LNB Bancorp (LNBB) 11-K Annual report of employee stock purchases

Exhibit 99.1

The Lorain National Bank
401(k) Plan

Financial Report
December 31, 2009

The Lorain National Bank 401(k) Plan

Contents

Report Letter	1
Statement of Net Assets Available for Plan Benefits	2
Statement of Changes in Net Assets Available for Plan Benefits	3
Notes to Financial Statements	4-11
Schedule of Assets Held at End of Year	Schedule 1
Schedule of Reportable Transactions	Schedule 2

Report of Independent Registered Public Accounting Firm

To the Plan Administrator
The Lorain National Bank 401(k) Plan

We have audited the accompanying statement of net assets available for plan benefits of The Lorain National Bank 401(k) Plan (the “Plan”) as of December 31, 2009 and 2008 and the related statement of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 2009 and 2008 and the changes in net assets available for plan benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held at end of year for the year ended December 31, 2009 and the schedule of reportable transactions for the year ended December 31, 2009 are presented for the purpose of additional analysis and are not required parts of the basic financial statements but are supplemental information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ Plante & Moran, PLLC

Columbus, Ohio
June 22, 2010

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The Lorain National Bank 401(k) Plan

Statement of Net Assets Available for Plan Benefits

	December 31
	2009			2008
Assets
Cash	$	15,888		$	31,867
Investments — At fair value (Notes 3 and 5):
Nonparticipant-directed — Common stock — LNB Bancorp, Inc.		1,505,138			1,546,297
Participant-directed:
Short-term cash investments		180,783			255,913
Common collective trust funds		4,407,987			3,283,095
Participant loans		221,363			171,504
Total investments		6,315,271			5,256,809
Total assets		6,331,159			5,288,676
Liabilities — Other expense payable		(711	)		(938	)
Net Assets Available for Plan Benefits at Fair Value		6,330,448			5,287,738
Adjustment from Fair Value to Contract Value for Interest in Common Collective Trust Funds Relating to Fully Benefit-responsive Investment Contracts		(4,482	)		2,368
Net Assets Available for Plan Benefits	$	6,325,966		$	5,290,106

See Notes to Financial Statements.

2

The Lorain National Bank 401(k) Plan

Statement of Changes in Net Assets Available for Plan Benefits

	Year Ended December 31
	2009			2008
Additions
Investment income (loss):
Dividends	$	85,790		$	145,703
Interest		9,677			13,079
Net appreciation (depreciation) in fair value of investments (Note 3)		417,604			(3,426,688	)
Total investment income (loss)		513,071			(3,267,906	)
Contributions:
Employer		367,379			400,158
Participants		705,717			753,615
Participant rollovers		10,790			46,301
Total contributions		1,083,886			1,200,074
Total additions — Net		1,596,957			(2,067,832	)
Deductions
Distributions to participants		(560,386	)		(1,120,052	)
Other expense		(711	)		(938	)
Total deductions		(561,097	)		(1,120,990	)
Net Increase (Decrease) Before Other Changes		1,035,860			(3,188,822	)
Transfers In (Note 7)		—			2,429,905
Net Increase (Decrease) in Net Assets Available for Plan Benefits		1,035,860			(758,917	)
Net Assets Available for Plan Benefits - Beginning of year		5,290,106			6,049,023
Net Assets Available for Plan Benefits - End of year	$	6,325,966		$	5,290,106

See Notes to Financial Statements.

3

The Lorain National Bank 401(k) Plan

Note 1 — Description of Plan

The following is a general description of The Lorain National Bank 401(k) Plan (the “Plan”). Participants should refer to the plan agreement for a more complete description of the Plan’s provisions.

General — The Plan is a defined contribution plan sponsored by The Lorain National Bank (the “Bank”), a wholly owned subsidiary of LNB Bancorp, Inc. (the “Bancorp” or the “Corporation”), covering substantially all employees of the Bank and related Bancorp affiliates for which the Bank acts as common paymaster. An employee is eligible to participate in the Plan after the attainment of age 19 and completion of 90 days of service, as defined in the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

Under the terms of the Plan, the Investment and Trust Services Division of the Bank acts as trustee for the Plan and, as such, provides oversight for a trust fund, which includes all of the Plan’s assets.

Contributions — The Plan allows participants to make pretax contributions up to the maximum dollar limits set by the IRS. Based on the number of hours worked or paid, certain participants in the Plan are eligible to receive employer contributions. Each year the employer will make a safe harbor matching contribution to the Plan equal to 3.0 percent of the employee’s annual compensation regardless of the employee’s participation in the Plan.

Employee contributions are invested according to participant investment elections for pretax contributions. If an employee has not made investment elections, the employee contributions will be invested in the State Street Global Advisors’ Moderate Strategic Balanced SL Fund (Growth & Income Asset Allocation Fund). Employer contributions are not participant-directed and are invested in LNB Bancorp, Inc. common stock.

To receive an employer contribution, a participant must be eligible to participate in the plan. A participant’s account also receives the employer contribution for the year which the participant retires, becomes disabled, or dies.

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The Lorain National Bank 401(k) Plan

Note 1 — Description of Plan (Continued)

Participant Accounts — Each participant’s account is credited with the participant’s contribution, the Bank’s contribution, and an allocation of plan earnings. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Forfeitures — At December 31, 2009 and 2008, there were no outstanding forfeited nonvested accounts. Forfeitures are used to reduce future employer contributions.

Vesting — Participants are immediately vested in their voluntary contribution and the employer’s contribution for the current plan year plus any earnings accrued thereon.

Payment of Benefits — Upon termination of service, the vested amount of the Bank’s contributions and earnings thereon is paid at the election of the participant in cash. Participants can elect to receive their voluntary contributions and earnings thereon in a single lump-sum cash payment or in substantially equal installments over a period of not more than the assumed life expectancy of the participant and the participant’s beneficiary.

Withdrawals — Aside from normal retirement distributions, in-service withdrawals relative to the pre-2000 after-tax savings and company match may be withdrawn at any time. In accordance with plan provisions, pretax savings may also be withdrawn for reasons of extreme financial hardship as defined under federal law. An employee can make only one withdrawal in any 12-month period, relative to the Stock Purchase Plan provision of pre-2000 after-tax dollars and employer match.

Participant Loans — Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their account balance. The loans are secured by the balance in the participant’s account and are charged a rate of interest commensurate with local prevailing rates as determined by the plan administrator. Principal and interest are paid ratably through biweekly payroll deductions.

Termination — Although the Bank has not expressed the intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and terminate the Plan subject to the provisions of ERISA and its related regulations. In the event of a plan termination, participants will become 100 percent vested in their accounts.

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The Lorain National Bank 401(k) Plan

Note 2 — Significant Accounting Policies

Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value, except for a common collective trust fund that invests in benefit-responsive investment contracts (commonly referred to as a stable value fund), which is valued at contract value. Contract value represents investments at cost plus accrued interest income less amounts withdrawn to pay benefits. The fair value of the stable value common collective trust fund is based on discounting the related cash flows of the underlying guaranteed investment contracts based on current yields of similar instruments with comparable durations. The interest-bearing cash and participant loans are valued at their outstanding balances, which approximate fair value. All other investments are valued based on quoted market prices.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires plan management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates.

Administrative Expenses — The administrative expenses of the Plan are paid by the Bank.

Benefit Payments — Benefits are recorded when paid.

Risks and Uncertainties — The Plan provides for various investment options including any combination of common collective trust funds, LNB Bancorp, Inc. common stock, and other investment securities. The underlying investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits and participants’ individual account balances.

Concentration of Credit Risk — At December 31, 2009 and 2008, approximately 24 percent and 29 percent, respectively, of the Plan’s assets were invested in LNB Bancorp, Inc. common stock.

Subsequent Events — The financial statements and related disclosures include evaluation of events up through and including June 22, 2010, which is the date the financial statements were available to be issued.

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The Lorain National Bank 401(k) Plan

Note 3 — Investments

The following table presents the fair value of investments that represented 5 percent or more of the Plan’s assets at December 31, 2009 and 2008:

	2009		2008
Common stock — LNB Bancorp, Inc. - 349,220 and 294,532 common shares in 2009 and 2008, respectively**	$	1,505,138	$	1,546,297
Common collective trust funds:
State Street Global Advisors Growth & Income Fund #110		1,256,817		1,190,097
State Street Global Advisors S&P Mid-Cap Stock Fund #500		627,477		422,292
State Street Global Advisors S&P 500 Stock Fund Fund #400		368,396		254,970

During the years ended December 31, 2009 and 2008, the Plan’s investments (including investments bought, sold, and held during the year) (depreciated) appreciated in value as follows:

	2009			2008
Common stock — LNB Bancorp, Inc.**	$	(364,399	)	$	(2,251,602	)
Common collective trust funds		782,003			(1,175,086	)
Total	$	417,604		$	(3,426,688	)

** Nonparticipant-directed

Note 4 — Federal Income Taxes

The Internal Revenue Service issued its latest determination letter on January 27, 2003, which stated that the Plan and underlying trust, as designed, qualify under the applicable provisions of the Internal Revenue Code. In the opinion of the plan administrator, the Plan and its underlying trust have operated within the terms of the Plan and remain qualified under the applicable provisions of the Internal Revenue Code.

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The Lorain National Bank 401(k) Plan

Note 5 — Party-in-interest Transactions

The following is a summary of transactions in common stock of LNB Bancorp, Inc., 100 percent owner of the Bank, during the years ended December 31, 2009 and 2008:

	Number
	of Shares			Fair Value
Balance at December 31, 2007		164,597		$	2,411,363
Purchases		49,555			505,005
Sales		(65,462	)		(622,283	)
Distributions in-kind		(16,714	)		(138,591	)
Net depreciation		—			(2,251,602	)
Transfers in from LNB ESOP		162,556			1,642,405
Balance at December 31, 2008		294,532			1,546,297
Purchases		69,587			404,171
Sales		(14,899	)		(80,931	)
Net depreciation		—			(364,399	)
Balance at December 31, 2009		349,220		$	1,505,138

Note 6 — Assets Available for Distribution to Participants

The following is a summary of the assets available for distribution to participants as of December 31, 2009 and 2008:

	2009		2008
Assets payable to terminated participants	$	946,301	$	851,098
Assets available for continuing participants		5,379,665		4,439,008
Total	$	6,325,966	$	5,290,106

Note 7 — Plan Merger

Effective December 31, 2007, Lorain National Bank Employee Stock Ownership Plan, a plan sponsored by the Company, and Morgan Bank 401(k) Plan were merged with the Plan. In April, 2008, Lorain National Bank Employee Stock Ownership Plan assets of $1,644,703 and Morgan Bank 401(k) Plan assets of $785,202 were transferred into the Plan.

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The Lorain National Bank 401(k) Plan

Note 8 — Fair Value Measurements

Accounting standards require certain assets be reported at fair value in the financial statements and provide a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value.

Level 1 — In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access.

Level 2 — Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 — Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset.

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

During 2009, the Plan adopted, on a prospective basis, new accounting standards which require disclosure of fair value by major class of investments.

The following tables represent the balances of the Plan’s financial assets that were measured at fair value on a recurring basis as of December 31, 2009 and 2008:

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The Lorain National Bank 401(k) Plan

Note 8 — Fair Value Measurements (Continued)

	Assets Measured at Fair Value on a Recurring Basis at December 31, 2009
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant		Balance at
	Identical Assets		Observable		Unobservable		December 31,
	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		2009
Common stock — LNB Bancorp, Inc.	$	1,505,138	$	—	$	—	$	1,505,138
Short-term cash investments				180,783		—		180,783
Common collective trust funds
Bond Funds (1)				228,262				228,262
Index Equity Funds (2)				1,948,513				1,948,513
Growth and Income Funds (2)				1,633,035				1,633,035
International Fund (2)				206,912				206,912
Balanced Asset Fund (3)				46,225				46,225
Real Estate Fund (4)				61,008				61,008
Stable Value Fund (5)				284,032				284,032
Participant loans		—		—		221,363		221,363
Total	$	1,505,138	$	4,588,770	$	221,363	$	6,315,271

(1)	This category represents investments in actively managed common collective trust funds that invest primarily in bonds which may include corporate bonds, government bonds or municipal bonds. Investments are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.
(2)	This category represents investments in actively managed common collective trust funds that invest primarily in equity securities which may include common stocks, options and futures. Investments are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.
(3)	This category represents investments in actively managed common collective trust funds with investments in both equity and debt securities. The investments may include common stock, corporate bonds, U.S. and non-U.S. municipal securities, interest rate swaps, options and futures. Investments are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.
(4)	This category represents investments in actively managed common collective trust funds with investments in real estate. The investments may include actual real estate property or real estate investment trusts. Investments are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.
(5)	This category represents investments in an actively managed common collective trust fund or pooled separate accounts that invests primarily in investment contracts, a variety of fixed income investments that may include corporate bonds, both U.S. and non-U.S. municipal securities and wrapper contracts. Investments are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.

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The Lorain National Bank 401(k) Plan

Note 8 — Fair Value Measurements (Continued)

	Assets Measured at Fair Value on a Recurring Basis at December 31,2008
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant		Balance at
	Identical Assets		Observable		Unobservable		December
	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		31, 2008
Common stock — LNB Bancorp, Inc.	$	1,546,297	$	—	$	—	$	1,546,297
Short-term cash investments		—		255,913		—		255,913
Common collective trust funds		—		3,283,095		—		3,283,095
Participant loans		—		—		171,504		171,504
Total	$	1,546,297	$	3,539,008	$	171,504	$	5,256,809

The following table sets forth a summary of changes in the fair value of the Plan’s Level 3 investments for the years ended December 31, 2009 and 2008:

	Participant
	Loans
Balance at December 31, 2007	$	133,746
Purchases, sales, issuances, and settlements — Net		37,758
Balance at December 31, 2008	$	171,504
Purchases, sales, issuances, and settlements — Net		49,859
Balance at December 31, 2009	$	221,363

Note 9 — Reconciliation to Form 5500

The net assets on the financial statements differ from the net assets on Form 5500 due to a common collective trust fund being recorded at contract value on the financial statements and at fair value on Form 5500. The net assets on the financial statements were different from those on Form 5500 at December 31, 2008 by $2,368. Additionally, the investment income on Form 5500 for the year ended December 31, 2009 is higher by $2,368.

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The Lorain National Bank 401(k) Plan

Schedule of Assets Held at End of Year
Form 5500, Schedule H, Item 4i
EIN 34-0869480, Plan No. 003
December 31, 2009

	(c)
(a)(b)	Description of Investment, Including			(e)
Identity of Issuer, Borrower,	Maturity Date, Rate of Interest,	(d)		Current
Lessor, or Similar Party	Collateral, Par, or Maturity Value	Cost		Value
LNB Bancorp, Inc.*	Common stock - 349,220 shares	$	1,834,454	$	1,505,138
State Street Global Advisors	Short Term Investment Fund #200		**		180,783
Participants	Participant loans bearing interest at 4.75% to 9.25%		**		221,363
	Common collective trust funds:
State Street Global Advisors	Aggregate Bond Index Fund #310		**		95,141
State Street Global Advisors	Growth Fund #120		**		303,635
State Street Global Advisors	Growth & Income Fund #110		**		1,256,817
State Street Global Advisors	Income Plus Fund #100		**		72,583
State Street Global Advisors	International Stock Fund #600		**		206,912
State Street Global Advisors	Long Treasury Index Fund #300		**		132,819
State Street Global Advisors	NASDAQ 100 Stock Fund #520		**		210,947
State Street Global Advisors	Russell 2000 Stock Fund #510		**		298,835
State Street Global Advisors	S&P 500 Stock Fund #400		**		368,396
State Street Global Advisors	S&P Growth Stock Fund #420		**		230,871
State Street Global Advisors	S&P Mid-Cap Stock Fund #500		**		627,477
State Street Global Advisors	S&P Value Stock Fund #410		**		211,987
State Street Global Advisors	Stable Value Fund #210		**		284,032
State Street Global Advisors	Govt Short Bond		**		302
State Street Global Advisors	Target Retire 2015		**		31,266
State Street Global Advisors	Target Retire 2025		**		11,904
State Street Global Advisors	Target Retire 2035		**		2,743
State Street Global Advisors	Target Retire 2045		**		312
State Street Global Advisors	US REIT Index Fund #530		**		61,008
	Total investments			$	6,315,271

*	Party-in-interest
**	Cost information not required

Schedule 1

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The Lorain National Bank 401(k) Plan

Schedule of Reportable Transactions
Form 5500, Schedule H, Item 4i
EIN 34-0869480, Plan 003
Year Ended December 31, 2009

(b)							(f)				(h)
Description of Asset (Including	(c)		(d)		(e)		Expense		(g)		Current Value of		(i)
Interest Rate and Maturity	Purchase		Selling		Lease		Incurred with		Cost of		Asset on		Realized Net
in Case of a Loan)	Price		Price		Rental		Transaction		Asset		Transaction Date		Gain (Loss)
LNB Bancorp, Inc. common stock:
Purchases (31)	$	404,171	$	—	$	—	$	—	$	404,171	$	404,171	$	—
Sales (31)		—	$	80,931	$	—	$	—	$	102,627	$	80,931	$	(21,696	)
Distributions in-kind (0)		—		—		—		—		—		—		—

Schedule 2

Page 1