brokered time deposits totaling $27,621 and $65,093 at September 30, 2007 and December 31, 2006, respectively, are included in these totals.

The maturity distribution of certificates of deposit as of September 30, 2007 follows:

14

			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	$	277,470	$	38,647	$	3,926	$	—	$	320,043
Public time deposits		67,900		4,573		—		—		72,473
Brokered time deposits		25,131		2,490		—		—		27,621
Total time deposits	$	370,501	$	45,710	$	3,926	$	—	$	420,137

(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 September 30, 2007, the Bank had pledged approximately $6,671 in qualifying home equity lines of credit, resulting in an available line of credit of approximately $5,670. No amounts were outstanding at September 30, 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 September 30, 2007 and December 31, 2006.

	September 30, 2007		December 31, 2006
	(Dollars in thousands)
Securities sold under agreements to repurchase	$	28,039	$	20,663
Federal funds purchased		—		1,500
Total short-term borrowings	$	28,039	$	22,163

(10) Federal Home Loan Bank Advances

Federal Home Loan Bank advances amounted to $45,206 and $35,086 at September30, 2007 and December 31, 2006 respectively. All advances are bullet maturities with no call features. At September 30, 2007, collateral pledged for FHLB advances consisted of qualified real estate mortgage loans, home equity lines of credit and investment securities of $105,631, $35,491 and $0 respectively. The maximum borrowing capacity of the Bank at September 30, 2007 was $76,501 with unused collateral borrowing capacity of $31,224. The Bank maintains a $40,000 cash management line of credit (CMA) with the FHLB. There was a balance of $16,000 under the CMA at September 30, 2007.

15

	September 30, 2007			December 31, 2006
	(Dollars in thousands)
FHLB advance - 2.95%, due January 30, 2007	$	—		$	10,000
FHLB advance - variable, due November 2, 2007		11,000
FHLB advance - variable, due November 21, 2007		5,000
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 - 4.47%, due April 11, 2008		350			—
FHLB advance - 4.99% due November 28, 2008		5,000		$	5,000
FHLB advance - 5.07%, due December 12, 2008		500			—
FHLB advance - 3.36%, due March 27, 2009		10,000			10,000
FHLB advance - 4.67%, due April 10, 2009		350			—
FHLB advance - 5.00%, due December 14, 2009		500		$	—
FHLB advance - 3.55%, due January 1, 2014		77			86
FHLB advance - 4.76%, due July 6, 2015		2,500		$	—
Valuation adjustments on FHLB advances		(71	)		—
Total FHLB advances	$	45,206		$	35,086

Valuation adjustments are to adjust FHLB advances to fair market value in the acquisition of Morgan Bank NA as of May 10, 2007

(11) Trust Preferred Securities

On May 9, 2007, the Corporation completed two private offerings of trust preferred securities through two separate Delaware statutory trusts sponsored by the Corporation. LNB Trust I (“Trust I”) sold $10.0 million of preferred securities and LNB Trust II (“Trust II”) sold $10.0 million of preferred securities (Trust I and Trust II are hereafter collectively referred to as the “Trusts”). The proceeds from the offering were used to fund the cash portion of the Morgan Bancorp, Inc. acquisition. The Corporation owns all of the common securities of each of the Trusts.

The subordinated notes mature in 2037. Trust I bears a floating interest rate (current three-month LIBOR plus 148 basis points). Trust II bears a fixed rate of 6.64% through June 15, 2017, and then becomes a floating interest rate (current three-month LIBOR plus 148 basis points). Interest on the notes is payable quarterly.

The subordinated notes are redeemable in whole or in part, without penalty, at the Corporation’s option on or after June 15, 2012 and mature on June 15, 2037. The notes are junior in right of payment to the prior payment in full of all Senior Indebtedness of the Corporation, whether outstanding at the date of this Indenture or thereafter incurred. At September 30, 2007, the balance of the subordinated notes payable to Trust I and Trust II was $10,310 each. The interest rates in effect as of the last determination date in 2007 were 7.1743% and 6.64% for Trust I and Trust II, respectively.

(12) 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

16

making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made.

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

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on Management’s credit evaluation of the applicant. Collateral held is generally single-family residential real estate and commercial real estate. Substantially all of the obligations to extend credit are variable rate. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

A summary of the contractual amount of commitments at September 30, 2007 follows:

	Amount
	(Dollars in thousands)
Commitments to extend credit	$	121,995
Home equity lines of credit		74,307
Standby letters of credit		6,979
Total	$	203,281

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 22 banking centers throughout Lorain, eastern Erie, western Cuyahoga and Summit counties in Ohio.

On May 10, 2007, LNB Bancorp, Inc. completed the acquisition of Morgan Bancorp, Inc., of Hudson, Ohio and its wholly-owned subsidiary, Morgan Bank, NA, in a stock and cash merger transaction valued at approximately $27.9 million.

This Management’s Discussion and Analysis (“MD&A”) section discusses the financial condition and results of operations of the Corporation for the three and nine months ended September 30, 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.

17

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;

• 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.

18

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.”

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

Management is not aware of any proposed regulations or current recommendations by the Financial Accounting Standards Board or by regulatory authorities, which, if they were implemented, would have

19

a material effect on the liquidity, capital resources, or operations of the Corporation. However, the potential impact of certain accounting pronouncements warrants further discussion.

     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 (“SFAS 159”). After a detailed analysis of SFAS 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 159 in connection with the closing of its merger with Morgan Bank, NA in May 2007 and the restructuring of a portion of the Corporation’s balance sheet as a result of the merger. 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 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 was not 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.

     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 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 SFAS 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 No. 156, “Accounting for Servicing of Financial Assets, an amendment of FAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 156”). SFAS 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 SFAS 156 is effective January 1, 2007. The Corporation has elected the amortization method. The adoption of SFAS 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

20

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 SFAS 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 was $1,673 for the third quarter of 2007 and $3,844 for the nine months ended September 30, 2007. Earnings per diluted share for the third quarter of 2007 was $.23. Earnings per diluted share for the first nine months of the year were $.56. This compares to $1,419 or $.22 per diluted share for the third quarter of 2006 and $4,506, or $.70 per diluted share for the nine months ended September 30, 2006. Third quarter net interest income totaled $7,828, compared to $7,320 for the third quarter of 2006. In a year-to-date comparison, the first nine months of 2007 produced net interest income of $21,855; the first nine months of 2006 produced net interest income of $21,719. The net interest margin was 3.31% for the third quarter of 2007, down 47 basis points from 3.78% for the third quarter of 2006. The net interest margin for the first nine months of 2007 was 3.39% compared to 3.83% for the first nine months of 2006. During the fourth quarter of 2006 and continuing into the first quarter of 2007, asset quality issues negatively impacted the Corporation’s overall performance. While credit quality remains a factor in the decreased earnings on an annual basis, nonperforming loans decreased during the second and third quarters of 2007. Noninterest income was $3,004 for the third quarter of 2007, an increase of $551 or 22.46%, compared to the third quarter of 2006. The increase was largely from net gains recorded of the sale of indirect and mortgage loans to the secondary market. The Corporation retains the servicing rights for these loans. The sale of high quality indirect loans was a primary activity of Morgan Bank, and is being continued by the Corporation. Service charges on deposit accounts and ATM charges increased $116 during the third quarter of 2007 in comparison to the same period last year. On a year-to-date basis, these charges and fees increased $385, or 8.06%, over the first nine months of 2006. Noninterest expense was $8,334 for the third quarter of 2007 as compared to $7,279 for the third quarter of 2006.

The Morgan Bank acquisition was a continuation of the Corporation’s strategy to strengthen its commitment for better customer service and visibility by expanding its market presence in Lorain County, Cuyahoga County and, with the completion of the acquisition, Summit County. Full service offices were opened at North Ridgeville during 2006 as well as Chestnut Commons in Elyria, Ohio in January 2007. In addition, in June 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. While making these significant investments for the future, the Corporation has had success in limiting related increases in overhead expense. The $1,055 increase in noninterest expense during the third quarter of 2007 includes operating costs associated with these new service and facility additions, as well as increases in legal and other carrying costs associated with non-performing assets.

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 72.17% of the revenues for the nine months ended September 30, 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

21

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. The net interest margin is net interest income as a percentage of average earning assets.

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 74.35% of the revenues for the three months ended September 30, 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. The net interest margin is net interest income as a percentage of average earning assets.

     Three Months Ended September 30, 2007 versus Three Months Ended September 30, 2006

Net interest income, before provision for loan losses, was $7,828 for the third quarter 2007 as compared to $7,320 during the same quarter 2006. Adjusting for tax-exempt income, consolidated net interest income, before provision for loan losses, for the third quarter 2007 and 2006 was $7,927 and $7,405, respectively. The net interest margin, determined by dividing tax equivalent net interest income by average earning assets, was 3.35% for the three months ended September 30, 2007 compared to 3.83% for the three months ended September 30, 2006.

Average earning assets for the third quarter of 2007 were $937,937. This was an increase of $170,168 or 22.16% over the same quarter last year. The yield on average earning assets was 6.76% in the third quarter of 2007 as compared to 6.68% for the same period last year. The yield on average portfolio loans during the third quarter of 2007 was 7.24%. This was 12 basis points lower than that of the third quarter of 2006 at 7.36%. Interest income from securities was $2,504 (FTE) for the three months ended September 30, 2007. This compares to $1,726 during the third quarter of 2006. The yield on average securities was 4.97% and 4.16% for these periods, respectively. The cost of interest-bearing liabilities was 3.79% during the third quarter as compared to 3.27% during the same period of 2006 The average cost of trust preferred securities was 6.80%. One half of the securities were issued at a fixed rate of 6.64% and the other at LIBOR plus 1.48%.

     Nine Months Ended September 30, 2007 versus Nine Months Ended September 30, 2006

Net interest income, before provision for loan losses, for the first nine months of 2007 was $21,855 as compared to $21,719 for the same period in 2006. Adjusting for tax-exempt income, consolidated net interest income, before provision for loan losses, for the first nine months of 2007 and 2006 was $22,137 and $21,899, respectively. The net interest margin was 3.43% for the nine months ended September 30, 2007 compared to 3.86% for the nine months ended September 30, 2006.

22

The yield on average earning assets was 6.69% for the nine months of 2007 as compared to 6.47% for the same period last year. The yield on earning assets was up 22 basis points, and the yield on average portfolio loans was up 5 basis points for the nine months of 2007. The yield on the loan portfolio was 7.19% for the first nine months of 2007 compared to 7.14% for the same period 2006. During the first nine months of the year, the Corporation continued to experience competitive pressure on new and renewing loans and a 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 3.68% in the first nine months of 2007 as compared to 3.02% 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. Historically, there has been some lag in deposit rate adjustments as interest rates rise.

Average earning assets increased $104,381, or 13.8%, to $862,483 for the first nine months of 2007 as compared to $758,102 for the first nine months of 2006. Overall, average portfolio loans increased $88,472, or 14.89%, over the same period 2006. The Morgan Bank acquisition, which was completed on May 10, 2007, contributed approximately $92,042 in portfolio loans, primarily indirect auto loans of $52,305, and commercial loans of $26,146.

Average interest-bearing liabilities increased $108,922, or 16.63%, to $763,745 for the first nine months of 2007 as compared to $654,823 for the first nine months of 2006. Average deposits attributable to the Morgan Bank market since acquisition in the second quarter of 2007 were $102,470 at a cost of 3.48%. Eliminating the effect of average deposits associated with Morgan Bank, average interest-bearing demand and savings deposits during the first nine months of 2007 decreased approximately $20,268, or 11.79%, from the same period last year. Historically, these have been a source of low-cost funds for the Corporation. These funds have migrated to consumer time deposits, which have increased $64,206 over the same period last year. The Morgan Bank market contributed $36,869 in average time deposits since acquisition. During the second quarter of 2007, the Corporation completed two private offerings of trust preferred securities, generating $20,000 in cash to fund the Morgan Bank acquisition which also affected the cost of interest-bearing liabilities. One half of the securities were issued at a fixed rate of 6.64% and the other at LIBOR plus 1.48%. The average cost of these funds was 6.81%.

Table 1 displays the components of net interest income for the three and nine months ended September 30, 2007 and 2006. Rates are computed on a tax equivalent basis and nonaccrual loans are included in the average loan balances.

23

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 September 30,
	2007									2006
	Average									Average
	Balance			Interest			Rate			Balance			Interest			Rate
	(Dollars in thousands)
Assets:
U.S. Govt agencies and corporations	$	181,369		$	2,226			4.87	%	$	152,385		$	1,537			4.00	%
State and political subdivisions		14,757			227			6.10	%		11,425			179			6.22	%
Federal funds sold and short-term investments		3,958			51			5.11	%		773			10			5.13	%
Commercial loans		411,647			7,939			7.65	%		372,428			7,354			7.83	%
Real estate mortgage loans		102,556			1,581			6.12	%		82,596			1,288			6.19	%
Home equity lines of credit		77,885			1,514			7.71	%		66,211			1,329			7.96	%
Purchased installment loans		33,048			408			4.90	%		40,962			482			4.67	%
Installment loans		112,717			2,024			7.12	%		40,989			741			7.17	%
Total Earning Assets	$	937,937		$	15,970			6.76	%	$	767,769		$	12,920			6.68	%
Allowance for loan loss		(8,071	)								(6,343	)
Cash and due from banks		20,479									22,518
Bank owned life insurance		15,203									14,382
Other assets		54,210									27,489
Total Assets	$	1,019,758								$	825,815
Liabilities and Shareholders’ Equity
Interest-bearing demand	$	113,358		$	355			1.24	%	$	86,973		$	183			0.84	%
Savings deposits		82,189			156			0.75	%		84,552			71			0.33	%
Money market accounts		135,870			1,269			3.71	%		106,692			913			3.40	%
Consumer time deposits		308,371			3,682			4.74	%		212,138			2,248			4.20	%
Brokered time deposits		23,725			319			5.33	%		53,015			619			4.63	%
Public time deposits		70,672			924			5.19	%		55,884			742			5.27	%
Short-term borrowings		32,142			347			4.28	%		21,312			247			4.60	%
FHLB advances		54,928			635			4.59	%		48,023			492			4.06	%
Trust preferred		20,697			355			6.80	%		—			—			0.00	%
Other		—			1			0.00	%		—			—			0.00	%
Total Interest-Bearing Liabilities	$	841,952		$	8,043			3.79	%	$	668,589		$	5,515			3.27	%
Noninterest-bearing deposits		86,393									82,527
Other liabilities		9,449									6,391
Shareholders’ Equity		81,964									68,308
Total Liabilities and Shareholders’ Equity	$	1,019,758								$	825,815
Net interest Income (FTE)				$	7,927			3.35	%				$	7,405			3.83	%
Taxable Equivalent Adjustment					(99	)		-0.04	%					(85	)		-0.04	%
Net Interest Income Per Financial Statements				$	7,828								$	7,320
Net Yield on Earning Assets								3.31	%								3.78	%

24

	Nine Months Ended September 30,
	2007									2006
	Average									Average
	Balance			Interest			Rate			Balance			Interest					Rate
	(Dollars in thousands)
Assets:
U.S. Govt agencies and corporations	$	155,646		$	5,514			4.74	%	$	151,548			$	4,399		3.88	%
State and political subdivisions		13,905			640			6.15	%		10,115				477		6.30	%
Federal funds sold and short-term investments		10,235			338			4.42	%		2,214				73		4.41	%
Commercial loans		393,892			22,123			7.51	%		367,958				20,880		7.59	%
Real estate mortgage loans		99,577			4,572			6.14	%		80,786				3,722		6.16	%
Home equity lines of credit		74,178			4,323			7.79	%		66,063				3,661		7.41	%
Purchased installment loans		37,077			1,295			4.67	%		39,913				1,352		4.53	%
Installment loans		77,973			4,382			7.51	%		39,505				2,108		7.13	%
Total Earning Assets	$	862,483		$	43,187			6.69	%	$	758,102			$	36,672		6.47	%
Allowance for loan loss		(7,748	)								(6,514	)
Cash and due from banks		21,479									22,520
Bank owned life insurance		15,023									14,229
Other assets		41,306									25,510
Total Assets	$	932,543								$	813,847
Liabilities and Shareholders’ Equity
Interest-bearing demand	$	100,330		$	840			1.12	%	$	83,757			$	440		0.70	%
Savings deposits		80,370			325			0.54	%		88,144				226		0.34	%
Money market accounts		126,166			3,477			3.68	%		103,646				2,430		3.13	%
Consumer time deposits		273,243			9,573			4.68	%		209,037				6,182		3.95	%
Brokered time deposits		39,487			1,531			5.18	%		49,591				1,572		4.24	%
Public time deposits		68,493			2,697			5.26	%		54,658				2,041		4.99	%
Short-term borrowings		25,431			812			4.27	%		20,180				655		4.34	%
FHLB advances		39,232			1,235			4.21	%		45,810				1,227		3.58	%
Trust preferred securities		10,993			560			6.81	%		—				—		0.00	%
Total Interest-Bearing Liabilities	$	763,745		$	21,050			3.68	%	$	654,823			$	14,773		3.02	%
Noninterest-bearing deposits		83,717									84,520
Other liabilities		8,626									6,057
Shareholders’ Equity		76,455									68,447
Total Liabilities and Shareholders’ Equity	$	932,543								$	813,847
Net interest Income (FTE)				$	22,137			3.43	%					$	21,899		3.86	%
Taxable Equivalent Adjustment					(282	)		-0.04	%						(180	)	-0.03	%
Net Interest Income Per Financial Statements				$	21,855									$	21,719
Net Yield on Earning Assets								3.39	%								3.83	%

     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 September 30, 2007 and September 30, 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 fully tax-equivalent basis.

25

Table 2: Rate/Volume Analysis of Net Interest Income (FTE)

	Three Months Ended September 30,
	Increase (Decrease) in Interest Income/Expense 2007 and 2006
	Volume			Rate			Total
	(Dollars in thousands)
U.S. Govt agencies and corporations	$	326		$	363		$	689
State and political subdivisions		52			(4	)		48
Federal funds sold and short-term investments		41			—			41
Commercial loans		783			(198	)		585
Real estate mortgage loans		311			(18	)		293
Home equity lines of credit		238			(53	)		185
Purchased installment loans		(92	)		18			(74	)
Installment loans		1,294			(11	)		1,283
Total Interest Income		2,953			97			3,050
Interest-bearing demand		71			101			172
Savings deposits		(5	)		90			85
Money market accounts		256			100			356
Consumer time deposits		1,054			381			1,435
Brokered time deposits		(336	)		36			(300	)
Public time deposits		197			(15	)		182
Short-term borrowings		128			(28	)		100
FHLB advances		75			68			143
Trust preferred securities and miscellaneous		355			—			355
Total Interest Expense		1,795			733			2,528
Net Interest Income (FTE)	$	1,158		$	(636	)	$	522

Consolidated net interest income (FTE) for the third quarter 2007 and 2006 was $7,927 and $7,405, respectively. Interest income for the third quarter of 2007 increased $3,050 in comparison to the same period in 2006, with 3.18% of the increase attributed to rate. For the same period, interest expense increased $2,528, with 29.00% attributed to rate. While rising rates remain a benefit to the Corporation, competitive margin pressure and stiff competition in our markets resulted in a $636 reduction in net interest income (FTE) as a result of rising rates. The decreases in net interest income (FTE) due to rate were offset by increased volume of $2,953 and $1,795 in interest income and interest expense, respectively. Overall, net interest income (FTE) increased $522.

26

	Nine Months Ended September 30,
	Increase (Decrease) in Interest Income/Expense 2007 and 2006
	Volume			Rate			Total
	(Dollars in thousands)
U.S. Govt agencies and corporations	$	142		$	973		$	1,115
State and political subdivisions		179			(16	)		163
Federal funds sold and short-term investments		264			1			265
Commercial loans		1,477			(234	)		1,243
Real estate mortgage loans		866			(16	)		850
Home equity lines of credit		458			204			662
Purchased installment loans		(94	)		37			(57	)
Installment loans		2,060			214			2,274
Total Interest Income		5,352			1,163			6,515
Interest-bearing demand		122			271			393
Savings deposits		(36	)		135			99
Money market accounts		570			477			1,047
Consumer time deposits		2,039			1,352			3,391
Brokered time deposits		(143	)		102			(41	)
Public time deposits		522			134			656
Short-term borrowings		197			(40	)		157
FHLB advances		99			(91	)		8
Trust preferred securities and miscellaneous		567			—			567
Total Interest Expense		3,937			2,340			6,277
Net Interest Income (FTE)	$	1,415		$	(1,177	)	$	238

Consolidated net interest income (FTE) for the nine month period ended September 30, 2007 and 2006 was $22,137 and $21,899, respectively. Interest income for the nine months ended September 30, 2007 increased $6,515 in comparison to the comparable period in 2006, with 17.85% of the increase attributed to rate. For the same period, interest expense increased $6,277, with 37.28% attributed to rate. The decrease of $1,177 in net interest income (FTE) due to rate was partially offset by increased volume of $5,352 and $3,937 in interest income and interest expense, respectively. Overall, net interest income (FTE) increased $238.

     Noninterest Income

Table 3: Details on Noninterest Income

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(Dollars in thousands)				(Dollars in thousands)
Investment and trust services	$	547	$	482	$	1,593	$	1,537
Deposit service charges		1,239		1,224		3,457		3,334
Electronic banking fees		605		504		1,706		1,444
Income from bank owned life insurance		182		187		531		474
Other income		128		56		273		160
Total fees and other income		2,701		2,453		7,560		6,949
Securities gains, net		2		—		261		-
Gains on sale of loans		277		—		546		-
Gains (losses) on sale of other assets		24		—		59		2
Total noninterest income	$	3,004	$	2,453	$	8,426	$	6,951

27

     Three Months Ended September 30, 2007 as compared to the Three Months Ended September 30, 2006

Noninterest income for the three months ended September 30, 2007 was $3,004 or an increase of $551, or 22.46%, from the same period 2006. Deposit service charges and fees from electronic banking increased $116, or 6.71%, over the same period last year, reflecting continued momentum in fee-based services. During the first quarter of 2007, the Corporation established a secondary market mortgage sales program, through which the Corporation sells mortgage loans to Freddie Mac. Mortgage loans which are primarily 15-year and 30-year fixed rate mortgages are committed to Freddie Mac when originated. In addition, high quality indirect loans are placed in the secondary market. These indirect loans were a primary activity of Morgan Bank prior to acquisition and continued by the Corporation. Net gains of $52 were recorded on sale of loans to Freddie Mac, and $197 on the sale of indirect loans during the third quarter of 2007. The Corporation retains the servicing rights for these loans.

     Nine Months Ended September 30, 2007 as compared to the Nine Months Ended September 30, 2006

Noninterest income was $8,426 for the nine months ended September 30, 2007, an increase of $1,475 as compared to the same period 2006. Increases were attributed primarily to deposit charges and other fees, as well as net gains recorded on sales on loans to the secondary market. Deposit service charges and other fees were up $385, or 8.06%, for the nine months ended September 30, 2007 as compared to the same period in 2006. As was the case in the second and third quarter of 2007, the Corporation has benefited from the increased momentum in demand deposit accounts and ATM usage during the first nine months of 2007. The Morgan Bank acquisition did not have a significant impact on these fees. Net gains recorded on the sale of loans in the secondary market were $546 for the first nine months of 2007. In the first quarter of 2007, after a detailed analysis of SFAS 159 as explained in the Summary of Significant Accounting Policies, the Corporation elected early adoption of SFAS 159 in connection with acquisition of Morgan Bank, NA and 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 $261 was recorded during the first nine months of 2007 on these securities.

     Noninterest Expense

Table 4: Details on Noninterest Expense

28

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(Dollars in thousands)				(Dollars in thousands)
Salaries and employee benefits	$	4,104	$	3,770	$	11,862	$	10,986
Furniture and equipment		952		737		2,566		2,227
Net occupancy		593		484		1,683		1,413
Outside services		488		406		1,317		1,260
Marketing and public relations		321		311		936		1,069
Supplies and postage		353		311		986		912
Telecommunications		232		207		623		577
Ohio Franchise tax		188		207		604		636
Other real estate owned		58		28		305		59
Electronic banking expense		150		160		593		466
Other charge-offs and losses		192		131		387		291
Loan and collection expense		236		212		644		620
Other expense		467		315		1,195		1,163
Total noninterest expense	$	8,334	$	7,279	$	23,701	$	21,679

     Three Months Ended September 30, 2007 as compared to the Three Months Ended September 30, 2006

Noninterest expense increased $1,055, or 14.49%, for the third quarter of 2007 over the same period 2006. In addition to the Morgan Bank acquisition, full service offices were opened at Chestnut Commons in January 2007, as well as two offices opened during 2006. While making these significant investments for the future, the Corporation has had success in limiting related increases in overhead expense. The $1,055 increase in noninterest expense includes operating costs associated with these new service and facility additions, as well as salary and benefit costs. These expenses, which include salaries and benefits, furniture and equipment, net occupancy, outside services and telecommunications increased $765 in the third quarter of 2007 as compared to the third quarter of 2006. The Morgan Bank operations added $670 in expense during the third quarter of 2007. Morgan Bank’s processing systems continue to primarily run independently. While fully consolidated with LNB Bancorp, the actual merger of the processing systems is not anticipated to occur until December 1, 2007. Many of the expenses related to Morgan Bank are double system charges, which are expected to dissipate as we near and complete the merger of systems.

Other real estate owned expense increased $30, or 1.07%, during the third quarter of 2007 as compared to the third quarter of 2006. Foreclosed property increased $791 in comparing the third quarter 2007 to the third quarter 2006. Other real estate owned expense includes the payment of delinquent real estate taxes, insurance and other related expenses in maintaining the properties.

Other charge-offs and losses increased $61 during the third quarter of 2007 over the same period in 2006. Other charge-offs and losses includes the charge off of uncollected overdraft fees outstanding for more than 90 days. This increase is consistent with the increase in deposit service charges and fees.

Loan and collection expense increased $24, or 11.3%, during the third quarter of 2007 in comparison to the same quarter in 2006. This is attributable to the additional focus and controls implemented over our credit administration process at the end of 2006 and in to 2007, as evidenced by the continued improvement in loan quality during 2007.

Intangible asset amortization expense, which is included with other expense, increased $28, or 96.55%, during the third quarter of 2007 over the same period in 2006. This was primarily the core deposit

29

intangible amortization of $34 as a result of the acquisition of Morgan Bank. Core deposits existing prior to the acquisition became fully amortized during the third quarter of 2007.

     Nine Months Ended September 30, 2007 as compared to the Nine Months Ended September 30, 2006

Noninterest expense was $23,701 for the nine months ended September 30, 2007. This as an increase of $2,022, or 9.33%, as compared to $21,679 recorded for the nine months ended September 30, 2006. Much of this expense can be related to the strategic growth initiatives referred to in the summary above during the last year, the first of which was the opening of the Cuyahoga County loan production office in June of 2006. Expenses during the nine months ended September 30, 2007 associated with the addition of offices, including the Morgan Bank acquisition on May 10, 2007, were $2,173. These expenses include salaries and employee benefits, furniture and equipment, net occupancy, outside services and telecommunications.

Other real estate owned expense increased $246 on a year-to-year comparison. This expense was primarily the result of delinquent taxes and fees associated with a foreclosure on a group of condominiums from the developer during the second quarter of 2007. Other real estate owned is carried at the lower of cost or market and certain properties which had been held for over a year were revalued during the first nine months of 2007 as a result of new appraisals on the property. Any valuation adjustments that are required are expensed directly to the income statement. Because these properties were held for over a year, the Corporation also paid the property taxes and insurance on them.

Intangible asset amortization expense increased $48 on a year-to-date comparison. This was result of core deposit intangible assets added with the acquisition of Morgan Bank. Core deposits existing prior to the acquisition became fully amortized during the third quarter of 2007.

Other charge-offs and losses increased $96, or 32.99%, during the first nine months of 2007 over the same period in 2006. Other charge-offs and losses includes the charge off of uncollected overdraft fees outstanding for more than 90 days. This increase is consistent with the increase in deposit service charges and fees.

     Income taxes

The Corporation recognized tax expense of $384 during the third quarter 2007 and $475 for the same period 2006. The Corporation’s effective tax rate was 18.67% for the third quarter 2007 as compared to 25.08% for the same period 2006. Income tax expense of $1,059 and $1,570 was recognized for the nine month period ended September 30, 2007 and 2006, respectively. The effective tax rate for the nine months ended September 30, 2007 and 2006 was 21.60% and 25.84%, respectively. The decrease in the effective rate is due to the sale of securities in April 2007 that resulted in a taxable loss. This taxable loss reduced taxable income without having the same effect on net income, the result of which is the lower tax expense and effective tax rate. New market tax credit being generated by North Coast Community Development continues to contribute to the lower effective tax rate.

Balance Sheet Analysis

     Overview

The Corporation’s assets at September 30, 2007 were $1,019,197 as compared to $851,098 at December 31, 2006. This is an increase of $168,099. The acquisition of Morgan Bancorp, Inc. and its wholly owned subsidiary, Morgan Bank, NA during the second quarter of 2007 contributed $135,640 in assets

30

as of the acquisition date. Assets, excluding those contributed by the Morgan Bank acquisition, increased 3.81% over December 31, 2006.

     Securities

The composition of the Corporation’s securities portfolio at September 30, 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 employ the securities portfolio to manage interest rate risk and to manage its liquidity needs. Currently, the portfolio is comprised of 31.18% U.S. Government agencies, 43.25% U.S. agency mortgage backed securities, 15.68% trading securities, 7.55% municipal securities, and 1.70% Federal Home Loan Bank stock. Other securities represent less than 1% of the portfolio and consist of Federal Reserve Bank stock and other miscellaneous equity investments. At September 30, 2007 the available for sale securities had a net temporary unrealized loss of $705, representing .41% of the total amortized cost of the Bank’s available for sale securities. Trading securities held at fair value of September 30, 2007 were $32,000, and did not have any unrealized losses recorded against 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

	September 30, 2007			December 31, 2006
	(Dollars in thousands)
Real estate loans (includes loans secured primarily by real estate only):
Construction and land development	$	64,239		$	105,633
One to four family residential		214,621			190,884
Multi-family residential		22,182			21,754
Non-farm non-residential properties		261,345			195,547
Commercial and industrial loans		54,688			40,820
Personal loans to individuals:
Auto, single payment and installment		108,463			65,780
All other loans		5,789			7,915
Total loans		731,327			628,333
Allowance for loan losses		(7,951	)		(7,300	)
Net loans	$	723,376		$	621,033

Total loans at September 30, 2007 were $731,327. This is an increase of $102,994, or 16.39% over December 31, 2006. Morgan Bank contributed approximately $93,189 at fair market value on the acquisition date of May 10, 2007. At September 30, 2007, commercial loans represented 55.92% of total portfolio loans. There were no commercial loans held for sale at September 30, 2007. Consumer loans, consisting of installment loans and home equity loans, comprised 30.10% of total portfolio loans. Consumer loans are made to borrowers on both secured and unsecured terms dependent on the maturity and nature of the loan. There was $2,384 in consumer loans held for sale as of September 30, 2007 consisting of high quality car loans which are generally sold within two weeks of closing. All loans held for sale at September 30, 2007 have subsequently been sold. The Corporation retains the servicing rights on these loans. The Corporation previously purchased indirect loans from Morgan Bank

31

Real estate mortgages comprise 13.99% of total portfolio loans. At September 30, 2007 these loans had increased $2,734, or 2.76% as compared to December 31, 2006. At September 30, 2007, mortgage loans held for sale to the secondary market at fair market value were $319. The Corporation monitors loan concentrations as a percentage of total risk-based capital. At September 30, 2007, the non-farm non-residential commercial real estate, home equity, 1-4 family residential and indirect installment loans portfolios exceeded 100% of total risk-based capital and represented 299%, 118%, 127% and 111% respectively. The non-farm, non-residential commercial real estate portfolio is fairly well diversified with developers, office projects and other income producing projects represent the highest concentrations as a percent of total risk-based capital.

     Deposits

Table 6: Deposits

	Average Balances Outstanding
	For the Nine Months Ended September 30,
	2007								2006
	Average		Percent of						Average		Percent of
	Balance		Deposits			Rate			Balance		Deposits			Rate
	(Dollars in thousands)
Noninterest bearing demand	$	83,717		10.85	%		0.00	%	$	84,520		12.55	%		0.00	%
Interest-bearing demand		100,330		13.00	%		1.11	%		83,757		12.44	%		0.70	%
Savings deposits		80,370		10.41	%		0.54	%		88,144		13.09	%		0.34	%
Money market accounts		126,166		16.35	%		3.68	%		103,646		15.39	%		3.13	%
Consumer time deposits		273,242		35.40	%		4.68	%		209,037		31.04	%		3.95	%
Brokered time deposits		39,487		5.12	%		5.18	%		49,591		7.36	%		4.24	%
Public time deposits		68,493		8.87	%		5.26	%		54,658		8.12	%		4.99	%
Total Deposits	$	771,805		100.00	%		3.19	%	$	673,353		100.00	%		2.56	%

Total deposits at September 30, 2007 were $834,323, an increase of $117,062, or 16.32% over December 31, 2006. Of the $101,870 in deposits contributed by Morgan Bank at fair market value on the acquisition date of May 10, 2007, time deposits represented 36.58%, while money market and interest-bearing checking accounts were 25.93% and 21.19%, respectively. There has been a migration from demand and other noninterest-bearing accounts to interest-bearing checking, and savings and money market accounts to time deposits during the first nine months of 2007. 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 September 30, 2007, the Corporation had $28,039 of short-term borrowings. There were no federal funds purchased at September 30, 2007, and repurchase agreements increased $7,376 over December 31, 2006. Long-term borrowings for the Corporation consist of Federal Home Loan Bank advances of $45,206 and junior subordinated debentures of $20,620. Federal Home Loan Bank advances were $35,086 at December 31, 2006. Maturities of long-term Federal Home Loan Bank

32

advances are presented in Note 10 to the Consolidated Financial Statements contained within this Form 10-Q. During the second quarter of 2007, the Corporation completed a private offering of trust preferred securities, as described in Note 11 to the Consolidated Financial Statements contained within this Form 10-Q. The securities were issued in two $10 million tranches, one of which pays dividends at a fixed rate of 6.64% per annum and the other of which pays dividends at LIBOR plus 1.48% per annum.

     Regulatory Capital

The Corporation continues to maintain an appropriate capital position. Total shareholders’ equity was $81,340 at September 30, 2007. This is an increase of 18.40% over December 31, 2006. Shareholders equity was increased by the issuance of 851,990 shares of the Corporation’s common stock in connection with the Morgan Bank acquisition on May 10, 2007 at the closing market price on that date of $14.23 per share. Net income also increased total shareholders’ equity by $1,673 and $3,844 for the three and nine months ended September 30, 2007, respectively. Other factors increasing shareholders’ equity were a $421 increase in accumulated other comprehensive loss resulting from an increase in the fair value of available for sale securities, and a $37 increase for share-based payment arrangements, net of tax. The factors decreasing total shareholders’ equity in the first nine months of 2007 were cash dividends payable to shareholders of $3,783. The Corporation held 328,194 shares of common stock as treasury stock at September 30, 2007, 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. At September 30, 2007 and December 31, 2006, the Corporation and Bank maintained capital ratios consistent with guidelines to be deemed well-capitalized under Federal banking regulations.

On July 28, 2005, the Corporation announced a share repurchase program of up to 5 percent, or about 332,000, of its 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 September 30, 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. Operational risk involves fraud, legal and compliance issues, processing errors, technology and the related disaster recovery, and breaches in business continuation and internal controls. Interest rate risk includes changes in interest rates affecting net interest income. Market risk is the risk that a financial institution’s earnings and capital or its ability to meet its business objectives 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

33

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.

     Nonperforming Assets, Delinquency and Potential Problem Loans

Total nonperforming assets consist of nonperforming loans, loans which have been restructured, and other foreclosed assets. 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 September 30, 2007 were $10,942 as compared to $13,259 at June 30, 2007 and $12,812 at December 31, 2006. Of this September 30, 2007 total, commercial loans were $8,332 as compared to $10,373 at June 30, 2007 and $10,322 at December 31, 2006. During the quarter progress was made in resolving two large nonperforming commercial loans. At September 30, 2007, construction and land development represented $2.9 million of the total commercial loan nonperforming, with non-farm, non-residential representing about $4.4 million, and the remaining being commercial and industrial. All nonperforming loans are being actively managed. These loans continue to be 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 September 30, 2007, specific reserves on these loans totaled $928 as compared to $1,115 specifically reserved at December 31, 2006.

Management also monitors delinquency and potential commercial problem loans. Bank-wide delinquency at September 30, 2007 was 1.91% of total loans as compared to 2.94% at December 31, 2006. 30-90 day delinquency was .41% of total loans at September 30, 2007 as compared to .91% at December 31, 2006. 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 September 30, 2007, potential commercial problem loans were $17,759 as compared to $22,103 at December 31, 2006. Approximately $15,500 of the total potential problem loans are attributable to seven relationships. The largest of these is approximately $4,000 and all are adequately collateralized with commercial real estate.

Other foreclosed assets were $3,053 as of September 30, 2007 as compared to $1,289 at December 31, 2006. This increase was primarily due to the transfer of four condominiums units from nonperforming commercial loans to other real estate. The $3,053 is comprised of $1,276 1-4 family residential

34

properties and $1,777 nonfarm nonresidential properties. This compares to $439 in 1-4 family residential properties with the remainder in nonfarm nonresidential properties as of December 31, 2006.

Table 8 sets forth nonperforming assets for the period ended September 30, 2007 and December 31, 2006.

Table 8: Nonperforming Assets

	September 30,2007			December 31, 2006
	(Dollars in thousands)
Commercial loans	$	8,332		$	10,322
Real estate mortgage		2,045			2,165
Home equity lines of credit		448			168
Installment loans		117			157
Total nonperforming loans		10,942			12,812
Other foreclosed assets		3,053			1,289
Total nonperforming assets	$	13,995		$	14,101
Nonperforming loans to total loans		1.50	%		2.04	%
Nonperforming assets to total assets		1.09	%		1.51	%

     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 and appropriate 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, trends in delinquency, 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 9 presents the detailed activity in the allowance for loan losses and related charge-off activity for the three and nine month periods ended September 30, 2007 and 2006.

35

Table 9: Analysis of Allowance for Loan Losses

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of period	$	8,115		$	6,568		$	7,300		$	6,622
Charge-offs:								-
Commercial		(496	)		(675	)		(1,693	)		(884	)
Real estate mortgage		(31	)		(92	)		(206	)		(133	)
Home equity lines of credit		—			(26	)		(55	)		(51	)
Purchased installment		(20	)		(5	)		(37	)		(56	)
Installment		(222	)		(179	)		(348	)		(317	)
DDA overdrafts		(73	)		(77	)		(181	)		(173	)
Total charge-offs		(842	)		(1,054	)		(2,520	)		(1,614	)
Recoveries:
Commercial		107			94			140			150
Real estate mortgage		6			5			7			7
Home equity lines of credit		—			1			25			1
Installment		116			78			185			128
DDA overdrafts		8			12			39			95
Total Recoveries		237			190			396			381
Net Charge-offs		(605	)		(864	)		(2,124	)		(1,233	)
Allowance from merger		—						1,098			—
Provision for loan losses		441			600			1,677			915
Balance at end of period		7,951		$	6,304		$	7,951		$	6,304

The allowance for loan losses at September 30, 2007 was $7,951 or 1.09% of outstanding loans, compared to $6,304 or 1.04% of outstanding loans at September 30, 2006. The allowance for loan losses was 72.66% and 89.76% of nonperforming loans at September 30, 2007 and 2006, respectively.

Net charge-offs for the three months ended September 30, 2007 were $605, as compared to $864 for the three months ended September 30, 2006. Net charge-offs for the nine months ended September 30, 2007 were $2,124, as compared to $1,233 for the nine months ended September 30, 2006. Annualized net charge-offs as a percent of average loans for the third quarter and first nine months of 2007 were .33% and .42% respectively, as compared to .57% and .28% respectively, for the same periods in 2006. The commercial loan charge-offs in the second quarter of 2007 were all related to known problem credits.

The provision charged to expense was $441 for the three months ended September 30, 2007 and $600 for the same period 2006. The provision for loan losses for the three, six, and nine month periods ended September 30, 2007 was, in the opinion of management, adequate when balancing the charge-off levels, with the level of nonperforming loans, the level of potential problem loans and delinquency. The resulting allowance for loan losses is, in the opinion of management, sufficient given its analysis of the information available about the portfolio at September 30, 2007. The Corporation continues to aggressively address potential problem loans, and underwriting standards continue to be adjusted in response to trends and asset review findings.

     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

36

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.

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 September 30, 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 $306, or .91%, and in a -200 basis point shock, net interest income would decrease $222, or .66%. 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. September 30, 2007, this analysis indicated that a +200 basis point change in rates would reduce the value of the Corporation’s equity by 17.57% while a -200 basis point change in rates would increase the value of the Corporation’s equity by 17.66%.

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 September 30, 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 September 30, 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.

37

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 positive remediation measures during the nine months ended September 30, 2007, including improvements to the control environment and enhanced monitoring, which have produced much improved results as evidenced by internal auditing testing.

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 September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Effect of Recent Acquisition

On May 10, 2007, the Corporation completed its acquisition of Morgan Bancorp, Inc. In addition, on May 10, 2007, the Corporated completed the merger of Morgan Bank, NA, a wholly owned subsidiary of Morgan Bancorp, Inc., with and into The Lorain National Bank, a wholly owned subsidiary of the Corporation. Since this acquisition, the Corporation has been documenting and analyzing the systems of disclosure controls and procedures and internal control over financial reporting of the acquired companies and integrating them within the Corporation’s broader framework of controls. The Corporation plans to continue this evaluation and integration in the next quarter. While the evaluation and integration is not yet complete, the Corporation has not, at this time, identified any material weaknesses in its disclosure controls and procedures or internal control over financial reporting as a result of this acquisition.

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 September 30, 2007. As of September 30, 2007, the Corporation had repurchased an aggregate of 202,500 shares under this program.

38

Item 6. Exhibits.

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

39

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: November 9, 2007	/s/ Sharon L. Churchill
	Sharon L. Churchill
	Chief Financial Officer (Duly Authorized Officer, and Principal Financial Officer)

40

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

Exhibit
10.1	Change in Control Supplemental Executive Compensation Agreement between LNB Bancorp, Inc. and David S. Harnett, dated August 8, 2007.
10.2	Form of Nonqualified Stock Option Agreement under the LNB Bancorp, Inc. 2006 Stock Incentive Plan.
31.1	Chief Executive Officer Rule 13a -14(a)/15d -14(a) Certification.
31.2	Chief Financial Officer Rule 13a -14(a)/15d -14(a) Certification.
32.1	Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

41

EX-10.1

Exhibit 10.1

CHANGE IN CONTROL

SUPPLEMENTAL EXECUTIVE COMPENSATION AGREEMENT

This Agreement, effective as of the 8th day of August, 2007, by and between LNB BANCORP,
INC., an Ohio corporation (the “Company”), and DAVE S. HARNETT (“Executive”), is to EVIDENCE THAT:

     WHEREAS the Company considers the establishment and maintenance of a sound and vital management team for the Company and its Subsidiaries (as defined in Section 1) to be essential to
protecting and enhancing the best interests of the Company and its shareholders; and

     WHEREAS the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and that such possibility may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and

     WHEREAS the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to secure Executive’s continued services for the Company and/or its Subsidiaries and to ensure Executive’s continued and undivided dedication to Executive’s duties in the event of any occurrence of a Change in Control (as defined in Section 1) of the Company; and

     WHEREAS Executive and the Company acknowledge that the terms and conditions of this Agreement shall apply only if a Change in Control occurs, except for the covenants contained in Section 11 which shall apply in all circumstances; and

     WHEREAS Executive further acknowledges that this Agreement does not alter Executive’s status as an “employee at will” with the Company;

     NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company and Executive (collectively, the “Parties” and, individually, a “Party”) hereby agree as follows:

     1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below:

(a) “Bonus Amount” means one (1) year of Executive’s base salary.

(b) “Cause” means any one or more of the following: (i) the willful and continued
failure of Executive to perform substantially Executive’s duties with the Company or its Subsidiaries (other than any such failure resulting from Executive’s Disability or any such failure subsequent to Executive being delivered a Notice of Termination without Cause by the Company or its Subsidiaries or after Executive delivering a Notice of Termination for Good Reason to the Company or its Subsidiaries) after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties and provides Executive with three (3) days to correct such failure, or (ii) the willful engaging by Executive in illegal conduct or gross misconduct which is injurious to the Company or its Subsidiaries, or (iii) the conviction of Executive

42

of, or a plea by Executive of nolo contendere to, a felony, or (iv) Executive’s breach of or failure to perform any of the non-competition and non-disclosure covenants contained in Section 11 of this Agreement or contained in any other document signed by Executive and by the Company (or any Subsidiary). For purpose of this paragraph (b), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without reasonable belief that Executive’s action or omission was in the best interests of the Company and its Subsidiaries. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board, based upon the advice of counsel for the Company, or based upon the instructions of the Company’s chief executive officer or another senior officer of the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company and its Subsidiaries.

     (c) “Change in Control” means the occurrence of any one of the following events:

(i)

if individuals who, on the date of this Agreement, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board; provided, however, that: (A) any person becoming a director subsequent to the date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds (2/3) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection by such Incumbent Directors to such nomination), shall be deemed to be an Incumbent Director, and (B) no individual elected or nominated as a director of the Company initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

(ii)

if any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then-outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the events described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary or by any employee stock benefit trust created by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in clause (iii) of this paragraph (c), below), (E) pursuant to any acquisition by Executive or by any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive), or (F) a transaction (other than one described in clause (iii) of this paragraph (c), below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approves a resolution

43

	providing expressly that the acquisition pursuant to this subparagraph (F) does not constitute a Change in Control under this clause (ii);
(iii)	upon the consummation of a merger, consolidation, share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s shareholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than fifty percent (50%) of the total voting power of either (x) the corporation resulting from the consummation of such Business Combination (the “Surviving Corporation”) or, if applicable, (y) the ultimate parent corporation that directly or indirectly has beneficial ownership of one hundred percent (100%) of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or any employee stock benefit trust created by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation), and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or
(iv)	if the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or a sale of all or substantially all of the Company’s assets but only if, pursuant to such liquidation or sale, the assets of the Company are transferred to an entity not owned (directly or indirectly) by the Company’s shareholders. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than twenty percent (20%) of Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, however, that if (after such acquisition by the Company) such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur.

44

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than twenty percent (20%) of Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, however, that if (after such acquisition by the Company) such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then occur.

Notwithstanding anything in this Agreement to the contrary, if (A) Executive’s employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control, (B) Executive reasonably demonstrates that such termination (or event constituting Good Reason) was at the request of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control, and (C) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then (for purposes of this Agreement) the date immediately prior to the date of such termination of employment (or event constituting Good Reason) shall be treated as a Change in Control.

(d)

“Date of Termination” means (1) the effective date on which Executive’s employment by the Company and its Subsidiaries terminates as specified in a prior written notice by the Company, a Subsidiary or Executive (as the case may be) to the other, delivered pursuant to Section 9, or (2) if Executive’s employment by the Company terminates by reason of death, the date of death of Executive, or (3) if the Executive incurs a Disability, the date of such Disability as determined by a physician chosen by the Company. For purposes of determining the timing of payments and benefits to Executive under Section 4, the date of the actual Change in Control shall be treated as Executive’s Date of Termination. (e) “Disability” means Executive’s inability to perform Executive’s then-existing duties with the Company or its Subsidiaries on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive’s incapacity due to physical or mental illness.

(f)

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

(i)

(A) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive’s positions, duties, responsibilities or status with the Company or its Subsidiaries immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities), or (B) a material and adverse change in Executive’s titles or offices (including, if applicable, membership on the Board) with the Company or its Subsidiaries as existing immediately prior to such Change in Control;

(ii)

(A)a reduction by the Company or its Subsidiaries in Executive’s rate of annual base salary as in effect immediately prior to such Change in Control (or as such annual base salary may be increased from time to time thereafter), or (B) the failure by the Company or its Subsidiaries to pay

45

	Executive an annual bonus (if any) in respect of the year in which such Change in Control occurs;
(iii)	any requirement of the Company or its Subsidiaries that Executive: (A) be based anywhere more than fifty (50) miles from the office where Executive is located at the time of the Change in Control, or (B) travel on Company or Subsidiary business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control;
(iv)	the failure of the Company or its Subsidiaries to continue in effect any material employee benefit plan, compensation plan, welfare benefit plan or other material fringe benefit plan in which Executive is participating immediately prior to such Change in Control or the taking of any action by the Company or its Subsidiaries which would materially and adversely affect Executive’s participation in or reduce Executive’s benefits under any such plan, unless Executive is permitted to participate in other plans providing Executive with substantially equivalent benefits in the aggregate; or
(v)	the failure of the Company to obtain the assumption (and, if applicable, guarantee) agreement from any successor (and Parent Corporation) as contemplated in Section 8(b).

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

(g)

“Qualifying Termination” means a termination of Executive’s employment after a Change in Control and during the Termination Period (as defined herein) (i) by the Company or its Subsidiaries other than for Cause, or (ii) by Executive for Good Reason. Termination of Executive’s employment on account of death or Disability shall not constitute a Qualifying Termination.

(h)

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

46

(i) “Termination Period” means the two (2) year period from the effective date of this Agreement.

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

     3. Term of Agreement. The term of this Agreement shall be effective for a two (2) year period from the date hereof.

     4. Benefits Upon Qualifying Termination of Employment. If during the Termination

     Period Executive’s employment with the Company and its Subsidiaries terminates pursuant to a
Qualifying Termination, then the Company shall pay to Executive, within twenty (20) days following the Date of Termination, a lump sum cash amount equal to the Bonus Amount, as defined in Section 1.1(a). Notwithstanding any contrary provision set forth in this Agreement, Company’s payments to Executive shall be reduced to the extent that such payments (together with all other payments by Company to Executive under all other written or verbal agreements between Company and Executive) constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code (as may be periodically amended).

     5. Withholding Taxes. The Company shall withhold from all payments due to Executive hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom.

     6. Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving the alleged failure or refusal of the Company or any of its Subsidiaries to perform fully in accordance with the terms hereof, the Company shall reimburse Executive for all reasonable legal fees and expenses, if any, incurred by Executive with respect to such contest or dispute, together with interest in an amount equal to the prime rate of Lorain National Bank from time to time in effect (but in no event higher than the legal rate permissible under applicable law), such interest to accrue from the date the Company becomes obligated to pay such fees and expenses through the date of payment thereof; provided, however, that this Section 6 shall apply only if (and to the extent that) the Company is held to have breached or violated its duties and obligations hereunder to Executive.

     7. Scope of Agreement. Executive acknowledges that Executive is employed by the Company as an “employee at will” and that nothing in this Agreement shall be deemed to change Executive’s status as an employee at will or to entitle Executive to continued employment with the Company or its Subsidiaries. If Executive’s employment with the Company and its Subsidiaries terminates prior to a Change in Control or the term of this Agreement expires, Executive shall have no further rights under this Agreement (except as otherwise expressly provided hereunder).

     8. Successors; Binding Agreement.

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

47

(b) The Company agrees that, in connection with any Business Combination, Company will cause any successor entity to the Company unconditionally to assume (and, for any Parent Corporation in such Business Combination, to guarantee), by written instrument delivered to Executive (or Executive’s beneficiaries or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption or guarantee prior to the effectiveness of any such Business Combination that constitutes a Change in Control shall be a breach of this Agreement and shall constitute Good Reason hereunder and, further, shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder as if Executive’s employment were terminated following a Change in Control by reason of a Qualifying Termination. For purposes of implementing this Section 8(b), the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs and shall be the Date of Termination, if so requested by Executive.

     9.  Notice.

(a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been properly given when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows (or to such other address as either Party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt):

— If to the Executive, at the address set forth below in the signatory provision below; and

— If to the Company:
      LNB Bancorp, Inc.
     457 Broadway
     Lorain, OH 44052
      Attn: Mary Miles

(b) A written notice of Executive’s Date of Termination by the Company or Executive, as the case may be, to the other Party shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) specify the Date of Termination, which date shall be not less than fifteen (15) days (thirty (30) days, if termination is by the Company for Disability) nor more than sixty (60) days after the giving of such notice. The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of either Party or preclude either Party from asserting such fact or circumstance in enforcing such Party’s rights hereunder.

48

     10. Full Settlement; Resolution of Disputes. The Company’s obligation to make payment under this Agreement and otherwise to perform its obligations hereunder shall be in lieu and in full settlement of all other severance payments to Executive (payable because of a Change in Control) under any other severance or employment agreement between Executive and the Company and its Subsidiaries (if any) and under any severance plan of the Company and its Subsidiaries (if any). In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, except as provided in Section 4, such amounts shall not be reduced whether or not Executive obtains other employment. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Lorain County, Ohio, by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators’ award in any State court having jurisdiction in Lorain County, Ohio. Except as otherwise provided in Section 6, each Party shall pay such Party’s costs and expenses incurred in connection with any arbitration proceeding pursuant to this Section and the Parties shall each pay fifty percent (50%) of the costs of the arbitration proceedings.

     11. Executive’s Non-Disclosure and Non-Competition Promises.

          11.1 Definitions. For purposes of this Section 11, the Parties agree to and understand the following definitions:

(a)

“Competitive Activity” means the performance or rendering of any banking services; trust services and investment services; portfolio management; retirement planning; administration of employee benefit plans; administration of decedents’ estates and court-supervised accounts, guardianships, and custodial arrangements; personal tax and estate tax planning; financial consulting services; investment advising services; and any other business activity, service or product which competes with any existing or future business activity, service or product of the Company.

(b)

“Confidential Information” means all of the following (whether written or verbal) pertaining to the Company: (i) trade secrets (as defined by Ohio law); Client or Customer lists, records and other information regarding the Company’s Clients or Customers (whether or not evidenced in writing); Client or Customer fee or price schedules and fee or price policies; financial books, plans, records, ledgers and information; business development plans; sales and marketing plans; research and development plans; employment and personnel manuals, records, data and policies; business manuals, methods and operations; business forms, correspondence, memoranda and other records; computer records and related data; and any other confidential or proprietary data and information of the Company or its Clients or Customers which Executive encounters during the Employment Term; and (ii) all products, technology, ideas, inventions, discoveries, developments, devices, processes, business notes, forms and documents, business products, computer programs, and other creations (and improvements of any of the foregoing), whether patentable or copyrightable, which Employee has acquired, developed, conceived or made (whether directly or indirectly, whether solicited or unsolicited, or whether during normal work hours or during off-time) during the Employment Term or during the Restricted

49

	Period and which relate to any business activity of the Company or are derived from the Confidential Information designated in Subitem (i) of this Section 11.1(b).
(c)	“Client” or “Customer” means a person, sole proprietorship, partnership, association, organization, corporation, limited liability company, or other entity (governmental or otherwise), wherever located: (i) to or for which the Company sells any products or renders or performs services either during the 180-day period immediately preceding commencement of the Restricted Period or during the Restricted Period, or (ii) which the Company solicits or (as demonstrated by plans, strategies or other tangible preparation) intends to solicit to purchase products or services from the Company either during the 180-day period immediately preceding commencement of the Restricted Period or during the Restricted Period.
(d)	“Employment Term” means the period of time starting on the date Executive’s employment with the Company commences and terminating at the close of business on the date Executive’s employment with the Company terminates.
(e)	“Restricted Period” means a period of one (1) year (or, if shorter, the duration of the Employment Term) commencing on the date the Employment Term is terminated by either Party (for any reason, with or without cause); provided, however, that such period shall be extended to include any period of time during which Employee engages in any activity constituting a breach of this Agreement and any period of time during which litigation transpires wherein Employee is held to have breached this Agreement.
(f)	“Company” means, for purposes of this Section 11, LNB Bancorp, Inc. and The Lorain National Bank (a national bank association), all direct and indirect parent and subsidiary entities thereof, and all entities related to LNB Bancorp, Inc., The Lorain National Bank or to such parent and subsidiary entities by common ownership.

     11.2 Executive’s Promises. Expressly in consideration for the Company’s promises made in this Agreement, Executive promises and agrees that:

(a) Confidentiality. The Confidential Information is and, at all times, shall remain the exclusive property of the Company, and Executive (i) shall hold the Confidential Information in strictest confidence and in a position of trust for the Company and its Clients and Customers, and (ii) except as may be necessary to perform Executive’s employment duties with the Company, shall not (directly or indirectly) use for any purpose, copy, duplicate, disclose, convey to any third-party or convert any Confidential Information, either during the Employment Term or at any time following termination of the Employment Term (by any Party, for any reason, with or without cause), and (iii) upon the request of the

50

	Company at any time during or after the Employment Term, shall immediately deliver to the Company all the Confidential Information in Executive’s possession and shall neither convey to any third-party nor retain any copies or duplicates thereof; and
(b)	Clients and Customers. During the Restricted Period, Executive (or any entity owned or controlled by Executive) shall not directly or indirectly: (i) solicit from or perform for any Client or Customer a Competitive Activity, wherever such Client or Customer is located, or (ii) influence (or attempt to influence) any Client or Customer to transfer such Client’s or Customer’s patronage or business from the Company, or (iii) otherwise interfere with any business relationship of the Company with any Client or Customer; and
(c)	Employees. During the Restricted Period, Executive (or any entity owned or controlled by Executive) shall not directly or indirectly: (i) employ, engage, contract for the services of, or solicit or otherwise induce the services of any person who, during the one hundred eighty (180)-day period immediately preceding commencement of the Restricted Period or during the Restricted Period, is or was an employee of the Company, or (ii) otherwise interfere with (or attempt to interfere with) any employment relationship of the Company with any employee of Bank.
(d)	Other Employment. During the Employment Term, Executive shall not perform services (whether or not for compensation) as an employee, independent contractor, consultant, representative or agent of any person, sole proprietorship, partnership, limited liability company, corporation, association (other than the Company), organization, or other entity (governmental or otherwise) without the prior, written consent of the President of the Company (or any person expressly designated by the President).
(e)	Costs of Enforcement. Executive shall pay all reasonable legal fees, court costs, expert fees, investigation costs, and other expenses incurred by the Company in the enforcement of this Section 11.

     11.3 Importance of Executive’s Promises. Executive understands and agrees that:

(a)

during the Employment Term, Executive will materially assist the Company in the generation, development or enhancement of certain Confidential Information, Clients and Customers and certain other business assets and activities for Company; and

(b)

Executive’s promises in this Section 11: (1) were negotiated at arm’slength and with ample time for Executive to seek the advice of legal counsel, (2) are required for the fair and reasonable protection of the Company and the Confidential Information, and (3) do not constitute an unreasonable hardship to Executive in working for the Company or in subsequently earning a livelihood in Executive’s field of expertise; and

51

(c)

if Executive breaches (or threatens to breach) any or all of the promises in this Section 11: the secrecy and thereby the value of the Confidential Information will be significantly jeopardized; the Company will be subject to the immediate risk of material, immeasurable, and irreparable damage and harm; the remedies at law for Executive’s breach shall be inadequate; the Company shall therefore be entitled to injunctive relief against Executive in addition to any and all other legal or equitable remedies; and

(d)

if Executive had not agreed to the restrictive promises in this Agreement, the Company would not have signed this Agreement.

     11.4 Extent and Continuation of Executive’s Promises. Executive’s promises, duties and obligations made in this Section 11 shall apply to Executive irrespective of whether a Change in Control occurs and shall survive the voluntary or involuntary cessation or termination of the Employment Term by either Party (for any reason, with or without cause). If any of the restrictions contained in this Section 11 are ever judicially held to exceed the limitations permitted by law, then such restrictions shall be deemed to be reformed to comply with the maximum limitations permitted by law. The existence of any claim or cause of action by Executive against the Company (whether or not derived from or based upon Executive’s employment with the Company) shall not constitute a defense to the Company’s enforcement of any covenant, duty or obligation of Executive in this Section 11.

     12. Employment with Subsidiaries. For purposes of this Agreement, any and all references to Executive’s employment with the Company shall be deemed to include Executive’s employment by any Subsidiary and, with respect to such employment by a Subsidiary, the term “Company” as used in this Agreement shall be deemed to include any Subsidiary which employs Executive.

     13. Survival. The respective obligations and benefits afforded to the Company and Executive as provided in Sections 4 (to the extent that payments or benefits are owed as a result of the termination of employment that occurs during the Termination Period), 5, 6, 8, 10 and 11 shall survive the termination of this Agreement and the term of this Agreement.

     14. Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Ohio without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. All Parties hereby agree that exclusive venue for all litigation arising hereunder lies solely with the State Courts of Lorain County, Ohio and each Party hereby submits and agrees to the personal jurisdiction of such Lorain County State Courts.

     15. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

     16. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either Party (at any time) of any breach by the other Party of, or compliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except as otherwise expressly set forth in this Agreement, the failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right

52

Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

[Document Continued on Next Page]

53

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written.

	LNB BANCORP, INC.
/s/ Mary E. Miles	By: /s/ Daniel E. Klimas
(Signature of First Witness)	Daniel Klimas, President
/s/ Karla Mileti	- Company -
(Signature of Second Witness)
/s/ Mary E. Miles	/s/ Dave S. Harnett
(Signature of First Witness)	Dave S. Harnett
/s/ Karla Mileti	457 Broadway
(Signature of Second Witness)	Address Lorain, Ohio 44052
	City, State
	— Executive -

54

EX-10.2

Exhibit 10.2

LNB BANCORP, INC.

Non-Qualified Stock Option Agreement
Granted Under 2006 Stock Incentive Plan

          Grant of Option.

     This agreement evidences the grant by LNB Bancorp, Inc., an Ohio corporation (the “Company”), on ___, 20___(the “Grant Date”) to ___, an [employee] of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2006 Stock Incentive Plan (the “Plan”), a total of                    common shares (the “Shares”), $1.00 par value per share, of the Company (“Common Shares”) at $           per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on ___(the “Final Exercise Date”). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Plan.

     It is intended that the option evidenced by this agreement shall be a Non-Qualified Stock Option. Except as otherwise indicated by the context, the term “Participant,” as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

          Vesting Schedule.

     This option will become exercisable (“vest”) as to [one-third] of the original number of Shares on the first anniversary of the Grant Date and as to an additional [one-third] of the original number of Shares on each successive anniversary following the first anniversary of the Grant Date until the [third] anniversary of the Grant Date.

     The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.

          Exercise of Option.

     Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

     Continuous Relationship with the Company Required. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee] of the Company or any other entity the employees, officers, directors,

55

     consultants, or advisors of which are eligible to receive option grants under the Plan (an “Eligible Participant”).

     Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate 60 days after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.

     Exercise Period Upon Death or Disability. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.

     Discharge for Cause. If the Participant, prior to the Final Exercise Date, is discharged by the Company for “Cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge. “Cause” shall mean (i) the Participant’s commission of any act constituting a felony or a crime involving moral turpitude; (ii) breach by the Participant of any non-competition, non-solicitation or confidentiality obligation to the Company; (iii) any act of the Participant involving embezzlement or fraud against the Company or any Affiliate; or (iv) any act of the Participant involving operational wrongdoing relating to the Company or any Affiliate. Whether “Cause” exists shall be determined by the Committee in its sole and exclusive discretion. The Participant shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after the Participant’s resignation, that discharge for Cause was warranted.

Withholding.

56

     No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

          Nontransferability of Option.

     This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except in accordance with the terms of the Plan. During the lifetime of the Participant, this option shall be exercisable only by the Participant.

          Code Section 409A.

     It is intended that this option and the compensation and benefits hereunder either be exempt from, or comply with, Code Section 409A, and this option shall be so construed and administered. In the event that the Company reasonably determines that any compensation or benefits payable under this option may be subject to taxation under Section 409A, the Company, after consultation with the Participant, shall have the authority to adopt, prospectively or retroactively, such amendments to this option or to take any other actions it determines necessary or appropriate to (i) exempt the compensation and benefits payable under this option from Section 409A or (ii) comply with the requirements of Section 409A. In no event, however, shall this section or any other provisions of this option be construed to require the Company to provide any gross-up for the tax consequences of any provisions of, or payments under, this option and the Company shall have no responsibility for tax consequences to the Participant (or his or her beneficiary) resulting from the terms or operation of this option.

          Provisions of the Plan.

     This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

     IN WITNESS WHEREOF, the Company has caused this option to be executed by its duly authorized officer.

	LNB BANCORP, INC.
Dated:	By:

Name:

Title:

57

PARTICIPANT’S ACCEPTANCE

     The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2006 Stock Incentive Plan.

	PARTICIPANT:
Address:

58

EX-31.1

Exhibit 31.1

Chief Executive Officer Rule 13a -14(a)/15d -14(a) Certification.

     I, Daniel E. Klimas, President and Chief Executive Officer of LNB Bancorp, Inc. (the “registrant”) certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LNB Bancorp, Inc.;

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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

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

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

59

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

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

Date: November 9, 2007

/s/ Daniel E. Klimas

Daniel E. Klimas

President and Chief Executive Officer

60

EX-31.2

Exhibit 31.2

Chief Financial Officer Rule 13a -14(a)/15d -14(a) Certification.

     I, Sharon L. Churchill, Chief Financial Officer of LNB Bancorp, Inc. (the “registrant”) certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LNB Bancorp, Inc.;

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

61

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

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

Date: November 9, 2007

/s/ Sharon L. Churchill

Sharon L. Churchill

Chief Financial Officer

62

EX-32.1

Exhibit 32.1

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

          In connection with the Quarterly Report on Form 10-Q of LNB Bancorp, Inc. (the “Corporation”) for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel E. Klimas, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Daniel E. Klimas

Daniel E. Klimas

President and Chief Executive Officer

November 9, 2007

63

EX-32.2

Exhibit 32(b)

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

          In connection with the Quarterly Report on Form 10-Q of LNB Bancorp, Inc. (the “Corporation”) for the period ending September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sharon L. Churchill, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ Sharon L. Churchill

Sharon L. Churchill

Chief Financial Officer

November 9, 2007

64