10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

OR

¨ 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of common shares of the registrant outstanding on May 4, 2012 was 7,944,354.

LNB Bancorp, Inc.

Table of Contents

Part I — Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011	3
Consolidated Statements of Income (unaudited) for the three months ended March  31, 2012 and March 31, 2011	4
Consolidated Statements of Shareholders’ Equity (unaudited) for the three months ended March  31, 2012 and March 31, 2011	5
Consolidated Statements of Cash Flows (unaudited) for the three months ended March  31, 2012 and March 31, 2011	6
Notes to the Consolidated Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures about Market Risk	42
Item 4. Controls and Procedures	45
Part II — Other Information	45
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6. Exhibits	46

2

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements.

	March 31, 2012			December 31, 2011
	(unaudited)
	(Dollars in thousands except share amounts)
ASSETS
Cash and due from banks (Note 3)	$	37,032		$	34,323
Federal funds sold and interest bearing deposits in banks		7,080			6,324
Cash and cash equivalents		44,112			40,647
Securities available for sale, at fair value (Note 5)		231,851			226,012
Restricted stock		5,741			5,741
Loans held for sale		4,462			3,448
Loans:
Portfolio loans (Note 6)		862,220			843,088
Allowance for loan losses (Note 6)		(17,115	)		(17,063	)
Net loans		845,105			826,025
Bank premises and equipment, net		8,947			8,968
Other real estate owned		1,845			1,687
Bank owned life insurance		18,034			17,868
Goodwill, net (Note 4)		21,582			21,582
Intangible assets, net (Note 4)		698			731
Accrued interest receivable		3,651			3,550
Other assets		13,066			12,163
Total Assets	$	1,199,094		$	1,168,422
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits: (Note 7)
Demand and other noninterest-bearing	$	134,368		$	126,713
Savings, money market and interest-bearing demand		380,396			359,977
Time deposits		501,402			504,390
Total deposits		1,016,166			991,080
Short-term borrowings (Note 8)		894			227
Federal Home Loan Bank advances (Note 9)		47,496			42,497
Junior subordinated debentures (Note 10)		16,238			16,238
Accrued interest payable		1,054			1,118
Accrued expenses and other liabilities		3,185			3,988
Total Liabilities		1,085,033			1,055,148
Shareholders’ Equity
Preferred stock, Series A Voting, no par value, authorized 150,000 shares, none issued at March 31, 2012 and December 31, 2011.		—			—
Preferred stock, Series B, no par value, $1,000 liquidation value, 25,223 shares authorized and issued at March 31, 2012 and December 31, 2011.		25,223			25,223
Discount on Series B preferred stock		(98	)		(101	)
Warrant to purchase common stock		146			146
Common stock, par value $1 per share, authorized 15,000,000 shares, issued
8,272,548 shares at March 31, 2012 and 8,210,443 at December 31, 2011.		8,272			8,210
Additional paid-in capital		39,614			39,607
Retained earnings		45,187			44,080
Accumulated other comprehensive income		1,809			2,201
Treasury shares at cost, 328,194 shares at March 31, 2012 and at December 31, 2011.		(6,092	)		(6,092	)
Total Shareholders’ Equity		114,061			113,274
Total Liabilities and Shareholders’ Equity	$	1,199,094		$	1,168,422

See accompanying notes to consolidated financial statements.

3

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended
		March 31, 2012			March 31, 2011
		(Dollars in thousands except share and per share amounts)
Interest and Dividend Income
Loans	$	10,049		$	10,516
Securities:
U.S. Government agencies and corporations		1,260			1,477
State and political subdivisions		287			256
Other debt and equity securities		72			72
Federal funds sold and short-term investments		9			14
Total interest income		11,677			12,335
Interest Expense
Deposits		1,631			2,283
Federal Home Loan Bank advances		215			266
Short-term borrowings		—			1
Junior subordinated debentures		176			171
Total interest expense		2,022			2,721
Net Interest Income		9,655			9,614
Provision for Loan Losses (Note 6)		1,900			2,100
Net interest income after provision for loan losses		7,755			7,514
Noninterest Income
Investment and trust services		390			403
Deposit service charges		935			916
Other service charges and fees		748			906
Income from bank owned life insurance		165			174
Other income		342			79
Total fees and other income		2,580			2,478
Securities gains, net (Note 5)		—			412
Gains on sale of loans		347			179
Gain (loss) on sale of other assets		(52	)		2
Total noninterest income		2,875			3,071
Noninterest Expense
Salaries and employee benefits		4,111			4,091
Furniture and equipment		832			680
Net occupancy		579			612
Professional fees		495			486
Marketing and public relations		247			271
Supplies, postage and freight		243			272
Telecommunications		173			215
Ohio franchise tax		316			298
FDIC assessments		392			574
Other real estate owned		132			590
Electronic banking expenses		238			209
Loan and collection expense		349			442
Other expense		437			449
Total noninterest expense		8,544			9,189
Income before income tax expense		2,086			1,396
Income tax expense		581			266
Net Income		1,505			1,130
Other comprehensive income (loss), net of taxes:
Changes in unrealized securities’ holding gain (loss) net of taxes		(392	)		77
Minimum pension liability adjustment, net of taxes during the period		—			—
Less: reclassification adjustments for securities’ gains realized in net income, net of taxes	$	—		$	272
Total other comprehensive loss, net of taxes		(392	)		(195	)
Comprehensive income	$	1,113		$	935
Dividends and accretion on preferred stock		319			319
Net Income Available to Common Shareholders	$	1,186		$	811
Net Income Per Common Share (Note 2)
Basic	$	0.15		$	0.10
Diluted		0.15			0.10
Dividends declared		0.01			0.01
Average Common Shares Outstanding
Basic		7,924,562			7,871,416
Diluted		7,925,890			7,871,432

See accompanying notes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

	Preferred Stock (net of discount)		Warrant to Purchase Common Stock		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
					(Dollars in thousands except share and per share amounts)
Balance, January 1, 2011	$	25,107	$	146	$	8,173	$	39,455		$	40,668		$	2,007		$	(6,092	)	$	109,464
Net Income											1,130									1,130
Common dividends declared, $.01 per share											(79	)								(79	)
Preferred dividends and accretion of discount		4									(319	)								(315	)
Net unrealized gains and losses on securities														(195	)					(195	)
Share-based compensation								44												44
Restricted shares granted (40,000 shares)		—		—		40		(40	)		—			—			—			—
Balance, March 31, 2011	$	25,111	$	146	$	8,213	$	39,459		$	41,400		$	1,812		$	(6,092	)	$	110,049
Balance, January 1, 2012	$	25,122	$	146	$	8,210	$	39,607		$	44,080		$	2,201		$	(6,092	)	$	113,274
Net Income											1,505									1,505
Common dividends declared, $.01 per share											(79	)								(79	)
Preferred dividends and accretion of discount		3									(319	)								(316	)
Net unrealized gains and losses on securities														(392	)					(392	)
Share-based compensation								69												69
Restricted shares granted (62,105 shares)		—		—		62		(62	)		—			—			—			—
Balance, March 31, 2012	$	25,125	$	146	$	8,272	$	39,614		$	45,187		$	1,809		$	(6,092	)	$	114,061

See accompanying notes to consolidated financial statements

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended
	March 31, 2012			March 31, 2011
	(Dollars in thousands)
Operating Activities
Net income	$	1,505		$	1,130
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,900			2,100
Depreciation and amortization		284			310
Amortization of premiums and discounts		376			337
Amortization of intangibles		33			33
Amortization of loan servicing rights		181			63
Amortization of deferred loan fees		(54	)		(98	)
Federal deferred income tax expense		197			958
Securities gains, net		—			(412	)
Share-based compensation expense		69			44
Loans originated for sale		(24,150	)		(21,859	)
Proceeds from sales of loan originations		23,483			20,468
Net gain from loan sales		(347	)		(179	)
Net (gain) or loss on sale of other assets		52			(2	)
Net (increase) decrease in accrued interest receivable and other assets		(1,277	)		2,357
Net increase (decrease) in accrued interest payable, taxes and other liabilities		(851	)		36
Net cash provided by operating activities		1,401			5,286
Investing Activities
Proceeds from sales of available-for-sale securities		—			15,499
Proceeds from maturities of available-for-sale securities		40,681			11,202
Purchase of available-for-sale securities		(47,506	)		(40,761	)
Net (increase) decrease in loans made to customers		(21,560	)		2,184
Proceeds from the sale of other real estate owned		355			954
Purchase of bank premises and equipment		(264	)		(18	)
Net cash used in investing activities		(28,294	)		(10,940	)
Financing Activities
Net increase in demand and other noninterest-bearing		7,655			4,228
Net increase in savings, money market and interest-bearing demand		20,419			29,978
Net decrease in certificates of deposit		(2,988	)		(11,633	)
Net increase (decrease) in short-term borrowings		667			(350	)
Proceeds from Federal Home Loan Bank advances		20,000			15,000
Payment of Federal Home Loan Bank advances		(15,001	)		(15,003	)
Dividends paid		(394	)		(393	)
Net cash provided by financing activities		30,358			21,827
Net increase in cash and cash equivalents		3,465			16,173
Cash and cash equivalents, January 1		40,647			48,220
Cash and cash equivalents, March 31	$	44,112		$	64,393
Supplemental cash flow information
Interest paid	$	2,056		$	2,705
Income taxes paid		100			—
Transfer of loans to other real estate owned		635			1,563

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 primary 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.

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnote disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Corporation included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of the Corporation’s management (“Management”), are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three month period ended March 31 2012, are not necessarily indicative of the results which may be expected for a full year.

Use of Estimates

LNB Bancorp Inc. prepares its financial statements in conformity with generally accepted accounting principles (GAAP), which requires the Corporation’s 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 valuation of goodwill, the realization of deferred tax assets and fair values of financial instruments.

Segment Information

The Corporation’s activities are considered to be a single industry segment for financial reporting purposes. LNB Bancorp, Inc. is a bank 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, Erie, Cuyahoga, and Summit counties of Ohio. This market provides the source for substantially all of the Bank’s deposit and loan and trust 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. As of March 31, 2012 and December 31, 2011, the Corporation did not hold any trading securities. Securities that the Corporation has a positive intent and ability to hold to maturity are classified as held to maturity. As of March 31, 2012 and December 31, 2011, 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. 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. Gains and losses on sales of securities are determined on the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. When evaluating investment securities consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by

7

macroeconomic conditions and whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. In analyzing an issuer’s financial condition, the Corporation may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but the entity does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

Restricted Stock

The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. The Bank is also a member of and owns stock in the Federal Reserve Bank. The Corporation also owns stock in Bankers Bancshares Inc., an institution that provides correspondent banking services to community banks. Stock in these institutions is classified as restricted stock and is recorded at redemption value which approximates fair value. The Corporation periodically evaluates the restricted stock for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Held For Sale

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 the noninterest income section of the consolidated statement of income.

Loans

Loans are reported at the principal amount outstanding, net of unearned income and premiums and discounts. Loans acquired through business combinations are 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 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.

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 collectability 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 or below. 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.

8

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 loans and individual borrowers, sensitivity analysis and expected loss models, value of underlying collateral, and observations of internal loan review staff or banking regulators.

The provision for loan losses is determined based on 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.

Servicing

Servicing assets are recognized as separate assets when rights are acquired through sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment on a quarterly basis based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.

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. Goodwill is evaluated at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Corporation evaluates goodwill impairment annually as of November 30^th of each year. Core deposit intangible assets are amortized using the straight-line method over ten years and are subject to annual impairment testing.

To simplify the process of testing goodwill for impairment for both public and nonpublic entities, on September 15, 2011 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 gives an entity the option to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value if a reporting unit less than its carrying amount (impairment). If the entity finds after the qualitative assessment that it is more likely than not (impairment indicators) that the fair value of a reporting unit is less than its carrying amount, the entity is then required to perform a full impairment test. Prior to the update entities were required to test goodwill for impairment on at least an annual basis. The Corporation tested for goodwill impairment in 2010 and 2009 with no impairment losses recognized. The Corporation early-adopted the ASU in 2011.

Other Real Estate Owned

Other real estate (ORE) is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. Other real estate owned is recorded at the lower of the recorded investment in the loan at the time of acquisition or the fair value of the underlying property collateral, less estimated selling costs. Any write-down in the carrying value of a property at the time of acquisition is charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair market value, as well as gains and losses on disposition and revenues and expenses incurred in maintaining such properties, are treated as period costs. Other real estate owned also includes bank premises formerly but no longer used for banking. Banking premises are transferred at the lower of carrying value or estimated fair value, less estimated selling costs.

9

Split-Dollar Life Insurance

The Corporation recognizes a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to certain employees extending to post-retirement periods. Based on the present value of expected future cash flows, the liability is recognized based on the substantive agreement with the employee.

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 an annual 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

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the pension plan, which are also recognized as separate components of shareholders’ equity.

Unrealized gains on the Corporation’s available-for-sale securities (after applicable income tax expense) totaling $3,627 and $4,019 at March 31, 2012 and December 31, 2011, respectively, and the minimum pension liability adjustment (after applicable income tax benefit) totaling $1,818 for both March 31, 2012 and December 31, 2011 are included in accumulated other comprehensive income.

In June 2011, the FASB issued ASU 2011-05, which provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income, along with a total for other comprehensive income, and a total amount for comprehensive income. This update is effective on a retrospective basis for the quarter ended March 31, 2012. In compliance with the ASU, the Corporation reported comprehensive income in a single continuous statement with all of the components required by ASU 2011-05. The adoption of this guidance did not have an impact on the consolidated financial statements of the Corporation.

Preferred Stock

The Corporation is authorized to issue up to 1,000,000 shares of Voting Preferred Stock, no par value. As of March 31, 2012, the Corporation had authorized 150,000 Series A Voting Preferred Shares. No Series A Voting Preferred Shares have been issued.

As of March 31, 2012 and December 31, 2011, 25,223 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B preferred stock”) have been issued. The Board of Directors of the Corporation is authorized to provide for the issuance of one or more series of Voting Preferred Stock and establish the dividend rate, dividend dates, whether dividends are cumulative, liquidation prices, redemption rights and prices, sinking fund requirements, conversion rights, and restrictions on the issuance of any series of Voting Preferred Stock. The Voting Preferred Stock may be issued with conversion rights to common stock and may rank prior to the common stock in dividends, liquidation preferences, or both. In connection with the Corporation’s sale of $25.2 million of its Series B preferred stock to the U.S. Treasury in conjunction with the TARP Capital Purchase Program, the Corporation also issued to the U.S. Treasury a warrant to purchase 561,343 of its common shares at an exercise price of $6.74.

Reclassification

Certain amounts appearing in the prior year’s financial statements have been reclassified to conform to the current period’s financial statements.

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(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 and warrants outstanding during the year. Basic and diluted earnings per share are calculated as follows:

	Three Months Ended March 31,
	2012		2011
	(Dollars in thousands except per share amounts)
Weighted average shares outstanding used in Basic Earnings per Common Share		7,924,562		7,871,416
Dilutive effect of stock options		1,328		16
Dilutive effect of common stock warrants		—		—
Weighted average shares outstanding used in Diluted Earnings Per Common Share		7,925,890		7,871,432
Net Income	$	1,505	$	1,130
Preferred stock dividend and accretion		319		319
Income Available to Common Shareholders	$	1,186	$	811
Basic Earnings Per Common Share	$	0.15	$	0.10
Diluted Earnings Per Common Share	$	0.15	$	0.10

Options for an aggregate of 232,000 common shares and a common stock warrant for 561,343 shares were considered in computing diluted earnings per common share for the three month period ended March 31, 2012. As of March 31, 2012, stock options of 37,500 were considered dilutive and the remaining stock options and stock warrants were antidilutive. Options for an aggregate of 197,000 common shares and a common stock warrant for 561,343 shares were considered in computing diluted earnings per common share for the three month period ended March 31, 2011. As of March 31, 2011, stock options of 2,500 were considered dilutive and the remaining stock options and stock warrants were considered antidilutive.

(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 was $1,349 on March 31, 2012 and $690 on December 31, 2011.

(4) Goodwill and Intangible Assets

The Corporation has goodwill of $21,582 primarily from an acquisition completed in 2007. The Corporation assesses goodwill for impairment annually and more frequently in certain circumstances. In September 2011, FASB issued an update on the testing of goodwill for impairment under ASC Topic 350, Intangibles – Goodwill and Other. ASC 350 requires a corporation to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount. The overall objective of the update is to simplify how entities, both public and private, test goodwill for impairment. Simplification has resulted in an entity having the option to first assess qualitative factors to determine whether the existence or circumstances lead to a determination that it is more likely than not (that is, a likelihood of more than fifty percent) that the fair value of a reporting unit is less than its carrying amount. For 2011, the Corporation determined the Bank was one reporting unit and assessed the following qualitative factors to determine if there is likelihood that goodwill is impaired: (a) industry and market considerations such as a deterioration in the environment in which the Corporation operates; (b) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; (c) events affecting a reporting unit such as a change in the composition or carrying amount of the Corporation’s assets unit; (d) share price—considered in both absolute terms and relative to peers; (e) non-performing loans and allowance for loans losses; and (f) bank capital analysis. Based upon this assessment the Corporation determined that there is no likelihood of goodwill impairment. Therefore, no impairment charge was recognized as of December 31, 2011.

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The Corporation tested for impairment in 2010 and 2009 and no impairment was recognized. Methodologies used in determining the fair value of the reporting unit for these years included discounted estimated future net cash flows, price to tangible book value and core deposit premium values. Primary reliance was placed on the discounted estimated future net cash flow approach. The key assumptions used to determine the fair value of the Corporation subsidiary included: (a) cash flow period of 5 years; (b) capitalization rate of 10.0%: and (c) a discount rate of 13.0%, which is based on the Corporation’s average cost of capital adjusted for the risk associated with its operations. The Corporation cannot predict the occurrences of certain future events that might adversely affect the reported value of goodwill. Such events include, but are not limited to, strategic decisions in response to economic and competitive conditions, the effect of the economic environment on the Corporation’s customer base or a material negative change in the relationship with significant customers.

Core deposit intangibles are amortized over their estimated useful life of 10 years. A summary of core deposit intangible assets follows:

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Core deposit intangibles	$	1,367	$	1,367
Less: accumulated amortization		669		636
Carrying value of core deposit intangibles	$	698	$	731

(5) Securities

The amortized cost, gross unrealized gains and losses and fair values of securities available for sale at March 31, 2012 and December 31, 2011 are as follows:

	At March 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	53,543	$	62	$	(188	)	$	53,417
Mortgage backed securities		112,409		3,701		(302	)		115,808
Collateralized mortgage obligations		30,672		703		(73	)		31,302
State and political subdivisions		29,732		1,643		(51	)		31,324
Total Securities	$	226,356	$	6,109	$	(614	)	$	231,851

	At December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	56,762	$	120	$	(1	)	$	56,881
Mortgage backed securities		103,624		3,705		(292	)		107,037
Collateralized mortgage obligations		29,537		700		—			30,237
State and political subdivisions		30,000		1,901		(44	)		31,857
Total Securities	$	219,923	$	6,426	$	(337	)	$	226,012

The carrying value of securities pledged to secure trust deposits, public deposits, line of credit, and for other purposes required by law amounted to $144,582 and $137,388 at March 31, 2012 and December 31, 2011 respectively.

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The amortized cost and fair value of the debt securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties. U.S. Government agencies and corporations include callable and bullet agency issues and agency-backed mortgage backed securities. Mortgage backed securities and collateralized mortgage obligations are not due at a single maturity date and are shown separately.

	At March 31, 2012
	(Dollars in thousands)
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	34,406	$	34,413
Due from one year to five years		20,390		20,816
Due from five years to ten years		10,707		11,396
Due after ten years		17,772		18,116
Mortgage backed securities and collateralized mortgage obligations		143,081		147,110
	$	226,356	$	231,851

Realized gains and losses related to securities available-for-sale sold during the three-month periods ended March 31, 2012 and 2011 are as follows:

	March 31,
	2012		2011
	(Dollars in thousands)
Gross realized gains	$	—	$	412
Gross realized losses		—		—
Net Securities Gains	$	—	$	412
Proceeds from the sale of available for sale securities	$	—	$	15,499

The following is a summary of securities that had unrealized losses at March 31, 2012 and December 31, 2011. The information is presented for securities that have been in an unrealized loss position for less than 12 months and for more than 12 months. At March 31, 2012 there were 15 securities with unrealized losses totaling $614 and at December 31, 2011, the Corporation held 10 securities with unrealized losses totaling $337. Factors that are temporary in nature may result in securities being valued at less than amortized cost. For example, when the current levels of interest rates offered on securities are higher compared to the coupon interest rates on the securities held by the Corporation or when impairment is not due to credit deterioration, securities will be valued at less than amortized cost. The Corporation has the ability and the intent to hold these securities until their value recovers.

	At March 31, 2012
	Less than 12 months					12 months or longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(Dollars in thousands)
U.S. Government agencies and corporations	$	24,617	$	(188	)	$	—	$	—	$	24,617	$	(188	)
Mortgage backed securities		27,053		(302	)		—		—		27,053		(302	)
Collateralized mortgage obligations		5,351		(73	)		—				5,351		(73	)
State and political subdivisions		3,694		(51	)		—		—		3,694		(51	)
Total	$	60,715	$	(614	)	$	—	$	—	$	60,715	$	(614	)

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	At December 31, 2011
	Less than 12 months					12 months or longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Government agencies and corporations	$	9,999	$	(1	)	$	—	$	—	$	9,999	$	(1	)
Mortgage backed securities		25,606		(292	)		—		—		25,606		(292	)
Collateralized mortgage obligations		—		—			—		—		—		—
State and political subdivisions		3,669		(44	)		—		—		3,669		(44	)
Total	$	39,274	$	(337	)	$	—	$	—	$	39,274	$	(337	)

(6) Loans and Allowance for Loan Losses

The allowance for loan losses is maintained by the Corporation at a level considered by Management to be adequate to cover probable credit losses inherent in the loan portfolio. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in the estimation of Management, to maintain the allowance for loan losses at an adequate level. 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. Loan losses are charged off against the allowance when management believes that the full collectability of the loan is unlikely. Recoveries of amounts previously charged-off are credited to the allowance.

The allowance is comprised of a general allowance and a specific allowance for identified problem loans. The general allowance is determined by applying estimated loss factors to the credit exposures from outstanding loans. 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 collectability of the loan portfolio. These other factors include but are not limited to: changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices; changes in national and local economic and business conditions, including the condition of various market segments; changes in the nature and volume of the portfolio; changes in the experience, ability, and depth of lending management and staff; changes in the volume and severity of past due and classified loans, the volume of nonaccrual loans, troubled debt restructurings and other loan modifications; the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and the effect of external factors, such as legal and regulatory requirements, on the level of estimated credit losses in the Corporation’s current portfolio. Specific allowances are established for all impaired loans when management has determined that, due to identified significant conditions, it is probable that a loss will be incurred.

Activity in the loan balances and the allowance for loan losses by segment for the three months ended March 31, 2012 and 2011 are summarized as follows:

	Three Months Ended March 31, 2012
	Commercial Real Estate			Commercial_			Residential Real Estate			Home Equity  Loans			Indirect			Consumer			Total
	(Dollars in thousands)
Allowance for loan losses:
Balance, beginning of period	$	10,714		$	1,409		$	1,331		$	2,289		$	891		$	429		$	17,063
Losses charged off		(979	)		—			(467	)		(403	)		(178	)		(49	)		(2,076	)
Recoveries		20			17			67			4			103			17			228
Provision charged to expense		1,896			(841	)		643			408			(9	)		(197	)		1,900
Balance, end of period	$	11,651		$	585		$	1,574		$	2,298		$	807		$	200		$	17,115
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,635		$	145		$	37		$	—		$	—		$	—		$	3,817
Collectively evaluated for impairment		8,016			440			1,537			2,298			807			200			13,298
Total ending allowance balance	$	11,651		$	585		$	1,574		$	2,298		$	807		$	200		$	17,115
Loans:
Individually evaluated for impairment	$	29,328		$	592		$	1,279		$	—		$	—		$	—		$	31,199
Collectively evaluated for impairment		381,453			72,865			59,733			125,298			178,433			13,239			831,021
Total ending loans balance	$	410,781		$	73,457		$	61,012		$	125,298		$	178,433		$	13,239		$	862,220

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	Three Months Ended March 31, 2011
	Commercial Real Estate			Commercial_			Residential Real Estate			Home Equity Loans			Indirect			Consumer			Total
	(Dollars in thousands)
Allowance for loan losses:
Balance, beginning of year	$	11,127		$	1,317		$	805		$	1,512		$	471		$	904		$	16,136
Losses charged off		(230	)		—			(273	)		(345	)		(195	)		(69	)		(1,112	)
Recoveries		102			31			4			1			25			28			191
Provision charged to expense		1,004			(197	)		390			772			601			(470	)		2,100
Balance, end of year	$	12,003		$	1,151		$	926		$	1,940		$	902		$	393		$	17,315
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	7,576		$	131		$	26		$	—		$	—		$	—		$	7,733
Collectively evaluated for impairment		4,427			1,020			900			1,940			902			393			9,582
Total ending allowance balance	$	12,003		$	1,151		$	926		$	1,940		$	902		$	393		$	17,315
Loans:
Individually evaluated for impairment	$	41,069		$	1,249		$	2,349		$	—		$	—		$	—		$	44,667
Collectively evaluated for impairment		339,384			65,601			66,345			131,119			150,196			13,317			765,962
Total ending loans balance	$	380,453		$	66,850		$	68,694		$	131,119		$	150,196		$	13,317		$	810,629

Delinquencies

Management monitors delinquency and potential commercial problem loans. Bank-wide delinquency at March 31, 2012 was 3.8% of total loans. Total 30-59 day delinquency and 60-89 day delinquency was 0.6% and 0.2% of total loans at March 31, 2012, respectively. Bank-wide delinquency at December 31, 2011 was 3.7% of total loans. Total 30-59 day delinquency and 60-89 day delinquency was 0.4% and 0.3% of total loans at December 31, 2011, respectively. Information regarding delinquent loans as of March 31, 2012 and December 31, 2011 is as follows:

Age Analysis of Past Due Loans

as of March 31, 2012

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate	$	3,159	$	284	$	19,647	$	23,090	$	387,691	$	410,781	$	—
Commercial		250		195		685		1,130		72,327		73,457		—
Residential real estate		446		525		4,250		5,221		55,791		61,012		—
Home equity loans		954		477		1,492		2,923		122,375		125,298		—
Indirect		382		87		65		534		177,899		178,433
Consumer		75		25		16		116		13,123		13,239		—
Total	$	5,266	$	1,593	$	26,155	$	33,014	$	829,206	$	862,220	$	—

Age Analysis of Past Due Loans

as of December 31, 2011

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate	$	290	$	804	$	19,023	$	20,117	$	361,735	$	381,852	$	—
Commercial		54		249		805		1,108		75,462		76,570		—
Residential real estate		545		1,172		3,554		5,271		59,253		64,524		—
Home equity loans		1,942		181		1,666		3,789		123,169		126,958		—
Indirect		664		71		124		859		179,230		180,089
Consumer		131		12		28		171		12,924		13,095		—
Total	$	3,626	$	2,489	$	25,200	$	31,315	$	811,773	$	843,088	$	—

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Impaired Loans

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 are evaluated for impairment. Impaired loans are written down by the establishment of a specific allowance where necessary. Interest income recognized on impaired loans while considered impaired was immaterial for all periods. Information regarding impaired loans is as follows:

	At March 31, 2012						Three Months Ended March 31, 2012
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Balance
With no related allowance recorded:
Commercial real estate	$	9,990	$	16,811	$	—	$	9,786
Commercial		364		364		—		287
Residential real estate		1,207		2,184		—		1,449
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
With allowance recorded:
Commercial real estate		19,339		20,494		3,635		18,567
Commercial		227		701		145		269
Residential real estate		72		72		37		72
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
Total	$	31,199	$	40,626	$	3,817	$	30,430
	At December 31, 2011						Three Months Ended March 31, 2011
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Balance
With no related allowance recorded:
Commercial real estate	$	12,585	$	20,138	$	—	$	4,719
Commercial		386		386		—		534
Residential real estate		1,069		1,897		—		1,528
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
With allowance recorded:
Commercial real estate		19,161		19,823		3,747		26,937
Commercial		319		794		148		573
Residential real estate		72		72		37		91
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
Total	$	33,592	$	43,110	$	3,932	$	34,382

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Nonaccrual loans at March 31, 2012 were $36,870, compared to $34,471 at December 31, 2011. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

Loans On NonAccrual Status
	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	24,100		$	21,512
Commercial		944			1,072
Residential real estate		6,972			6,551
Home equity loans		4,090			4,365
Indirect		605			711
Consumer		159			260
Total Nonaccrual Loans	$	36,870		$	34,471
Percentage of nonaccrual loans to portfolio loans		4.28	%		4.09	%
Percentage of nonaccrual loans to total assets		3.07	%		2.95	%

Troubled Debt Restructuring

A restructuring of a debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. That concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court. The Corporation adheres to ASC 310-40, Troubled Debt Restructurings by Creditors, to determine whether a troubled debt restructuring applies in a particular instance. Included in loans individually evaluated for impairment as of March 31, 2012 are loans with a recorded investment of $3,041, the terms of which were modified in troubled debt restructurings and considered nonaccrual. The Corporation has allocated reserves of $466 for the nonaccrual TDR loans at March 31, 2012. As of December 31, 2011, included in loans individually evaluated for impairment were loans with a recorded investment of $3,099, the terms of which were modified in troubled debt restructurings and considered nonaccrual. The Corporation allocated reserves of $307 for the nonaccrual TDR loans at December 31, 2011. There are no commitments to lend additional amounts to borrowers with loans that are classified as troubled debt restructurings at March 31, 2012 and December 31, 2011. At March 31, 2012 and December 31, 2011 the borrowers had made timely payments of principal and interest on those loans per the modified agreements. Information regarding TDR loans for the year ended March 31, 2012 and December 31, 2011 is as follows:

	For the Three Months Ended March 31, 2012
	(Dollars in thousands)
	Number of Contracts		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings Commercial Real Estate		5	$	3,041

There were no loans modified in a TDR from during the three months ended March 31, 2012 that subsequently defaulted (i.e., 60 days or more past due following a modification).

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor may be requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Land

17

loans are also included in the class of commercial real estate loans. Land loans are typically structured as interest-only monthly payments with a balloon payment due at maturity. Land loans modified in a TDR typically involve extending the balloon payment by one to three years and changing the monthly payments from interest-only to principal and interest, while leaving the interest rate unchanged.

Loans modified in a TDR are typically already on nonaccrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR for the Corporation may have the financial effect of increasing the specific allowance associated with the loan. The allowance for impaired loans that have been modified in a TDR is measured based on the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent or on the present value of expected future cash flows discounted at the loan’s effective interest rate. Management exercises significant judgment in developing these estimates.

Credit Risk Grading

Sound credit systems, practices and procedures such as credit risk grading systems; effective credit review and examination processes; effective loan monitoring, problem identification, and resolution processes; and a conservative loss recognition process and charge-off policy are integral to management’s proper assessment of the adequacy of the allowance. Many factors are considered when grades are assigned to individual loans such as current and historic delinquency, financial statements of the borrower, current net realizable value of collateral and the general economic environment and specific economic trends affecting the portfolio. Commercial, commercial real estate and residential construction loans are assigned internal credit risk grades. The loan’s internal credit risk grade is reviewed on at least an annual basis and more frequently if needed based on specific borrower circumstances. Credit quality indicators used in management’s periodic analysis of the adequacy of the allowance include the Corporation’s internal credit risk grades which are described below and are included in the table below for March 31, 2012 and December 31, 2011:

• Grades 1 -5: defined as “Pass” credits — loans which are protected by the borrower’s current net worth and paying capacity or by the value of the underlying collateral. Pass credits are current or have not displayed a significant past due history.

• Grade 6: defined as “Special Mention” credits — loans where a potential weakness or risk exists, which could cause a more serious problem if not monitored. Loans listed for special mention generally demonstrate a history of repeated delinquencies, which may indicate a deterioration of the repayment abilities of the borrower.

• Grade 7: defined as “Substandard” credits — loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

• Grade 8: defined as “Doubtful” credits — loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable.

• Grade 9: defined as “Loss” credits — loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

For the residential real estate segment, the Corporation monitors credit quality using a combination of the delinquency status of the loan and/or the Corporation’s internal credit risk grades as indicated above.

The following table presents the recorded investment of commercial real estate, commercial and residential real estate loans by internal credit risk grade and the recorded investment in residential real estate, home equity, indirect and consumer loans based on delinquency status as of March 31, 2012 and December 31, 2011:

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	Commercial Real Estate		Commercial		Residential Real Estate*		Home Equity Loans		Indirect		Consumer		Total
Commercial Credit Exposure	March 31, 2012
	(Dollars in thousands)
Loans graded by internal credit risk grade:
Grade 1—Minimal	$	—	$	111	$	—	$	—	$	—	$	—	$	111
Grade 2—Modest		—		—		—		—		—		—		—
Grade 3—Better than average		1,613		16		—		—		—		—		1,629
Grade 4—Average		42,504		1,667		235		—		—		—		44,406
Grade 5—Acceptable		321,063		67,277		4,795		—		—		—		393,135
Total Pass Credits		365,180		69,071		5,030		—		—		—		439,281
Grade 6—Special mention		7,285		3,350		154		—		—		—		10,789
Grade 7—Substandard		38,316		1,036		1,825		—		—		—		41,177
Grade 8—Doubtful		—		—		—		—		—		—		—
Grade 9—Loss		—		—		—		—		—		—		—
Total loans internally credit risk graded		410,781		73,457		7,009		—		—		—		491,247
Loans not monitored by internal risk grade:
Current loans not internally risk graded		—		—		49,864		122,375		177,899		13,123		363,261
30-59 days past due loans not internally risk graded		—		—		446		954		382		75		1,857
60-89 days past due loans not internally risk graded		—		—		525		477		87		25		1,114
90+ days past due loans not internally risk graded		—		—		3,168		1,492		65		16		4,741
Total loans not internally credit risk graded		—		—		54,003		125,298		178,433		13,239		370,973
Total loans internally and not internally credit risk graded	$	410,781	$	73,457	$	61,012	$	125,298	$	178,433	$	13,239	$	862,220

	Commercial Real Estate		Commercial		Residential Real Estate*		Home Equity Loans		Indirect		Consumer		Total
Commercial Credit Exposure	December 31, 2011
	(Dollars in thousands)
Loans graded by internal credit risk grade:
Grade 1—Minimal	$	—	$	3,157	$	—	$	—	$	—	$	—	$	3,157
Grade 2—Modest		—		—		—		—		—		—		—
Grade 3—Better than average		1,602		19		—		—		—		—		1,621
Grade 4—Average		44,527		5,322		237		—		—		—		50,086
Grade 5—Acceptable		278,458		63,880		4,835		—		—		—		347,173
Total Pass Credits		324,587		72,378		5,072		—		—		—		402,037
Grade 6—Special mention		16,390		2,947		157		—		—		—		19,494
Grade 7—Substandard		40,875		1,245		1,830		—		—		—		43,950
Grade 8—Doubtful		—		—		—		—		—		—		—
Grade 9—Loss		—		—		—		—		—		—		—
Total loans internally credit risk graded		381,852		76,570		7,059		—		—		—		465,481
Loans not monitored by internal risk grade:
Current loans not internally risk graded		—		—		53,276		123,169		179,230		12,924		368,599
30-59 days past due loans not internally risk graded		—		—		545		1,942		664		131		3,282
60-89 days past due loans not internally risk graded		—		—		1,172		181		71		12		1,436
90+ days past due loans not internally risk graded		—		—		2,472		1,666		124		28		4,290
Total loans not internally credit risk graded		—		—		57,465		126,958		180,089		13,095		377,607
Total loans internally and not internally credit risk graded	$	381,852	$	76,570	$	64,524	$	126,958	$	180,089	$	13,095	$	843,088

* Residential loans with an internal commercial credit risk grade include loans that are secured by non owner occupied 1-4 family residential properties and conventional 1-4 family residential properties.

The Corporation adheres to underwriting standards consistent with its Loan Policy for indirect and consumer loans. Final approval of a consumer credit depends on the repayment ability of the borrower. Repayment ability generally requires the determination of the borrower’s capacity to meet current and proposed debt service requirements. A borrower’s repayment ability is monitored based on delinquency, generally for time periods of 30 to 59 days past due, 60 to 89 days past due and greater than 90 days past due. This information is provided in the above past due loans table.

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(7) Deposits

Deposit balances at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Demand and other noninterest-bearing	$	134,368	$	126,713
Interest checking		164,937		151,894
Savings		108,270		102,440
Money market accounts		107,189		105,643
Consumer time deposits		412,740		424,870
Public time deposits		88,662		79,520
Total deposits	$	1,016,166	$	991,080

The aggregate amount of certificates of deposit in denominations of $100,000 or more amounted to $248,414 and $241,217 at March 31, 2012 and December 31, 2011, respectively.

The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:

March 31, 2012
(Dollars in thousands)
2012	$	328,619
2013		101,201
2014		34,656
2015		18,807
2016		18,119
Total	$	501,402

(8) 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 50% of the balances of qualified home equity lines of credit that are pledged as collateral. At March 31, 2012, the Bank had pledged approximately $86,319 in qualifying home equity lines of credit, resulting in an available line of credit of approximately $43,159. No amounts were outstanding at March 31, 2012 or December 31, 2011. The Corporation also has a $4,000 line of credit with an unaffiliated financial institution. The balance of this line of credit was $0 as of March 31, 2012 and December 31, 2011.

Short-term borrowings include securities sold under repurchase agreements and Federal funds purchased from correspondent banks. Securities sold under repurchase agreements at March 31, 2012 and December 31, 2011 were $894 and $227, respectively. The interest rate paid on these borrowings was 0.15% at March 31, 2012 and December 31, 2011. No Federal Funds were purchased as of March 31, 2012 and December 31, 2011.

(9) Federal Home Loan Bank Advances

Federal Home Loan Bank advances amounted to $47,496 and $42,497 at March 31, 2012 and December 31, 2011, respectively. All advances are bullet maturities with no call features. At March 31, 2012, collateral pledged for FHLB advances consisted of qualified multi-family and residential real estate mortgage loans and investment securities of $73,512 and $29,592, respectively. The maximum borrowing capacity of the Bank at March 31, 2012 was $59,966 with unused collateral borrowing capacity of $10,942. The Bank maintains a $40,000 cash management line of credit (CMA) with the FHLB. No amounts were outstanding for the CMA line of credit as of March 31, 2012 and December 31, 2011.

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Maturities of FHLB advances outstanding at March 31, 2012 and December 31, 2011 are as follows.

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Maturities January 2011 through February 2011, with fixed rates ranging from 3.17% to 3.67%	$	—	$	—
Maturity January 2012, fixed rate 2.37%		—		15,000
Maturities January 2014 through August 2014, with fixed rates ranging from 2.06% to 3.55%		14,996		15,027
Maturities January 2015 and July 2015, with fixed rates ranging from 0.80% to 4.76%		32,500		12,470
Total FHLB advances	$	47,496	$	42,497

(10) Trust Preferred Securities

In May 2007, LNB Trust I (“Trust I”) and LNB Trust II (“Trust II”) each sold $10.0 million of preferred securities to outside investors and invested the proceeds in junior subordinated debentures issued by the Corporation. The Corporation’s obligations under the transaction documents, taken together, have the effect of providing a full guarantee by the Corporation, on a subordinated basis, of the payment obligation 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 interest rates in effect as of the last determination date in 2012 were 1.95% and 6.64% for Trust I and Trust II, respectively. At March 31, 2012 and December 31, 2011, accrued interest payable for Trust I was $7 and $7 and for Trust II was $23 and $24, respectively.

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 the indenture governing the notes or thereafter incurred. At March 31, 2012, the balance of the subordinated notes payable to Trust I and Trust II was $8,119 each.

(11) Commitments, Credit Risk, and Contingencies

In the normal course of business, the Bank enters into commitments that involve off-balance sheet risk to meet the financing needs of its customers. These instruments are currently limited to commitments to extend credit and standby letters of credit. Commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made.

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

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on Management’s evaluation of the applicant’s credit. 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. Payments under 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.

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A summary of the contractual amount of commitments at March 31, 2012 and December 31, 2011 follows:

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Commitments to extend credit	$	75,131	$	92,128
Home equity lines of credit		80,251		78,410
Standby letters of credit		8,335		8,145
Total	$	163,717	$	178,683

(12) Estimated Fair Value of Financial Instruments

The Corporation discloses estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Corporation’s financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

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

• The fair value of investment securities is based on the fair value hierarchy described below.

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

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

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

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

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

• The fair value of junior subordinated debentures is based on the discounted value of contractual cash flows using rates currently offered for similar maturities.

• The fair value of commitments to extend credit approximates the fees charged to make these commitments since rates and fees of the commitment contracts approximates those currently charged to originate similar commitments. The carrying amount and fair value of off-balance sheet instruments is not significant as of March 31, 2012 and December 31, 2011.

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Limitations

Estimates of fair value are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Estimates of fair value are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Corporation has a substantial Investment and Trust Services Division that contributes net fee income annually. The Investment and Trust Services Division is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial instruments include property, plant and equipment, goodwill and deferred tax liabilities. In addition, it is not practicable for the Corporation to estimate the tax ramifications related to the realization of the unrealized gains and losses and they have not been reflected in any of the estimates of fair value. The impact of these tax ramifications can have a significant effect on estimates of fair value.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of March 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying value approximates fair value. For short-term financial assets such as cash and due from banks, Federal funds sold, interest bearing deposits in other banks, loans held for sale and accrued interest receivable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between origination of the instrument and its expected realization. For financial liabilities such as demand, savings and money market accounts, short-term borrowings and accrued interest payable, the carrying value is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2012
Financial Instruments-Assets
Portfolio loans, net	$	845,105	$	845,852	$	—	$	845,852	$	—
Financial Instruments-Liabilities
Certificates of deposit		501,402		505,953		—		505,953		—
Federal Home Loan Bank advances		47,496		48,695		—		48,695		—
Junior subordinated debentures		16,238		16,238		—		16,238		—
December 31, 2011
Financial Instruments-Assets
Portfolio loans, net	$	826,025	$	825,662	$	—	$	825,662	$	—
Financial Instruments-Liabilities
Certificates of deposit		504,390		509,449		—		509,449		—
Federal Home Loan Bank advances		42,497		43,824		—		43,824		—
Junior subordinated debentures		16,238		16,130		—		16,130		—

The fair value of financial assets and liabilities is categorized in three levels. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. These levels are:

• Level 1 —Valuations based on quoted prices in active markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2 —Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

• Level 3 —Assets and liabilities with valuations that include methodologies and assumptions that may not be readily observable, including option pricing models, discounted cash flow models, yield curves and similar techniques.

23

Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities, but in all cases are corroborated by external data, which may include third-party pricing services.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Corporation’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

The following information pertains to assets measured by fair value on a recurring basis (in thousands):

Description	Fair Value as of March 31, 2012		Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	53,417	$	—	$	53,417	$	—
Mortgage backed securities		115,808		—		115,808		—
Collateralized mortgage obligations		31,302		—		31,302		—
State and political subdivisions		31,324		—		31,324		—
Total	$	231,851	$	—	$	231,851	$	—

Description	Fair Value as of December 31, 2011		Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	56,881	$	—	$	56,881	$	—
Mortgage backed securities		107,037		—		107,037		—
Collateralized mortgage obligations		30,237		—		30,237		—
State and political subdivisions		31,857		—		31,857		—
Total	$	226,012	$	—	$	226,012	$	—

Fair value measurements of U.S. Government agencies and mortgage backed securities use pricing models that vary and may consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Fair value of debt securities such as obligations of state and political may be determined by matrix pricing. Matrix pricing is a mathematical technique that is used to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities relationship to other benchmark quoted prices.

There were no transfers between Levels 1 and 2 of the fair value hierarchy during the three months ended March 31, 2012. For the available for sale securities, the Corporation obtains fair value measurements from an independent third party service and or from independent brokers.

The following tables present the balances of assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2012 and December 31, 2011:

March 31, 2012	Quoted Market Prices in Active Markets (Level 1)		Internal Models  with Significant Observable Market Parameters (Level 2)		Internal Models with Significant Unobservable Market Parameters (Level 3)		Total
(Dollars in thousands)
Impaired and nonaccrual loans	$	—	$	—	$	31,199	$	31,199
Other real estate		—		—		1,845		1,845
Total assets at fair value on a nonrecurring basis	$	—	$	—	$	33,044	$	33,044

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December 31, 2011	Quoted Market Prices in Active Markets (Level 1)		Internal Models  with Significant Observable Market Parameters (Level 2)		Internal Models with Significant Unobservable Market Parameters (Level 3)		Total
(Dollars in thousands)
Impaired and nonaccrual loans	$	—	$	—	$	33,592	$	33,592
Other real estate		—		—		1,687		1,687
Total assets at fair value on a nonrecurring basis	$	—	$	—	$	35,279	$	35,279

Impaired and nonaccrual loans: Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair market value of the collateral. The Corporation measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of collateral is real estate. The value of the collateral is determined based on internal estimates as well as third party appraisals or non-binding broker quotes. These measurements were classified as Level 3.

Other Real Estate: Other real estate includes foreclosed assets and properties securing residential and commercial loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at lower of carry value or fair value less costs to sell. Fair value is generally based upon internal estimates and third party appraisals or non-binding broker quotes and, accordingly, considered a Level 3 classification.

(13) Share-Based Compensation

A broad-based stock incentive plan, the 2006 Stock Incentive Plan, was adopted by the Corporation’s shareholders on April 18, 2006. Awards granted under this Plan as of December 31, 2011 were stock options granted in 2007, 2008, 2009 and 2012 and long-term restricted shares issued in 2010, 2011 and 2012. In addition, the Corporation has nonqualified stock option agreements outside of the 2006 Stock Incentive Plan. Grants under the nonqualified stock option agreements were made from 2005 to 2007.

Stock Options

The expense recorded for stock options was $1 and $0 for the first three months of 2012 and 2011, respectively. The maximum option term is ten years and the options generally vest over three years as follows: one-third after one year from the grant date, two-thirds after two years and completely after three years.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	2012
Risk free interest rate		1.27	%
Dividend yield		3.38	%
Volatility		33.00	%

The weighted-average fair value of options granted in 2012 was $5.39.

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Options outstanding at March 31, 2012 were as follows:

	Outstanding				Exercisable
	Number		Weighted Average Remaining Contractual Life (Years)		Number		Weighted Average Exercise Price
Range of Exercise Prices
$5.34-$5.39		37,500		9.66		1,667	$	5.34
$14.47-$15.34		82,000		5.85		82,000		14.47
$15.35-$16.50		52,500		4.96		52,500		15.78
$16.51-$19.10		30,000		3.84		30,000		19.10
$19.11-$19.17		30,000		2.84		30,000		19.17
Outstanding at end of period		232,000		5.62		196,167	$	16.17

A summary of the status of stock options at March 31, 2012 and March 31, 2011 and changes during the three months then ended is presented in the table below:

	2012				2011
	Options		Weighted Average Exercise Price per Share		Options		Weighted Average Exercise Price per Share
Outstanding at beginning of period		197,000	$	16.12		197,000	$	16.12
Granted		35,000		5.39		—		—
Forfeited or expired		—		—		—		—
Exercised		—		—		—		—
Stock dividend or split		—		—		—		—
Outstanding at end of period		232,000	$	14.50		197,000	$	16.12
Exercisable at end of period		196,167	$	16.17		195,334	$	16.22

There were no options exercised during the first three months of 2012, therefore the total intrinsic value of options exercised was $0. The total intrinsic value of all options outstanding at March 31, 2012 was $58.

A summary of the status of nonvested stock options at March 31, 2012 is presented in the table below:

	Nonvested Shares		Weighted Average Exercise Price per share
Nonvested at January 1, 2012		833	$	5.34
Granted		35,000		5.39
Vested		—		—
Forfeited or expired		—		—
Nonvested at March 31, 2012		35,833	$	5.39

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Restricted Shares

In 2012, the Corporation issued 62,105 shares of long-term restricted stock. The market price of the Corporation’s common shares on the date of grant of the long-term restricted shares was $5.39 per share. In 2011, the Corporation issued 40,000 shares of long-term restricted stock, 2,500 of which were forfeited by the recipients due to employee terminations. The market price of the Corporation’s common shares on the date of grant of the long-term restricted shares was $5.28 per share. In 2010, the Corporation issued 86,852 long-term restricted shares at a weighted average market price of $4.42 per share. Shares of long-term restricted stock generally vest in two equal installments on the second and third anniversaries of the date of grant, or upon the earlier death or disability of the recipient or a qualified change of control of the Corporation. The expense recorded for long-term restricted stock for the three months ended March 31, 2012 and 2011 was $66 and $44, respectively.

The market price of the Corporation’s common shares at the date of grant is used to estimate the fair value of restricted stock awards. A summary of the status of restricted shares at March 31, 2012 is presented in the table below:

	2012
	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2012		124,252		$	4.68
Granted		62,105			5.39
Forfeited or expired		—			—
Vested		(33,749	)		4.35
Nonvested at March 31, 2012		152,608		$	5.04

Stock Appreciation Rights (“SARs”)

In 2006, the Corporation issued an aggregate of 30,000 SARS at $19.00 per share, 15,500 of which have expired due to employee terminations. The SARS vest over three years as follows: one-third after one year from the grant date, two-thirds after two years and completely after three years. Any unexercised portion of the SARS shall expire at the end of the stated term which is specified at the date of grant and shall not exceed ten years. The SARS issued in 2006 will expire in January 2016. The expense recorded for SARS for the three months ended March 31, 2012 and March 31, 2011 was $2 and $0, respectively.

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

The following commentary presents a discussion and analysis of the Corporation’s financial condition and results of operations by its management (“Management”). This Management’s Discussion and Analysis (“MD&A”) section discusses the financial condition and results of operations of the Corporation for the three months ended March 31, 2012. 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, 2011 and in the accompanying consolidated financial statements and notes contained in this Form 10-Q. The objective of this financial review is to enhance the reader’s understanding of the accompanying tables and charts, the consolidated financial statements, notes to the financial statements and financial statistics appearing elsewhere in the report. Where applicable, this discussion also reflects Management’s insights as to known events and trends that have or may reasonably be expected to have a material effect on the Corporation’s operations and financial condition.

Summary

The Corporation is a bank holding company headquartered in Lorain, Ohio, deriving substantially all of its revenue from the Bank. The Corporation provides a range of products and services to commercial customers and the community, and currently operates 20 banking centers throughout Lorain, Erie, Cuyahoga and Summit counties in Ohio.

Net income was $1,505 for the first quarter of 2012 in comparison to $1,130 for the first quarter of 2011. Net income available to common shareholders was $1,186 or $0.15 per diluted common share. This compares to net income available to common shareholders of $811 or $0.10 per diluted common share for the first quarter of 2011.

For the first quarter 2012, net interest income totaled $9,655 compared to $9,614 for the first quarter of 2011. Net interest income on a fully taxable equivalent (FTE) basis for the first quarter of 2012 was $9,810, a 0.7% increase compared with $9,739 for the first quarter of 2011. The net interest margin FTE, determined by dividing tax equivalent net interest income by average earning assets, was 3.61% for the three months ended March 31, 2012 compared to 3.63% for the three months ended March 31, 2011. This decrease is mainly attributable to the lower interest rate environment which continues to reduce the Corporation’s yield on its investment portfolio and as a result, negatively impacts the net interest margin.

The provision for loan losses was $1,900 for the quarter ended March 31, 2012 compared to $2,100 for March 31, 2011.

Noninterest income, which is traditionally weak in the first quarter, totaled $2,875 compared to $3,071 for the first quarter of 2011. Other fees, which include ATM fees and merchant/debit card fees, declined year over year as well as investment and trust services income. Service charges on deposits for the first quarter of 2012 marginally increased $19 despite new federal regulations impacting certain bank overdraft fees and charges. No sales of securities were recorded in the first quarter of 2012 compared to a gain of $412 recorded for the first quarter of 2011. Gains on the sale of loans increased $168, or 93.8%, compared to the first quarter of 2011.

Noninterest expense was $8,544 for the first quarter of 2012, compared to $9,189 for the first quarter of 2011, a decrease of $645, or 7.0%. The decline in expenses related to credit administration and other real estate owned accounted for $551 of this decrease. The efficiency ratio, which is the measure of cost to generate revenue, decreased from 71.73% in the first quarter of 2011 to 67.36% in the first quarter of 2012.

During the first quarter of 2012, loan demand increased as total portfolio loans ended the quarter at $862,220, a 2.3% increase compared to $843,088 at December 31, 2011. Total assets for the first quarter ended at $1,199,094 compared to $1,168,422 at the end of 2011. Total deposits grew to $1,016,166 at the end of the first quarter of 2012, up from $991,080 at December 31, 2011. The growth in deposits came in the form of core deposits which improved liquidity while reducing costs.

The Corporation is continuing its efforts to reduce the level of problem loans and their associated costs. The Corporation’s non-performing loans totaled $36,870, or 4.28% of total loans, a slight increase from $34,471, or 4.09% of total loans at December 31, 2011.

The allowance for possible loan losses was $17,115 at March 31, 2012 compared to $17,063 at December 31, 2011 equaling 1.98% of total loans compared to 2.02% at December 31, 2011. Annualized net charge-offs to average loans for the quarter ending March 31, 2012 was 0.87% compared to actual net charge-offs to average loans of 1.14% for the year ended December 31, 2011.

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Table 1: Condensed Consolidated Average Balance Sheets

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

Table 1 presents the condensed average balance sheets for the three months ended March 31, 2012 and 2011. Rates are computed on a tax equivalent basis. Nonaccrual loans and loans held for sale are included in the average loan balances.

	Three Months Ended March 31,
	2012									2011
	Average Balance			Interest			Rate			Average Balance			Interest			Rate
	(Dollars in thousands)
Assets:
U.S. Govt agencies and corporations	$	190,919		$	1,261			2.66	%	$	199,582		$	1,477			3.00	%
State and political subdivisions		31,913			411			5.17			24,410			369			6.13
Federal funds sold and short-term investments		8,681			9			0.40			43,312			14			0.13
Restricted stock		5,741			72			5.04			5,741			72			5.09
Commercial loans		475,502			5,856			4.95			448,182			5,837			5.28
Residential real estate loans		54,588			721			5.32			64,662			914			5.73
Home equity lines of credit		107,313			1,047			3.92			109,354			1,067			3.96
Installment loans		218,961			2,455			4.51			193,837			2,710			5.67
Total Earning Assets	$	1,093,618		$	11,832			4.35	%	$	1,089,080		$	12,460			4.64	%
Allowance for loan loss		(17,169	)								(16,477	)
Cash and due from banks		33,641									17,132
Bank owned life insurance		17,926									17,206
Other assets		48,438									53,910
Total Assets	$	1,176,454								$	1,160,851
Liabilities and Shareholders’ Equity
Consumer time deposits	$	418,450		$	1,396			1.34	%	$	468,893		$	2,012			1.74	%
Public time deposits		84,775			99			0.47			66,688			76			0.46
Money market accounts		104,896			54			0.21			97,954			85			0.35
Savings deposits		104,690			33			0.13			93,064			38			0.17
Interest-bearing demand		156,296			49			0.13			143,797			71			0.20
Short-term borrowings		545			—			0.15			905			1			0.25
FHLB advances		47,057			215			1.84			42,500			267			2.54
Trust preferred securities		16,325			176			4.34			16,321			171			4.24
Total Interest-Bearing Liabilities	$	933,034		$	2,022			0.87	%	$	930,122		$	2,721			1.19	%
Noninterest-bearing deposits		124,732									116,062
Other liabilities		4,532									4,589
Shareholders’ Equity		114,156									110,078
Total Liabilities and
Shareholders’ Equity	$	1,176,454								$	1,160,851
Net interest Income (FTE)				$	9,810			3.61	%				$	9,739			3.63	%
Taxable Equivalent Adjustment					(155	)		(0.05	)					(125	)		(0.05	)
Net Interest Income Per
Financial Statements				$	9,655								$	9,614
Net Yield on Earning Assets								3.55	%								3.58	%

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Results of Operations

Three Months Ended March 31, 2012 versus Three Months Ended March 31, 2011 Net Interest Income Comparison

Net interest income is the difference between interest income earned on interest-earning assets and the interest expense paid on interest-bearing liabilities. Net interest income is the Corporation’s principal source of revenue, accounting for 77.1% of the Corporation’s revenues for the three months ended March 31, 2012. 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 (FTE) 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.

Net interest income was $9,655 for the first quarter of 2012 compared to $9,614 during the same quarter of 2011. Adjusting for tax-exempt income, net interest income FTE for the first quarter of 2012 and 2011 was $9,810 and $9,739, respectively. The net interest margin FTE, determined by dividing tax equivalent net interest income by average earning assets, was 3.61% for the three months ended March 31, 2012 compared to 3.63% for the three months ended March 31, 2011.

Average earning assets for the first quarter of 2012 were $1,093,618, an increase of $4,538 or 0.4% compared to the same quarter of last year at $1,089,080. The yield on average earning assets reflected a favorable change in the mix of earning assets. The yield on average assets totaled 4.35% in the first quarter of 2012 compared to 4.64% for the same period a year ago. The yield on average loans during the first quarter of 2012 was 4.71%, which was 45 basis points lower than the yield on average loans during the first quarter of 2011 of 5.16%. Interest income from securities was $1,672 (FTE) for the three months ended March 31, 2012, compared to $1,846 during the first quarter of 2011. The yield on average securities was 3.02% and 3.34% for these periods, respectively.

The cost of interest-bearing liabilities was 0.87% during the first quarter of 2012 compared to 1.19% during the same period in 2011. This decrease is primarily due to an improved deposit mix with noninterest bearing accounts of $124,732, increasing 7.5% when compared to the same period a year ago. Total average interest-bearing liabilities for the quarter ended March 31, 2012 increased $2,912, or 0.3%, compared to March 31, 2011. Average core deposits for the quarter ended March 31, 2012 increased $7,381, or 0.7%, compared to the same period of 2011. The average cost of trust preferred securities was 4.34% for the first quarter of 2012, compared to 4.24% for the first quarter of 2011. One half of the Corporation’s outstanding trust preferred securities accrues dividends at a fixed rate of 6.64% and the other half accrues dividends at LIBOR plus 1.48% which was 1.95% as of March 31, 2012.

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 the quarters ended March 31, 2012 and March 31, 2011. The table is presented on a fully tax-equivalent basis.

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

	Three Months Ended March 31,
	Increase (Decrease) in Interest Income/Expense in 2012 over 2011
	Volume			Rate			Total
	(Dollars in thousands)
U.S. Govt agencies and corporations	$	(57	)	$	(159	)	$	(216	)
State and political subdivisions		97			(55	)		42
Federal funds sold and interest-bearing deposits in banks		(24	)		19			(5	)
Restricted stock		—			—			—
Commercial loans		335			(316	)		19
Residential real estate loans		(133	)		(60	)		(193	)
Home equity lines of credit		(20	)		—			(20	)
Installment loans		282			(537	)		(255	)
Total Interest Income		480			(1,108	)		(628	)
Consumer time deposits		(168	)		(448	)		(616	)
Public time deposits		21			2			23
Money market accounts		4			(35	)		(31	)
Savings deposits		4			(9	)		(5	)
Interest bearing demand		4			(26	)		(22	)
Short-term borrowings		—			(1	)		(1	)
FHLB advances		21			(73	)		(52	)
Trust preferred securities		—			5			5
Total Interest Expense		(114	)		(585	)		(699	)
Net Interest Income (FTE)	$	594		$	(523	)	$	71

Net interest income (FTE) for the first quarter 2012 and 2011 was $9,810 and $9,739, respectively. Interest income (FTE) for the first quarter of 2012 decreased $628 in comparison to the same period in 2011. This decrease is primarily attributable to an increase of $480 due to volume, offset by a $1,108 decrease due to rate. Interest income on securities of U.S. Government agencies and corporations decreased $216, of which $159 is attributable to rate. Lower market interest rates have increased the number of agency securities being called. In addition, federal programs promoting the refinance of residential mortgages have increased paydowns on mortgage-backed securities, resulting in the reinvestment of funds at lower market interest rates.

Interest income on commercial loans increased $19. Increasing loan demand was offset by the sustained low interest rate environment as evidenced by the increase attributable to volume of $335 offset by a decrease of $316 attributable to rate. The $193 decrease in interest income on real estate mortgage loans was primarily attributable to a decline in average loan balances as a result of refinancing experienced in the portfolio and the Corporation’s practice of selling new mortgage production into the secondary market. Given the continued lower interest rate environment and the competitive nature of indirect lending, installment loans accounted for $537 of the change in interest due to rate, offset by an increase in volume of $282.

The $616 decrease in consumer time deposits was due primarily to lower market interest rates as existing accounts continue to renew at favorable lower market interest rates. Total interest expense decreased $699, with the decrease being attributable to a $585 decrease due to rate and a decrease due to volume of $114. Overall, the total increase in net interest income (FTE) of $71 was mainly attributable to an increase in volume of $594 and a decrease of $523 due to rate which is the difference between interest income and interest expense.

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Noninterest Income

Table 3: Details on Noninterest Income

	Three Months Ended March 31,
	2012			2011
	(Dollars in thousands)
Investment and trust services	$	390		$	403
Deposit service charges		935			916
Electronic banking fees		748			906
Income from bank owned life insurance		165			174
Other income		342			79
Total fees and other income		2,580			2,478
Gain on sale of securities		—			412
Gain on sale of loans		347			179
Gains (losses) on sale of other assets		(52	)		2
Total noninterest income	$	2,875		$	3,071

Three Months Ended March 31, 2012 versus Three Months Ended March 31, 2011 Noninterest Income Comparison

Total fees and other income for the three months ended March 31, 2012 was $2,580, a decrease of $102, or 4.1%, over the same period of 2011. Income earned on investment and trust services declined $13 compared to the prior period. Deposit service charges increased $19 despite new regulations regarding overdrafts. This marginal increase was offset by a $158 decrease in electronic banking fees when compared to a year ago. Other income increased $263 over the same period of 2011. Included in other income for March 31, 2012 is a $250 one-time signing bonus received from a third party service provider.

No sales of securities were recorded in the first quarter of 2012 compared to a gain of $412 recorded for the first quarter of 2011. Gains on the sale of loans increased $168, or 94.0%, compared to the first quarter of 2011. A total of $10,308 residential mortgage loans were sold during the first quarter of 2012 compared to $9,767 for first quarter 2011, an increase of 5.5%. Sales of bank owned property resulted in a loss of $52 during the first three months of 2012 compared to a gain of $2 for the prior period.

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Noninterest Expense

Table 4: Details on Noninterest Expense

	Three Months Ended March 31,
	2012		2011
	(Dollars in thousands)
Salaries and employee benefits	$	4,111	$	4,091
Furniture and equipment		832		680
Net occupancy		579		612
Professional fees		495		486
Marketing and public relations		247		271
Supplies, postage and freight		243		272
Telecommunications		173		215
Ohio Franchise tax		316		298
FDIC Assessments		392		574
Other real estate owned		132		590
Electronic banking expenses		238		209
Loan and Collection Expense		349		442
Other expense		437		449
Total noninterest expense	$	8,544	$	9,189

Three Months Ended March 31, 2012 versus Three Months Ended March 31, 2011 Noninterest Expense Comparison

Noninterest expense for the first quarter of 2012 decreased $645, or 7.0%, compared to the same period of 2011. The decline in noninterest expense was mainly attributable to lower credit administration and other estate owned expenses which decreased by $551, or 53.4%, compared to the first quarter of 2012. FDIC assessments also declined relative to the first quarter of 2011 by $182 or 31.71%, due to the new risk-based assessment system adopted by the FDIC during the second quarter of 2011. Furniture and equipment increased $152, or 22.4%, mainly as a result of required maintenance to the Corporation’s automated teller machines to be compliant with new banking regulations as well as costs associated with a system enhancement scheduled to be completed during the second quarter of 2012.

Income taxes

Three Months Ended March 31, 2012 versus Three Months Ended March 31, 2011 Income Taxes Comparison

The Corporation recognized income tax expense of $581 and $266 for the first quarter of 2012 and 2011, respectively. The Corporation’s effective tax rate increased to 27.85% for March 31, 2012 from 19.05% for March 31, 2011, mainly as a result of the Corporation’s lower new market tax credit generated by North Coast Community Development Corporation, a wholly-owned subsidiary of the Bank. The new market tax credit is utilized by the Corporation based on a schedule of eligible qualified investments and contributes to a lower effective tax rate in comparison to the Corporation’s Federal statutory tax rate of 34%. Included in net income for the three months ended March 31, 2012 and March 31, 2011 was $472 and $413 of nontaxable income, comprised of $134 and $142 related to life insurance policies and $338 and $271 of tax-exempt investment and loan interest income, respectively. After considering the tax-exempt income and relatively small nondeductible expenses, income subject to tax for the quarter was significantly less than income before income tax expense.

Financial Condition

Overview

The Corporation’s assets at March 31, 2012 were $1,199,094 compared to $1,168,422 at December 31, 2011. This is an increase of $30,672, or 2.6%, which is primarily attributable to an increase in portfolio loans of $19,132, or 2.3%, from December 31, 2011. Total deposits at March 31, 2012 were $1,016,166 compared to $991,080 at December 31, 2011. The growth in deposits primarily came in the form of core deposits which generally tends to improve liquidity while reducing costs.

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Securities

The composition of the Corporation’s securities portfolio at March 31, 2012 and December 31, 2011 is presented in Note 5 to the Consolidated Financial Statements contained within this Form 10-Q. The Corporation continues to employ its securities portfolio to manage interest rate risk and to manage its liquidity needs. Total securities increased $5,839, or 2.6%, compared to December 31, 2011, mainly as a result of the Corporation’s purchase of U.S. Government agency securities and U.S. agency mortgage backed securities. As of March 31, 2012 the portfolio was comprised of 97.6% available for sale securities and 2.4% restricted stock. Available for sale securities were comprised of 23.0% U.S. Government agencies, 50.0% U.S. agency mortgage backed securities, 13.5% U.S. agency collateralized mortgage obligations and 13.5% municipal securities. At March 31, 2012, the available for sale securities had a net temporary unrealized gain of $5,495, representing 2.4% of the total amortized cost of the Corporation’s available for sale securities.

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 detail by loan segment.

Table 5: Details on Loan Balances

	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	410,781		$	381,852
Commercial		73,457			76,570
Residential real estate		61,012			64,524
Home equity loans		125,298			126,958
Indirect		178,433			180,089
Consumer		13,239			13,095
Total Loans		862,220			843,088
Allowance for loan losses		(17,115	)		(17,063	)
Net Loans	$	845,105		$	826,025

Total portfolio loans at March 31, 2012 were $862,220, an increase of $19,132 from December 31, 2011. The Corporation significantly increased its portfolio of commercial real estate loans during the first three months of 2012, mainly as a result of its decision to hire and retain experienced commercial lenders. Commercial real estate loans increased by $28,929, or 7.6%, compared to December 31, 2011. Substantially all other loan categories marginally declined in comparison to December 31, 2011. Commercial loans decreased by $3,113, or 4.1%, indirect loans decreased by $1,656, or 0.9%, compared to December 31, 2011. With the continued lower interest rate environment and reduced property values, real estate mortgage and home equity loans continued to decline. Real estate mortgage and home equity loans declined $3,512 and $1,660, respectively, compared to December 31, 2011. Consumer loans did not change significantly compared to December 31, 2011.

At March 31, 2012, commercial and commercial real estate loans represented 56.2% of total portfolio loans. Real estate mortgages and home equity loans comprise 7.1% and 14.5% of total portfolio loans, respectively. Indirect and consumer loans were 20.7% and 1.5% of total portfolio loans, respectively. Consumer loans are made to borrowers on both secured and unsecured terms, depending on the maturity and nature of the loan.

Loans held for sale, and not included in portfolio loans, were $4,462 at March 31, 2012. Mortgage loans held for sale and indirect loans held for sale accounted for $3,559 and $903 of this amount, respectively. The Corporation has a practice of retaining the servicing rights on loans that are sold.

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Expected cash flow and interest rate information for total loans is presented in the following table:

Table 6: Cash Flow and Interest Rate Information for Loans:

	March 31, 2012
Due in one year or less	$	249,288
Due after one year but within five years		347,822
Due after five years		265,110
Totals	$	862,220
Due after one year with a predetermined fixed interest rate	$	531,485
Due after one year with a floating interest rate		81,447
Totals	$	612,932

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 Corporation’s 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 7 presents the detailed activity in the allowance for loan losses and related charge-off activity for the three month period ended March 31, 2012 and 2011.

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Table 7: Analysis of Allowance for Loan Losses

	Three Months Ended
	March 31, 2012			March 31, 2011
	(Dollars in thousands)
Balance at beginning of period	$	17,063		$	16,136
Charge-offs:
Commercial real estate		979			230
Commercial		—			—
Real estate mortgage		467			273
Home equity loans		403			345
Indirect		178			195
Consumer		49			69
Total charge-offs		2,076			1,112
Recoveries:
Commercial real estate		20			102
Commercial		17			31
Real estate mortgage		67			4
Home equity loans		4			1
Indirect		103			25
Consumer		17			28
Total Recoveries		228			191
Net Charge-offs		1,848			921
Provision for loan losses		1,900			2,100
Balance at end of period	$	17,115		$	17,315
Loans outstanding at end of period	$	862,220		$	810,629
Allowance for loan losses as a percent of loans outstanding at the end of the period		1.98	%		2.14	%
Average Loans Outstanding	$	856,364		$	810,971
Annualized ratio to average loans:
Net Charge-offs		0.87	%		0.46	%
Provision for loan losses		0.89	%		1.05	%

The allowance for loan losses at March 31, 2012 was $17,115, or 1.98%, of outstanding loans, compared to $17,315, or 2.14%, of portfolio loans at March 31, 2011 and $17,063, or 2.02%, of outstanding loans at December 31, 2011.

The provision for loan losses for the quarter ended March 31, 2012 was $1,900 compared to provision for loan losses of $2,100 one year ago. Management continues to allocate a portion of the allowance to general reserves for loans having higher risk factors. As specific reserves have been charged-off, the composition of the allowance has shifted from 45% general reserves and 55% specific reserves at March 31, 2011 to 78% general reserves and 22% specific reserves at March 31, 2012. General reserves as of March 31, 2012 totaled $13,298 compared to $9,582 at March 31, 2011.

Net charge-offs for the three months ended March 31, 2012 were $1,848, compared to $921 for the three months ended March 31, 2011. Annualized net charge-offs as a percent of average loans for the first quarter of 2012 was 0.87% compared to 0.46% for the same period in 2011. Net charge-offs on commercial and commercial real estate loans are primarily a result of loans that are collateral dependent and deemed uncollectible. As a result, the loans are written down to their net realizable value which is current appraised value less estimated costs to sell. Given the current real estate market, valuations continue to show declines that are reflected in the lower appraised values and are a major component of the net charge-offs when the underlying collateral is the primary source of repayment for commercial and commercial real estate loans. Net charge-offs related to real estate and home equity loans continue to be impacted by increased bankruptcies and foreclosure proceedings as well as higher loan-to-value ratios which are primarily the result of declining market values.

36

The provision for loan losses for the three month period ended March 31, 2012 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 Corporation continues to aggressively address potential problem loans, and underwriting standards continue to be adjusted in response to trends and asset review findings. Refer to Note 6, Loans and Allowance for Loan Losses, for additional information.

Deposits

Table 8: Deposits and Borrowings

	Average Balances Outstanding				Average Rates Paid
	For the three months ended
	March 31, 2012		December 31, 2011		March 31, 2012			December 31, 2011
	(Dollars in thousands)
Demand deposits	$	124,732	$	125,068		0.00	%		0.00	%
Interest checking		156,296		151,077		0.13			0.14	%
Savings deposits		104,690		101,586		0.13			0.16	%
Money Market Accounts		104,896		100,903		0.21			0.23	%
Consumer time deposits		418,450		432,755		1.34			1.46	%
Public time deposits		84,775		79,716		0.47			0.45	%
Total Deposits		993,839		991,105		0.75			0.73	%
Short-term borrowings		545		565		0.15			0.15	%
FHLB borrowings		47,057		42,606		1.84			2.46	%
Junior subordinated debentures		16,325		16,323		4.34			4.25	%
Total borrowings		63,927		59,494		2.46			2.92	%
Total funding	$	1,057,766	$	1,050,599		0.87	%		0.86	%

Average deposits for the three months ended March 31, 2012 were $993,839 compared to average deposits of $991,105 for the three months ended December 31, 2011. Deposit accounts and the generation of deposit accounts continued to be the primary source of funds for the Corporation. The Corporation offers various deposit products to both retail and business customers. The Corporation also has available its business sweep accounts to generate funds as well as the brokered CD market to provide funding comparable to other national market borrowings, which include the Federal Home Loan Bank of Cincinnati and the Federal Reserve Bank of Cleveland.

Borrowings

The Corporation utilizes both short-term and long-term borrowings to assist in the growth of earning assets. For the Corporation, short-term borrowings include federal funds purchased and repurchase agreements. As of March 31, 2012, the Corporation had $894 of short-term borrowings. There were no federal funds purchased at March 31, 2012 and December 31, 2011. Long-term borrowings for the Corporation consist of Federal Home Loan Bank advances of $47,496 and junior subordinated debentures related to trust preferred securities of $16,238. Federal Home Loan Bank advances were $42,497 at December 31, 2011. Maturities of long-term Federal Home Loan Bank advances are presented in Note 9 to the Consolidated Financial Statements contained within this Form 10-Q.

Regulatory Capital

The Corporation continued to maintain an appropriate capital position. Total shareholders’ equity was $114,061 at March 31, 2012. This is an increase of 0.69% over December 31, 2011. For the three months ended March 31, 2012, total shareholders’ equity was increased by net income of $1,505 and $69 for share-based compensation. Factors decreasing shareholders’ equity were cash dividends payable to common shareholders in the amount of $79, cash dividends payable to preferred shareholders in the amount of $319 including accretion of discount and a $392 decrease in accumulated other comprehensive income resulting from a decrease in the fair value of available for sale securities. The Corporation held 328,194 shares of common stock as treasury stock at March 31, 2012, at a cost of $6,092.

37

The Corporation and the Bank continue to monitor balance sheet growth in an effort to stay within the guidelines established by applicable regulatory authorities. At March 31, 2012 and December 31, 2011, the Corporation and Bank maintained capital ratios consistent with current 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 approximately 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. The share repurchase program provides that share repurchases are 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, at the discretion of Management based upon market, business, legal and other factors. Under the terms of the Series B Preferred Stock issued by the Corporation to the U.S. Treasury in December 2008 in conjunction with the TARP Capital Purchase Program as long as the Series B Preferred Stock is outstanding, repurchases or redemptions relating to certain equity securities, including the Corporation’s common shares, are prohibited to the extent that these are then accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions. As of March 31, 2012, the Corporation had repurchased an aggregate of 202,500 shares under this program. The Corporation did not repurchase any shares under this program during the first quarter of 2012.

The Board of Directors reviews the Corporation’s capital requirements on a regular basis and continues to assess potential alternatives for repaying the Corporation’s TARP obligations. The Corporation intends to redeem the Series B Preferred Stock and repay its TARP obligations at a time and in a manner that it believes is appropriate after considering, among other things, the Corporation’s anticipated capital requirements, projected dividend capacity from the Bank, the availability and relative attractiveness of alternative sources of capital, the Corporation’s risk profile, its earnings performance and asset quality trends, and input from its regulators. See Note 14 to the Consolidated Financial Statements for further information on the Series B Preferred Stock and common shares warrant issued pursuant to the Capital Purchase Program.

Off-Balance Sheet Arrangements

In the normal course of business, the Corporation enters into commitments with off-balance sheet risk to meet the financing needs of its customers. These arrangements include commitments to extend credit and standby letters of credit. Commitments to extend credit and standby letters of credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Corporation uses the same credit policies in making commitments to extend credit and standby letters of credit as it does for on-balance sheet instruments.

The Corporation’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. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Corporation 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.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Most of these arrangements mature within two years and are expected to expire without being drawn upon. 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.

The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained by the Corporation 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.

The Corporation does not believe that off-balance sheet arrangements will have a material impact on its liquidity or capital resources. See Note 11 to the Consolidated Financial Statements for further detail.

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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:

• a worsening of economic conditions or slowing of any economic recovery, which could negatively impact, among other things, business activity and consumer spending and could lead to a lack of liquidity in the credit markets;

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

• increases in interest rates or further weakening of economic conditions that could constrain borrowers’ ability to repay outstanding loans or diminish the value of the collateral securing those loans;

• market conditions or other events that could negatively affect the level or cost of funding, affecting the Corporation’s ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth, and new business transactions at a reasonable cost, in a timely manner and without adverse consequences;

• changes in political conditions or the legislative or regulatory environment, including new or heightened legal standards and regulatory requirements, practices or expectations, which may impede profitability or affect the Corporation’s financial condition (such as, for example, the Dodd-Frank Act and rules and regulations that have been or may be promulgated under the Act);

• persisting volatility and limited credit availability in the financial markets, particularly if market conditions limit the Corporation’s ability to raise funding to the extent required by banking regulators or otherwise;

• significant increases in competitive pressure in the banking and financial services industries, particularly in the geographic or business areas in which the Corporation conducts its operations;

• limitations on the Corporation’s ability to return capital to shareholders, including the ability to pay dividends, and the dilution of the Corporation’s common shares that may result from, among other things, the terms of the CPP, pursuant to which the Corporation issued securities to the U.S. Treasury;

• adverse effects on the Corporation’s ability to engage in routine funding transactions as a result of the actions and commercial soundness of other financial institutions;

• general economic conditions becoming less favorable than expected, continued disruption in the housing markets and/or asset price deterioration, which have had and may continue to have a negative effect on the valuation of certain asset categories represented on the Corporation’s balance sheet;

• increases in deposit insurance premiums or assessments imposed on the Corporation by the FDIC;

• a failure of the Corporation’s operating systems or infrastructure, or those of its third-party vendors, that could disrupt its business;

• risks that are not effectively identified or mitigated by the Corporation’s risk management framework; and

• difficulty attracting and/or retaining key executives and/or relationship managers at compensation levels necessary to maintain a competitive market position; as well as the risks and uncertainties described from time to time in the Corporation’s reports as filed with the SEC.

The Corporation undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

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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 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 contained within this Form 10-Q. These policies are fundamental to the understanding of results of operation and financial conditions.

The accounting policies considered by Management to be critical 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 collectability of the loan is unlikely. Recoveries of amounts previously charged-off are credited to the allowance.

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

The Corporation maintains the allowance for loan losses at a level adequate to absorb management’s estimate of probable credit losses inherent in the loan portfolio. The allowance is comprised of a general allowance, a specific allowance for identified problem loans and an unallocated allowance representing estimations pursuant to either Statement of Financial Accounting Standards ASC 450, “Accounting for Contingencies,” or ASC 310-10-45, “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 the Corporation uses historical loss experience along with factors that are considered when loan 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 collectability of the loan portfolio.

Specific allowances are established for all 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. 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 ASC 740, “Accounting for Income Taxes”. The accounting 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.

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Goodwill

During 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives an entity the option to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount (impairment). If the entity finds after the qualitative assessment that it is more likely than not (impairment indicators) that the fair value of a reporting unit is less than its carrying amount, the entity is then required to perform a full impairment test. The full impairment test is a two-step process that requires management to make judgments in determining what assumptions to use in the calculation. The first step in impairment testing is to estimate the fair value based on valuation techniques including a discounted cash flow model with revenue and profit forecasts and comparing those estimated fair values with the carrying values, which includes the allocated goodwill. If the carrying value exceeds its fair value, goodwill impairment may be indicated and a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of an “implied fair value” of goodwill requires the Corporation to allocate fair value to the assets and liabilities. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. An impairment loss would be recognized as a charge to earnings to the extent the carrying amount of the goodwill exceeds the implied fair value of the goodwill. The Corporation tested for goodwill impairment in 2010 and 2009 with no impairment losses recognized. The Corporation early-adopted the ASU in 2011.

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 a material effect on the liquidity, capital resources, or operations of the Corporation.

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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 bank holding company, are credit, operational, interest rate, market, and liquidity risk. Credit risk involves the risk of uncollectible interest and principal balance on a loan when it is due. Fraud, legal and compliance issues, processing errors, technology and the related disaster recovery, and breaches in business continuation and internal controls are types of operational risks. Changes in interest rates affecting net interest income are considered interest rate risks. Market risk is the risk that a financial institution’s earnings and capital or its ability to meet its business objectives are adversely affected by movements in market rates or prices. Such movements include fluctuations in interest rates, foreign exchange rates, equity prices that affect the changes in value of available-for-sale securities, credit spreads and commodity prices. The inability to fund obligations due to investors, borrowers or depositors is liquidity risk. For the Corporation, the dominant risks are market, credit and liquidity 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 Corporation’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

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

Table 9 sets forth nonperforming assets at March 31, 2012 and December 31, 2011.

Table 9: Nonperforming Assets

	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	24,100		$	21,512
Commercial		944			1,072
Residential real estate		6,972			6,551
Home equity loans		4,090			4,365
Indirect		605			711
Consumer		159			260
Total nonperforming loans		36,870			34,471
Other foreclosed assets		1,845			1,687
Total nonperforming assets	$	38,715		$	36,158
Loans 90 days past due accruing interest	$	—		$	—
Allowance for loan losses to nonperforming loans		46.42	%		49.50	%

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The Corporation continues to aggressively manage credit quality and has made steady progress managing problem loans. Nonperforming loans at March 31, 2012 were $36,870 compared to $34,471 at December 31, 2011, an increase of $2,399. Of this total, commercial real estate loans were $24,100 or 65.4% of total nonperforming loans compared to $21,512 or 62.4% of total nonperforming loans at December 31, 2011. These loans are primarily secured by real estate and, in some cases, by SBA guarantees, and have either been charged-down to their realizable value or a specific reserve has been established for any collateral short-fall. All nonperforming loans are being actively managed and monitored.

Management monitors delinquency and potential problem loans. Bank-wide delinquency at March 31, 2012 was 3.8% of total loans. Total 30-59 day delinquency and 60-89 day delinquency was 0.6% and 0.2% of total loans at March 31, 2012, respectively.

Other foreclosed assets were $1,845 as of March 31, 2012 compared to $1,687 at December 31, 2011. The $1,845 is comprised of $1,274 in residential properties and $571 in commercial real estate properties. This compares to $902 in residential properties and $785 in commercial real estate properties as of December 31, 2011.

Market Risk Management

The Corporation manages market risk through its Asset/Liability Management Committee (“ALCO”) at the Bank level governed by policies set forth and established by the Board of Directors. This committee assesses interest rate risk exposure through two primary measures: rate sensitive assets divided by rate sensitive liabilities and earnings-at-risk simulation of net interest income over the one year planning cycle and the longer term strategic horizon in order to provide a stable and steadily increasing flow of net interest income.

The difference between a financial institution’s interest rate sensitive assets and interest rate sensitive liabilities is referred to as the interest rate gap. An institution that has more interest rate sensitive assets than interest rate sensitive liabilities in a given period is said to be asset sensitive or has a positive gap. This means that if interest rates rise, a corporation’s net interest income may rise and if interest rates fall, its net interest income may decline. If interest sensitive liabilities exceed interest sensitive assets then the opposite impact on net interest income may occur. The usefulness of the gap measure is limited. It is important to know the gross dollars of assets and liabilities that may re-price in various time horizons, but without knowing the frequency and basis of the potential rate changes the predictive power of the gap measure is limited.

Two more useful tools in managing market risk are net interest income at risk simulation and economic value of equity simulation. A net interest income-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 net interest income 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. Using a rolling 12 month forecast, at March 31, 2012, a “shock” treatment of the balance sheet, in which a parallel shift in the yield curve occurs and all rates increase immediately, indicates that in a +200 basis point shock, net interest income would increase $1,216, or 3.2%, and in a -200 basis point shock, net interest income would decrease $2,318, or 6.1%. 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 at Risk (EVE) is the difference between the present value of all asset cash flows and the present value of all liability cash flows. EVE at risk is an estimate of the Corporation’s capital at risk to adverse changes in interest rates and represents the structural mismatch between the rate sensitivity of the assets versus the liabilities. It is a comprehensive measure for assessing and managing the Corporation’s interest rate risk exposure. At March 31, 2012, this analysis indicated that a +200 basis point change in rates would reduce the value of the Corporation’s equity by 10.8% while a -200 basis point change in rates would increase the value of the Corporation’s equity by 5.2%.

Liquidity Risk Management

Liquidity risk is the possibility of the Corporation being unable to meet current and future financial obligations in a timely manner. Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. The Corporation relies on a large, stable core deposit base and a diversified base of wholesale funding sources to manage liquidity risk.

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The Corporation’s primary source of liquidity is its core deposit base, raised though its retail branch system, along with unencumbered, or unpledged, investment securities. The Corporation also has available unused wholesale sources of liquidity, including advances from the Federal Home Loan Bank of Cincinnati, borrowings through the discount window at the Federal Reserve Bank of Cleveland and access to certificates of deposit issued through brokers. Liquidity is also provided by unencumbered, or unpledged, investment securities that totaled $75,466 at March 31, 2012.

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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 of March 31, 2012, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Securities Exchange Act of 1934.

Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as of March 31, 2012 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. No change in the Corporation’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On April 18, 2008, the Corporation and Richard M. Osborne and certain other parties entered into a settlement agreement (the “Settlement Agreement”) to settle certain contested matters relating to the Corporation’s 2008 annual meeting of shareholders. Under the Settlement Agreement, among other things, Mr. Osborne agreed not to seek representation on the Corporation’s Board of Directors or to solicit proxies with respect to the voting of the Corporation’s common shares for a period of at least 18 months after April 18, 2008. In proxy materials filed with the SEC on March 20, 2009, Mr. Osborne indicated his intent to solicit proxies in favor of the election of two nominees for election as directors at the Corporation’s 2009 annual meeting of shareholders. On March 24, 2009, the Corporation filed a complaint against Mr. Osborne for a declaratory judgment and preliminary and permanent injunctive relief in the United States District Court for the Northern District of Ohio, Eastern Division, to enforce the “standstill” provisions of the Settlement Agreement and restrain Mr. Osborne from (a) engaging in any solicitation of proxies or consents, (b) seeking to advise, encourage or influence any person or entity with respect to the voting of any voting securities of the Corporation, (c) initiating, proposing or otherwise soliciting shareholders of the Corporation for the approval of shareholder proposals, (d) entering into any discussions, negotiations, agreements, arrangements or understanding with any third party with respect to any of the foregoing and (e) disseminating his proposed proxy materials to shareholders of the Corporation. The Corporation also sought an order from the Court temporarily restraining Mr. Osborne from engaging in any of the foregoing activities. On March 28, 2009, the Court issued an order granting the Corporation’s motion for a temporary restraining order. On April 3, 2009, the Court issued an order granting the Corporation’s motion for a preliminary injunction restraining Mr. Osborne from engaging in any of the foregoing activities. On February 15, 2010, Mr. Osborne filed a motion to dissolve the preliminary injunction, which the Corporation opposed. On March 23, 2010, the Court denied Mr. Osborne’s motion to dissolve the preliminary injunction. Prior to the Court’s decision, on March 19, 2010, Mr. Osborne filed a motion for summary judgment and the Corporation filed a motion for partial summary judgment. On April 14, 2010, Mr. Osborne filed an interlocutory appeal of the denial of his motion to dissolve the preliminary injunction with the Sixth Circuit Court of Appeals. Proceedings in the District Court were stayed pending resolution of Mr. Osborne’s appeal by the Sixth Circuit Court of Appeals. On July 25, 2011, the Sixth Circuit affirmed the decision of the District Court. The case was remanded to the District Court, and, on November 30, 2011, the Court granted the Corporation’s motion for partial summary judgment, ruling that Mr. Osborne must refrain from engaging in any of the conduct specified in the “standstill” provisions of the Settlement Agreement until such time as both of the directors designated by Mr. Osborne pursuant to the Settlement Agreement no longer serve on the Corporation’s Board of Directors. With respect to the remaining claims, the Court scheduled the commencement of a trial on the merits for March 13, 2012. In the meantime, Osborne appealed the District Court’s decision granting a permanent injunction to the Sixth Circuit. The Corporation filed a motion to dismiss the appeal, which remains pending in the Sixth Circuit. The District Court has stayed all proceedings pending resolution of the matter in the Sixth Circuit.

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Item  1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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 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. The share repurchase program provides that share repurchases are 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, at the discretion of Management based upon market, business, legal and other factors. Under the terms of the Series B Preferred Stock issued by the Corporation to the U.S. Treasury in December 2008 in conjunction with the TARP Capital Purchase Program as long as the Series B Preferred Stock is outstanding, repurchases or redemptions relating to certain equity securities, including the Corporation’s common shares, are prohibited to the extent that these are then accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions. As of March 31, 2012, the Corporation had repurchased an aggregate of 202,500 shares under this program. The Corporation did not repurchase any shares under this program during the first quarter of 2012.

Item 6. Exhibits.

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LNB BANCORP, INC. (Registrant)
Date: May 11, 2012	/s/ Gary J. Elek
	Gary J. Elek
	Chief Financial Officer (Duly Authorized Officer, and Principal Financial and Accounting Officer)

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Exhibit Index

Exhibit No.	Exhibit
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.
101	Financial statements from the quarterly report on Form 10-Q of LNB Bancorp, Inc. for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2012 (unaudited) and December 31, 2011; (ii) Consolidated Statements of Income (unaudited) for the three months ended March 31, 2012 and 2011; (iii) Consolidated Statements of Shareholders’ Equity (unaudited) for the three months ended March 31, 2012 and 2011; (iv) Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2012 and 2011; and (v) Notes to the Unaudited Consolidated Financial Statements.

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EX-31.1

Exhibit 31.1

Rule 13a -14(a)/15d -14(a) Certification

I, Daniel E. Klimas, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 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(s) 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(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: May 11, 2012	/s/ Daniel E. Klimas
	Daniel E. Klimas
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a -14(a)/15d -14(a) Certification

I, Gary J. Elek, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 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(s) 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(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: May 11, 2012	/s/ Gary J. Elek
	Gary J. Elek
	Chief Financial Officer

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 March 31, 2012 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, to my knowledge:

(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

May 11, 2012

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ENACTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of LNB Bancorp, Inc. (the “Corporation”) for the period ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary J. Elek, 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, to my knowledge:

(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/ Gary J. Elek

Gary J. Elek

Chief Financial Officer

May 11, 2012

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Earnings Per Share

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share

(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 and warrants outstanding during the year. Basic and diluted earnings per share are calculated as follows:

	Three Months Ended March 31,
	2012		2011
	(Dollars in thousands except per share amounts)
Weighted average shares outstanding used in Basic Earnings per Common Share		7,924,562		7,871,416
Dilutive effect of stock options		1,328		16
Dilutive effect of common stock warrants		—		—
Weighted average shares outstanding used in Diluted Earnings Per Common Share		7,925,890		7,871,432
Net Income	$	1,505	$	1,130
Preferred stock dividend and accretion		319		319
Income Available to Common Shareholders	$	1,186	$	811
Basic Earnings Per Common Share	$	0.15	$	0.10
Diluted Earnings Per Common Share	$	0.15	$	0.10

Options for an aggregate of 232,000 common shares and a common stock warrant for 561,343 shares were considered in computing diluted earnings per common share for the three month period ended March 31, 2012. As of March 31, 2012, stock options of 37,500 were considered dilutive and the remaining stock options and stock warrants were antidilutive. Options for an aggregate of 197,000 common shares and a common stock warrant for 561,343 shares were considered in computing diluted earnings per common share for the three month period ended March 31, 2011. As of March 31, 2011, stock options of 2,500 were considered dilutive and the remaining stock options and stock warrants were considered antidilutive.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

(1) Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of LNB Bancorp, Inc. (the “Corporation”) and its primary 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.

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnote disclosures necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Corporation included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011. However, all adjustments (consisting only of normal recurring accruals) which, in the opinion of the Corporation’s management (“Management”), are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three month period ended March 31 2012, are not necessarily indicative of the results which may be expected for a full year.

Use of Estimates

LNB Bancorp Inc. prepares its financial statements in conformity with generally accepted accounting principles (GAAP), which requires the Corporation’s 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 valuation of goodwill, the realization of deferred tax assets and fair values of financial instruments.

Segment Information

The Corporation’s activities are considered to be a single industry segment for financial reporting purposes. LNB Bancorp, Inc. is a bank 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, Erie, Cuyahoga, and Summit counties of Ohio. This market provides the source for substantially all of the Bank’s deposit and loan and trust 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. As of March 31, 2012 and December 31, 2011, the Corporation did not hold any trading securities. Securities that the Corporation has a positive intent and ability to hold to maturity are classified as held to maturity. As of March 31, 2012 and December 31, 2011, 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. 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. Gains and losses on sales of securities are determined on the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. When evaluating investment securities consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether the Corporation has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. In analyzing an issuer’s financial condition, the Corporation may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but the entity does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

Restricted Stock

The Bank is a member of the Federal Home Loan Bank (FHLB) system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. The Bank is also a member of and owns stock in the Federal Reserve Bank. The Corporation also owns stock in Bankers Bancshares Inc., an institution that provides correspondent banking services to community banks. Stock in these institutions is classified as restricted stock and is recorded at redemption value which approximates fair value. The Corporation periodically evaluates the restricted stock for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Held For Sale

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 the noninterest income section of the consolidated statement of income.

Loans

Loans are reported at the principal amount outstanding, net of unearned income and premiums and discounts. Loans acquired through business combinations are 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 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.

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 collectability 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 or below. 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 loans and individual borrowers, sensitivity analysis and expected loss models, value of underlying collateral, and observations of internal loan review staff or banking regulators.

The provision for loan losses is determined based on 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.

Servicing

Servicing assets are recognized as separate assets when rights are acquired through sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment on a quarterly basis based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.

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. Goodwill is evaluated at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Corporation evaluates goodwill impairment annually as of November 30^th of each year. Core deposit intangible assets are amortized using the straight-line method over ten years and are subject to annual impairment testing.

To simplify the process of testing goodwill for impairment for both public and nonpublic entities, on September 15, 2011 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 gives an entity the option to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value if a reporting unit less than its carrying amount (impairment). If the entity finds after the qualitative assessment that it is more likely than not (impairment indicators) that the fair value of a reporting unit is less than its carrying amount, the entity is then required to perform a full impairment test. Prior to the update entities were required to test goodwill for impairment on at least an annual basis. The Corporation tested for goodwill impairment in 2010 and 2009 with no impairment losses recognized. The Corporation early-adopted the ASU in 2011.

Other Real Estate Owned

Other real estate (ORE) is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. Other real estate owned is recorded at the lower of the recorded investment in the loan at the time of acquisition or the fair value of the underlying property collateral, less estimated selling costs. Any write-down in the carrying value of a property at the time of acquisition is charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair market value, as well as gains and losses on disposition and revenues and expenses incurred in maintaining such properties, are treated as period costs. Other real estate owned also includes bank premises formerly but no longer used for banking. Banking premises are transferred at the lower of carrying value or estimated fair value, less estimated selling costs.

Split-Dollar Life Insurance

The Corporation recognizes a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to certain employees extending to post-retirement periods. Based on the present value of expected future cash flows, the liability is recognized based on the substantive agreement with the employee.

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 an annual 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

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the pension plan, which are also recognized as separate components of shareholders’ equity.

Unrealized gains on the Corporation’s available-for-sale securities (after applicable income tax expense) totaling $3,627 and $4,019 at March 31, 2012 and December 31, 2011, respectively, and the minimum pension liability adjustment (after applicable income tax benefit) totaling $1,818 for both March 31, 2012 and December 31, 2011 are included in accumulated other comprehensive income.

In June 2011, the FASB issued ASU 2011-05, which provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income, along with a total for other comprehensive income, and a total amount for comprehensive income. This update is effective on a retrospective basis for the quarter ended March 31, 2012. In compliance with the ASU, the Corporation reported comprehensive income in a single continuous statement with all of the components required by ASU 2011-05. The adoption of this guidance did not have an impact on the consolidated financial statements of the Corporation.

Preferred Stock

The Corporation is authorized to issue up to 1,000,000 shares of Voting Preferred Stock, no par value. As of March 31, 2012, the Corporation had authorized 150,000 Series A Voting Preferred Shares. No Series A Voting Preferred Shares have been issued.

As of March 31, 2012 and December 31, 2011, 25,223 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (“Series B preferred stock”) have been issued. The Board of Directors of the Corporation is authorized to provide for the issuance of one or more series of Voting Preferred Stock and establish the dividend rate, dividend dates, whether dividends are cumulative, liquidation prices, redemption rights and prices, sinking fund requirements, conversion rights, and restrictions on the issuance of any series of Voting Preferred Stock. The Voting Preferred Stock may be issued with conversion rights to common stock and may rank prior to the common stock in dividends, liquidation preferences, or both. In connection with the Corporation’s sale of $25.2 million of its Series B preferred stock to the U.S. Treasury in conjunction with the TARP Capital Purchase Program, the Corporation also issued to the U.S. Treasury a warrant to purchase 561,343 of its common shares at an exercise price of $6.74.

Reclassification

Certain amounts appearing in the prior year’s financial statements have been reclassified to conform to the current period’s financial statements.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks (Note 3)	$ 37,032	$ 34,323
Federal funds sold and interest bearing deposits in banks	7,080	6,324
Cash and cash equivalents	44,112	40,647
Securities available for sale, at fair value (Note 5)	231,851	226,012
Restricted stock	5,741	5,741
Loans held for sale	4,462	3,448
Loans:
Portfolio loans (Note 6)	862,220	843,088
Allowance for loan losses (Note 6)	(17,115)	(17,063)
Net loans	845,105	826,025
Bank premises and equipment, net	8,947	8,968
Other real estate owned	1,845	1,687
Bank owned life insurance	18,034	17,868
Goodwill, net (Note 4)	21,582	21,582
Intangible assets, net (Note 4)	698	731
Accrued interest receivable	3,651	3,550
Other assets	13,066	12,163
Total Assets	1,199,094	1,168,422
Deposits: (Note 7)
Demand and other noninterest-bearing	134,368	126,713
Savings, money market and interest-bearing demand	380,396	359,977
Time deposits	501,402	504,390
Total deposits	1,016,166	991,080
Short-term borrowings (Note 8)	894	227
Federal Home Loan Bank advances (Note 9)	47,496	42,497
Junior subordinated debentures (Note 10)	16,238	16,238
Accrued interest payable	1,054	1,118
Accrued expenses and other liabilities	3,185	3,988
Total Liabilities	1,085,033	1,055,148
Shareholders' Equity
Discount on Series B preferred stock	(98)	(101)
Warrant to purchase common stock	146	146
Common stock, par value $1 per share, authorized 15,000,000 shares, issued 8,272,548 shares at March 31, 2012 and 8,210,443 at December 31, 2011.	8,272	8,210
Additional paid-in capital	39,614	39,607
Retained earnings	45,187	44,080
Accumulated other comprehensive income	1,809	2,201
Treasury shares at cost, 328,194 shares at March 31, 2012 and at December 31, 2011.	(6,092)	(6,092)
Total Shareholders' Equity	114,061	113,274
Total Liabilities and Shareholders' Equity	1,199,094	1,168,422
Series A Preferred Stock
Shareholders' Equity
Preferred stock
Series B Preferred Stock
Shareholders' Equity
Preferred stock	$ 25,223	$ 25,223

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Consolidated Statements of Shareholders' Equity (Unaudited) (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Dividends declared	$ 0.01	$ 0.01
Common Stock
Restricted shares granted	62,105	40,000
Additional Paid-In Capital
Restricted shares granted	62,105	40,000
Retained Earnings
Dividends declared	$ 0.01	$ 0.01

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating Activities
Net income	$ 1,505	$ 1,130
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,900	2,100
Depreciation and amortization	284	310
Amortization of premiums and discounts	376	337
Amortization of intangibles	33	33
Amortization of loan servicing rights	181	63
Amortization of deferred loan fees	(54)	(98)
Federal deferred income tax expense	197	958
Securities gains, net		(412)
Share-based compensation expense	69	44
Loans originated for sale	(24,150)	(21,859)
Proceeds from sales of loan originations	23,483	20,468
Net gain from loan sales	(347)	(179)
Net (gain) or loss on sale of other assets	52	(2)
Net (increase) decrease in accrued interest receivable and other assets	(1,277)	2,357
Net increase (decrease) in accrued interest payable, taxes and other liabilities	(851)	36
Net cash provided by operating activities	1,401	5,286
Investing Activities
Proceeds from sales of available-for-sale securities		15,499
Proceeds from maturities of available-for-sale securities	40,681	11,202
Purchase of available-for-sale securities	(47,506)	(40,761)
Net (increase) decrease in loans made to customers	(21,560)	2,184
Proceeds from the sale of other real estate owned	355	954
Purchase of bank premises and equipment	(264)	(18)
Net cash used in investing activities	(28,294)	(10,940)
Financing Activities
Net increase in demand and other noninterest-bearing	7,655	4,228
Net increase in savings, money market and interest-bearing demand	20,419	29,978
Net decrease in certificates of deposit	(2,988)	(11,633)
Net increase (decrease) in short-term borrowings	667	(350)
Proceeds from Federal Home Loan Bank advances	20,000	15,000
Payment of Federal Home Loan Bank advances	(15,001)	(15,003)
Dividends paid	(394)	(393)
Net cash provided by financing activities	30,358	21,827
Net increase in cash and cash equivalents	3,465	16,173
Cash and cash equivalents, January 1	40,647	48,220
Cash and cash equivalents, March 31	44,112	64,393
Supplemental cash flow information
Interest paid	2,056	2,705
Income taxes paid	100
Transfer of loans to other real estate owned	$ 635	$ 1,563

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	8,272,548	8,210,443
Treasury stock, shares	328,194	328,194
Series A Preferred Stock
Preferred stock, par value
Preferred stock, shares authorized	150,000	150,000
Preferred stock, shares issued
Series B Preferred Stock
Preferred stock, par value
Preferred stock, shares authorized	25,223	25,223
Preferred stock, shares issued	25,223	25,223
Preferred stock, liquidation value	$ 1,000	$ 1,000

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Trust Preferred Securities

3 Months Ended

Mar. 31, 2012

Trust Preferred Securities [Abstract]

Trust Preferred Securities

(10) Trust Preferred Securities

In May 2007, LNB Trust I (“Trust I”) and LNB Trust II (“Trust II”) each sold $10.0 million of preferred securities to outside investors and invested the proceeds in junior subordinated debentures issued by the Corporation. The Corporation’s obligations under the transaction documents, taken together, have the effect of providing a full guarantee by the Corporation, on a subordinated basis, of the payment obligation 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 interest rates in effect as of the last determination date in 2012 were 1.95% and 6.64% for Trust I and Trust II, respectively. At March 31, 2012 and December 31, 2011, accrued interest payable for Trust I was $7 and $7 and for Trust II was $23 and $24, respectively.

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 the indenture governing the notes or thereafter incurred. At March 31, 2012, the balance of the subordinated notes payable to Trust I and Trust II was $8,119 each.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 04, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	LNB BANCORP INC
Entity Central Index Key	0000737210
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		7,944,354

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Commitments, Credit Risk, and Contingencies

3 Months Ended

Mar. 31, 2012

Commitments, Credit Risk, and Contingencies [Abstract]

Commitments, Credit Risk, and Contingencies

(11) Commitments, Credit Risk, and Contingencies

In the normal course of business, the Bank enters into commitments that involve off-balance sheet risk to meet the financing needs of its customers. These instruments are currently limited to commitments to extend credit and standby letters of credit. Commitments to extend credit involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made.

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

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on Management’s evaluation of the applicant’s credit. 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. Payments under standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

A summary of the contractual amount of commitments at March 31, 2012 and December 31, 2011 follows:

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Commitments to extend credit	$	75,131	$	92,128
Home equity lines of credit		80,251		78,410
Standby letters of credit		8,335		8,145
Total	$	163,717	$	178,683

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Interest and Dividend Income
Loans	$ 10,049	$ 10,516
Securities:
U.S. Government agencies and corporations	1,260	1,477
State and political subdivisions	287	256
Other debt and equity securities	72	72
Federal funds sold and short-term investments	9	14
Total interest income	11,677	12,335
Interest Expense
Deposits	1,631	2,283
Federal Home Loan Bank advances	215	266
Short-term borrowings		1
Junior subordinated debentures	176	171
Total interest expense	2,022	2,721
Net Interest Income	9,655	9,614
Provision for Loan Losses (Note 6)	1,900	2,100
Net interest income after provision for loan losses	7,755	7,514
Noninterest Income
Investment and trust services	390	403
Deposit service charges	935	916
Other service charges and fees	748	906
Income from bank owned life insurance	165	174
Other income	342	79
Total fees and other income	2,580	2,478
Securities gains, net (Note 5)		412
Gains on sale of loans	347	179
Gain (loss) on sale of other assets	(52)	2
Total noninterest income	2,875	3,071
Noninterest Expense
Salaries and employee benefits	4,111	4,091
Furniture and equipment	832	680
Net occupancy	579	612
Professional fees	495	486
Marketing and public relations	247	271
Supplies, postage and freight	243	272
Telecommunications	173	215
Ohio franchise tax	316	298
FDIC assessments	392	574
Other real estate owned	132	590
Electronic banking expenses	238	209
Loan and collection expense	349	442
Other expense	437	449
Total noninterest expense	8,544	9,189
Income before income tax expense	2,086	1,396
Income tax expense	581	266
Net income	1,505	1,130
Other comprehensive income (loss), net of taxes:
Changes in unrealized securities' holding gain (loss) net of taxes	(392)	77
Minimum pension liability adjustment, net of taxes during the period
Less: reclassification adjustments for securities' gains realized in net income, net of taxes		272
Total other comprehensive loss, net of taxes	(392)	(195)
Comprehensive income	1,113	935
Dividends and accretion on preferred stock	319	319
Net Income Available to Common Shareholders	$ 1,186	$ 811
Net Income Per Common Share (Note 2)
Basic	$ 0.15	$ 0.10
Diluted	$ 0.15	$ 0.10
Dividends declared	$ 0.01	$ 0.01
Average Common Shares Outstanding
Basic	7,924,562	7,871,416
Diluted	7,925,890	7,871,432

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Securities

3 Months Ended

Mar. 31, 2012

Securities [Abstract]

Securities

(5) Securities

The amortized cost, gross unrealized gains and losses and fair values of securities available for sale at March 31, 2012 and December 31, 2011 are as follows:

	At March 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	53,543	$	62	$	(188	)	$	53,417
Mortgage backed securities		112,409		3,701		(302	)		115,808
Collateralized mortgage obligations		30,672		703		(73	)		31,302
State and political subdivisions		29,732		1,643		(51	)		31,324
Total Securities	$	226,356	$	6,109	$	(614	)	$	231,851

	At December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	56,762	$	120	$	(1	)	$	56,881
Mortgage backed securities		103,624		3,705		(292	)		107,037
Collateralized mortgage obligations		29,537		700		—			30,237
State and political subdivisions		30,000		1,901		(44	)		31,857
Total Securities	$	219,923	$	6,426	$	(337	)	$	226,012

The carrying value of securities pledged to secure trust deposits, public deposits, line of credit, and for other purposes required by law amounted to $144,582 and $137,388 at March 31, 2012 and December 31, 2011 respectively.

The amortized cost and fair value of the debt securities portfolio are shown by expected maturity. Expected maturities may differ from contractual maturities if issuers have the right to call or prepay obligations with or without call or prepayment penalties. U.S. Government agencies and corporations include callable and bullet agency issues and agency-backed mortgage backed securities. Mortgage backed securities and collateralized mortgage obligations are not due at a single maturity date and are shown separately.

	At March 31, 2012
	(Dollars in thousands)
	Amortized Cost		Fair Value
Securities available for sale:
Due in one year or less	$	34,406	$	34,413
Due from one year to five years		20,390		20,816
Due from five years to ten years		10,707		11,396
Due after ten years		17,772		18,116
Mortgage backed securities and collateralized mortgage obligations		143,081		147,110
	$	226,356	$	231,851

Realized gains and losses related to securities available-for-sale sold during the three-month periods ended March 31, 2012 and 2011 are as follows:

	March 31,
	2012		2011
	(Dollars in thousands)
Gross realized gains	$	—	$	412
Gross realized losses		—		—
Net Securities Gains	$	—	$	412
Proceeds from the sale of available for sale securities	$	—	$	15,499

The following is a summary of securities that had unrealized losses at March 31, 2012 and December 31, 2011. The information is presented for securities that have been in an unrealized loss position for less than 12 months and for more than 12 months. At March 31, 2012 there were 15 securities with unrealized losses totaling $614 and at December 31, 2011, the Corporation held 10 securities with unrealized losses totaling $337. Factors that are temporary in nature may result in securities being valued at less than amortized cost. For example, when the current levels of interest rates offered on securities are higher compared to the coupon interest rates on the securities held by the Corporation or when impairment is not due to credit deterioration, securities will be valued at less than amortized cost. The Corporation has the ability and the intent to hold these securities until their value recovers.

	At March 31, 2012
	Less than 12 months					12 months or longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(Dollars in thousands)
U.S. Government agencies and corporations	$	24,617	$	(188	)	$	—	$	—	$	24,617	$	(188	)
Mortgage backed securities		27,053		(302	)		—		—		27,053		(302	)
Collateralized mortgage obligations		5,351		(73	)		—				5,351		(73	)
State and political subdivisions		3,694		(51	)		—		—		3,694		(51	)
Total	$	60,715	$	(614	)	$	—	$	—	$	60,715	$	(614	)

	At December 31, 2011
	Less than 12 months					12 months or longer				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Government agencies and corporations	$	9,999	$	(1	)	$	—	$	—	$	9,999	$	(1	)
Mortgage backed securities		25,606		(292	)		—		—		25,606		(292	)
Collateralized mortgage obligations		—		—			—		—		—		—
State and political subdivisions		3,669		(44	)		—		—		3,669		(44	)
Total	$	39,274	$	(337	)	$	—	$	—	$	39,274	$	(337	)

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

(4) Goodwill and Intangible Assets

The Corporation has goodwill of $21,582 primarily from an acquisition completed in 2007. The Corporation assesses goodwill for impairment annually and more frequently in certain circumstances. In September 2011, FASB issued an update on the testing of goodwill for impairment under ASC Topic 350, Intangibles – Goodwill and Other. ASC 350 requires a corporation to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount. The overall objective of the update is to simplify how entities, both public and private, test goodwill for impairment. Simplification has resulted in an entity having the option to first assess qualitative factors to determine whether the existence or circumstances lead to a determination that it is more likely than not (that is, a likelihood of more than fifty percent) that the fair value of a reporting unit is less than its carrying amount. For 2011, the Corporation determined the Bank was one reporting unit and assessed the following qualitative factors to determine if there is likelihood that goodwill is impaired: (a) industry and market considerations such as a deterioration in the environment in which the Corporation operates; (b) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; (c) events affecting a reporting unit such as a change in the composition or carrying amount of the Corporation’s assets unit; (d) share price—considered in both absolute terms and relative to peers; (e) non-performing loans and allowance for loans losses; and (f) bank capital analysis. Based upon this assessment the Corporation determined that there is no likelihood of goodwill impairment. Therefore, no impairment charge was recognized as of December 31, 2011.

The Corporation tested for impairment in 2010 and 2009 and no impairment was recognized. Methodologies used in determining the fair value of the reporting unit for these years included discounted estimated future net cash flows, price to tangible book value and core deposit premium values. Primary reliance was placed on the discounted estimated future net cash flow approach. The key assumptions used to determine the fair value of the Corporation subsidiary included: (a) cash flow period of 5 years; (b) capitalization rate of 10.0%: and (c) a discount rate of 13.0%, which is based on the Corporation’s average cost of capital adjusted for the risk associated with its operations. The Corporation cannot predict the occurrences of certain future events that might adversely affect the reported value of goodwill. Such events include, but are not limited to, strategic decisions in response to economic and competitive conditions, the effect of the economic environment on the Corporation’s customer base or a material negative change in the relationship with significant customers.

Core deposit intangibles are amortized over their estimated useful life of 10 years. A summary of core deposit intangible assets follows:

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Core deposit intangibles	$	1,367	$	1,367
Less: accumulated amortization		669		636
Carrying value of core deposit intangibles	$	698	$	731

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Estimated Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Estimated Fair Value of Financial Instruments [Abstract]

Estimated Fair Value of Financial Instruments

(12) Estimated Fair Value of Financial Instruments

The Corporation discloses estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Corporation’s financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

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

• The fair value of investment securities is based on the fair value hierarchy described below.

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

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

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

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

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

• The fair value of junior subordinated debentures is based on the discounted value of contractual cash flows using rates currently offered for similar maturities.

• The fair value of commitments to extend credit approximates the fees charged to make these commitments since rates and fees of the commitment contracts approximates those currently charged to originate similar commitments. The carrying amount and fair value of off-balance sheet instruments is not significant as of March 31, 2012 and December 31, 2011.

Limitations

Estimates of fair value are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Estimates of fair value are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Corporation has a substantial Investment and Trust Services Division that contributes net fee income annually. The Investment and Trust Services Division is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial instruments include property, plant and equipment, goodwill and deferred tax liabilities. In addition, it is not practicable for the Corporation to estimate the tax ramifications related to the realization of the unrealized gains and losses and they have not been reflected in any of the estimates of fair value. The impact of these tax ramifications can have a significant effect on estimates of fair value.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of March 31, 2012 and December 31, 2011. This table excludes financial instruments for which the carrying value approximates fair value. For short-term financial assets such as cash and due from banks, Federal funds sold, interest bearing deposits in other banks, loans held for sale and accrued interest receivable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between origination of the instrument and its expected realization. For financial liabilities such as demand, savings and money market accounts, short-term borrowings and accrued interest payable, the carrying value is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
(Dollars in thousands)	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2012
Financial Instruments-Assets
Portfolio loans, net	$	845,105	$	845,852	$	—	$	845,852	$	—
Financial Instruments-Liabilities
Certificates of deposit		501,402		505,953		—		505,953		—
Federal Home Loan Bank advances		47,496		48,695		—		48,695		—
Junior subordinated debentures		16,238		16,238		—		16,238		—
December 31, 2011
Financial Instruments-Assets
Portfolio loans, net	$	826,025	$	825,662	$	—	$	825,662	$	—
Financial Instruments-Liabilities
Certificates of deposit		504,390		509,449		—		509,449		—
Federal Home Loan Bank advances		42,497		43,824		—		43,824		—
Junior subordinated debentures		16,238		16,130		—		16,130		—

The fair value of financial assets and liabilities is categorized in three levels. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. These levels are:

• Level 1 —Valuations based on quoted prices in active markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2 —Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

• Level 3 —Assets and liabilities with valuations that include methodologies and assumptions that may not be readily observable, including option pricing models, discounted cash flow models, yield curves and similar techniques.

Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities, but in all cases are corroborated by external data, which may include third-party pricing services.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Corporation’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

The following information pertains to assets measured by fair value on a recurring basis (in thousands):

Description	Fair Value as of March 31, 2012		Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	53,417	$	—	$	53,417	$	—
Mortgage backed securities		115,808		—		115,808		—
Collateralized mortgage obligations		31,302		—		31,302		—
State and political subdivisions		31,324		—		31,324		—
Total	$	231,851	$	—	$	231,851	$	—

Description	Fair Value as of December 31, 2011		Quoted Prices in  Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Securities available for sale:
U.S. Government agencies and corporations	$	56,881	$	—	$	56,881	$	—
Mortgage backed securities		107,037		—		107,037		—
Collateralized mortgage obligations		30,237		—		30,237		—
State and political subdivisions		31,857		—		31,857		—
Total	$	226,012	$	—	$	226,012	$	—

Fair value measurements of U.S. Government agencies and mortgage backed securities use pricing models that vary and may consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Fair value of debt securities such as obligations of state and political may be determined by matrix pricing. Matrix pricing is a mathematical technique that is used to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities relationship to other benchmark quoted prices.

There were no transfers between Levels 1 and 2 of the fair value hierarchy during the three months ended March 31, 2012. For the available for sale securities, the Corporation obtains fair value measurements from an independent third party service and or from independent brokers.

The following tables present the balances of assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2012 and December 31, 2011:

March 31, 2012	Quoted Market Prices in Active Markets (Level 1)		Internal Models  with Significant Observable Market Parameters (Level 2)		Internal Models with Significant Unobservable Market Parameters (Level 3)		Total
(Dollars in thousands)
Impaired and nonaccrual loans	$	—	$	—	$	31,199	$	31,199
Other real estate		—		—		1,845		1,845
Total assets at fair value on a nonrecurring basis	$	—	$	—	$	33,044	$	33,044

December 31, 2011	Quoted Market Prices in Active Markets (Level 1)		Internal Models  with Significant Observable Market Parameters (Level 2)		Internal Models with Significant Unobservable Market Parameters (Level 3)		Total
(Dollars in thousands)
Impaired and nonaccrual loans	$	—	$	—	$	33,592	$	33,592
Other real estate		—		—		1,687		1,687
Total assets at fair value on a nonrecurring basis	$	—	$	—	$	35,279	$	35,279

Impaired and nonaccrual loans: Fair value adjustments for these items typically occur when there is evidence of impairment. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair market value of the collateral. The Corporation measures fair value based on the value of the collateral securing the loans. Collateral may be in the form of real estate or personal property including equipment and inventory. The vast majority of collateral is real estate. The value of the collateral is determined based on internal estimates as well as third party appraisals or non-binding broker quotes. These measurements were classified as Level 3.

Other Real Estate: Other real estate includes foreclosed assets and properties securing residential and commercial loans. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at lower of carry value or fair value less costs to sell. Fair value is generally based upon internal estimates and third party appraisals or non-binding broker quotes and, accordingly, considered a Level 3 classification.

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Short-Term Borrowings

3 Months Ended

Mar. 31, 2012

Short-Term Borrowings [Abstract]

Short-Term Borrowings

(8) 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 50% of the balances of qualified home equity lines of credit that are pledged as collateral. At March 31, 2012, the Bank had pledged approximately $86,319 in qualifying home equity lines of credit, resulting in an available line of credit of approximately $43,159. No amounts were outstanding at March 31, 2012 or December 31, 2011. The Corporation also has a $4,000 line of credit with an unaffiliated financial institution. The balance of this line of credit was $0 as of March 31, 2012 and December 31, 2011.

Short-term borrowings include securities sold under repurchase agreements and Federal funds purchased from correspondent banks. Securities sold under repurchase agreements at March 31, 2012 and December 31, 2011 were $894 and $227, respectively. The interest rate paid on these borrowings was 0.15% at March 31, 2012 and December 31, 2011. No Federal Funds were purchased as of March 31, 2012 and December 31, 2011.

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Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2012

Loans and Allowance for Loan Losses [Abstract]

Loans and Allowance for Loan Losses

(6) Loans and Allowance for Loan Losses

The allowance for loan losses is maintained by the Corporation at a level considered by Management to be adequate to cover probable credit losses inherent in the loan portfolio. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in the estimation of Management, to maintain the allowance for loan losses at an adequate level. 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. Loan losses are charged off against the allowance when management believes that the full collectability of the loan is unlikely. Recoveries of amounts previously charged-off are credited to the allowance.

The allowance is comprised of a general allowance and a specific allowance for identified problem loans. The general allowance is determined by applying estimated loss factors to the credit exposures from outstanding loans. 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 collectability of the loan portfolio. These other factors include but are not limited to: changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices; changes in national and local economic and business conditions, including the condition of various market segments; changes in the nature and volume of the portfolio; changes in the experience, ability, and depth of lending management and staff; changes in the volume and severity of past due and classified loans, the volume of nonaccrual loans, troubled debt restructurings and other loan modifications; the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and the effect of external factors, such as legal and regulatory requirements, on the level of estimated credit losses in the Corporation’s current portfolio. Specific allowances are established for all impaired loans when management has determined that, due to identified significant conditions, it is probable that a loss will be incurred.

Activity in the loan balances and the allowance for loan losses by segment for the three months ended March 31, 2012 and 2011 are summarized as follows:

	Three Months Ended March 31, 2012
	Commercial Real Estate			Commercial_			Residential Real Estate			Home Equity  Loans			Indirect			Consumer			Total
	(Dollars in thousands)
Allowance for loan losses:
Balance, beginning of period	$	10,714		$	1,409		$	1,331		$	2,289		$	891		$	429		$	17,063
Losses charged off		(979	)		—			(467	)		(403	)		(178	)		(49	)		(2,076	)
Recoveries		20			17			67			4			103			17			228
Provision charged to expense		1,896			(841	)		643			408			(9	)		(197	)		1,900
Balance, end of period	$	11,651		$	585		$	1,574		$	2,298		$	807		$	200		$	17,115
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	3,635		$	145		$	37		$	—		$	—		$	—		$	3,817
Collectively evaluated for impairment		8,016			440			1,537			2,298			807			200			13,298
Total ending allowance balance	$	11,651		$	585		$	1,574		$	2,298		$	807		$	200		$	17,115
Loans:
Individually evaluated for impairment	$	29,328		$	592		$	1,279		$	—		$	—		$	—		$	31,199
Collectively evaluated for impairment		381,453			72,865			59,733			125,298			178,433			13,239			831,021
Total ending loans balance	$	410,781		$	73,457		$	61,012		$	125,298		$	178,433		$	13,239		$	862,220

	Three Months Ended March 31, 2011
	Commercial Real Estate			Commercial_			Residential Real Estate			Home Equity Loans			Indirect			Consumer			Total
	(Dollars in thousands)
Allowance for loan losses:
Balance, beginning of year	$	11,127		$	1,317		$	805		$	1,512		$	471		$	904		$	16,136
Losses charged off		(230	)		—			(273	)		(345	)		(195	)		(69	)		(1,112	)
Recoveries		102			31			4			1			25			28			191
Provision charged to expense		1,004			(197	)		390			772			601			(470	)		2,100
Balance, end of year	$	12,003		$	1,151		$	926		$	1,940		$	902		$	393		$	17,315
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	7,576		$	131		$	26		$	—		$	—		$	—		$	7,733
Collectively evaluated for impairment		4,427			1,020			900			1,940			902			393			9,582
Total ending allowance balance	$	12,003		$	1,151		$	926		$	1,940		$	902		$	393		$	17,315
Loans:
Individually evaluated for impairment	$	41,069		$	1,249		$	2,349		$	—		$	—		$	—		$	44,667
Collectively evaluated for impairment		339,384			65,601			66,345			131,119			150,196			13,317			765,962
Total ending loans balance	$	380,453		$	66,850		$	68,694		$	131,119		$	150,196		$	13,317		$	810,629

Delinquencies

Management monitors delinquency and potential commercial problem loans. Bank-wide delinquency at March 31, 2012 was 3.8% of total loans. Total 30-59 day delinquency and 60-89 day delinquency was 0.6% and 0.2% of total loans at March 31, 2012, respectively. Bank-wide delinquency at December 31, 2011 was 3.7% of total loans. Total 30-59 day delinquency and 60-89 day delinquency was 0.4% and 0.3% of total loans at December 31, 2011, respectively. Information regarding delinquent loans as of March 31, 2012 and December 31, 2011 is as follows:

Age Analysis of Past Due Loans

as of March 31, 2012

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate	$	3,159	$	284	$	19,647	$	23,090	$	387,691	$	410,781	$	—
Commercial		250		195		685		1,130		72,327		73,457		—
Residential real estate		446		525		4,250		5,221		55,791		61,012		—
Home equity loans		954		477		1,492		2,923		122,375		125,298		—
Indirect		382		87		65		534		177,899		178,433
Consumer		75		25		16		116		13,123		13,239		—
Total	$	5,266	$	1,593	$	26,155	$	33,014	$	829,206	$	862,220	$	—

Age Analysis of Past Due Loans

as of December 31, 2011

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial real estate	$	290	$	804	$	19,023	$	20,117	$	361,735	$	381,852	$	—
Commercial		54		249		805		1,108		75,462		76,570		—
Residential real estate		545		1,172		3,554		5,271		59,253		64,524		—
Home equity loans		1,942		181		1,666		3,789		123,169		126,958		—
Indirect		664		71		124		859		179,230		180,089
Consumer		131		12		28		171		12,924		13,095		—
Total	$	3,626	$	2,489	$	25,200	$	31,315	$	811,773	$	843,088	$	—

Impaired Loans

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 are evaluated for impairment. Impaired loans are written down by the establishment of a specific allowance where necessary. Interest income recognized on impaired loans while considered impaired was immaterial for all periods. Information regarding impaired loans is as follows:

	At March 31, 2012						Three Months Ended March 31, 2012
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Balance
With no related allowance recorded:
Commercial real estate	$	9,990	$	16,811	$	—	$	9,786
Commercial		364		364		—		287
Residential real estate		1,207		2,184		—		1,449
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
With allowance recorded:
Commercial real estate		19,339		20,494		3,635		18,567
Commercial		227		701		145		269
Residential real estate		72		72		37		72
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
Total	$	31,199	$	40,626	$	3,817	$	30,430
	At December 31, 2011						Three Months Ended March 31, 2011
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Balance
With no related allowance recorded:
Commercial real estate	$	12,585	$	20,138	$	—	$	4,719
Commercial		386		386		—		534
Residential real estate		1,069		1,897		—		1,528
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
With allowance recorded:
Commercial real estate		19,161		19,823		3,747		26,937
Commercial		319		794		148		573
Residential real estate		72		72		37		91
Home equity loans		—		—		—		—
Indirect		—		—		—		—
Consumer		—		—		—		—
Total	$	33,592	$	43,110	$	3,932	$	34,382

Nonaccrual loans at March 31, 2012 were $36,870, compared to $34,471 at December 31, 2011. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

Loans On NonAccrual Status
	March 31, 2012			December 31, 2011
	(Dollars in thousands)
Commercial real estate	$	24,100		$	21,512
Commercial		944			1,072
Residential real estate		6,972			6,551
Home equity loans		4,090			4,365
Indirect		605			711
Consumer		159			260
Total Nonaccrual Loans	$	36,870		$	34,471
Percentage of nonaccrual loans to portfolio loans		4.28	%		4.09	%
Percentage of nonaccrual loans to total assets		3.07	%		2.95	%

Troubled Debt Restructuring

A restructuring of a debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. That concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court. The Corporation adheres to ASC 310-40, Troubled Debt Restructurings by Creditors, to determine whether a troubled debt restructuring applies in a particular instance. Included in loans individually evaluated for impairment as of March 31, 2012 are loans with a recorded investment of $3,041, the terms of which were modified in troubled debt restructurings and considered nonaccrual. The Corporation has allocated reserves of $466 for the nonaccrual TDR loans at March 31, 2012. As of December 31, 2011, included in loans individually evaluated for impairment were loans with a recorded investment of $3,099, the terms of which were modified in troubled debt restructurings and considered nonaccrual. The Corporation allocated reserves of $307 for the nonaccrual TDR loans at December 31, 2011. There are no commitments to lend additional amounts to borrowers with loans that are classified as troubled debt restructurings at March 31, 2012 and December 31, 2011. At March 31, 2012 and December 31, 2011 the borrowers had made timely payments of principal and interest on those loans per the modified agreements. Information regarding TDR loans for the year ended March 31, 2012 and December 31, 2011 is as follows:

	For the Three Months Ended March 31, 2012
	(Dollars in thousands)
	Number of Contracts		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings Commercial Real Estate		5	$	3,041

There were no loans modified in a TDR from during the three months ended March 31, 2012 that subsequently defaulted (i.e., 60 days or more past due following a modification).

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Commercial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor may be requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Land loans are also included in the class of commercial real estate loans. Land loans are typically structured as interest-only monthly payments with a balloon payment due at maturity. Land loans modified in a TDR typically involve extending the balloon payment by one to three years and changing the monthly payments from interest-only to principal and interest, while leaving the interest rate unchanged.

Loans modified in a TDR are typically already on nonaccrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR for the Corporation may have the financial effect of increasing the specific allowance associated with the loan. The allowance for impaired loans that have been modified in a TDR is measured based on the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent or on the present value of expected future cash flows discounted at the loan’s effective interest rate. Management exercises significant judgment in developing these estimates.

Credit Risk Grading

Sound credit systems, practices and procedures such as credit risk grading systems; effective credit review and examination processes; effective loan monitoring, problem identification, and resolution processes; and a conservative loss recognition process and charge-off policy are integral to management’s proper assessment of the adequacy of the allowance. Many factors are considered when grades are assigned to individual loans such as current and historic delinquency, financial statements of the borrower, current net realizable value of collateral and the general economic environment and specific economic trends affecting the portfolio. Commercial, commercial real estate and residential construction loans are assigned internal credit risk grades. The loan’s internal credit risk grade is reviewed on at least an annual basis and more frequently if needed based on specific borrower circumstances. Credit quality indicators used in management’s periodic analysis of the adequacy of the allowance include the Corporation’s internal credit risk grades which are described below and are included in the table below for March 31, 2012 and December 31, 2011:

• Grades 1 -5: defined as “Pass” credits — loans which are protected by the borrower’s current net worth and paying capacity or by the value of the underlying collateral. Pass credits are current or have not displayed a significant past due history.

• Grade 6: defined as “Special Mention” credits — loans where a potential weakness or risk exists, which could cause a more serious problem if not monitored. Loans listed for special mention generally demonstrate a history of repeated delinquencies, which may indicate a deterioration of the repayment abilities of the borrower.

• Grade 7: defined as “Substandard” credits — loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

• Grade 8: defined as “Doubtful” credits — loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable.

• Grade 9: defined as “Loss” credits — loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

For the residential real estate segment, the Corporation monitors credit quality using a combination of the delinquency status of the loan and/or the Corporation’s internal credit risk grades as indicated above.

The following table presents the recorded investment of commercial real estate, commercial and residential real estate loans by internal credit risk grade and the recorded investment in residential real estate, home equity, indirect and consumer loans based on delinquency status as of March 31, 2012 and December 31, 2011:

	Commercial Real Estate		Commercial		Residential Real Estate*		Home Equity Loans		Indirect		Consumer		Total
Commercial Credit Exposure	March 31, 2012
	(Dollars in thousands)
Loans graded by internal credit risk grade:
Grade 1—Minimal	$	—	$	111	$	—	$	—	$	—	$	—	$	111
Grade 2—Modest		—		—		—		—		—		—		—
Grade 3—Better than average		1,613		16		—		—		—		—		1,629
Grade 4—Average		42,504		1,667		235		—		—		—		44,406
Grade 5—Acceptable		321,063		67,277		4,795		—		—		—		393,135
Total Pass Credits		365,180		69,071		5,030		—		—		—		439,281
Grade 6—Special mention		7,285		3,350		154		—		—		—		10,789
Grade 7—Substandard		38,316		1,036		1,825		—		—		—		41,177
Grade 8—Doubtful		—		—		—		—		—		—		—
Grade 9—Loss		—		—		—		—		—		—		—
Total loans internally credit risk graded		410,781		73,457		7,009		—		—		—		491,247
Loans not monitored by internal risk grade:
Current loans not internally risk graded		—		—		49,864		122,375		177,899		13,123		363,261
30-59 days past due loans not internally risk graded		—		—		446		954		382		75		1,857
60-89 days past due loans not internally risk graded		—		—		525		477		87		25		1,114
90+ days past due loans not internally risk graded		—		—		3,168		1,492		65		16		4,741
Total loans not internally credit risk graded		—		—		54,003		125,298		178,433		13,239		370,973
Total loans internally and not internally credit risk graded	$	410,781	$	73,457	$	61,012	$	125,298	$	178,433	$	13,239	$	862,220

	Commercial Real Estate		Commercial		Residential Real Estate*		Home Equity Loans		Indirect		Consumer		Total
Commercial Credit Exposure	December 31, 2011
	(Dollars in thousands)
Loans graded by internal credit risk grade:
Grade 1—Minimal	$	—	$	3,157	$	—	$	—	$	—	$	—	$	3,157
Grade 2—Modest		—		—		—		—		—		—		—
Grade 3—Better than average		1,602		19		—		—		—		—		1,621
Grade 4—Average		44,527		5,322		237		—		—		—		50,086
Grade 5—Acceptable		278,458		63,880		4,835		—		—		—		347,173
Total Pass Credits		324,587		72,378		5,072		—		—		—		402,037
Grade 6—Special mention		16,390		2,947		157		—		—		—		19,494
Grade 7—Substandard		40,875		1,245		1,830		—		—		—		43,950
Grade 8—Doubtful		—		—		—		—		—		—		—
Grade 9—Loss		—		—		—		—		—		—		—
Total loans internally credit risk graded		381,852		76,570		7,059		—		—		—		465,481
Loans not monitored by internal risk grade:
Current loans not internally risk graded		—		—		53,276		123,169		179,230		12,924		368,599
30-59 days past due loans not internally risk graded		—		—		545		1,942		664		131		3,282
60-89 days past due loans not internally risk graded		—		—		1,172		181		71		12		1,436
90+ days past due loans not internally risk graded		—		—		2,472		1,666		124		28		4,290
Total loans not internally credit risk graded		—		—		57,465		126,958		180,089		13,095		377,607
Total loans internally and not internally credit risk graded	$	381,852	$	76,570	$	64,524	$	126,958	$	180,089	$	13,095	$	843,088

* Residential loans with an internal commercial credit risk grade include loans that are secured by non owner occupied 1-4 family residential properties and conventional 1-4 family residential properties.

The Corporation adheres to underwriting standards consistent with its Loan Policy for indirect and consumer loans. Final approval of a consumer credit depends on the repayment ability of the borrower. Repayment ability generally requires the determination of the borrower’s capacity to meet current and proposed debt service requirements. A borrower’s repayment ability is monitored based on delinquency, generally for time periods of 30 to 59 days past due, 60 to 89 days past due and greater than 90 days past due. This information is provided in the above past due loans table.

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Deposits

3 Months Ended

Mar. 31, 2012

Deposits [Abstract]

Deposits

(7) Deposits

Deposit balances at March 31, 2012 and December 31, 2011 are summarized as follows:

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Demand and other noninterest-bearing	$	134,368	$	126,713
Interest checking		164,937		151,894
Savings		108,270		102,440
Money market accounts		107,189		105,643
Consumer time deposits		412,740		424,870
Public time deposits		88,662		79,520
Total deposits	$	1,016,166	$	991,080

The aggregate amount of certificates of deposit in denominations of $100,000 or more amounted to $248,414 and $241,217 at March 31, 2012 and December 31, 2011, respectively.

The contractual maturities of certificates of deposits for each of the next five years and thereafter are as follows:

March 31, 2012
(Dollars in thousands)
2012	$	328,619
2013		101,201
2014		34,656
2015		18,807
2016		18,119
Total	$	501,402

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Federal Home Loan Bank Advances

3 Months Ended

Mar. 31, 2012

Federal Home Loan Bank Advances [Abstract]

Federal Home Loan Bank Advances

(9) Federal Home Loan Bank Advances

Federal Home Loan Bank advances amounted to $47,496 and $42,497 at March 31, 2012 and December 31, 2011, respectively. All advances are bullet maturities with no call features. At March 31, 2012, collateral pledged for FHLB advances consisted of qualified multi-family and residential real estate mortgage loans and investment securities of $73,512 and $29,592, respectively. The maximum borrowing capacity of the Bank at March 31, 2012 was $59,966 with unused collateral borrowing capacity of $10,942. The Bank maintains a $40,000 cash management line of credit (CMA) with the FHLB. No amounts were outstanding for the CMA line of credit as of March 31, 2012 and December 31, 2011.

Maturities of FHLB advances outstanding at March 31, 2012 and December 31, 2011 are as follows.

	March 31, 2012		December 31, 2011
	(Dollars in thousands)
Maturities January 2011 through February 2011, with fixed rates ranging from 3.17% to 3.67%	$	—	$	—
Maturity January 2012, fixed rate 2.37%		—		15,000
Maturities January 2014 through August 2014, with fixed rates ranging from 2.06% to 3.55%		14,996		15,027
Maturities January 2015 and July 2015, with fixed rates ranging from 0.80% to 4.76%		32,500		12,470
Total FHLB advances	$	47,496	$	42,497

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Consolidated Statements of Shareholders' Equity (Unaudited) (USD $) In Thousands	Total	Preferred Stock net of discount	Warrants to Purchase Common Stock	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock
Balance at Dec. 31, 2010	$ 109,464	$ 25,107	$ 146	$ 8,173	$ 39,455	$ 40,668	$ 2,007	$ (6,092)
Net income	1,130					1,130
Common dividends declared, $.01 per share	(79)					(79)
Preferred dividends and accretion of discount	(315)	4				(319)
Net unrealized gains and losses on securities	(77)						(195)
Share-based compensation	44				44
Restricted shares granted (40,000 and 62,105 shares) for the year 2011 and 2012 respectively				40	(40)
Balance at Mar. 31, 2011	110,049	25,111	146	8,213	39,459	41,400	1,812	(6,092)
Balance at Dec. 31, 2011	113,274	25,122	146	8,210	39,607	44,080	2,201	(6,092)
Net income	1,505					1,505
Common dividends declared, $.01 per share	(79)					(79)
Preferred dividends and accretion of discount	(316)	3				(319)
Net unrealized gains and losses on securities	392						(392)
Share-based compensation	69				69
Restricted shares granted (40,000 and 62,105 shares) for the year 2011 and 2012 respectively				62	(62)
Balance at Mar. 31, 2012	$ 114,061	$ 25,125	$ 146	$ 8,272	$ 39,614	$ 45,187	$ 1,809	$ (6,092)

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Cash and Due from Banks

3 Months Ended

Mar. 31, 2012

Cash and Due from Banks [Abstract]

Cash and Due from Banks

(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 was $1,349 on March 31, 2012 and $690 on December 31, 2011.

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Share-Based Compensation

3 Months Ended

Mar. 31, 2012

Share-Based Compensation [Abstract]

Share-Based Compensation

(13) Share-Based Compensation

A broad-based stock incentive plan, the 2006 Stock Incentive Plan, was adopted by the Corporation’s shareholders on April 18, 2006. Awards granted under this Plan as of December 31, 2011 were stock options granted in 2007, 2008, 2009 and 2012 and long-term restricted shares issued in 2010, 2011 and 2012. In addition, the Corporation has nonqualified stock option agreements outside of the 2006 Stock Incentive Plan. Grants under the nonqualified stock option agreements were made from 2005 to 2007.

Stock Options

The expense recorded for stock options was $1 and $0 for the first three months of 2012 and 2011, respectively. The maximum option term is ten years and the options generally vest over three years as follows: one-third after one year from the grant date, two-thirds after two years and completely after three years.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	2012
Risk free interest rate		1.27	%
Dividend yield		3.38	%
Volatility		33.00	%

The weighted-average fair value of options granted in 2012 was $5.39.

Options outstanding at March 31, 2012 were as follows:

	Outstanding				Exercisable
	Number		Weighted Average Remaining Contractual Life (Years)		Number		Weighted Average Exercise Price
Range of Exercise Prices
$5.34-$5.39		37,500		9.66		1,667	$	5.34
$14.47-$15.34		82,000		5.85		82,000		14.47
$15.35-$16.50		52,500		4.96		52,500		15.78
$16.51-$19.10		30,000		3.84		30,000		19.10
$19.11-$19.17		30,000		2.84		30,000		19.17
Outstanding at end of period		232,000		5.62		196,167	$	16.17

A summary of the status of stock options at March 31, 2012 and March 31, 2011 and changes during the three months then ended is presented in the table below:

	2012				2011
	Options		Weighted Average Exercise Price per Share		Options		Weighted Average Exercise Price per Share
Outstanding at beginning of period		197,000	$	16.12		197,000	$	16.12
Granted		35,000		5.39		—		—
Forfeited or expired		—		—		—		—
Exercised		—		—		—		—
Stock dividend or split		—		—		—		—
Outstanding at end of period		232,000	$	14.50		197,000	$	16.12
Exercisable at end of period		196,167	$	16.17		195,334	$	16.22

There were no options exercised during the first three months of 2012, therefore the total intrinsic value of options exercised was $0. The total intrinsic value of all options outstanding at March 31, 2012 was $58.

A summary of the status of nonvested stock options at March 31, 2012 is presented in the table below:

	Nonvested Shares		Weighted Average Exercise Price per share
Nonvested at January 1, 2012		833	$	5.34
Granted		35,000		5.39
Vested		—		—
Forfeited or expired		—		—
Nonvested at March 31, 2012		35,833	$	5.39

Restricted Shares

In 2012, the Corporation issued 62,105 shares of long-term restricted stock. The market price of the Corporation’s common shares on the date of grant of the long-term restricted shares was $5.39 per share. In 2011, the Corporation issued 40,000 shares of long-term restricted stock, 2,500 of which were forfeited by the recipients due to employee terminations. The market price of the Corporation’s common shares on the date of grant of the long-term restricted shares was $5.28 per share. In 2010, the Corporation issued 86,852 long-term restricted shares at a weighted average market price of $4.42 per share. Shares of long-term restricted stock generally vest in two equal installments on the second and third anniversaries of the date of grant, or upon the earlier death or disability of the recipient or a qualified change of control of the Corporation. The expense recorded for long-term restricted stock for the three months ended March 31, 2012 and 2011 was $66 and $44, respectively.

The market price of the Corporation’s common shares at the date of grant is used to estimate the fair value of restricted stock awards. A summary of the status of restricted shares at March 31, 2012 is presented in the table below:

	2012
	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2012		124,252		$	4.68
Granted		62,105			5.39
Forfeited or expired		—			—
Vested		(33,749	)		4.35
Nonvested at March 31, 2012		152,608		$	5.04

Stock Appreciation Rights (“SARs”)

In 2006, the Corporation issued an aggregate of 30,000 SARS at $19.00 per share, 15,500 of which have expired due to employee terminations. The SARS vest over three years as follows: one-third after one year from the grant date, two-thirds after two years and completely after three years. Any unexercised portion of the SARS shall expire at the end of the stated term which is specified at the date of grant and shall not exceed ten years. The SARS issued in 2006 will expire in January 2016. The expense recorded for SARS for the three months ended March 31, 2012 and March 31, 2011 was $2 and $0, respectively.