##### 



March 31, 2004


(LSB CORPORATION LETTERHEAD)

Dear LSB Corporation Stockholders:

You are cordially invited to attend LSB
Corporations (the Company) Annual Meeting of
Stockholders to be held at the Andover Country Club,
60 Canterbury Street, Andover, Massachusetts, on Tuesday,
May 4, 2004 at 10:00 a.m.

Accompanying this letter are the official Notice
of Annual Meeting, proxy statement and proxy card. The matters
listed in the Notice of Annual Meeting are described in detail
in the proxy statement. At this years Annual Meeting, we
are asking stockholders to elect three Class B Directors,
each to a three-year term.

Every stockholders vote is important to us.
Whether or not you expect to attend the meeting in person, we
urge you to submit your proxy as soon as possible. You may
submit your proxy by completing the enclosed proxy card and
mailing it to the Company in the envelope provided. For
stockholders mailing from within the United States, the postage
is prepaid. Please complete and submit your proxy even if you
plan to attend the meeting in person.

We look forward to seeing those of you who are
able to attend the meeting in person.



| |                                          
| | -----------------------------------------
| | Sincerely,                               
|
| | -s- Paul A. Miller                       
|
| | PAUL A. MILLER                           
| | President and Chief Executive
    Officer



---



##### 



LSB CORPORATION

30 Massachusetts Avenue


North Andover, Massachusetts 01845


(978) 725-7500


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 4, 2004


Dear Stockholder of LSB Corp.:

Notice is hereby given that the annual meeting of
stockholders (the Annual Meeting) of LSB Corporation
(the Company) will be held at 10:00 a.m. local
time on Tuesday, May 4, 2004 at the Andover Country Club,
60 Canterbury Street, Andover, Massachusetts, for the
following purposes:



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | 1. To elect three Class B Directors for
    a three-year term.                                                                   
|
| | 2. To transact such other business as may
    properly come before the meeting and any adjournments or
    postponements thereof.

Pursuant to the By-Laws, the Board of Directors
has fixed the close of business on March 5, 2004 as the
record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting.

The above matters are described in detail in the
accompanying Proxy Statement.



| |                                    
| | -----------------------------------
| | By Order of the Board of Directors,
|
| | BARBARA A. BIONDO                  
| | Clerk                              

March 31, 2004

PURSUANT TO RULES OF THE FEDERAL DEPOSIT
INSURANCE CORPORATION (12 C.F.R. PART 350) AND THE
REQUIREMENT THAT LAWRENCE SAVINGS BANK MAKE AVAILABLE ITS ANNUAL
DISCLOSURE STATEMENT, ANY PERSON, UPON REQUEST, IS ENTITLED
TO RECEIVE A COPY OF THE 2003 ANNUAL REPORT OF THE COMPANY ON
FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(the SEC). TO RECEIVE A COPY OF THIS REPORT WITHOUT
CHARGE, PLEASE WRITE TO: BARBARA A. BIONDO, CLERK, LSB
CORPORATION, 30 MASSACHUSETTS AVENUE, NORTH ANDOVER,
MASSACHUSETTS 01845.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING IN PERSON, PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU DO ATTEND THE
ANNUAL MEETING AND DESIRE TO WITHDRAW YOUR PROXY AND VOTE IN
PERSON, YOU MAY DO SO.



---



##### 



LSB CORPORATION

30 Massachusetts Avenue


North Andover, Massachusetts 01845


(978) 725-7500


PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 4, 2004


This Proxy Statement and the accompanying proxy
card are furnished in connection with the solicitation of
proxies by the Board of Directors of LSB Corporation (the
Company) for use at the Annual Meeting of
Stockholders of the Company to be held at the Andover Country
Club, 60 Canterbury Street, Andover, Massachusetts at
10:00 a.m. on Tuesday, May 4, 2004 and any
adjournments or postponements thereof (the Annual
Meeting).

At the Annual Meeting, stockholders of the
Company will be asked to consider and vote upon the following
matters:



| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. To elect three Class B Directors,
    each for a three-year term to continue until the Companys
    annual meeting of stockholders in the year 2007 and until their
    successors are duly elected and qualified.
|
| | 2. To transact such other business as may
    properly come before the Annual Meeting and any adjournments or
    postponements thereof.                                                                              

This Proxy Statement and the accompanying proxy
are first being mailed to stockholders of the Company on or
about March 31, 2004 in connection with the solicitation of
proxies by the Company for the Annual Meeting.

The Company

The Company is a one-bank holding company
principally conducting business through Lawrence Savings Bank
(the Bank). On July 1, 2001, the Company and
the Bank completed a reorganization (the
Reorganization) in which the Bank became a
wholly-owned subsidiary of the Company, the Company adopted the
Shareholder Rights and Stock Option Plans of the Bank, and each
issued and outstanding share of common stock of the Bank (and
accompanying preferred stock purchase rights under the
Shareholder Rights Plan) was converted into and exchanged for
one share of common stock, par value $.10 per share, of the
Company and accompanying preferred stock purchase rights under
the Shareholder Rights Plan (the Common Stock).

For purposes of this Proxy Statement, unless the
context otherwise requires, any reference to the Company shall
be deemed to be a reference to the Company and the Bank.

Record Date; Voting

The Board of Directors has fixed the close of
business on March 5, 2004 as the record date for the
determination of stockholders entitled to notice of and to vote
at the Annual Meeting and any adjournments or postponements
thereof (the Record Date). Holders of Common Stock
at the Record Date will be entitled to notice of and to vote at
the Annual Meeting or any adjournments or postponements thereof.
At the Record





---



##### 



Date, the Company had Common Stock of
4,512,442 shares issued, of which 4,293,142 shares
were outstanding and entitled to vote. Each such outstanding
share is entitled to one vote at the Annual Meeting.


Quorum and Stockholder Vote Required

The presence, in person or by proxy, of at least
a majority of the total number of outstanding shares of Common
Stock is necessary to constitute a quorum for the transaction of
business at the Annual Meeting. The affirmative vote of the
holders of a plurality of Common Stock present or represented by
proxy and voting is required to elect each of the three
(3) nominees for Class B Directors.

Abstentions and broker non-votes will
be counted as present for purposes of determining the presence
or absence of a quorum for the transaction of business at the
Annual Meeting. A broker non-vote is a proxy from a
broker or other nominee indicating that such person has not
received instructions from the beneficial owner or other person
entitled to vote the shares on a particular matter with respect
to which the broker or other nominee does not have discretionary
voting power. Abstentions and broker non-votes will not be
counted for purposes of determining the number of votes cast for
a proposal.

Proxies

Stockholders of the Company are requested to
complete, date, sign, and promptly return the accompanying proxy
in the enclosed envelope. Common Stock represented by properly
executed proxies received by the Company and not revoked will be
voted at the Annual Meeting in accordance with the instructions
contained therein. If instructions are not given therein,
properly executed proxies will be voted FORthe election
of the three (3) nominees for Class B Directors listed
in the Proxy Statement.

Although it is anticipated that all the nominees
for Director will be available to serve as Directors if elected,
should any one or more of them be unable to serve, proxies may
be voted for the election of a substitute nominee or nominees.
It is not anticipated that any matters other than the election
of three Class B Directors will be presented at the Annual
Meeting. If other matters are presented, proxies will be voted
in accordance with the discretion of the proxy holders.

Any properly completed proxy may be revoked at
any time before it is voted by giving written notice of such
revocation to the Clerk of the Company, or by signing and duly
delivering a proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Attendance at the Annual
Meeting will not in and of itself constitute revocation of a
proxy.

The cost of soliciting proxies will be borne by
the Company. Morrow & Co. has been retained to assist
in the solicitation process and will be compensated in the
estimated amount of $4,000.00. After the initial mailing of this
Proxy Statement, officers and regular employees of the Company
may solicit proxies personally, by telephone or by facsimile
without additional compensation. The Company intends to request
banks, brokers and other institutions, nominees and fiduciaries
who hold Common Stock for beneficial owners to forward the proxy
materials to the beneficial owners and to obtain authorizations
for the execution of proxies, and will reimburse such
institutions and persons for their reasonable expenses.

The Companys Annual Report to Stockholders,
including financial statements for the fiscal year ended
December 31, 2003, is being mailed to stockholders of
record of the Company concurrently with this Proxy Statement.
The Annual Report, however, is not part of the proxy soliciting
material. ADDITIONAL COPIES OF THE ANNUAL REPORT OF THE COMPANY
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, AS
FILED WITH THE SEC (WITHOUT EXHIBITS), ARE AVAIL-

2



---



##### 



ABLE UPON WRITTEN REQUEST, WITHOUT CHARGE, FROM
THE COMPANY. SUCH REQUESTS SHOULD BE DIRECTED TO:
BARBARA A. BIONDO, CLERK, LSB CORPORATION,
30 MASSACHUSETTS AVENUE, NORTH ANDOVER, MASSACHUSETTS
01845, ATTENTION: SHAREHOLDER RELATIONS.


3



---



##### 



PROPOSAL 1

ELECTION OF A CLASS OF DIRECTORS

The Board of Directors of the Company currently
comprises ten members divided into three classes,
Classes A, B and C. Classes A and B consist of three
members each. Class C consists of four members. The
Directors in each class serve a term of three years, with the
terms of the various classes expiring in different years and
when the Directors successors are duly elected and
qualified.

At the Annual Meeting, three Class B
Directors will be elected to serve until the Annual Meeting of
stockholders of the Company in the year 2007 and until their
successors are duly elected and qualified. The Board of
Directors has nominated Malcolm W. Brawn, Neil H. Cullen,
and Richard Hart Harrington as Class B Directors (each, a
Nominee, collectively, the Nominees).
Each of the Nominees is currently serving as a Director of the
Company. Unless authority to do so has been withheld or limited
in a proxy, it is the intention of the persons named as proxies
to vote the shares to which the proxy relates FORthe
election of the Nominees to the Board of Directors.

The Board of Directors anticipates that each of
the Nominees will stand for election and serve, if elected, as a
Director. However, if any person nominated by the Board of
Directors fails to stand for election, the proxies will be voted
for the election of such other person or persons as the Board of
Directors may recommend.

The Board of Directors recommends a vote
FOReach of the nominees.

INFORMATION REGARDING DIRECTORS

The following table sets forth, for each of the
three (3) Nominees for election as Class B Director at
the Annual Meeting, the Nominees name and, as of
February 28, 2004, the Nominees age and the date from
which the Nominee has served as a Director of the Company and,
prior to the Reorganization, the Bank. Similar information is
provided for continuing Class A and Class C Directors
(each, a Continuing Director, collectively, the
Continuing Directors) whose terms do not expire
until the annual meetings of the stockholders of the Company in
2005 and 2006, respectively, and until their successors are duly
elected and qualified. Each Nominee and Continuing Director has
served as a director of the Company since July 1, 2001,

4



---



##### 



the effective date of the Reorganization (the
Effective Date). Prior to the Effective Date, each
Nominee and Continuing Director served as a Director of the Bank.


|                                           |                                                             |     |    |            |  |  |      |  | 
|------------------------------------------ | ----------------------------------------------------------- | --- | -- | ---------- |  |  | ---- |  | 
|                                           |                                                             |     |    | Trustee or
|                                           |                                                             |     |    | Director  
|Names of Nominees and Continuing Directors |                                                             | Age |    | Since     
|                                           |                                                             |     |    |           
|                                           | Nominees for Class B Directorships (Term
    expiring 2007) |     |    |            |  |  |      |  | 
|Malcolm W. Brawn                           |                                                             |     | 64 |            |  |  | 1991 | 
|Neil H. Cullen                             |                                                             |     | 61 |            |  |  | 1991 | 
|Richard Hart Harrington                    |                                                             |     | 67 |            |  |  | 1995 | 
|                                           | Continuing Directors Class A (Term
    expiring 2006)       |     |    |            |  |  |      |  | 
|Thomas J. Burke                            |                                                             |     | 63 |            |  |  | 1985 | 
|Marsha A. McDonough                        |                                                             |     | 60 |            |  |  | 1993 | 
|Kathleen Boshar Reynolds                   |                                                             |     | 48 |            |  |  | 1991 | 
|                                           | Continuing Directors Class C (Term
    expiring 2005)       |     |    |            |  |  |      |  | 
|Eugene A. Beliveau                         |                                                             |     | 73 |            |  |  | 1978 | 
|Byron R. Cleveland, Jr.                    |                                                             |     | 72 |            |  |  | 1968 | 
|Robert F. Hatem                            |                                                             |     | 68 |            |  |  | 1974 | 
|Paul A. Miller                             |                                                             |     | 64 |            |  |  | 1989 | 

PRINCIPAL OCCUPATION OF NOMINEES AND
CONTINUING DIRECTORS

Eugene A.
Beliveau, practicing dentist in North
Andover, Massachusetts.

Malcolm W.
Brawn, Executive Vice President and
Secretary of The Andover Companies, Andover, Massachusetts, a
property and casualty insurance company.

Thomas J.
Burke, Register of Deeds of Essex
County, Massachusetts and attorney.

Byron R.
Cleveland, Jr., President of J.H.
Horne & Sons, Lawrence, Massachusetts, a manufacturer
of paper mill machinery.

Neil H. Cullen,
Chief Financial Officer of Phillips Academy, Andover,
Massachusetts, a private secondary school.

Richard Hart
Harrington, CPA, Chairman, Gordon,
Harrington & Osborn, P.C., certified public
accountants, North Andover, Massachusetts.

Robert F. Hatem,
Business Consultant, Lowell, Massachusetts.

Marsha A. Mcdonough,
Education Consultant, Falmouth, MA.

Paul A. Miller,
President and Chief Executive Officer of the Company and the
Bank.

Kathleen Boshar
Reynolds, Sales Manager, Prudential
Howe & Doherty, Andover, Massachusetts, a real estate
brokerage company.

Each of the Nominees and Continuing Directors has
held such position(s) for five or more years with the exceptions
of Robert F. Hatem, who has held his present position since
October 2002, and previously was Executive Assistant to the
President, Northern Essex Community College, Lawrence/
Haverhill, Massachu-

5



---



##### 



setts; Kathleen Boshar Reynolds, who has held her
present position since October 2002, and was previously Sales
Manager DeWolfe Companies, North Andover, Massachusetts between
July 2000 and October 2002 and previously Executive Director,
Residential Association of Realtors, Greater Boston Real Estate
Board, Boston, Massachusetts; and Marsha A. McDonough, who
has held her present position since December 2003, and
previously was Regional Education Officer, U.S. Department
of State, Washington, D.C. between August and November
2000, and prior to August 2000 served as Associate Dean,
Endicott College, Beverly, Massachusetts.


The Board of Directors and its
Committees

The following sets forth certain information
concerning the Board of Directors of the Company. The Board of
Directors of the Company held 5 meetings in the fiscal year
ended December 31, 2003. Each Continuing Director and
Nominee attended at least 75% of the total number of meetings
held by the Board and all committees of the Board on which such
Director served during the period of such Directors
service in 2003. The Board of Directors of the Company has
determined that each Continuing Director and Nominee is
independent as defined in the Nasdaq Stock Market, Inc.
(the NASD) Independence Rules (the NASD
Independence Rules) other than Paul A. Miller, the
President and Chief Executive Officer of the Company. It is the
policy of the Company that all Directors should attend each
annual meeting of stockholders. All of the Continuing Directors
and Nominees attended the Companys last annual meeting of
stockholders held on May 6, 2003.

The Companys Board of Directors has not
established a formal process for stockholders to send
communications to the Board of Directors and individual
Directors. However, the names of all Directors are available to
stockholders in this proxy statement. If the Company receives
any stockholder communication intended for the full Board of
Directors or any individual Director, the Company will forward
the communication to the full Board of Directors or the
individual Director, unless the communication is clearly of a
marketing nature or is unduly hostile, threatening, illegal or
similarly inappropriate, in which case the Company has the
authority to discard the communications or take appropriate
legal action regarding the communication.

The Board of Directors of the Company has six
standing committees: an Executive Committee, a Nominating
Committee, a Stock Option Committee, a Compensation Committee, a
Community Affairs Committee and an Audit Committee.



| |                    
| | -------------------
| | Executive Committee

The members of the Executive Committee are
Messrs. Burke (Chairman), Beliveau, Brawn, and Miller
(President & CEO) plus two additional Board members on
a rotating basis. The rotating members of the Executive
Committee are drawn from the six other Directors not listed in
the preceding sentence. The Executive Committee is vested with
authority of the Board on most matters between meetings of the
Board. The Executive Committee held no meetings in 2003.



| |                     
| | --------------------
| | Nominating Committee

The members of the Nominating Committee are
Messrs. Burke (Chairman), Beliveau and Brawn, all of whom
are independent of the Company as defined under the NASD
Independence Rules. The Nominating Committee met two times in
2003.

6



---



##### 



The Nominating Committee is primarily responsible
for identifying, evaluating and recommending individuals for
nomination or appointment to the Board of Directors of the
Company. In March, 2004, the Board of Directors of the Company
approved a Nominating Committee charter, which sets forth the
responsibilities and duties of the Nominating Committee. The
charter is reviewed annually by the Nominating Committee. A copy
of the Nominating Committees charter is attached hereto as
Appendix A.

Pursuant to the charter, the Nominating
Committees process for identifying and evaluating nominees
is as follows: (1) in the case of an incumbent director
whose term of office is set to expire, the Nominating Committee
reviews such directors overall service to the Company
during such term, including the directors attendance
record at meetings of the Board of Directors of the Company and
committees of the Board of Directors of the Company on which the
director may serve, the directors tenure as a member of
the Board of Directors of the Company and the quality of the
directors performance on the Board of Directors of the
Company and (2) in the case of new Director candidates, the
Nominating Committee first conducts an appropriate inquiry into
the backgrounds and qualifications of possible candidates in
relation to the identified needs of the Board of Directors. The
Nominating Committee meets to discuss and consider such
candidates qualifications, and then selects a candidate
for recommendation to the Board of Directors. While the
Nominating Committee presently makes decisions by consensus, in
the event of disagreement, the Nominating Committee acts by
majority vote. With respect to new Director candidates, the
Nominating Committee may consider the following factors: a
candidates reputation, integrity, independence (as defined
under the NASD Independence Rules), knowledge, judgement, skills
and prior experience (business, professional and otherwise),
record of public or community service and connections with or
contributions to the local community served by the Bank. Any
candidate recommended by the Nominating Committee to the Board
of Directors of the Company for nomination must also comply with
all applicable eligibility requirements set forth in the
Companys By-Laws. The Nominating Committee has authority
under its charter to hire and pay a fee to consultants or search
firms to assist in the process of identifying and evaluating
candidates. During the period since the 2003 Annual Meeting of
stockholders, no such consultants or search firms have been used
and, accordingly, no fees have been paid to consultants or
search firms.

A stockholder of the Company may nominate one or
more individuals for election to the Board of Directors of the
Company so long as (a) such stockholder submits a timely
written notification to the Clerk of the Company in accordance
with the informational requirements discussed below and the
notice procedures described in this Proxy Statement under the
heading STOCKHOLDERS PROPOSALS AT 2005 ANNUAL
MEETING (page 23) and (b) the candidate or
candidates nominated satisfy the eligibility requirements
relative to director qualifications set forth in the
Companys By-Laws. The Nominating Committee will not
evaluate the qualifications of such a nominee based on the
selection criteria that the Nominating Committee applies to
review individuals that it identifies as possible candidates for
the Board of Directors of the Company. Rather, the Nominating
Committee will review any nomination submitted by a stockholder
of the Company solely for the purpose of confirming compliance
with the various requirements discussed herein. If the
Nominating Committee determines that a nomination made by a
stockholder of the Company does not comply with the applicable
standards in any material respect, then the Nominating Committee
by majority vote may reject such stockholder nomination. If the
Nominating Committee determines that a stockholder nominee
complies with all applicable requirements, then such nominee
will be identified in the Companys proxy statement as a
stockholder nominee for election as a Director at the Annual
Meeting.

Any stockholder nomination must contain the
following information: (1) the nominees name, age,
business address, residence address, principal occupation or
employment, the class and number of shares of

7



---



##### 



the Companys capital stock the nominee
beneficially owns and any other information relating to the
nominee that is required to be disclosed in solicitations of
proxies for election of directors pursuant to Section 14 of
the Securities and Exchange Act of 1934, as amended (the
Exchange Act), and the rules and regulations
thereunder; and (2) as to the stockholder proposing such
nominee, that stockholders name and address, the class and
number of shares of the Companys capital stock the
stockholder beneficially owns (and similar stock information
with respect to any other stockholder known by such stockholder
to be supporting such nominee on the date of such stockholder
notice), a description of all arrangements and understandings
between the stockholder and the nominee or any other person
(including their names) pursuant to which the nomination is
made, a representation that the stockholder intends to appear in
person or by proxy at the Annual Meeting of stockholders to
nominate the person named in its notice and any other
information relating to the stockholder that is required to be
disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules
and regulations thereunder. The notice must also be accompanied
by a written consent of the proposed nominee to being named as a
nominee and to serve as a director if elected.


No stockholder nominations were received by the
Nominating Committee in connection with the 2004 Annual Meeting.



| |                       
| | ----------------------
| | Stock Option Committee

The members of the Stock Option Committee are
Messrs. Burke (Chairman), Beliveau and Brawn. The Stock
Option Committee administers the Companys stock option
plans. The Stock Option Committee held no meetings in 2003.



| |                            
| | ---------------------------
| | Community Affairs Committee

The members of the Community Affairs Committee
are Messrs. Hatem (Chairman) and Miller. The Community
Affairs Committee reviews and approves requests for
contributions from non-profit organizations. The Community
Affairs Committee held no meetings in 2003.



| |                       
| | ----------------------
| | Compensation Committee

The members of the Compensation Committee of the
Bank are Messrs. Burke (Chairman), Beliveau and Brawn, all
of whom have been determined by the Board of Directors to be
independent as defined in the NASD Independence
Rules. Prior to March, 2004, the sole responsibility of the
Compensation Committee was to prepare an annual appraisal of the
performance of the Chief Executive Officer of the Company and
recommend the annual compensation and benefits for the Chief
Executive Officer to the Companys Board of Directors for
the approval of the Board. The Board of Directors recently
expanded the duties of the Compensation Committee to include
reviewing and making recommendations to the Board of Directors
with respect to the annual compensation and benefits of all the
executive officers of the Company. The Compensation Committee
met six times in 2003.



| |                
| | ---------------
| | Audit Committee

The members of the Audit Committee are
Messrs. Beliveau (Chairman), Cleveland, Hatem and
Harrington, all of whom have been determined by the Board of
Directors to be independent as defined in the NASD
Independence Rules and Rule 10A-3 promulgated by the SEC
under Section 10A(m)(3) of the Exchange Act. Recently, the
Audit Committee recommended and the Board of Directors approved
a revised

8



---



##### 



Audit Committee Charter, a copy of which is
attached to this Proxy Statement as Appendix B. The Audit
Committee is primarily responsible for overseeing the accounting
and financial reporting processes of the Company, the audits of
the financial statements of the Company and the appointment and
oversight of the Companys internal and independent
auditors. In addition, the Audit Committee must pre-approve any
non-audit services provided to the Company by the Companys
independent auditors. The charter of the Audit Committee is
reviewed annually and updated as necessary by the Audit
Committee and the Board of Directors. The Board of Directors has
determined that Richard Hart Harrington is an audit
committee financial expert as that term is defined in
Item 401 of Regulation S-K, as promulgated by the SEC
under the Exchange Act. The Audit Committee held five meetings
in 2003.


Audit Committee Report

The Audit Committee is organized and conducts its
business pursuant to a charter approved by the Board of
Directors of the Company, a copy of which is attached to this
Proxy Statement as Appendix B. As more specifically set
forth in the charter, the Audit Committee is primarily
responsible for overseeing the accounting and financial
reporting processes of the Company, the audits of the financial
statements of the Company and the appointment and oversight of
the Companys internal and independent auditors. In
fulfilling its responsibilities, the Audit Committee:



| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | discussed and considered the independence of KPMG
    LLP, reviewing as necessary all relationships and services which
    might bear on KPMG LLPs independence as outside auditor;
|
| |  | received written affirmation from KPMG LLP that
    it is, in fact, independent;                                                                                                    
|
| |  | discussed the overall audit process, receiving
    and reviewing all reports of KPMG LLP;                                                                                           
|
| |  | involved KPMG LLP in the Audit Committees
    review of the Companys financial statements and related
    reports with management;                                                
|
| |  | provided to KPMG LLP access to the Audit
    Committee and the full Board of Directors to report on all
    appropriate matters; and                                                
|
| |  | discussed with KPMG LLP all matters required
    under auditing standards generally accepted in the United States
    of America to be reviewed.                                    

The Audit Committee met with selected members of
management and KPMG LLP to review financial statements
(including quarterly reports), discussing such matters as the
quality of earnings; estimates, reserves and accruals; the
suitability of accounting principles; financial reporting
decisions requiring a high degree of judgment; and audit
adjustments, whether or not recorded.

The Audit Committee appointed KPMG LLP as the
Companys outside auditor for the period ended
December 31, 2004.

In addition, the Committee considered the quality
and adequacy of the Companys internal controls, the status
of pending litigation, taxation matters and such other areas of
oversight of the Companys financial reporting and audit
process as the Audit Committee felt appropriate.

9



---



##### 



Based upon its work and the information received
in the inquiries outlined above, the Audit Committee recommended
to the Companys Board of Directors that the Companys
audited financial statements be included in the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 for filing with the Securities and
Exchange Commission.



| |                              
| | -----------------------------
| | Respectfully submitted,      
|
| | EUGENE A. BELIVEAU (CHAIRMAN)
| | BYRON R. CLEVELAND, JR.      
| | ROBERT F. HATEM              
| | RICHARD HART HARRINGTON      

Compensation of Directors

The members of the Board of Directors of the
Company who serve on the Executive Committee, except for the
Chairman of the Board of Directors and Mr. Miller,
currently receive an annual retainer of $15,865 plus a fee of
$425 for each Executive Committee and Board meeting attended
plus a fee of $835 for each other Committee meeting attended
(other than meetings of the Executive Committee, Compensation
Committee, Nominating Committee and Stock Option Committee). The
Chairman of the Board of Directors receives an annual retainer
of $18,240 plus a fee of $480 for each board and committee
meeting attended, except conferences and training meetings
outside of the Company for which the fee is $835. Each Director
of the Company other than members of the Executive Committee
receives an annual retainer of $9,200 plus a fee of $425 for
each Board or Committee meeting attended. Each Director receives
a fee of $835 for all conferences and training meetings attended
outside the Company. Mr. Miller does not receive any
separate compensation for service as a Director or as a member
of any of the Committees of the Board of Directors.

EXECUTIVE OFFICERS

The following table sets forth, for each of the
executive officers of the Company, as of February 28, 2004
each such persons name, age and position or office held
with the Company and the Bank as well as other biographical
information. Each of the listed executive officers is employed
by the Bank under the terms and conditions of certain employment
agreements. In connection with the Reorganization, the Company
assumed

10



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##### 



joint contractual responsibility as employer
under each of these agreements. See EXECUTIVE
COMPENSATION  Employment Agreements
(page 13).


|                         |  |                                                                                                                           |  |     |    | 
|------------------------ |  | ------------------------------------------------------------------------------------------------------------------------- |  | --- | -- | 
|Name                     |  | Position                                                                                                                  |  | Age
|                         |  |                                                                                                                           |  |    
|Paul A. Miller           |  | Director, President and Chief Executive Officer
    of the Company and the Bank                                           |  |     | 64 | 
|Jeffrey W. Leeds(1)      |  | Executive Vice President and Chief Lending
    Officer of the Bank, Assistant Treasurer of the Company                    |  |     | 64 | 
|Timothy L. Felter(2)     |  | Executive Vice President, Personal Banking and
    Investment Officer of the Bank, Assistant Treasurer of the
    Company |  |     | 43 | 
|John E. Sharland(3)      |  | Senior Vice President, Chief Financial Officer
    and Treasurer of the Company and the Bank                              |  |     | 41 | 
|Richard J. DAmbrosio(4) |  | Senior Vice President, Support Services
    Operations of the Bank, Assistant Treasurer of the Company                    |  |     | 56 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Jeffrey W. Leeds, who joined the Bank in 1987,
    has been its Chief Lending Officer since 1988. He was appointed
    Assistant Treasurer of the Company in July 2001.                                                                                                                                                                                                                        
|   
|(2) | Timothy L. Felter, who joined the Bank in 1990,
    was appointed Senior Vice President of the Bank in 1993, Senior
    Vice President, Department Manager of Residential Lending in
    1994, Investment Officer in 1995 and Executive Vice
    President, Personal Banking, and Investment Officer in January
    1999. He was appointed Assistant Treasurer of the Company in
    July 2001.
|   
|(3) | John E. Sharland, who joined the Bank in 1992,
    was appointed Vice President and Chief Financial Officer in
    1994, Senior Vice President in 1998 and Senior Vice President,
    CFO and Treasurer in January 1999. He was appointed Senior Vice
    President, CFO and Treasurer of the Company in March 2001.                                                                           
|   
|(4) | Richard J. DAmbrosio, who joined the Bank
    in 1983, was elected Vice President of Servicing in 1986 and
    Senior Vice President of Support Services/ Operations in 1998.
    He was appointed Assistant Treasurer of the Company in July 2001.                                                                                                                                           

11



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##### 



EXECUTIVE COMPENSATION

The following table sets forth for the fiscal
years ended December 31, 2003, 2002 and 2001 certain
information concerning the compensation paid or accrued to the
Chief Executive Officer of the Company and the other executive
officers of the Company whose total salary and bonus exceeded
$100,000 during the year ended December 31, 2003, for
services rendered in all capacities to the Company
(collectively, the Named Executive Officers).

Summary Compensation Table

|                            |                                 |              |      |                     |  |            |         |              |  |     |   |        |  |  |   |        |  |   |         |         |       
|--------------------------- | ------------------------------- | ------------ | ---- | ------------------- |  | ---------- | ------- | ------------ |  | --- | - | ------ |  |  | - | ------ |  | - | ------- | ------- | ------
|                            |                                 |              |      |                     |  |            |         | Long Term    |  |    
|                            |                                 |              |      |                     |  |            |         | Compensation |  |    
|                            |                                 |              |      |                     |  |            |         |              |  |    
|                            |                                 |              |      |                     |  |            |         | Awards       |  |    
|                            |                                 |              |      |                     |  |            |         |              |  |    
|                            |                                 |              |      |                     |  |            |         | Securities   |  |    
|                            |                                 |              |      |                     |  | Underlying |         |             
|                            |                                 |              |      | Annual Compensation |  | Options/   |         | All Other   
|                            |                                 | Year Ended   |      |                     |  | SARs       |         | Compensation
|Name and Principal Position |                                 | December 31, |      | Salary              |  | Bonus      |         | (#)          |  | ($)
|                            |                                 |              |      |                     |  |            |         |              |  |    
|(a)                         |                                 | (b)          |      | (c)                 |  | (d)        |         | (g)          |  | (i)
|Paul A. Miller              |                                 |              | 2003 |                     |  | $          | 350,601 |              |  | $   | 0 |        |  |  | 0 |        |  | $ | 151,706 | (1)(2) 
|                            | President and                   |              |      | 2002                |  |            | $       | 352,106      |  |     | $ | 68,100 |  |  |   | 0      |  |   | $       | 148,722 | (1)(2)
|                            | Chief Executive Officer         |              |      | 2001                |  |            | $       | 335,401      |  |     | $ | 65,000 |  |  |   | 12,000 |  |   | $       | 144,414 | (1)(2)
|Jeffrey W. Leeds            |                                 |              | 2003 |                     |  | $          | 178,990 |              |  | $   | 0 |        |  |  | 0 |        |  | $ | 2,738   | (2)    
|                            | Executive Vice President        |              |      | 2002                |  |            | $       | 176,250      |  |     | $ | 18,500 |  |  |   | 0      |  |   | $       | 5,287   | (2)   
|                            | and Chief Lending Officer       |              |      | 2001                |  |            | $       | 165,000      |  |     | $ | 17,000 |  |  |   | 9,000  |  |   | $       | 4,523   | (2)   
|Timothy L. Felter           |                                 |              | 2003 |                     |  | $          | 132,404 |              |  | $   | 0 |        |  |  | 0 |        |  | $ | 2,025   | (2)    
|                            | Executive Vice President-       |              |      | 2002                |  |            | $       | 128,750      |  |     | $ | 18,500 |  |  |   | 0      |  |   | $       | 3,862   | (2)   
|                            | Personal Banking and Investment |              |      | 2001                |  |            | $       | 117,250      |  |     | $ | 17,000 |  |  |   | 9,000  |  |   | $       | 3,517   | (2)   
|                            | Officer                         |              |      |                     |  |            |         |              |  |     |   |        |  |  |   |        |  |   |         |         |       



---



|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes amounts accrued to fund supplemental
    retirement plans for the benefit of Mr. Miller pursuant to
    Supplemental Retirement Agreements with Mr. Miller. See
    EXECUTIVE COMPENSATION  Employment
    Agreements (page 13).
|   
|(2) | Includes matching contributions by the Bank to
    the Banks 401(k) Retirement Savings Plan for the Named
    Executive Officer.                                                                                                           

The Bank provides an automobile for use by
Mr. Miller and pays his membership dues to certain
organizations. The aggregate amount of such benefits is less
than 10% of Mr. Millers cash compensation. With the
exception of certain insurance premiums paid by the Bank, no
other benefits are made available to executive officers that are
not made available to all employees of the Bank. See
EXECUTIVE COMPENSATION  Benefits
(page 16). Employees of the Bank, including the executive
officers, are covered by the Banks group health insurance
program, group life insurance program, long-term disability
program and business related travel accident insurance plan.

No stock options or stock appreciation rights
were granted to any of the Named Executive Officers during
fiscal year 2003.

12



---



##### 



The following table sets forth certain
information concerning stock options exercised during the fiscal
year ended December 31, 2003 and the number and value of
shares of Common Stock of the Company subject to options held by
the Named Executive Officers as of December 31, 2003:

Aggregated Option/ SAR Exercises in Last
Fiscal Year

and Fiscal Year End Option/ SAR
Values


|                  |  |          |        |          |  |               |        |                  |  |  |               |  |  |   |                   | 
|----------------- |  | -------- | ------ | -------- |  | ------------- | ------ | ---------------- |  |  | ------------- |  |  | - | ----------------- | 
|                  |  |          |        |          |  | Number of     |        |                 
|                  |  |          |        |          |  | Securities    |        | Value of        
|                  |  |          |        |          |  | Underlying    |        | Unexercised     
|                  |  |          |        |          |  | Unexercised   |        | In-The-Money    
|                  |  |          |        |          |  | Options/SARs  |        | Options/SARs    
|                  |  | Shares   |        |          |  | at Fiscal     |        | at Fiscal       
|                  |  | Acquired |        | Value    |  | Year End(#)   |        | Year End($)     
|                  |  | on       |        | Realized |  | Exercisable/  |        | Exercisable/    
|Name              |  | Exercise |        | ($)(1)   |  | Unexercisable |        | Unexercisable(2)
|                  |  |          |        |          |  |               |        |                 
|Paul A. Miller    |  |          | 0      |          |  |               | 0      |                  |  |  | 148,500/3,000 |  |  | $ | 1,651,560/$10,230 | 
|Jeffrey W. Leeds  |  |          | 0      |          |  |               | 0      |                  |  |  | 45,750/2,250  |  |  | $ | 435,983/$7,673    | 
|Timothy L. Felter |  |          | 10,000 |          |  | $             | 77,600 |                  |  |  | 30,430/2,250  |  |  | $ | 272,733/$7,673    | 



---



|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the closing price per share of the
    Companys common stock on the day the shares were exercised.                            
|   
|(2) | Based on a closing price of $17.31 per share
    of the Companys Common Stock on December 31, 2003,
    less the option exercise price.

Employment Agreements

The Company entered into an employment agreement
with Paul A. Miller effective on April 21, 1989 that was
amended effective December 23, 1992, and with Jeffrey W.
Leeds and Timothy L. Felter effective on February 24, 2000.
Each of the employment agreements requires the Company to pay
the executive a Base Salary, which may be increased
but shall not be reduced during the term of the agreement and
provides for the executives participation in the
Companys employee benefit plans and arrangements. In
addition, the Companys agreement with Mr. Miller
provides the executive with the use of an automobile. Each of
the agreements prohibits the executive from disclosing or
converting to the executives own use the Companys
confidential information.

The agreement with Mr. Miller had an initial
term of three years. The agreements with Mr. Leeds and
Mr. Felter had an initial term of two years. Each of the
agreements provides that commencing on the second anniversary of
the agreement and on each anniversary date thereafter, in the
absence of notice of non-extension, the term of the agreement
will automatically be extended for an additional one-year
period. On January 22, 2004, Mr. Miller and
Mr. Leeds Employment Agreements were amended to
eliminate any payments for Mr. Miller for any period after
December 31, 2006 and for Mr. Leeds after
December 31, 2005.

Under the employment agreements, the Company may
terminate the executives employment at any time, with or
without cause as defined in the agreements. If after
notice and reasonable opportunity for the executive to respond,
the Company terminates the executives employment for
cause, the Company has no continuing obligations to
the executive. If the Company terminates the executives
employment without cause, the Company is obligated to continue
providing the executive compensation and benefits specified in
the agreement for the then remaining term of the agreement.

13



---



##### 



Each of the employment agreements provides for
payment of a lump sum to the executive equal to up to three
times the base amount of the executives
compensation in the event of a termination of the
executives employment within two years following a
change in control of the Company as defined in the
agreement, provided that the Company may reduce this amount to
the extent necessary to avoid tax under Section 4999 of the
Internal Revenue Code and no payments will be made for any
period after the executives planned retirement date.

In addition to Mr. Millers employment
agreement, the Company has adopted two supplemental executive
retirement plans for Mr. Miller. The purpose of the
supplemental plans, when taken together with the Savings Banks
Employees Retirement Association plan described below, and a
supplemental plan from a previous employer, is to provide
Mr. Miller with annual retirement benefits equal to 70% of
the average of his three highest consecutive years gross
compensation. The plans also provide certain termination
benefits under certain circumstances equal to
Mr. Millers earned and accrued benefits to date,
subject to a vesting schedule and other conditions.

Compensation Committee Report on Executive
Compensation

The following report has been adopted by the
Compensation Committee of the Company.



| |                    
| | -------------------
| | Compensation Policy

The Companys executive compensation program
is designed to provide executives with annual salary and benefit
plans which are competitive in the industry and with long-term
incentives in the form of stock options. The Compensation
Committee believes that in order to attract and retain talented
executives and to motivate them to achieve the goals of the
Company, compensation opportunities should be comparable to
those offered to executives with similar responsibility and
position by peer companies. To assist the Compensation
Committee, various industry compensation surveys are made
available to the Committee.

Recently, the Board of Directors expanded the
duties of the Compensation Committee to include reviewing and
making recommendations to the Board of Directors with respect to
the annual compensation and benefits for all the executive
officers of the Company. The Compensation Committee recommends
annual executive salary adjustments and bonus awards which are
made from time to time. The adjustments and bonuses recommended
by the Compensation Committee reflect the overall performance of
the Company, the performance of each affected executive officer
and information for comparable positions in other like
institutions. The Compensation Committees recommendation
for compensation adjustment and if applicable a bonus is then
acted upon by the Board of Directors of the Company.

The Company periodically grants stock options to
some or all of its executive officers as long-term incentives.
All stock options granted have exercise prices at or above the
market value of shares of Common Stock on the date of grant;
therefore no benefit accrues to the executives from the stock
option unless the market value of the Companys Common
Stock increases and the options are exercised. These grants
motivate executives to enhance equity value of the Company which
in turn coincides with the interest of the stockholders. During
2003, there were no stock options granted to any of the Named
Executive Officers. However, stock options were granted to the
Named Executive Officers and the remaining executive officers of
the Company on January 22, 2004 (Mr. Miller 10,000 options;
Messrs. Felter and Leeds 8,000 options each; and
Messrs. DAmbrosio and Sharland 6,500 options each).
Each Director of the Company was also awarded 2,000 stock
options on January 22, 2004.

Executives may also participate in the
Banks 401(k) Savings Plan and Pension Plan.

14



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##### 





| |                                         
| | ----------------------------------------
| | Chief Executive Officer
    Compensation

The Banks Chief Executive Officers
compensation is reviewed annually by the Compensation Committee
and is based upon his performance, the overall performance of
the Bank relative to budget objectives and information regarding
compensation for the Chief Executive Officer position at like
institutions. The Compensation Committees recommendation
for compensation adjustment and if applicable a bonus is then
acted upon by the Board.



| |                           
| | --------------------------
| | Respectfully submitted,   
|
| | Thomas J. Burke (Chairman)
| | Eugene A. Beliveau        
| | Malcolm W. Brawn          

The foregoing report is provided by the three
named directors in their capacity as members of the Compensation
Committee of the Company during 2003.

Compensation Committee Interlocks and Insider
Participation

Messrs. Beliveau, Brawn and Burke served on
the Compensation Committee of the Company during the fiscal year
ended December 31, 2003. None of the members of the
Compensation Committee has ever served as an officer or employee
of the Company or the Bank. See also, Indebtedness of
Directors and Management and Certain Transactions with
Management and Others (page 18).

No executive officer of the Company served
(i) as a member of the Compensation Committee of another
entity, one of whose executive officers served on the
Compensation Committee of the Company, (ii) as a director
of another entity, one of whose executive officers served on the
Compensation Committee of the Company, or (iii) as a member
of the Compensation Committee of another entity, one of whose
executive officers served as a Director of the Company.

Stock Option Plans

On July 1, 2001, the Company assumed the
Banks two stock option plans, the Lawrence Savings Bank
1986 Stock Option Plan (the 1986 Stock Option Plan)
and the Lawrence Savings Bank 1997 Stock Option Plan (the
1997 Stock Option Plan).

The 1986 Stock Option Plan was in effect until
1996, expiring by its own terms in May, 1996. Notwithstanding
the expiration of the 1986 Stock Option Plan, outstanding
options granted under the 1986 Stock Option Plan continue to be
exercisable in accordance with their terms. The 1997 Stock
Option Plan was adopted by the Banks Board of Directors on
December 18, 1997 and approved by the Banks
stockholders on May 5, 1998. The Massachusetts Commissioner
of Banks approved the 1997 Stock Option Plan on June 22,
1998. Both incentive stock options and
nonqualified stock options may be granted pursuant
to the 1997 Stock Option Plan. The 1997 Stock Option Plan also
permits the inclusion of stock appreciation rights in any option
granted.

The 1986 and 1997 Stock Option Plans are
administered by the Stock Option Committee of the Company, which
is comprised of non-employee Directors of the Company. The Stock
Option Committee currently consists of Messrs. Beliveau,
Brawn and Burke.

15



---



##### 



As of February 28, 2004, stock options for
the purchase of an aggregate of 561,650 shares of Common
Stock at an average purchase price per share of $10.85 were
outstanding under the 1986 and 1997 Stock Option Plans. Of these
options, 409,800 were exercisable on that date. There were
385,000 stock options outstanding under the 1997 Stock Option
Plan included in the 561,650 outstanding options. In 2003,
45,600 options were exercised to purchase 38,557 shares of
Common Stock under the 1986 Stock Option Plan and 26,000 options
were exercised to purchase shares of Common Stock under the 1997
Stock Option Plan.

Benefits

Insurance and Other
Benefits.The Company provides
full-time officers and employees with hospitalization, major
medical, life, dental, travel accident, and long-term disability
insurance under group plans which are available generally and on
the same basis to all full-time employees; provided, however,
that with respect to the hospitalization and major medical
insurance plan, full-time employees hired on or after
September 1, 1984, other than Messrs. Miller and
Leeds, are required to pay 25% of each months premiums.
The travel accident insurance plan is also made available to
part-time employees. The Company also sponsors a 401(k) Savings
Plan which allows participants to defer a percentage of their
before-tax compensation from the Company as a contribution under
this plan. Participants have several investment options,
including a fund which invests solely in Common Stock of the
Company. All full-time and certain part-time employees are
eligible to participate in this plan. The Company may match
officer and employee contributions for all employees who
participate in the 401(k) plan. The Bank matched 50% of
employees contributions up to 3% of each employees
salary through June 30, 2003. No matches were made from
July to December 2003.

Pension Plan.The
Company provides a retirement plan for all eligible employees
through Savings Banks Employees Retirement Association
(SBERA), an unincorporated association of savings
banks operating within Massachusetts and other organizations
providing services to or for savings banks. SBERAs sole
purpose is to enable participating employers to provide pensions
and other benefits for their employees.

At October 31, 2003, the latest date for
which information is available, the present value of accumulated
benefits under the retirement plan was fully funded by the
market values of related available assets.

The following table illustrates annual pension
benefits for retirement at age 65 under the most
advantageous plan provisions available for various levels of
compensation and years of service. The figures in

16



---



##### 



this table are based upon the assumption that the
plan continues in its present form and upon certain other
assumptions regarding compensation trends and social security.


Annual Pension Benefit* Based on Years of
Service(1)(2)

|                |  |          |        |          |  |          |        |            |  |   |        |  |  |   |        | 
|--------------- |  | -------- | ------ | -------- |  | -------- | ------ | ---------- |  | - | ------ |  |  | - | ------ | 
|Average         |  |          |        |          |  |          |        | 25 or     
|Compensation(3) |  | 10 Years |        | 15 Years |  | 20 Years |        | More Years
|                |  |          |        |          |  |          |        |           
|$20,000         |  | $        | 2,500  |          |  | $        | 3,750  |            |  | $ | 5,000  |  |  | $ | 6,250  | 
|$40,000         |  | $        | 5,000  |          |  | $        | 7,500  |            |  | $ | 10,000 |  |  | $ | 12,500 | 
|$60,000         |  | $        | 8,461  |          |  | $        | 12,692 |            |  | $ | 16,923 |  |  | $ | 21,153 | 
|$80,000         |  | $        | 12,161 |          |  | $        | 18,242 |            |  | $ | 24,323 |  |  | $ | 30,403 | 
|$100,000        |  | $        | 15,861 |          |  | $        | 23,792 |            |  | $ | 31,723 |  |  | $ | 39,653 | 
|$120,000        |  | $        | 19,561 |          |  | $        | 29,342 |            |  | $ | 39,123 |  |  | $ | 48,903 | 
|$125,000        |  | $        | 20,486 |          |  | $        | 30,730 |            |  | $ | 40,973 |  |  | $ | 51,216 | 
|$140,000        |  | $        | 23,261 |          |  | $        | 34,892 |            |  | $ | 46,523 |  |  | $ | 58,153 | 
|$150,000        |  | $        | 25,111 |          |  | $        | 37,667 |            |  | $ | 50,223 |  |  | $ | 62,778 | 
|$175,000        |  | $        | 29,736 |          |  | $        | 44,605 |            |  | $ | 59,473 |  |  | $ | 74,341 | 
|$200,000**      |  | $        | 34,361 |          |  | $        | 51,542 |            |  | $ | 68,723 |  |  | $ | 85,903 | 



---



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| | * | Based on age 65 retirement in 2004 (Plan
    Year 11/1/03  10/31/04)



| |    |                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------
| | ** | Federal law does not permit defined benefit
    pension plans to recognize compensation in excess of $200,000
    for plan year 2003.



|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The annual pension benefit is computed on the
    basis of a straight life annuity.                                                                        
|   
|(2) | The Company provides additional retirement
    benefits to Mr. Miller through two supplemental retirement
    plans. See Employment Agreements (page 13).
|   
|(3) | Average compensation for purposes of this table
    is based on the average of the highest three consecutive years
    preceding retirement.               

The estimated retirement benefits under the plan
at normal retirement date computed on the basis of their present
salary levels and years of service at such date for
Mr. Miller, Mr. Leeds and Mr. Felter are $54,761
and 16 years, $53,985 and 18 years, and $48,958 and
36 years, respectively.

17



---



##### 



PERFORMANCE GRAPH

Set forth below is a line graph comparing the
yearly percentage change in the cumulative total stockholder
return on the Companys Common Stock (or the Banks
Common Stock in the periods prior to the Reorganization), based
on the market price of the Companys (or the Banks)
Common Stock and assuming reinvestment of dividends, with the
total return of companies within the Standard &
Poors 500 Stock Index and the Advest New England Thrift
Index. The calculation of total cumulative return assumes a $100
investment in the Companys Common Stock, the S&P 500
and the Advest New England Thrift Index on December 31,
1998.

LOGO

Indebtedness of Directors and Management and
Certain Transactions with Management and Others

Certain of the Directors and officers of the
Company are at present, as in the past, customers of the Bank
and from time-to-time have entered into transactions with the
Company in the ordinary course of business. In addition, certain
Directors of the Company are at present, as in the past,
directors, officers or stockholders of corporations or members
of partnerships that are customers of the Bank and have
transactions with the Bank in the ordinary course of business.
Such transactions with Directors and officers of the Company,
and with such corporations and partnerships, are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons not affiliated with the Company,
and do not involve more than normal risk of collectability, or
present other features unfavorable to the Company. As a matter
of policy, the Company also makes certain loans to other
employees.

In addition, from time-to-time, the Company
obtains services from one or more of its Directors. However, at
no time during the past year did payments to any Director for
such services aggregate $60,000 or more.

Extensions of credit to officers of the Company
are restricted by Company policy and Massachusetts statute to an
amount of not more than $20,000 generally, whether secured or
unsecured, and not more than $75,000 for educational purposes,
except that a loan not exceeding $275,000 may be made to
officers secured

18



---



##### 



by a mortgage on their primary residence. All
extensions of credit and loans to officers must be approved by
the Executive Committee of the Board of Directors of the
Company, and all extensions of credit and loans to executive
officers must also be approved by the Banks Board of
Directors.


In addition, the Company is subject to the
provisions of Regulation O of the Board of Governors
of the Federal Reserve System, which: (i) requires the
Companys executive officers, directors and control persons
to report to the Banks Board of Directors any indebtedness
to the Bank, (ii) establishes requirements and restrictions
as to the terms, size of and approvals necessary for extensions
of credit by the Bank to its executive officers, directors, and
control persons and their related interests, and
(iii) requires any such loans to be made at the same rates
and on the same terms and conditions as comparable loans to
unaffiliated persons.

During the year ended December 31, 2003, the
Bank had two arrangements (the Participation
Arrangements) in loans owned and serviced by entities
affiliated with Mr. William P. DeLuca, Jr., a direct
and indirect beneficial owner of 9.00% of the outstanding common
stock of the Company. In the first Participation Arrangement,
the Bank provided automobile floor plan financing to various
used car dealerships throughout the United States. In the second
Participation Arrangement, the Bank purchased an interest in a
pool of automobile leases made to individuals throughout the
United States. Both arrangements terminated during the year, and
at December 31, 2003, there were no outstanding balances.

19



---



##### 



SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth certain
information, as of February 28, 2004 regarding the
beneficial ownership of Common Stock by: (i) each Director
and Nominee; (ii) each of the Named Executive Officers
during the last fiscal year; (iii) all Directors, Nominees
and such executive officers as a group; and (iv) each
person who, to the knowledge of the Company, beneficially owned
more than 5% of the Common Stock at the Record Date. Except as
otherwise noted, the persons named in the table below have sole
voting and investment power with respect to all shares shown as
beneficially owned.

|                                 |                                                                        |                 |  |             |       |  |  |      |  
|-------------------------------- | ---------------------------------------------------------------------- | --------------- |  | ----------- | ----- |  |  | ---- | -
|                                 |                                                                        | Amount          |  |            
|                                 |                                                                        | and Nature      |  |            
|                                 |                                                                        | of Beneficial   |  | Percent    
|Name of Beneficial Owner         |                                                                        | Ownership(1)(2) |  | of Class(3)
|                                 |                                                                        |                 |  |            
|Directors and Principal Officers |                                                                        |                 |  |             |       |  |  |     
|                                 | Eugene A. Beliveau                                                     |                 |  | 8,975       | (4)   |  |  | *    |  
|                                 | Kathleen Boshar Reynolds                                               |                 |  | 6,200       |       |  |  | *    |  
|                                 | Byron R. Cleveland, Jr.                                                |                 |  | 2,100       |       |  |  | *    |  
|                                 | Robert F. Hatem                                                        |                 |  | 9,775       |       |  |  | *    |  
|                                 | Paul A. Miller                                                         |                 |  | 169,585     | **    |  |  | 3.95 | %
|                                 | Thomas J. Burke                                                        |                 |  | 11,950      |       |  |  | *    |  
|                                 | Marsha A. McDonough                                                    |                 |  | 5,800       |       |  |  | *    |  
|                                 | Malcolm W. Brawn                                                       |                 |  | 22,500      | (5)   |  |  | *    |  
|                                 | Neil H. Cullen                                                         |                 |  | 7,500       |       |  |  | *    |  
|                                 | Richard Hart Harrington                                                |                 |  | 5,755       |       |  |  | *    |  
|                                 | Jeffrey W. Leeds                                                       |                 |  | 68,070      |       |  |  | 1.59 | %
|                                 | Timothy L. Felter                                                      |                 |  | 52,962      | **    |  |  | 1.23 | %
|                                 | All Directors and Named Executive Officers as a
    Group (12 persons) |                 |  | 371,172     | (6)** |  |  | 8.65 | %
|5% Stockholders                  |                                                                        |                 |  |             |       |  |  |     
|                                 | First Manhattan Co.                                                    |                 |  | 385,800     | (7)   |  |  | 9.10 | %
|                                 | William P. Deluca Jr. and Lease and Rental
    Management Corp.        |                 |  | 381,650     | (8)   |  |  | 9.00 | %



---



| |   |                      
| | - | ---------------------
| | * | Less than one percent



| |    |                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | Includes shares held in the Companys 401(k)
    Plan. The estimated shares so held with respect to each such
    participant are: Paul A. Miller, 16,585 shares; Timothy L.
    Felter, 8,657 shares; and all Directors and Named Executive
    Officers as a group (12 persons), 25,242 shares,
    respectively.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In accordance with the applicable rules of the
    SEC, a person is deemed to be the beneficial owner of shares of
    the Common Stock of the Company if he or she has or shares
    voting power or investment power with respect to such shares or
    has the right to acquire beneficial ownership of such shares at
    any time within 60 days. As used herein, voting
    power means the power to vote or direct the voting of
    shares, and investment power means the power to
    dispose or direct the disposition of shares. Unless otherwise
    indicated, each person named has sole voting and sole investment
    power with respect to all shares indicated.

20



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##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes shares of the Companys Common
    Stock which Directors and principal officers of the Company have
    the right to acquire within 60 days of February 28,
    2004 pursuant to options granted under the 1986 and 1997 Stock
    Option Plans of the Company. The following persons have
    exercisable options to purchase the number of shares indicated:
    Mr. Miller, 108,500 shares; Mr. Leeds,
    45,750 shares; Mr. Felter, 23,750 shares;
    Mr. Burke, 10,500 shares; Mr. Beliveau,
    0 shares, Mr. Hatem, 6,500 shares;
    Mr. Cleveland, 1,000 shares; Mr. Harrington,
    5,500 shares; Ms. McDonough and Ms. Boshar
    Reynolds and Messrs. Brawn and Cullen, 4,500 shares
    each; and all Directors and Named Executive Officers as a group,
    219,500 shares.                       
|   
|(3) | Computed on the basis of 4,293,142 outstanding
    shares as of February 28, 2004 plus 219,500 shares
    subject to options exercisable within 60 days of
    February 28, 2004 held by the named individual or group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(4) | Includes 700 shares owned by a household
    member, as to which Dr. Beliveau disclaims beneficial
    ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(5) | Includes 1,000 shares owned by his spouse,
    as to which Mr. Brawn disclaims beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(6) | The stated number of shares owned by the Named
    Executive Officers and Directors of the Company includes
    126,430 shares currently issued and outstanding and
    219,500 shares subject to stock options exercisable within
    60 days of February 28, 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(7) | Based solely on Schedule 13G/ A filed with
    the Securities and Exchange Commission on or about
    February 12, 2004, First Manhattan Co. reports beneficial
    ownership of 385,800 shares of Common Stock. First
    Manhattan Co. reports sole voting power with respect to
    328,300 shares and sole dispositive power with respect to
    328,300 shares, shared voting power with respect to
    19,500 shares and shared dispositive power with respect to
    57,500 shares. First Manhattan Co.s address is 437
    Madison Avenue, New York, NY 10022.                                                                                                                                                                                                                                                    
|   
|(8) | Based solely on a Schedule 13G/ A filed with
    the Securities and Exchange Commission on or about March 4,
    2004, Windham Equity Co. (f/k/a Lease and Rental Management
    Corp.) reports beneficial ownership of 381,650 shares of
    Common Stock of the Company. Based solely on a Form 13G/ A
    filed with the Securities and Exchange Commission on or about
    March 4, 2004, Mr. William P. DeLuca Jr. reports
    beneficial ownership of 381,650 shares of Common Stock of
    the Company with sole voting power with respect to 0 shares
    and sole dispositive power with respect to 0 shares, and
    shared voting and dispositive power with respect to
    381,650 shares. Both Mr. DeLuca and Windham Equity Co.
    have an address of 45 Haverhill Street, Andover, Massachusetts
    01810.

Section 16(a) Beneficial Ownership
Reporting Compliance

Pursuant to regulations of the SEC and
Section 16(a) of the Securities Exchange Act of 1934, as
amended, the Companys officers and Directors and persons
who own more than ten percent of a registered class of the
Companys equity securities must file reports of ownership
and changes in ownership with the SEC and the Nasdaq Stock
Market. Officers, Directors and greater-than-ten-percent
stockholders are required to furnish the Company with copies of
all ownership reports they file. Based solely on its review of
the copies of such reports received by the Company with respect
to its fiscal year 2003, or written representations from certain
reporting persons, the Company believes that during 2003 all
Section 16(a) filing requirements applicable to its
officers, Directors, and greater-than-ten-percent stockholders
were satisfied.

21



---



##### 



SERVICES OF THE INDEPENDENT AUDITOR FOR THE
2003 FISCAL YEAR

In March 2003, upon recommendation of the Audit
Committee, the Board of Directors of the Company appointed the
public accounting firm of KPMG LLP as independent auditors of
the Company for 2003. Fees billed for services rendered by KPMG
LLP for each of the years 2003 and 2002 were as follows:



| |           
| | ----------
| | Audit Fees

The aggregate fees billed by KPMG LLP for
professional services rendered for the audit of the
Companys annual financial statements for the year ended
December 31, 2003, including the reviews of the financial
statements included in the Companys Quarterly Reports on
Form 10-Q, assistance with Securities Act filings and
related matters and consultations on financial accounting and
reporting standards arising during the course of the audit or
reviews for that fiscal year were $115,000.

The aggregate fees billed by KPMG LLP for
professional services rendered for the audit of the
Companys annual financial statements for the year ended
December 31, 2002, including the reviews of the financial
statements included in the Companys Quarterly Reports on
Form 10-Q, assistance with Securities Act filings and
related matters and consultations on financial accounting and
reporting standards arising during the course of the audit or
reviews for that fiscal year were $103,000.



| |                   
| | ------------------
| | Audit-Related Fees

The aggregate fees billed by KPMG LLP for
assurance and related services that are reasonably related to
the performance of the audit or review of the Companys
financial statements, and are not reported above, were $0 for
the year ended December 31, 2003 and $0 for the year ended
December 31, 2002.



| |         
| | --------
| | Tax Fees

The aggregate fees billed by KPMG LLP for
professional services rendered for tax compliance, tax advice,
and tax planning were $35,500 for the year ended
December 31, 2003 and $21,050 for the year ended
December 31, 2002. Such services consisted of tax
compliance and consulting.



| |               
| | --------------
| | All Other Fees

There were no other fees billed by KPMG LLP for
services rendered to the Company, other than the services
described above.

Since the enactment of the Sarbanes-Oxley Act of
2002, the Audit Committee has pre-approved all non-audit
services provided by KPMG LLP.

NOTIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS

Recently, the Board of Directors expanded the
duties of the Audit Committee to include appointing the
Companys independent auditors. In March, 2004, the Audit
Committee appointed KPMG LLP as independent auditors for the
Company to serve in such position for 2004. As previously noted,
in March 2003, upon recommendation of the Audit Committee, the
Board of Directors of the Company appointed KPMG LLP to serve as
independent auditors of the Company for 2003. KPMG LLP has
served as the independent auditors of the Company since 1980.
The Board of Directors of the Company expects that
representatives of

22



---



##### 



KPMG LLP will be present at the Annual Meeting.
Such representatives will have the opportunity to make
statements if they desire to do so and will be available to
respond to appropriate questions.


STOCKHOLDER PROPOSALS AT 2005 ANNUAL
MEETING

Under the rules of the SEC, if any stockholder
intends to present a proposal at the annual meeting of
stockholders and desires that it be considered for inclusion in
the Companys proxy statement and form of proxy for such
meeting, it must be received by the Company not less than 120
calendar days before the anniversary of the mailing date of the
Companys proxy statement for the prior year. Accordingly,
if any stockholder intends to present a proposal at the year
2005 annual meeting and wishes it to be considered in the
Companys proxy statement and form of proxy, such proposal
must be received by the Company on or before December 1,
2004. In addition, the Companys By-Laws provide that any
Director nominations and new business submitted by a stockholder
must be filed with the Clerk of the Company no fewer than
60 days, but no more than 90 days, prior to the date
of the one-year anniversary of the previous Annual Meeting, and
that no other nominations or proposals by stockholders shall be
acted upon at the Annual Meeting. If, however, the annual
meeting is more than 30 days earlier or more than
60 days later than the anniversary date of the prior annual
meeting, then notice shall be timely if delivered to or mailed
and received by the Company not later than the close of business
on the later of (a) the 75th day prior to the scheduled
date of such annual meeting or (b) the 15th day following
the day on which public disclosure of the date of such Annual
Meeting is first made by the Company. Certain exceptions under
the By-Laws apply to Annual Meetings of stockholders at which
newly created seats of the Board of Directors are to be filled.
Any such proposal should be mailed to: Clerk, LSB Corporation,
30 Massachusetts Avenue, North Andover, Massachusetts 01845.

CODE OF PROFESSIONAL CONDUCT

The Company has adopted a Code of Professional
Conduct (the Code) that applies to all of the
Companys Directors, officers and employees, including its
principal executive officer, principal financial officer,
principal accounting officer and controller. A copy of the Code
is filed as an exhibit to the Companys Annual Report on
Form 10-K for the year ended December 31, 2003. The
Code is posted on the Companys website at
www.LawrenceSavings.com. The Company intends to disclose any
amendments to the Code by posting such amendments on its
website. In addition, any waivers of the Code for Directors or
executive officers of the Company will be disclosed in a report
on Form 8-K.

OTHER MATTERS

As of the date of this Proxy Statement, the Board
of Directors of the Company knows of no matters to be brought
before the Annual Meeting other than those specifically listed
in the Notice of Annual Meeting of Stockholders. However, if
further business is properly presented, the persons named as
proxies in the accompanying proxy will vote such proxy in their
discretion in accordance with their best judgment.

23



---



##### 



Appendix A

LSB CORPORATION

Nominating Committee Charter

I.     Purpose

The purpose of the Nominating Committee (the
Committee) is to (i) identify qualified
individuals for nomination or appointment to the Board of
Directors (the Board) of LSB Corporation (the
Company), (ii) recommend to the Board a slate
of director nominees for each annual meeting of the stockholders
of the Company or, in the case of vacancies, individual nominees
if and when such vacancies occur, and (iii) review
stockholder recommendations, if any, received by the Board with
respect to nomination to the Board for the purpose of
determining compliance with the applicable requirements for
stockholder nominations set forth in the By-Laws of the Company .

II.     Committee
Membership, Meetings and Reports, Compensation

The Committee shall consist of a minimum of three
members of the Board, each of whom shall be appointed by and
serve at the discretion of the Board. The Chairman of the Board
shall be one of the three members of the Nominating Committee.
Each member of the Committee shall satisfy the listing standards
and other regulatory requirements of the Nasdaq Stock Market,
Inc. and the Securities & Exchange Commission relative
to director independence.

The Committee shall meet no less than once
annually for the purpose of evaluating the qualifications of
individuals to serve on the Board and to make recommendations to
the Board for nomination to stand for election as directors at
the annual meeting of stockholders of the Company or to fill a
vacancy on the Board. Committee meetings may be called by the
Chairman of the Committee or the Chairman of the Board or by the
Chief Executive officer of the Company. Each member shall be
provided no less than seven days prior written notice of such
meeting, which notice shall provide the date, time and place of
such meeting. The Committee shall be chaired by one of its
members who shall be appointed to such position by the Board.
The approval of a majority of the members of the Committee is
required for any recommendation to be made to the Board. Each
member may participate in Committee meetings either in person or
by such other means as permitted by the Companys By-Laws
and applicable law. The Committee shall keep written minutes of
each meeting and shall report its actions to the Board. All
Committee minutes shall be furnished to the Clerk of the Company
who shall file such minutes with the minutes memorializing the
meetings of the Board. At each regularly scheduled meeting of
the Board, the Committee Chairman shall provide the Board with a
report of the Committees activities.

At the invitation of the Committee chair,
non-independent directors may attend Committee meetings and
assist the Committee in establishing its meeting agendas. From
time to time, the Committee may, in its sole discretion, engage
advisors and consultants, including, but not limited to,
attorneys and accountants, to assist the Committee in the
performance of its responsibilities. The Committee shall have
sole authority to approve the terms of any such engagement
including the fees to be paid to such advisor or consultant. In
this connection, the Committee may, from time to time, invite
such advisors or consultants to attend one or more Committee
meetings.

Compensation for service on the Committee shall
be determined by the Board.

A-1



---



##### 



III.     Committee
Responsibilities and Duties

The responsibilities and duties of the Committee
shall include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Establishing and articulating qualifications and
    selection criteria for members of the Board consistent with the
    eligibility requirements set forth in the Companys
    By-Laws. In setting such qualifications and criteria, the
    Committee may consider such factors as the Committee deems
    appropriate. In the case of an incumbent director whose term of
    office is set to expire, the Committee may review such
    directors overall service to the Company during such term,
    including the directors attendance record at Board and
    committee meetings, the directors tenure as a member of
    the Board, the quality of the directors performance on the
    Board and any other matter the Committee deems relevant. In the
    case of new director candidates, the Committee may consider such
    factors as an individuals reputation, integrity,
    independence, knowledge, judgement, skills and prior experience
    (business, professional and otherwise), in each case taking into
    account the composition of the then existing Board and the then
    existing state of the Company and the economy.
|
| |  | Evaluating potential nominees and making
    recommendations to the Board with respect to those candidates
    the Committee feels possess the appropriate skills and qualities
    to serve the best interests of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Reviewing nominations for service on the Board
    made by stockholders of the Company for compliance with the
    applicable requirements contained in the By-Laws of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Periodically, but not less than once annually,
    review and assess the adequacy of this charter and the processes
    used by the Committee to select nominees to the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

IV. Reliance

In performing their responsibilities, each
Committee member shall be entitled to rely in good faith on
information, opinion, reports, statements or other materials or
information prepared or presented to them by (i) one or
more officers or employees of the Company whom such Committee
member reasonably believes to reliable and competent in the
matters prepared or presented, (ii) counsel, search firms,
accountants or other persons as to matters such Committee member
reasonably believes to be within the professional competence of
such person, and (iii) members of other committees of the
Board as to matters within such committees designated
authority.

Approved by Nominating Committee March 24,
2004

Approved by the Board of Directors March 25,
2004

A-2



---



##### 



Appendix B

LSB CORPORATION

LAWRENCE SAVINGS BANK


Audit Committee Charter

Audit Committee

There shall be a Committee of the Board of
Directors to be known as the Audit Committee. The purpose of
this committee shall be to oversee the accounting and financial
reporting processes of the Company and audits of the financial
statements of the Company. The members of this Committee shall
be appointed by the Board of Directors.

The Audit Committee shall be composed of at least
three Directors. Each member shall satisfy the independence and
experience requirements established by the Securities and
Exchange Commission (SEC) and NASDAQ. Each Audit Committee
member must be able to read and understand fundamental financial
statements, including the Companys balance sheet, income
statement, and cash flow statement, at the time of his or her
appointment. At least one Committee Member shall have such past
employment experience in finance or accounting, requisite
professional certification in accounting, or other comparable
experience or background which results in the individuals
financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior
officer with financial oversight responsibilities, as to qualify
as a financial expert within the meaning of the
rules of the SEC and NASDAQ. Audit Committee members are
encouraged to enhance their familiarity with finance and
accounting by participating in educational programs conducted by
the Company or outside programs.

The Audit Committee shall serve as the Audit
Committee for both LSB Corporation and Lawrence Savings Bank.
However, the committee membership for the LSB Corporation may be
different than the membership of the Bank Audit Committee.
Wherever reference is made herein to the term
Company, such term includes, as applicable, both LSB
Corporation and Lawrence Savings Bank.

Statement of Policy

The Audit Committee shall provide assistance to
the Companys Board of Directors in fulfilling its
responsibilities to the Companys shareholders, regulators
and the investment community relating to the Companys
accounting and reporting practices, and the quality and
integrity of the financial reports of the Company. In so doing,
it shall be the responsibility of the Audit Committee to
maintain free and open means of communication with the Board of
Directors, the Independent Auditors, the Internal Auditors, and
the financial management of the Company. The Independent
Auditors shall be solely accountable to the Audit Committee. The
Audit Committee shall have direct authority and responsibility
to select, evaluate, oversee, approve the compensation of, and,
if and when warranted, replace the Independent Auditors.

Meetings

The Audit Committee shall meet at least four
times annually, and more frequently as circumstances warrant.
The Audit Committee shall meet at least annually in separate
executive sessions with Management, the CFO, the Independent
Auditors and the Internal Auditors of the Company to discuss any
matters that the Audit Committee or any of such groups or
persons believes should be discussed privately.

B-1



---



##### 



Minutes shall be kept of all meetings of the
Audit Committee.

Committee Powers and
Responsibilities

The powers and responsibilities of the Audit
Committee shall include all of the following and such additional
powers and responsibilities as are reasonably incidental to the
enumerated powers and responsibilities:

1.     Review and
reassess the adequacy of this Audit Committee Charter at least
annually and more frequently as circumstances warrant and
recommend changes to the Board of Directors for approval.
Ascertain that the Audit Committee Charter is reported in the
Companys proxy statement at least once every three years.

2.     Report at least
quarterly to the Board of Directors.

3.     The Audit
Committee has the sole authority for the selection of
Independent Auditors to audit the financial statements of the
Company and its subsidiaries and for approval of the
compensation of such Independent Auditors for audit and
non-audit services performed for the Company. All audit and
non-audit services provided to the Company by the Independent
Auditors and estimated fees therefore must be approved in
advance (pre-approved) by the Audit Committee. The Independent
Auditors shall be directly accountable to the Audit Committee.

4.     Meet with the
Independent Auditors in advance to review the proposed scope of
the audit for the current year and the audit procedures to be
used therefore and review and approve an engagement letter
therefore, and, at the conclusion of the audit, review audit
findings, including any comments or recommendations of the
Independent Auditors. The Audit Committee shall review with the
Independent Auditors the annual audited financial statements,
the 10K filed with the SEC and quarterly financial statements
and SEC filings of the Company.

5.     Review with the
Independent Auditors and Management as appropriate the
Companys significant accounting policies, and audit
conclusions regarding the Companys significant accounting
estimates.

6.     Review with the
Independent Auditors their judgments regarding the quality
and appropriateness of the Companys accounting principles
and policies as applied in its financial statements. Review with
the Independent Auditors, and Management as appropriate,
alternative treatments of the Companys financial
information permitted by GAAP and the treatments preferred by
the Independent Auditors. Discuss with the Independent Auditors,
and Management as appropriate, any disagreements between the
Independent Auditors and Management.

7.     Consider and
approve, if appropriate, changes in the Companys auditing
and accounting principles, policies and practices as suggested
by the Independent Auditors, Management or the Internal Auditors.

8.     Oversee the
Internal Audit function of the Company including its
independence and authority, its reporting obligations, the
proposed audit plan for the current year, and the coordination
of such plans with the independent Auditors. The Audit Committee
shall have sole authority to approve, in advance, any special
internal audit investigations which have not been included as
part off the current Audit Plan. The Internal Auditors shall
report directly to the Audit Committee.

9.     Consult with the
Independent and Internal Auditors regarding the integrity of the
Companys financial reporting processes (internal and
external) and review with the Independent Auditors, the Internal
Auditors, and Management as appropriate, the assessments of the
Independent and Internal Auditors of the

B-2



---



##### 



adequacy of the Companys internal controls
and the resolution of any identified deficiencies or material
weaknesses in internal controls, including the prevention or
detection of management overrides or compromises of internal
control systems.


10.     Review and
approve reports of the Audit Committee required to be included
in the Companys proxy statement for the annual meeting of
the shareholders.

11.     On an annual
basis, receive from the Independent Auditors and review a formal
written statement identifying all relationships between the
Independent Auditors and the Company or other persons that may
affect the independence of the Independent Auditors. Such
statement shall conform to all applicable requirements,
including, if applicable, those of Independence Standards Board
Standard 1, as hereafter modified or supplemented. Review and
actively engage in dialogue with the Independent Auditors
regarding any disclosed relationships or services that may
impact such independence and take, or recommend that the Board
of Directors take, appropriate actions to oversee and preserve
the independence of the Independent Auditors.

12.     Ascertain and
confirm that the Independent Auditors maintain their
professional qualifications to audit the financial statements of
the Company and that the rotation of the Independent
Auditors audit and review partners assigned to the
Companys audit conforms to all applicable legal and other
requirements.

13.     Evaluate the
qualifications and performance of the Independent Auditors and
discharge and replace the Independent Auditors if and when
circumstances warrant.

14.     Review with the
Independent Auditors, the Internal Auditors, Management and
legal counsel as appropriate, the Companys compliance with
applicable laws and regulations, including financial and other
regulatory reporting requirements.

15.     Evaluate, at
least annually, the composition and functioning of the Committee.

16.     Establish, and
make known within the Company as appropriate, procedures to
facilitate the receipt, review and processing of complaints
regarding accounting, internal accounting controls or auditing
matters. Such procedures will provide that:



| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Any employee or other person may submit a
    complaint regarding the Companys accounting, internal
    accounting controls or auditing matters. Such complaints may be
    submitted confidentially or anonymously.                                                                            
|
| |  | Any such complaint may be submitted to the
    Chairman or to any member of the Audit Committee. Complaints may
    also be submitted to any member of Management.                                                                                                                               
|
| |  | Upon receipt of a complaint by Management or a
    member of the Audit Committee, a copy will be given to the
    Chairman of the Audit Committee who will acknowledge the receipt
    thereof to sender if the sender is known.                                                                 
|
| |  | All such complaints shall be reviewed under Audit
    Committee direction and oversight. The Audit Committee may
    employ any external resources it considers appropriate, such as
    legal counsel, external auditors or other qualified consultants
    or experts to assist in this review.
|
| |  | Prompt and appropriate corrective action
    responsive to a complaint will taken when and as warranted in
    the judgment of the Audit Committee.                                                                                                                                              

B-3



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##### 





| |   |                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company will not discharge, discipline,
    demote, suspend, threaten, harass or in any manner discriminate
    or retaliate against any employee with respect to any lawful
    action in good faith reporting of such complaints. The Audit
    Committee will oversee treatment of employee concerns in this
    area.

V. When Necessary Authority
and Responsibilities

1.     Appoint, replace,
reassign, discipline or dismiss the Internal Auditors.

2.     Approve, in
advance, any engagement of the Independent Auditors to perform
permissible non-audit services for the Company and any
compensation therefore. The Committee may delegate to one or
more Committee members authority to consider and pre-approve the
provision of permissible non-audit services by the Independent
Auditors when necessary or appropriate between meetings of the
Committee provided that any exercise of such delegated
pre-approval authority shall be reported to and reviewed at the
next meeting of the Committee.

3.     Consult with
and/or retain legal counsel, accounting and other expert
advisors as to matters and in such circumstances as the
Committee deems appropriate, which may include, without
limitation, litigation, regulatory and other legal matters that
may have a material impact on the Companys financial
statements, regulatory status or good standing, or compliance
policies and practices. The Company shall be obligated to pay
any compensation for such services that may be approved by the
Committee.

4.     Conduct or
authorize and oversee the conduct of investigations into any
matters within the Committees scope of responsibilities.
The Committee shall be empowered to retain independent legal
counsel and other professionals to assist in the conduct of any
such investigation. The Company shall be obligated to pay any
compensation for such services that may be approved by the
Committee.

5.     Nothing herein
shall preclude the Committee from consulting or retaining the
Companys legal counsel or other advisors for such matters
and in such circumstances as the Committee deems appropriate.

6.     Review and
discuss with the Companys federal and state regulators or
other governmental authority, Management and legal counsel or
other advisors as appropriate, any reports, communications or
matters that may be directed to the attention of the Board of
Directors or the Committee by such regulators or other
governmental authority, and take or recommend to the Board of
Directors the taking of such actions in response thereto as the
Committee may deem appropriate.



|    |                      
|--- | ---------------------
|VI. | Update Responsibility

The Chief Financial Officer of the Company shall
be responsible for ensuring that this Audit Committee Charter is
modified as appropriate to reflect any updated, alterations or
enhancements that may be approved or adopted by the Audit
Committee and the Board of Directors.

Approved by the Audit Committee on March 23,
2004

Approved by the Board of Directors of the Company
on March 25, 2004

Approved by the Board of Directors of the Bank on
March 25, 2004

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