##### 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, 2007
 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
 
  þ o
 
 o o þ
  o þ
  Class
    
    Outstanding as of May 4, 2007Common Stock, par value $.10 per share
    
    4,601,617 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9ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    917ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    18ITEM 4 CONTROLS AND PROCEDURES
    
    
    18PART II  OTHER INFORMATIONITEM 1 LEGAL PROCEEDINGS
    
    
    19ITEM 1A RISK FACTORS
    
    
    19ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    19ITEM 3 DEFAULTS UPON SENIOR SECURITIES
    
    
    19ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    19ITEM 5 OTHER INFORMATION
    
    
    19ITEM 6 EXHIBITS
    
    
    20SIGNATURES
    
    
    21EXHIBIT INDEX
    
    
    22EX-10.1 Special Termination Agreement dated May 10, 2007EX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO CertificationEX-32.2 Section 906 CFO Certification
  2




---



##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 
 March 31,
    
    
    December 31,2007
    
    
    2006(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    7,150
    
    
    $
    6,896Federal funds sold
    
    
    14,938
    
    
    
    11,871Total cash and cash equivalents
    
    
    22,088
    
    
    
    18,767Investment securities available for sale (amortized cost of
$216,119 in 2007 and $221,652 in 2006)
    
    
    213,942
    
    
    
    218,682Federal Home Loan Bank stock, at cost
    
    
    9,981
    
    
    
    10,046Loans, net of allowance for loan losses
    
    
    303,350
    
    
    
    283,854Premises and equipment
    
    
    3,603
    
    
    
    3,807Accrued interest receivable
    
    
    2,465
    
    
    
    2,259Deferred income tax asset, net
    
    
    3,310
    
    
    
    3,606Other assets
    
    
    958
    
    
    
    1,944Total assets
    
    $
    559,697
    
    
    $
    542,965LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits
    
    $
    307,620
    
    
    
    295,662Borrowed funds
    
    
    189,246
    
    
    
    184,782Advance payments by borrowers for taxes and insurance
    
    
    680
    
    
    
    586Other liabilities
    
    
    2,912
    
    
    
    3,404Total liabilities
    
    
    500,458
    
    
    
    484,434Stockholders 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;
4,601,617 and 4,593,617 shares issued and outstanding at
March 31, 2007 and December 31, 2006, respectively
    
    
    460
    
    
    
    459Additional paid-in capital
    
    
    61,674
    
    
    
    61,578Accumulated deficit
    
    
    (1,970
    )
    
    
    (2,090
    )Accumulated other comprehensive loss, net of tax
    
    
    (925
    )
    
    
    (1,416
    )Total stockholders equity
    
    
    59,239
    
    
    
    58,531Total liabilities and stockholders equity
    
    $
    559,697
    
    
    $
    542,965
  3




---



##### Table of Contents



Three months endedMarch 31,2007
    
    
    2006(In thousands, except share data)Interest and dividend income:Loans
    
    $
    5,298
    
    
    $
    3,948Investment securities available for sale
    
    
    2,514
    
    
    
    2,438Federal Home Loan Bank stock
    
    
    160
    
    
    
    123Short term interest income
    
    
    121
    
    
    
    26Total interest and dividend income
    
    
    8,093
    
    
    
    6,535Interest expense:Deposits
    
    
    2,213
    
    
    
    1,547Borrowed funds
    
    
    2,106
    
    
    
    1,694Total interest expense
    
    
    4,319
    
    
    
    3,241Net interest income
    
    
    3,774
    
    
    
    3,294Provision for loan losses
    
    
    60
    
    
    
    Net interest income after provision for loan losses
    
    
    3,714
    
    
    
    3,294Non-interest income:Deposit account fees
    
    
    186
    
    
    
    209Loan servicing fees, net
    
    
    58
    
    
    
    7Gain on sales of mortgage loans, net
    
    
    
    
    
    
    4Other income
    
    
    110
    
    
    
    110Total non-interest income
    
    
    354
    
    
    
    330Non-interest expense:Salaries and employee benefits
    
    
    1,764
    
    
    
    2,067Occupancy and equipment expense
    
    
    286
    
    
    
    330Data processing expense
    
    
    281
    
    
    
    233Marketing expense
    
    
    29
    
    
    
    38Professional expense
    
    
    108
    
    
    
    163Other expense
    
    
    390
    
    
    
    392Total non-interest expense
    
    
    2,858
    
    
    
    3,223Income before income tax expense
    
    
    1,210
    
    
    
    401Income tax expense
    
    
    446
    
    
    
    141Net income
    
    $
    764
    
    
    $
    260Average shares outstanding
    
    
    4,598,128
    
    
    
    4,496,013Common stock equivalents
    
    
    30,697
    
    
    
    59,712Average diluted shares outstanding
    
    
    4,628,825
    
    
    
    4,555,725Basic earnings per share
    
    $
    0.17
    
    
    $
    0.06Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.06
  4




---



##### 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, 2005
    
    $
    446
    
    
    $
    59,856
    
    
    $
    326
    
    
    $
    (706
    )
    
    $
    59,922Net income
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    126Other comprehensive loss:Unrealized loss on securities
available for sale, net (tax effect $619)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,160
    )
    
    
    (1,160
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,034
    )Stock-based compensation
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    400Exercise of stock options
and tax benefit
    
    
    13
    
    
    
    1,322
    
    
    
    
    
    
    
    
    
    
    
    1,335Adjustment to initially apply
SFAS No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    450Dividends declared and paid
($0.56 per share)
    
    
    
    
    
    
    
    
    
    
    (2,542
    )
    
    
    
    
    
    
    (2,542
    )Balance at December 31, 2006
    
    $
    459
    
    
    $
    61,578
    
    
    $
    (2,090
    )
    
    $
    (1,416
    )
    
    $
    58,531
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2006
    
    $
    459
    
    
    $
    61,578
    
    
    $
    (2,090
    )
    
    $
    (1,416
    )
    
    $
    58,531Net income
    
    
    
    
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    764Other comprehensive income:Unrealized gain on securities
available for sale, net (tax
effect $302)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    491
    
    
    
    491Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,255Stock-based compensation
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Exercise of stock options
and tax benefit
    
    
    1
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    90Dividends declared and paid
($0.14 per share)
    
    
    
    
    
    
    
    
    
    
    (644
    )
    
    
    
    
    
    
    (644
    )Balance at March 31, 2007
    
    $
    460
    
    
    $
    61,674
    
    
    $
    (1,970
    )
    
    $
    (925
    )
    
    $
    59,239
  5




---



##### Table of Contents



Three months ended March 31,2007
    
    
    2006(In thousands)Cash flows from operating activities:Net income
    
    $
    764
    
    
    $
    260Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan loss
    
    
    60
    
    
    
    Gains on sales of mortgage loans, net
    
    
    
    
    
    
    (4
    )Net amortization of investment securities
    
    
    12
    
    
    
    332Depreciation and amortization of premises and equipment
    
    
    146
    
    
    
    106Loans originated for sale
    
    
    
    
    
    
    (682
    )Proceeds from sales of mortgage loans
    
    
    
    
    
    
    998Increase in accrued interest receivable
    
    
    (206
    )
    
    
    (467
    )Deferred income tax benefit
    
    
    (6
    )
    
    
    (218
    )Stock-based compensation
    
    
    7
    
    
    
    32Decrease in other assets
    
    
    986
    
    
    
    101Decrease in other liabilities
    
    
    (492
    )
    
    
    (360
    )Net cash provided by operating activities
    
    
    1,271
    
    
    
    98Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    
    
    
    
    2,900Purchases of investment securities available for sale
    
    
    
    
    
    
    (27,600
    )Redemption of FHLB stock
    
    
    65
    
    
    
    Principal payments of investment securities held to maturity
    
    
    
    
    
    
    4,680Principal payments of investment securities available for sale
    
    
    5,521
    
    
    
    943Increase in loans, net
    
    
    (19,556
    )
    
    
    (8,083
    )Reductions (purchases) of premises and equipment
    
    
    58
    
    
    
    (99
    )Net cash used in investing activities
    
    
    (13,912
    )
    
    
    (27,259
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    11,958
    
    
    
    (156
    )Additions to Federal Home Loan Bank advances
    
    
    32,000
    
    
    
    20,000Payments on Federal Home Loan Bank advances
    
    
    (10,035
    )
    
    
    (5,240
    )Net increase (decrease) in agreements to repurchase securities
    
    
    1,499
    
    
    
    (406
    )Net (decrease) increase in other borrowed funds
    
    
    (19,000
    )
    
    
    14,000Increase in advance payments by borrowers
    
    
    94
    
    
    
    178Dividends paid
    
    
    (644
    )
    
    
    (628
    )Proceeds from exercise of stock options
    
    
    68
    
    
    
    618Excess tax benefit from exercise of stock options
    
    
    22
    
    
    
    57Net cash provided by financing activities
    
    
    15,962
    
    
    
    28,423Net increase in cash and cash equivalents
    
    
    3,321
    
    
    
    1,262Cash and cash equivalents, beginning of period
    
    
    18,767
    
    
    
    10,687Cash and cash equivalents, end of period
    
    $
    22,088
    
    
    $
    11,949Cash paid during the period for:Interest on deposits
    
    $
    2,213
    
    
    $
    1,547Interest on borrowed funds
    
    
    2,137
    
    
    
    1,601Income taxes
    
    
    28
    
    
    
    896
  6




---



##### Table of Contents



1.
    
    BASIS OF PRESENTATION
     2.
    
    EQUITY AWARDS
   7




---



##### Table of Contents



2007Weighted
    
    Wtd. Avg.Average
    
    RemainingOption
    
    Exercise
    
    ContractualShares
    
    Price ($)
    
    Term (years)Balance, January 1
    
    
    244,900
    
    
    $
    14.07
    
    
    
    5.4Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (8,000
    )
    
    $
    8.52
    
    
    
    5.2Forfeited
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    Balance, March 31
    
    
    236,900
    
    
    $
    14.26
    
    
    
    5.4Options exercisable at March 31
    
    
    214,800
    
    
    $
    14.03
    
    
    
    5.2Weighted average grant date fair value of options granted
    
    
    n/a
    
    
    
    n/a
   Nonvested Shares Issued Under the PlansStock Awards
    
    Stock OptionsWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    Grant DateShares
    
    Fair Value
    
    Shares
    
    Fair ValueNonvested at January 1, 2007
    
    
    
    
    
    $
    
    
    
    
    35,575
    
    
    $
    16.59Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    
    
    
    
    (13,475
    )
    
    $
    16.77Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested at March 31, 2007
    
    
    
    
    
    $
    
    
    
    
    22,100
    
    
    $
    16.47
 3.
    
    DEFINED BENEFIT PLAN
   8




---



##### Table of Contents



4.
    
    CONTINGENCIES
  5.
    
    RECENT ACCOUNTING PRONOUNCEMENTS
     
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  9




---



##### Table of Contents



Critical Accounting Policies & Estimates
  EXECUTIVE LEVEL OVERVIEW
       10




---



##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  Investments:
     3/31/07
    
    
    12/31/06Amortized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)
    
    
    (In thousands)Investment securities
available for sale:U.S. treasury obligations
    
    $
    5,601
    
    
    $
    
    
    
    $
    (337
    )
    
    $
    5,264
    
    
    $
    5,605
    
    
    $
    
    
    
    $
    (391
    )
    
    $
    5,214Federal agency bonds
    
    
    780
    
    
    
    10
    
    
    
    (2
    )
    
    
    788
    
    
    
    839
    
    
    
    10
    
    
    
    (2
    )
    
    
    847Government-sponsored entities
    
    
    34,739
    
    
    
    2
    
    
    
    (396
    )
    
    
    34,345
    
    
    
    34,871
    
    
    
    4
    
    
    
    (532
    )
    
    
    34,343U.S. treasury and Government
sponsored entities
    
    
    41,120
    
    
    
    12
    
    
    
    (735
    )
    
    
    40,397
    
    
    
    41,315
    
    
    
    14
    
    
    
    (925
    )
    
    
    40,404Mortgage-backed securities
    
    
    95,322
    
    
    
    676
    
    
    
    (1,092
    )
    
    
    94,906
    
    
    
    98,608
    
    
    
    606
    
    
    
    (1,316
    )
    
    
    97,898Collateralized mortgage obligations
    
    
    70,833
    
    
    
    100
    
    
    
    (1,149
    )
    
    
    69,784
    
    
    
    72,899
    
    
    
    73
    
    
    
    (1,417
    )
    
    
    71,555Collateralized mortgage obligations
and mortgage-backed securities
    
    
    166,155
    
    
    
    776
    
    
    
    (2,241
    )
    
    
    164,690
    
    
    
    171,507
    
    
    
    679
    
    
    
    (2,733
    )
    
    
    169,453Corporate obligations
    
    
    7,330
    
    
    
    74
    
    
    
    (13
    )
    
    
    7,391
    
    
    
    7,316
    
    
    
    50
    
    
    
    (2
    )
    
    
    7,364Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (50
    )
    
    
    950
    
    
    
    1,000
    
    
    
    
    
    
    
    (53
    )
    
    
    947Equity securities
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    514
    
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    514Corporate and other investment
securities
    
    
    8,844
    
    
    
    74
    
    
    
    (63
    )
    
    
    8,855
    
    
    
    8,830
    
    
    
    50
    
    
    
    (55
    )
    
    
    8,825Total investment securities
available for sale
    
    $
    216,119
    
    
    $
    862
    
    
    $
    (3,039
    )
    
    $
    213,942
    
    
    $
    221,652
    
    
    $
    743
    
    
    $
    (3,713
    )
    
    $
    218,682
 Loans:
  11




---



##### Table of Contents



3/31/07
    
    
    12/31/06(In thousands)Residential mortgage loans
    
    $
    71,087
    
    
    $
    69,876Home equity lines and loans
    
    
    19,639
    
    
    
    20,339Consumer loans
    
    
    565
    
    
    
    975Total retail loans
    
    
    91,291
    
    
    
    91,190Construction loans
    
    
    51,345
    
    
    
    43,283Commercial real estate loans
    
    
    149,779
    
    
    
    142,820Commercial loans
    
    
    15,301
    
    
    
    10,870Total corporate loans
    
    
    216,425
    
    
    
    196,973Total loans
    
    
    307,716
    
    
    
    288,163Allowance for loan losses
    
    
    (4,366
    )
    
    
    (4,309
    )Total loans, net
    
    $
    303,350
    
    
    $
    283,854
 Allowance For Loan Losses:
  Three months ended3/31/07
    
    
    3/31/06(In thousands)Beginning balance
    
    $
    4,309
    
    
    $
    4,126Provision charged to operations
    
    
    60
    
    
    
    Recoveries on loans previously charged-off
    
    
    5
    
    
    
    38Loans charged-off
    
    
    (8
    )
    
    
    (4
    )Ending balance
    
    $
    4,366
    
    
    $
    4,160
   Risk Assets:
   12




---



##### Table of Contents



3/31/07
    
    
    12/31/06
    
    
    3/31/06(Dollars in thousands)Non-performing loans
    
    $
    94
    
    
    $
    1,057
    
    
    $
    32Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total risk assets
    
    $
    94
    
    
    $
    1,057
    
    
    $
    32Risk assets as a percent of total loans
    
    
    0.03
    %
    
    
    0.37
    %
    
    
    0.01
    %Risk assets as a percent of total assets
    
    
    0.02
    %
    
    
    0.19
    %
    
    
    0.01
    %
 Deposits:
   3/31/07
    
    
    12/31/06(In thousands)NOW and super NOW accounts
    
    $
    17,756
    
    
    $
    17,707Demand deposit accounts
    
    
    31,785
    
    
    
    31,424Savings accounts
    
    
    32,752
    
    
    
    33,676Money market investment accounts
    
    
    74,223
    
    
    
    73,163Certificates of deposit
    
    
    151,104
    
    
    
    139,692Total deposits
    
    $
    307,620
    
    
    $
    295,662
 Borrowings:
  13




---



##### Table of Contents



3/31/07
    
    
    12/31/06(In thousands)FHLB long-term advances
    
    $
    165,484
    
    
    $
    143,519FHLB short-term borrowings
    
    
    17,000
    
    
    
    36,000Customer repurchase agreements
    
    
    6,762
    
    
    
    5,263Total borrowings
    
    $
    189,246
    
    
    $
    184,782
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 SUMMARY
  Net Interest Income From Operations:
  14




---



##### Table of Contents



Three months ended
    
    
    Three months ended3/31/07
    
    
    3/31/06Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    9,206
    
    
    $
    121
    
    
    
    5.33
    %
    
    $
    2,346
    
    
    $
    26
    
    
    
    4.49
    %U. S. treasury and
Government-
sponsored entities
    
    
    40,367
    
    
    
    392
    
    
    
    3.94
    
    
    
    102,361
    
    
    
    807
    
    
    
    3.20Corporate and other
investment securities
    
    
    18,861
    
    
    
    271
    
    
    
    5.83
    
    
    
    25,780
    
    
    
    237
    
    
    
    3.73Collateralized mortgage
obligations and
mortgage-
backed securities
    
    
    167,070
    
    
    
    2,011
    
    
    
    4.88
    
    
    
    145,084
    
    
    
    1,517
    
    
    
    4.24Total investment
securities
    
    
    235,504
    
    
    
    2,795
    
    
    
    4.81
    
    
    
    275,571
    
    
    
    2,587
    
    
    
    3.81Loans:Residential real estate
    
    
    70,465
    
    
    
    985
    
    
    
    5.67
    
    
    
    63,119
    
    
    
    821
    
    
    
    5.28Equity
    
    
    20,033
    
    
    
    307
    
    
    
    6.22
    
    
    
    10,641
    
    
    
    160
    
    
    
    6.10Consumer
    
    
    911
    
    
    
    16
    
    
    
    7.12
    
    
    
    532
    
    
    
    8
    
    
    
    6.10Total retail loans
    
    
    91,409
    
    
    
    1,308
    
    
    
    5.80
    
    
    
    74,292
    
    
    
    989
    
    
    
    5.40Construction
    
    
    46,224
    
    
    
    1,077
    
    
    
    9.45
    
    
    
    26,824
    
    
    
    571
    
    
    
    8.63Commercial real estate
    
    
    144,975
    
    
    
    2,635
    
    
    
    7.37
    
    
    
    127,232
    
    
    
    2,216
    
    
    
    7.06Commercial
    
    
    13,591
    
    
    
    278
    
    
    
    8.30
    
    
    
    9,057
    
    
    
    172
    
    
    
    7.70Total corporate loans
    
    
    204,790
    
    
    
    3,990
    
    
    
    7.90
    
    
    
    163,113
    
    
    
    2,959
    
    
    
    7.36Total loans
    
    
    296,199
    
    
    
    5,298
    
    
    
    7.25
    
    
    
    237,405
    
    
    
    3,948
    
    
    
    6.74Total interest-earning
assets
    
    
    531,703
    
    
    
    8,093
    
    
    
    6.17
    %
    
    
    512,976
    
    
    
    6,535
    
    
    
    5.17
    %Allowance for loan
losses
    
    
    (4,327
    )
    
    
    
    
    
    
    
    
    
    
    (4,147
    )Other assets
    
    
    16,286
    
    
    
    
    
    
    
    
    
    
    
    17,471Total assets
    
    $
    543,662
    
    
    
    
    
    
    
    
    
    
    $
    526,300Liabilities and
Stockholders
EquityDeposits:NOW and super NOW
accounts
    
    $
    17,784
    
    
    $
    8
    
    
    
    0.18
    %
    
    $
    36,387
    
    
    $
    11
    
    
    
    0.12
    %Regular savings accounts
    
    
    32,894
    
    
    
    40
    
    
    
    0.49
    
    
    
    41,013
    
    
    
    50
    
    
    
    0.49Money market investment
accounts
    
    
    73,405
    
    
    
    524
    
    
    
    2.90
    
    
    
    79,849
    
    
    
    430
    
    
    
    2.18Certificates of deposit
and escrow
    
    
    146,621
    
    
    
    1,641
    
    
    
    4.54
    
    
    
    127,772
    
    
    
    1,056
    
    
    
    3.35Total interest-bearing
deposits
    
    
    270,704
    
    
    
    2,213
    
    
    
    3.32
    
    
    
    285,021
    
    
    
    1,547
    
    
    
    2.20Borrowed funds:Other borrowed funds
    
    
    33,442
    
    
    
    420
    
    
    
    5.09
    
    
    
    33,445
    
    
    
    365
    
    
    
    4.43FHLB advances
    
    
    148,752
    
    
    
    1,686
    
    
    
    4.60
    
    
    
    125,776
    
    
    
    1,329
    
    
    
    4.29Total borrowed funds
    
    
    182,194
    
    
    
    2,106
    
    
    
    4.69
    
    
    
    159,221
    
    
    
    1,694
    
    
    
    4.31Total interest-bearing
liabilities
    
    
    452,898
    
    
    
    4,319
    
    
    
    3.87
    %
    
    
    444,242
    
    
    
    3,241
    
    
    
    2.96
    %Non-interest-bearing
deposits
    
    
    29,085
    
    
    
    
    
    
    
    
    
    
    
    17,439Other liabilities
    
    
    3,714
    
    
    
    
    
    
    
    
    
    
    
    4,794Total liabilities
    
    
    485,697
    
    
    
    
    
    
    
    
    
    
    
    466,475Stockholders equity
    
    
    57,965
    
    
    
    
    
    
    
    
    
    
    
    59,825Total liabilities and
stockholders equity
    
    $
    543,662
    
    
    
    
    
    
    
    
    
    
    $
    526,300Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.30
    %
    
    
    
    
    
    
    
    
    
    
    2.21
    %Net interest income
    
    
    
    
    
    $
    3,774
    
    
    
    
    
    
    
    
    
    
    $
    3,294Net interest margin on
average earning assets
    
    
    
    
    
    
    
    
    
    
    2.88
    %
    
    
    
    
    
    
    
    
    
    
    2.60
    %
 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:
      17




---



##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
   18




---



##### Table of Contents



PART II  OTHER INFORMATION
 
   
   
   
   
    Director Nominee
    
    For
    
    WithheldMalcolm W. Brawn
    
    
    4,058,539
    
    
    
    187,671Richard Hart Harrington
    
    
    4,058,564
    
    
    
    187,646
  For
    
    
    4,215,266Against
    
    
    24,619Abstain
    
    
    6,325
 
  Special Termination Agreements
  19




---



##### Table of Contents



Number
    
    Description10.1
    
    Special Termination Agreement between LSB Corporation and Teresa K. Flynn dated May 10, 2007.31.1
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.32.3
    
    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.
 20




---



##### Table of Contents



LSB CORPORATIONMay 11, 2007
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive OfficerMay 11, 2007
    /s/ Diane L. WalkerDiane L. WalkerExecutive Vice President, Treasurer and
Chief Financial Officer 21




---



##### Table of Contents



LSB CORPORATION AND SUBSIDIARY
 
 EXHIBIT INDEX
 10.1
    
    Special Termination Agreement between LSB Corporation and Teresa K. Flynn
dated May 10, 2007.31.1
    
    Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    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
 22