##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20529
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 000-32955
 
 LSB Corporation
  
 Massachusetts
    
    04-3557612(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)30 Massachusetts Avenue, North Andover, MA
(Address of principal executive offices)
    
    01845
(Zip Code)
 
 (978) 725-7500
 
  þ o
 
  o þ
 
  o þ
 
  Class
    
    Outstanding as of October 31, 2005Common Stock, par value $.10 per share
    
    4,464,033 shares




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PagePART I  FINANCIAL INFORMATIONITEM 1
    
    FINANCIAL STATEMENTS:Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-9ITEM 2
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:Financial Condition:Investments
    
    
    11-12Loans
    
    
    12Allowance for Loan Losses
    
    
    13Risk Assets
    
    
    13-14Deposits
    
    
    14Borrowings
    
    
    14Results of Operations:Three months ended September 30, 2005 and 2004
    
    
    15-17Loan Interest Income
    
    
    16Deposit Interest Expense
    
    
    16Nine months ended September 30, 2005 and 2004
    
    
    18-20Loan Interest Income
    
    
    19Deposit Interest Expense
    
    
    19Liquidity and Capital Resources
    
    
    20ITEM 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    21ITEM 4
    
    CONTROLS AND PROCEDURES
    
    
    21PART II  OTHER INFORMATIONITEM 1
    
    LEGAL PROCEEDINGS
    
    
    22ITEM 2
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22ITEM 3
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    22ITEM 4
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22ITEM 5
    
    OTHER INFORMATION
    
    
    23ITEM 6
    
    EXHIBITS
    
    
    22SIGNATURES
    
    
    23EXHIBIT INDEX
    
    
    24Ex-31.1 Section 302 Certification of C.E.O.Ex-31.2 Section 302 Certification of C.F.O.Ex-32.1 Section 906 Certification of C.E.O.Ex-32.2 Section 906 Certification of C.F.O.
  2




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##### Table of Contents



PART 1   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
   September 30,
    
    
    December 31,2005
    
    
    2004(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    10,269
    
    
    $
    7,193Federal funds sold
    
    
    2,883
    
    
    
    209Total cash and cash equivalents
    
    
    13,152
    
    
    
    7,402Investment securities held to maturity (market value of
$218,073 in 2005 and $198,716 in 2004)
    
    
    221,569
    
    
    
    200,264Investment securities available for sale (amortized cost of
$48,845 in 2005 and $63,706 in 2004)
    
    
    47,656
    
    
    
    63,039Federal Home Loan Bank stock, at cost
    
    
    10,097
    
    
    
    7,887Loans, net of allowance for loan losses
    
    
    229,697
    
    
    
    228,670Bank premises and equipment
    
    
    3,332
    
    
    
    3,486Accrued interest receivable
    
    
    2,760
    
    
    
    2,894Deferred income tax asset
    
    
    3,501
    
    
    
    3,067Other assets
    
    
    1,544
    
    
    
    1,768Total assets
    
    $
    533,308
    
    
    $
    518,477LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Interest bearing deposits
    
    $
    288,513
    
    
    $
    284,309Non-interest bearing deposits
    
    
    19,963
    
    
    
    14,797Federal Home Loan Bank advances
    
    
    121,899
    
    
    
    105,102Other borrowed funds
    
    
    36,000
    
    
    
    49,000Securities sold under agreements to repurchase
    
    
    3,847
    
    
    
    3,161Advance payments by borrowers for taxes and insurance
    
    
    628
    
    
    
    506Other liabilities
    
    
    3,592
    
    
    
    3,764Total liabilities
    
    
    474,442
    
    
    
    460,639Stockholders equity:Preferred stock, $.10 par value per share:5,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.10 par value per share;20,000,000 shares authorized;4,683,333 and 4,556,742 shares issued at September 30, 2005 and
December 31, 2004, respectively, and 4,464,033 and 4,337,442 shares
outstanding at September 30, 2005 and December 31, 2004, respectively
    
    
    468
    
    
    
    456Additional paid-in capital
    
    
    59,856
    
    
    
    59,145Retained earnings
    
    
    2,004
    
    
    
    1,389Treasury stock, at cost (219,300 shares)
    
    
    (2,758
    )
    
    
    (2,758
    )Accumulated other comprehensive loss
    
    
    (704
    )
    
    
    (394
    )Total stockholders equity
    
    
    58,866
    
    
    
    57,838Total liabilities and stockholders equity
    
    $
    533,308
    
    
    $
    518,477
  3




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands, Except Share Data)Interest and dividend income:Loans
    
    $
    3,789
    
    
    $
    3,242
    
    
    $
    11,066
    
    
    $
    9,797Investment securities held to maturity
    
    
    2,078
    
    
    
    1,680
    
    
    
    6,136
    
    
    
    5,058Investment securities available for sale
    
    
    465
    
    
    
    489
    
    
    
    1,505
    
    
    
    1,375Federal Home Loan Bank stock
    
    
    108
    
    
    
    69
    
    
    
    299
    
    
    
    141Other interest and dividend income
    
    
    27
    
    
    
    8
    
    
    
    65
    
    
    
    20Total interest and dividend income
    
    
    6,467
    
    
    
    5,488
    
    
    
    19,071
    
    
    
    16,391Interest expense:Deposits
    
    
    1,339
    
    
    
    964
    
    
    
    3,595
    
    
    
    2,662Federal Home Loan Bank advances
    
    
    1,249
    
    
    
    1,025
    
    
    
    3,644
    
    
    
    3,187Other borrowed funds
    
    
    411
    
    
    
    103
    
    
    
    1,257
    
    
    
    351Securities sold under agreements to repurchase
    
    
    13
    
    
    
    4
    
    
    
    35
    
    
    
    10Total interest expense
    
    
    3,012
    
    
    
    2,096
    
    
    
    8,531
    
    
    
    6,210Net interest income
    
    
    3,455
    
    
    
    3,392
    
    
    
    10,540
    
    
    
    10,181Provision (credit) for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )Net interest income after provision (credit)
for loan losses
    
    
    3,455
    
    
    
    3,392
    
    
    
    10,540
    
    
    
    10,481Non-interest income:Loan servicing fees
    
    
    33
    
    
    
    19
    
    
    
    109
    
    
    
    162Deposit account fees
    
    
    220
    
    
    
    236
    
    
    
    639
    
    
    
    668Gains (losses) on sales of mortgage loans, net
    
    
    13
    
    
    
    (5
    )
    
    
    35
    
    
    
    64Lawsuit judgment collected
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,275Other income
    
    
    115
    
    
    
    98
    
    
    
    350
    
    
    
    281Total non-interest income
    
    
    381
    
    
    
    348
    
    
    
    1,133
    
    
    
    3,450Non-interest expense:Salaries and employee benefits
    
    
    1,524
    
    
    
    1,655
    
    
    
    4,708
    
    
    
    4,904Occupancy and equipment expenses
    
    
    229
    
    
    
    219
    
    
    
    708
    
    
    
    658Professional expenses
    
    
    111
    
    
    
    141
    
    
    
    407
    
    
    
    472Data processing expenses
    
    
    230
    
    
    
    237
    
    
    
    668
    
    
    
    670Other expenses
    
    
    413
    
    
    
    454
    
    
    
    1,357
    
    
    
    1,261Total non-interest expenses
    
    
    2,507
    
    
    
    2,706
    
    
    
    7,848
    
    
    
    7,965Income before income tax expense
    
    
    1,329
    
    
    
    1,034
    
    
    
    3,825
    
    
    
    5,966Income tax expense
    
    
    472
    
    
    
    337
    
    
    
    1,351
    
    
    
    2,126Net income
    
    $
    857
    
    
    $
    697
    
    
    $
    2,474
    
    
    $
    3,840Average shares outstanding
    
    
    4,455,652
    
    
    
    4,312,649
    
    
    
    4,415,223
    
    
    
    4,293,362Common stock equivalents
    
    
    76,434
    
    
    
    169,426
    
    
    
    108,213
    
    
    
    159,041Average diluted shares outstanding
    
    
    4,532,086
    
    
    
    4,482,075
    
    
    
    4,523,436
    
    
    
    4,452,403Basic earnings per share
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.56
    
    
    $
    0.89Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.55
    
    
    $
    0.86
  4




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##### Table of Contents



(Accumulated
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    Deficit)/
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Income(Loss)
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2003
    
    $
    445
    
    
    $
    58,350
    
    
    $
    (1,055
    )
    
    $
    (2,758
    )
    
    $
    20
    
    
    $
    55,002Net income
    
    
    
    
    
    
    
    
    
    
    3,840
    
    
    
    
    
    
    
    
    
    
    
    3,840Other comprehensive income:Unrealized loss on securities
available for sale (tax
effect $81)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124
    )
    
    
    (124
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,716Exercise of stock options
    
    
    9
    
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    452Dividends declared and paid
($0.39 per share)
    
    
    
    
    
    
    
    
    
    
    (1,673
    )
    
    
    
    
    
    
    
    
    
    
    (1,673
    )Balance at September 30, 2004
    
    $
    454
    
    
    $
    58,793
    
    
    $
    1,112
    
    
    $
    (2,758
    )
    
    $
    (104
    )
    
    $
    57,497
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Loss
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2004
    
    $
    456
    
    
    $
    59,145
    
    
    $
    1,389
    
    
    $
    (2,758
    )
    
    $
    (394
    )
    
    $
    57,838Net income
    
    
    
    
    
    
    
    
    
    
    2,474
    
    
    
    
    
    
    
    
    
    
    
    2,474Other comprehensive income:Unrealized loss on securities
available for sale (tax effect $212)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (310
    )
    
    
    (310
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,164Exercise of stock options
    
    
    12
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512Tax benefit of stock options exercised
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211Dividends declared and paid
($0.42 per share)
    
    
    
    
    
    
    
    
    
    
    (1,859
    )
    
    
    
    
    
    
    
    
    
    
    (1,859
    )Balance at September 30, 2005
    
    $
    468
    
    
    $
    59,856
    
    
    $
    2,004
    
    
    $
    (2,758
    )
    
    $
    (704
    )
    
    $
    58,866
  5




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##### Table of Contents



Nine months endedSeptember 30,2005
    
    
    2004(In thousands)Cash flows from operating activities:Net income
    
    $
    2,474
    
    
    $
    3,840Adjustments to reconcile net income to net cash provided by operating activities:Credit for loan losses
    
    
    
    
    
    
    (300
    )Gains on sales of mortgage loans
    
    
    (35
    )
    
    
    (64
    )Net amortization of investment securities
    
    
    1,123
    
    
    
    1,276Depreciation of premises and equipment
    
    
    330
    
    
    
    318Loans originated for sale
    
    
    (3,437
    )
    
    
    (3,596
    )Proceeds from sales of mortgage loans
    
    
    3,322
    
    
    
    3,998Decrease (increase) in accrued interest receivable
    
    
    134
    
    
    
    (344
    )(Increase) decrease in deferred income tax asset
    
    
    (222
    )
    
    
    844Decrease in other assets
    
    
    224
    
    
    
    188Increase in advance payments by borrowers
    
    
    122
    
    
    
    168Increase (decrease) in other liabilities
    
    
    39
    
    
    
    (1,115
    )Net cash provided by operating activities
    
    
    4,074
    
    
    
    5,213Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    47,970
    
    
    
    14,800Proceeds from maturities of investment securities available for sale
    
    
    25,000
    
    
    
    14,585Purchases of investment securities held to maturity
    
    
    (65,952
    )
    
    
    (47,353
    )Purchases of mortgage-backed securities held to maturity
    
    
    (23,971
    )
    
    
    Purchases of investment securities available for sale
    
    
    (14,198
    )
    
    
    (30,102
    )Purchase of other equity securities available for sale
    
    
    (72
    )
    
    
    Purchases of Federal Home Loan Bank stock
    
    
    (2,210
    )
    
    
    (1,101
    )Principal payments of securities held to maturity
    
    
    19,697
    
    
    
    15,148Principal payments of securities available for sale
    
    
    3,959
    
    
    
    3,477Increase in loans, net
    
    
    (877
    )
    
    
    (5,284
    )Purchases of Bank premises and equipment
    
    
    (176
    )
    
    
    (992
    )Net cash used in investing activities
    
    
    (10,830
    )
    
    
    (36,822
    )Cash flows from financing activities:Net increase in deposits
    
    
    9,370
    
    
    
    29,141Additions to Federal Home Loan Bank advances
    
    
    48,900
    
    
    
    38,345Payments on Federal Home Loan Bank advances
    
    
    (32,103
    )
    
    
    (15,079
    )Net increase in agreements to repurchase securities
    
    
    686
    
    
    
    1,176Net decrease in other borrowed funds
    
    
    (13,000
    )
    
    
    (20,250
    )Dividends paid
    
    
    (1,859
    )
    
    
    (1,673
    )Proceeds from exercise of stock options
    
    
    512
    
    
    
    452Net cash provided by financing activities
    
    
    12,506
    
    
    
    32,112Net increase in cash and cash equivalents
    
    
    5,750
    
    
    
    503Cash and cash equivalents, beginning of period
    
    
    7,402
    
    
    
    8,761Cash and cash equivalents, end of period
    
    $
    13,152
    
    
    $
    9,264Cash paid during the period for:Interest on deposits
    
    $
    3,601
    
    
    $
    2,660Interest on borrowed funds
    
    
    4,918
    
    
    
    3,551Income taxes
    
    
    1,810
    
    
    
    2,451Cash received during the period for:Income taxes
    
    
    215
    
    
    
    Supplemental schedule of non-cash activities:Net change in valuation of investment securities available for sale
    
    
    (522
    )
    
    
    (205
    )Tax benefit relating to stock options exercised
    
    
    211
    
    
    
    
  6




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##### Table of Contents



Three months ended
    
    
    Nine months ended9/30/05
    
    
    9/30/04
    
    
    9/30/05
    
    
    9/30/04(In Thousands, Except Share Data)Net income:As Reported
    
    $
    857
    
    
    $
    697
    
    
    $
    2,474
    
    
    $
    3,840Less: Pro forma stock
based compensation cost
(net of taxes)
    
    
    (31
    )
    
    
    (78
    )
    
    
    (91
    )
    
    
    (286
    )Pro forma
    
    $
    826
    
    
    $
    619
    
    
    $
    2,383
    
    
    $
    3,554Basic earnings per share:As Reported
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.56
    
    
    $
    0.89Pro forma
    
    
    0.19
    
    
    
    0.14
    
    
    
    0.54
    
    
    
    0.83Diluted earnings per share:As Reported
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.55
    
    
    $
    0.86Pro forma
    
    
    0.18
    
    
    
    0.14
    
    
    
    0.53
    
    
    
    0.80
 7




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##### Table of Contents



Three months ended
    
    
    Nine months ended9/30/05
    
    
    9/30/04
    
    
    9/30/05
    
    
    9/30/04(In Thousands)Service cost
    
    $
    87
    
    
    $
    104
    
    
    $
    260
    
    
    $
    311Interest cost
    
    
    107
    
    
    
    106
    
    
    
    322
    
    
    
    317Expected return on plan assets
    
    
    (136
    )
    
    
    (122
    )
    
    
    (407
    )
    
    
    (364
    )Net amortization and deferrals
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )Net periodic pension cost
    
    $
    57
    
    
    $
    87
    
    
    $
    172
    
    
    $
    261
         8




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##### Table of Contents



9




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         10




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##### Table of Contents




    
    To take advantage of profitable investment opportunities.
    
    The 2005 Budget process revealed compression of net interest income due to a probable
higher funding cost.
    
    Adequate capital is available to implement the leverage program. The Equity to Asset
ratio was 11.15% and 10.35% at December 31, 2004 and March 31, 2005, respectively.
  
    
    Lower yields on assets even though yields on loans and investment securities increased
from first quarter 2005 due to the change in asset mix.
    
    Maintained net interest income levels consistent with fourth quarter 2004 and first and
second quarters in 2005.
    
    Purchased Federal Home Loan Bank stock in connection with and required due to increased
advances from Federal Home Loan Bank.
      
    
   11




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##### Table of Contents



9/30/05
    
    
    12/31/04(In thousands)Investment securities held to maturity (at amortized cost):US Government Agency obligations
    
    $
    87,468
    
    
    $
    104,042Mortgage-backed securities
    
    
    46,478
    
    
    
    31,193Asset-backed securities
    
    
    74,049
    
    
    
    50,829Corporate obligations
    
    
    12,036
    
    
    
    12,624Municipal obligations
    
    
    1,538
    
    
    
    1,576Total investment securities held to maturity
    
    $
    221,569
    
    
    $
    200,264Investment securities available for sale (at market value):US Treasury obligations
    
    $
    4,894
    
    
    $
    4,845US Government Agency obligations
    
    
    9,753
    
    
    
    34,907Mortgage-backed securities
    
    
    3,640
    
    
    
    4,582Asset-backed securities
    
    
    25,089
    
    
    
    14,452Corporate obligations
    
    
    3,086
    
    
    
    3,120Mutual Funds
    
    
    961
    
    
    
    972Equity securities
    
    
    233
    
    
    
    161Total investment securities available for sale
    
    $
    47,656
    
    
    $
    63,039Total investment securities portfolio
    
    $
    269,225
    
    
    $
    263,303
 
    9/30/05
    
    
    12/31/04(In thousands)Residential mortgage loans
    
    $
    60,615
    
    
    $
    60,057Loans held for sale
    
    
    150
    
    
    
    Equity loans
    
    
    9,931
    
    
    
    8,869Construction loans
    
    
    21,302
    
    
    
    15,211Commercial real estate loans
    
    
    129,926
    
    
    
    131,605Commercial loans
    
    
    11,395
    
    
    
    16,369Consumer loans
    
    
    511
    
    
    
    699Total loans
    
    
    233,830
    
    
    
    232,810Allowance for loan losses
    
    
    (4,133
    )
    
    
    (4,140
    )Total loans, net
    
    $
    229,697
    
    
    $
    228,670
 12




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##### Table of Contents



Three months ended
    
    
    Nine months ended9/30/05
    
    
    9/30/04
    
    
    9/30/05
    
    
    9/30/04(In Thousands)Beginning balance
    
    $
    4,135
    
    
    $
    4,168
    
    
    $
    4,140
    
    
    $
    4,220Provision (credit) charged to operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )Recoveries on loans previously charged-off
    
    
    3
    
    
    
    2
    
    
    
    8
    
    
    
    258Loans charged-off
    
    
    (5
    )
    
    
    (31
    )
    
    
    (15
    )
    
    
    (39
    )Ending balance
    
    $
    4,133
    
    
    $
    4,139
    
    
    $
    4,133
    
    
    $
    4,139
  
     9/30/05
    
    
    12/31/04
    
    
    9/30/04(Dollars in thousands)Non-performing loans
    
    $
    33
    
    
    $
    
    
    
    $
    247Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total risk assets
    
    $
    33
    
    
    $
    
    
    
    $
    247Risk assets as a percent
of total assets
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.05
    %
 13




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##### Table of Contents

\

9/30/05
    
    12/31/04
    
    9/30/04(Dollars in thousands)Allowance for loan losses
    
    $
    4,133
    
    
    $
    4,140
    
    
    $
    4,139Allowance for loan losses as a percent of total loans
    
    
    1.77
    %
    
    
    1.78
    %
    
    
    1.91
    %
  
    9/30/05
    
    
    12/31/04(In thousands)NOW and Super NOW accounts
    
    $
    39,718
    
    
    $
    38,061Savings accounts
    
    
    43,962
    
    
    
    44,673Money market investment accounts
    
    
    80,605
    
    
    
    82,877Certificates of deposit
    
    
    94,918
    
    
    
    89,649Retirement accounts
    
    
    29,310
    
    
    
    29,049Total interest bearing deposits
    
    $
    288,513
    
    
    $
    284,309
 
    9/30/05
    
    
    12/31/04(In thousands)Federal Home Loan Bank advances
    
    $
    121,899
    
    
    $
    105,102Other borrowed funds
    
    
    36,000
    
    
    
    49,000Securities sold under agreements to repurchase
    
    
    3,847
    
    
    
    3,161Total borrowings
    
    $
    161,746
    
    
    $
    157,263
 14




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##### Table of Contents



Income/Expense
    
    
    Yield/RateThree Months Ended9/30/05
    
    
    9/30/04
    
    
    9/30/05
    
    
    9/30/04(Dollars in thousands)Interest income and average yield:Loans
    
    $
    3,789
    
    
    $
    3,242
    
    
    
    6.38
    %
    
    
    6.01
    %Investments, mortgage-backed securities
and other earning assets
    
    
    2,678
    
    
    
    2,246
    
    
    
    3.67
    
    
    
    3.50Total
    
    
    6,467
    
    
    
    5,488
    
    
    
    4.89
    
    
    
    4.65Interest expense and average rate paid:Deposits
    
    
    1,339
    
    
    
    964
    
    
    
    1.84
    
    
    
    1.38Federal Home Loan Bank advances
    
    
    1,249
    
    
    
    1,025
    
    
    
    4.18
    
    
    
    4.16Securities sold under agreements to
repurchase and other borrowed funds
    
    
    424
    
    
    
    107
    
    
    
    3.39
    
    
    
    1.40Total
    
    
    3,012
    
    
    
    2,096
    
    
    
    2.62
    
    
    
    2.06Net interest income
    
    $
    3,455
    
    
    $
    3,392Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.27
    %
    
    
    2.59
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.61
    %
    
    
    2.87
    %
 15




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##### Table of Contents



Three months ended9/30/05
    
    
    9/30/04(In thousands)Residential mortgage loans
    
    $
    782
    
    
    $
    779Loans held for sale
    
    
    2
    
    
    
    1Equity loans
    
    
    129
    
    
    
    117Construction loans
    
    
    396
    
    
    
    181Commercial real estate loans
    
    
    2,249
    
    
    
    1,952Commercial loans
    
    
    222
    
    
    
    201Consumer loans
    
    
    9
    
    
    
    11Total loan interest income
    
    $
    3,789
    
    
    $
    3,242
      Three months ended9/30/05
    
    
    9/30/04(In thousands)NOW and Super NOW accounts
    
    $
    12
    
    
    $
    11Savings deposit accounts
    
    
    56
    
    
    
    40Money market investment accounts
    
    
    385
    
    
    
    249Certificates of deposit
    
    
    647
    
    
    
    447Retirement accounts
    
    
    239
    
    
    
    217Total deposit interest expense
    
    $
    1,339
    
    
    $
    964
 16




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##### Table of Contents



17




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##### Table of Contents



Income/Expense
    
    
    Yield/RateNine Months Ended9/30/05
    
    
    9/30/04
    
    
    9/30/05
    
    
    9/30/04(Dollars in Thousands)Interest income and average yield:Loans
    
    $
    11,066
    
    
    $
    9,797
    
    
    
    6.31
    %
    
    
    6.07
    %Investments, mortgage-backed securities
and other earning assets
    
    
    8,005
    
    
    
    6,594
    
    
    
    3.64
    
    
    
    3.51Total
    
    
    19,071
    
    
    
    16,391
    
    
    
    4.82
    
    
    
    4.69Interest expense and average rate paid:Deposits
    
    
    3,595
    
    
    
    2,662
    
    
    
    1.68
    
    
    
    1.32Federal Home Loan Bank advances
    
    
    3,644
    
    
    
    3,187
    
    
    
    4.16
    
    
    
    4.56Securities sold under agreements to
repurchase and other borrowed funds
    
    
    1,292
    
    
    
    361
    
    
    
    2.93
    
    
    
    1.14Total
    
    
    8,531
    
    
    
    6,210
    
    
    
    2.47
    
    
    
    2.05Net interest income
    
    $
    10,540
    
    
    $
    10,181Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.35
    %
    
    
    2.64
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.66
    %
    
    
    2.91
    %
    18




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##### Table of Contents



Nine months ended9/30/05
    
    
    9/30/04(In Thousands)Residential mortgage loans
    
    $
    2,356
    
    
    $
    2,325Loans held for sale
    
    
    6
    
    
    
    21Equity loans
    
    
    348
    
    
    
    374Construction loans
    
    
    972
    
    
    
    578Commercial real estate loans
    
    
    6,707
    
    
    
    5,848Commercial loans
    
    
    648
    
    
    
    618Consumer loans
    
    
    29
    
    
    
    33Total loan interest income
    
    $
    11,066
    
    
    $
    9,797
      Nine months ended9/30/05
    
    
    9/30/04(In Thousands)NOW and Super NOW accounts
    
    $
    35
    
    
    $
    30Savings deposit accounts
    
    
    168
    
    
    
    122Money market investment accounts
    
    
    954
    
    
    
    725Certificates of deposit
    
    
    1,745
    
    
    
    1,149Retirement accounts
    
    
    693
    
    
    
    636Total deposit interest expense
    
    $
    3,595
    
    
    $
    2,662
   19




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##### Table of Contents



20




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##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
   21




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##### Table of Contents



PART II  OTHER INFORMATION
 
       
   
   
   
   
   22




---



##### Table of Contents



LSB CORPORATIONNovember 14, 2005
    
    /s/ Paul A. MillerPaul A. MillerPresident andChief Executive OfficerNovember 14, 2005
    
    /s/ John E. SharlandJohn E. SharlandSenior Vice PresidentChief Financial Officer
 23




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##### Table of Contents



EXHIBIT INDEX
 Page31.1
    
    Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    2531.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    2632.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    2732.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    28
 24