Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

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

OR

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

Commission file number: 0-13203

LNB Bancorp, Inc.

(440) 244-6000
Registrant’s telephone number, including area code

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such requirements for the past 90 days.       YES [X]       NO [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)       YES [X]       NO [   ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Outstanding at April 30, 2004: 6,617,892 shares
Class of Common Stock: $1.00 par value

LNB Bancorp, Inc.
Index

LNB Bancorp, Inc.

See accompanying notes to the condensed consolidated financial statements.

LNB Bancorp, Inc.

See accompanying notes to the condensed consolidated financial statements.
* All shares and or share amounts have been adjusted to reflect the three-for-two stock split in 2003.

LNB Bancorp, Inc.

See accompanying notes to the condensed consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

LNB Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

These consolidated financial statements include the accounts of LNB Bancorp, Inc. (the Parent Company) and it’s wholly-owned subsidiaries, Lorain National Bank (the “Bank”) and Charleston Insurance Agency, Inc. Charleston Title Agency, LLC, a 49%-owned subsidiary, is accounted for under the equity method. The term “the Corporation” refers to LNB Bancorp, Inc. and its wholly-owned subsidiaries, The Lorain National Bank and Charleston Insurance Agency, Inc., and a 49% interest in Charleston Title Agency, LLC. All significant inter-company balances and transactions have been eliminated in consolidation. Also included is the Bank’s wholly-owned subsidiary, North Coast Community Development Corporation (“NCCDC”). All dollar amounts in this report are reported in thousands of dollars, except per share amounts.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three-month period ending March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The 2003 LNB Bancorp, Inc. Annual Report on Form 10-K should be read in conjunction with these statements.

2. Critical Accounting Policies and New Accounting and Regulatory Pronouncements

Critical Accounting Policies

The Corporation maintains critical accounting policies for reserve for loan losses, classification and evaluation of securities valuation and a deferred tax asset valuation reserve. Refer to notes 1,5,7 and 12 of the Notes to Consolidated Financial Statements for additional information incorporated by reference to the 2003 Annual Report to Shareholders on Form 10-K.

Impacts of Accounting and Regulatory Pronouncements:

Corporate management is not aware of any proposed regulations or current recommendations by the Financial Accounting Standards Board or by regulatory authorities, which, if they were implemented, would have a material effect on the liquidity, capital resources, or operations of the Corporation. However, the potential impact of certain accounting and regulatory pronouncements warrant further discussion.

Financial Accounting Standards Board:

The Financial Accounting Standards Board (FASB) has issued:

SFAS No. 132(Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.”

In December 2003, the FASB issued SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This Statement expands upon the existing disclosure requirements as prescribed under the original SFAS No. 132 by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. SFAS No. 132(R) also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements beginning after December 15, 2003. This Statement is effective for financial statements with fiscal years ending after December 15, 2003. The Corporation adopted the additional year-end disclosure requirements under SFAS No. 132(R) during the fourth quarter of 2003 and the interim-period financial statement disclosure requirements in the first quarter of 2004 and its adoption did not have a material impact on our financial position, results of operation, or liquidity. SFAS No. 132(R) disclosures are included in Note 6.

FASB Interpretation No. 46 (FIN No. 46), “Consolidation of Variable Interest Entities.” and FASB Interpretation No. 46R (FIN No. 46R), “Consolidation of Variable Interest Entities— an interpretation of ARB 51 (revised December 2003),”

In January 2003, the FASB issued Interpretation No. 46 (FIN No. 46), “Consolidation of Variable Interest Entities.” This Interpretation clarifies the application of ARB No. 51, “Consolidated Financial Statements,” for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. This Interpretation requires variable interest entities (VIE’s) to be consolidated by the primary beneficiary which represents the enterprise that will absorb the majority of the VIE’s expected losses if they occur, receive a majority of the VIE’s residual returns if they occur, or both. Qualifying Special Purpose Entities (QSPE) are exempt from the consolidation requirements of FIN No. 46. This Interpretation was effective for VIE’s created after January 31, 2003 and for VIE’s in which an enterprise obtains an interest after that date. In December 2003, the FASB issued Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities — an interpretation of ARB 51 (revised December 2003),” which replaces FIN No. 46. FIN No. 46(R) was primarily issued to clarify the required accounting for interests in VIE’s. Additionally, this Interpretation exempts certain entities from its requirements and provides for special effective dates for enterprises that have fully or partially applied FIN No. 46 as of December 24, 2003. Application of FIN No. 46(R) is required in financial statements of public enterprises that have interests in structures that are commonly referred to as special-purpose entities, or SPE’s, for periods ending after December 15, 2003. Application by public enterprises, other than small business issuers, for all other types of VIE’s (i.e., non-SPE’s) is required in financial statements for periods ending after March 15, 2004. As of December 31, 2003 and March 31, 2004, the Corporation had no variable interest entities and therefore, the interpretation of FIN No. 46(R) had no impact on the financial position, results of operations or liquidity.

Other Statements of Financial Accounting Standards

All other applicable Statements of Financial Accounting Standards that have been issued and have effective dates impacting 2004 and prior years financial statements were adopted by the Corporation. Corporate management believes there are no Statements of Financial Accounting

Standards, which have been issued and have implementation dates in the future that will materially impact the financial statements of future years. Significant actions by the Federal government and its agencies, affecting the financial institutions industry in general, are currently having and will continue to have an impact on the Corporation. A discussion of these actions follows:

SEC Staff Accounting Bulletin: No. 105 “Application of Accounting Principles to Loan Commitments”

In March 2004, the SEC issued Staff Accounting Bulletin No. 105 “Application of Accounting Principles to Loan Commitments.” This Staff Account Bulletin summarizes the views of the SEC staff regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments, a loan committed at a specified rate, but funded later. Presently, the Corporation does not make loan commitments that will be funded at a later date, and therefore, the SEC Staff Accounting Bulletin had no impact on the financial position, results of operations or liquidity.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which contains important new requirements for public companies in the area of financial disclosure and corporate governance. Although portions of the act are still being fully implemented, we do not anticipate any significant changes in the operations of and reporting by the Corporation as a result of the act. In accordance with the requirements of the Sarbanes-Oxley Act, written certifications for this quarterly report on Form 10-Q by the chief executive officer and the chief financial officer of the Corporation are filed in this report under Exhibit index (31(a)), (31(b)), (32(a)), and (32(b)). See “Controls and Procedures” for the Corporation’s evaluation of disclosure controls and procedures.

3. Common Stock

On February 25, 2003, the Board of Directors of LNB Bancorp, Inc. declared a three-for-two split of common stock. Shareholders received one additional common share for every two shares owned on the stock-split record date of March 10, 2003. Shareholders participating in the Bancorp’s dividend reinvestment plan, LNBB Direct (the Plan), were issued fractional shares. Shareholders not participating in the Plan were issued cash in lieu of fractional shares. For additional information see Form 8-K filed on February 25, 2003.

On February 17, 2004, the Board of Directors of LNB Bancorp, Inc. declared a first quarter cash dividend of $.18 per share payable April 1, 2004, to shareholders of record on March 15, 2004. This represents a 5.9 percent increase from last year’s first quarter cash dividend of $.17 per share.

4. Earnings per Share

Basic earnings per common share is based upon weighted-average common shares outstanding. The reconcilement of basic earnings per share to earnings per diluted share follows:

5. Stock Option Plans

The FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.” SFAS No. 148 provides guidance on how to transition from the intrinsic value method of accounting for stock-based employee compensation under APB No. 25 to SFAS No. 123’s fair value method for accounting, if a company so elects. In accordance with the transitional guidance of SFAS No. 148, the fair value method of accounting for stock options should be applied prospectively to awards granted subsequent to January 1, 2003. As permitted, options granted prior to January 1, 2003, will continue to be accounted for under APB Opinion 25, and the pro forma impact of accounting for these options at fair value will continue to be disclosed in the notes to the consolidated financial statements. The Corporation did not issue any stock options during the first quarter of 2004 or during any quarter in 2003. All stock options issued were 100% vested at March 31, 2004 and 2003, and therefore had compensation cost for the Corporation’s stock- based compensation plans been determined consistent with SFAS No. 123, net income and net income per share would not have been impacted.

6. Retirement Pension Plan

The Bank’s non-contributory defined benefit pension plan (the “Plan”) covers substantially all of its employees. 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 2003 loss recognized due to settlement in the amount of $5 results from significant lump sum distributions paid in 2003, but not actuarially projected for 2003.

The net periodic pension cost charged to salaries and benefits expense in the Income Statement amounted to $19 for the first quarter of 2004 and $29 for the first quarter of 2003.

Employer Contributions

The Corporation previously disclosed in its 2003 Annual Report to Shareholders on Form 10-K, that it expected to contribute $500 to the Lorain National Bank Retirement Pension Plan in 2004. As of March 31, 2004, a $500 cash contribution was made to the Plan.

7. Comprehensive Income

The Corporation’s comprehensive income for the three months ended March 31, 2004 and 2003 are as follows:

8. Components of the Loan Portfolio

The following table presents the components of total loans at March 31, 2004 and December 31, 2003.

9. Reclassifications

     Certain amounts appearing in the financial statements and notes thereto, for prior periods, have been reclassified to conform to the current presentation. The reclassification had no effect on net income or shareholders’ equity as previously reported.

     Part I

     Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors that affected the Corporation’s financial condition and results of operations during the periods included in the Condensed Consolidated Financial Statements which are part of this filing.

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond the Corporation’s control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations of those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Corporation operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Corporation does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Introduction

LNB Bancorp, Inc. is the financial holding company for Lorain National Bank. The Corporation is headquartered in Lorain, Ohio and operates 20 offices in three counties in northern Ohio. As disclosed in the Corporation’s 2003 Annual Report on Form 10-K, two new offices were scheduled to open during 2004. The first new office, located in Avon, Ohio opened for business in March 2004. The second new office, located in Avon Lake, Ohio is on schedule to open in May 2004. The most material current trend is the very slow recovery of the local economy. Since the Corporation’s revenues are primarily driven by net interest income, the lack of economic activity continues to have a material impact on the Corporation’s revenue and earnings. However, the Corporation’s first quarter results reflect the impact of the operating expense reduction initiatives that were completed in 2003.

Results of Operations (Dollars in Thousands)

Net income for the first quarter of 2004 was $2,256, an increase of $65 over the first quarter of 2003 net income of $2,191. Basic and diluted earnings per common share for the first quarter of 2004 were $.34, as compared to $.33 for the same period in 2003. Return on average equity (ROE) and return on average assets (ROA) were 1.21% and 13.18%, respectively, for the first quarter of 2004, compared to 1.24% and 13.22%, respectively, in 2003. Selected operating data is as follows:

Net Interest Income

Net interest income for the first quarter of 2004 was $6,870, a decrease of $290 or 4.0% from $7,160 in the first quarter of 2003. Net interest income, the difference between interest income earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is the most significant component of the Corporation’s earnings. Net interest income is affected by changes in the volumes, rates and composition of interest-earning assets and interest-bearing liabilities. Average earning assets were $696.9 million during the first quarter of 2004, an increase of 4% from the first quarter last year. Commercial and home equity loans were primarily responsible for this increase. Offsetting some of this growth was continued runoff in the mortgage loan portfolio. Average deposits were $579.3 million for the first three months of 2004, up 1.3% from the same quarter last year, which included average transaction account growth of 1.0%. Average other borrowings were $93.7 million for the first three months of 2004, up 29.3% from the same quarter last year, which included average Federal Home Loan Bank advances borrowing growth of 37.1%. Increases in Federal Home Loan Bank advances supported earning asset growth. The Corporation’s net interest margin for the three months ended March 31, 2004 was 4.02%, a decrease of 37 basis points from the first quarter of 2003. In general the lower net interest margin reflects the impact of the continued low interest rate environment. This can be seen in the overall yield on earning assets of 5.15%, which is a decline of 63 basis points for the first three months of 2004 versus the same period in 2003. Earning asset yields continue to be impacted by competitive market pressures and the prepayment of assets resulting in shorter durations and considerable cashflow. The low interest rate environment, in addition to compressing asset yields has also impacted the cost of funding. This can be seen in the average rate on deposits and purchased funds, which was 1.45% for the first quarter of 2004. Although this is a 38 basis point decrease from the

rate paid on deposits and purchased funds in the first quarter of 2003, it represents more than half the yield decline that was experienced by the earnings assets being funded by these sources. In many instances, market rates on deposit accounts have reached practical limits or levels that are unattractive to customers. The Corporation believes that the improving economy and the associated asset growth, combined with increasing interest rates and slower prepayment rates, will begin to improve net interest income in future periods.

Provision for loan losses

The Provision for loan losses represents the charge to income necessary to adjust the Reserve for loan losses to an amount that represents management’s assessment of the estimated probable credit losses inherent in the Corporation’s loan portfolio which have been incurred at each balance sheet date. The Provision for loan losses decreased $39 or 6.9% to $525 in the first quarter of 2004 compared to $564 in the first quarter of 2003. The slightly lower Provision for loan losses in the first quarter of 2004 was attributable to minimal loan portfolio growth, lower net charge-offs and improvement in market conditions as compared to the first quarter of 2003. Net charge-offs were $436 or 0.33% (annualized) of average loans during the three months ended March 31, 2004, compared to $514 or 0.40% (annualized) for the same period in 2003. Table 2 presents a summary of The Corporation’s loan loss experience for the three months ended March 31, 2004 and 2003.

The Reserve for loan losses as a percentage of non-performing loans at March 31, 2004 has improved slightly since the end of 2003 due to an overall stabilization in non-performing loans. For more information see sections titled “Non-performing Assets” and “Reserve for Loan Losses”.

Operating Income

The change in Operating Income reflects the emphasis of the Corporation on expanding its fee-based products. Operating Income for the first quarter of 2004 was $2,856, an increase of $157 or 5.8% from the $2,699 for the same quarter of 2003. Operating Income growth was most significant in Investment and Trust Services Income and Services charges on deposits accounts which were up $132 and $38 respectively. Also increasing was Net securities gains totaling $223, which is up $20 as compared to the first quarter of 2003. These gains were primarily the result of the sale of non-rated, non-Ohio municipal bonds and the repositioning of the agency portfolio for rising rates. Operating income also includes earnings on the Corporation’s Bank owned life insurance (BOLI). BOLI is a long-term investment, with its earnings rate tied to long-term interest rates. As such, the income from this source was down $34 to $159 in the first quarter as compared to the first quarter of 2003. Gain on the sale of loans are primarily from gain on the sale of mortgages. For the first quarter of 2004, such gains were down $25, or 40.3% as compared to the first quarter of 2003. This reflects a dramatic slowing of mortgage activity in the market.

Operating Expense

Operating Expense for the first quarter of 2004 was $5,976, a decrease of $163 or 2.7%, from $6,139 reported for the same quarter of 2003. This was due primarily to a decrease in salary and employee benefits as a result of the cost cutting measures taken in 2002 and 2003. Salaries and benefits were $3,038, down $119 or 3.8% from the same quarter last year. Net occupancy costs, supplies and postage, loan and collection expense and marketing expenses were all lower in the first quarter of 2004 as compared to the first quarter of 2003. As disclosed in the 2003 Annual Report to shareholders on Form 10-K, outside services and equipment costs continue to trend upward due to expenses related to Sarbanes-Oxley compliance and the ongoing upgrade of many Corporation technology systems. The efficiency ratio was 61.5% for the first quarter of 2004, down from 62.3% for the same quarter last year.

Income Taxes

The provision for income taxes for the first quarter of 2004 was $969, up slightly from $965 in the same period in 2003. The effective tax rate for the three months ended March 31, 2004 was 30.0% as compared to 30.6% for the same period in 2003. This reduction is partially attributable to the impact of NCCDC activities that generated $56 in tax credits in the first quarter of 2004.

Balance Sheet

At March 31, 2004, total assets were $752,392, an increase of $11,171 from December 31, 2003. The increase was primarily attributable to increases in loans of $2,697, cash and interest bearing deposits of $2,717, and short-term investments of $4,810. The net growth in assets was funded by growth in short-term purchased funds and Federal Home Loan Bank advances. Total deposits declined 3.0% or $17,531, to $563,813 at March 31, 2004 when compared to December 31, 2003. This decline in deposits was primarily the result of a shift from public funds deposits to alternative borrowing sources and from general economic weakness in the local market. Shareholders’ equity totaled $69,543 at March 31, 2004, increasing $1,408 from December 31, 2003. Net retained earnings (net income less cash dividends) for the three months ended March 31, 2004 totaled

$1,064. Other comprehensive income decreased by $340, primarily due to an increase in the market value of securities available for sale.

Nonperforming Assets

The level of nonperforming assets at March 31, 2004 remains at approximately the same level as December 31, 2003, and management believes nonperforming assets are well collateralized. Table 3 presents the level of nonperforming assets and respective ratios at the end of the last five calendar quarters.

Performing loans where some concerns exist as to the ability of the borrower to comply with present loan repayment terms, excluding nonperforming loans, approximated $23,242 and $21,747 at March 31, 2004 and December 31, 2003, respectively, and are being closely monitored by management and the Board of Directors. The amounts include results from a loan-by-loan evaluation of loans classified as “special mention”, “substandard” and “doubtful”, but are not included in the nonperforming loan category. The classification of these loans, however, does not imply that management expects losses on each of these loans, but believes that a higher level of scrutiny is prudent under the circumstances. These loans require close monitoring despite the fact that they are currently performing. Such classifications relate to specific concerns relating to each individual borrower and do not relate to any concentrated risk elements common to all loans in this group.

Non-accrual loans increased slightly from $5,154 at December 31, 2003 to $5,234 at March 31, 2004. Nearly all non-accrual loans are secured by real estate or commercial real estate. As of March 31, 2004, the Corporation did not have any loan concentrations which exceeded 10% of total loans.

The Corporation maintains a reserve for loan losses at a level adequate to absorb management’s estimate of probable losses inherent in the loan portfolio. The reserve is comprised of a general reserve, a specific reserve for identified problem loans and an unallocated reserve. The general reserve is determined by applying estimated loss factors to the credit exposures from outstanding loans. For construction, commercial and commercial real estate loans, loss factors are applied based on internal risk grades of these loans. For residential real estate, installment and other loans, loss factors are applied on a portfolio basis. Loss factors are based on the Corporation’s historical loss experience, and are reviewed for revision on a quarterly basis, along with other factors affecting the collectibility of the loan portfolio. Specific reserves are established for all classified loans, where management has determined that, due to identified significant conditions, the probability that a loss has been incurred exceeds the general reserve loss factor determination for those loans. The unallocated reserve recognizes the estimation risk associated with the allocated general and specific reserves and incorporates management’s evaluation of existing conditions that are not included in the allocated reserve determinations. These conditions are reviewed quarterly by management and include general economic conditions, credit quality trends, and internal loan review and regulatory examination findings. Table 4 presents information concerning the allocation of the Reserve for Loan Losses at March 31, 2004 and December 31, 2003.

Liquidity

Management of liquidity is of growing importance to the banking industry. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of balance sheet structure, the ability to liquidate assets, and the availability of alternative sources of funds.

In addition to maintaining a stable core deposit base, the Corporation’s banking subsidiary maintains adequate liquidity primarily through the use of investment securities and unused borrowing capacity. At March 31, 2004, securities and other short-term investments with maturities of one year or less totaled $41,888. In addition, the mortgage-backed securities provide an estimated cash flow of $14,603 over a twelve-month time horizon. The Bank is a

member of the Federal Home Loan Bank of Cincinnati (FHLB). The FHLB provides a reliable source of funds to support asset growth in excess of retail deposit growth. As of March 31, 2004, the Bank had total credit availability with the FHLB of $127,196, of which $90,303 was outstanding. The Bank also maintains borrowing capacity at the Federal Reserve Bank of Cleveland. At March 31, 2004, there were no borrowings on this borrowing base of $47,342. The Bank also maintains Federal funds lines of credit with correspondents totaling $24,000. There were $5,500 outstanding balances on these lines as of March 31, 2004.

Since the Corporation is a financial holding company and does not conduct operations, its only sources of operating liquidity are borrowings from outside sources and dividends paid to it by the Bank. For the Bank, regulatory approval is required in order to pay dividends in excess of the subsidiary’s earnings retained for the current year plus retained net profits for the prior two years. As a result of these restrictions, dividends that could be paid to the Corporation by its bank subsidiary, without prior regulatory approval, were limited to $12,257 at March 31, 2004.

Asset/Liability Management

Closely related to liquidity management is the management of interest-earning assets and interest-bearing liabilities. LNB Bancorp manages its rate sensitivity position to avoid wide swings in net interest margins and to minimize risk due to changes in interest rates. At March 31, 2004, The Corporation’s gap position, the difference between the dollar value of interest rate sensitive assets and interest rate sensitive liabilities, was positive for three, six and twelve month periods. Earnings-at-risk simulation indicates that the Corporation will experience net interest income improvement as rates rise. See also Item. 3, “Quantitative and Qualitative Disclosures About Market Risk.”

Capital

The Corporation continues to maintain a strong capital position. Total shareholders’ equity reached a record high of $69,543, at March 31, 2004, an increase of $1,408, or 2.1% from December 31, 2003. The increase resulted primarily from $2,256 of net income generated for the three months ended March 31, 2004 less cash dividends payable to shareholders of $1,192. The change in intermediate term interest rates experienced in the first three months of 2004 has caused an increase in the fair value of available for sale securities which resulted in a increase in shareholders’ equity within accumulated other comprehensive income of $340 for the three months ended March 31, 2004. As of March 31, 2004, the Corporation held 149,029 shares of common stock as treasury stock at a cost of $2,881.

     The Corporation and the Bank continue to monitor growth to stay within the constraints established by the regulatory authorities. Under Federal banking regulations, at March 31, 2004 and December 31, 2003, the Corporation and Bank maintained capital ratios consistent with guidelines to be deemed well-capitalized. These capital positions for the Corporation are presented in Table 5.

     The Corporation regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions in markets near or within the Corporation’s current geographic market. As a result, acquisition discussions and, in some cases negotiations, take place and future acquisitions could occur. Corporate management believes that the Corporation’s current capital resources are sufficient to support any foreseeable acquisition activity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk that a financial institution’s earnings and capital, or its ability to meet its business objectives, will be adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity prices, credit spreads and/or commodity prices. Within the Corporation, the dominant market risk exposure is changes in interest rates. The negative effects of this exposure are felt through the net interest margin, mortgage banking revenues and the market value of various assets and liabilities.

The Corporation manages market risk through its Asset/Liability Committee (ALCO) at the consolidated level. This committee monitors interest rate risk through sensitivity analysis, whereby it measures potential changes in future earnings that may result from one or more hypothetical changes in interest rates. This analysis is performed by estimating the expected cash flows of the Corporation’s financial instruments using interest rates in effect at March 31, 2004. For the net interest income estimates, the hypothetical rates are applied to the financial instruments based on the assumed cash flows. The Corporation applied these interest rate shocks to its financial instruments in 300, 200 and 100 basis point increasing rate scenarios. Scenarios testing 300, 200 and 100 basis points decreases in rates were not measured due to the low probability of such declines.

Table 6 presents the potential ratio of the Corporation’s interest rate sensitive assets (i.e. assets that will mature or reprice within a specific time period) divided by its interest rate sensitive liabilities (i.e. liabilities that will mature or reprice within a specific time period), commonly referred to as the “interest rate sensitivity gap” or “gap”, for the current period and the cumulative position at three, six and twelve month time periods.

     Table 7 presents an analysis of the potential sensitivity of the Corporation’s net interest income to sudden and sustained 300, 200 and 100 basis point changes in market rates. The net interest income presented in each interest rate scenario represents the potential net interest income result for the next twelve months.

ALCO is aggressively managing the Corporation’s risk to net interest income in response to continued declines in the interest rate environment. The preceding analysis is based on numerous assumptions, including relative levels of market interest rates, loan prepayments and reactions of depositors to changes in interest rates, and should not be relied upon as being indicative of actual results. Further, the analysis does not necessarily contemplate all actions the Corporation may undertake in response to changes in interest rates.

Item 4. Controls and Procedures

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 as of March 31, 2003, pursuant to SEC rule 13a-15. Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Corporate Secretary concluded that as of March 31, 2004, 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 was no significant change made in the Corporation’s internal control over financial reporting that occurred during the Corporation’s first quarter ended March 31, 2004, that was materially affecting, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable

Item 2. Changes in Securities and Use of Proceeds

Issuer Purchases of Equity Securities

LNB Bancorp, Inc does not have any common stock repurchase plans, either publicly announced or non-publicly announced.

Item 3. Defaults Upon Senior Securities

     Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

a) LNB Bancorp Inc.’s 2004 Annual Meeting of Shareholders was held on April 20, 2004.

b) Proxies were solicited by LNB Bancorp Inc.’s management pursuant to Regulation 14 under the Securities Exchange Act of 1934, there was no solicitation in opposition to management’s four (4) nominees for election to the board of directors as listed in the proxy statement, and all such nominees were elected to the classes in the proxy statement pursuant to the vote of the shareholders.

The following presents Directors, elected for terms expiring in 2007, at the 2004 Annual Meeting.

The following table presents Directors who continue for terms expiring in 2005 and 2006.

     c) Other matters voted upon

(1)

Election of four (4) Class III Directors to serve a three-year term until the Annual Meeting of Shareholders on April 17, 2007 were as follows:

     The total number of shares of LNB Bancorp, Inc. Common Stock, $1.00 par value, outstanding as of March 1, 2004, the record date of the Annual Meeting was 6,617,726. Total shares voted were 5,615,222 or 84.9% of the outstanding shares.

Item 5. Other Information

     Not applicable.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits — The following exhibits are filed as part of this report:

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

(b) Reports on Form 8-K

February 3, 2004 — LNB Bancorp, Inc. published and issued a press release announcing financial results for the three and twelve months ended December 31, 2003 dated January 28, 2004.

April 20, 2004 — LNB Bancorp, Inc. published and released its 1st Quarter 2004 Report to Shareholders and issued a press release announcing 1st Quarter 2004 Earnings dated April 20, 2004.

April 20, 2004 — LNB Bancorp, Inc. published and issued a press release announcing Lorain National Bank to Acquire Mortgage One Banc to Expand Market Presence in Consumer Mortgage Lending.

Also, see the Exhibit Index which is found on the next page of this Form.

SIGNATURE

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

	LNB BANCORP, INC. (Registrant)
Date: April 30, 2004	/s/ Terry M. White
	Terry M. White
	Executive Vice President, Chief Financial Officer and Corporate Secretary

Date: April 30, 2004	/s/ Mitchell J. Fallis, CPA
	Vice President and
	Chief Accounting Officer

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