##### 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 June 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
(State or other jurisdiction of
incorporation or organization)
    
    04-3557612
(I.R.S. Employer
Identification Number)30 Massachusetts Avenue, North Andover, MA
(Address of principal executive offices)
    
    01845
(Zip Code)
 
 (978) 725-7500
 
  Yes þ
    
    No o
  Yes o
    
    No þ
  Class
    
    Outstanding as of July 31, 2005Common Stock, par value $.10 per share
    
    4,445,314 shares




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 PageITEM 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 June 30, 2005 and 2004
    
    
    15-17Loan Interest Income
    
    
    16Deposit Interest Expense
    
    
    16Six months ended June 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
    
    
    23SIGNATURES
    
    
    24EXHIBIT INDEX
    
    
    25EX-31.1 Section 302 Certificate of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
 2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  
 
 June 30,
    
    December 31,2005
    
    2004(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    9,915
    
    
    $
    7,193Federal funds sold
    
    
    1,370
    
    
    
    209Total cash and cash equivalents
    
    
    11,285
    
    
    
    7,402Investment securities held to maturity (market value of
$226,957 in 2005 and $198,716 in 2004)
    
    
    229,146
    
    
    
    200,264Investment securities available for sale (amortized cost of
$50,490 in 2005 and $63,706 in 2004)
    
    
    49,739
    
    
    
    63,039Federal Home Loan Bank stock, at cost
    
    
    10,097
    
    
    
    7,887Loans, net of allowance for loan losses
    
    
    234,762
    
    
    
    228,670Bank premises and equipment
    
    
    3,359
    
    
    
    3,486Accrued interest receivable
    
    
    2,440
    
    
    
    2,894Deferred income tax asset
    
    
    3,322
    
    
    
    3,067Other assets
    
    
    1,313
    
    
    
    1,768Total assets
    
    $
    545,463
    
    
    $
    518,477LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Interest bearing deposits
    
    $
    285,687
    
    
    $
    284,309Non-interest bearing deposits
    
    
    21,455
    
    
    
    14,797Federal Home Loan Bank advances
    
    
    116,935
    
    
    
    105,102Other borrowed funds
    
    
    56,000
    
    
    
    49,000Securities sold under agreements to repurchase
    
    
    2,886
    
    
    
    3,161Advance payments by borrowers for taxes and insurance
    
    
    476
    
    
    
    506Other liabilities
    
    
    3,338
    
    
    
    3,764Total liabilities
    
    
    486,777
    
    
    
    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;4,664,614 and 4,556,742 shares issued at June 30, 2005 and
December 31, 2004, respectively, and 4,445,314 and 4,337,442 shares
outstanding at June 30, 2005 and December 31, 2004, respectively
    
    
    466
    
    
    
    456Additional paid-in capital
    
    
    59,651
    
    
    
    59,145Retained earnings
    
    
    1,771
    
    
    
    1,389Treasury stock, at cost (219,300 shares)
    
    
    (2,758
    )
    
    
    (2,758
    )Accumulated other comprehensive loss
    
    
    (444
    )
    
    
    (394
    )Total stockholders equity
    
    
    58,686
    
    
    
    57,838Total liabilities and stockholders equity
    
    $
    545,463
    
    
    $
    518,477
  3




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##### Table of Contents



Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In Thousands, Except Share Data)Interest and dividend income:Loans
    
    $
    3,705
    
    
    $
    3,252
    
    
    $
    7,277
    
    
    $
    6,555Investment securities held to maturity
    
    
    2,144
    
    
    
    1,709
    
    
    
    4,058
    
    
    
    3,378Investment securities available for sale
    
    
    516
    
    
    
    458
    
    
    
    1,040
    
    
    
    886Federal Home Loan Bank stock
    
    
    107
    
    
    
    36
    
    
    
    191
    
    
    
    72Other interest and dividend income
    
    
    23
    
    
    
    6
    
    
    
    38
    
    
    
    12Total interest and dividend income
    
    
    6,495
    
    
    
    5,461
    
    
    
    12,604
    
    
    
    10,903Interest expense:Deposits
    
    
    1,190
    
    
    
    870
    
    
    
    2,256
    
    
    
    1,698Federal Home Loan Bank advances
    
    
    1,222
    
    
    
    1,110
    
    
    
    2,395
    
    
    
    2,162Other borrowed funds
    
    
    539
    
    
    
    112
    
    
    
    847
    
    
    
    247Securities sold under agreements to repurchase
    
    
    13
    
    
    
    3
    
    
    
    21
    
    
    
    7Total interest expense
    
    
    2,964
    
    
    
    2,095
    
    
    
    5,519
    
    
    
    4,114Net interest income
    
    
    3,531
    
    
    
    3,366
    
    
    
    7,085
    
    
    
    6,789Provision (credit) for loan losses
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    (300
    )Net interest income after provision (credit) for loan losses
    
    
    3,531
    
    
    
    3,666
    
    
    
    7,085
    
    
    
    7,089Non-interest income:Loan servicing fees
    
    
    38
    
    
    
    123
    
    
    
    76
    
    
    
    143Deposit account fees
    
    
    212
    
    
    
    230
    
    
    
    419
    
    
    
    432Gains on sales of mortgage loans
    
    
    11
    
    
    
    58
    
    
    
    22
    
    
    
    69Lawsuit judgment collected
    
    
    
    
    
    
    2,275
    
    
    
    
    
    
    
    2,275Other income
    
    
    126
    
    
    
    94
    
    
    
    235
    
    
    
    183Total non-interest income
    
    
    387
    
    
    
    2,780
    
    
    
    752
    
    
    
    3,102Non-interest expense:Salaries and employee benefits
    
    
    1,608
    
    
    
    1,627
    
    
    
    3,184
    
    
    
    3,249Occupancy and equipment expenses
    
    
    224
    
    
    
    242
    
    
    
    479
    
    
    
    439Professional expenses
    
    
    192
    
    
    
    216
    
    
    
    296
    
    
    
    331Data processing expenses
    
    
    217
    
    
    
    232
    
    
    
    438
    
    
    
    432Other expenses
    
    
    519
    
    
    
    454
    
    
    
    944
    
    
    
    808Total non-interest expenses
    
    
    2,760
    
    
    
    2,771
    
    
    
    5,341
    
    
    
    5,259Income before income tax expense
    
    
    1,158
    
    
    
    3,675
    
    
    
    2,496
    
    
    
    4,932Income tax expense
    
    
    400
    
    
    
    1,318
    
    
    
    879
    
    
    
    1,789Net income
    
    $
    758
    
    
    $
    2,357
    
    
    $
    1,617
    
    
    $
    3,143Average shares outstanding
    
    
    4,423,467
    
    
    
    4,303,588
    
    
    
    4,394,673
    
    
    
    4,283,613Common stock equivalents
    
    
    82,011
    
    
    
    140,310
    
    
    
    124,442
    
    
    
    153,791Average diluted shares outstanding
    
    
    4,505,478
    
    
    
    4,443,898
    
    
    
    4,519,115
    
    
    
    4,437,404Basic earnings per share
    
    $
    0.17
    
    
    $
    0.55
    
    
    $
    0.37
    
    
    $
    0.73Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.53
    
    
    $
    0.36
    
    
    $
    0.71
  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
    
    
    
    
    
    
    
    
    
    
    3,143
    
    
    
    
    
    
    
    
    
    
    
    3,143Other comprehensive income:Unrealized loss on securities
available for sale (tax effect $284)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (418
    )
    
    
    (418
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,725Exercise of stock options
    
    
    8
    
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361Dividends declared and paid
($0.26 per share)
    
    
    
    
    
    
    
    
    
    
    (1,112
    )
    
    
    
    
    
    
    
    
    
    
    (1,112
    )Balance at June 30, 2004
    
    $
    453
    
    
    $
    58,703
    
    
    $
    976
    
    
    $
    (2,758
    )
    
    $
    (398
    )
    
    $
    56,976
 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
    
    
    
    
    
    
    
    
    
    
    1,617
    
    
    
    
    
    
    
    
    
    
    
    1,617Other comprehensive income:Unrealized loss on securities
available for sale (tax effect $34)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    (50
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,567Exercise of stock options
    
    
    10
    
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305Tax benefit of stock options exercised
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211Dividends declared and paid
($0.28 per share)
    
    
    
    
    
    
    
    
    
    
    (1,235
    )
    
    
    
    
    
    
    
    
    
    
    (1,235
    )Balance at June 30, 2005
    
    $
    466
    
    
    $
    59,651
    
    
    $
    1,771
    
    
    $
    (2,758
    )
    
    $
    ( 444
    )
    
    $
    58,686
  5




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##### Table of Contents



Six months endedJune 30,2005
    
    
    2004(In thousands)Cash flows from operating activities:Net income
    
    $
    1,617
    
    
    $
    3,143Adjustments to reconcile net income to net cash provided by operating activities:Credit for loan losses
    
    
    
    
    
    
    (300
    )Gains on sales of mortgage loans
    
    
    (22
    )
    
    
    (69
    )Net amortization of investment securities
    
    
    804
    
    
    
    878Depreciation of premises and equipment
    
    
    222
    
    
    
    212Loans originated for sale
    
    
    (2,930
    )
    
    
    (3,374
    )Proceeds from sales of mortgage loans
    
    
    2,340
    
    
    
    3,781Decrease (increase) in accrued interest receivable
    
    
    454
    
    
    
    (70
    )(Increase) decrease in deferred income tax asset
    
    
    (221
    )
    
    
    845Decrease in other assets
    
    
    455
    
    
    
    256(Decrease) increase in advance payments by borrowers
    
    
    (30
    )
    
    
    39Decrease in other liabilities
    
    
    (215
    )
    
    
    (999
    )Net cash provided by operating activities
    
    
    2,474
    
    
    
    4,342Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    36,970
    
    
    
    13,800Proceeds from maturities of investment securities available for sale
    
    
    25,000
    
    
    
    9,585Purchases of investment securities held to maturity
    
    
    (55,494
    )
    
    
    (24,356
    )Purchases of mortgage-backed securities held to maturity
    
    
    (22,654
    )
    
    
    Purchases of investment securities available for sale
    
    
    (14,199
    )
    
    
    (19,981
    )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
    
    
    11,633
    
    
    
    10,334Principal payments of securities available for sale
    
    
    2,346
    
    
    
    2,480Increase in loans, net
    
    
    (5,480
    )
    
    
    (728
    )Purchases of Bank premises and equipment
    
    
    (95
    )
    
    
    (771
    )Net cash used in investing activities
    
    
    (24,255
    )
    
    
    (10,738
    )Cash flows from financing activities:Net increase in deposits
    
    
    8,036
    
    
    
    17,184Additions to Federal Home Loan Bank advances
    
    
    43,900
    
    
    
    32,345Payments on Federal Home Loan Bank advances
    
    
    (32,067
    )
    
    
    (15,050
    )Net (decrease) increase in agreements to repurchase securities
    
    
    (275
    )
    
    
    673Net increase (decrease) in other borrowed funds
    
    
    7,000
    
    
    
    (26,000
    )Dividends paid
    
    
    (1,235
    )
    
    
    (1,112
    )Proceeds from exercise of stock options
    
    
    305
    
    
    
    361Net cash provided by financing activities
    
    
    25,664
    
    
    
    8,401Net increase in cash and cash equivalents
    
    
    3,883
    
    
    
    2,005Cash and cash equivalents, beginning of period
    
    
    7,402
    
    
    
    8,761Cash and cash equivalents, end of period
    
    $
    11,285
    
    
    $
    10,766Cash paid during the period for:Interest on deposits
    
    $
    2,263
    
    
    $
    1,696Interest on borrowed funds
    
    
    3,204
    
    
    
    2,430Income taxes
    
    
    1,550
    
    
    
    2,040Supplemental schedule of non-cash activities:Net change in valuation of investment securities available for sale
    
    
    (84
    )
    
    
    (702
    )Tax benefit relating to stock options exercised
    
    
    211
    
    
    
    
  6




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##### Table of Contents



Three months ended
    
    Six months ended6/30/05
    
    6/30/04
    
    6/30/05
    
    6/30/04(In Thousands, Except Share Data)Net income:As Reported
    
    $
    758
    
    
    $
    2,357
    
    
    $
    1,617
    
    
    $
    3,143Less: Pro forma stock based compensation cost (net of taxes)
    
    
    (30
    )
    
    
    (104
    )
    
    
    (60
    )
    
    
    (208
    )Pro forma
    
    $
    728
    
    
    $
    2,253
    
    
    $
    1,557
    
    
    $
    2,935Basic earnings per share:As Reported
    
    $
    0.17
    
    
    $
    0.55
    
    
    $
    0.37
    
    
    $
    0.73Pro forma
    
    
    0.16
    
    
    
    0.52
    
    
    
    0.35
    
    
    
    0.69Diluted earnings per share:As Reported
    
    $
    0.17
    
    
    $
    0.53
    
    
    $
    0.36
    
    
    $
    0.71Pro forma
    
    
    0.16
    
    
    
    0.51
    
    
    
    0.35
    
    
    
    0.66
 7




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Three months ended
    
    
    Six months ended6/30/05
    
    
    6/30/04
    
    
    6/30/05
    
    
    6/30/04(In Thousands)Service cost
    
    $
    86
    
    
    $
    103
    
    
    $
    173
    
    
    $
    207Interest cost
    
    
    108
    
    
    
    105
    
    
    
    215
    
    
    
    211Expected return on plan assets
    
    
    (135
    )
    
    
    (121
    )
    
    
    (271
    )
    
    
    (242
    )Net amortization and deferrals
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Net periodic pension cost
    
    $
    58
    
    
    $
    86
    
    
    $
    115
    
    
    $
    174
         8




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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 200 due to the change in asset mix.
    
    Maintained net interest income levels consistent with fourth quarter 2004 and first
quarter 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



6/30/05
    
    12/31/04(In thousands)Investment securities held to maturity (at amortized cost):US Government Agency obligations
    
    $
    88,063
    
    
    $
    104,042Mortgage-backed securities
    
    
    48,204
    
    
    
    31,193Asset-backed securities
    
    
    78,749
    
    
    
    50,829Corporate obligations
    
    
    12,579
    
    
    
    12,624Municipal obligations
    
    
    1,551
    
    
    
    1,576Total investment securities held to maturity
    
    $
    229,146
    
    
    $
    200,264Investment securities available for sale (at market value):US Treasury obligations
    
    $
    4,922
    
    
    $
    4,845US Government Agency obligations
    
    
    9,769
    
    
    
    34,907Mortgage-backed securities
    
    
    3,987
    
    
    
    4,582Asset-backed securities
    
    
    26,760
    
    
    
    14,452Corporate obligations
    
    
    3,092
    
    
    
    3,120Mutual Funds
    
    
    976
    
    
    
    972Equity securities
    
    
    233
    
    
    
    161Total investment securities available for sale
    
    $
    49,739
    
    
    $
    63,039Total investment securities portfolio
    
    $
    278,885
    
    
    $
    263,303
 
    6/30/05
    
    12/31/04(In thousands)Residential mortgage loans
    
    $
    61,480
    
    
    $
    60,057Loans held for sale
    
    
    612
    
    
    
    Equity loans
    
    
    9,471
    
    
    
    8,869Construction loans
    
    
    18,498
    
    
    
    15,211Commercial real estate loans
    
    
    135,224
    
    
    
    131,605Commercial loans
    
    
    13,061
    
    
    
    16,369Consumer loans
    
    
    551
    
    
    
    699Total loans
    
    
    238,897
    
    
    
    232,810Allowance for loan losses
    
    
    (4,135
    )
    
    
    (4,140
    )Total loans, net
    
    $
    234,762
    
    
    $
    228,670
 12




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##### Table of Contents



Three months ended
    
    Six months ended6/30/05
    
    6/30/04
    
    6/30/05
    
    6/30/04(In Thousands)Beginning balance
    
    $
    4,139
    
    
    $
    4,218
    
    
    $
    4,140
    
    
    $
    4,220Provision (credit) charged to operations
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    (300
    )Recoveries on loans previously charged-off
    
    
    2
    
    
    
    254
    
    
    
    5
    
    
    
    256Loans charged-off
    
    
    (6
    )
    
    
    (4
    )
    
    
    (10
    )
    
    
    (8
    )Ending balance
    
    $
    4,135
    
    
    $
    4,168
    
    
    $
    4,135
    
    
    $
    4,168
  
     6/30/05
    
    12/31/04
    
    6/30/04(Dollars in thousands)Non-performing loans
    
    $
    33
    
    
    $
    
    
    
    $
    106Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total risk assets
    
    $
    33
    
    
    $
    
    
    
    $
    106Risk assets as a percent of total assets
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.02
    %
 13




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##### Table of Contents



6/30/05
    
    12/31/04
    
    6/30/04(Dollars in thousands)Allowance for loan losses
    
    $
    4,135
    
    
    $
    4,140
    
    
    $
    4,168Allowance for loan losses as a percent of total loans
    
    
    1.73
    %
    
    
    1.78
    %
    
    
    1.96
    %
  
    6/30/05
    
    12/31/04(In thousands)NOW and Super NOW accounts
    
    $
    38,773
    
    
    $
    38,061Savings accounts
    
    
    44,868
    
    
    
    44,673Money market investment accounts
    
    
    80,982
    
    
    
    82,877Certificates of deposit
    
    
    91,857
    
    
    
    89,649Retirement accounts
    
    
    29,207
    
    
    
    29,049Total interest bearing deposits
    
    $
    285,687
    
    
    $
    284,309
 
    6/30/05
    
    12/31/04(In thousands)Federal Home Loan Bank advances
    
    $
    116,935
    
    
    $
    105,102Other borrowed funds
    
    
    56,000
    
    
    
    49,000Securities sold under agreements to repurchase
    
    
    2,886
    
    
    
    3,161Total borrowings
    
    $
    175,821
    
    
    $
    157,263
 14




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##### Table of Contents



Income/Expense
    
    Yield/RateThree Months Ended6/30/05
    
    6/30/04
    
    6/30/05
    
    6/30/04(Dollars in thousands)Interest income and average yield:Loans
    
    $
    3,705
    
    
    $
    3,252
    
    
    
    6.34
    %
    
    
    6.04
    %Investments, mortgage-backed securities
and other earning assets
    
    
    2,790
    
    
    
    2,209
    
    
    
    3.64
    
    
    
    3.45Total
    
    
    6,495
    
    
    
    5,461
    
    
    
    4.81
    
    
    
    4.64Interest expense and average rate paid:Deposits
    
    
    1,190
    
    
    
    870
    
    
    
    1.68
    
    
    
    1.30Federal Home Loan Bank advances
    
    
    1,222
    
    
    
    1,110
    
    
    
    4.24
    
    
    
    4.47Securities sold under agreements to
repurchase and other borrowed funds
    
    
    552
    
    
    
    115
    
    
    
    2.94
    
    
    
    1.08Total
    
    
    2,964
    
    
    
    2,095
    
    
    
    2.50
    
    
    
    2.04Net interest income
    
    $
    3,531
    
    
    $
    3,366Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.31
    %
    
    
    2.60
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.61
    %
    
    
    2.86
    %
 15




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##### Table of Contents



Three months ended6/30/05
    
    6/30/04(In thousands)Residential mortgage loans
    
    $
    793
    
    
    $
    768Loans held for sale
    
    
    2
    
    
    
    14Equity loans
    
    
    115
    
    
    
    124Construction loans
    
    
    316
    
    
    
    191Commercial real estate loans
    
    
    2,267
    
    
    
    1,952Commercial loans
    
    
    202
    
    
    
    192Consumer loans
    
    
    10
    
    
    
    11Total loan interest income
    
    $
    3,705
    
    
    $
    3,252
  
     Three months ended6/30/05
    
    6/30/04(In thousands)NOW and Super NOW accounts
    
    $
    12
    
    
    $
    9Savings deposit accounts
    
    
    57
    
    
    
    42Money market investment accounts
    
    
    325
    
    
    
    240Certificates of deposit
    
    
    566
    
    
    
    370Retirement accounts
    
    
    230
    
    
    
    209Total deposit interest expense
    
    $
    1,190
    
    
    $
    870
  16




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17




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##### Table of Contents



Income/Expense
    
    Yield/RateSix Months Ended6/30/05
    
    6/30/04
    
    6/30/05
    
    6/30/04(Dollars in Thousands)Interest income and average yield:Loans
    
    $
    7,277
    
    
    $
    6,555
    
    
    
    6.27
    %
    
    
    6.09
    %Investments, mortgage-backed securities
and other earning assets
    
    
    5,327
    
    
    
    4,348
    
    
    
    3.62
    
    
    
    3.51Total
    
    
    12,604
    
    
    
    10,903
    
    
    
    4.79
    
    
    
    4.71Interest expense and average rate paid:Deposits
    
    
    2,256
    
    
    
    1,698
    
    
    
    1.60
    
    
    
    1.29Federal Home Loan Bank advances
    
    
    2,395
    
    
    
    2,162
    
    
    
    4.15
    
    
    
    4.78Securities sold under agreements to
repurchase and other borrowed funds
    
    
    868
    
    
    
    254
    
    
    
    2.74
    
    
    
    1.06Total
    
    
    5,519
    
    
    
    4,114
    
    
    
    2.39
    
    
    
    2.04Net interest income
    
    $
    7,085
    
    
    $
    6,789Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.40
    %
    
    
    2.67
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.69
    %
    
    
    2.94
    %
 
    18




---



##### Table of Contents



Six months ended6/30/05
    
    6/30/04(In Thousands)Residential mortgage loans
    
    $
    1,574
    
    
    $
    1,546Loans held for sale
    
    
    4
    
    
    
    20Equity loans
    
    
    219
    
    
    
    257Construction loans
    
    
    576
    
    
    
    397Commercial real estate loans
    
    
    4,458
    
    
    
    3,896Commercial loans
    
    
    426
    
    
    
    417Consumer loans
    
    
    20
    
    
    
    22Total loan interest income
    
    $
    7,277
    
    
    $
    6,555
  
     Six months ended6/30/05
    
    6/30/04(In Thousands)NOW and Super NOW accounts
    
    $
    23
    
    
    $
    19Savings deposit accounts
    
    
    112
    
    
    
    82Money market investment accounts
    
    
    569
    
    
    
    476Certificates of deposit
    
    
    1,098
    
    
    
    702Retirement accounts
    
    
    454
    
    
    
    419Total deposit interest expense
    
    $
    2,256
    
    
    $
    1,698
   19




---



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20




---



##### Table of Contents



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




---



##### Table of Contents



PART II  OTHER INFORMATION
 
       
   
   
    Broker non-votesNominees
    
    For
    
    Withheld
    
    and AbstentionsEugene A. Beliveau
    
    
    3,694,662
    
    
    
    339,341
    
    
    
    0Bryon R. Cleveland, Jr.
    
    
    3,720,612
    
    
    
    313,391
    
    
    
    0Robert F. Hatem
    
    
    3,700,188
    
    
    
    333,815
    
    
    
    0Paul A. Miller
    
    
    3,722,294
    
    
    
    311,709
    
    
    
    0
   22




---



##### Table of Contents



23




---



##### Table of Contents



LSB CORPORATIONAugust 12, 2005
    
    /s/ Paul A. MillerPaul A. MillerPresident andChief Executive OfficerAugust 12, 2005
    
    /s/ John E. SharlandJohn E. SharlandSenior Vice PresidentChief Financial Officer
 24




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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
    
    
    2631.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    2732.1
    
    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
    
    
    2832.2
    
    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
    
    
    29
 25