##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 Commission File Number 000-32955
 LSB CORPORATION
  Massachusetts
    
    04-3557612(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 30 Massachusetts Avenue, North Andover, MA
    
    01845(Address of principal executive offices)
    
    (Zip Code)
 
  Titles of each Class
    
    Name of each Exchange on which registeredNone
    
    None
  Common Stock, par value $.10 per share
 Preferred
Stock Purchased Rights
 o þ
 o þ
 þ o
 þ
 
 o o þ
 o þ
    Class
    
    Outstanding as of February 28, 2006Common Stock, par value $.10 per share
    
    4,525,283 shares
   (1)
    
    Portions of the Companys definitive Proxy Statement for its 2006 Annual Meeting (the
Proxy Statement) are incorporated by reference in Part III,
Items 10-13 and Part IV, Item 14 of this Form 10-K. Such information incorporated by
reference shall not be deemed to specifically incorporate by reference the information
referred to in Item 402(a)(8) of Regulation S-K
 *
    
    For purposes of this calculation only, the common stock of LSB Corporation held by
directors and executive officers of LSB Corporation has been treated as owned by
affiliates.




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERSITEM 6. SELECTED CONSOLIDATED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSPART IVITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-3.(iii) LAWRENCE SAVINGS BANK CERTIFICATEEX-23.1 CONSENT OF KPMG LLPEX-31.1 SECTION 302 CERTIFICATION OF THE C.E.O.EX-31.2 SECTION 302 CERTIFICATION OF THE C.F.O.EX-32.1 SECTION 906 CERTIFICATION OF THE C.E.O.EX-32.2 SECTION 906 CERTIFICATION OF THE C.F.O.    Table of Contents  
  CAUTION REGARDING FORWARD-LOOKING STATEMENTS
  
 ITEM 1. BUSINESS
 SUMMARY
 The Wall Street
Journal
      MARKET AREA
  3




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LENDING ACTIVITIES
  COMMERCIAL REAL ESTATE
 The Wall Street Journal
 COMMERCIAL BUSINESS
 The Wall Street Journal
 CONSTRUCTION
 The Wall Street Journal
 RESIDENTIAL MORTGAGES
  SECONDARY MORTGAGE MARKET
  HOME EQUITY
 The Wall Street Journal
 CONSUMER
  DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
  4




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EMPLOYEES
  COMPETITION
  SUPERVISION AND REGULATION
    5




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BANK HOLDING COMPANY ACT, CHANGE IN CONTROL ACT AND REGULATION Y
  GRAMM-LEACH-BLILEY ACT
    FEDERAL RESERVE ACT SECTIONS 23A AND 23B AND REGULATION W
  FEDERAL RESERVE ACT SECTION 22 AND REGULATION O
  FEDERAL DEPOSIT INSURANCE REFORM ACT OF 2005
  USA PATRIOT ACT
  6




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SARBANES-OXLEY
ACT OF 2002
  
    
    The creation of a public company accounting oversight board, with which all accounting
firms performing audits for public companies are required to register, and which is
empowered to set auditing, quality control and independence standards, to inspect
registered firms, and to conduct investigations and to take disciplinary actions, subject
to SEC oversight.
    
    The strengthening of auditor independence from corporate management by limiting the type
and scope of services that auditors can offer their public company audit clients, requiring
periodic rotation of public company audit partners, requiring direct auditor reports to
company audit committees, and prohibiting public companies from exerting improper influence
over their outside auditors.
    
    The imposition of new corporate governance requirements including among other things,
independence and financial expertise requirements for audit committee membership and
empowerment of public company audit committees to appoint, compensate and oversee their
companys outside auditors.
    
    Requirements that the Chief Executive Officer and the Chief Financial Officer certify
financial statements included in public company filings with the SEC and disgorge bonuses
and stock-based compensation for periods for which the company is forced to restate its
financial results, a prohibition of insider stock trades during periods when a companys
employee benefits plans are precluded from trading, and a prohibition of public company
loans or extensions of credit to directors and officers except by regulated financial
institutions in conformity with applicable banking regulations governing insider lending.
    
    Requirements that public companies disclose whether they have a code of ethics for their
senior financial officers and if not, why not, and that management periodically assess and
report on the adequacy of the companys internal controls.
    
    The imposition of new and accelerated public company disclosure requirements,
requirements to report off balance sheet transactions and of accelerated reporting of
insider transactions in company stock.
  SECURITIES AND EXCHANGE COMMISSION FILINGS ON COMPANYS WEB SITE
  
 ITEM 1A. RISK FACTORS
 Changes in interest rates could adversely impact the Companys financial condition and results of
operations.
 7




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If the Company has higher loan losses than it has allowed for, its earnings could materially
decrease .
 A significant amount of the Companys loans are concentrated in northeastern Massachusetts and
southern New Hampshire, and adverse conditions in this area could negatively impact its operations.
 The Company operates in a highly regulated environment and may be adversely impacted by changes in
law and regulations
 The Company has strong competition within its market area which may limit the Companys growth and
profitability
 The success of the Company is dependent on hiring and retaining certain key personnel
 The Company relies on dividends from the Bank for substantially all of its revenue
 8




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##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
   LeaseYear
    
    
    
    
    
    CurrentAcquired
    
    Square
    
    Owned/
    
    Term
    
    RenewalOr Leased
    
    Feet
    
    Leased
    
    Expires
    
    OptionsCORPORATE OFFICES AND
MAIN BANKING SUITENorth Andover
    
    
    1992
    
    
    45,315
    
    Owned
    


    
    30 Massachusetts Ave.
No. Andover, MA 01845BRANCH BANKING OFFICESEssex Street
    
    
    1998
    
    
    3,432
    
    Leased
    
    2006
    
    One
    (3 yrs.)300 Essex Street
Lawrence, MA 01840Jackson Street
    
    
    1998
    
    
    2,369
    
    Leased
    
    2008
    
    One
    (5 yrs.)20 Jackson Street
Methuen, MA 01844West Methuen
    
    
    1979
    
    
    5,234
    
    Owned
    
    
    
    148 Lowell Street
Methuen, MA 01844Andover
    
    
    1995
    
    
    2,449
    
    Leased
    
    2010
    
    Two
    (5 yrs.)42 North Main Street
Andover, MA 01810Salem
    
    
    2004
    
    
    2,500
    
    Leased
    
    2014
    
    Two
    (5 yrs.)401-403 Main Street, Suite 105
Salem, NH 03079
 
 ITEM 3. LEGAL PROCEEDINGS
 Lawrence Savings Bank vs. Garabedian et al.,
  9




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Wall Street Journal
  Common
StockPrices
    
    CashFiscal Year
    
    High
    
    Low
    
    Dividends2005First Quarter
    
    $
    21.89
    
    
    $
    17.26
    
    
    $
    0.14Second Quarter
    
    
    18.36
    
    
    
    15.90
    
    
    
    0.14Third Quarter
    
    
    18.50
    
    
    
    16.12
    
    
    
    0.14Fourth Quarter
    
    
    19.24
    
    
    
    15.96
    
    
    
    0.142004First Quarter
    
    $
    18.25
    
    
    $
    16.68
    
    
    $
    0.13Second Quarter
    
    
    17.75
    
    
    
    15.00
    
    
    
    0.13Third Quarter
    
    
    20.81
    
    
    
    16.00
    
    
    
    0.13Fourth Quarter
    
    
    20.50
    
    
    
    18.27
    
    
    
    0.132003First Quarter
    
    $
    13.00
    
    
    $
    12.01
    
    
    $
    0.12Second Quarter
    
    
    17.40
    
    
    
    12.60
    
    
    
    0.12Third Quarter
    
    
    17.52
    
    
    
    15.31
    
    
    
    0.12Fourth Quarter
    
    
    17.99
    
    
    
    16.00
    
    
    
    0.12
  10




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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 FINANCIAL HIGHLIGHTS
 December 31,
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in Thousands, Except Per Share Data)Balance Sheet Data:Total assets
    
    $
    521,800
    
    
    $
    518,477
    
    
    $
    466,108
    
    
    $
    439,134
    
    
    $
    438,267Loans, gross
    
    
    234,611
    
    
    
    232,810
    
    
    
    211,503
    
    
    
    243,127
    
    
    
    236,397Allowance for loan losses
    
    
    4,126
    
    
    
    4,140
    
    
    
    4,220
    
    
    
    4,167
    
    
    
    4,070Other real estate owned
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    12
    
    
    
    22Federal funds sold
    
    
    198
    
    
    
    209
    
    
    
    889
    
    
    
    9,633
    
    
    
    5,705U.S. Treasury, Federal
agency and corporate obligations
    
    
    257,332
    
    
    
    259,831
    
    
    
    226,338
    
    
    
    155,132
    
    
    
    160,337Municipal obligations
    
    
    1,526
    
    
    
    1,576
    
    
    
    1,624
    
    
    
    4,021
    
    
    
    2,062Other securities
    
    
    1,188
    
    
    
    1,896
    
    
    
    4,916
    
    
    
    7,256
    
    
    
    11,369Deposits
    
    
    303,087
    
    
    
    299,106
    
    
    
    272,540
    
    
    
    279,465
    
    
    
    268,450Borrowed funds
    
    
    153,380
    
    
    
    157,263
    
    
    
    133,352
    
    
    
    101,591
    
    
    
    111,099Equity
    
    
    59,922
    
    
    
    57,838
    
    
    
    55,002
    
    
    
    54,059
    
    
    
    54,092
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Operating Data:Interest income
    
    $
    25,558
    
    
    $
    22,331
    
    
    $
    21,334
    
    
    $
    25,138
    
    
    $
    28,792Interest expense
    
    
    11,638
    
    
    
    8,520
    
    
    
    8,977
    
    
    
    11,565
    
    
    
    15,611Net interest income
    
    
    13,920
    
    
    
    13,811
    
    
    
    12,357
    
    
    
    13,573
    
    
    
    13,181Provision for loan (recoveries) losses
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    
    
    
    
    175Non-interest income
    
    
    1,555
    
    
    
    1,553
    
    
    
    1,608
    
    
    
    1,493
    
    
    
    1,426Lawsuit judgment collected
    
    
    2,233
    
    
    
    2,280
    
    
    
    1,996
    
    
    
    
    
    
    
    Non-interest expense
    
    
    11,144
    
    
    
    10,664
    
    
    
    9,738
    
    
    
    10,155
    
    
    
    9,122Income before income taxes
    
    
    6,564
    
    
    
    7,280
    
    
    
    6,223
    
    
    
    4,911
    
    
    
    5,310Income tax expense
    
    
    2,407
    
    
    
    2,600
    
    
    
    2,087
    
    
    
    1,811
    
    
    
    1,953Net income
    
    $
    4,157
    
    
    $
    4,680
    
    
    $
    4,136
    
    
    $
    3,100
    
    
    $
    3,357Basic earnings per share
    
    $
    0.94
    
    
    $
    1.09
    
    
    $
    0.98
    
    
    $
    0.71
    
    
    $
    0.77Diluted earnings per share
    
    $
    0.92
    
    
    $
    1.05
    
    
    $
    0.94
    
    
    $
    0.69
    
    
    $
    0.74
 At or for the year ended December 31,
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Other Data:Interest rate spread
    
    
    2.33
    %
    
    
    2.64
    %
    
    
    2.57
    %
    
    
    2.78
    %
    
    
    2.64
    %Net interest margin on average earning
assets
    
    
    2.65
    
    
    
    2.91
    
    
    
    2.90
    
    
    
    3.20
    
    
    
    3.21Return on average assets (net income /
average assets)
    
    
    0.77
    
    
    
    0.96
    
    
    
    0.94
    
    
    
    0.71
    
    
    
    0.79Return on average equity (net income /
average stockholders equity)
    
    
    7.14
    
    
    
    8.33
    
    
    
    7.76
    
    
    
    5.72
    
    
    
    6.35Dividend payout ratio (dividends declared per
share divided by basic earnings per share)
    
    
    59.57
    
    
    
    47.71
    
    
    
    48.98
    
    
    
    61.97
    
    
    
    51.95Average stockholders equity to average
assets ratio
    
    
    10.81
    
    
    
    11.53
    
    
    
    12.16
    
    
    
    12.34
    
    
    
    12.39Cash dividends declared and paid per
common share
    
    $
    0.56
    
    
    $
    0.52
    
    
    $
    0.48
    
    
    $
    0.44
    
    
    $
    0.40Book value per share at year end
    
    
    13.42
    
    
    
    13.33
    
    
    
    12.99
    
    
    
    12.71
    
    
    
    12.35
 11




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 FORWARD-LOOKING STATEMENTS AND FACTORS WHICH MAY AFFECT FUTURE RESULTS
  EXECUTIVE LEVEL OVERVIEW
      CRITICAL ACCOUNTING POLICIES
  12




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ALLOWANCE FOR LOAN LOSSES
  INCOME TAXES
   INVESTMENT SECURITIES
  FINANCIAL CONDITION
 OVERVIEW
  INTEREST EARNING ASSETS
    13




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INVESTMENT SECURITIES
   2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Federal Agency obligations
    
    $
    87,017
    
    
    
    40.7
    %
    
    $
    104,042
    
    
    
    51.9
    %
    
    $
    94,798
    
    
    
    51.4
    %Mortgage-backed securities
    
    
    43,701
    
    
    
    20.5
    %
    
    
    31,193
    
    
    
    15.6
    %
    
    
    39,467
    
    
    
    21.4
    %Asset-backed securities
    
    
    70,415
    
    
    
    32.9
    %
    
    
    50,829
    
    
    
    25.4
    %
    
    
    32,735
    
    
    
    17.8
    %Corporate obligations
    
    
    11,024
    
    
    
    5.2
    %
    
    
    12,624
    
    
    
    6.3
    %
    
    
    15,662
    
    
    
    8.5
    %Municipal obligations
    
    
    1,526
    
    
    
    0.7
    %
    
    
    1,576
    
    
    
    0.8
    %
    
    
    1,624
    
    
    
    0.9
    %Total
    
    $
    213,683
    
    
    
    100.0
    %
    
    $
    200,264
    
    
    
    100.0
    %
    
    $
    184,286
    
    
    
    100.0
    %
  2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)U. S. Treasury obligations
    
    $
    4,769
    
    
    
    10.3
    %
    
    $
    4,845
    
    
    
    7.7
    %
    
    $
    4,795
    
    
    
    9.9
    %Federal Agency obligations
    
    
    9,667
    
    
    
    20.9
    %
    
    
    34,907
    
    
    
    55.4
    %
    
    
    21,479
    
    
    
    44.2
    %Mortgage-backed securities
    
    
    3,364
    
    
    
    7.3
    %
    
    
    4,582
    
    
    
    7.3
    %
    
    
    6,862
    
    
    
    14.1
    %Asset-backed securities
    
    
    24,329
    
    
    
    52.3
    %
    
    
    14,452
    
    
    
    22.9
    %
    
    
    8,091
    
    
    
    16.7
    %Corporate obligations
    
    
    3,046
    
    
    
    6.6
    %
    
    
    3,120
    
    
    
    4.9
    %
    
    
    6,228
    
    
    
    12.8
    %Mutual funds
    
    
    955
    
    
    
    2.1
    %
    
    
    972
    
    
    
    1.5
    %
    
    
    969
    
    
    
    2.0
    %Equity securities
    
    
    233
    
    
    
    0.5
    %
    
    
    161
    
    
    
    0.3
    %
    
    
    168
    
    
    
    0.3
    %Total
    
    $
    46,363
    
    
    
    100.0
    %
    
    $
    63,039
    
    
    
    100.0
    %
    
    $
    48,592
    
    
    
    100.0
    %
  Within
    
    
    Weighted
    
    
    One to
    
    
    Weighted
    
    
    Five
    
    
    Weighted
    
    
    OverOne
    
    
    Average
    
    
    Five
    
    
    Average
    
    
    to Ten
    
    
    Average
    
    
    Ten
    
    
    Average
    
    
    
    
    
    
    AverageYear
    
    
    Yield
    
    
    Years
    
    
    Yield
    
    
    Years
    
    
    Yield
    
    
    Years
    
    
    Yield
    
    
    Total
    
    
    Yield(Dollars in Thousands)U. S. Treasury &
Agency obligations
    
    $
    20,109
    
    
    
    2.54
    %
    
    $
    63,089
    
    
    
    3.16
    %
    
    $
    3,819
    
    
    
    4.40
    %
    
    
    
    
    
    
    
    
    
    $
    87,017
    
    
    
    3.07
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    4,118
    
    
    
    3.69
    %
    
    
    23,511
    
    
    
    3.84
    %
    
    
    16,072
    
    
    
    4.84
    %
    
    
    43,701
    
    
    
    4.19
    %Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    6.28
    %
    
    
    6,028
    
    
    
    4.07
    %
    
    
    64,193
    
    
    
    4.07
    %
    
    
    70,415
    
    
    
    4.08
    %Corporate obligations
    
    
    3,241
    
    
    
    4.78
    %
    
    
    7,783
    
    
    
    3.20
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,024
    
    
    
    3.66
    %Municipal obligations
    
    
    1,526
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,526
    
    
    
    2.90
    %Total
    
    $
    24,876
    
    
    
    2.85
    %
    
    $
    75,184
    
    
    
    3.20
    %
    
    $
    33,358
    
    
    
    3.95
    %
    
    $
    80,265
    
    
    
    4.22
    %
    
    $
    213,683
    
    
    
    3.66
    %
 14




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Within
    
    
    Weighted
    
    
    One to
    
    
    Weighted
    
    
    Five
    
    
    Weighted
    
    
    OverOne
    
    
    Average
    
    
    Five
    
    
    Average
    
    
    to Ten
    
    
    Average
    
    
    Ten
    
    
    Average
    
    
    
    
    
    
    AverageYear
    
    
    Yield
    
    
    Years
    
    
    Yield
    
    
    Years
    
    
    Yield
    
    
    Years
    
    
    Yield
    
    
    Total
    
    
    Yield(Dollars in Thousands)U. S. Treasury &
Agency Obligations
    
    $
    
    
    
    
    
    
    
    $
    9,667
    
    
    
    3.23
    %
    
    $
    4,769
    
    
    
    3.26
    %
    
    
    
    
    
    
    
    
    
    $
    14,436
    
    
    
    3.24
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    2,427
    
    
    
    3.63
    %
    
    
    
    
    
    
    
    
    
    
    937
    
    
    
    4.84
    %
    
    
    3,364
    
    
    
    3.96
    %Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,329
    
    
    
    4.89
    %
    
    
    24,329
    
    
    
    4.89
    %Corporate obligations
    
    
    
    
    
    
    
    
    
    
    3,046
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,046
    
    
    
    2.82
    %Municipal obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    
    
    
    
    $
    15,140
    
    
    
    3.21
    %
    
    $
    4,769
    
    
    
    3.26
    %
    
    $
    25,266
    
    
    
    4.89
    %
    
    $
    45,175
    
    
    
    4.15
    %
 LOANS
   2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Balance
    
    
    Percent
    
    
    Balance
    
    
    Percent
    
    
    Balance
    
    
    Percent
    
    
    Balance
    
    
    Percent
    
    
    Balance
    
    
    Percent(Dollars in Thousands)Residential real estate loans:Fixed rate
    
    $
    34,028
    
    
    
    14.5
    %
    
    $
    33,061
    
    
    
    14.2
    %
    
    $
    33,059
    
    
    
    15.7
    %
    
    $
    31,583
    
    
    
    13.0
    %
    
    $
    40,861
    
    
    
    17.3
    %Adjustable rate
    
    
    28,159
    
    
    
    12.0
    
    
    
    26,996
    
    
    
    11.6
    
    
    
    23,958
    
    
    
    11.3
    
    
    
    28,557
    
    
    
    11.7
    
    
    
    37,744
    
    
    
    16.062,187
    
    
    
    26.5
    
    
    
    60,057
    
    
    
    25.8
    
    
    
    57,017
    
    
    
    27.0
    
    
    
    60,140
    
    
    
    24.7
    
    
    
    78,605
    
    
    
    33.3Home equity loans:Fixed rate
    
    
    3,592
    
    
    
    1.5
    
    
    
    3,535
    
    
    
    1.5
    
    
    
    5,882
    
    
    
    2.7
    
    
    
    7,915
    
    
    
    3.3
    
    
    
    10,155
    
    
    
    4.3Adjustable rate
    
    
    6,820
    
    
    
    2.9
    
    
    
    5,334
    
    
    
    2.3
    
    
    
    4,354
    
    
    
    2.1
    
    
    
    3,575
    
    
    
    1.5
    
    
    
    3,238
    
    
    
    1.410,412
    
    
    
    4.4
    
    
    
    8,869
    
    
    
    3.8
    
    
    
    10,236
    
    
    
    4.8
    
    
    
    11,490
    
    
    
    4.8
    
    
    
    13,393
    
    
    
    5.7Commercial real estate loans:Fixed rate
    
    
    14,793
    
    
    
    6.3
    
    
    
    18,629
    
    
    
    8.0
    
    
    
    16,508
    
    
    
    7.8
    
    
    
    16,651
    
    
    
    6.8
    
    
    
    16,447
    
    
    
    7.0Adjustable rate
    
    
    112,824
    
    
    
    48.1
    
    
    
    112,976
    
    
    
    48.5
    
    
    
    95,995
    
    
    
    45.3
    
    
    
    96,094
    
    
    
    39.4
    
    
    
    83,663
    
    
    
    35.3127,617
    
    
    
    54.4
    
    
    
    131,605
    
    
    
    56.5
    
    
    
    112,503
    
    
    
    53.1
    
    
    
    112,745
    
    
    
    46.2
    
    
    
    100,110
    
    
    
    42.3Construction loans
    
    
    24,137
    
    
    
    10.3
    
    
    
    15,211
    
    
    
    6.5
    
    
    
    16,040
    
    
    
    7.6
    
    
    
    23,502
    
    
    
    9.7
    
    
    
    20,593
    
    
    
    8.7Loans held for sale
    
    
    472
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    0.2
    
    
    
    2,579
    
    
    
    1.1
    
    
    
    4,156
    
    
    
    1.8Commercial loans
    
    
    9,318
    
    
    
    4.0
    
    
    
    16,369
    
    
    
    7.1
    
    
    
    14,805
    
    
    
    7.0
    
    
    
    32,017
    
    
    
    13.2
    
    
    
    18,549
    
    
    
    7.8Consumer loans
    
    
    468
    
    
    
    0.2
    
    
    
    699
    
    
    
    0.3
    
    
    
    564
    
    
    
    0.3
    
    
    
    654
    
    
    
    0.3
    
    
    
    991
    
    
    
    0.4Total loans
    
    
    234,611
    
    
    
    100.0
    %
    
    
    232,810
    
    
    
    100.0
    %
    
    
    211,503
    
    
    
    100.0
    %
    
    
    243,127
    
    
    
    100.0
    %
    
    
    236,397
    
    
    
    100.0
    %Allowance for loan losses
    
    
    4,126
    
    
    
    
    
    
    
    4,140
    
    
    
    
    
    
    
    4,220
    
    
    
    
    
    
    
    4,167
    
    
    
    
    
    
    
    4,070Loans, net
    
    $
    230,485
    
    
    
    
    
    
    $
    228,670
    
    
    
    
    
    
    $
    207,283
    
    
    
    
    
    
    $
    238,960
    
    
    
    
    
    
    $
    232,327
 15




---



##### Table of Contents



Due AfterDue Within
    
    
    One Through
    
    
    Due AfterOne Year
    
    
    Five Years
    
    
    Five Years
    
    
    Total(In thousands)Construction
    
    $
    11,131
    
    
    $
    10,633
    
    
    $
    2,373
    
    
    $
    24,137Commercial and industrial loans
    
    
    6,192
    
    
    
    2,002
    
    
    
    1,124
    
    
    
    9,318Total
    
    $
    17,323
    
    
    $
    12,635
    
    
    $
    3,497
    
    
    $
    33,455
  ALLOWANCE FOR LOAN LOSSES
     2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in Thousands)Balance at beginning of year
    
    $
    4,140
    
    
    $
    4,220
    
    
    $
    4,167
    
    
    $
    4,070
    
    
    $
    3,685Charge-offs by loan type:Residential mortgage
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Commercial real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    (25
    )
    
    
    (20
    )
    
    
    
    
    
    
    (1
    )
    
    
    Total charge-offs
    
    
    (25
    )
    
    
    (45
    )
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )Recoveries by loan type:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    2Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    2
    
    
    
    254
    
    
    
    16
    
    
    
    89
    
    
    
    201Consumer
    
    
    9
    
    
    
    11
    
    
    
    6
    
    
    
    9
    
    
    
    10Total recoveries
    
    
    11
    
    
    
    265
    
    
    
    53
    
    
    
    98
    
    
    
    213Net (charge-offs) recoveries
    
    
    (14
    )
    
    
    220
    
    
    
    53
    
    
    
    97
    
    
    
    210Provision (credit) for loan losses
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    
    
    
    
    175Ending balance
    
    $
    4,126
    
    
    $
    4,140
    
    
    $
    4,220
    
    
    $
    4,167
    
    
    $
    4,070Ratio of net (charge-offs) recoveries to average loans
outstanding during the period
    
    
    (0.01
    )%
    
    
    0.10
    %
    
    
    0.02
    %
    
    
    0.04
    %
    
    
    0.09
    %
  16




---



##### Table of Contents



2005
    
    2004
    
    2003
    
    2002
    
    2001Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percentof loans
    
    
    
    
    
    of loans
    
    
    
    
    
    of loans
    
    
    
    
    
    of loans
    
    
    
    
    
    of loansin each
    
    
    
    
    
    in each
    
    
    
    
    
    in each
    
    
    
    
    
    in each
    
    
    
    
    
    in eachcategory
    
    
    
    
    
    category
    
    
    
    
    
    category
    
    
    
    
    
    category
    
    
    
    
    
    categoryto Total
    
    
    
    
    
    to Total
    
    
    
    
    
    to Total
    
    
    
    
    
    to Total
    
    
    
    
    
    to Total(Dollars in Thousands)
    
    Amount
    
    
    Loans
    
    Amount
    
    
    Loans
    
    Amount
    
    
    Loans
    
    Amount
    
    
    Loans
    
    Amount
    
    
    LoansConstruction, commercial and
commercial real estate
    
    $
    3,530
    
    
    68.7
    %
    $
    3,408
    
    
    70.1
    %
    $
    3,175
    
    
    67.7
    %
    $
    3,525
    
    
    69.1
    %
    $
    3,251
    
    
    58.8
    %Residential mortgage and home equity
    
    
    290
    
    
    31.1
    
    
    273
    
    
    29.6
    
    
    270
    
    
    32.0
    
    
    314
    
    
    30.6
    
    
    397
    
    
    40.8Consumer
    
    
    21
    
    
    0.2
    
    
    30
    
    
    0.3
    
    
    26
    
    
    0.3
    
    
    29
    
    
    0.3
    
    
    41
    
    
    0.4Unallocated
    
    
    285
    
    
    N/A
    
    
    429
    
    
    N/A
    
    
    749
    
    
    N/A
    
    
    299
    
    
    N/A
    
    
    381
    
    
    N/A$
    4,126
    
    
    100.0
    %
    $
    4,140
    
    
    100.0
    %
    $
    4,220
    
    
    100.0
    %
    $
    4,167
    
    
    100.0
    %
    $
    4,070
    
    
    100.0
    %
     POTENTIAL PROBLEM LOANS
  17




---



##### Table of Contents



RISK ASSETS
  2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in Thousands)Risk assets:Non-performing loans:Residential real estate
    
    $
    32
    
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    10Commercial real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    730Commercial business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211Total non-performing loans
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    951Other real estate owned:Land
    
    
    
    
    
    
    34
    
    
    
    47
    
    
    
    57
    
    
    
    67OREO valuation allowance
    
    
    
    
    
    
    (34
    )
    
    
    (45
    )
    
    
    (45
    )
    
    
    (45
    )Total other real estate owned
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    12
    
    
    
    22Total risk assets
    
    $
    32
    
    
    $
    
    
    
    $
    2
    
    
    $
    13
    
    
    $
    973Risk assets as a percent of total loans and OREO
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.4
    %Risk assets as a percent of total assets
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.2
    %
   INTEREST BEARING LIABILITIES
     DEPOSITS
  18




---



##### Table of Contents



BORROWED FUNDS
   RESULTS OF OPERATIONS
 OVERVIEW
       19




---



##### Table of Contents



AVERAGE BALANCES, NET INTEREST INCOME AND AVERAGE INTEREST RATES
  2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in Thousands)AssetsLoans:Residential real estate
    
    $
    70,233
    
    
    $
    3,672
    
    
    
    5.23
    %
    
    $
    69,252
    
    
    $
    3,629
    
    
    
    5.24
    %
    
    $
    68,150
    
    
    $
    4,027
    
    
    
    5.91
    %Commercial real estate
    
    
    150,919
    
    
    
    10,402
    
    
    
    6.89
    
    
    
    133,832
    
    
    
    8,855
    
    
    
    6.62
    
    
    
    126,950
    
    
    
    9,005
    
    
    
    7.09Commercial business
    
    
    12,506
    
    
    
    828
    
    
    
    6.62
    
    
    
    13,989
    
    
    
    832
    
    
    
    5.95
    
    
    
    23,511
    
    
    
    1,282
    
    
    
    5.45Consumer
    
    
    554
    
    
    
    38
    
    
    
    6.86
    
    
    
    630
    
    
    
    43
    
    
    
    6.83
    
    
    
    543
    
    
    
    42
    
    
    
    7.73Total loans
    
    
    234,212
    
    
    
    14,940
    
    
    
    6.38
    
    
    
    217,703
    
    
    
    13,359
    
    
    
    6.14
    
    
    
    219,154
    
    
    
    14,356
    
    
    
    6.55Investment securities:U.S. Treasury and Government
Agency obligations
    
    
    211,018
    
    
    
    7,491
    
    
    
    3.55
    
    
    
    182,658
    
    
    
    6,311
    
    
    
    3.46
    
    
    
    122,238
    
    
    
    3,964
    
    
    
    3.24Other bonds and equity securities
    
    
    28,100
    
    
    
    1,067
    
    
    
    3.80
    
    
    
    30,653
    
    
    
    1,155
    
    
    
    3.77
    
    
    
    39,698
    
    
    
    1,580
    
    
    
    3.98Mortgage-backed securities
    
    
    48,506
    
    
    
    1,958
    
    
    
    4.04
    
    
    
    40,775
    
    
    
    1,476
    
    
    
    3.62
    
    
    
    37,746
    
    
    
    1,362
    
    
    
    3.61Short-term investments
    
    
    3,067
    
    
    
    102
    
    
    
    3.33
    
    
    
    2,324
    
    
    
    30
    
    
    
    1.29
    
    
    
    6,843
    
    
    
    72
    
    
    
    1.05Total investment securities
    
    
    290,691
    
    
    
    10,618
    
    
    
    3.65
    
    
    
    256,410
    
    
    
    8,972
    
    
    
    3.50
    
    
    
    206,525
    
    
    
    6,978
    
    
    
    3.38Total interest earning assets
    
    
    524,903
    
    
    
    25,558
    
    
    
    4.87
    %
    
    
    474,113
    
    
    
    22,331
    
    
    
    4.71
    %
    
    
    425,679
    
    
    
    21,334
    
    
    
    5.01
    %Allowance for loan losses
    
    
    (4,150
    )
    
    
    
    
    
    
    
    
    
    
    (4,204
    )
    
    
    
    
    
    
    
    
    
    
    (4,247
    )Cash and due from banks
    
    
    8,774
    
    
    
    
    
    
    
    
    
    
    
    7,773
    
    
    
    
    
    
    
    
    
    
    
    7,450Other real estate owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Other assets
    
    
    8,725
    
    
    
    
    
    
    
    
    
    
    
    9,588
    
    
    
    
    
    
    
    
    
    
    
    9,604Total assets
    
    $
    538,252
    
    
    
    
    
    
    
    
    
    
    $
    487,270
    
    
    
    
    
    
    
    
    
    
    $
    438,494Liabilities and Stockholders EquityDeposits:Regular savings accounts
    
    $
    44,676
    
    
    $
    221
    
    
    
    0.49
    %
    
    $
    45,696
    
    
    $
    159
    
    
    
    0.35
    %
    
    $
    44,842
    
    
    $
    196
    
    
    
    0.44
    %NOW and Super NOW accounts
    
    
    39,059
    
    
    
    47
    
    
    
    0.12
    
    
    
    37,560
    
    
    
    42
    
    
    
    0.11
    
    
    
    36,175
    
    
    
    44
    
    
    
    0.12Money market accounts
    
    
    80,338
    
    
    
    1,355
    
    
    
    1.69
    
    
    
    80,681
    
    
    
    980
    
    
    
    1.21
    
    
    
    69,498
    
    
    
    900
    
    
    
    1.30Certificates of deposit
    
    
    121,976
    
    
    
    3,421
    
    
    
    2.80
    
    
    
    109,044
    
    
    
    2,519
    
    
    
    2.31
    
    
    
    115,121
    
    
    
    3,036
    
    
    
    2.64Total interest bearing deposits
    
    
    286,049
    
    
    
    5,044
    
    
    
    1.76
    
    
    
    272,981
    
    
    
    3,700
    
    
    
    1.36
    
    
    
    265,636
    
    
    
    4,176
    
    
    
    1.57Borrowed funds
    
    
    171,615
    
    
    
    6,594
    
    
    
    3.84
    
    
    
    138,554
    
    
    
    4,820
    
    
    
    3.48
    
    
    
    102,294
    
    
    
    4,801
    
    
    
    4.69Total interest bearing liabilities
    
    
    457,664
    
    
    
    11,638
    
    
    
    2.54
    %
    
    
    411,535
    
    
    
    8,520
    
    
    
    2.07
    %
    
    
    367,930
    
    
    
    8,977
    
    
    
    2.44
    %Non-interest bearing deposits
    
    
    19,005
    
    
    
    
    
    
    
    
    
    
    
    15,884
    
    
    
    
    
    
    
    
    
    
    
    13,727Other liabilities
    
    
    3,375
    
    
    
    
    
    
    
    
    
    
    
    3,673
    
    
    
    
    
    
    
    
    
    
    
    3,510Total liabilities
    
    
    480,044
    
    
    
    
    
    
    
    
    
    
    
    431,092
    
    
    
    
    
    
    
    
    
    
    
    385,167Stockholders equity
    
    
    58,208
    
    
    
    
    
    
    
    
    
    
    
    56,178
    
    
    
    
    
    
    
    
    
    
    
    53,327Total liabilities and
stockholders equity
    
    $
    538,252
    
    
    
    
    
    
    
    
    
    
    $
    487,270
    
    
    
    
    
    
    
    
    
    
    $
    438,494Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.33
    %
    
    
    
    
    
    
    
    
    
    
    2.64
    %
    
    
    
    
    
    
    
    
    
    
    2.57
    %Net interest income
    
    
    
    
    
    $
    13,920
    
    
    
    
    
    
    
    
    
    
    $
    13,811
    
    
    
    
    
    
    
    
    
    
    $
    12,357Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.65
    %
    
    
    
    
    
    
    
    
    
    
    2.91
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %
 20




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##### Table of Contents



RATE-VOLUME ANALYSIS
  2005 vs. 2004
    
    
    2004 vs. 2003Total
    
    
    
    
    
    
    
    
    
    
    Rate/
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    Rate/Change
    
    
    Volume
    
    
    Rate
    
    
    Volume
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Volume(In Thousands)Interest income:Loans:Residential real estate
    
    $
    43
    
    
    $
    51
    
    
    $
    (8
    )
    
    $
    
    
    
    $
    (398
    )
    
    $
    65
    
    
    $
    (456
    )
    
    $
    (7
    )Commercial real estate
    
    
    1,547
    
    
    
    1,131
    
    
    
    369
    
    
    
    47
    
    
    
    (150
    )
    
    
    488
    
    
    
    (605
    )
    
    
    (33
    )Commercial business
    
    
    (4
    )
    
    
    (88
    )
    
    
    94
    
    
    
    (10
    )
    
    
    (450
    )
    
    
    (519
    )
    
    
    116
    
    
    
    (47
    )Consumer
    
    
    (5
    )
    
    
    (5
    )
    
    
    
    
    
    
    

    
    
    
    1
    
    
    
    7
    
    
    
    (5
    )
    
    
    (1
    )Total loans
    
    
    1,581
    
    
    
    1,089
    
    
    
    455
    
    
    
    37
    
    
    
    (997
    )
    
    
    41
    
    
    
    (950
    )
    
    
    (88
    )Investment securities:U.S. Treasury and Government
Agency obligations
    
    
    1,180
    
    
    
    980
    
    
    
    173
    
    
    
    27
    
    
    
    2,347
    
    
    
    1,959
    
    
    
    259
    
    
    
    129Other bonds and equity securities
    
    
    (88
    )
    
    
    (96
    )
    
    
    9
    
    
    
    (1
    )
    
    
    (425
    )
    
    
    (360
    )
    
    
    (84
    )
    
    
    19Mortgage-backed securities
    
    
    482
    
    
    
    280
    
    
    
    170
    
    
    
    32
    
    
    
    114
    
    
    
    109
    
    
    
    4
    
    
    
    1Short-term investments
    
    
    72
    
    
    
    10
    
    
    
    47
    
    
    
    15
    
    
    
    (42
    )
    
    
    (48
    )
    
    
    16
    
    
    
    (10
    )Total investments
    
    
    1,646
    
    
    
    1,174
    
    
    
    399
    
    
    
    73
    
    
    
    1,994
    
    
    
    1,660
    
    
    
    195
    
    
    
    139Total interest income
    
    
    3,227
    
    
    
    2,263
    
    
    
    854
    
    
    
    110
    
    
    
    997
    
    
    
    1,701
    
    
    
    (755
    )
    
    
    51Interest expense:Deposits:Regular savings accounts
    
    
    62
    
    
    
    (4
    )
    
    
    67
    
    
    
    (1
    )
    
    
    (37
    )
    
    
    4
    
    
    
    (40
    )
    
    
    (1
    )NOW and Super NOW accounts
    
    
    5
    
    
    
    2
    
    
    
    3
    
    
    
    

    
    
    
    (2
    )
    
    
    2
    
    
    
    (4
    )
    
    
    Money market accounts
    
    
    375
    
    
    
    (4
    )
    
    
    381
    
    
    
    (2
    )
    
    
    80
    
    
    
    145
    
    
    
    (56
    )
    
    
    (9
    )Certificates of deposit
    
    
    902
    
    
    
    299
    
    
    
    539
    
    
    
    64
    
    
    
    (517
    )
    
    
    (160
    )
    
    
    (377
    )
    
    
    20Total interest bearing deposits
    
    
    1,344
    
    
    
    293
    
    
    
    990
    
    
    
    61
    
    
    
    (476
    )
    
    
    (9
    )
    
    
    (477
    )
    
    
    10Borrowed funds
    
    
    1,774
    
    
    
    1,150
    
    
    
    504
    
    
    
    120
    
    
    
    19
    
    
    
    1,702
    
    
    
    (1,242
    )
    
    
    (441
    )Total interest expense
    
    
    3,118
    
    
    
    1,443
    
    
    
    1,494
    
    
    
    181
    
    
    
    (457
    )
    
    
    1,693
    
    
    
    (1,719
    )
    
    
    (431
    )Net interest income
    
    $
    109
    
    
    $
    820
    
    
    $
    (640
    )
    
    $
    (71
    )
    
    $
    1,454
    
    
    $
    8
    
    
    $
    964
    
    
    $
    482
 NET INTEREST INCOME
    21




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##### Table of Contents



PROVISION FOR LOAN LOSSES
  NON-INTEREST INCOME
    22




---



##### Table of Contents



NON-INTEREST EXPENSE
    INCOME TAXES
  LIQUIDITY
     CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  23




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##### Table of Contents



Payments Due  By PeriodLess than
    
    
    One to
    
    
    Four to
    
    
    AfterContractual Obligations
    
    Total
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In Thousands)FHLB advances
    
    $
    121,861
    
    
    $
    30,000
    
    
    $
    53,000
    
    
    $
    25,206
    
    
    $
    13,655FHLB short-term borrowings
    
    
    27,000
    
    
    
    27,000
    
    
    
    
    
    
    
    
    
    
    
    Lease obligations
    
    
    848
    
    
    
    183
    
    
    
    320
    
    
    
    188
    
    
    
    157Data processing vendor
    
    
    3,069
    
    
    
    850
    
    
    
    1,953
    
    
    
    266
    
    
    
    Employee benefit
payments (1)
    
    
1,822
    
    
    
    1,822Customer repurchase
agreements
    
    
    4,519
    
    
    
    4,519
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash
Obligations
    
    $
    159,119
    
    
    $
    64,374
    
    
    $
    55,273
    
    
    $
    25,660
    
    
    $
    13,812
 
 1)
    
    Employee benefit payments include expected contributions to the Companys defined
pension benefit plan, post retirement plan and supplemental executive retirement plans.
Expected contributions for the defined pension benefit plan have been included only through
the plan year November 1, 2005 through October 31, 2006. Contributions beyond the plan
year can not be quantified as contributions will be determined based upon the return on the
investments in the plan. Amount of Commitment Expiring  By PeriodLess than
    
    
    One to
    
    
    Four to
    
    
    AfterCommitments
    
    Total
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In Thousands)Loan originations
    
    $
    21,571
    
    
    $
    21,571
    
    
    $
    
    
    
    $
    
    
    
    $
    Lines of credit
    
    
    51,212
    
    
    
    19,989
    
    
    
    18,570
    
    
    
    5,003
    
    
    
    7,650Letters of credit
    
    
    798
    
    
    
    798
    
    
    
    
    
    
    
    
    
    
    
    Sell mortgage loans
    
    
    472
    
    
    
    472
    
    
    
    
    
    
    
    
    
    
    
    Purchase investment security
    
    
    132
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    Total Commitments
    
    $
    74,185
    
    
    $
    42,962
    
    
    $
    18,570
    
    
    $
    5,003
    
    
    $
    7,650
  CAPITAL ADEQUACY
    24




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##### Table of Contents



RECENT ACCOUNTING DEVELOPMENTS
      25




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##### Table of Contents



IMPACT OF INFLATION AND CHANGING PRICES
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 ASSET/LIABILITY MANAGEMENT
  INTEREST RATE SENSITIVITY
    26




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##### Table of Contents



Interest Rate ShockDown
    
    
    Up2005
    
    Flat Rates
    
    

200 bp
    
    

200 bp(Dollars in Thousands)Year One
    
    $
    13,067
    
    
    $
    13,134
    
    
    $
    12,804Year Two
    
    
    13,330
    
    
    
    12,469
    
    
    
    12,306Total net interest income for 2 year period
    
    $
    26,397
    
    
    $
    25,603
    
    
    $
    25,110
 Interest Rate ShockDown
    
    
    Up2004
    
    Flat Rates
    
    
    100 bp
    
    
    200 bp(Dollars in Thousands)Year One
    
    $
    14,090
    
    
    $
    14,380
    
    
    $
    13,535Year Two
    
    
    14,309
    
    
    
    14,574
    
    
    
    13,258Total net interest income for 2 year period
    
    $
    28,399
    
    
    $
    28,954
    
    
    $
    26,793
   27




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##### Table of Contents



Rate Sensitivity GAP Position
 Position/VolumeTime interval from December 31, 2005
    

0-3 Mo.
    
    

4-6 Mo.
    
    

7-12 Mo.
    
    

13-36 Mo.
    
    

37-60
Mo.
    
    

+60 Mo.(Dollars in Thousands)Earning Assets:Investment securities held to maturity
    
    $
    7,881
    
    
    $
    15,074
    
    
    $
    21,727
    
    
    $
    108,986
    
    
    $
    43,395
    
    
    $
    16,620Investments securities available for sale
    
    
    1,999
    
    
    
    1,219
    
    
    
    2,661
    
    
    
    25,906
    
    
    
    4,691
    
    
    
    9,887Federal Home Loan Bank Stock and other earning assets
    
    
    10,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fixed rate mortgages loans
    
    
    2,614
    
    
    
    1,820
    
    
    
    3,429
    
    
    
    10,963
    
    
    
    7,591
    
    
    
    11,675Adjustable rate mortgages loans
    
    
    10,122
    
    
    
    2,987
    
    
    
    4,454
    
    
    
    11,759
    
    
    
    5,657
    
    
    
    Consumer loans
    
    
    277
    
    
    
    24
    
    
    
    42
    
    
    
    81
    
    
    
    15
    
    
    
    29Fixed rate commercial real estate loans
    
    
    804
    
    
    
    278
    
    
    
    760
    
    
    
    4,871
    
    
    
    3,363
    
    
    
    4,717Adjustable rate commercial real estate loans
    
    
    29,408
    
    
    
    7,761
    
    
    
    13,544
    
    
    
    50,562
    
    
    
    11,549
    
    
    
    Construction loans
    
    
    24,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fixed rate commercial business loans
    
    
    448
    
    
    
    340
    
    
    
    590
    
    
    
    773
    
    
    
    148
    
    
    
    Adjustable rate commercial business loans
    
    
    7,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total earning assets
    
    
    95,344
    
    
    
    29,503
    
    
    
    47,207
    
    
    
    213,901
    
    
    
    76,409
    
    
    
    42,928Interest Bearing Liabilities:Savings and escrow accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,941NOW and Super Now accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,349Money market accounts
    
    
    76,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Certificates of deposit and retirement accounts
    
    
    25,262
    
    
    
    15,188
    
    
    
    38,859
    
    
    
    38,607
    
    
    
    9,375
    
    
    
    FHLB advances and other borrowed funds
    
    
    49,560
    
    
    
    20,041
    
    
    
    10,084
    
    
    
    40,358
    
    
    
    20,393
    
    
    
    12,944Total interest bearing liabilities
    
    
    151,416
    
    
    
    35,229
    
    
    
    48,943
    
    
    
    78,965
    
    
    
    29,768
    
    
    
    93,234Interest Sensitivity Gap
    
    $
    (56,072
    )
    
    $
    (5,726
    )
    
    $
    (1,736
    )
    
    $
    134,936
    
    
    $
    46,641
    
    
    $
    (50,306
    )Cumulative GAP
    
    $
    (56,072
    )
    
    $
    (61,798
    )
    
    $
    (63,534
    )
    
    $
    71,402
    
    
    $
    118,043
    
    
    $
    67,737Cumulative GAP as a percent of total assets
    
    
    (11
    )%
    
    
    (12
    )%
    
    
    (12
    )%
    
    
    14
    %
    
    
    23
    %
    
    
    13
    %
 28




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 PageReport of Management Responsibility
    
    30Report of independent registered public accounting firm
    
    31Consolidated Balance Sheets
    
    32Consolidated Statements of Operations
    
    33Consolidated Statements of Changes in Stockholders Equity
    
    34Consolidated Statements of Cash Flows
    
    35Notes to Consolidated Financial Statements
    
    36
 29




---



##### Table of Contents



Report of Management Responsibility
      /s/ Gerald T. Mulligan
    
    /s/ Diane L. WalkerGerald T. Mulligan
    
    Diane L. WalkerPresident and
    
    Executive Vice President, TreasurerChief Executive Officer
    
    and Chief Financial Officer
  30




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Stockholders  LSB Corporation:
     
 31




---



##### Table of Contents



Consolidated Balance Sheets
 December 31,
    
    2005
    
    
    2004(In Thousands, Except Share Data)Assets:Cash and due from banks
    
    $
    10,489
    
    
    $
    7,193Fed funds sold
    
    
    198
    
    
    
    209Total cash and cash equivalents
    
    
    10,687
    
    
    
    7,402Investment securities held to maturity
market value of $208,615 in 2005 and $198,716 in 2004
(notes 2 and 7)
    
    
    213,683
    
    
    
    200,264Investment securities available for sale
amortized cost of $47,554 in 2005 and $63,706 in 2004
(notes 2 and 7)
    
    
    46,363
    
    
    
    63,039Federal Home Loan Bank stock, at cost (note 3)
    
    
    10,097
    
    
    
    7,887Loans, net of allowance for loan losses of $4,126 in 2005
and $4,140 in 2004 (notes 4 and 7)
    
    
    230,485
    
    
    
    228,670Bank premises and equipment (note 5)
    
    
    3,251
    
    
    
    3,486Accrued interest receivable
    
    
    2,458
    
    
    
    2,894Deferred income tax asset, net (note 8)
    
    
    3,446
    
    
    
    3,067Other assets
    
    
    1,330
    
    
    
    1,768Total assets
    
    $
    521,800
    
    
    $
    518,477Liabilities and Stockholders Equity:Liabilities:Interest bearing deposits (note 6)
    
    $
    284,175
    
    
    $
    284,309Non-interest bearing deposits (note 6)
    
    
    18,912
    
    
    
    14,797Federal Home Loan Bank advances (note 7)
    
    
    121,861
    
    
    
    105,102Other borrowed funds (note 7)
    
    
    31,519
    
    
    
    52,161Advance payments by borrowers for taxes and insurance
    
    
    506
    
    
    
    506Other liabilities
    
    
    4,905
    
    
    
    3,764Total liabilities
    
    
    461,878
    
    
    
    460,639Commitments and contingencies (notes 5, 11 and 12):Stockholders equity (notes 9 and 10):Preferred stock, $.10 par value; 5,000,000
shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.10 par value; 20,000,000
shares authorized; 4,464,033 and 4,337,442 shares issued
and outstanding in 2005 and 2004, respectively
    
    
    446
    
    
    
    434Additional paid-in capital
    
    
    59,856
    
    
    
    59,145Retained earnings
    
    
    326
    
    
    
    (1,347
    )Accumulated other comprehensive (loss) income
    
    
    (706
    )
    
    
    (394
    )Total stockholders equity
    
    
    59,922
    
    
    
    57,838Total liabilities and stockholders equity
    
    $
    521,800
    
    
    $
    518,477
 The accompanying notes are an integral part of these consolidated financial statements.
 32




---



##### Table of Contents



Consolidated Statements of Operations
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003(In Thousands, Except Share Data)Interest and dividend income:Loans
    
    $
    14,940
    
    
    $
    13,359
    
    
    $
    14,356Investment securities held to maturity
    
    
    8,135
    
    
    
    6,834
    
    
    
    4,938Investment securities available for sale
    
    
    1,959
    
    
    
    1,899
    
    
    
    1,785Federal Home Loan Bank stock
    
    
    422
    
    
    
    209
    
    
    
    183Other interest income
    
    
    102
    
    
    
    30
    
    
    
    72Total interest and dividend income
    
    
    25,558
    
    
    
    22,331
    
    
    
    21,334Interest expense:Deposits (note 6)
    
    
    5,044
    
    
    
    3,700
    
    
    
    4,176Borrowed funds
    
    
    4,946
    
    
    
    4,229
    
    
    
    4,583Securities sold under agreements to repurchase
    
    
    56
    
    
    
    15
    
    
    
    17Short-term and other borrowed funds
    
    
    1,592
    
    
    
    576
    
    
    
    201Total interest expense
    
    
    11,638
    
    
    
    8,520
    
    
    
    8,977Net interest income
    
    
    13,920
    
    
    
    13,811
    
    
    
    12,357Credit for loan recoveries (note 4)
    
    
    
    
    
    
    (300
    )
    
    
    Net interest income after credit for loan recoveries
    
    
    13,920
    
    
    
    14,111
    
    
    
    12,357Non-interest income:Deposit account fees
    
    
    870
    
    
    
    889
    
    
    
    713Loan servicing fees, net
    
    
    162
    
    
    
    184
    
    
    
    20Gains on sales of mortgage loans, net
    
    
    37
    
    
    
    68
    
    
    
    467Loss on sale of investment securities
    
    
    
    
    
    
    
    
    
    
    (14
    )Lawsuit judgment collected (note 11)
    
    
    2,233
    
    
    
    2,280
    
    
    
    1,996Other income
    
    
    486
    
    
    
    412
    
    
    
    422Total non-interest income
    
    
    3,788
    
    
    
    3,833
    
    
    
    3,604Non-interest expense:Salaries and employee benefits
    
    
    6,899
    
    
    
    6,507
    
    
    
    5,923Occupancy and equipment expense
    
    
    944
    
    
    
    872
    
    
    
    752Data processing expense
    
    
    882
    
    
    
    878
    
    
    
    727Professional expense
    
    
    543
    
    
    
    623
    
    
    
    643Insurance expense
    
    
    166
    
    
    
    157
    
    
    
    151Other expense
    
    
    1,710
    
    
    
    1,627
    
    
    
    1,542Total non-interest expense
    
    
    11,144
    
    
    
    10,664
    
    
    
    9,738Income before income tax expense
    
    
    6,564
    
    
    
    7,280
    
    
    
    6,223Income tax expense (note 8)
    
    
    2,407
    
    
    
    2,600
    
    
    
    2,087Net income
    
    $
    4,157
    
    
    $
    4,680
    
    
    $
    4,136Average shares outstanding
    
    
    4,427,525
    
    
    
    4,302,729
    
    
    
    4,215,944Common stock equivalents
    
    
    100,668
    
    
    
    163,848
    
    
    
    175,868Average diluted shares outstanding
    
    
    4,528,193
    
    
    
    4,466,577
    
    
    
    4,391,812Basic earnings per share
    
    $
    0.94
    
    
    $
    1.09
    
    
    $
    0.98Diluted earnings per share
    
    $
    0.92
    
    
    $
    1.05
    
    
    $
    0.94
 The accompanying notes are an integral part of these consolidated financial statements.
 33




---



##### Table of Contents



Consolidated
Statements of Changes in  Stockholders Equity
 Retained
    
    
    
    
    
    
    Accumulated
    
    
    TotalAdditional
    
    
    Earnings
    
    
    
    
    
    
    Other
    
    
    StockCommon
    
    
    Paid-in
    
    
    Accumulated
    
    
    Treasury
    
    
    Comprehensive
    
    
    holdersStock
    
    
    Capital
    
    
    (Deficit)
    
    
    Stock
    
    
    Income (Loss)
    
    
    Equity(In Thousands)Balance at December 31, 2002
    
    $
    439
    
    
    $
    57,845
    
    
    $
    (3,168
    )
    
    $
    (1,736
    )
    
    $
    679
    
    
    $
    54,059Net income
    
    
    
    
    
    
    
    
    
    
    4,136
    
    
    
    
    
    
    
    
    
    
    
    4,136Other comprehensive income
unrealized gain (loss) on securities
available for sale (tax effect $338)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (659
    )
    
    
    (659
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,477Exercise of stock options and tax benefits
    
    
    6
    
    
    
    505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    511Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,022
    )
    
    
    
    
    
    
    (1,022
    )Dividends declared and paid ($0.48 per share)
    
    
    
    
    
    
    
    
    
    
    (2,023
    )
    
    
    
    
    
    
    
    
    
    
    (2,023
    )Balance at December 31, 2003
    
    
    445
    
    
    
    58,350
    
    
    
    (1,055
    )
    
    
    (2,758
    )
    
    
    20
    
    
    
    55,002Net income
    
    
    
    
    
    
    
    
    
    
    4,680
    
    
    
    
    
    
    
    
    
    
    
    4,680Other comprehensive income
unrealized gain (loss) on securities
available for sale (tax effect $274)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (414
    )
    
    
    (414
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,266Exercise of stock options and tax benefits
    
    
    11
    
    
    
    795
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    806Change in classification of treasury stock
    
    
    (22
    )
    
    
    
    
    
    
    (2,736
    )
    
    
    2,758
    
    
    
    
    
    
    
    Dividends declared and paid ($0.52 per share)
    
    
    
    
    
    
    
    
    
    
    (2,236
    )
    
    
    
    
    
    
    
    
    
    
    (2,236
    )Balance at December 31, 2004
    
    
    434
    
    
    
    59,145
    
    
    
    (1,347
    )
    
    
    
    
    
    
    (394
    )
    
    
    57,838Net income
    
    
    
    
    
    
    
    
    
    
    4,157
    
    
    
    
    
    
    
    
    
    
    
    4,157Other comprehensive income
unrealized gain (loss) on securities
available for sale (tax effect $211)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )
    
    
    (312
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,845Exercise of stock options and tax benefits
    
    
    12
    
    
    
    711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    723Dividends declared and paid ($0.56 per share)
    
    
    
    
    
    
    
    
    
    
    (2,484
    )
    
    
    
    
    
    
    
    
    
    
    (2,484
    )Balance at December 31, 2005
    
    $
    446
    
    
    $
    59,856
    
    
    $
    326
    
    
    $
    
    
    
    $
    (706
    )
    
    $
    59,922
 Disclosure of reclassification amount:
    
    2005
    
    
    2004
    
    
    2003(In Thousands)Gross unrealized (depreciation) appreciation
arising during the period
    
    $
    (523
    )
    
    $
    (688
    )
    
    $
    (1,011
    )Tax effect
    
    
    211
    
    
    
    274
    
    
    
    343Unrealized holding (depreciation) appreciation net of tax
    
    
    (312
    )
    
    
    (414
    )
    
    
    (668
    )Less: reclassification adjustment for gains (losses)
included in net income
    
    
    
    
    
    
    
    
    
    
    (14
    )Tax effect
    
    
    
    
    
    
    
    
    
    
    5Unrealized (depreciation) appreciation on securities,
net of reclassification
    
    $
    (312
    )
    
    $
    (414
    )
    
    $
    (659
    )
 The accompanying notes are an integral part of these consolidated financial statements.
 34




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##### Table of Contents



Consolidated Statements  of Cash Flows
 Year Ended December 31,
    
    2005
    
    
    2004
    
    
    2003(In Thousands)Cash flows from operating activities:Net income
    
    $
    4,157
    
    
    $
    4,680
    
    
    $
    4,136Adjustments to reconcile net income to net cash provided by operating activities:Credit for loan recoveries
    
    
    
    
    
    
    (300
    )
    
    
    Gains on sales of mortgage loans
    
    
    (37
    )
    
    
    (68
    )
    
    
    (467
    )Loss on sale of investment securities available for sale
    
    
    
    
    
    
    
    
    
    
    14Net amortization of investment securities
    
    
    1,428
    
    
    
    1,725
    
    
    
    2,117Depreciation of premises and equipment and other assets
    
    
    450
    
    
    
    430
    
    
    
    398Loans originated for sale
    
    
    (3,872
    )
    
    
    (3,883
    )
    
    
    (21,139
    )Proceeds from sales of mortgage loans
    
    
    3,437
    
    
    
    4,289
    
    
    
    23,847Decrease (increase) in accrued interest receivable
    
    
    436
    
    
    
    (342
    )
    
    
    (93
    )Deferred income tax (benefit) expense
    
    
    (167
    )
    
    
    726
    
    
    
    516Decrease (increase) in other assets
    
    
    227
    
    
    
    (121
    )
    
    
    204Increase (decrease) in advance payments by borrowers
    
    
    
    
    
    
    56
    
    
    
    (68
    )Increase (decrease) in other liabilities
    
    
    1,352
    
    
    
    (1,000
    )
    
    
    1,263Net cash provided by operating activities
    
    
    7,411
    
    
    
    6,192
    
    
    
    10,728Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    54,770
    
    
    
    23,500
    
    
    
    171,500Proceeds from maturities of investment securities available for sale
    
    
    25,000
    
    
    
    25,585
    
    
    
    12,000Purchases of investment securities held to maturity
    
    
    (71,914
    )
    
    
    (60,422
    )
    
    
    (248,915
    )Purchases of investment securities available for sale
    
    
    (14,198
    )
    
    
    (45,195
    )
    
    
    (16,712
    )Purchase of mutual funds available for sale
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Purchases of mortgage-backed securities held to maturity
    
    
    (23,971
    )
    
    
    
    
    
    
    (38,118
    )Purchases of mortgage-backed securities available for sale
    
    
    
    
    
    
    
    
    
    
    (14,775
    )Proceeds from sales of mortgage-backed securities available for sale
    
    
    
    
    
    
    
    
    
    
    5,684Principal payments of securities held to maturity
    
    
    26,468
    
    
    
    19,526
    
    
    
    43,209Principal payments of securities available for sale
    
    
    5,222
    
    
    
    4,168
    
    
    
    17,519Purchase of other equity securities
    
    
    (72
    )
    
    
    
    
    
    
    Purchases of Federal Home Loan bank stock
    
    
    (2,210
    )
    
    
    (1,294
    )
    
    
    (643
    )(Increase) decrease in loans, net
    
    
    (1,343
    )
    
    
    (21,425
    )
    
    
    29,436Proceeds from sales of bank premises and equipment
    
    
    
    
    
    
    4
    
    
    
    Purchases of Bank premises and equipment
    
    
    (215
    )
    
    
    (1,045
    )
    
    
    (223
    )Net cash used in investing activities
    
    
    (2,463
    )
    
    
    (56,598
    )
    
    
    (41,038
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    3,981
    
    
    
    26,566
    
    
    
    (6,925
    )Additions to Federal Home Loan Bank advances
    
    
    48,900
    
    
    
    58,346
    
    
    
    -Payments on Federal Home Loan Bank advances
    
    
    (32,141
    )
    
    
    (32,110
    )
    
    
    (15,371
    )Net increase (decrease) in agreements to repurchase securities
    
    
    1,358
    
    
    
    675
    
    
    
    (1,464
    )(Decrease) increase in other borrowed funds
    
    
    (22,000
    )
    
    
    (3,000
    )
    
    
    48,596Dividends paid
    
    
    (2,484
    )
    
    
    (2,236
    )
    
    
    (2,023
    )Treasury stock purchased
    
    
    
    
    
    
    
    
    
    
    (1,022
    )Proceeds from exercise of stock options
    
    
    723
    
    
    
    806
    
    
    
    511Net cash provided by (used in) financing activities
    
    
    (1,663
    )
    
    
    49,047
    
    
    
    22,302Net increase (decrease) in cash and cash equivalents
    
    
    3,285
    
    
    
    (1,359
    )
    
    
    (8,008
    )Cash and cash equivalents, beginning of year
    
    
    7,402
    
    
    
    8,761
    
    
    
    16,769Cash and cash equivalents, end of year
    
    $
    10,687
    
    
    $
    7,402
    
    
    $
    8,761Cash paid during the year for:Interest on deposits and borrowed funds
    
    $
    11,569
    
    
    $
    8,445
    
    
    $
    9,039Income taxes
    
    
    2,012
    
    
    
    2,871
    
    
    
    538Cash received during the year for:Income taxes
    
    
    215
    
    
    
    120
    
    
    
    80Supplemental Schedule of non-cash activities:Change in valuation of investment securities available for sale, net
    
    
    (312
    )
    
    
    (414
    )
    
    
    (659
    )Tax benefit relating to stock options exercised
    
    
    211
    
    
    
    120
    
    
    
    80
 The accompanying notes are an integral part of these consolidated financial statements.
 35




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##### Table of Contents



Notes to Consolidated  Financial Statements  As of December 31, 2005
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION.
   CASH AND CASH EQUIVALENTS.
 INVESTMENT AND MORTGAGE-BACKED SECURITIES.
  EQUITY SECURITIES.
 INTEREST ON LOANS .
 LOAN FEES.
 MORTGAGE BANKING ACTIVITIES.
 36




---



##### Table of Contents



TRANSFER AND SERVICING OF ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
 ALLOWANCE FOR LOAN LOSSES.
       PREMISES AND EQUIPMENT.
 OTHER REAL ESTATE OWNED.
 37




---



##### Table of Contents



STOCK OPTIONS.
  2005
    
    
    2004
    
    
    2003(In Thousands, except per share data)Net Income:As Reported
    
    $
    4,157
    
    
    $
    4,680
    
    
    $
    4,136Pro forma
    
    
    4,033
    
    
    
    4,344
    
    
    
    3,954Basic earnings per share:As Reported
    
    $
    0.94
    
    
    $
    1.09
    
    
    $
    0.98Pro forma
    
    
    0.91
    
    
    
    1.01
    
    
    
    0.94Diluted earnings per share:As Reported
    
    $
    0.92
    
    
    $
    1.05
    
    
    $
    0.94Pro forma
    
    
    0.89
    
    
    
    0.97
    
    
    
    0.90
  2005
    
    
    2004
    
    
    2003Expected volatility
    
    
    29.30
    %
    
    
    28.93
    %
    
    
    Risk-free interest rate
    
    
    3.82
    %
    
    
    3.44
    %
    
    
    Expected dividend yield
    
    
    3.25
    %
    
    
    3.08
    %
    
    
    Expected life in years
    
    7 years
    
    8 years
    
    
    
 PENSION EXPENSE.
 INCOME TAXES.
 EARNINGS PER SHARE
 38




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##### Table of Contents



(2) INVESTMENT SECURITIES
  2005
    
    
    2004Amortized
    
    
    Unrealized
    
    
    Market
    
    
    Amortized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gain
    
    
    Loss
    
    
    Value
    
    
    Cost
    
    
    Gain
    
    
    Loss
    
    
    Value(In Thousands)Investment securities held to maturity:Federal Agency
obligations (1)
    
    $
    87,017
    
    
    $
    56
    
    
    $
    (1,944
    )
    
    $
    85,129
    
    
    $
    104,042
    
    
    $
    70
    
    
    $
    (763
    )
    
    $
    103,349Mortgage-backed securities
    
    
    43,701
    
    
    
    40
    
    
    
    (1,262
    )
    
    
    42,479
    
    
    
    31,193
    
    
    
    140
    
    
    
    (531
    )
    
    
    30,802Asset-backed securities
    
    
    70,415
    
    
    
    4
    
    
    
    (1,679
    )
    
    
    68,740
    
    
    
    50,829
    
    
    
    51
    
    
    
    (406
    )
    
    
    50,474Corporate obligations
    
    
    11,024
    
    
    
    11
    
    
    
    (280
    )
    
    
    10,755
    
    
    
    12,624
    
    
    
    46
    
    
    
    (146
    )
    
    
    12,524Municipal obligations
    
    
    1,526
    
    
    
    
    
    
    
    (14
    )
    
    
    1,512
    
    
    
    1,576
    
    
    
    
    
    
    
    (9
    )
    
    
    1,567$
    213,683
    
    
    $
    111
    
    
    $
    (5,179
    )
    
    $
    208,615
    
    
    $
    200,264
    
    
    $
    307
    
    
    $
    (1,855
    )
    
    $
    198,716Investment securities available for sale:US Treasury obligations
    
    $
    5,119
    
    
    $
    
    
    
    $
    (350
    )
    
    $
    4,769
    
    
    $
    5,133
    
    
    $
    
    
    
    $
    (288
    )
    
    $
    4,845Federal Agency
obligations (1)
    
    
    9,932
    
    
    
    
    
    
    
    (265
    )
    
    
    9,667
    
    
    
    34,977
    
    
    
    15
    
    
    
    (85
    )
    
    
    34,907Mortgage-backed securities
    
    
    3,420
    
    
    
    10
    
    
    
    (66
    )
    
    
    3,364
    
    
    
    4,590
    
    
    
    15
    
    
    
    (23
    )
    
    
    4,582Asset-backed securities
    
    
    24,662
    
    
    
    9
    
    
    
    (342
    )
    
    
    24,329
    
    
    
    14,619
    
    
    
    1
    
    
    
    (168
    )
    
    
    14,452Corporate obligations
    
    
    3,181
    
    
    
    
    
    
    
    (135
    )
    
    
    3,046
    
    
    
    3,219
    
    
    
    
    
    
    
    (99
    )
    
    
    3,120Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (45
    )
    
    
    955
    
    
    
    1,000
    
    
    
    
    
    
    
    (28
    )
    
    
    972Equity securities
    
    
    240
    
    
    
    
    
    
    
    (7
    )
    
    
    233
    
    
    
    168
    
    
    
    
    
    
    
    (7
    )
    
    
    161$
    47,554
    
    
    $
    19
    
    
    $
    (1,210
    )
    
    $
    46,363
    
    
    $
    63,706
    
    
    $
    31
    
    
    $
    (698
    )
    
    $
    63,039
 
 (1)
    
    Federal agency obligations include investment securities issued by Government Sponsored
Enterprises (GSEs) such as Federal National Mortgage Association (FNMA), Federal Home
Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank (FHLB). These
investment securities do not represent obligations of the U.S. government and are not
backed by the full faith and credit of the United States Treasury.  2005
    
    
    2004
    
    
    2003(In Thousands)Proceeds from sales
    
    $
    
    
    
    $
    
    
    
    $
    5,684Realized gains on sales
    
    
    
    
    
    
    
    
    
    
    Realized losses on sales
    
    
    
    
    
    
    
    
    
    
    14
 39




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##### Table of Contents



OTHER THAN TEMPORARILY IMPAIRED SECURITIES
  Less Than 12 Months
    
    
    12 Months or Longer
    
    
    Total 2005Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized2005
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In Thousands)US Treasury obligations
    
    $
    
    
    
    $
    
    
    
    $
    4,769
    
    
    $
    (350
    )
    
    $
    4,769
    
    
    $
    (350
    )Federal Agency
obligations
    
    
    
    
    
    
    
    
    
    
    90,921
    
    
    
    (2,209
    )
    
    
    90,921
    
    
    
    (2,209
    )Mortgage-backed securities
    
    
    23,432
    
    
    
    (355
    )
    
    
    20,410
    
    
    
    (973
    )
    
    
    43,842
    
    
    
    (1,328
    )Asset-backed securities
    
    
    37,887
    
    
    
    (921
    )
    
    
    40,761
    
    
    
    (1,100
    )
    
    
    78,648
    
    
    
    (2,021
    )Corporate obligations
    
    
    
    
    
    
    
    
    
    
    10,549
    
    
    
    (415
    )
    
    
    10,549
    
    
    
    (415
    )Municipal obligations
    
    
    
    
    
    
    
    
    
    
    1,512
    
    
    
    (14
    )
    
    
    1,512
    
    
    
    (14
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    955
    
    
    
    (45
    )
    
    
    955
    
    
    
    (45
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    233
    
    
    
    (7
    )
    
    
    233
    
    
    
    (7
    )Total temporarily impaired
securities
    
    $
    61,319
    
    
    $
    (1,276
    )
    
    $
    170,110
    
    
    $
    (5,113
    )
    
    $
    213,429
    
    
    $
    (6,389
    )
 Less Than 12 Months
    
    
    12 Months or Longer
    
    
    Total 2004Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized2004
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In Thousands)US Treasury obligations
    
    $
    
    
    
    $
    
    
    
    $
    4,845
    
    
    $
    (288
    )
    
    $
    4,845
    
    
    $
    (288
    )Federal Agency
obligations
    
    
    72,095
    
    
    
    (391
    )
    
    
    41,043
    
    
    
    (457
    )
    
    
    113,138
    
    
    
    (848
    )Mortgage-backed securities
    
    
    322
    
    
    
    (4
    )
    
    
    26,136
    
    
    
    (550
    )
    
    
    26,458
    
    
    
    (554
    )Asset-backed securities
    
    
    39,732
    
    
    
    (349
    )
    
    
    21,669
    
    
    
    (225
    )
    
    
    61,401
    
    
    
    (574
    )Corporate obligations
    
    
    2,065
    
    
    
    (16
    )
    
    
    8,802
    
    
    
    (229
    )
    
    
    10,867
    
    
    
    (245
    )Municipal obligations
    
    
    1,567
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    1,567
    
    
    
    (9
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    972
    
    
    
    (28
    )
    
    
    972
    
    
    
    (28
    )Equity securities
    
    
    161
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    (7
    )Total temporarily impaired
securities
    
    $
    115,942
    
    
    $
    (776
    )
    
    $
    103,467
    
    
    $
    (1,777
    )
    
    $
    219,409
    
    
    $
    (2,553
    )
 U. S. TREASURY AND FEDERAL AGENCY OBLIGATIONS
  MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
  CORPORATE AND MUNICIPAL OBLIGATIONS
  40




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##### Table of Contents



EQUITY SECURITIES AND MUTUAL FUNDS
  
 Held to maturity
    
    
    Available for SaleWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAmortized
    
    
    Market
    
    
    Average
    
    
    Amortized
    
    
    Market
    
    
    AverageDecember 31, 2005
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    Yield(Dollars in Thousands)US Treasury & Agencies obligations:Within 1 year
    
    $
    20,109
    
    
    $
    19,864
    
    
    
    2.54
    %
    
    $
    
    
    
    $
    
    
    
    
    
    %1 to 2 years
    
    
    42,768
    
    
    
    41,777
    
    
    
    3.10
    
    
    
    4,978
    
    
    
    4,884
    
    
    
    3.212 to 3 years
    
    
    10,340
    
    
    
    9,995
    
    
    
    3.08
    
    
    
    4,954
    
    
    
    4,783
    
    
    
    3.253 to 5 years
    
    
    9,981
    
    
    
    9,618
    
    
    
    3.50
    
    
    
    
    
    
    
    
    
    
    
    5 to 10 years
    
    
    3,819
    
    
    
    3,875
    
    
    
    4.40
    
    
    
    5,119
    
    
    
    4,769
    
    
    
    3.2687,017
    
    
    
    85,129
    
    
    
    3.07
    
    
    
    15,051
    
    
    
    14,436
    
    
    
    3.24Mortgage-backed securities:1 to 2 years
    
    
    94
    
    
    
    96
    
    
    
    7.08
    
    
    
    
    
    
    
    
    
    
    
    2 to 3 years
    
    
    4
    
    
    
    4
    
    
    
    4.27
    
    
    
    
    
    
    
    
    
    
    
    3 to 5 years
    
    
    4,020
    
    
    
    3,877
    
    
    
    3.61
    
    
    
    2,492
    
    
    
    2,427
    
    
    
    3.635 to 10 years
    
    
    23,511
    
    
    
    22,667
    
    
    
    3.84
    
    
    
    
    
    
    
    
    
    
    
    After 10 years
    
    
    16,072
    
    
    
    15,835
    
    
    
    4.84
    
    
    
    928
    
    
    
    937
    
    
    
    4.8443,701
    
    
    
    42,479
    
    
    
    4.19
    
    
    
    3,420
    
    
    
    3,364
    
    
    
    3.96Asset-backed securities:1 to 2 years
    
    
    194
    
    
    
    193
    
    
    
    6.28
    
    
    
    
    
    
    
    
    
    
    
    5 to 10 years
    
    
    6,028
    
    
    
    5,900
    
    
    
    4.07
    
    
    
    
    
    
    
    
    
    
    
    After 10 years
    
    
    64,193
    
    
    
    62,647
    
    
    
    4.07
    
    
    
    24,662
    
    
    
    24,329
    
    
    
    4.8970,415
    
    
    
    68,740
    
    
    
    4.08
    
    
    
    24,662
    
    
    
    24,329
    
    
    
    4.89Corporate obligations:Within 1 year
    
    
    3,241
    
    
    
    3,252
    
    
    
    4.78
    
    
    
    
    
    
    
    
    
    
    
    1 to 2 years
    
    
    2,048
    
    
    
    2,002
    
    
    
    3.16
    
    
    
    1,000
    
    
    
    999
    
    
    
    3.242 to 3 years
    
    
    5,735
    
    
    
    5,501
    
    
    
    3.22
    
    
    
    
    
    
    
    
    
    
    
    3 to 5 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,181
    
    
    
    2,047
    
    
    
    2.6311,024
    
    
    
    10,755
    
    
    
    3.66
    
    
    
    3,181
    
    
    
    3,046
    
    
    
    2.82Municipal obligations:Within 1 year
    
    
    1,526
    
    
    
    1,512
    
    
    
    2.90
    
    
    
    
    
    
    
    
    
    
    
    $
    213,683
    
    
    $
    208,615
    
    
    
    3.66
    %
    
    $
    46,314
    
    
    $
    45,175
    
    
    
    4.15
    %
  (3) FEDERAL HOME LOAN BANK STOCK
 Gramm-Leach-Bliley
 41




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##### Table of Contents



(4) LOANS
  2005
    
    
    2004(In Thousands)Residential real estate
    
    $
    62,187
    
    
    $
    60,057Loans held for sale
    
    
    472
    
    
    
    Home equity
    
    
    10,412
    
    
    
    8,869Construction
    
    
    24,137
    
    
    
    15,211Commercial real estate
    
    
    127,617
    
    
    
    131,605Commercial business
    
    
    9,318
    
    
    
    16,369Consumer
    
    
    468
    
    
    
    699Total loans
    
    
    234,611
    
    
    
    232,810Allowance for loan losses
    
    
    (4,126
    )
    
    
    (4,140
    )$
    230,485
    
    
    $
    228,670
      Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atJanuary 1, 2005
    
    
    Additions
    
    
    Repayments
    
    
    December 31, 2005(In Thousands)$
    2,080
    
    
    $
    615
    
    
    $
    444
    
    
    $
    2,251
  2005
    
    
    2004
    
    
    2003(In Thousands)Balance at beginning of year
    
    $
    4,140
    
    
    $
    4,220
    
    
    $
    4,167Total charge-offs
    
    
    (25
    )
    
    
    (45
    )
    
    
    Total recoveries
    
    
    11
    
    
    
    265
    
    
    
    53Net (charge-offs) recoveries
    
    
    (14
    )
    
    
    220
    
    
    
    53Credit for loan recoveries
    
    
    
    
    
    
    (300
    )
    
    
    Balance at end of year
    
    $
    4,126
    
    
    $
    4,140
    
    
    $
    4,220
 42




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##### Table of Contents



2005
    
    
    2004
    
    
    2003(In Thousands)Balance at beginning of year
    
    $
    404
    
    
    $
    488
    
    
    $
    1,015Additions
    
    
    20
    
    
    
    53
    
    
    
    201Amortization
    
    
    (116
    )
    
    
    (137
    )
    
    
    (728
    )Mortgage servicing rights
    
    
    308
    
    
    
    404
    
    
    
    488Valuationallowance
    
    
    (30
    )
    
    
    (98)
    
    
    
    (96)Balance at end of year
    
    $
    278
    
    
    $
    306
    
    
    $
    392
  2005
    
    
    2004
    
    
    2003(In Thousands)Balance at beginning of year
    
    $
    98
    
    
    $
    96
    
    
    $
    377Provision (recoveries) charged to operations
    
    
    (68
    )
    
    
    2
    
    
    
    (281
    )Balance at end of year
    
    $
    30
    
    
    $
    98
    
    
    $
    96
  2005
    
    
    2004
    
    
    2003(In Thousands)Service fee income
    
    $
    123
    
    
    $
    158
    
    
    $
    216Amortization of mortgage servicing rights
    
    
    (116
    )
    
    
    (137
    )
    
    
    (728
    )(Provision) recoveries for valuation allowance
    
    
    68
    
    
    
    (2
    )
    
    
    281Mortgage servicing income (expense)
    
    
    75
    
    
    
    19
    
    
    
    (231
    )Late charges and other loan fees
    
    
    87
    
    
    
    165
    
    
    
    251Loan servicing fees, net
    
    $
    162
    
    
    $
    184
    
    
    $
    20
 (5) BANK PREMISES AND EQUIPMENT
  EstimatedUseful Lives
    
    
    2005
    
    
    2004(In Thousands)Premises
    
    10  39 years
    
    
    $
    3,830
    
    
    $
    3,788Equipment
    
    3  5   years
    
    
    
    2,886
    
    
    
    2,722Leasehold improvements
    
    3  10 years
    (1)
    
    
    1,047
    
    
    
    1,0387,763
    
    
    
    7,548Less accumulated depreciation and amortization
    
    
    
    
    
    
    (4,512
    )
    
    
    (4,062
    )$
    3,251
    
    
    $
    3,486
 
 (1)
    
    Leasehold improvements  Depreciated over term of lease or asset life, whichever is shorter.   43




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##### Table of Contents



(6) DEPOSITS
  Rates as ofDecember 31,2005
    
    
    2005
    
    
    2004(Dollars in Thousands)Interest bearing accounts:NOW and Super NOW accounts
    
    
    0.10-0.25
    %
    
    $
    38,349
    
    
    $
    38,061Savings accounts
    
    
    0.50
    %
    
    
    41,941
    
    
    
    44,673Money market investment accounts
    
    
    1.00-3.69
    %
    
    
    76,594
    
    
    
    82,877Certificates of deposit
    
    
    1.44-5.50
    %
    
    
    98,773
    
    
    
    89,649Retirement certificates of deposit
    
    
    1.74-5.50
    %
    
    
    28,518
    
    
    
    29,049Total interest bearing deposits
    
    
    
    
    
    
    284,175
    
    
    
    284,309Non-interest bearing demand deposit accounts
    
    
    
    
    
    
    18,912
    
    
    
    14,797Total deposits
    
    
    
    
    
    $
    303,087
    
    
    $
    299,106
  2005
    
    
    2004
    
    
    2003(In Thousands)Now and Super NOW accounts
    
    $
    47
    
    
    $
    40
    
    
    $
    40Savings accounts
    
    
    221
    
    
    
    161
    
    
    
    200Money market investment accounts
    
    
    1,355
    
    
    
    980
    
    
    
    900Certificates of deposit
    
    
    2,480
    
    
    
    1,656
    
    
    
    2,088Retirement certificates of deposit
    
    
    941
    
    
    
    863
    
    
    
    948Total interest expense
    
    $
    5,044
    
    
    $
    3,700
    
    
    $
    4,176
  Equal to
    
    
    
    
    
    
    WeightedLess
    
    
    and greater
    
    
    
    
    
    
    Averagethan
    
    
    than
    
    
    
    
    
    
    Interest$100,000
    
    
    $100,000
    
    
    Total
    
    
    Rate(Dollars in Thousands)3 months or less
    
    $
    13,983
    
    
    $
    11,281
    
    
    $
    25,264
    
    
    
    2.70
    %From three to six months
    
    
    10,732
    
    
    
    4,388
    
    
    
    15,120
    
    
    
    2.91From six to twelve months
    
    
    29,034
    
    
    
    9,875
    
    
    
    38,909
    
    
    
    3.27From one to two years
    
    
    22,839
    
    
    
    11,302
    
    
    
    34,141
    
    
    
    3.58From two to three years
    
    
    3,488
    
    
    
    996
    
    
    
    4,484
    
    
    
    3.10Three years and thereafter
    
    
    6,927
    
    
    
    2,446
    
    
    
    9,373
    
    
    
    3.90$
    87,003
    
    
    $
    40,288
    
    
    $
    127,291
    
    
    
    3.24
    %
  44




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##### Table of Contents



(7) FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWED FUNDS
   2005
    
    
    2004Weighted Average
    
    
    
    
    
    
    Weighted AverageMaturity
    
    Amount
    
    
    Interest Rate
    
    
    Amount
    
    
    Interest Rate(Dollars in Thousands)2005
    
    $
    
    
    
    
    
    %
    
    $
    32,000
    
    
    
    2.97
    %2006
    
    
    30,000
    
    
    
    3.41
    
    
    
    10,000
    
    
    
    3.342007
    
    
    38,000
    
    
    
    3.51
    
    
    
    30,000
    
    
    
    3.402008
    
    
    15,000
    
    
    
    4.60
    
    
    
    
    
    
    
    2009
    
    
    206
    
    
    
    6.42
    
    
    
    224
    
    
    
    6.422010
    
    
    25,000
    
    
    
    5.60
    
    
    
    20,000
    
    
    
    6.032011
    
    
    10,000
    
    
    
    4.93
    
    
    
    10,000
    
    
    
    4.932021
    
    
    2,453
    
    
    
    6.23
    
    
    
    2,542
    
    
    
    6.232024
    
    
    320
    
    
    
    1.07
    
    
    
    336
    
    
    
    1.072025
    
    
    882
    
    
    
    1.60
    
    
    
    
    
    
    
    $
    121,861
    
    
    
    4.20
    %
    
    $
    105,102
    
    
    
    3.98
    %
    2005
    
    
    2004(Dollars In Thousands)FHLBB Short-term borrowings
    
    $
    27,000
    
    
    $
    49,000Customer repurchase agreements
    
    
    4,519
    
    
    
    3,161$
    31,519
    
    
    $
    52,161
  2005
    
    
    2004
    
    
    2003Repurchase
    
    
    FHLBB
    
    
    Repurchase
    
    
    FHLBB
    
    
    Repurchase
    
    
    FHLBBAgreements
    
    
    Advances
    
    
    Agreements
    
    
    Advances
    
    
    Agreements
    
    
    Advances(Dollars In Thousands)Outstanding at December 31
    
    $
    4,519
    
    
    $
    27,000
    
    
    $
    3,161
    
    
    $
    49,000
    
    
    $
    2,486
    
    
    $
    52,000Average balance outstanding during the year
    
    
    3,113
    
    
    
    49,964
    
    
    
    2,949
    
    
    
    40,160
    
    
    
    2,719
    
    
    
    12,152Maximum outstanding at any month end
    
    
    4,519
    
    
    
    85,000
    
    
    
    3,946
    
    
    
    55,500
    
    
    
    3,610
    
    
    
    52,000Weighted average rate at December 31
    
    
    2.75
    %
    
    
    4.31
    %
    
    
    0.75
    %
    
    
    2.27
    %
    
    
    0.50
    %
    
    
    1.10
    %Weighted average rate during the year
    
    
    1.79
    
    
    
    3.18
    
    
    
    0.50
    
    
    
    1.43
    
    
    
    0.62
    
    
    
    0.91
  45




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##### Table of Contents



(8) INCOME TAXES
  2005
    
    
    2004
    
    
    2003(In Thousands)Current expense:Federal
    
    $
    2,154
    
    
    $
    1,590
    
    
    $
    1,095State
    
    
    420
    
    
    
    284
    
    
    
    476Total current expense
    
    
    2,574
    
    
    
    1,874
    
    
    
    1,571Deferred expense (benefit):Federal
    
    
    (119
    )
    
    
    574
    
    
    
    541State
    
    
    (45
    )
    
    
    167
    
    
    
    (24
    )Change in valuation reserve
    
    
    (3
    )
    
    
    (15
    )
    
    
    (1
    )Total deferred expense
    
    
    (167
    )
    
    
    726
    
    
    
    516Total income tax expense
    
    $
    2,407
    
    
    $
    2,600
    
    
    $
    2,087
  2005
    
    
    2004
    
    
    2003(In Thousands)Expected federal income tax expense
    
    $
    2,231
    
    
    $
    2,475
    
    
    $
    2,116Items affecting expected tax:State income tax, net of federal benefit
    
    
    247
    
    
    
    298
    
    
    
    298Tax exempt income
    
    
    (113
    )
    
    
    (98
    )
    
    
    (26
    )Change in estimate for tax contingencies
    
    
    
    
    
    
    
    
    
    
    (300
    )Other
    
    
    45
    
    
    
    (60
    )
    
    
    Change in valuation reserve
    
    
    (3
    )
    
    
    (15
    )
    
    
    (1
    )Total income tax expense
    
    $
    2,407
    
    
    $
    2,600
    
    
    $
    2,087
  2005
    
    
    2004(In Thousands)Deferred tax assets:Allowance for loan losses
    
    $
    1,507
    
    
    $
    1,576Capital loss carryforward
    
    
    37
    
    
    
    40Unrealized loss on investment securities available for sale
    
    
    485
    
    
    
    273Pension costs
    
    
    473
    
    
    
    388Deferred compensation
    
    
    722
    
    
    
    534Loan origination fees
    
    
    
    
    
    
    10Depreciation
    
    
    286
    
    
    
    329Other
    
    
    219
    
    
    
    238Gross deferred tax asset
    
    
    3,729
    
    
    
    3,388Valuation reserve
    
    
    (37
    )
    
    
    (40
    )Deferred tax asset
    
    
    3,692
    
    
    
    3,348Deferred tax liabilities:Other
    
    
    (246
    )
    
    
    (281
    )Gross deferred tax liability
    
    
    (246
    )
    
    
    (281
    )Net deferred income tax asset
    
    $
    3,446
    
    
    $
    3,067
  46




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##### Table of Contents



(9) STOCKHOLDERS EQUITY
     Risk-Based RatiosTier 1 Capital
    
    
    Total Capital
    
    
    Leverage Capital2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in Thousands)Capital Ratios:Adequately capitalized
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Well capitalized
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    5.00
    %
    
    
    5.00
    %LSB Corporation
    
    
    19.09
    %
    
    
    18.38
    %
    
    
    20.34
    %
    
    
    19.63
    %
    
    
    11.34
    %
    
    
    11.25
    %Lawrence Savings Bank
    
    
    18.29
    %
    
    
    17.49
    %
    
    
    19.54
    %
    
    
    18.74
    %
    
    
    10.82
    %
    
    
    10.64
    %Capital Amounts:Adequately capitalizedLSB Corporation
    
    $
    12,508
    
    
    $
    12,474
    
    
    $
    25,015
    
    
    $
    24,949
    
    
    $
    21,066
    
    
    $
    20,383Lawrence Savings Bank
    
    
    12,394
    
    
    
    12,355
    
    
    
    24,788
    
    
    
    24,711
    
    
    
    20,956
    
    
    
    20,300Well capitalizedLSB Corporation
    
    
    18,762
    
    
    
    18,712
    
    
    
    31,269
    
    
    
    31,186
    
    
    
    26,333
    
    
    
    25,478Lawrence Savings Bank
    
    
    18,591
    
    
    
    18,533
    
    
    
    30,985
    
    
    
    30,889
    
    
    
    26,195
    
    
    
    25,374Actual Amounts:LSB Corporation
    
    
    59,698
    
    
    
    57,310
    
    
    
    63,609
    
    
    
    61,211
    
    
    
    59,698
    
    
    
    57,310Lawrence Savings Bank
    
    
    56,670
    
    
    
    54,019
    
    
    
    60,546
    
    
    
    57,884
    
    
    
    56,670
    
    
    
    54,019
 47




---



##### Table of Contents



STOCKHOLDERS RIGHTS PLAN
  TREASURY STOCK
 Effective July 1, 2004, companies incorporated in Massachusetts became subject to the Massachusetts
Business Corporation Act (Chapter 156D). Chapter 156D provides that shares that are reacquired
by a company become authorized but unissued shares. As a result, Chapter 156D eliminates the
concept of treasury shares. Accordingly, shares previously reported as treasury stock by the
Company at December 31, 2004, have been redesignated, at an aggregate cost of approximately $2.8
million, as authorized but unissued shares. This aggregate cost has been allocated to the common
stocks par value and retained earnings. There was no impact to total equity.
 (10) EMPLOYEE BENEFITS
  
 2005
    
    
    2004(In Thousands)Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    7,456
    
    
    $
    6,760Service cost
    
    
    347
    
    
    
    415Interest cost
    
    
    428
    
    
    
    423Actuarial loss
    
    
    261
    
    
    
    134Benefits paid
    
    
    (142
    )
    
    
    (276
    )Benefit obligation at end of year
    
    $
    8,350
    
    
    $
    7,456Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    6,778
    
    
    $
    6,060Actual return on plan assets
    
    
    595
    
    
    
    638Employer contribution
    
    
    
    
    
    
    356Benefits paid
    
    
    (142
    )
    
    
    (276
    )Fair value of plan assets at end of year
    
    $
    7,231
    
    
    $
    6,778Funded status
    
    $
    (1,119
    )
    
    $
    (678
    )Unrecognized net actuarial loss (gain)
    
    
    21
    
    
    
    (187
    )Unrecognized transition asset
    
    
    (20
    )
    
    
    (24
    )Accrued benefit cost included in other liabilities
    
    $
    (1,118
    )
    
    $
    (889
    )Accumulated benefit obligation
    
    $
    5,760
    
    
    $
    4,927
   48




---



##### Table of Contents



2005
    
    
    2004Debt securities
    
    
    35
    %
    
    
    34
    %Equity securities
    
    
    65
    %
    
    
    66
    %Total Plan assets
    
    
    100
    %
    
    
    100
    %
   2005
    
    
    2004
    
    
    2003(In Thousands)Service cost
    
    $
    347
    
    
    $
    415
    
    
    $
    355Interest cost
    
    
    428
    
    
    
    423
    
    
    
    408Expected return on plan assets
    
    
    (542
    )
    
    
    (485
    )
    
    
    (425
    )Net amortization and deferrals
    
    
    (4
    )
    
    
    (4
    )
    
    
    (4
    )Net periodic pension cost
    
    $
    229
    
    
    $
    349
    
    
    $
    334
  2005
    
    
    2004
    
    
    2003Discount rate
    
    
    5.75
    %
    
    
    6.25
    %
    
    
    6.75
    %Rate of increase in compensation levels
    
    
    4.50
    
    
    
    4.50
    
    
    
    4.50Expected long-term rate of return on assets
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00
    49




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding at beginning of year
    
    
    511,350
    
    
    $
    10.97
    
    
    
    505,730
    
    
    $
    8.86
    
    
    
    586,330
    
    
    $
    8.69Granted
    
    
    8,400
    
    
    
    17.66
    
    
    
    114,100
    
    
    
    16.77
    
    
    
    
    
    
    
    Exercised
    
    
    (168,250
    )
    
    
    7.24
    
    
    
    (102,480
    )
    
    
    6.70
    
    
    
    (71,600
    )
    
    
    6.83Canceled
    
    
    (2,400
    )
    
    
    18.25
    
    
    
    (6,000
    )
    
    
    16.77
    
    
    
    (9,000
    )
    
    
    13.90Outstanding at end of year
    
    
    349,100
    
    
    
    12.88
    
    
    
    511,350
    
    
    
    10.97
    
    
    
    505,730
    
    
    
    8.86Options exercisable end of year
    
    
    294,050
    
    
    
    12.07
    
    
    
    405,250
    
    
    
    9.45
    
    
    
    466,730
    
    
    
    8.44Weighted average fair value of
options granted during the year
    
    
    
    
    
    $
    3.17
    
    
    
    
    
    
    $
    4.64
    
    
    
    
    
    
    $
    
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    Remaining
    
    
    Number of
    
    
    ExerciseRange of Exercise Price
    
    Options
    
    
    Price
    
    Life
    
    
    Options
    
    
    Price$6.00 to $10.00
    
    
    121,500
    
    
    $  8.31
    
    
    2.8 years
    
    
    121,500
    
    
    $
    8.31$10.01 to $14.00
    
    
    115,500
    
    
    13.86
    
    
    5.5
    
    
    
    115,500
    
    
    
    13.86$14.01 to $19.00
    
    
    112,100
    
    
    16.80
    
    
    8.1
    
    
    
    57,050
    
    
    
    16.80Outstanding at end of year
    
    
    349,100
    
    
    $12.88
    
    
    5.4
    
    
    
    294,050
    
    
    
    12.07
   (11) CONTINGENCIES
  Lawrence Savings Bank vs. Garabedian et al.,
  50




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##### Table of Contents



(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
    Fixed
    
    
    Variable2005
    
    Rate
    
    
    Rate
    
    
    Total(In Thousands)Financial instruments with contract amounts represent credit risk:Unused commitments to extend credit:Residential mortgages
    
    $
    1,126
    
    
    $
    275
    
    
    $
    1,401Home equity lines of credit
    
    
    813
    
    
    
    8,371
    
    
    
    9,184Personal lines of credit
    
    
    153
    
    
    
    
    
    
    
    153Commercial real estate mortgage
    
    
    
    
    
    
    13,053
    
    
    
    13,053Construction
    
    
    
    
    
    
    30,018
    
    
    
    30,018Commercial loans
    
    
    272
    
    
    
    18,702
    
    
    
    18,974Total unused commitments
    
    $
    2,364
    
    
    $
    70,419
    
    
    $
    72,783Letters of credit and standby letters of credit
    
    $
    
    
    
    $
    798
    
    
    $
    798Forward commitments to sell mortgage loans
    
    $
    472
    
    
    $
    
    
    
    $
    472Forward commitments to purchase investment security
    
    $
    132
    
    
    $
    
    
    
    $
    132
 Fixed
    
    
    Variable2004
    
    Rate
    
    
    Rate
    
    
    Total(In Thousands)Financial instruments with contract amounts represent credit risk:Unused commitments to extend credit:Residential mortgages
    
    $
    793
    
    
    $
    478
    
    
    $
    1,271Home equity lines of credit
    
    
    596
    
    
    
    8,661
    
    
    
    9,257Personal lines of credit
    
    
    154
    
    
    
    
    
    
    
    154Commercial real estate mortgage
    
    
    
    
    
    
    19,168
    
    
    
    19,168Construction
    
    
    
    
    
    
    21,040
    
    
    
    21,040Commercial loans
    
    
    2
    
    
    
    17,867
    
    
    
    17,869Total unused commitments
    
    $
    1,545
    
    
    $
    67,214
    
    
    $
    68,759Letters of credit and standby letters of credit
    
    $
    
    
    
    $
    1,393
    
    
    $
    1,393Forward commitments to sell mortgage loans
    
    $
    300
    
    
    $
    
    
    
    $
    300
  (13) FAIR VALUE OF FINANCIAL INSTRUMENTS
  51




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##### Table of Contents



CASH AND DUE FROM BANKS, SHORT-TERM INVESTMENTS, STOCK IN FEDERAL HOME LOAN BANK OF BOSTON, ACCRUED
INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE
  INVESTMENT SECURITIES
  LOANS
    DEPOSITS AND MORTGAGORS ESCROW ACCOUNTS
  BORROWED FUNDS
   2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In Thousands)Financial assets:Cash and due from banks
    
    $
    10,489
    
    
    $
    10,489
    
    
    $
    7,193
    
    
    $
    7,193Short-term investments
    
    
    198
    
    
    
    198
    
    
    
    209
    
    
    
    209Investment securities
    
    
    260,046
    
    
    
    254,978
    
    
    
    263,303
    
    
    
    261,755Federal Home Loan Bank stock
    
    
    10,097
    
    
    
    10,097
    
    
    
    7,887
    
    
    
    7,887Accrued interest receivable
    
    
    2,458
    
    
    
    2,458
    
    
    
    2,894
    
    
    
    2,894Loans, net
    
    
    230,485
    
    
    
    228,842
    
    
    
    228,670
    
    
    
    228,516Financial liabilities:Deposits
    
    $
    303,087
    
    
    $
    301,682
    
    
    $
    299,106
    
    
    $
    298,588Borrowed funds
    
    
    153,380
    
    
    
    154,052
    
    
    
    157,263
    
    
    
    160,061Mortgagors escrow accounts
    
    
    506
    
    
    
    506
    
    
    
    506
    
    
    
    506Accrued interest payable
    
    
    513
    
    
    
    513
    
    
    
    444
    
    
    
    444
  LIMITATIONS
  52




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##### Table of Contents



(14) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS.
  Balance Sheets
    
    2005
    
    
    2004(In Thousands)Assets:Cash deposits in subsidiaries
    
    $
    247
    
    
    $
    424Investment securities held to maturity at amortized cost
    
    
    2,881
    
    
    
    2,996Investment in subsidiary, at equity
    
    
    56,615
    
    
    
    54,478Other assets
    
    
    229
    
    
    
    12Total assets
    
    $
    59,972
    
    
    $
    57,910Liabilities and Stockholders Equity:Liabilities:Accrued income taxes
    
    $
    25
    
    
    $
    10Accrued expenses
    
    
    25
    
    
    
    62Total liabilities
    
    
    50
    
    
    
    72Total stockholders equity
    
    
    59,922
    
    
    
    57,838Total liabilities and stockholders equity
    
    $
    59,972
    
    
    $
    57,910
 Statements of Operations
    
    2005
    
    
    2004
    
    
    2003(In Thousands)Dividends from bank subsidiary
    
    $
    1,800
    
    
    $
    4,200
    
    
    $
    500Interest income from investment securities held to maturity
    
    
    103
    
    
    
    21
    
    
    
    18Total operating income
    
    
    1,903
    
    
    
    4,221
    
    
    
    518Non-interest expenses
    
    
    243
    
    
    
    243
    
    
    
    180Income before income taxes and undistributed earnings
    
    
    1,660
    
    
    
    3,978
    
    
    
    338Income tax benefit
    
    
    (48
    )
    
    
    (63
    )
    
    
    (51
    )Income before undistributed earnings of subsidiary
    
    
    1,708
    
    
    
    4,041
    
    
    
    389Equity in undistributed earnings of subsidiary
    
    
    2,449
    
    
    
    639
    
    
    
    3,747Net income
    
    $
    4,157
    
    
    $
    4,680
    
    
    $
    4,136
 53




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##### Table of Contents



Cash flows
    
    2005
    
    
    2004(In Thousands)Cash flows from operating activities:Net income
    
    $
    4,157
    
    
    $
    4,680Adjustments to reconcile net income to net cash provided by operating activities:Decrease in deferred income tax asset
    
    
    -
    
    
    
    216Net distributed earnings of subsidiaries
    
    
    (2,449
    )
    
    
    (759
    )Increase in other assets
    
    
    (217
    )
    
    
    (11
    )Increase in liabilities
    
    
    (22
    )
    
    
    65Accretion of discounts on investment securities
    
    
    (103
    )
    
    
    (21
    )Net cash provided by operating activities
    
    
    1,366
    
    
    
    4,170Cash flows from investing activities:Purchases of investment securities held to maturity
    
    
    (32,882
    )
    
    
    (13,975
    )Proceeds from maturities of investment securities held to maturity
    
    
    33,100
    
    
    
    11,500Net cash (used in) provided by investing activities
    
    
    218
    
    
    
    (2,475
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    723
    
    
    
    806Dividends paid
    
    
    (2,484
    )
    
    
    (2,236
    )Net cash used in financing activities
    
    
    (1,761
    )
    
    
    (1,430
    )Net (decrease) increase in cash and cash equivalents
    
    
    (177
    )
    
    
    265Cash and cash equivalents, beginning of year
    
    
    424
    
    
    
    159Cash and cash equivalents, end of year
    
    $
    247
    
    
    $
    424Supplemental cash flow information:Cash paid during the year for:Income taxes
    
    $
    
    
    
    $
    
 (15) Quarterly Results of Operations (Unaudited)
 2005March
    
    
    June
    
    
    September
    
    
    December31
    
    
    30
    
    
    30
    
    
    31(In Thousands, Except Per Share Data)Interest and dividend income
    
    $
    6,109
    
    
    $
    6,495
    
    
    $
    6,467
    
    
    $
    6,487Interest expense
    
    
    2,555
    
    
    
    2,964
    
    
    
    3,012
    
    
    
    3,107Net interest income
    
    
    3,554
    
    
    
    3,531
    
    
    
    3,455
    
    
    
    3,380Provision (credit) for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net interest income after provision (credit) for loan losses
    
    
    3,554
    
    
    
    3,531
    
    
    
    3,455
    
    
    
    3,380Non-interest income
    
    
    365
    
    
    
    387
    
    
    
    381
    
    
    
    432Lawsuit judgment collected
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,223Non-interest expense
    
    
    2,581
    
    
    
    2,760
    
    
    
    2,507
    
    
    
    3,296Income before income tax
    
    
    1,338
    
    
    
    1,158
    
    
    
    1,329
    
    
    
    2,739Income tax expense
    
    
    479
    
    
    
    400
    
    
    
    472
    
    
    
    1,056Net income
    
    $
    859
    
    
    $
    758
    
    
    $
    857
    
    
    $
    1,683Basic earnings per share
    
    $
    0.20
    
    
    $
    0.17
    
    
    $
    0.19
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.19
    
    
    $
    0.37
 54




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##### Table of Contents



(15) QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)  (CONTINUED)
 2004March
    
    
    June
    
    
    September
    
    
    December31
    
    
    30
    
    
    30
    
    
    31(In Thousands, Except Per Share Data)Interest and dividend income
    
    $
    5,442
    
    
    $
    5,461
    
    
    $
    5,488
    
    
    $
    5,940Interest expense
    
    
    2,019
    
    
    
    2,095
    
    
    
    2,096
    
    
    
    2,310Net interest income
    
    
    3,423
    
    
    
    3,366
    
    
    
    3,392
    
    
    
    3,630Provision for loan losses
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    Net interest income after provision for loan losses
    
    
    3,423
    
    
    
    3,666
    
    
    
    3,392
    
    
    
    3,630Non-interest income
    
    
    322
    
    
    
    505
    
    
    
    348
    
    
    
    378Lawsuit judgment collected
    
    
    
    
    
    
    2,275
    
    
    
    
    
    
    
    5Non-interest expense
    
    
    2,488
    
    
    
    2,771
    
    
    
    2,706
    
    
    
    2,699Income before income tax
    
    
    1,257
    
    
    
    3,675
    
    
    
    1,034
    
    
    
    1,314Income tax expense
    
    
    471
    
    
    
    1,318
    
    
    
    337
    
    
    
    474Net income
    
    $
    786
    
    
    $
    2,357
    
    
    $
    697
    
    
    $
    840Basic earnings per share
    
    $
    0.18
    
    
    $
    0.55
    
    
    $
    0.16
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.53
    
    
    $
    0.16
    
    
    $
    0.19
 
 ITEM 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
  
 ITEM 9A. CONTROLS AND PROCEDURES
 A
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  55




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 PART IV
 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    The following documents are filed as part of this report:(1
    )
    
    Financial Statements: The following Consolidated Financial Statements of LSB Corporation and Subsidiary for the year ended
December 31, 2005
are included in
Item 8 of Part II
to this report:Report of Management ResponsibilityReport of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2005 and 2004Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2005,
2004 and 2003Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003Notes to Consolidated Financial Statements(2
    )
    
    Financial Statement Schedules: None.(3
    )
    
    List of Exhibits: The following is a list of exhibits which are either filed or
incorporated by reference as part of this annual report on Form 10-K. Upon request to
Investors Relations, LSB Corporation, 30 Massachusetts Avenue, North Andover, MA 01845,
copies of the individual exhibits will be furnished upon payment of a reasonable
reproduction fee.
 Exhibits:Number
    
    Description of Exhibit(2)
    
    Plan of Reorganization and Acquisition, dated as of March 12, 2001 between LSB Corporation
and Lawrence Savings Bank (Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 2, 2001 and incorporated herein by reference)(3)(i).1
    
    Articles of Organization of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed July 2, 2001 and incorporated herein by reference)(3)(i).2
    
    Articles of Amendment of the Articles of Organization of LSB Corporation, as submitted
for filing in the Office of the Secretary of the Commonwealth of Massachusetts on December 30,
2005 (Filed as Exhibit 3(i).1 to the Companys Current Report on Form 8-K filed January 6,
2006 and incorporated herein by reference)(3)(ii)
    
    By-Laws of LSB Corporation, as amended and restated (Filed as Exhibit 3(ii) to the
Companys 2004 Annual Report on Form 10-K and incorporated herein by reference)(3)(iii)
    
    Lawrence Savings Bank Certificate of Vote of Directors Establishing a Series of a Class
of Stock
 56




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##### Table of Contents



Number
    
    Description of Exhibit(4.1)
    
    Specimen certificate of shares of common stock of the Company (Filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed July 2, 2001 and incorporated herein by reference)(4.2)
    
    Rights Agreement dated as of December 12, 1996 between Lawrence Savings Bank and State
Street Bank and Trust Company, as rights agent (Filed as Exhibit 4.4 to the Companys Current
Report on Form 8-K filed July 2, 2001 and incorporated herein by reference)(4.3)
    
    Renewed Rights Agreement dated as of November 17, 2005, between LSB Corporation and
Computershare Trust Company, N.A. (Filed as Exhibit 4.1 to the Companys Current Report on
Form 8-K filed January 31, 2006 and incorporated herein by reference)(10.1)
    
    Employment Agreement by and between the Bank and Paul A. Miller dated April 21, 1989 (Filed
as Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 2, 2001 and incorporated herein by
reference)*(10.2)
    
    Amendment dated December 23, 1992 to Employment Agreement dated April 21, 1989 (Filed as
Exhibit 10.2 to the Companys Current Report on Form 8-K filed July 2, 2001 and incorporated
herein by reference)*(10.3)
    
    Amendment dated May 25, 2000 to Employment Agreement dated April 21, 1989 (Filed as Exhibit
10.3 to the Companys Current Report on Form 8-K filed July 2, 2001 and incorporated herein by
reference)*(10.4)
    
    Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21,
1989 (Filed as Exhibit 10.8 to the Companys Current Report on Form 8-K filed July 2, 2001 and
incorporated herein by reference)*(10.5)
    
    Supplemental Retirement Agreement by and between the Bank and Paul A. Miller dated April 21,
1996 (Filed as Exhibit 10.9 to the Companys Current Report on Form 8-K filed July 2, 2001 and
incorporated herein by reference)*(10.6)
    
    Employment Agreement by and between the Bank and Timothy L. Felter dated February 24, 2000
(Filed as Exhibit 10.11 to the Companys Current Report on Form 8-K filed July 2, 2001 and
incorporated herein by reference)*(10.7)
    
    Employment Agreement by and between the Bank and John E. Sharland dated February 24, 2000
(Filed as Exhibit 10.12 to the Companys Current Report on Form 8-K filed July 2, 2001 and
incorporated herein by reference)*(10.8)
    
    Employment Agreement by and between the Bank and Richard J. DAmbrosio dated February 24,
2000 (Filed as Exhibit 10.13 to the Companys Current Report on Form 8-K filed July 2, 2001
and incorporated herein by reference)*(10.9)
    
    Lawrence Savings Bank 1986 Stock Option Plan (Filed as Exhibit 10.14 to the Companys
Current Report on Form 8-K filed July 2, 2001 and incorporated herein by reference)*(10.10)
    
    Lawrence Savings Bank 1997 Stock Option Plan (Filed as Exhibit 10.15 to the Companys
Current Report on Form 8-K filed July 2, 2001 and incorporated herein by reference)*(10.11)
    
    Letter dated October 27, 2005, amending Employment Agreement dated April 21, 1989, between
LSB Corporation, Lawrence Savings Bank and Paul A. Miller (Filed as Exhibit 10.16 to the
Companys Current Report on Form 8-K filed November 4, 2005 and incorporated herein by
reference)*(10.12)
    
    Employment Agreement dated November 1, 2005, between LSB Corporation, Lawrence Savings Bank
and Gerald T. Mulligan (Filed as Exhibit 10.17 to the Companys Current Report on Form 8-K
filed November 4, 2005 and incorporated herein by reference)*(10.13)
    
    Letter dated February 23, 2006 from Gerald T. Mulligan, President and Chief Executive
Officer, to Board of Directors, LSB Corporation (Filed as Exhibit 10.2 to the Companys
Current Report on Form 8-K filed March 2, 2006 and incorporated herein by reference)*(10.14)
    
    Resolutions of LSB Corporation and Lawrence Savings Bank adopted at a Joint Meeting of the
Board of Directors, February 23, 2006 ((Filed as Exhibit 99.2 to the Companys Current Report
on Form 8-K filed March 2, 2006 and incorporated herein by reference)*
 57




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##### Table of Contents



Number
    
    Description of Exhibit(14)
    
    Code of Professional Conduct (Filed as Exhibit 14 to the Companys 2003 Annual Report on Form
10-K and incorporated herein by reference)(21)
    
    Subsidiary of LSB Corporation and subsidiaries of Lawrence Savings Bank (Filed as Exhibit 21
to the Companys 2004 Annual Report on Form 10-K and incorporated herein by reference)(23.1)
    
    Consent of KPMG LLP(31.1)
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002(31.2)
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002(32.1)
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as added by
Section 906 of the Sarbanes-Oxley Act of 2002(32.2)
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as added by
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract or compensatory plan or arrangement   58




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##### Table of Contents



SIGNATURES
  LSB CorporationBy:
    /s/ Gerald T. MulliganPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Gerald T. Mulligan
    
    President, Chief Executive Officer and Director
    
    March 23, 2006Gerald T. Mulligan
    
    (Principal
Executive Officer)/s/ Diane L. Walker
    
    Executive Vice President, Treasurer and
    
    March 23, 2006Diane L. Walker
    
    Chief
Financial Officer(Principal Financial and Principal AccountingOfficer)/s/ Thomas J. Burke
    
    Chairman of the Board
    
    March 23, 2006Thomas J. Burke
    
    Director/s/ Eugene A. Beliveau
    
    Director
    
    March 23, 2006Eugene A. Beliveau/s/ Malcolm W. Brawn
    
    Director
    
    March 23, 2006Malcolm W. Brawn./s/ Byron R. Cleveland, Jr.
    
    Director
    
    March 23, 2006Byron R. Cleveland, Jr./s/ Robert F. Hatem
    
    Director
    
    March 23, 2006Robert F. Hatem/s/ Richard Hart Harrington
    
    Director
    
    March 23, 2006Richard Hart Harrington/s/ Marsha A. McDonough
    
    Director
    
    March 23, 2006Marsha A. McDonough/s/ Kathleen Boshar Reynolds
    
    Director
    
    March 23, 2006Kathleen Boshar Reynolds
 59