4
LNB Bancorp, Inc.
Exhibit to Form 10 - K/A
(for the fiscal year ended December 31, 2001)
S - K Reference Number (99.1)
Annual report on Form 11-K of The Lorain National Bank
Employee Stock Ownership Plan for the plan year ended December 31,
2001 filed as an amendment to the annual report on Form 10-K.
5
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Note: This Form 11-K is being filed as an amending Exhibit to the Form
10-K of LNB Bancorp, Inc. for the fiscal year ended December 31,
2001 pursuant to Rule 15d-21, therefore no fee is required.
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------
Commission file number 0-13203
THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
------------------------------------------------------
(Full title of the plan)
Lorain National Bank 457 Broadway Lorain, Ohio 44052-1769
---------------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office)
6
REQUIRED INFORMATION
Audited plan financial statements and schedules prepared in accordance
with the financial reporting requirements of the Employee Retirement
Income Securities Act of 1974, as amended, are filed herewith in lieu of
the requirements of an audited statement of financial condition and
statement of income and changes in plan equity.
Financial Statements and Exhibits
A) The following financial statements and schedules are filed as part
of this annual report.
1) Independent Auditors' Report
2) Statements of Assets Available for Distribution to
Participants - December 31, 2001 and 2000
3) Statements of Changes in Assets Available for Distribution to
Participants - Years ended December 31, 2001 and 2000.
4) Notes to Financial Statements
5) Schedule H, line 4i - Schedule of Assets (Held at End of Year) -
December 31, 2001
6) Schedule H, line 4j - Schedule of Reportable Transactions - Year
ended December 31, 2001
B) The following Exhibit is filed as part of this annual report:
24. Consent of Independent Accountants
7
(COVER EMBOSSED WITH LOGO)
KPMG LLP
The Lorain National Bank
Employee Stock Ownership Plan
Financial Statements and Schedules
December 31, 2001 and 2000
(With Independent Auditors' Report Thereon)
8
The Lorain National Bank
Employee Stock Ownership Plan
Table of Contents
Page
Independent Auditors' Report 1
Statements of Assets Available for Distribution
To Participants, December 31, 2001 and 2000 2
Statements of Changes in Assets Available for
Distribution to Participants, Years ended
December 31, 2001 and 2000 3
Notes to Financial Statements 4
Schedules
1 Schedule H, line 4i -Schedule of Assets (Held
at End of Year) - December 31, 2001 8
2 Schedule H, line 4j - Schedule of Reportable
Transactions - Year ended December 31, 2001 9
All other schedules required to be filed in accordance with the
Employee Retirement Income Security Act of 1974 are not applicable
and accordingly have been omitted
9
(LETTERHEAD)
(LOGO)
KPMG LLP
One Cleveland Center
1375 East Ninth Street, Suite 2600
Cleveland, OH 44114-1796
Independent Auditors' Report
The Plan Administrator
The Lorain National Bank
Sponsor of The Lorain National Bank
Employee Stock Ownership Plan:
We have audited the accompanying statements of assets available for
distribution to participants of The Lorain National Bank Employee Stock
Ownership Plan (Plan) as of December 31, 2001 and 2000, and the related
statements of changes in assets available for distribution to participants
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 auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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 assets available for distribution to participants
of the Plan as of December 31, 2001 and 2000, and the changes in those assets
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 H, line 4i-
Schedule of Assets (Held at End of Year) as of December 31, 2001 and
Schedule H, line 4j - Schedule of Reportable Transactions for the year ended
December 31, 2001 are presented for the purpose of additional analysis and
are not a required part of the basic financial statements but are
supplementary 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
10
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/ KPMG LLP
June 21, 2002
(LOGO)
Member Firm of
KPMG International
11
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Assets Available for Distribution to Participants
December 31, 2001 and 2000
ASSETS 2001 2000
---------- ----------
Assets available for distribution
to participants:
Short-term cash investments $ 52,464 302,385
Investment, at fair value (notes 3 and 6):
Common stock - LNB Bancorp, Inc. 3,816,478 3,335,957
---------- ----------
3,868,942 3,638,342
---------- ----------
Receivables:
Employer contributions -0- 150,000
Dividends and interest 47,735 42,723
---------- ----------
Total receivables 47,735 192,723
---------- ----------
Assets available for
distribution to participants $3,916,677 3,831,065
========== ==========
See accompanying notes to financial statements.
2
12
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Statements of Changes in Assets Available for Distribution to Participants
Years ended December 31, 2001 and 2000
2001 2000
---------- ---------
Additions:
Investment income:
Dividends $ 165,657 148,089
Interest 14,566 8,236
Net appreciation in fair value
of investments (note 3) 48,708 49,512
---------- ---------
Total investment income 228,931 205,837
---------- ---------
Employer contribution -0- 450,000
Total additions 228,931 655,837
---------- ---------
Deductions - distributions to participants (143,319) (262,195)
---------- ---------
Increase in assets available for
distribution to participants 85,612 393,642
Assets available for distribution to participants:
Beginning of year 3,831,065 3,437,423
---------- ---------
End of year $3,916,677 3,831,065
========== =========
See accompanying notes to financial statements.
3
13
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(1) Description of the Plan
The following description of The Lorain National Bank Employee Stock
Ownership Plan (Plan) provides only general information. Participants
should refer to the Plan agreement for a more complete description of
the Plan's provisions.
(a) General
The Plan is a defined contribution plan sponsored by The Lorain
National Bank (Bank), a wholly owned subsidiary of LNB Bancorp,
Inc., covering substantially all employees of the Bank and
related LNB Bancorp, Inc. affiliates for which the Bank acts
as common paymaster. An employee is eligible to participate in
the Plan after the attainment of age 21 and completion of one
year 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,
manages a trust fund which includes all of the Plan's assets.
The trustee has been granted discretionary authority
concerning purchases and sales of investments in the trust fund
made from employer contributions.
(b) Bank Contributions
The amount of the contribution is determined by the Bank's Board
of Directors in its absolute discretion. The Bank is not
required to make a contribution in any specific year.
Contributions are allocated to participants' accounts in the
proportion each participant's annual compensation bears to the
total annual compensation of all participants for that plan
year.
(c) Participant Contributions
The Plan does not permit participant contributions.
14
(d) Vesting
Each participant vests in the bank contribution after 5 years
of service. Forfeitures of nonvested employer contributions
are made available first to reinstate previously forfeited
account balances of former participants who are reemployed by
the Plan sponsor. The remaining forfeitures, if any, shall be
allocated among the participants' accounts in the proportion
each participant's annual compensation bears to the total annual
compensation of all participants for that plan year. At
December 31, 2001, forfeited nonvested accounts totaled $28,795.
(e) Distributions Upon Termination of Employment
A participant whose employment terminates by reason of
retirement on their early retirement date or on their normal
retirement date, receives their vested benefits. The
participant may elect distribution of their vested benefits
either in a single distribution or in annual, semiannual,
quarterly, or monthly installments.
A participant whose employment is terminated for any reason
other than those designated above may receive a single
distribution of their vested benefits.
4
15
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(f) Plan Termination
Although it has not expressed any intention to do so, the Bank
has the right to terminate the Plan subject to the provisions
set forth in ERISA. In the event of Plan termination, the
assets of the Plan will be allocated as prescribed by ERISA and
its related regulations.
(g) Plan Administrator
The Plan Administrator is the President and Chief Executive
Officer of the Bank.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements of the Plan have been
prepared under the accrual method of accounting.
(b) Investments
The fair value of investments and changes therein are
determined through the use of current quoted market values.
Purchases and sales are recorded on a trade date basis.
Interest income is recorded on the accrual method of
accounting.
(c) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, and
changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
(d) Payment of Benefits
Benefit payments to participants are recorded when paid.
16
(e) New Accounting Procedures
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging
Activities, which was amended in June 2000 by SFAS No. 138.
SFAS No. 133, as amended, requires that an entity recognize all
derivatives and measure those instruments at fair value
The Plan adopted SFAS No. 133, as amended, effective January 1,
2001, with no impact to the Plan's financial statements.
5
17 THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(3) Investment
The following table presents the fair values of investments at
December 31, 2001 and 2000:
2001 2000
--------------------- --------------------
Number Number
of Shares Fair of Shares Fair
or Units Value or Units Value
--------- ----------- --------- -----------
Common stock -
LNB Bancorp, Inc. 176,469 $ 3,816,478 152,919 $ 3,335,957
========= =========== ========= ===========
During the years ended December 31, 2001 and 2000, the Plan's
investments (including investments bought, sold, and held during the
year) appreciated in value by $48,708 and $49,512, respectively
(4) Administrative Expenses
The administrative expenses of the Plan are paid by the Bank.
(5) Federal Income Taxes
The Internal Revenue Service issued its latest determination letter on
May 6, 1996 which stated that the Plan and its underlying Trust, as
designed, qualify under the applicable provisions of the Internal
Revenue Code. A new tax determination letter was applied for during the
Current year to comply with the GUST Amendments, however, due to a
Backlog with the IRS, the determination letter has not yet been
Received. 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.
As long as the Plan continues to be qualified under present federal
income tax laws and regulations, participants will not be taxed on
Bank contributions or on investment earning on such contributions at
the time such contributions and investment earnings are received by
the Trustee, but may be subject to tax thereon at such time as they
receive distributions under the Plan.
18
(6) Party-in-Interest Transactions
The following is a summary of transactions in common stock of LNB
Bancorp Inc., 100% owner of the Bank, during the year ended
December 31, 2001:
Number Fair
of Shares Value
----------- -----------
Balance at December 31, 2000 152,919 $ 3,335,957
Stock Dividend, 2% 3,287 -
Purchases 22,953 492,898
Distributions (2,690) (50,879)
Net appreciation - 38,502
----------- -----------
Balance at December 31, 2001 176,469 $ 3,816,478
=========== ===========
6
19 THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(7) Assets Available for Distribution to Participants
2001 2000
----------- -----------
Assets payable to terminated participants $ 25,187 $ 132,963
Assets available for continuing
participants 3,891,490 3,698,102
----------- -----------
$3,916,677 $3,831,065
=========== ===========
7
20
Schedule 1
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EIN: 34-0869480
Plan Number: 002
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
December 31, 2001
Column A Column B Column C Column D
- -------- ------------------ -------------------------- -----------
Description of investment
Identity of issue, including maturity date,
borrower, lessor rate of interest, collateral,
or similar party par or maturity value Cost
- -------- ------------------ -------------------------- -----------
* LNB Bancorp, Inc. 176,469 shares of common $ 3,615,982
stock
* Lorain National Bank Treasury Trust Fund 52,464
-----------
$ 3,668,446
===========
Schedule H, line 4i - Schedule of Assets (Held at End of Year) Continued
Column A Column B Column C Column E
- -------- ------------------ -------------------------- -----------
Description of investment
Identity of issue, including maturity date,
borrower, lessor rate of interest, collateral, Current
or similar party par or maturity value value
- -------- ------------------ -------------------------- -----------
* LNB Bancorp, Inc. 176,485 shares of common $ 3,816,478
stock
* Lorain National Bank Treasury Trust Fund 52,464
-----------
$ 3,868,942
===========
*Party in interest
See accompanying independent auditors' report.
8
21
Schedule 2
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EIN: 34-0869480
Plan Number: 002
Schedule H, line 4j - Schedule of Reportable Transactions
Year ended December 31, 2001
Series transactions, when aggregated, involving an amount in excess of 5%
of the current value of Plan assets:
Column A Column B Column C Column D Column E
- -------------------- --------------------- ---------- ---------- ---------
Identity of Description Purchase Selling Lease
party involved of assets price price rental
- -------------------- --------------------- ---------- ---------- ---------
* LNB Bancorp, Inc. LNB Bancorp, Inc.
common stock,
143 purchases $ 492,898 - -
1 sale - 2 -
(fractional share)
* Lorain National Bank Treasury Trust Fund,
14 purchases 183,547 - -
137 sales $ - 433,468 -
========== ========== =========
Schedule H, line 4j - Schedule of Reportable Transactions Continued
Column A Column B Column F Column G Column H
- ---------------------- ----------------- ------------- -------- ---------
Current
Expense value of
incurred asset on
Identity of Description with Cost of transaction
party involved of assets transaction asset date
- ---------------------- ----------------- ------------- --------- ---------
* LNB Bancorp, Inc. LNB Bancorp, Inc.
common stock,
143 purchases - 492,898 492,898
1 sale - 2 2
* Lorain National Bank Treasury Trust Fund,
14 purchases - 183,547 183,547
137 sales - 433,468 433,468
============= ========= =========
22
Schedule 2
THE LORAIN NATIONAL BANK
EMPLOYEE STOCK OWNERSHIP PLAN
EIN: 34-0869480
Plan Number: 002
Schedule H, line 4j - Schedule of Reportable Transactions Continued
Column A Column B Column I
- ---------------------- ---------------------- -------------
Identity of Description Net gain
party involved of assets or (loss)
- ---------------------- ---------------------- -------------
* LNB Bancorp, Inc. LNB Bancorp, Inc.
common stock,
143 purchases -
1 sale -
(fractional share)
* Lorain National Bank Treasury Trust Fund,
14 purchases -
137 sale -
============
* Party in interest
See accompanying independent auditors' report.
9
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan Administrator has duly caused this annual report to be signed
on its behalf by the undersigned hereunto duly authorized.
THE LORAIN NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
------------------------------------------------------
(Name of Plan)
Date: June 28, 2002 By: /s/ Gregory D. Friedman
------------- -----------------------
Gregory D. Friedman, CPA
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
/s/ Mitchell J. Fallis
----------------------
Mitchell J. Fallis, CPA
Vice President and
Chief Accounting Officer
24
(LETTERHEAD) Exhibit 23.1
(LOGO)
KPMG LLP
One Cleveland Center
1375 East Ninth Street, Suite 2600
Cleveland, OH 44114-1796
Consent of Independent Accountants
----------------------------------
The Plan Administrator
LNB Bancorp, Inc.:
We consent to the incorporation by reference in the Registration Statement
No. 33-65034 of LNB Bancorp, Inc. of our report dated June 21, 2002,
relating to the statements of assets available for distribution to
participants of The Lorain National Bank Employee Stock Ownership Plan as
of December 31, 2001 and 2000, and the related statements of changes in
assets available for distribution to participants for the years then
ended, and the related supplemental schedules, which report appears in
Amendment No. 1 to the 2001 annual report on Form 10-K of LNB Bancorp, Inc.
/s/ KPMG LLP
Cleveland, Ohio
June 28, 2002
(LOGO)
Member Firm of
KPMG International