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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 OR 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file
December 31, 2002 number 0-13203
LNB Bancorp, Inc.
(Exact name of the registrant as specified in its Charter)
Ohio 34-1406303
(State of incorporation) (I.R.S. Employer Identification No.)
457 Broadway, Lorain, Ohio 44052-1769
(Address of principal executive offices) (Zip Code)
(440) 244 - 6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, Par Value $1.00 NASDAQ - National Market
Per Share
Preferred Share Purchase Rights
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-affiliates
of the Registrant at February 28, 2003 was approximately $114,796,000.
The number of shares of Registrant's Common Stock outstanding on February 28,
2003 was 4,401,232.
1
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2002 Annual Report to Stockholders of Registrant are
incorporated by reference in Parts I, II, and IV of this report.
2
LNB Bancorp, Inc.
Form 10-K Report
Table of Contents
2002
Page
PART I
Item 1 Business
a. General Development of Business 4
b. Financial Information About Industry
Segments 5
c. Description of LNB Bancorp, Inc.'s Business 5
d. Financial Information About Foreign and
Domestic Operations and Export Sales 11
e. Statistical Disclosure by Bank Holding
Companies 11
I. Distribution of Assets, Liabilities
and Shareholders' Equity: Interest Rates
and Interest Differential 12
II. Investment Portfolio 12
III. Loan Portfolio 13
IV. Summary of Loan Loss Experience 17
V. Deposits 20
VI. Return on Equity and Assets 21
VII. Short-Term Borrowings 21
Item 2 Properties 21
Item 3 Legal Proceedings 23
Item 4 Submission of Matters to a Vote of Shareholders 23
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters 25
Item 6 Selected Financial Data 25
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 26
Item 7(a) Quantitative and Qualitative Disclosures about
Market Risk 26
Item 8 Financial Statements and Supplementary Data 26
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10 Directors and Executive Officers of the Registrant 27
Item 11 Executive Compensation 29
Item 12 Security Ownership of Certain Beneficial Owners
and Management 40
Item 13 Certain Relationships and Related Transactions 44
3
PART IV
Item 14 Controls and Procedures 45
Item 15 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 46
SIGNATURES 46
CERTIFICATION OF CHIEF EXECUTIVE OFFICER 49
CERTIFICATION OF CHIEF FINANCIAL OFFICER 51
EXHIBIT INDEX 53
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PART 1
ITEM 1 - BUSINESS
a) GENERAL DEVELOPMENT OF BUSINESS
LNB Bancorp, Inc.(the Parent Company), a financial holding company, was
incorporated on October 11, 1983 under the laws of the State of Ohio at
the direction of the Board of Directors of The Lorain National Bank (the
Bank), a national banking association, for the purpose of acquiring all
the outstanding common stock of the Bank. The term "the Corporation"
refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries. At a
special meeting of the shareholders of the Bank, held on February 28,
1984, the shareholders approved the Plan of Reorganization, involving
the merger of the Bank into the Lorain Interim Association, a national
banking corporation, incorporated solely for the purpose of effecting
the Reorganization Plan. Lorain Interim was a wholly-owned subsidiary
of the Corporation.
Upon the consummation of the merger on March 30, 1984, under the Plan of
Reorganization, the business of the Bank is conducted by the merged Bank
under the name "The Lorain National Bank." Each outstanding share of
common stock of the Bank, par value $2.50, was converted into one share
of LNB Bancorp, Inc. common stock, par value $2.50. A total of 904,570
shares of corporate stock were issued at the effective date of the
merger. On April 8, 1989, the shareholders of the Corporation approved a
two-for-one stock split, which reduced the par value to $1.25. On April
20, 1993, the shareholders of the Corporation approved a five-for-four
stock split, which reduced the par value to $1.00.
On April 18, 1995, the Corporation's shareholders approved an amendment
to the Articles of Incorporation to increase the number of authorized
shares of Common Stock from 4,000,000 to 5,000,000 and fix the par value
of Common Stock at $1.00 per share to allow for a five-for-four stock
split.
On April 18, 1995, the Corporation's Board of Directors authorized a
five-for-four stock split in the form of a 25 percent stock dividend.
The stock split increased the number of shares outstanding by 802,692.
Also, Common Stock has been increased by $802,692 with an offsetting
reduction to additional capital to reflect the fixed $1.00 par value per
share for each additional share issued pursuant to the stock split.
At a special meeting of shareholders held on December 14, 1999, the
Corporation's Shareholders approved an amendment to the Articles of
Incorporation to increase the number of authorized shares of Common
Stock from 5,000,000 to 15,000,000 shares. Also, on December 14, 1999,
the Corporation's Shareholders approved an amendment to the Articles of
Incorporation to provide for 1,000,000 shares of Voting Preferred Stock.
5
On October 24, 2000, the Board of Directors of LNB Bancorp, Inc. adopted
a Shareholder Rights Plan. The rights plan is designed to prevent a
potential acquiror from exceeding a prescribed ownership level in LNB
Bancorp, Inc., other than in the context of a negotiated acquisition
involving the Board of Directors.
On November 14, 2000, LNB Bancorp, Inc. filed its Second Amended Articles of
Incorporation which authorized and provided the terms of 750,000 Series A
Voting Preferred Shares.
On February 25, 2003, the Corporation's board of directors approved a three-
for-two (3-for2) stock split of the Corporation's common stock. The shares
issued as a result of the split will be distributed on or about March 14,
2003 to shareholders of record at the close of business on March 10, 2003.
Shareholders participating in the Corporation's dividend reinvestment plan
will be issued fraction shares as is necessary. Shareholders not
participating in the plan will be paid cash in lieu of fractional shares as
is necessary. The retroactive impact of the stock split is not reflected in
the accompanying consolidated financial statements and Form 10-K with respect
to any references to the number of shares issued or outstanding, to per share
information relating to previous stock dividends and stock option activity.
LNB Bancorp, Inc. has broader powers than the Bank. These powers principally
include the power to engage in certain non-banking businesses that are
financial in nature, to own capital stock of banks located in Ohio and
certain other states and to own capital stock of business corporations (other
than banks) located within or outside Ohio.
b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Corporation and subsidiary companies are engaged in one line of
business which is banking services. Neither of the two new subsidiaries
represent a significant part of LNB Bancorp, Inc. at December 31, 2002.
Reference is hereby made to Item 1e., Statistical Disclosure by Bank Holding
Companies, and to Item 8 of this Form 10-K for financial information
pertaining to the Corporation's business.
c) DESCRIPTION OF LNB BANCORP, INC.'S BUSINESS
LNB Bancorp, Inc., (the Bancorp), is a $715 million financial holding company
headquartered in Lorain, Ohio. The Bancorp is a public company whose stock
is traded on The Nasdaq National Stock Market@ under the ticker symbol LNBB.
Its predecessor, The Lorain National Bank, was formed as a result of the
merger of The Lorain Banking Company and The National Bank of Lorain on
January 1, 1961. The Lorain Banking Company was a state chartered bank
founded in 1905. The National Bank of Lorain was a national bank receiving
its national charter in 1934. On March 30, 1984, the Lorain National Bank
became the wholly owned subsidiary of LNB Bancorp, Inc. The Bancorp received
its financial holding company status on March 13, 2000.
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LNB Bancorp, Inc., offers life insurance, term life, whole life, universal
life and long-term care insurance and fixed annuity products through its
wholly owned insurance subsidiary Charleston Insurance Agency, Inc.; and
traditional title services through 49-percent owned subsidiary Charleston
Title Agency, LLC. In addition, pursuant to an agreement between Lorain
National Bank and Raymond James Financial Services, Inc., member NASD/SIPX,
Raymond James offers brokerage services including stocks, mutual funds,
variable annuity products and variable life insurance products to Lorain
National Bank customers through the LNB Investment Center.
The Lorain National Bank operates 21 retail branches and 27 ATMs in the nine
communities of Lorain, Elyria, Amherst, Avon Lake, LaGrange, Oberlin, Olmsted
Township, Vermilion, and Westlake. Lorain National Bank offers a full range
of bank products and services while specializing in small business, mortgage,
and personal banking services, including investment management and trust
services.
The Bank's commercial lending activities consist of commercial loans, working
capital loans, commercial mortgage loans, construction loans, equipment
loans, letter of credit, revolving line of credit, Small Business
Administration loans, government guaranteed loans and Federal Home Loan Bank
program loans.
The Bank's residential mortgage lending activities consist primarily of loans
for purchasing personal residences, home equity loans, local lender loans, or
loans for commercial or consumer purposes secured by residential mortgages.
Consumer lending activities consist of traditional forms of financing for
automobile and personal loans, indirect automobile loans, and home equity
lines of credit.
The Bank's credit card lending activities consist of Visa Lorain Lighthouse
and VISA Gold cards, ATM cards, Access debit card and Bankcard Merchant
services.
The Bank's range of deposit services include checking accounts, totally free
checking, interest-bearing checking, CheckInvest accounts, savings accounts,
Holiday savings, money market accounts, Market Access accounts, individual
retirement accounts, certificates of deposit, Keough plans, and overdraft
protection. Deposits of the Bank are insured by the Bank Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Other bank services offered include safe deposit boxes, night depository,
U. S. savings bonds, travelers' checks, money orders, cashiers checks, bank-
by-mail, automatic teller machine cash and transaction services, debit cards,
wire transfers, foreign drafts, foreign currency, electronic funds transfer,
utility bill collections, notary public service, payroll direct deposit, cash
management services, 24 hour telephone banking with bill paying service,
internet banking, Lockbox, sweep accounts, ACH, discount brokerage services
and other services tailored for both individuals and businesses. The Bank's
7
electronic data processing department provides centralized electronic data
processing services to local financial intermediaries.
The Investment and Trust Services Division of the Bank performs investment
management and trust administrative functions and offers agency, trust
services and Mutual fund investment products to individuals, partnerships,
corporations, institutions and municipalities. The Investment and Trust
Services Division offers employee benefit administration and assists in the
designs of employee benefit plans.
The Bank is not dependent upon any one significant customer or specific
industry. The business of the Corporation is not seasonal to any material
degree.
In the opinion of Management, LNB Bancorp, Inc. does not have exposure to
material costs associated with environmental hazardous waste clean up.
Competition
Lorain National Bank faces strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the wide
spread enactment of state laws that permit multi-bank holding companies as
well as the availability of nationwide interstate banking has created a
highly competitive environment for financial services providers. Lorain
National Bank competes with other national and state banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies and other financial
intermediaries operating in its market and elsewhere, many of whom have
substantially greater financial and managerial resources.
Lorain National Bank competes with seven other banks and bank holding
companies operating in Lorain County which range in size from approximately
$715 million to over $275.0 billion in assets. Other competition comes
primarily from savings and loans, credit unions, and other financial
intermediaries operating in Lorain County and counties adjacent to it. The
Bank's market share of total deposits in Lorain County in all types of
financial institutions was 17.8% in 2002 and 17.4% in 2001, while ranking
number two in market share in 2002 and 2001. Lorain National Bank seeks to
minimize the competitive effect of larger financial institutions through a
community banking approach that emphasizes direct customer access to the
Bank's president and other officers in an environment conducive to friendly,
informed and courteous personal services. Management believes that Lorain
National Bank is well positioned to compete successfully in its respective
primary market area. Competition among financial institutions is based upon
interest rates offered on deposit accounts, interest rates charged on loans
and other credit and service charges, the quality and scope of the services
rendered, the convenience of the banking centers and, in the case of loans
to commercial borrowers, relative lending limits. Management believes that
the commitment of Lorain National Bank to personal service, innovation and
8
involvement in their respective communities and primary market areas, as well
as their commitment to quality community banking service, are factors that
contribute to it's competitive advantage.
Supervision and Regulation
LNB Bancorp, Inc., as a financial holding company, is regulated under
the Bank Holding Company Act of 1956, as amended (the BHC Act), and is
subject to the supervision and examination of the Board of Governors of
the Federal Reserve System (the Federal Reserve Board). The BHC Act
requires the prior approval of the Federal Reserve Board for a financial
holding company to acquire or hold more than a 5% voting interest in any
bank and restricts interstate banking activities. The BHC Act allows
interstate bank acquisitions anywhere in the country and interstate
branching by acquisition and consolidation in those states that have not
opted out by January 1, 1997.
The BHC Act restricts LNB Bancorp, Inc.'s nonbanking activities to
those which are determined by the Federal Reserve Board to be financial
in nature, incidental to such financial activity or complementary to a
financial activity. The BHC Act does not place territorial
restrictions on the activities of nonbank subsidiaries of financial
holding companies. LNB Bancorp, Inc.'s banking subsidiary is subject to
limitations with respect to transactions with affiliates.
Sarbanes-Oxley Act of 2002
On July 30, 2002, the Senate and the House of Representatives of the United
States (Congress) enacted the Sarbanes-Oxley Act of 2002, a law that
addresses, among other issues, corporate governance, auditing and accounting,
executive compensation, and enhanced and timely disclosure of corporate
information. The Nasdaq National Stock Exchange has also proposed corporate
governance rules that were presented to the Securities and Exchange
Commission for review and approval. The proposed changes are intended to
allow stockholders to more easily and efficiently monitor the performance of
companies and directors.
Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley,
LNB Bancorp, Inc.'s chief executive officer and chief financial officer are
each required to certify that LNB Bancorp, Inc.'s Quarterly and Annual
Reports do not contain any untrue statement of a material fact. The rules
have several requirements, including having these officers certify that: they
are responsible for establishing, maintaining and regularly evaluating the
effectiveness of LNB Bancorp, Inc.'s internal controls; they have made
certain disclosures to LNB Bancorp, Inc.'s auditors and the audit committee
of the Board of Directors about LNB Bancorp, Inc.'s internal controls; and
they have included information in LNB Bancorp, Inc.'s Quarterly and Annual
Reports about their evaluation and whether there have been significant
changes in LNB Bancorp, Inc.'s internal controls or in other factors that
9
could significantly affect internal controls subsequent to the evaluation.
The enactment of the Gramm-Leach-Bliley Act of 1999 (the GLB Act)
represented a pivotal point in the history of the financial services
industry. The GLB Act swept away large parts of a regulatory framework that
had its origins in the Depression Era of the 1930s. Effective March 11,
2000, new opportunities became available for banks, other depository
institutions, insurance companies, and securities firms to enter into
combinations that permit a single financial services organization to offer
customers a more complete array of financial products and services. The GLB
Act provides a new regulatory framework for regulation through the financial
holding company, which has as its umbrella regulator the Federal Reserve
Board. Functional regulation of the financial holding company's separately
regulated subsidiaries is conducted by their primary functional regulator.
The GLB Act requires "satisfactory" or higher Community Reinvestment Act
compliance for insured depository institutions and their financial holding
companies in order for them to engage in new financial activities. The GLB
Act provides a federal right to privacy of non-public personal information of
individual customers. LNB Bancorp, Inc. and its subsidiaries are also
subject to certain state laws that deal with the use and distribution of non-
public personal information.
A substantial portion of the Corporation's cash revenues is derived from
dividends paid by its subsidiary bank. These dividends are subject to
various legal and regulatory restrictions as summarized in Note(13) under
Dividend Restrictions on page 26 of the LNB Bancorp, Inc. 2002 Annual Report
and is incorporated herein by reference.
The Bank is subject to the provisions of the National Bank Act. The
Bank is subject to primary supervision, regulation and examination by
the Office of the Comptroller of the Currency (OCC). The Bank is also
subject to the rules and regulations of the Board of Governors of the
Federal Reserve System and the Federal Deposit Insurance Corporation
(FDIC).
The Bank is also subject to the state banking laws of Ohio. Ohio adopted
nationwide reciprocal interstate banking. However, banking laws of other
states may restrict branching within the state and acquisitions or mergers
involving banks and bank holding companies located in other states.
Federal regulators adopted risk-based capital guidelines and leverage
standards for banks and bank holding companies. A discussion of the
impact of risk-based capital guidelines and leverage standards is
presented in Note 14 on page 27 of the LNB Bancorp, Inc. 2002 Annual
Report and is incorporated herein by reference.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA)
provides that a holding company's controlled insured depository
institutions are liable for any loss incurred by the Federal Deposit
10
Insurance Corporation in connection with the default of any FDIC-
assisted transaction involving an affiliated insured bank or savings
association.
During 2000, the Securities and Exchange Commission issued Regulation
FD which established affirmative disclosure requirements on public
corporations such that material nonpublic information must be widely,
rather than selectively, disseminated. Regulation FD is based on the
premise that full and fair disclosure is the cornerstone of an efficient
market system. LNB Bancorp, Inc. is subject to Regulation FD. Through
Regulation FD, the Securities and Exchange Commission seeks to encourage
broad public disclosure in order to increase investor confidence in the
integrity of the capital markets.
Noncompliance with laws and regulations by financial holding companies and
banks can lead to monetary penalties and/or an increased level of
supervision or a combination of these two items. Management is not
aware of any current instances of noncompliance with laws and regulations
and does not anticipate any problems maintaining compliance on a
prospective basis. Recent regulatory inspections and examinations of
the Corporation and the Bank have not disclosed any significant instances of
noncompliance. The minor instances of noncompliance detected during
these inspections and examinations were promptly corrected by Management
and no action was taken by the regulators against the Corporation or the
Bank.
The earnings and growth of LNB Bancorp, Inc. are affected not only by
general economic conditions, but also by the fiscal and monetary
policies of the federal government and its agencies, particularly the
Federal Reserve Board. Its policies influence the amount of bank loans
and deposits and the interest rates charged and paid thereon, and thus
have an effect on earnings. The nature of future monetary policies and
the effect of such policies on the future business and earnings of the
Corporation and its subsidiary bank cannot be predicted. The discussion
of "Impacts of Accounting and Regulatory Pronouncements" is incorporated
herein by reference to pages 47 and 48 of the LNB Bancorp, Inc. 2002 Annual
Report.
Employees
As of December 31, 2002, the Corporation employed 243 full-time employees and
65 part-time employees. The Corporation is not a party to any collective
bargaining agreement. Management considers its relationship with its
employees to be very good. Employee benefits programs are considered by
Management to be competitive with benefits programs provided by other
financial institutions and major employers within the Corporation's market
area.
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d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
The Corporation has no offices located in foreign countries and they have no
foreign assets, liabilities or related income and expense for the years
presented.
e) STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following section contains certain financial disclosures related to
the Corporation as required under the Securities and Exchange
Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding
Companies," or a specific reference as to the location of the required
disclosures in the LNB Bancorp, Inc. 2002 Annual Report, portions of
which are incorporated in this Form 10-K by reference.
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LNB BANCORP, INC.'S STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
A. and B. The average balance sheet information and the related analysis
of net interest income for the years ending December 31, 2002, 2001, and
2000 are included in the Condensed Consolidated Average Balance Sheets,
within Management's Discussion and Analysis found on page 39 of the LNB
Bancorp, Inc. 2002 Annual Report and is incorporated into this Item I by
reference.
All interest is reported on a fully taxable equivalent basis.
Nonaccruing loans, for the purpose of the computations, are included in
the daily average loan amounts outstanding. Loan fees are included in
interest on loans.
C. Tables setting forth the effect of volume and rate changes on
interest income and expense for the years ended December 31, 2002 and
2001 are included in Rate/Volume Analysis of Net Interest Income within
Management's Discussion and Analysis found on page 39 of the LNB
Bancorp, Inc. 2002 Annual Report and is incorporated into this Item I by
reference.
II. INVESTMENT PORTFOLIO
A. The carrying values of securities at year end are as follows:
December 31,
-----------------------------------
(Amounts in Thousands) 2002 2001 2000
- ------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury securities $ -0- $ 1,085 $ 2,090
Securities of other U.S. Government
agencies and corporations 122,232 105,085 76,133
State and political subdivisions 10,883 7,260 -0-
Equity securities 4,794 4,198 1,295
- ------------------------------------------------------------------------
Total securities available for sale 137,909 117,628 79,518
- ------------------------------------------------------------------------
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Securities held to maturity:
Securities of other U.S. Government
agencies and corporations 7,335 13,386 39,566
States and political subdivisions 3,313 3,805 4,865
- ------------------------------------------------------------------------
Total securities held to maturity 10,648 17,191 44,431
- ------------------------------------------------------------------------
Federal Home Loan Bank and
Federal Reserve Bank Stock 3,738 3,582 3,152
- ------------------------------------------------------------------------
Total securities $148,557 $138,401 $127,101
- ------------------------------------------------------------------------
B. MATURITY DISTRIBUTION OF SECURITIES
Information relating to the maturity distribution of securities for the year
ended December 31, 2002 is included in the "Financial Condition" section of
Management's Discussion and Analysis found on page 42 of the LNB Bancorp,
Inc. 2002 Annual Report and is incorporated herein by reference.
WEIGHTED-AVERAGE YIELD OF INVESTMENT SECURITIES
Information relating to the weighted average yield of each range of
maturities of securities for the year ended December 31, 2002 is included in
the "Financial Condition" section of Management's Discussion and Analysis
found on page 42 of the LNB Bancorp, Inc. 2002 Annual Report and is
incorporated herein by reference.
C. Excluding those holdings of the securities portfolio in Collaterlized
Mortgage Obligations and U.S. Government Agencies and Corporations, there
were no investments in securities of any one issuer which exceeded 10% of the
consolidated shareholders' equity of the Corporation at December 31,
2002.
III. LOAN PORTFOLIO
A. Information relating to the distribution of the loan portfolio for the
years ended December 31, 2002, 2001, 2000, 1999, and 1998 appears on page 43
of the LNB Bancorp, Inc. 2002 Annual Report under the caption "Loan Portfolio
Distribution" and is incorporated herein by reference.
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B. COMMERCIAL LOAN MATURITY AND REPRICING ANALYSIS
AS OF DECEMBER 31, 2002
(Amounts in Thousands) 2002
- ---------------------------------------------------------
Maturing and repricing in one year or less $255,804
Maturing and repricing after one year
but within five years 4,189
Maturing and repricing beyond five years -0-
- ---------------------------------------------------------
TOTAL COMMERCIAL LOANS $259,993
=========================================================
Loans repricing beyond one year:
Fixed rate $ 667
Variable rate 3,522
- ---------------------------------------------------------
TOTAL $ 4,189
=========================================================
C. RISK ELEMENTS
Information relating to nonperforming assets for the years ended December 31,
2002, 2001, 2000, 1999, and 1998 appears on page 41 of the LNB Bancorp, Inc.
2002 Annual Report under the caption "Nonperforming Assets" and is
incorporated herein by reference.
The Corporation, through its subsidiary bank, grants commercial,
residential, and consumer loans to customers located primarily in the
northern Ohio counties of Lorain, Cuyahoga, Erie and Huron.
Total nonperforming assets consist of nonperforming loans, loans which have
been restructured, and other foreclosed assets. Nonperforming loans are
loans which are 90 days past due and with respect to which, in Management's
opinion, collection of interest is doubtful. These loans no longer accrue
interest and are accounted for on a cash basis. Loans are classified as
restructured when, due to the deterioration of a customer's financial
ability, the original terms have been favorably modified or either principal
or interest has been forgiven.
The level of total nonperforming assets increased during 1998 due to one
significant commercial loan credit relationship of $1,300,000, placed in
other foreclosed assets at December 31, 1998, and subsequently liquidated for
$1,300,000 in January of 1999. The level of nonperforming assets
increased $978,000 during 2000. This increase is the result of a net
increase in nonaccrual loans of $976,000 plus increases in other
foreclosed assets in the amount of $2,000.
During 2001, nonperforming loans decreased due to charge-offs and decreases
in commercial, mortgage and indirect automobile credits placed on
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nonperforming status.
The level of total nonperforming assets increased by $446,000 during 2002.
This increase is the result of an increase in total nonperforming loans of
$547,000 offset by a decrease in other foreclosed assets in the amount of
$101,000. The decrease in other foreclosed assets relates to the net of -
decreases in the amount of $11,000 of repossessions of motor vehicles during
2002, plus a decrease of $90,000 in other real estate owned. The increase
in nonperforming loans is due to decreases in nonaccrual principal balances
of $1,647,000 which have been paid off and brought current, loans charged-off
in the amount of $778,000, liquidation of nonaccrual loans of $315,000 and
increases in nonaccrual principal balances of $3,287,000. The increase in
nonaccrual loans in 2002 was due primarily to increases in mortgage and
commercial loan customers.
The reserve for loan loss coverage to total nonperforming assets decreased
from 3.5 times at 1999 year end to 2.3 times at 2000 year end while
increasing to 4.1 times at 2001 year end, and decreased to 3.5 times at year-
end 2002. This ratio decreased in 2002 from increases in nonperforming
assets in the amount of $446,000 and increases in the loan loss reserve of
$763,000.
It is the Bank's policy to cease accruing interest on commercial and mortgage
loans where the principal and/or interest remains unpaid for 90 days or more
and 120 days for consumer loans, unless a shorter period is specified by
regulatory guidelines.
In addition to the total nonperforming assets classified above, the loan
review committee identifies accruing loans past due 90 days plus
potential problem loans. These loans are closely monitored by the loan
review committee to assess the borrowers' ability to comply with the
terms of the loans. Management's year-end review of these loans indicated
that a charge to the reserve for loan losses or classification to
nonperforming status was not warranted. Loans which are 90 days or more past
due but continue to accrue interest are loans which, in Management's opinion,
are well secured and are in the process of collection.
(2) Potential Problem Loans
A summary of potential problem loans at December 31, follows:
(Amounts in Thousands) 2002 2001 2000 1999 1998
- -----------------------------------------------------------------
Potential Problem Loans $15,549 $8,579 $3,924 $4,348 $2,941
=================================================================
Potential problem loans are loans identified on Management's classified
credits list which include both loans which Management has some concern as
to the borrowers' ability to comply with the present repayment terms and
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loans which Management is actively monitoring due to changes in the borrowers
financial condition. These loans and their potential loss exposure have been
considered in Management's analysis of the adequacy of the allowance for loan
losses.
The level of potential problem loans rose significantly during 2001 and 2002.
The increase during 2001 was primarily due to two factors. First was a
weakening of the local and national economies. Second was the Corporation's
formation of an independent loan administration function including the
recruitment of a loan review officer and the adoption of a formal loan
grading system. The increase during 2002 was primarily due to further
weakening of the local and national economies. Most of the increases
potential problem loans were in the category of "Special Mention". These are
credits that are identified, at an early stage, as being potential problem
loans. The early identification process allows the loan officers and loan
administration function to monitor these credits and to take proactive steps
with the related borrowers' of these credits. This, in turn, reduces the
potential for the migration of such credits into a nonperforming loan status.
At December 31, 2002, potential problem loans totaled $15,549,000,
an increase of $6,970,000 from one year ago. Potential problem loans at
December 31, 2002 are primarily comprised of commercial credits that the Bank
is monitoring and reviewing. About $8,652,000 in potential problem loans
relates to credit extended to six manufacturing and transportation related
companies Another $5,371,000 of these loans relates to the extension of
credits to four entities in the recreational business. The potential
problem loans in 2000, 1999 and 1998 remained at a relatively low level.
(3) Foreign Outstandings - There were no foreign loans outstandings at
December 31, 2002, 2001, 2000, 1999 or 1998.
(4) Loan Concentrations - Bank management reviews concentrations of
credit and other portfolio risk elements on a quarterly basis.
Management is not aware of any significant loans, group of loans or
segments of the loan portfolio, other than those reported in the
schedule of nonperforming loans, where there are serious doubts as to
the ability of the borrower to comply with the present loan repayment
terms. No loans are outstanding which would, if consolidated, be
considered as a concentration of lending in any particular industry or
group of industries nor are there significant amounts of loans made to
agricultural or energy related businesses.
Credit risk is managed through the bank's loan loss review policy which
provides the Loan Review Officer, lending officers and the loan review
committee with the responsibility to manage loan quality. The Corporation's
credit policies are reviewed and modified on an ongoing basis in order to
remain suitable for the management of credit risks within the loan
portfolio as conditions change. At December 31, 2002, 2001, 2000, 1999 and
1998, there were no significant concentrations of credit risk in the loan
17
portfolio.
The Corporation's credit policies and review procedures are intended to
minimize the risk and uncertainties inherent in lending. In following
these policies and procedures, Management must rely upon estimates,
appraisals and evaluations of loans and the possibility that changes in
such estimates, appraisals and evaluations could occur quickly because
of changing economic conditions and the economic prospects of borrowers.
Also see Note (20), "Commitments, Credit Risk and Contingencies:," of the
"Notes to Consolidated Financial Statements" which appears on page 31 of the
LNB Bancorp, Inc. 2002 Annual Report and is incorporated herein by reference.
(5) No material amount of loans that have been classified by regulatory
examiners as loss, substandard, doubtful, or special mention have been
excluded from the amounts disclosed as nonaccrual, past due 90 days or
more, restructured, or potential problem loans. Corporate management is
not aware of any current recommendations by regulatory authorities
which, if they were implemented, would have a material effect on the
liquidity, capital resources or operations of the Corporation or its
subsidiary bank.
D. Other interest-bearing assets - As of December 31, 2002, there are no
other interest-bearing assets that would be required to be disclosed
under Item III C.1 or 2 if such assets were loans. The Corporation had
$22,000, $123,000, $98,000, $96,000 and $1,400,000 in Other Foreclosed Assets
at December 31, 2002, 2001, 2000, 1999 and 1998, respectively. The balance
at the end of 1998 resulted almost solely from a single commercial loan
credit relationship.
IV. SUMMARY OF LOAN LOSSES
Information relating to the reserve for loan losses for the years ended
December 31, 2002, 2001, 2000, 1999, and 1998 appears on page 41 of the LNB
Bancorp, Inc. 2002 Annual Report under the caption "Reserve for Loan Losses"
and is incorporated herein by reference.
18
Analytical data relating to the Reserve for Loan Losses at December 31,
follows:
(Amounts in Thousands) 2002 2001 2000 1999 1998
- --------------------------------------------------------------------
ANALYTICAL DATA
BALANCES:
Average total loans $496,446 $460,757 $437,593 $403,388 $346,161
Total loans at year
end 509,550 477,488 451,140 419,516 369,866
Net charge-offs 1,437 1,560 1,117 816 3,410
Provision for loan
losses 2,200 2,200 1,700 2,000 2,725
Reserve for loan
losses at year end 6,653 5,890 5,250 4,667 3,483
RATIOS:
Net charge-offs to:
Average total loans 0.29% 0.34% 0.26% 0.20% 0.99%
Total loans at year
end 0.28 0.33 0.25 0.19 0.92
Provision for loan
losses 65.32 70.91 65.71 40.80 125.14
Reserve for loan losses 21.60 26.49 21.28 17.48 97.90
Reserve for loan losses
to:
Average total loans 1.34 1.28 1.20 1.16 1.01
Total loans at year
End 1.31 1.23 1.16 1.11 .94
The amount of 2002 net charge-offs resulted primarily from net charge-offs of
consumer indirect automobile credits and commercial credits. The 2002
provision of $2,200,000 remained at the same level as 2001. The level of
provision booked in 2002 was required due to charge-offs of indirect
automobile and commercial loans and increases in nonperforming assets.
Net charge-offs for 2001 and 2000 showed higher charge-offs of consumer loans
due to consumer indirect automobile loans booked in late 1999 and early 2000.
Charge-offs of consumer loans began trending down in 2002 due to runoff of
indirect automobile loans and increased home equity loans in the consumer
loan portfolio.
The Bank's policy is to maintain the reserve for loan losses at a level
considered by Management to be adequate for probable future losses. The
evaluation performed by the Loan Review Committee is based upon a
continuous review of delinquency trends; the amount of nonperforming
loans (nonaccrual and restructured); loans past due 90 days or more and
potential problem loans; historical and present trends in loans charged-off;
changes in the composition and level of various loan categories; and current
economic conditions.
19
Net charge-offs (recoveries) by portfolio type which are summarized from
the analysis of the Reserve for Loan Losses on page 41 of the LNB Bancorp,
Inc. 2002 Annual Report are presented in the following table:
(Amounts in Thousands) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------
Commercial $ 575 $ 426 $ 11 $ -0- $3,031
Real estate 14 12 50 251 76
Consumer 848 1,122 1,056 565 303
- ------------------------------------------------------------------
Total net charge-offs $1,437 $1,560 $1,117 $ 816 $3,410
==================================================================
Both the provision and the reserve are based on an analysis of individual
credits, prior and current loss experience, changes in portfolio mix, current
economic conditions, and other factors. Consumer and credit card loans are
charged-off within industry norms, while commercial and mortgage loans are
evaluated individually. An allocation of the ending reserve for loan losses
by major type follows:
(Amounts in Thousands) 2002 2001 2000 1999 1998
----------------------------------------------------------------
Commercial $4,145 $3,750 $2,729 $1,803 $1,398
Real estate 412 363 338 530 500
Consumer 1,475 1,351 1,738 1,236 704
Off-balance sheet risk 113 113 150 150 125
Unallocated 508 313 295 948 756
- ------------------------------------------------------------------
TOTAL $6,653 $5,890 $5,250 $4,667 $3,483
==================================================================
This allocation is made for analytical purposes. The total allowance is
available to absorb losses from any segment of the portfolio. The 2002
provision for loan losses was greater than net charge-offs by $763,000.
The 2001 provision for loan losses was greater than net charge-offs by
$640,000. The 2000 provision for loan losses was greater than net
charge-offs by $583,000. The allocated portion of the reserve for
loan losses has changed during 1998 through 2002 due to the loan
portfolio mix, increased loan income, and changes in the mix of nonperforming
assets. The allocated portion of the reserve to consumer loans decreased in
2002 due to a run off of indirect automobile loans and their related credit
risk. The portion allocated to commercial loans increased in 2002 and 2001
due to increases in the amounts of nonperforming assets caused by a weakening
of the local and national economies.
20
The following table shows the percentage of loans in each category to
total loans at year end:
2002 2001 2000 1999 1998
- -------------------------------------------------------------
Commercial 51.0% 46.0% 41.4% 37.7% 33.8%
Real estate 27.8 33.1 34.9 36.4 39.9
Consumer 21.2 20.9 23.7 25.9 26.3
------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
------------------------------------------
The loan portfolio mix has shifted during the past five years. Commercial
loans as a percent of total loans grew from 1998 through 2002 with a related
decrease in mortgage loans. During 1999, the commercial loans as a
percentage of total loans increased by 3.9% with a corresponding decrease in
consumer loans by 0.4% and real estate loans decreased by 3.5%. During 2000,
the commercial loans as a percentage of total loans increased by 3.7%, real
estate loans decreased 1.5% and consumer loans decreased by 2.2%. During
2001, the commercial loans as a percentage of total loans increased by 4.6%,
real estate loans decreased 1.8% and consumer loans decreased by 2.8%.
During 2002, the consumer loan portfolio is running off slightly due to the
lack of indirect automobile loan opportunities caused by zero rate dealer
financing and loan payouts. The decrease of indirect automobile loan volume
was offset, in part, by increased home equity line volume. Commercial loans
experienced strong growth during 2002. This is the result of increased
demand and not reduced credit standards. Commercial loans pending approval
are at a relatively high level at year end 2002.
V. DEPOSITS
AVERAGE DEPOSITS BY CLASSIFICATION
The following table sets forth the classification of average deposits
for the indicated period.
December 31,
-------------------------------------
(Amounts in Thousands) 2002 2001 2000
- ----------------------------------------------------------------
Demand deposits $ 82,665 $ 81,097 $ 81,221
NOW accounts 58,068 57,736 54,332
High Performance - Interest 6,708 -0- -0-
Money market accounts 16,706 14,949 13,385
Market access accounts 93,619 68,449 33,464
Savings deposits 95,893 93,272 101,276
Time deposits 194,461 195,656 205,877
- ----------------------------------------------------------------
Total $548,120 $511,159 $489,555
================================================================
21
AVERAGE RATES PAID ON DEPOSITS
The following table sets forth average rates paid on categories of
interest-bearing deposits for the periods indicated:
Years ended December 31,
----------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------
NOW accounts .77% 1.08% 1.19%
High Performance - Interest .55 N/A N/A
Money market accounts 2.86 3.06 2.06
Market access accounts 1.86 3.62 5.44
Savings deposits .83 1.35 1.97
Time deposits 3.29 5.01 5.47
==============================================
MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the maturity of time deposits of $100,000
or more, in thousands of dollars, at December 31, 2002.
Maturing within 3 months $ 60,748
After 3 but within 6 months 33,021
After 6 but within 12 months 36,702
After 12 months 74,161
- ----------------------------------------------
Total $204,632
==============================================
VI. RETURN ON EQUITY AND ASSETS
Information relating to key financial ratios for the years ended December 31,
2002, 2001, 2000, 1999, and 1998 appears on page 36 of the LNB Bancorp, Inc.
2002 Annual report under the caption "Financial Ratios" and is incorporated
herein by reference.
VII. SHORT-TERM BORROWINGS
Information relating to short-term borrowings for the years ended
December 31, 2002, 2001 and 2000 appears on page 24 of the LNB Bancorp,
Inc. 2002 Annual Report under footnote (10) "Securities Sold Under
Repurchase Agreements and Other Short-Term Borrowings" and footnote (11)
Federal Home Loan Bank Advances, short-term and is incorporated herein by
reference.
ITEM 2 - PROPERTIES
LNB BANCORP, INC.
The principal executive offices are located at its Main Office, 457
22
Broadway, Lorain, Ohio. The Corporation owns the land and buildings occupied
by the Main Office, twelve of its banking centers, the Professional
Development Center Building, the Maintenance Building, the Purchasing
Building and the Technology Center. The remaining nine banking centers are
subject to lease obligations with various lessors and varying lease terms.
There is no outstanding mortgage debt on any of the properties which the
Corporation owns. Listed below are the banking centers/customer service
facilities of the Corporation and their locations:
Main Office 457 Broadway, Lorain
Vermilion 4455 Liberty Avenue, Vermilion
Amherst 1175 Cleveland Avenue, Amherst
Lake Avenue 42935 North Ridge Road, Elyria Township
Avon Lake 240 Miller Road, Avon Lake
Kansas Avenue 1604 Kansas Avenue, Lorain
Sixth Street Drive-In 200 Sixth Street, Lorain
Pearl Avenue 2850 Pearl Avenue, Lorain
Oberlin Office 40 East College Street, Oberlin
West Park Drive-In 2130 West Park Drive, Lorain
Ely Square 124 Middle Avenue, Elyria
Cleveland Street 801 Cleveland Street, Elyria
Oberlin Avenue 3660 Oberlin Avenue, Lorain
Olmsted Township 27095 Bagley Road, Olmsted Township
Westlake 30210 Detroit Road, Westlake
Kendal at Oberlin 600 Kendal Drive, Oberlin
The Renaissance 26376 John Road, Olmsted Township
Westlake Village 28550 Westlake Village Drive, Westlake
Cooper Foster Park Road
ATM Facility 1920 Cooper Foster Park Road, Lorain
Midway Mall 6395 Midway Mall, Elyria
Village of LaGrange 546 North Center Street, LaGrange
Elyria United Methodist Village 807 West Avenue, Elyria
Technology Center 2130 West Park Drive, Lorain
Maintenance Building 2140 West Park Drive, Lorain
Purchasing Building 2150 West Park Drive, Lorain
Professional Development Center 521 Broadway, Lorain
The Corporation also owns automated teller machines and on-line teller
terminals, as well as computers and related equipment for use in its
business. The Corporate office facility at 457 Broadway is currently
utilized at a level of 75%. The remaining space will be utilized as the
Corporation continues to grow. The Corporation considers its Corporate
offices, banking centers and computer operations center to be in good to
excellent condition, well maintained and are more than adequate to
conduct the business of Banking.
23
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Corporation or its
subsidiaries is a party to or which any of its property is subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 2002 there were
no matters submitted to a vote of security holders.
Pursuant to Form 10-M, General Instruction G(3), the following
information is included as additional item in Part I:
EXECUTIVE OFFICERS OF THE REGISTRANT
CURRENT POSITION AND EXECUTIVE
PRINCIPAL OCCUPATION OFFICER
NAME(AGE) DURING PAST 5 YEARS SINCE
Debra R. Brown Senior Vice President,(1999 to present) 1999
(44) Banking Center Administration
LNB Bancorp, Inc. and
The Lorain National Bank
Vice President (1997 - 1999)
Lorain National Bank
Robert Cox Senior Vice President Sales (2001 to 2001
(47) LNB Bancorp, Inc. and present)
The Lorain National Bank
Vice President (1999 - 2000)
Sales Coordinator (1998 - 1999)
Vice President and (1997- 1998)
Area Sales Manager
KeyBank
Sandra L. Dubell Senior Vice President and 1997
(57) Senior Lending Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
Mitchell J. Fallis Vice President and 1996
(48) Chief Accounting Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
24
Gregory D. Friedman Executive Vice President, 1990
(52) Chief Financial Officer and
Corporate Secretary,
LNB Bancorp, Inc. and
The Lorain National Bank
Michael D. Ireland Senior Vice President and 1987
(56) Senior Operations Officer,
LNB Bancorp, Inc. and
The Lorain National Bank
James W. Manning Director of Audit (2001 to present) 2001
(55) LNB Bancorp, Inc. and
The Lorain National Bank
Vice President and (2000 - 2001)
Senior Risk Manager
KeyCorp, Inc.
Vice President and (1998 - 2000)
Senior Internal Auditor
Carolina First Bank
Vice President (1997 - 1998)
Regional Audit Director
PNC Bank Corporation
Carol A. Mesko Vice President (1999 to present) 2001
(57) Human Resources
The Lorain National Bank
Assistant Vice President (1997 - 1999)
Human Resources
The Lorain National Bank
Kevin W. Nelson Executive Vice President and 2000
(39) Chief Operating Officer (2000 to present)
LNB Bancorp, Inc. and
The Lorain National Bank
Division President (1998 - 2000)
Bankfirst National and
Bankfirst Ohio Corp.
President and
Chief Executive Officer (1998)
Bellbrook Community Bank and
Bankfirst Ohio Corp.
Senior Vice President and
Senior Lending Officer (1997 - 1998)
Bellbrook Community Bank and
Bankfirst Ohio Corp.
25
David Nocjar Senior Trust and Investment Officer
(54) (2002 to present)
The Lorain National Bank
Vice President and Trust Officer (2000 to 2002)
The Lorain National Bank
Vice President and Senior Trust Officer
(1996 to 2000)
Citizens National Bank of Norwalk
Gary C. Smith President and 1999
(55) Chief Executive Officer (2000 to present)
LNB Bancorp, Inc. and
The Lorain National Bank
Chairman of the Board
Charleston Insurance Agency, Inc.
First Executive Vice President
(1999 - 2000)
LNB Bancorp, Inc. and
The Lorain National Bank
Division President (1997 - 1999)
First National Bank of Zanesville
James H. Weber Senior Vice President and 1987
(56) Senior Marketing Officer
LNB Bancorp, Inc. and
The Lorain National Bank
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Common Stock Trading Ranges, Cash Dividends Declared information and
information relating to dividend restrictions appear on the inside front
flap of the LNB Bancorp, Inc. 2002 Annual Report and are incorporated
herein by reference.
HOLDERS
The total number of shareholders was 2,213 as of February 28, 2003. Upon
the consummation of the Plan of Reorganization on March 30, 1984, the
Corporation became a one bank holding company and shareholders of the
Bank became shareholders of the Corporation, receiving one share of
voting Common Stock for each outstanding share of Common Stock of the
Bank.
ITEM 6 - SELECTED FINANCIAL DATA
A Five Year Consolidated Financial Summary of selected financial data on
26
page 36 of the LNB Bancorp, Inc. 2002 Annual Report is incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" is incorporated herein by
reference to pages 37 - 48 of the LNB Bancorp, Inc. 2002 Annual Report.
Also, see Item 8 - Financial Statements and Supplementary Data.
(a) Quantitative and Qualitative Disclosures about Market Risk are
incorporated herein by reference to pages 45 - 46 of the LNB
Bancorp, Inc. 2002 Annual Report to Shareholders.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's Independent Auditors' Report and Consolidated
Financial Statements are listed below and are incorporated herein by
reference to the LNB Bancorp, Inc. 2002 Annual Report (Appendix 13),
pages 14 through 34. The supplementary financial information specified
by Item 302 of Regulation S-K, selected unaudited quarterly financial
data, is included on page 35 of the LNB Bancorp, Inc. 2002 Annual
Report.
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Income
for the Years Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
Report of Management
Report of Independent Auditors
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
27
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers of the Corporation is set
forth in Part I in accordance with General Instruction G(3), pursuant to
Instruction 3 to Item 401(b) of Regulation S-K. Other information
relating to Item 10 follows.
ELECTION OF DIRECTORS
The Code of Regulations of the Corporation provides that the Board of
Directors of the Corporation shall be divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring
each year. Each class shall hold office for a term of three years. At the
Annual Meeting, four directors will be elected to a three-year term expiring
in 2006.
The nominees for election at the Annual Meeting are Robert M. Campana,
Lee C. Howley, James F. Kidd and Jeffrey F. Riddell each of whom is currently
a director of the Corporation.
Thomas P. Ryan, a "Class II" director, communicated to the Board of
Directors that he was retiring from the Board of Directors and that he would
not stand for re-election when his term expires on April 15, 2003. Leo
Weingarten, a "Class III" director, also communicated to the Board of
Directors that he would retire from the Board of Directors effective April
15, 2003. Currently, the Board of Directors has no plans to replace either
of these two directors.
NOMINEES
CLASS "II" DIRECTORS. The following table sets forth certain information
with respect to the nominees as Class "II" Directors of the Corporation who
will be voted upon at the Annual Meeting. There were no arrangements or
understandings pursuant to which the persons listed below were selected as
directors or nominees for director.
POSITIONS AND OFFICES
PRINCIPAL OCCUPATION HELD WITH DIRECTOR
NAME AGE FOR PAST FIVE YEARS LNB BANCORP SINCE
- ---- --- -------------------- --------------------- --------
CLASS "II"
- ----------
Robert M. Campana 43 MANAGING DIRECTOR Director 1997
P.C. Campana, Inc.
Lee C. Howley 55 PRESIDENT Director 2001
Howley Bread Group Ltd.
28
James F. Kidd 63 VICE CHAIRMAN OF THE BOARD Vice Chairman, 1989
LNB Bancorp, Inc. and Director
Lorain National Bank
Jeffrey F. Riddell 51 PRESIDENT AND Director 1995
CHIEF EXECUTIVE OFFICER
Consumeracq, Inc. and
Consumers Builders Supply Company
CONTINUING DIRECTORS
CLASS "I" AND "III" DIRECTORS. The following table sets forth certain
information with respect to Class "I" and Class "III" Directors of LNB
Bancorp, whose terms expire in 2005 and 2004, respectively.
POSITIONS AND OFFICES
PRINCIPAL OCCUPATION HELD WITH DIRECTOR
NAME AGE FOR PAST FIVE YEARS LNB BANCORP SINCE
- ---- --- -------------------- --------------------- --------
CLASS "I"
- ---------
Terry D. Goode 48 VICE PRESIDENT Director 1997
LandAmerica Financial
Group, Inc. and
Lorain County Title Company
Wellsley O. Gray 69 RETIRED Director 1983
James R. Herrick 51 PRESIDENT Director 1999
Liberty Auto Group, Inc.
Benjamin G. Norton 63 HUMAN RESOURCE Director 1983
CONSULTANT
LTI Power Systems
John W. Schaeffer, 57 PRESIDENT Director 1999
M.D. North Ohio Heart Center, Inc.
Gary C. Smith 55 PRESIDENT AND President and 1999
CHIEF EXECUTIVE OFFICER Chief Executive
(2000 to Present) Officer,
LNB Bancorp, Inc. and Director
Subsidiaries
FIRST EXECUTIVE
VICE PRESIDENT (1999 - 2000)
LNB Bancorp, Inc. and
Lorain National Bank
DIVISION PRESIDENT
First National Bank of Zanesville
29
CLASS "III"
- -----------
Daniel P. Batista 68 CHAIRMAN OF THE BOARD Director 1983
Wickens, Herzer, Panza, Cook &
Batista, L.P.A.
David M. Koethe 67 RETIRED Director 1983
Stanley G. Pijor 72 CHAIRMAN OF THE BOARD Chairman, 1983
LNB Bancorp, Inc. and Director
The Lorain National Bank
Eugene M. Sofranko 72 CHAIRMAN OF THE BOARD Director 1983
Lorain Glass Company, Inc.
There were no agreements or understandings pursuant to which any of the
persons listed under the captions of "Nominees" or " Continuing Directors"
was selected as a director.
The Board of Directors of LNB Bancorp met 16 times in 2002. In 2002 each
director attended at least 75% of the combined total of meetings of the Board
of Directors and meetings of each committee on which such director served,
with the exception of John W. Schaeffer, M.D. and Leo Weingarten.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires LNB Bancorp's
executive officers, directors and more than ten percent shareholders
("Insiders") to file with the Securities and Exchange Commission and LNB
Bancorp reports of their ownership of LNB Bancorp securities. Based upon
written representations and copies of reports furnished to LNB Bancorp by
Insiders, all Section 16 reporting requirements applicable to Insiders during
2002 were satisfied on a timely basis except as follows: Dr. John W.
Schaeffer, Director, and Leo Weingarten, Director, had one Form 4 each,
relating to a single transaction, that was not filed on a timely basis.
ITEM 11 - EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER INFORMATION
GENERAL. The following information relates to compensation of management
for the years ended December 31, 2002, 2001 and 2000, unless otherwise noted
below.
EXECUTIVE COMPENSATION. The following table sets forth the annual and
long-term compensation for LNB Bancorp, Inc.'s Chief Executive Officer and
the four highest paid executive officers, as well as the total compensation
paid to each individual during LNB Bancorp, Inc.'s last three fiscal years.
30
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ------------ (3)
SECURITIES ALL OTHER
(1) (2) UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)
- --------------------------- ---- --------- -------- ----------- ---------
Gary C. Smith 2002 $225,232 $16,960 -0- $119,754
President and 2001 214,694 -0- 10,000 $108,309
Chief Executive Officer 2000 212,287 30,000 5,000 15,640
Gregory D. Friedman, C.P.A. 2002 $135,824 $10,532 -0- $ 31,829
Executive Vice President, 2001 136,655 -0- -0- $ 24,045
Chief Financial Officer and 2000 125,328 19,000 -0- 35,012
Corporate Secretary
Kevin W. Nelson 2002 $133,024 $10,240 -0- $ 9,033
Executive Vice President and 2001 $127,945 -0- -0- $ 3,919
Chief Operating Officer 2000 125,328 19,000 -0- 35,012
Terry M. White 2002 $ 99,328 $10,400 -0- $ 22,533
Executive Vice President and 2001 n/a n/a n/a n/a
Chief Investment Officer 2000 n/a n/a n/a n/a
Sandra L. Dubell 2002 $103,460 $ 8,124 -0- $ 7,840
Senior Vice President 2001 99,710 -0- -0- 4,042
2000 94,423 13,880 -0- 10,388
- -----------------------------
(1)Mr. Smith's salary figure for the 2002 year increases $8,100 in fees paid
for attending LNB Bancorp, Inc. Board and Committee meetings.
(2)Annual incentive compensation bonus accrued for 2002 and subsequently paid
in 2003.
(3)The amounts shown in this column for the 2002 year were derived from the
following figures: (a) contributions by LNB Bancorp to The Lorain National
Bank 401(k) Plan: Mr. Smith, $6,009; Mr. Friedman, $4,261; Mr. Nelson,
$4,298; Mr. White $1,212 and Ms. DuBell, $3,286; (b) supplemental
executive retirement plan accruals: Mr. Smith, $105,867 and Mr. Friedman,
$22,342; (c) insurance premiums paid by LNB Bancorp on supplemental term
life insurance policies: Mr. Smith, $1,145; Mr. Friedman, $654; Mr.
Nelson, $257; Mr. White, $284 and Ms. DuBell, $1,071 and (d) contributions
by LNB Bancorp, Inc. to the Lorain National Bank Employee Stock Ownership
Plan accrued for 2002 and subsequently funded in 2003: Mr. Smith, $6,733;
Mr. Friedman, $4,572; Mr. Nelson, $4,478 and Ms. Dubell, $3,483; and
(e)moving and relocation expenses paid in 2002 for Mr. White, $21,037.
31
OPTION GRANTS TABLE. No stock options were granted to the five named
executive officers in 2002. Correspondingly, there is no options table to
present.
OPTION EXERCISES AND YEAR-END VALUE TABLE. The following table presents
information about stock options exercised during 2002 and unexercised stock
options at December 31, 2002 for the five named executive officers.
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN 2002 AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS
DECEMBER 31, 2002(#)
----------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE
---- --------------- -------- -------------------------
Gary C. Smith -0- $ -0- 26,014 / -0-
Gregory D. Friedman -0- $ -0- 1,777 / -0-
Kevin W. Nelson -0- $ -0- 7,959 / -0-
Terry M. White -0- $ -0- -0- / -0-
Sandra L. DuBell -0- $ -0- 1,031 / -0-
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2002 ($)
-----------------------
EXERCISABLE/UNEXERCISABLE
-------------------------
$92,664 / -0-
$15,424 / -0-
$ -0- / -0-
$ -0- / -0-
$ 8,949 / -0-
EMPLOYMENT AGREEMENTS WITH EXECUTIVES
LNB Bancorp has entered into employment agreements with Messrs. Smith,
Friedman, Nelson and White. These Agreements may be terminated by either the
executive or LNB Bancorp on ninety (90) days written notice. The Agreements
provide for base compensation, adjusted annually at the Compensation
Committee's discretion, and incentive awards (as described in more detail in
"Executive Compensation and Other Information" and the "Compensation
Committee Report on Executive Compensation") to be paid to the executives for
the performance of their duties. These Agreements also provide for
continuing payments for one year of the executive's total compensation to
32
Messrs. Smith, Friedman, Nelson and White in the event of termination of the
executive's employment without cause, or due to breach of the employment
agreement by the Corporation. The Agreements also provide for lump sum
payments of 200% of the executive's highest annual base salary (highest
annual base salary paid to the executive during the last three fiscal years
immediately prior to the event of termination), plus a pro rata portion of
the executive's bonus and continuation for up to two years of certain health
insurance and other benefits, in the event of termination of the executive's
employment following a change in control of the Corporation (other than
termination of employment for death, disability or cause). The aggregate
compensation (excluding the value of benefits and any pro rata bonus) payable
to each such executive officer under the Agreements in the event of a change
in control, as defined in the Agreements, and the termination of that
executive's employment would be approximately as follows: Mr. Smith,
$434,000; Mr. Friedman, $272,000; Mr. Nelson, $266,000; and Mr. White,
$260,000. In the event of an involuntary termination with no change in
control, the aggregate compensation would be approximately as follows:
Mr. Smith, $217,000; Mr. Friedman, $136,000; Mr. Nelson, $133,000; and
Mr. White, $130,000.
LNB Bancorp has also entered into a change in control agreement with
Ms. Dubell. This Agreement may be terminated by LNB Bancorp on two years
prior written notice, but continues for two years following a change in
control of the Corporation. This Agreement provides for a lump sum payment
of 200% of Ms. Dubell's highest annual base salary (highest annual base
salary paid to her during the last three fiscal years immediately prior to
the event of termination of her employment, or a substantial change in her
duties or status, following a change in control of the Corporation other than
termination of employment for death, disability or cause), plus a pro rata
portion of her bonus for the year of termination and continuation for up to
two years of certain health insurance and other benefits. The aggregate
compensation, (excluding the value of any pro rata bonus) payable under this
change in control agreement in the event of a change in control of the
Corporation and termination of Ms. Dubell's employment is $208,000.
GROUP TERM CARVE-OUT PLAN. On July 11, 2002, Lorain National Bank (the
Bank) purchased insurance policies on the lives of thirty-nine officers, for
which Lorain National Bank made a single premium payment of approximately
$10.4 million in total to three separate insurance carriers. Currently, a
corporation can provide its employees with a group term life insurance policy
death benefit of up to $50,000 on a tax-free basis. The cost of providing a
death benefit in excess of $50,000 is currently taxed to the employee as
ordinary income. The Group Term Carve-Out Plan replaces the taxable portion
of the group term life insurance plan with tax-free permanent life insurance.
The officers covered by the group term carve-out split dollar insurance plan
includes: Mr. Smith, Mr. Friedman, Mr. Nelson, Mr. White and Ms. Dubell.
The Bank and the officers share rights to death benefits payable under the
policies. An officer's beneficiaries are entitled to an aggregate amount
equal to:
33
1) the lesser of (a) $1,000,000, less $50,000 from the bank's existing
group term plan or (b) 2.75 times the officer's base annual salary at the
time of death, less $50,000 from the bank's existing group term plan, if he
or she is employed by the Bank at the time of death but had not reached
normal retirement age or
2) the lesser of (a) $1,000,000, less $50,000 from the bank's existing
group term plan or (b) one times the officer's base annual salary at the time
of death, less $50,000, if he or she is employed by the Bank at the time of
death but had reached normal retirement age, or
3) the lesser of (a) $1,000,000, or (b) one times the officer's base
annual salary at the time of death, if he or she dies was no longer employed
by the bank at the time of death, and if termination of employment occurred
on or after early retirement age or within three years of a change in control
but not because of termination for cause or disability,
4) If the participant terminated employment because of disability, the
death benefit shall be:
(1) Death benefit before age 65: the lesser of (a) $1,000,000, or
(b) 2.75 times the officer's base salary at the time of death, if he or she
dies before normal retirement age or
(2) Death after age 65: the lesser of (a) $1,000,000 or (b) one
times the officer's base annual salary at the time of death, if he or she
dies after normal retirement age
The Bank shall be the beneficiary of the remaining of death proceeds of
each policy after the participant interest is determined benefits. The Bank
expects to recover in full from the Bank's portion of the policy's death
benefits, the premium paid by the Bank. The term "change in control" has the
same meaning in the Group Term Carve-Out Plan as it has for purposes of the
severance agreements, discussed below. Benefits payable to the officers'
beneficiaries are payable in a lump sum at the officer's death.
The officers also have life insurance benefits under the Bank's group
term life insurance program for all employees, paying benefits up to $50,000
to the employee's beneficiaries if the employee dies while employed by the
Bank.
The death benefit payable to the executive will be paid directly by
the insurance company to the named beneficiary. As such, the Bank has no
benefit obligation to the participants in the Group Term Carve-Out Plan, and
no accruals (i.e., no expense recognition) are required under generally
accepted accounting principles. This Group Term Carve-Out Plan was a
replacement for the executives' participation in the Bank's group term life
insurance program (except for the non-taxable $50,000 group term life
insurance benefit). The Group Term Carve-Out Plan provides comparable life
34
insurance coverage to what the executives had under the Bank's group term
life insurance program for all employees, while reducing the annual expense
of group term life insurance.
DIRECTOR COMPENSATION
Directors of LNB Bancorp are compensated for all services as a director
in the following manner: each director receives an annual retainer fee of
$5,000 regardless of board meeting attendance and $600 per each board and
committee meeting attended. Directors, who are also officers of the
Corporation, receive a fee of $300 for their attendance at the Corporation's
board and committee meetings and receive no director's fees for their
attendance at the Bank's board or Bank's committee meetings.
PENSION PLAN
Lorain National Bank, LNB Bancorp's subsidiary bank, sponsors The Lorain
National Bank Retirement Pension Plan (the "Plan") covering substantially all
employees of the Bank. An employee is eligible to participate on January 1
or July 1 after the attainment of age twenty-one (21) and completion of one
(1) year of service, as defined in the Plan. For the Plan year ended
December 31, 2002, the bank accrued a contribution to the Plan totaling
$651,584. The 2002 contribution shall be made to the Plan not later than
September 15, 2003.
Annual benefit payments under the provisions of the Plan are computed by
a formula, the factors of which include annual compensation, years of service
and the Social Security taxable wage base. Participants are eligible for
normal retirement upon reaching age sixty-five (65). Annual benefit payments
are determined as a percentage for the five (5) consecutive Plan years that
yield the highest average salary. Participants in the Plan prior to
January 1, 1989 will have annual benefits reduced if they have less than
fifteen (15) years of continuous employment upon retirement. Participants
who join the Plan after January 1989 will have benefit payments reduced if
they have less than twenty-five (25) years of continuous employment upon
retirement. The normal form of benefit payment is a joint and survivor
annuity. Benefits become fully vested after a participant has completed five
(5) years of service. The Plan also provides for the payment of early
retirement, death, disability, and deferred vested benefits in the form of a
lump sum distribution, or a monthly annuity.
The Plan was amended, effective January 1, 1995, to allow the payment of
accrued benefits in the form of a lump sum distribution upon retirement at
normal retirement age. The Plan was amended and restated for GUST effective
January 1, 2001 and amended for EGTRRA effective January 1, 2002. Effective
December 31, 2002, the benefits under the Plan were frozen and no additional
benefits will be accrued under the Plan after December 31, 2002. The
estimated present value of the accrued benefit using the Plan's actuarial
equivalence assumptions for the Named Executive Officers ranged from $234,700
35
to $0 as of December 31, 2002.
Assuming the participant selects the benefit payable in a ten (10) year
certain and life annuity at normal retirement date, the following table
reflects annual benefits payable to the employee based upon average annual
compensation levels and twenty-five (25) years of service.
Final Average Employees Annual Estimated
Annual Compensation Pension Payments
Assuming Minimum of 25 Years
Of Service
$250,000 $101,090
200,000 101,090
170,000 85,328
100,000 47,703
The annual compensation with respect to determining an employee's annual
pension payment is currently limited by the Internal Revenue Code to
$200,000. The Plan reflects the annual compensation limit, and this results
in a maximum annual pension payment of $101,090. Therefore, an employee's
annual estimated pension payment for final average compensation levels of
$200,000 and above remains at the $101,090 level. Pension benefits accrued
prior to 1995 are grandfathered, if their calculated benefit is greater than
$101,090. These pension payments do not reflect any additional retirement
benefits which the employee may receive in the form of Social Security and
other forms of supplemental retirement benefits. Messrs. Smith, Friedman,
Nelson, White and Ms. Dubell have three (3), seventeen (17), three (3), zero
(0), and thirty-one (31) years of service respectively, under the provisions
of the Plan.
LNB Bancorp has entered into separate individual supplemental retirement
agreements ("SERP") with Messrs. Smith and Friedman. The purpose of these
agreements is to provide supplemental retirement benefits to Messrs. Smith
and Friedman in addition to the benefits provided by the Plan and to assist
LNB Bancorp in retaining their services through normal retirement. The SERPs
provide for monthly payments in the event of: (a) normal retirement;
(b) reduced supplemental retirement benefits in the event of early
retirement; (c) disability prior to retirement; (d) death; or (e) discharge
"without cause".
Under the terms of their SERPs, Messrs. Smith and Friedman will receive
supplemental retirement benefits for a period of ten (10) years. The full
benefit amount is equal to seventy percent (70%) of the largest annual base
salary and the largest annual bonus paid for the two (2) full calendar years
of employment immediately preceding the date of the executive's employment
termination, less pension benefits and Social Security benefits.
Messrs. Smith and Friedman are entitled to the full benefit amount if they
retire at their normal retirement age of sixty-five (65); seventy-five
36
percent (75%) of the full benefit amount if they retire at age sixty-four
(64); fifty percent (50%) of the full benefit amount if they retire at age
sixty-three (63); twenty-five percent (25%) of the full benefit amount if
they retire at age sixty-two (62); and no benefit if they retire prior to age
sixty-two (62). In the event of disability prior to retirement, the disabled
individual would receive the actuarial equivalent of the full benefit amount
with payments commencing in the month following termination of employment
because of the disability and continuing for a ten (10)-year period. In the
event of death prior to retirement, the actuarial equivalent of the full
benefit amount would be payable to his designated beneficiary, with such
payments commencing the month following death and continuing for a ten (10)-
year period. In the event of discharge "without cause" prior to age sixty-
five (65), the discharged individual would receive the actuarial equivalent
of the full benefit amount commencing in the month after discharge and
continuing for a ten (10)-year period. The SERPs are non-qualified defined
benefit agreements. As of December 31, 2002, the monthly benefits that would
be paid at normal retirement age would be as follows: Mr. Smith, $22,185;
and Mr. Friedman, $12,954.
Additionally, in the event the employment of Mr. Smith or Mr. Friedman
is terminated following a change in control of LNB Bancorp and such
termination is (i) by LNB Bancorp without cause, or (ii) by Mr. Smith or
Mr. Friedman because there is a material and adverse change in their duties
or status following a change in control of LNB Bancorp, each would receive
his full SERP benefit as if he had retired at age sixty-five (65), with such
payments commencing at age sixty-five (65).
REPORT OF THE COMPENSATION / GOVERNANCE COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY. The Board of Directors of LNB Bancorp has
established a Compensation / Governance Committee. The Compensation /
Governance Committee is responsible for developing and making recommendations
to the Board with respect to LNB Bancorp's executive compensation policies.
Pursuant to authority delegated by the Board, the Compensation /
Governance Committee determines annually the compensation to be paid to the
Chief Executive Officer and each other executive officer. The Compensation /
Governance Committee also structures and monitors LNB Bancorp's supplemental
retirement, employment or change in control contracts with its executive
officers which include, among other things, provisions relating to each
executive in the event of a change in control. Compensation decisions with
respect to executive officers are based on the factors discussed in the
following paragraphs of the "Report of the Compensation / Governance
Committee on Executive Compensation", rather than any obligation set forth in
such employment contracts.
The Compensation / Governance Committee has available to it outside
compensation consultants. The Compensation / Governance Committee gathers
comparative compensation data from outside consultants and independent
sources to develop a strategy in which compensation reflects performance.
37
The objectives of LNB Bancorp's executive compensation program are to:
* Support the achievement of desired LNB Bancorp goals,
* Provide compensation that will attract and retain superior talent
and reward performance, and
* Align the executive officers' interests with those of shareholders
by placing a portion of pay at risk with payout dependent upon
corporate performance, both on a short-term and long-term basis.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the financial institution
industry. Actual compensation levels may be greater or less than average
competitive levels in surveyed companies based upon annual and long-term LNB
Bancorp performance, as well as individual performance. The Compensation /
Governance Committee uses its discretion to set executive compensation where,
in its judgment, external, internal or an individual's circumstances warrant.
COMPENSATION MATTERS IN 2002. During 2002, the Compensation / Governance
Committee increased the levels of base salary of the Chief Executive Officer
and certain other executive officers. The increases in base salary were based
upon a survey and review of compensation levels for management performing
similar functions at other financial holding companies of similar size and
scope and complexity of operations, and the objective of the Compensation /
Governance Committee to place base salaries of executive officers at or near
market median levels, given satisfactory job performance.
EXECUTIVE OFFICER COMPENSATION PROGRAM. LNB Bancorp's executive officer
compensation program is comprised of base salary, annual cash incentive
compensation, longer-term incentive compensation in the form of stock
options, and various benefits.
BASE SALARY. Base salary levels for LNB Bancorp's executive officers are
attempted to be set relative to companies in the financial institution
industry of similar size and scope and complexity of operations, as described
above. In determining salaries, the Compensation / Governance Committee also
takes into account individual experience and performance, LNB Bancorp
performance and specific issues particular to LNB Bancorp.
ANNUAL INCENTIVE COMPENSATION. LNB Bancorp maintains a conditional
annual cash incentive program for executive officers. The purpose of the plan
is to provide direct financial incentives in the form of an annual cash bonus
to executives to achieve LNB Bancorp, Inc.'s annual goals. Target goals are
attempted to be set at competitive levels within the financial institution
industry. Target goals for LNB Bancorp, Inc. are set at the beginning of each
fiscal year. For the year 2002, the performance goals of LNB Bancorp, Inc.
were as follows:
38
After achieving a 6% increase in earnings over the 2001 level, a bonus
of 8% of base salary for Executive Officers will be deemed to have been
earned,
After achieving a 7% increase in earnings over the 2001 level, an
Incremental bonus of 2% (10% total) of base salary for Executive Officers
will be deemed to have been earned, and
After achieving an 8% increase in earnings, over the 2001 level, an
incremental bonus of 2% (12% total) of base salary for Executive Officers
will be deemed to have been earned.
After achieving a 10% increase in earnings, over the 2001 level, an
incremental bonus of 3% (15% total) of base salary for Executive Officers
will be deemed to have been earned.
After achieving a 12% increase in earnings, over the 2001 level, an
incremental bonus of 3% (18% total) of base salary for Executive Officers
will be deemed to have been earned.
The first two earnings performance goal levels were reached in 2002.
This resulted in 10% bonuses being accrued for executive officers at year-end
2002.
The achievement of goals representing corporate performance factors
comprised all of the executive officers' potential incentive compensation for
2002.
CHIEF EXECUTIVE OFFICER COMPENSATION. The annual base salary of Mr.
Smith, LNB Bancorp's President and Chief Executive Officer, was increased by
$12,200, effective January 6, 2003. The increase was based, in part, on Mr.
Smith's pivotal role in the Corporation's 21st consecutive year of increased
earnings. At year-end 2002 an annual incentive compensation bonus, in the
amount of $16,960, was accrued and subsequently paid in 2003. The annual
incentive compensation bonus amounted to 8% of Mr. Smith's 2002 base salary
and was awarded in recognition of the Corporation's achievement of a 7%
increase in net income during 2002.
DEDUCTIBILITY UNDER INTERNAL REVENUE CODE SECTION 162(m). We believe it
is in shareholders' best interest to retain as much flexibility as possible
in the design and administration of executive compensation plans. LNB Bancorp
and its subsidiaries recognize, however, that Section 162(m) of the Internal
Revenue Code disallows a tax deduction for non-exempted compensation in
excess of $1,000,000 paid for any fiscal year to a corporation's chief
executive officer and four other most highly compensated executive officers.
However, the statute exempts qualifying performance-based compensation from
the deduction limit if certain requirements are met. The Executive
Compensation Committee currently intends to structure performance-based
compensation to executive officers who may be subject to Section 162(m) in a
39
manner that satisfies those requirements. The Board and the Executive
Compensation Committee could award non-deductible compensation in other
circumstances, as they deem appropriate. Moreover, because of ambiguities in
the application and interpretation of Section 162(m) and the regulations
issued, we can give you no assurance that compensation intended to satisfy
the requirements for deductibility under Section 162(m) actually will be
deductible.
COMPENSATION / GOVERNANCE COMMITTEE
Jeffrey F. Riddell, Chairman
Lee C. Howley, Vice Chairman
Terry D. Goode
James F. Kidd
David M. Koethe
Eugene M. Sofranko
COMPENSATION / GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Regulations of the Securities and Exchange Commission require the
disclosure of any related party transactions with members of the Compensation
/ Governance Committee. During the past year, certain directors and
officers, including members of the Compensation / Governance Committee, and
one or more of their associates may have been customers of and had business
transactions with one or more of the bank subsidiaries of LNB Bancorp. All
loans included in such transactions were made in the ordinary course of
business and on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other persons, and did not involve more than normal risk of
collectability or present other unfavorable features. It is expected that
similar transactions will occur in the future. In addition, Mr. Kidd is Vice
Chairman of the Board of Directors of LNB Bancorp, Inc. and Lorain National
Bank and also served as President and Chief Executive Officer until the end
of 1999.
LNB Bancorp Performance
The following graph shows a five-year comparison of cumulative total returns
for LNB Bancorp, the Standard & Poor's 500 Stock Index and the NASDAQ Bank
Index.
Comparison of Five Year Cumulative Total Return*
(PERFORMANCE GRAPH FOLLOWS IN PRINTED VERSION WITH YEARS 1997 THROUGH
2002 ON THE X-AXIS AND CUMULATIVE INVESTMENT ON THE Y-AXIS IN $50
INCREMENTS RANGING FROM $0 TO $250. THE CO-ORDINATES, BY YEAR, WHICH
ARE PRESENTED IN THE TABLE BELOW ARE PLOTTED ON THE PREVIOUSLY DESCRIBED
GRID ALONG WITH AN ACCOMPANYING LEGEND FOR IDENTIFICATION PURPOSES.)
40
- --------------------------------------------------------------------------
December 31, 1997 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------
LNB Bancorp, Inc. $100.00 $103.96 $ 89.63 $ 90.84 $ 94.96 $128.87
- --------------------------------------------------------------------------
S&P 500 Index $100.00 $128.58 $155.64 $141.46 $124.65 $ 97.10
- --------------------------------------------------------------------------
NASDAQ Bank Index $100.00 $ 99.36 $ 95.51 $108.95 $117.97 $120.61
- --------------------------------------------------------------------------
*Assumes the value of the investment in LNB Bancorp common shares and each
index was $100 on December 31, 1997 and that all dividends were reinvested.
The graph shown above is based on the following data points:
Cumulative Total Return
Period Ended
----------------------------------------------------------
Index 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
- ----------------------------------------------------------------------------
LNB Bancorp, Inc. $100.00 $103.96 $ 89.63 $ 90.84 $ 94.96 $128.87
S&P 500 Index 100.00 128.58 155.64 141.46 124.65 97.10
NASDAQ Bank Index 100.00 99.36 95.51 108.95 117.97 120.61
Copyright@ 2002 Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF VOTING SHARES
The following table sets forth the beneficial ownership of the
Corporation's common shares by each of the Corporation's directors and the
Corporation's named executive officers, and the directors and executive
officers as a group, as of December 31, 2002.
SHARES OF COMMON
NAME OF BENEFICIAL OWNER STOCK OWNED (1) PERCENT OF CLASS
- ------------------------ ----------------- ----------------
Daniel P. Batista 35,093 *
Robert M. Campana 12,327(2) *
Terry D. Goode 37,965(3) *
Wellsley O. Gray 10,849(4) *
James R. Herrick 20,208 *
Lee C. Howley 3,100(5) *
James F. Kidd 55,221(6) 1.26%
David M. Koethe 45,580(7) 1.04%
Benjamin G. Norton 101,466(8) 2.30%
Stanley G. Pijor 89,411(9) 2.03%
41
Jeffrey F. Riddell 69,046(10) 1.57%
Thomas P. Ryan 39,629(11) *
John W. Schaeffer, M.D. 9,980(12) *
Gary C. Smith 30,517(13) *
Eugene M. Sofranko 31,850(14) *
Leo Weingarten 106,633(15) 2.42%
Sandra L. DuBell 10,967(16) *
Gregory D. Friedman 21,747(17) *
Kevin W. Nelson 9,376(18) *
Terry M. White 4,207 *
All Directors and Executive 813,862 18.49%
Officers as a Group
(29 in group)
*Ownership is less than 1% of the class.
- ----------------------------------
1) Except as otherwise noted, none of the named individuals shares with
another person either voting or investment power as to the shares reported.
2) Includes 10,415 shares subject to shared voting and investment power.
3) Includes 10,465 shares subject to shared voting and investment power.
4) Includes 3,599 shares subject to shared voting and investment power.
5) Includes 3,100 shares subject to shared voting and investment power.
6) Includes 15,132 shares subject to shared voting and investment power.
7) Includes 232 shares subject to shared voting and investment power.
8) Includes 49,746 shares subject to shared voting and investment power.
9) Includes 34,998 shares subject to shared voting and investment power.
10) Includes 8,558 shares subject to shared voting and investment power.
11) Includes 15,244 shares subject to shared voting and investment power.
12) Includes 5,524 shares subject to shared voting and investment power.
13) Includes 26,014 shares subject to options which are currently
exercisable.
14) Includes 24,192 shares subject to shared voting and investment power.
15) Includes 4,537 shares subject to shared voting and investment power.
16) Includes 1,031 shares subject to options which are currently exercisable.
17) Includes 1,777 shares subject to options which are currently exercisable.
18) Includes 7,959 shares subject to options which are currently exercisable.
As of December 31, 2002, no person was known by the Corporation to be
the beneficial owner of more than 5% of the outstanding common shares of the
Corporation, except as follows:
NAME AND ADDRESS OF SHARES OF COMMON
BENEFICIAL OWNER STOCK OWNED PERCENT OF CLASS
- ------------------- ------------------- ----------------
Lorain National Bank
457 Broadway
Lorain, Ohio 44052 468,665(1) 10.65%(1)
42
Richard M. Osborne Trust(2)
8500 Station Street, Suite 113
Mentor, Ohio 44060 266,567(2) 6.06%(2)
GLB Bancorp, Inc.(2)
7001 Center Street
Mentor, Ohio 44060
- -----------------------------
(1)These shares are held in various fiduciary capacities in the ordinary
course of business under numerous trust relationships by Lorain National
Bank. As fiduciary, the Lorain National Bank has sole power to dispose of
438,439 of these shares, shared power to dispose of 30,226 of these
shares, sole power to vote 102,878 of these shares, and shared power to
vote 0 of these shares for a total of 10.65% of the outstanding shares of
the Corporation.
(2)The Richard M. Osborne Trust and GLB Bancorp, Inc. have reported a
combined ownership of 6.06% of the outstanding shares of the Corporation
under the group name of Turkey Vulture Fund XIII, Ltd. Richard M.
Osborne is the sole trustee of the Richard M. Osborne Trust and is the
Vice Chairman of the Board of Directors of GLB Bancorp, Inc.
43
The following Equity Compensation Plan Table is as December 31, 2002:
- -----------------------------------------------------------------------------
Equity Compensation Plan Table
Plan Category Number of Weighted-average Number of
securities to be exercise price of securities
issued upon outstanding remaining available
exercise of options, warrants for future issuance
outstanding and rights under equity
options compensation plans
warrants and (excluding
rights(1) securities reflected
in column (a))
- -----------------------------------------------------------------------------
(a) (b) (c)
- -----------------------------------------------------------------------------
Equity compensation
plans by approved
security holders 12,345 18.47 -0-
- -----------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders(2) 33,973 25.16 -0-
- -----------------------------------------------------------------------------
Total 46,318 23.29 -0-
- -----------------------------------------------------------------------------
(1) Consists of common shares of the Corporation covered by outstanding
options.
(2) All common shares included in equity compensation plans not approved by
shareholders are covered by outstanding options awarded to two executive
officers under agreements having the same material terms. Each of these
options is a nonqualified option, meaning a stock option that does not
qualify under Section 422 of the Internal Revenue Code for the special tax
treatment available for qualified, or "incentive," stock options. Each of
these options vested immediately as to all shares covered by the option.
Each option may be exercised for a term of 10 years from the date of the
grant of the option, subject to earlier termination in the event of death,
disability or other termination of the employment of the option holder. The
option holder has up to 12 months following termination of employment due to
death or disability to exercise the options. The options terminate three
months after termination of employment for reasons other than death,
disability or termination for cause, and immediately upon termination of
employment if for cause. The exercise price and number of shares covered by
the option are to be adjusted to reflect any share dividend, share split,
merger or other recapitalization of the common shares of the Corporation.
The options are not transferable other than by will or state inheritance
laws. Exercise prices for these options are at fair market value at the
44
date of grant and ranged from $21.13 to $28.27. The remaining contractual
terms of the options ranged from 6.3 to 9.0 years at December 31, 2002.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Directors and executive officers of LNB Bancorp and their associates
were customers of, or had transactions with, the Corporation or the
Corporation's banking or other subsidiaries in the ordinary course of
business during 2002. Additional transactions may be expected to take place
in the future. All outstanding loans to directors and executive officers and
their associates, commitments and sales, purchases and placements of
investment securities and other financial instruments included in such
transactions were made in the ordinary course of business, on substantially
the same terms, including interest rates and collateral where applicable, as
those prevailing at the time for comparable transactions with other persons,
and did not involve more than normal risk of collectibility or present other
unfavorable features. Mr. Batista, a director who is not a member of
Audit/Finance or Compensation/Governance committees, is the chairman of the
law firm of Wickens, Herzer, Panza, Cook & Batista a Legal Professional
Association. The Corporation has retained the aforementioned law firm as
general legal counsel for the last several years. During the last fiscal
year, the Corporation paid to Wickens, Herzer, Panza, Cook and Batista, a
Legal Professional Association, legal fees in the amount of $388,000. It is
anticipated that this relationship will continue during the current fiscal
year.
COMPENSATION / GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Regulations of the Securities and Exchange Commission require the
disclosure of any related party transactions with members of the Compensation
/ Governance Committee. During the past year, certain directors and
officers, including members of the Compensation / Governance Committee, and
one or more of their associates may have been customers of and had business
transactions with one or more of the bank subsidiaries of LNB Bancorp. All
loans included in such transactions were made in the ordinary course of
business and on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other persons, and did not involve more than normal risk of
collectability or present other unfavorable features. It is expected that
similar transactions will occur in the future. In addition, Mr. Kidd is Vice
Chairman of the Board of Directors of LNB Bancorp, Inc. and Lorain National
Bank and also served as President and Chief Executive Officer until the end
of 1999.
45
PART IV
ITEM 14 - CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Corporation carried
out an evaluation under the supervision and with the participation of the
Corporation's management, including the Corporation's President and Chief
Executive Officer and Executive Vice President, Chief Financial Officer and
Corporate Secretary, of the effectiveness of the design and operation of the
Corporation's disclosure controls and procedures pursuant to SEC rule 13a-14.
Based upon that evaluation, the President and Chief Executive Officer and
Executive Vice President, Chief Financial Officer and Corporate Secretary
concluded that as of that date, the Corporation's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Corporation (including its consolidated subsidiaries)
required to be included in the Corporation's periodic SEC filings.
There were no significant changes made in the Corporation's internal controls
or in other factors that could significantly affect these internal controls
subsequent to the date of the evaluation performed by the Corporation's
President and Chief Executive Officer and Executive Vice President, Chief
Financial Officer and Corporate Secretary.
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following Consolidated Financial Statements and related Notes to
Consolidated Financial Statements, together with the Independent
Auditors' Report, dated January 28, 2003, except as to note 22, which is as
of February 25, 2003, appear on pages 14 through 34 of the LNB Bancorp, Inc.
2002 Annual Report and are incorporated herein by reference:
(1) Financial Statements
Consolidated Balance Sheets
December 31, 2002 and 2001
Consolidated Statements of Income for the Years Ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2002, 2001 and 2000
46
Report of Management
Report of Independent Auditors
(2) Financial Statement Schedules
Financial statement schedules are omitted as they are not
required or are not applicable or because the required
information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page
52 of this Form 10-K.
(b) Reports on Form 8-K filed during the fourth quarter of 2002 and through
the date of this Form 10-K filing:
February 26, 2003 - LNB Bancorp, Inc. issued an outside press release
announcing a three-for-two stock split with a record date of March 10,
2003 and a payable date of March 14, 2003.
(c) Exhibits required by Item 601 Regulation S-K
Reference is made to the Exhibit Index which is found on page 52 of
this Form 10-K.
(d) See Item 15(a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LNB Bancorp, Inc.
(Registrant)
By /s/Gregory D. Friedman
------------------------
Gregory D. Friedman
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
47
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated:
/s/Daniel P. Batista DIRECTOR March 04, 2003
- -----------------------
Daniel P. Batista
/s/Robert M. Campana DIRECTOR March 04, 2003
- -----------------------
Robert M. Campana
/s/Terry D. Goode DIRECTOR March 04, 2003
- -----------------------
Terry D. Goode
/s/Wellsley O. Gray DIRECTOR March 04, 2003
- -----------------------
Wellsley O. Gray
/s/James R. Herrick DIRECTOR March 04, 2003
- -----------------------
James R. Herrick
/s/Lee C. Howley DIRECTOR March 04, 2003
- -----------------------
Lee C. Howley
/s/David M. Koethe DIRECTOR March 04, 2003
- -----------------------
David M. Koethe
/s/Benjamin G. Norton DIRECTOR March 04, 2003
- -----------------------
Benjamin G. Norton
/s/Jeffrey F. Riddell DIRECTOR March 04, 2003
- -----------------------
Jeffrey F. Riddell
/s/Thomas P. Ryan DIRECTOR March 04, 2003
- -----------------------
Thomas P. Ryan
/s/John W. Schaeffer, M.D. DIRECTOR March 04, 2003
- -----------------------
John W. Schaeffer, M.D.
48
/s/Eugene M. Sofranko DIRECTOR March 04, 2003
- -----------------------
Eugene M. Sofranko
ABSENT - EXCUSED DIRECTOR March 04, 2003
- -----------------------
Leo Weingarten
/s/Stanley G. Pijor CHAIRMAN OF THE March 04, 2003
- ----------------------- BOARD AND DIRECTOR
Stanley G. Pijor
/s/James F. Kidd VICE CHAIRMAN OF March 04, 2003
- ----------------------- THE BOARD AND
James F. Kidd DIRECTOR
/s/Gary C. Smith PRESIDENT AND March 04, 2003
- ----------------------- CHIEF EXECUTIVE
Gary C. Smith OFFICER AND
DIRECTOR
EXECUTIVE VICE
/s/Gregory D. Friedman PRESIDENT AND March 04, 2003
- ----------------------- CHIEF FINANCIAL
Gregory D. Friedman,CPA OFFICER
/s/Mitchell J. Fallis VICE PRESIDENT AND March 04, 2003
- ----------------------- CHIEF ACCOUNTING
Mitchell J. Fallis,CPA OFFICER
49
Certifications
I, Gary C. Smith, President and Chief Executive Officer of LNB Bancorp,
Inc., certify that:
1. I, have reviewed this annual report on Form 10-K of LNB Bancorp,
Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures 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 annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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;
50
and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date March 7, 2003
----------------------
By /s/Gary C. Smith
----------------------
Gary C. Smith, President and Chief Executive Officer
51
I, Gregory D. Friedman, Executive Vice President, Chief Financial Officer
and Corporate Secretary of LNB Bancorp, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of LNB Bancorp,
Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures 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 annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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;
and
52
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date March 7, 2003
----------------------------
By /s/Gregory D. Friedman
----------------------------
Gregory D. Friedman, CPA
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
53
LNB Bancorp, Inc.
Exhibit Index
Pursuant to Item 601 (a) of Regulation S-K
S-K
Reference Page
Number Exhibit Number
(3) (a)LNB Bancorp, Inc. Second Amended Articles of N/A
Incorporation. Previously filed under Item 6,
Exhibit (3)i to Quarterly Report on Form 10-Q
(Commission File No. 0-13202) for the quarter
ended September 30, 2000, and incorporated herein
by reference.
(b)LNB Bancorp, Inc. Amended Code of Regulations. N/A
Previously filed under Item 7, Exhibit 3 to Form
8-K (Commission File No. 0-13203) filed January 4,
2001 and incorporated herein by reference.
(10) Material Contracts
(a)The Lorain National Bank Retirement Pension Plan N/A
amended and restated effective December 31, 2002,
dated November 19, 2002.
(b)Employment Agreement by and between Terry M. White N/A
and LNB Bancorp, Inc, and The Lorain National Bank
dated January 23, 2002. Previously filed as Exhibit
(10a) to Quarterly Report Form 10-Q (Commission File
No. 0-13203) for the quarter ended March 31, 2002,
and incorporated herein by reference.
(c)Lorain National Bank Group Term Carve Out Plan, N/A
(the Plan), dated August 7, 2002. Previously filed
as Exhibit (10a) to Quarterly Report Form 10-Q
(Commission File No. 0-13203) for the quarter ended
September 31, 2002, and incorporated herein by
reference.
(d)Restated and Amended (to conform with specific N/A
Employment Benefit Plans and Provisions) Employment
Agreement by and between Gary C. Smith and LNB
Bancorp, Inc, and The Lorain National Bank dated
December 22, 2000. Previously filed as Exhibit
(10a) to Annual Report Form 10-K (Commission File
No. 0-13203) for the year ended December 31, 2001,
and incorporated herein by reference.
54
S-K
Reference Page
Number Exhibit Number
(e)Restated and Amended (to conform with specific N/A
Employment Benefit Plans and Provisions)
Employment Agreement by and between Kevin W. Nelson
and LNB Bancorp, Inc, and The Lorain National Bank
dated December 22, 2000. Previously filed as Exhibit
(10b) to Annual Report Form 10-K (Commission File
No. 0-13203) for the year ended December 31, 2001,
and incorporated herein by reference.
(f)Restated and Amended (to conform with specific N/A
Employment Benefit Plans and Provisions)
Employment Agreement by and between Gregory D.
Friedman and LNB Bancorp, Inc, and The Lorain National
Bank dated December 22, 2000. Previously filed as Exhibit
(10c) to Annual Report Form 10-K (Commission File
No. 0-13203) for the year ended December 31, 2001,
and incorporated herein by reference.
(g)Supplemental Retirement Benefits Agreement by and N/A
between Gary C. Smith and LNB Bancorp, Inc, and The
Lorain National Bank dated December 22, 2000.
Previously filed as Exhibit (10a) to Annual Report
Form 10-K (Commission File No. 0-13203) for the year
ended December 31, 2000, and incorporated herein by
reference.
(h)Supplemental Retirement Benefits Agreement by and N/A
between Thomas P. Ryan and LNB Bancorp, Inc. and The
Lorain National Bank dated December 23, 2000.
Previously filed as Exhibit (10b) to Annual Report
Form 10-K (Commission File No. 0-13203) for the
year ended December 31, 2000 and incorporated herein
by reference.
(i)Supplemental Retirement Benefits Agreement by and N/A
between Gregory D. Friedman and LNB Bancorp, Inc. and
The Lorain National Bank dated December 22, 2000.
Previously filed as Exhibit (10c) to Annual Report
Form 10-K (Commission File No. 0-13203) for the
year ended December 31, 2000 and incorporated herein
by reference.
(j)Non-qualified Incentive Stock Option Agreement by N/A
and between Gary C. Smith and LNB Bancorp, Inc. dated
December 15, 2000. Previously filed as Exhibit (10d)
55
S-K
Reference Page
Number Exhibit Number
to Annual Report Form 10-K (Commission File No. 0-13203)
for the year ended December 31, 2000 and incorporated
herein by reference.
(k) Rights Agreement between LNB Bancorp, Inc. and N/A
Registrar and Transfer Company dated October 24, 2000.
Previously filed as Exhibit 1 to Form 8-A (Commission
File No. 0-13203) filed November 11, 2000, and
incorporated herein by reference.
(l)Employment Agreement by and between Kevin W. Nelson N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated February 13, 2000. Previously filed as Exhibit
(10a) to Annual Report Form 10-K (Commission File No.
0-13203) for the year ended December 31, 1999, and
incorporated herein by reference.
(m)Incentive Stock Option Agreement by and between N/A
Kevin W. Nelson and LNB Bancorp, Inc. dated February 13,
2000. Previously filed as Exhibit (10b) to Annual
Report Form 10-K (Commission File No. 0-13203) for the
year ended December 31, 1999 and incorporated herein
by reference.
(n)Amended Supplemental Retirement Agreement by and N/A
between James F. Kidd and The Lorain National Bank
dated June 15, 1999. Previously filed as Exhibit
(10a) to Quarterly Report on Form 10-Q (Commission File
No.0-13203) for the quarter ended June 30, 1999, and
incorporated herein by reference.
(o)Employment Agreement by and between Gary C. Smith N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated March 16, 1999. Previously filed as Exhibit
(10a) to Annual Report Form 10-K (Commission File
No. 0-13203) for the year ended December 31, 1998, and
incorporated herein by reference.
(p)Incentive Stock Option Agreement by and between N/A
Gary C. Smith and LNB Bancorp, Inc. dated March 16, 1999.
Previously filed as Exhibit (10b) to Annual Report Form
10-K (Commission File No. 0-13203) for the year ended
December 31, 1998, and incorporated herein by reference.
56
S-K
Reference Page
Number Exhibit Number
(q)Amended Employment Agreement by and between James F. N/A
Kidd and LNB Bancorp, Inc. And The Lorain National Bank
dated March 3, 1999. Previously filed as Exhibit (10c)
to Annual Report Form 10-K (Commission File No. 0-13203)
for the year ended December 31, 1998, and incorporated
herein by reference.
(r) Amended Employment Agreement by and between Thomas N/A
P. Ryan and LNB Bancorp, Inc. and The Lorain National
Bank dated March 3, 1999. Previously filed as Exhibit
(10d) to Annual Report Form 10-K (Commission File No.
0-13203) for the year ended December 31, 1998, and
incorporated herein by reference.
(s) Branch Purchase and Assumption Agreement by and N/A
between KeyBank National Association and the Lorain
National Bank dated April 10, 1997. Previously filed as
Exhibit (99.1) to Form 8-K (Commission File No. 0-13203)
filed October 3, 1997, and incorporated herein by reference.
(t)Supplemental Retirement Agreement by and between N/A
James F. Kidd and The Lorain National Bank dated July 30,
1996. Previously filed as Exhibit (10a) to Quarterly
Report on Form 10-Q (Commission File No.0-13203) for the
quarter ended June 30, 1996, and incorporated herein by
reference.
(u)Supplemental Retirement Agreement by and between N/A
Thomas P. Ryan and The Lorain National Bank dated July 30,
1996. Previously filed as Exhibit(10b) to Quarterly
Report on Form 10-Q (Commission File No. 0-13203) for
the quarter ended June 30, 1996, and incorporated
herein by reference.
(v)Supplemental Retirement Agreement by and between N/A
Gregory D. Friedman and The Lorain National Bank dated
July 30, 1996. Previously filed as Exhibit (10c) to
Quarterly Report on Form 10-Q (Commission File No.
0-13203) for the quarter ended June 30, 1996, and
incorporated herein by reference.
(w)Employment Agreement by and between James F. Kidd N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated September 11, 1995. Previously filed as Exhibit
(10a) to Quarterly Report on Form 10-Q (Commission File
57
S-K
Reference Page
Number Exhibit Number
No. 0-13203) for the quarter ended September 30, 1995,
and incorporated herein by reference.
(x)Employment Agreement by and between Thomas P. Ryan N/A
and LNB Bancorp, Inc. and The Lorain National Bank
dated September 11, 1995. Previously filed as Exhibit
(10b) to Quarterly Report on Form 10-Q (Commission File
No. 0-13203) for the quarter ended September 30, 1995,
and incorporated herein by reference.
(y)Consultant Agreement by and between Lorain National N/A
Bank, LNB Bancorp, Inc. and Stanley G. Pijor dated
March 15, 1994. Previously filed as Exhibit (10) to
Annual Report Form 10-K (Commission File No. 0-13203)
for the year ended December 31, 1993 and incorporated
herein by reference.
(z)Supplemental Retirement Agreement by and between N/A
Stanley G. Pijor and The Lorain National Bank dated
December 31, 1987. Previously filed as Exhibit (10)
to Annual Report on Form 10-K (Commission File No.
0-13203) for the year ended December 31, 1987, and
incorporated herein by reference.
(aa)Employment Agreement by and between Lorain National N/A
Bank and Stanley G. Pijor dated December 31, 1987.
Previously filed as Exhibit (10) to Annual Report Form
10-K (Commission File No. 0-13203) for the year ended
December 31, 1987 and incorporated herein by reference.
(bb)The Lorain National Bank 1985 Incentive Stock Option N/A
Plan dated April 16, 1985. Previously filed as Exhibit
(10) to Annual Report on Form 10-K (Commission File No.
2-8867-1) for the year ended December 31, 1985, and
incorporated herein by reference.
(cc)Agreement To Join In The Filing of Consolidated N/A
Federal Income Tax Returns between LNB Bancorp, Inc.
and The Lorain National Bank dated December 15, 1986.
Previously filed as Exhibit (10) to Annual Report on
Form 10-K (Commission File No. 2-8867-1) for the year
ended December 31, 1986 and incorporated herein by
reference.
(11) Statements re: Computation of Per Share Earnings. N/A
58
S-K
Reference Page
Number Exhibit Number
(13) LNB Bancorp, Inc. 2002 Annual Report to Shareholders. N/A
(21) Subsidiaries of LNB Bancorp, Inc. N/A
(23) Consent of Independent Accountants. N/A
(99.1) Certification pursuant to 18 U.S.C. section 1350, as N/A
enacted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002.
(99.2) Certification pursuant to 18 U.S.C. section 1350, as N/A
enacted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002.
(99.3) Annual report on Form 10-K/A of The Lorain National N/A
Bank Employee Stock Ownership Plan (registration
number 33-65034) for the plan year ended December 31,
2002 to be filed as an amendment to this annual
report on Form 10-K.
(99.4) Annual report on Form 10-K/A of The Lorain National N/A
Bank Stock Purchase Plan (registration number
33-65034) for the plan year ended December 31,
2002 to be filed as an amendment to this annual
report on Form 10-K.