EXHIBIT 99
THE LORAIN NATIONAL BANK
401(k) PLAN
FINANCIAL REPORT
DECEMBER 31, 2005
THE LORAIN NATIONAL BANK 401(k) PLAN
CONTENTS
REPORT LETTERS 1-2
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS 3
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS 4
NOTES TO FINANCIAL STATEMENTS 5-9
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,
2005 and related statement of changes in net assets available for plan benefits
for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audit provides 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, 2005 and the changes in assets available for plan benefits for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
Our audit was 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 as of December 31, 2005 and schedule of reportable transactions
for the year ended December 31, 2005 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 audit 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
July 10, 2006
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Plan Administrator
The Lorain National Bank
Sponsor of the Lorain National Bank
401(k) Plan:
We have audited the accompanying statement of assets available for plan benefits
of The Lorain National Bank 401(k) Plan (Plan) as of December 31, 2004, and the
related statement of changes in assets available for plan benefits for the year
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 audit.
We conducted our audit in accordance with the standards of the Public Accounting
Oversight Board (United States). 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 statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the assets available for plan benefits of the Plan as of
December 31, 2004, and the changes in those assets for the year then ended in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Cleveland, Ohio
June 24, 2005
2
THE LORAIN NATIONAL BANK 401(k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 2005
December 31
----------------------------
2005 2004
------------- ------------
ASSETS
Cash $ 3,746 $ 34,826
Investments - At fair value (Notes 3 and 6):
Non-participant directed
Common stock - LNB Bancorp, Inc. 2,614,312 3,309,126
Participant directed
Short-term cash investments 125,575 374,553
Mutual funds 2,067,278 1,513,387
Participant loans 57,295 16,242
------------- ------------
Total Investments 4,864,460 5,213,308
Dividends and interest receivable - 26,263
Contribution receivable 251,899 -
------------- ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 5,120,105 $ 5,274,397
============= ============
See Notes to Financial Statements.
3
THE LORAIN NATIONAL BANK 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEAR ENDED DECEMBER 31, 2005
Year Ended December 31
--------------------------
2005 2004
----------- -----------
ADDITIONS
Investment income:
Dividends $ 92,628 $ 134,612
Interest - 6,906
Net appreciation (depreciation) in fair value of
investments (Note 3) (324,455) 89,371
----------- -----------
Total investment income (231,827) 230,889
----------- -----------
Contributions:
Employer 251,899 251,174
Participants 692,213 550,937
Participant rollovers - 39,891
----------- -----------
Total contributions 944,112 842,002
----------- -----------
Total additions 712,285 1,072,891
DEDUCTIONS - Distributions to participants (866,577) (1,422,704)
----------- -----------
NET DECREASE IN ASSETS AVAILABLE FOR BENEFITS (154,292) (349,813)
NET ASSETS AVAILABLE FOR PLAN BENEFITS - January 1, 2005 5,274,397 5,624,210
----------- -----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS - December 31, 2005 $ 5,120,105 $ 5,274,397
=========== ===========
See Notes to Financial Statements.
4
THE LORAIN NATIONAL BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
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, 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.
The board of directors of The Lorain National Bank, the Corporation's
wholly owned subsidiary, authorized the Bank as employer and trustee to
execute an Adoption Agreement for the 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 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 Internal Revenue
Service (IRS) for determination by the IRS that the Plan is qualified
under Section 401(a) of the Internal Revenue Code and that its trust
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 Funds, and LNB Bancorp,
Inc. common stock.
CONTRIBUTIONS - The Plan allows participants to make pretax contributions
up to the maximum dollar limits set by the IRS, which is $14,000 for 2005,
plus a $4,000 catch-up contribution for employees over the age of 50.
Comparable amounts for the year ended December 31, 2004 were $13,000 and
$3,000, respectively. Based on number of hours worked or paid, certain
participants in the Plan are eligible to receive Company contributions.
Each year the employer will make a matching contribution to the Plan equal
to 50 percent of the employee's salary reduction election but limited to
3.0 percent of the employee's annual compensation. The amount of Company
contributions were $251,899 and 251,174 for 2005 and 2004, respectively.
The Company makes its matching contributions to the Plan annually.
5
THE LORAIN NATIONAL BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - DESCRIPTION OF PLAN (CONTINUED)
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 Federated
Money Market Fund. Employer contributions are not participant-directed and
are invested in LNB Bancorp, Inc. common stock.
To receive a Company contribution, a participant must participate in the
plan. A participant's account also receives the Company contribution for
the year in which they retire, become disabled, or die.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contribution and the Company'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, 2005 and 2004, there were no outstanding
forfeited nonvested accounts. Forfeitures are used to reduce future
employer contributions.
VESTING - Participants are immediately vested in their voluntary
contribution plus any earnings accrued thereon. Participants are
immediately vested in the employer's match for the current plan year.
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.
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
twelve-month period, relative to the Stock Purchase Plan provision, of
pre-2000 after tax dollars and Company match.
6
THE LORAIN NATIONAL BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - DESCRIPTION OF PLAN (CONTINUED)
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, 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
biweekly payroll deductions.
PLAN EXPENSES - The administrative expenses of the Plan are paid by the
Bank.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The financial statements of the Plan are prepared
using the accrual basis of accounting.
INVESTMENT VALUATION AND INCOME RECOGNITION - The Plan's investments,
including the balances of participant loans, 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.
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.
7
THE LORAIN NATIONAL BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 3 - INVESTMENTS
The following table presents the fair value of investments that
represented five percent or more of the Plan's assets at December 31, 2005
and 2004.
2005 2004
--------- ---------
Common stock - LNB Bancorp, Inc. - 145,644 and 164,469 2,614,312 3,309,126
common shares in 2005 and 2004, respectively**
Mutual funds:
Vanguard S&P 500 Index Fund - 280,250
Dodge & Cox Stock Fund - 473,980
State Street Global Advisors Growth & Income Fund #110 751,155 -
State Street Global Advisors S&P Mid-Cap Stock Fund #500 333,221 -
During the year ended December 31, 2005, the Plan's investments (including
investments bought, sold, and held during the year) appreciated
(depreciated) in value as follows:
Common stock - LNB Bancorp, Inc.** $ (548,507) $ (55,511)
Mutual funds 224,052 144,882
------------ -----------
$ (324,455) $ 89,371
============ ===========
** Non-participant directed
NOTE 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 percent of the amounts contributed to
the Plan and earnings thereon, and the vested amount of the Company's
matching contribution.
NOTE 5 - 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.
8
THE LORAIN NATIONAL BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 6 - 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 year ended December 31,
2005:
Number
of Shares Fair Value
--------- ------------
Balance at December 31, 2003 194,252 $ 3,943,317
Purchases 28,316 578,424
Distributions (58,099) (1,157,104)
Net depreciation - (55,511)
------- ------------
Balance at December 31, 2004 164,469 $ 3,309,126
Purchases 19,813 491,492
Distributions (38,638) (637,799)
Net depreciation - (548,507)
------- ------------
Balance at December 31, 2005 145,644 $ 2,614,312
======= ============
NOTE 7 - ASSETS AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS
The following is a summary of the assets available for distribution to
participants as of December 31, 2005 and 2004:
2005 2004
------------ ------------
Assets payable to terminated participants $ 725,417 $ 106,252
Assets available for continuing participants 4,394,688 5,168,145
------------ ------------
Total $ 5,120,105 $ 5,274,397
============ ============
9
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, 2005
(a)(b) (c)
Identity of Issuer, Description of Investment, Including (e)
Borrower, Lessor, or Maturity Date, Rate of Interest, (d) Current
Similar Party Collateral, Par, or Maturity Value Cost Value
- -------------------- ------------------------------------ ---------------- -----------------
LNB Bancorp, Inc.* Common stock - 145,644.157 shares $ 1,634,910 $ 2,614,312
State Street Global Short Term Investment Fund #200 ** 125,575
Advisors
Lorain National Bank Participant loans ** 57,295
401(k) Plan
Mutual funds:
State Street Global Growth Fund #120 ** 111,511
Advisors
State Street Global Growth & Income Fund #110 ** 751,155
Advisors
State Street Global Income Plus Fund #100 ** 62,197
Advisors
State Street Global International Stock Fund #600 ** 33,772
Advisors
State Street Global Long Treasury Index Fund #300 ** 41,989
Advisors
State Street Global Nasdaq 100 Stock Fund #520 ** 63,817
Advisors
State Street Global Russell 2000 Stock Fund #510 ** 173,136
Advisors
State Street Global S&P 500 Stock Fund #400 ** 160,039
Advisors
State Street Global S&P Growth Stock Fund #420 ** 104,779
Advisors
State Street Global S&P Mid-Cap Stock Fund #500 ** 333,221
Advisors
State Street Global S&P Value Stock Fund #410 ** 95,000
Advisors
State Street Global Stable Value Fund #210 ** 136,662
Advisors ----------
Total Investments $4,864,460
----------
* Party-in-interest
** Cost information not required
Schedule 1 Page 1
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, 2005
(b) (f) (h)
Description of Asset (c) (d) (e) Expense (g) Current Value of (i)
(a) (Including Interest Rate and Purchase Selling Lease Incurred with Cost of Asset on Realized Net
Identity of Party Involved Maturity in Case of a Loan) Price Price Rental Transaction Asset Transaction Date Gain (Loss)
- -------------------------- ---------------------------- -------- ------- ------ ------------- ------- ---------------- ------------
There were no Category i, ii, iii, or iv transactions during the year.
Schedule 2 Page 1