25
LNB Bancorp, Inc.
Exhibit to Form 10 - K/A
(for the fiscal year ended December 31, 2001)
S - K Reference Number (99.2)
Annual report on Form 11-K of The Lorain National Bank
401(k) Plan (registration number 333-53210)
for the plan year ended December 31, 2001 filed
as an amendment to the annual report on Form 10-K.
26
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 Appendix 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 401(K) 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)
27
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 Net Assets Available for Plan Benefits
- December 31, 2001 and 2000
3) Statements of Changes in Net Assets Available for Plan Benefits
- 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
28
(COVER EMBOSSED WITH LOGO)
KPMG LLP
One Cleveland Center
1375 East Ninth Street, Suite 2600
Cleveland, OH 44114-1796
The Lorain National Bank
401(k) Plan
Financial Statements and Schedules
December 31, 2001 and 2000
(With Independent Auditors' Report Thereon)
29
The Lorain National Bank 401(k) Plan
Table of Contents
Page
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits,
December 31, 2001 and 2000 2
Statements of Changes in Net Assets Available for
Plan Benefits, Years ended
December 31, 2001 and 2000 3
Notes to Financial Statements 4
Schedules
1 Schedule H, line 41 - 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.
30
(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
401(k) Plan:
We have audited the accompanying statements of net assets available for
plan benefits of The Lorain National Bank 401(k) Plan (Plan) as of December
31, 2001 and 2000, 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 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 plan benefits 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
auditing procedures applied in the audits of the basic financial statements
31
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
32
THE LORAIN NATIONAL BANK 401(K) PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2001 and 2000
Assets 2001 2000
--------- ---------
Assets:
Short-term cash investments $ 189,900 28,671
Investments, at fair value (notes 3 and 6)
Common stock - LNB Bancorp, Inc. 2,804,280 2,718,761
Mutual Funds 272,311 -
Dividends and interest receivable 36,293 33,524
--------- ---------
Total assets $ 3,302,784 2,780,956
Liabilities:
Due to broker - 6,639
--------- ---------
Net assets available for plan
benefits $ 3,302,784 2,774,317
========= =========
See accompanying notes to financial statements.
2
33
THE LORAIN NATIONAL BANK 401(K) PLAN
Statements of Changes in Net Assets Available for
Plan Benefits
Years ended December 31, 2001 and 2000
2001 2000
--------- ---------
Additions:
Investment income:
Dividends $ 130,006 119,966
Interest 6,803 5,491
Net appreciation in fair
value of investment (note 3) 24,130 108,220
--------- ---------
Total investment income 160,939 233,677
--------- ---------
Contributions:
Employer 200,889 136,624
Participants 400,123 273,227
Participant rollovers 10,486 -
--------- ---------
Total contributions 611,498 409,851
--------- ---------
Total additions 772,437 643,528
Deductions-
Distributions to participants (243,970) (812,308)
--------- ---------
Increase (decrease) in net assets available for
plan benefits 528,467 (168,780)
Net assets available for plan benefits:
Beginning of year 2,774,317 2,943,097
--------- ---------
End of year $ 3,302,784 2,774,317
========= =========
See accompanying notes to financial statements.
3
34
THE LORAIN NATIONAL BANK 401(k) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(1) Description of the Plan
The following is a general description of The Lorain National Bank
401(k) Plan (Plan). 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 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,
manages a trust fund which includes all of the Plan's assets. The
Plan stipulates that employer matching contributions will be
invested in LNB Bancorp, Inc. common stock and short-term
cash investments.
The Board of Directors of Lorain National Bank, the Corporation's
wholly owned subsidiary, authorized the Bank as employer and
trustee to execute an Adoption Agreement for a 401(k) Plan and
Trust (the Plan), effective January 1, 2001. The Plan amended and
restated the Lorain National Bank Stock purchase Plan. The Plan
is a deferred compensation arrangement established in accordance
with the requirements under Section 401(a) and Section 401(k) of
the Internal Revenue Code. The Plan was submitted to the IRS for
determination by the IRS that the Plan is qualified under Section
401(a) of the Internal Revenue Code and that its trust is
qualified under Section 501(a) of the Internal Revenue Code. LNB
Bancorp, Inc. believes that the Plan complies with the
requirements under Section 401(a) and Section 401(k) of the
Internal Revenue Code. The Plan offers the investment choices of
Money Market Mutual Funds, U. S. Treasury Index Funds, Equity
Mutual Funds, International Mutual Fund and LNB Bancorp, Inc.
common stock.
35
THE LORAIN NATIONAL BANK 401(k) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(b) Contributions
The Plan allows participants to make pretax contributions up to 6%
of eligible compensation, subject to certain limitations. Based
on number of hours worked or paid, certain participants in the
401(k) plan are eligible to receive Company contributions. The
amount of Company contributions were $200,889 and $136,624 for
2001 and 2000, respectively. The Company makes a contribution to
the employee's plan account bi-weekly.
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 Federated Money Market fund.
To receive a Company contribution, a participant must be employed
on the last day of the Plan year. A participant's account also
receives the Company contribution for the year in which they
retire, become disabled, or die.
(c) Participant Accounts
Each participant's account is credited with the participant's
Contribution, the Company's contribution, and an allocation of
Plan earnings. The benefits to which a participant is entitled is
the benefit that can be provided from the participant's vested
account.
(d) Forfeitures
At December 31, 2001, forfeited nonvested accounts totaled $6,465.
This amount will be used to reduce future employer contributions.
4
36
THE LORAIN NATIONAL BANK 401(k) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(e) Investments
During 2000, Plan assets were invested in shares of stock
of LNB Bancorp, Inc., and short-term cash investments.
During 2001, with the Plan being amended and restated (see
Note 1a), Plan assets were invested in shares of stock of LNB
Bancorp, Inc., mutual funds and short-term cash investments.
(f) Vesting
Participants are immediately vested in their voluntary
contribution plus any earnings accrued thereon. The Company's
contribution is 100% vested after an employee completes five
years of service, with vesting accruing 20% for each year of
service.
(g) Payment of Benefits
Upon termination of service, the vested amount of the Company'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.
(h) Withdrawals
Aside from normal retirement distributions, pretax savings may
be withdrawn only upon attainment of age 65. 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 twelve-month period
relative to the Stock Purchase Plan provision of pre 2000 after
tax dollars and Company match.
37
THE LORAIN NATIONAL BANK 401(k) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(i) 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%
of their account balance, whichever is less. 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 is paid ratably through monthly payroll deductions.
There were no participant loans outstanding at December 31, 2001
and 2000.
(j) Plan Expenses
The administrative expenses of the Plan are paid by the Bank.
(2) Significant Accounting Policies
(a) Basis of Presentation
The financial statements of the Plan are prepared using the
accrual basis of accounting.
5
38
THE LORAIN NATIONAL BANK 401(k) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(b) Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Quoted market
prices are used to value investments. Purchases and sales of
securities are recorded on a trade-date basis. Dividends are
recorded on the ex-dividend date. Interest income is recorded
on the accrual method of accounting.
(c) New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS No.133). SFAS No. 133 requires that an entity recognize all
derivatives and measure those instruments at fair value.
SFAS No. 133 was effective for fiscal years beginning after
June 15, 2000. The Plan has adopted SFAS No. 133 effective
January 1, 2001. Management has determined the impact of SFAS
No. 133 on the Plan financial statements to be immaterial.
(d) 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, liabilities, and
changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
(3) Investments
The following table presents the fair value of the investments at
December 31, 2001 and 2000. Items that represented 5% or more of the
Plan's assets are separately identified.
2001 2000
-------------- ---------------
Common stock - LNB Bancorp, Inc.:
129,678 and 124,639 common shares
in 2001 and 2000, respectively $ 2,804,280 2,718,761
Mutual funds 272,311 -
============== ================
39
THE LORAIN NATIONAL BANK 401(K) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
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 as follows:
2001 2000
-------------- -----------
Common stock - LNB Bancorp, Inc. $ 26,082 108,220
Mutual funds (1,952) -
----------------------------
$ 24,130 108,220
============== ===========
6
40
THE LORAIN NATIONAL BANK 401(k) PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(4) Plan Termination
The Company has voluntarily agreed to make contributions to the Plan.
Although the Company has not expressed any intent to terminate the Plan
agreement. It may do so at any time. In the event of such termination,
each participant will receive 100% of the amounts contributed to the
Plan and earnings thereon, and the vested amount of the Company's
matching contribution.
(5) Federal Income Taxes
The Internal Revenue Service (IRS) has determined and informed the
Company by a letter dated June 24, 1996, that the Plan and related trust
are designed in accordance with applicable sections of the Internal
Revenue Code (Code). The Plan has been amended since receiving the
letter. The plan has applied for an updated determination letter since
the amendment; however, a response has not yet been received from the
IRS. The plan administrator believes that the Plan is designed and
currently being operated in compliance with the applicable requirements
of the Code.
(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
of Shares Fair Value
---------- ------------
Balance at December 31, 2000 124,639 $ 2,718,761
---------- ------------
Purchases 15,566 281,165
Distributions (10,527) (221,728)
Net appreciation - 26,082
---------- ------------
Balance at December 31, 2001 129,678 $ 2,804,280
========== ============
7
41
Schedule 1
THE LORAIN NATIONAL BANK 401(k) PLAN
EIN: 34-0869480
PLAN NUMBER: 003
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
December 31, 2001
Column A Column B Column C Column D 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 Cost value
- -------- ----------------- -------------------------- --------- --------
* LNB Bancorp, Inc. 129,677.685 shares of $1,532,787 2,804,280
LNB Bancorp, Inc. ========== ==========
common stock
* Lorain National Bank Treasury Trust Fund $ 189,900 189,900
========== ==========
Mutual funds
Janus Fund Janus Advisor International
Fund $ 20,424
Northern Northern Institutional
Institutional Funds Funds Balanced Fund ** 20,194
Northern Northern Institutional
Institutional Funds Focused Growth Portfolio ** 34,342
Northern Northern Institutional
Institutional Funds Funds US Treasury Index A ** 39,699
Vanguard Fund Vanguard Quantitative
Portfolios Growth and
Income Fund ** 23,173
Vanguard Fund Vanguard Explorer Fund ** 53,787
Vanguard Fund Vanguard 500 Index Fund ** 80,692
---------- ---------
Total mutual funds $ - 272,311
* Party in interest
** Historical cost information is no longer required on the Schedule of
Assets Held for Investments at End of Year for participant-directed
Investments.
See accompanying independent auditors' report.
8
42
Schedule 2
THE LORAIN NATIONAL BANK 401(k) PLAN
EIN: 34-0869480
PLAN NUMBER: 003
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
- -------------------- ----------------- ---------- -------- ---------
Total Total
dollar dollar
Identity of Description value of value Lease
party involved of assets purchases of sales rental
- -------------------- ----------------- ---------- --------- ---------
* LNB Bancorp, Inc. LNB Bancorp, Inc.
common stock;
57 purchases $ 269,867 - -
6 sales - 31,622 -
* Lorain National Bank Treasury Trust Fund;
9 purchases $ 968,707 - -
9 sales $ - 798,635 -
========== ========== ==========
Schedule of Reportable Transactions Continued
Column A Column B Column F Column G Column H
- -------------------- ----------------- ------------ --------- ---------
Current
Expenses 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;
57 purchases - 269,867 269,867
6 sales - 32,937 31,622
* Lorain National Bank Treasury Trust Fund;
9 purchases - 968,707 968,707
9 sales - 798,635 798,635
============ ========= ========
43
Schedule 2
THE LORAIN NATIONAL BANK 401(k) PLAN
EIN: 34-0869480
PLAN NUMBER: 003
Schedule H, line 4j - Schedule of Reportable Transactions Continued
Year ended December 31, 2001
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;
57 purchases -
6 sales (1,315)
* Lorain National Bank Treasury Trust Fund;
9 purchases -
9 sales -
==========
* Party in interest
See accompanying independent auditors' report.
9
44
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 STOCK PURCHASE 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
45
(LETTERHEAD) Exhibit 23.2
(LOGO)
KPMG LLP
One Cleveland Center
1375 East Ninth Street, Suite 2600
Cleveland, Ohio 44114-1796
Consent of Independent Accountants
----------------------------------
The Plan Administrator
LNB Bancorp, Inc.:
We consent to the incorporation by reference in the Registration Statement
No. 333-53210 of LNB Bancorp, Inc. of our report dated June 21, 2002,
relating to the statements of net assets available for plan benefits of The
Lorain National Bank 401(k) Plan as of December 31, 2001 and 2000, and the
related statements of changes in net assets available for plan benefits 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