##### 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 March 31, 2006
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)30 Massachusetts Avenue, North Andover, MA
    
    01845(Address of principal executive offices)
    
    (Zip Code)
 
 (978) 725-7500
 
  Yes þ
    
    No o
  o o þ
  Yes o
    
    No þ
  Class
    
    Outstanding as of May 1, 2006Common Stock, par value $.10 per share
    
    4,533,867 shares




---



##### 



Page:PART I  FINANCIAL INFORMATIONITEM 1 FINANCIAL STATEMENTSConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash
Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-10ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    10-17ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    17ITEM 4 CONTROLS AND PROCEDURES
    
    
    17PART II  OTHER INFORMATIONITEM 1 LEGAL PROCEEDINGS
    
    
    18ITEM 1A RISK FACTORS
    
    
    18ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    18ITEM 3 DEFAULTS UPON SENIOR SECURITIES
    
    
    18ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    18-19ITEM 5 OTHER INFORMATION
    
    
    19ITEM 6 EXHIBITS
    
    
    19SIGNATURES
    
    
    20EXHIBIT INDEX
    
    
    21Ex-31.1 Section 302 Certification 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
  
   March 31,
    
    
    December 31,2006
    
    
    2005(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    8,577
    
    
    $
    10,489Federal funds sold
    
    
    3,372
    
    
    
    198Total cash and cash equivalents
    
    
    11,949
    
    
    
    10,687Investment securities held to maturity (market value of
$208,615 in 2005)
    
    
    
    
    
    
    213,683Investment securities available for sale (amortized cost of
$279,982 in 2006 and $47,554 in 2005)
    
    
    271,812
    
    
    
    46,363Federal Home Loan Bank stock, at cost
    
    
    10,097
    
    
    
    10,097Loans, net of allowance for loan losses
    
    
    238,256
    
    
    
    230,485Bank premises and equipment
    
    
    3,244
    
    
    
    3,251Accrued interest receivable
    
    
    2,925
    
    
    
    2,458Deferred income tax asset
    
    
    6,335
    
    
    
    3,446Other assets
    
    
    1,229
    
    
    
    1,330Total assets
    
    $
    545,847
    
    
    $
    521,800LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits
    
    $
    302,931
    
    
    $
    303,087Borrowed Funds
    
    
    181,734
    
    
    
    153,380Advance payments by borrowers for taxes and insurance
    
    
    684
    
    
    
    506Other liabilities
    
    
    4,545
    
    
    
    4,905Total liabilities
    
    
    489,894
    
    
    
    461,878Stockholders 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;
4,527,617 and 4,464,033 shares issued and outstanding at
March 31, 2006 and December 31, 2005, respectively,
    
    
    453
    
    
    
    446Additional paid-in capital
    
    
    60,556
    
    
    
    59,856Retained earnings (accumulated deficit)
    
    
    (42
    )
    
    
    326Accumulated other comprehensive loss, net of tax
    
    
    (5,014
    )
    
    
    (706
    )Total stockholders equity
    
    
    55,953
    
    
    
    59,922Total liabilities and stockholders equity
    
    $
    545,847
    
    
    $
    521,800
  3




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##### Table of Contents



Three months endedMarch 31,2006
    
    
    2005(In thousands, except share data)Interest and dividend income:Loans
    
    $
    3,948
    
    
    $
    3,572Investment securities held to maturity
    
    
    
    
    
    
    1,914Investment securities available for sale
    
    
    2,438
    
    
    
    524Federal Home Loan Bank stock
    
    
    123
    
    
    
    84Short-term interest income
    
    
    26
    
    
    
    15Total interest and dividend income
    
    
    6,535
    
    
    
    6,109Interest expense:Deposits
    
    
    1,547
    
    
    
    1,066Borrowed funds
    
    
    1,694
    
    
    
    1,489Total interest expense
    
    
    3,241
    
    
    
    2,555Net interest income
    
    
    3,294
    
    
    
    3,554Provision for loan losses
    
    
    
    
    
    
    Net interest income after provision for loan losses
    
    
    3,294
    
    
    
    3,554Non-interest income:Loan servicing fees
    
    
    7
    
    
    
    38Deposit account fees
    
    
    209
    
    
    
    207Gains on sales of mortgage loans, net
    
    
    4
    
    
    
    11Other income
    
    
    110
    
    
    
    109Total non-interest income
    
    
    330
    
    
    
    365Non-interest expense:Salaries and employee benefits
    
    
    2,067
    
    
    
    1,576Occupancy and equipment expenses
    
    
    330
    
    
    
    255Data processing expenses
    
    
    233
    
    
    
    221Professional expenses
    
    
    163
    
    
    
    104Other expenses
    
    
    430
    
    
    
    425Total non-interest expenses
    
    
    3,223
    
    
    
    2,581Income before income tax expense
    
    
    401
    
    
    
    1,338Income tax expense
    
    
    141
    
    
    
    479Net income
    
    $
    260
    
    
    $
    859Average shares outstanding
    
    
    4,496,013
    
    
    
    4,365,559Common stock equivalents
    
    
    59,712
    
    
    
    167,192Average diluted shares outstanding
    
    
    4,555,725
    
    
    
    4,532,751Basic earnings per share
    
    $
    0.06
    
    
    $
    0.20Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.19
  4




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##### Table of Contents



(Accumulated
    
    
    AccumulatedAdditional
    
    
    Deficit)/
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2004
    
    $
    434
    
    
    $
    59,145
    
    
    $
    (1,347
    )
    
    $
    (394
    )
    
    $
    57,838Net income
    
    
    
    
    
    
    
    
    
    
    4,157
    
    
    
    
    
    
    
    4,157Other comprehensive income:Unrealized loss on securities
available for sale, net (tax effect $211)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )
    
    
    (312
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,845Exercise of stock options
    
    
    12
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    512Tax benefit of stock options exercised
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    
    
    
    
    211Dividends declared and paid
($0.56 per share)
    
    
    
    
    
    
    
    
    
    
    (2,484
    )
    
    
    
    
    
    
    (2,484
    )Balance at December 31, 2005
    
    $
    446
    
    
    $
    59,856
    
    
    $
    326
    
    
    $
    (706
    )
    
    $
    59,922
 (Accumulated
    
    
    AccumulatedAdditional
    
    
    Deficit)/
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2005
    
    $
    446
    
    
    $
    59,856
    
    
    $
    326
    
    
    $
    (706
    )
    
    $
    59,922Net income
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    260Other comprehensive income:Unrealized loss on securities
available for sale, net (tax effect $2,671)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,308
    )
    
    
    (4,308
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,048
    )Stock-based compensation
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Exercise of stock options
    
    
    7
    
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    618Tax benefit of stock options exercised
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57Dividends declared and paid
($0.14 per share)
    
    
    
    
    
    
    
    
    
    
    (628
    )
    
    
    
    
    
    
    (628
    )Balance at March 31, 2006
    
    $
    453
    
    
    $
    60,556
    
    
    $
    (42
    )
    
    $
    (5,014
    )
    
    $
    55,953
  5




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##### Table of Contents



Three months endedMarch 31,2006
    
    
    2005(In thousands)Cash flows from operating activities:Net income
    
    $
    260
    
    
    $
    859Adjustments to reconcile net income to net cash provided by operating activities:Gains on sales of mortgage loans
    
    
    (4
    )
    
    
    (11
    )Net amortization of investment securities
    
    
    332
    
    
    
    408Depreciation of premises and equipment
    
    
    106
    
    
    
    113Loans originated for sale
    
    
    (682
    )
    
    
    (1,741
    )Proceeds from sales of mortgage loans
    
    
    998
    
    
    
    1,752Increase in accrued interest receivable
    
    
    (467
    )
    
    
    (34
    )Deferred income tax benefit
    
    
    (218
    )
    
    
    (222
    )Stock-based compensation
    
    
    32
    
    
    
    (Increase) decrease in other assets
    
    
    101
    
    
    
    201Increase in advance payments by borrowers
    
    
    178
    
    
    
    147Decrease in other liabilities
    
    
    (360
    )
    
    
    (374
    )Net cash provided by operating activities
    
    
    276
    
    
    
    1,098Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    2,900
    
    
    
    25,170Proceeds from maturities of investment securities available for sale
    
    
    
    
    
    
    15,000Purchases of investment securities held to maturity
    
    
    
    
    
    
    (45,613
    )Purchases of mortgage-backed securities held to maturity
    
    
    
    
    
    
    (22,654
    )Purchases of investment securities available for sale
    
    
    (3,827
    )
    
    
    (14,197
    )Purchases of mortgage-backed securities available for sale
    
    
    (23,773
    )
    
    
    Purchase of other equity securities available for sale
    
    
    
    
    
    
    (72
    )Purchases of Federal Home Loan Bank stock
    
    
    
    
    
    
    (1,794
    )Principal payments of securities held to maturity
    
    
    4,680
    
    
    
    4,377Principal payments of securities available for sale
    
    
    943
    
    
    
    857Increase in loans, net
    
    
    (8,083
    )
    
    
    (1,643
    )Purchases of Bank premises and equipment
    
    
    (99
    )
    
    
    (46
    )Net cash used in investing activities
    
    
    (27,259
    )
    
    
    (40,615
    )Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (156
    )
    
    
    2,767Additions to Federal Home Loan Bank advances
    
    
    20,000
    
    
    
    33,900Payments on Federal Home Loan Bank advances
    
    
    (5,240
    )
    
    
    (26,031
    )Net increase in agreements to repurchase securities
    
    
    (406
    )
    
    
    (243
    )Net increase in other borrowed funds
    
    
    14,000
    
    
    
    32,000Dividends paid
    
    
    (628
    )
    
    
    (613
    )Proceeds from exercise of stock options
    
    
    618
    
    
    
    270Tax benefit from exercise of stock options
    
    
    57
    
    
    
    196Net cash provided by financing activities
    
    
    28,245
    
    
    
    42,246Net increase in cash and cash equivalents
    
    
    1,262
    
    
    
    2,729Cash and cash equivalents, beginning of period
    
    
    10,687
    
    
    
    7,402Cash and cash equivalents, end of period
    
    $
    11,949
    
    
    $
    10,131Cash paid during the period for:Interest on deposits
    
    $
    1,547
    
    
    $
    1,073Interest on borrowed funds
    
    
    1,601
    
    
    
    1,436Income taxes
    
    
    896
    
    
    
    1,185Supplemental schedule of non-cash activities:Change in valuation of investment securities available for sale, net
    
    
    (4,308
    )
    
    
    (546
    )
  6




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##### Table of Contents



CumulativeAwards, Net ofAuthorized Option Awards
    
    
    Stock Awards
    
    
    Expirations1986 Plan
    
    
    720,500
    
    
    
    N/A
    
    
    
    430,2501997 Plan
    
    
    449,500
    
    
    
    N/A
    
    
    
    427,8502006 Plan (1)
    
    
    
    
    
    
    
    
    
    
    1,170,000
    
    
    
    
    
    
    
    858,100
 
 (1)
    
    The 2006 Stock Option Plan was approved by the Board of Directors of the Company for a
total issuance of 400,000 options, with a total of 100,000 allowable as restricted stock awards.
This Plan was approved by the Companys shareholders on May 2, 2006.  7




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##### Table of Contents



Accounting for Stock Issued
to Employees Accounting for Stock-Based Compensation
 Share-Based Payment
     Three months ended 3/31/05(In thousands, except share data)Net income:As reported
    
    $
    859Less: Pro forma stock based compensation cost (net of taxes)
    
    
    30Pro forma
    
    $
    829Basic earnings per share:As reported
    
    $
    0.20Pro forma
    
    $
    0.19Diluted earnings per share:As reported
    
    $
    0.19Pro forma
    
    $
    0.18
 8




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##### Table of Contents



2006Weighted
    
    
    Wtd. Avg.
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicOption
    
    
    Exercise
    
    
    Contractual
    
    
    ValueShares
    
    
    Price ($)
    
    
    Term (years)
    
    
    ($000)Balance, January 1
    
    
    349,100
    
    
    $
    12.88
    
    
    
    5.4Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (81,775
    )
    
    $
    11.43
    
    
    
    4.4Forfeited
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    Balance, March 31
    
    
    267,325
    
    
    $
    13.32
    
    
    
    5.7
    
    
    $
    1,261Options exercisable at March 31
    
    
    239,450
    
    
    $
    12.91
    
    
    
    5.4
    
    
    $
    1,226Weighted average grant date fair
value of options granted
    
    
    
    
    
    
    
    
    
    
    
    Nonvested Shares Issued Under the PlansStock Options
    
    
    Restricted Stock AwardsWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    
    Grant DateShares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2006
    
    
    55,050
    
    
    $
    16.84
    
    
    
    
    
    
    $Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    (27,175
    )
    
    
    16.89
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested at March 31, 2006
    
    
    27,875
    
    
    $
    16.79
    
    
    
    
    
    
    $
    
   9




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##### Table of Contents



Three months ended3/31/06
    
    
    3/31/05(In thousands)Service cost
    
    $
    87
    
    
    $
    104Interest cost
    
    
    107
    
    
    
    106Expected return on plan assets
    
    
    (136
    )
    
    
    (121
    )Net amortization and deferrals
    
    
    (1
    )
    
    
    (1
    )Net periodic pension cost
    
    $
    57
    
    
    $
    88
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  Critical Accounting Policies & Estimates
  EXECUTIVE LEVEL OVERVIEW
  10




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##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  Investments:
  11




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##### Table of Contents



3/31/06
    
    
    12/31/05Amortized
    
    
    Unrealized
    
    
    Market
    
    
    Amortized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)
    
    
    (In thousands)Investment securities available for sale:U.S. Treasury bonds
    
    $
    5,116
    
    
    $
    
    
    
    $
    (482
    )
    
    $
    4,634
    
    
    $
    5,119
    
    
    $
    
    
    
    $
    (350
    )
    
    $
    4,769Federal Agency bonds
    
    
    96,573
    
    
    
    
    
    
    
    (2,400
    )
    
    
    94,173
    
    
    
    9,932
    
    
    
    
    
    
    
    (265
    )
    
    
    9,667U.S. Treasury & Federal Agency bonds
    
    
    101,689
    
    
    
    
    
    
    
    (2,882
    )
    
    
    98,807
    
    
    
    15,051
    
    
    
    
    
    
    
    (615
    )
    
    
    14,436Corporate bonds
    
    
    15,089
    
    
    
    5
    
    
    
    (455
    )
    
    
    14,639
    
    
    
    3,181
    
    
    
    
    
    
    
    (135
    )
    
    
    3,046Municipal bonds
    
    
    1,513
    
    
    
    
    
    
    
    (9
    )
    
    
    1,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (63
    )
    
    
    937
    
    
    
    1,000
    
    
    
    
    
    
    
    (45
    )
    
    
    955Other investments/equity securities
    
    
    240
    
    
    
    
    
    
    
    (7
    )
    
    
    233
    
    
    
    240
    
    
    
    
    
    
    
    (7
    )
    
    
    233Other investment securities
    
    
    17,842
    
    
    
    5
    
    
    
    (534
    )
    
    
    17,313
    
    
    
    4,421
    
    
    
    
    
    
    
    (187
    )
    
    
    4,234Asset-backed securities/CMO
    
    
    91,957
    
    
    
    2
    
    
    
    (2,658
    )
    
    
    89,301
    
    
    
    24,662
    
    
    
    9
    
    
    
    (342
    )
    
    
    24,329Mortgaged-backed securities
    
    
    68,494
    
    
    
    38
    
    
    
    (2,141
    )
    
    
    66,391
    
    
    
    3,420
    
    
    
    10
    
    
    
    (66
    )
    
    
    3,364ABS/CMO/MBS
    
    
    160,451
    
    
    
    40
    
    
    
    (4,799
    )
    
    
    155,692
    
    
    
    28,082
    
    
    
    19
    
    
    
    (408
    )
    
    
    27,693Total investment securities available for sale
    
    $
    279,982
    
    
    $
    45
    
    
    $
    (8,215
    )
    
    $
    271,812
    
    
    $
    47,554
    
    
    $
    19
    
    
    $
    (1,210
    )
    
    $
    46,363Investment securities held to maturity:U.S. Treasury bonds
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Federal Agency bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,017
    
    
    
    56
    
    
    
    (1,944
    )
    
    
    85,129U.S. Treasury & Federal Agency bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,017
    
    
    
    56
    
    
    
    (1,944
    )
    
    
    85,129Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,143
    
    
    
    11
    
    
    
    (280
    )
    
    
    7,874Commercial paper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,881
    
    
    
    
    
    
    
    
    
    
    
    2,881Municipal bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,526
    
    
    
    
    
    
    
    (14
    )
    
    
    1,512Mutual funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other investments/equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,550
    
    
    
    11
    
    
    
    (294
    )
    
    
    12,267Asset-backed securities/CMO
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,415
    
    
    
    4
    
    
    
    (1,679
    )
    
    
    68,740Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,701
    
    
    
    40
    
    
    
    (1,262
    )
    
    
    42,479ABS/CMO/MBS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,116
    
    
    
    44
    
    
    
    (2,941
    )
    
    
    111,219Total investment securities held to maturity
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    213,683
    
    
    $
    111
    
    
    $
    (5,179
    )
    
    $
    208,615
 Loans:
   3/31/06
    
    
    12/31/05(In thousands)Residential mortgage loans
    
    $
    63,910
    
    
    $
    62,659Equity loans
    
    
    10,709
    
    
    
    10,412Consumer loans
    
    
    450
    
    
    
    468Total retail loans
    
    
    75,069
    
    
    
    73,539Construction loans
    
    
    32,606
    
    
    
    24,137Commercial real estate loans
    
    
    126,313
    
    
    
    127,617Commercial loans
    
    
    8,428
    
    
    
    9,318Total corporate loans
    
    
    167,347
    
    
    
    161,072Total loans
    
    
    242,416
    
    
    
    234,611Allowance for loan losses
    
    
    (4,160
    )
    
    
    (4,126
    )Total loans, net
    
    $
    238,256
    
    
    $
    230,485
 12




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##### Table of Contents



Allowance For Loan Losses
  Three months ended3/31/06
    
    
    3/31/05(In thousands)Beginning balance
    
    $
    4,126
    
    
    $
    4,140Provision charged to operations
    
    
    
    
    
    
    Recoveries on loans previously charged-off
    
    
    38
    
    
    
    3Loans charged-off
    
    
    ( 4
    )
    
    
    (4
    )Ending balance
    
    $
    4,160
    
    
    $
    4,139Allowance for loan losses as a percent of total loans
    
    
    1.72
    %
    
    
    1.77
    %
   Risk Assets:
    3/31/06
    
    
    12/31/05
    
    
    3/31/05(Dollars in thousands)Non-performing loans
    
    $
    32
    
    
    $
    32
    
    
    $
    34Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total risk assets
    
    $
    32
    
    
    $
    32
    
    
    $
    34Risk assets as a percent of total assets
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
 Deposits:
  13




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##### Table of Contents



3/31/06
    
    
    12/31/05(In thousands)NOW and Super NOW accounts
    
    $
    36,471
    
    
    $
    38,349Demand deposit accounts
    
    
    17,227
    
    
    
    18,912Savings accounts
    
    
    40,917
    
    
    
    41,941Money market investment accounts
    
    
    80,705
    
    
    
    76,594Certificates of deposit
    
    
    127,611
    
    
    
    127,291Total deposits
    
    $
    302,931
    
    
    $
    303,087
 Borrowings:
   3/31/06
    
    
    12/31/05(In thousands)Federal Home Loan Bank advances
    
    $
    136,621
    
    
    $
    121,861Other borrowed funds
    
    
    41,000
    
    
    
    27,000Customer repurchase agreements
    
    
    4,113
    
    
    
    4,519Total borrowings
    
    $
    181,734
    
    
    $
    153,380
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2006 AND 2005
 SUMMARY
  Net Interest Income From Operations:
  14




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##### Table of Contents



3/31/06
    
    
    3/31/05Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in Thousands)AssetsInvestment securities:Short-term investments
    
    $
    2,346
    
    
    $
    26
    
    
    
    4.49
    %
    
    $
    2,479
    
    
    $
    16
    
    
    
    2.62
    %U. S. Government and
Federal Agency bonds
    
    
    102,361
    
    
    
    807
    
    
    
    3.20
    
    
    
    129,641
    
    
    
    1,043
    
    
    
    3.26Corporate and municipal bonds
and other securities
    
    
    25,780
    
    
    
    237
    
    
    
    3.73
    
    
    
    26,695
    
    
    
    238
    
    
    
    3.62Collateralized mortgage
obligations and mortgaged-
backed securities
    
    
    145,084
    
    
    
    1,517
    
    
    
    4.24
    
    
    
    126,367
    
    
    
    1,240
    
    
    
    3.98Total investment securities
    
    
    275,571
    
    
    
    2,587
    
    
    
    3.81
    
    
    
    285,182
    
    
    
    2,537
    
    
    
    3.61Loans:Residential real estate
    
    
    63,119
    
    
    
    821
    
    
    
    5.28
    
    
    
    60,074
    
    
    
    783
    
    
    
    5.29Equity
    
    
    10,641
    
    
    
    160
    
    
    
    6.10
    
    
    
    8,732
    
    
    
    104
    
    
    
    4.83Consumer
    
    
    532
    
    
    
    8
    
    
    
    6.10
    
    
    
    706
    
    
    
    10
    
    
    
    5.74Total retail loans
    
    
    74,292
    
    
    
    989
    
    
    
    5.40
    
    
    
    69,512
    
    
    
    897
    
    
    
    5.23Construction
    
    
    26,824
    
    
    
    571
    
    
    
    8.63
    
    
    
    15,553
    
    
    
    260
    
    
    
    6.78Commercial real estate
    
    
    127,232
    
    
    
    2,216
    
    
    
    7.06
    
    
    
    133,668
    
    
    
    2,191
    
    
    
    6.65Commercial
    
    
    9,057
    
    
    
    172
    
    
    
    7.70
    
    
    
    14,980
    
    
    
    224
    
    
    
    6.06Total corporate loans
    
    
    163,113
    
    
    
    2,959
    
    
    
    7.36
    
    
    
    164,201
    
    
    
    2,675
    
    
    
    6.61Total loans
    
    
    237,405
    
    
    
    3,948
    
    
    
    6.74
    
    
    
    233,713
    
    
    
    3,572
    
    
    
    6.20Total interest-earning assets
    
    
    512,976
    
    
    
    6,535
    
    
    
    5.17
    %
    
    
    518,895
    
    
    
    6,109
    
    
    
    4.77
    %Allowance for loan losses
    
    
    (4,147
    )
    
    
    
    
    
    
    
    
    
    
    (4,153
    )Other assets
    
    
    17,471
    
    
    
    
    
    
    
    
    
    
    
    17,272Total assets
    
    $
    526,300
    
    
    
    
    
    
    
    
    
    
    $
    532,014Liabilities and Stockholders EquityDeposits:NOW and Super NOW accounts
    
    $
    36,387
    
    
    $
    11
    
    
    
    0.12
    %
    
    $
    38,163
    
    
    $
    11
    
    
    
    0.12
    %Regular savings accounts
    
    
    41,013
    
    
    
    50
    
    
    
    0.49
    
    
    
    45,360
    
    
    
    55
    
    
    
    0.49Money market investment
accounts
    
    
    79,849
    
    
    
    430
    
    
    
    2.18
    
    
    
    81,923
    
    
    
    244
    
    
    
    1.21Certificates of deposit
and escrow
    
    
    127,772
    
    
    
    1,056
    
    
    
    3.35
    
    
    
    119,618
    
    
    
    756
    
    
    
    2.56Total interest bearing deposits
    
    
    285,021
    
    
    
    1,547
    
    
    
    2.20
    
    
    
    285,064
    
    
    
    1,066
    
    
    
    1.52Borrowed funds:Other borrowed funds
    
    
    33,445
    
    
    
    365
    
    
    
    4.43
    
    
    
    52,107
    
    
    
    316
    
    
    
    2.46FHLB Advances
    
    
    125,776
    
    
    
    1,329
    
    
    
    4.29
    
    
    
    117,410
    
    
    
    1,173
    
    
    
    4.05Total borrowed funds
    
    
    159,221
    
    
    
    1,694
    
    
    
    4.31
    
    
    
    169,517
    
    
    
    1,489
    
    
    
    3.56Total interest bearing liabilities
    
    
    444,242
    
    
    
    3,241
    
    
    
    2.96
    %
    
    
    454,581
    
    
    
    2,555
    
    
    
    2.28
    %Non-interest bearing deposits
    
    
    17,439
    
    
    
    
    
    
    
    
    
    
    
    16,223Other liabilities
    
    
    4,794
    
    
    
    
    
    
    
    
    
    
    
    3,369Total liabilities
    
    
    466,475
    
    
    
    
    
    
    
    
    
    
    
    474,173Stockholders equity
    
    
    59,825
    
    
    
    
    
    
    
    
    
    
    
    57,841Total liabilities and
stockholders equity
    
    $
    526,300
    
    
    
    
    
    
    
    
    
    
    $
    532,014Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.21
    %
    
    
    
    
    
    
    
    
    
    
    2.49
    %Net interest income
    
    
    
    
    
    $
    3,294
    
    
    
    
    
    
    
    
    
    
    $
    3,554Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.60
    %
    
    
    
    
    
    
    
    
    
    
    2.78
    %
 15




---



##### Table of Contents



Interest Income:
    Interest Expense:
    Provision For Loan Losses:
  Non-Interest Income:
  Non-Interest Expense:
  16




---



##### Table of Contents



Income Taxes:
  Liquidity and Capital Resources:
      
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
   17




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##### Table of Contents



PART II  OTHER INFORMATION
 
   
   
   
   
    DIRECTOR NOMINEE
    
    FOR
    
    WITHHELDThomas J. Burke
    
    
    3,649,509
    
    
    
    413,648Marsha A. McDonough
    
    
    3,649,603
    
    
    
    413,554Kathleen Boshar Reynolds
    
    
    3,649,618
    
    
    
    413,539
  DIRECTOR NOMINEE
    
    FOR
    
    WITHHELDGerald T. Mulligan
    
    
    3,731,133
    
    
    
    332,024
  FOR
    
    
    1,880,946AGAINST
    
    
    385,554ABSTAIN
    
    
    5,293Broker Non Vote
    
    
    1,791,364
 18




---



##### Table of Contents



FOR
    
    
    3,725,835AGAINST
    
    
    330,282ABSTAIN
    
    
    7,040
 
   
   19




---



##### Table of Contents



LSB CORPORATIONMay 12, 2006
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive OfficerMay 12, 2006
    /s/ Diane L. WalkerDiane L. WalkerSenior Vice President
Chief Financial Officer 20




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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
    
    
    2231.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    2332.1
    
    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
    
    
    2432.2
    
    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
    
    
    25
 21