##### 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, 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 August 7, 2007Common Stock, par value $.10 per share
    
    4,585,917 shares




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##### 



Page:PART I  FINANCIAL INFORMATIONITEM 1
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    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
    
    
    10-21ITEM 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    21ITEM 4
    
    CONTROLS AND PROCEDURES
    
    
    21PART II  OTHER INFORMATIONITEM 1
    
    LEGAL PROCEEDINGS
    
    
    22ITEM 1A
    
    RISK FACTORS
    
    
    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
    
    
    22ITEM 6
    
    EXHIBITS
    
    
    23SIGNATURES
    
    
    24EXHIBIT INDEX
    
    
    25Ex-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
 
 
 June 30,
    
    
    December 31,2007
    
    
    2006(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    9,081
    
    
    $
    6,896Federal funds sold
    
    
    14,762
    
    
    
    11,871Total cash and cash equivalents
    
    
    23,843
    
    
    
    18,767Investment securities available for sale
(amortized cost of
$204,610 in 2007 and $221,652 in 2006)
    
    
    200,167
    
    
    
    218,682Federal Home Loan Bank stock, at cost
    
    
    10,185
    
    
    
    10,046Loans, net of allowance for loan losses
    
    
    328,641
    
    
    
    283,854Premises and equipment
    
    
    3,469
    
    
    
    3,807Accrued interest receivable
    
    
    2,242
    
    
    
    2,259Deferred income tax asset, net
    
    
    4,213
    
    
    
    3,606Bank-owned life insurance
    
    
    5,005
    
    
    
    Other assets
    
    
    1,358
    
    
    
    1,944Total assets
    
    $
    579,123
    
    
    $
    542,965LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits
    
    $
    314,712
    
    
    $
    295,662Borrowed funds
    
    
    203,043
    
    
    
    184,782Advance payments by borrowers for taxes and insurance
    
    
    577
    
    
    
    586Other liabilities
    
    
    2,832
    
    
    
    3,404Total liabilities
    
    
    521,164
    
    
    
    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;
4,596,617 and 4,593,617 shares issued and outstanding at
June 30, 2007 and December 31, 2006, respectively
    
    
    460
    
    
    
    459Additional paid-in capital
    
    
    61,569
    
    
    
    61,578Accumulated deficit
    
    
    (1,782
    )
    
    
    (2,090
    )Accumulated other comprehensive loss, net of tax
    
    
    (2,288
    )
    
    
    (1,416
    )Total stockholders equity
    
    
    57,959
    
    
    
    58,531Total liabilities and stockholders equity
    
    $
    579,123
    
    
    $
    542,965
  3




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except share data)Interest and dividend income:Loans
    
    $
    5,709
    
    
    $
    4,277
    
    
    $
    11,006
    
    
    $
    8,226Investment securities available for sale
    
    
    2,445
    
    
    
    2,661
    
    
    
    4,959
    
    
    
    5,100Federal Home Loan Bank stock
    
    
    167
    
    
    
    8
    
    
    
    327
    
    
    
    131Short term interest income
    
    
    190
    
    
    
    101
    
    
    
    312
    
    
    
    126Total interest and dividend income
    
    
    8,511
    
    
    
    7,047
    
    
    
    16,604
    
    
    
    13,583Interest expense:Deposits
    
    
    2,409
    
    
    
    1,702
    
    
    
    4,624
    
    
    
    3,248Borrowed funds
    
    
    2,258
    
    
    
    2,042
    
    
    
    4,363
    
    
    
    3,737Total interest expense
    
    
    4,667
    
    
    
    3,744
    
    
    
    8,987
    
    
    
    6,985Net interest income
    
    
    3,844
    
    
    
    3,303
    
    
    
    7,617
    
    
    
    6,598Provision for loan losses
    
    
    155
    
    
    
    30
    
    
    
    215
    
    
    
    30Net interest income after provision for loan losses
    
    
    3,689
    
    
    
    3,273
    
    
    
    7,402
    
    
    
    6,568Non-interest income (loss):Deposit account fees
    
    
    251
    
    
    
    189
    
    
    
    437
    
    
    
    398Loan servicing fees, net
    
    
    56
    
    
    
    34
    
    
    
    114
    
    
    
    41Gain on sales of mortgage loans, net
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    7Loss on sales of investment securities
    
    
    
    
    
    
    (2,417
    )
    
    
    
    
    
    
    (2,417
    )Other income
    
    
    127
    
    
    
    117
    
    
    
    237
    
    
    
    227Total non-interest income (loss)
    
    
    434
    
    
    
    (2,074
    )
    
    
    788
    
    
    
    (1,744
    )Non-interest expense:Salaries and employee benefits
    
    
    1,616
    
    
    
    1,936
    
    
    
    3,380
    
    
    
    4,004Occupancy and equipment expense
    
    
    303
    
    
    
    494
    
    
    
    590
    
    
    
    823Data processing expense
    
    
    244
    
    
    
    263
    
    
    
    525
    
    
    
    496Marketing expense
    
    
    192
    
    
    
    417
    
    
    
    220
    
    
    
    455Professional expense
    
    
    111
    
    
    
    201
    
    
    
    220
    
    
    
    364Other expense
    
    
    408
    
    
    
    838
    
    
    
    796
    
    
    
    1,231Total non-interest expense
    
    
    2,874
    
    
    
    4,149
    
    
    
    5,731
    
    
    
    7,373Income (loss) before income tax expense (benefit)
    
    
    1,249
    
    
    
    (2,950
    )
    
    
    2,459
    
    
    
    (2,549
    )Income tax expense (benefit)
    
    
    417
    
    
    
    (1,008
    )
    
    
    863
    
    
    
    (867
    )Net income (loss)
    
    $
    832
    
    
    $
    (1,942
    )
    
    $
    1,596
    
    
    $
    (1,682
    )Average shares outstanding
    
    
    4,602,331
    
    
    
    4,539,834
    
    
    
    4,600,241
    
    
    
    4,518,045Common stock equivalents
    
    
    28,088
    
    
    
    50,449
    
    
    
    29,385
    
    
    
    54,959Average diluted shares outstanding
    
    
    4,630,419
    
    
    
    4,590,283
    
    
    
    4,629,626
    
    
    
    4,573,004Basic earnings per share
    
    $
    0.18
    
    
    $
    (0.43
    )
    
    $
    0.35
    
    
    $
    (0.37
    )Diluted earnings per share
    
    $
    0.18
    
    
    $
    (0.42
    )
    
    $
    0.34
    
    
    $
    (0.37
    )
  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, 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
    
    
    
    
    
    
    
    
    
    
    1,596
    
    
    
    
    
    
    
    1,596Other comprehensive income:Unrealized loss on securities
available for sale, net (tax
effect $601)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (872
    )
    
    
    (872
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    724Stock-based compensation
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Common stock repurchase program
    
    
    (1
    )
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    (154
    )Exercise of stock options
and tax benefit
    
    
    2
    
    
    
    128
    
    
    
    
    
    
    
    
    
    
    
    130Dividends declared and paid
($0.28 per share)
    
    
    
    
    
    
    
    
    
    
    (1,288
    )
    
    
    
    
    
    
    (1,288
    )Balance at June 30, 2007
    
    $
    460
    
    
    $
    61,569
    
    
    $
    (1,782
    )
    
    $
    (2,288
    )
    
    $
    57,959
  5




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##### Table of Contents



Six months ended June 30,2007
    
    
    2006(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    1,596
    
    
    $
    (1,682
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Provision for loan losses
    
    
    215
    
    
    
    30Gains on sales of mortgage loans, net
    
    
    
    
    
    
    (7
    )Losses on sales of investment securities
    
    
    
    
    
    
    2,417Net amortization (accretion) of investment securities
    
    
    (32
    )
    
    
    562Depreciation and amortization of premises and equipment
    
    
    303
    
    
    
    402Loans originated for sale
    
    
    
    
    
    
    (1,042
    )Proceeds from sales of mortgage loans
    
    
    
    
    
    
    1,521Decrease in accrued interest receivable
    
    
    17
    
    
    
    436Deferred income tax benefit
    
    
    (6
    )
    
    
    (704
    )Stock-based compensation
    
    
    16
    
    
    
    64Increase in cash surrender value on Bank-owned life insurance
    
    
    (5
    )
    
    
    Decrease (increase) in other assets
    
    
    586
    
    
    
    (647
    )(Decrease) increase in other liabilities
    
    
    (572
    )
    
    
    562Net cash provided by operating activities
    
    
    2,118
    
    
    
    1,912Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    
    
    
    
    2,900Proceeds from maturities of investment securities available for sale
    
    
    5,009
    
    
    
    10,000Sales of investment securities available for sale
    
    
    
    
    
    
    78,457Purchases of investment securities available for sale
    
    
    (24
    )
    
    
    (83,917
    )Purchases of Bank-owned life insurance
    
    
    (5,000
    )
    
    
    Redemption of FHLB stock
    
    
    65
    
    
    
    738Purchase FHLB stock
    
    
    (204
    )
    
    
    Principal payments of investment securities held to maturity
    
    
    
    
    
    
    4,680Principal payments of investment securities available for sale
    
    
    12,089
    
    
    
    6,638Increase in loans, net
    
    
    (45,002
    )
    
    
    (13,836
    )Reductions (purchases) of premises and equipment
    
    
    35
    
    
    
    (521
    )Net cash provided by (used in) investing activities
    
    
    (33,032
    )
    
    
    5,139Cash flows from financing activities:Net increase in deposits
    
    
    19,050
    
    
    
    1,795Additions to Federal Home Loan Bank advances
    
    
    119,000
    
    
    
    20,000Payments on Federal Home Loan Bank advances
    
    
    (70,071
    )
    
    
    (50,273
    )Net increase in agreements to repurchase securities
    
    
    332
    
    
    
    1,749Net (decrease) increase in other borrowed funds
    
    
    (31,000
    )
    
    
    26,000Decrease in advance payments by borrowers
    
    
    (9
    )
    
    
    (9
    )Dividends paid
    
    
    (1,288
    )
    
    
    (1,264
    )Proceeds from exercise of stock options
    
    
    108
    
    
    
    839Excess tax benefit from exercise of stock options
    
    
    22
    
    
    
    57Common stock repurchased
    
    
    (154
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    35,990
    
    
    
    (1,106
    )Net increase in cash and cash equivalents
    
    
    5,076
    
    
    
    5,945Cash and cash equivalents, beginning of period
    
    
    18,767
    
    
    
    10,687Cash and cash equivalents, end of period
    
    $
    23,843
    
    
    $
    16,632Cash paid during the period for:Interest on deposits
    
    $
    4,624
    
    
    $
    3,247Interest on borrowed funds
    
    
    4,363
    
    
    
    3,773Income taxes
    
    
    863
    
    
    
    891
  6




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##### Table of Contents



1.
    
    BASIS OF PRESENTATION
     2.
    
    EQUITY AWARDS
   7




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##### Table of Contents



2007Weighted
    
    Wtd. Avg.Average
    
    RemainingOption
    
    Exercise
    
    ContractualShares
    
    Price ($)
    
    Term (years)Balance, January 1
    
    
    244,900
    
    
    $
    14.07
    
    
    
    5.4Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (12,300
    )
    
    $
    8.73
    
    
    
    2.1Forfeited
    
    
    (2,000
    )
    
    $
    16.41
    
    
    
    6.5Expired
    
    
    (6,500
    )
    
    $
    16.77
    
    
    
    0.0Balance, June 30
    
    
    224,100
    
    
    $
    14.27
    
    
    
    5.7Options exercisable at June 30
    
    
    203,600
    
    
    $
    14.04
    
    
    
    5.6Weighted 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
    
    
    
    
    
    
    
    
    
    
    (14,075
    )
    
    $
    16.77Forfeited
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    $
    16.41Nonvested at June 30, 2007
    
    
    
    
    
    $
    
    
    
    
    20,500
    
    
    $
    16.48
 3.
    
    DEFINED BENEFIT PLAN
   8




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##### Table of Contents



4.
    
    COMMON STOCK REPURCHASE PROGRAM
   5.
    
    CONTINGENCIES
  6.
    
    RECENT ACCOUNTING PRONOUNCEMENTS
     9




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##### Table of Contents



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



6/30/07
    
    
    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
    
    $
    5,597
    
    
    $
    
    
    
    $
    (424
    )
    
    $
    5,173
    
    
    $
    5,605
    
    
    $
    
    
    
    $
    (391
    )
    
    $
    5,214Federal agency bonds
    
    
    711
    
    
    
    9
    
    
    
    (2
    )
    
    
    718
    
    
    
    839
    
    
    
    10
    
    
    
    (2
    )
    
    
    847Government-sponsored entities
    
    
    30,396
    
    
    
    
    
    
    
    (345
    )
    
    
    30,051
    
    
    
    34,871
    
    
    
    4
    
    
    
    (532
    )
    
    
    34,343U.S. treasury and Government
sponsored entities
    
    
    36,704
    
    
    
    9
    
    
    
    (771
    )
    
    
    35,942
    
    
    
    41,315
    
    
    
    14
    
    
    
    (925
    )
    
    
    40,404Mortgage-backed securities
    
    
    90,518
    
    
    
    47
    
    
    
    (2,111
    )
    
    
    88,454
    
    
    
    98,608
    
    
    
    606
    
    
    
    (1,316
    )
    
    
    97,898Collateralized mortgage obligations
    
    
    68,531
    
    
    
    37
    
    
    
    (1,513
    )
    
    
    67,055
    
    
    
    72,899
    
    
    
    73
    
    
    
    (1,417
    )
    
    
    71,555Collateralized mortgage obligations
and mortgage-backed securities
    
    
    159,049
    
    
    
    84
    
    
    
    (3,624
    )
    
    
    155,509
    
    
    
    171,507
    
    
    
    679
    
    
    
    (2,733
    )
    
    
    169,453Corporate obligations
    
    
    7,345
    
    
    
    15
    
    
    
    (89
    )
    
    
    7,271
    
    
    
    7,316
    
    
    
    50
    
    
    
    (2
    )
    
    
    7,364Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (67
    )
    
    
    933
    
    
    
    1,000
    
    
    
    
    
    
    
    (53
    )
    
    
    947Equity securities
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    512
    
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    514Corporate and other investment
securities
    
    
    8,857
    
    
    
    15
    
    
    
    (156
    )
    
    
    8,716
    
    
    
    8,830
    
    
    
    50
    
    
    
    (55
    )
    
    
    8,825Total investment securities
available for sale
    
    $
    204,610
    
    
    $
    108
    
    
    $
    (4,551
    )
    
    $
    200,167
    
    
    $
    221,652
    
    
    $
    743
    
    
    $
    (3,713
    )
    
    $
    218,682
 Loans:
   6/30/07
    
    
    12/31/06(In thousands)Residential mortgage loans
    
    $
    71,422
    
    
    $
    69,876Home equity lines and loans
    
    
    20,641
    
    
    
    20,339Consumer loans
    
    
    775
    
    
    
    975Total retail loans
    
    
    92,838
    
    
    
    91,190Construction loans
    
    
    54,166
    
    
    
    43,283Commercial real estate loans
    
    
    161,129
    
    
    
    142,820Commercial loans
    
    
    25,025
    
    
    
    10,870Total corporate loans
    
    
    240,320
    
    
    
    196,973Total loans
    
    
    333,158
    
    
    
    288,163Allowance for loan losses
    
    
    (4,517
    )
    
    
    (4,309
    )Total loans, net
    
    $
    328,641
    
    
    $
    283,854
 12




---



##### Table of Contents



Allowance For Loan Losses:
  Three months ended
    
    
    Six months ended6/30/07
    
    
    6/30/06
    
    
    6/30/07
    
    
    6/30/06(In thousands)Beginning balance
    
    $
    4,366
    
    
    $
    4,160
    
    
    $
    4,309
    
    
    $
    4,126Provision charged to operations
    
    
    155
    
    
    
    30
    
    
    
    215
    
    
    
    30Recoveries on loans previously charged-off
    
    
    2
    
    
    
    2
    
    
    
    7
    
    
    
    40Loans charged-off
    
    
    (6
    )
    
    
    (8
    )
    
    
    (14
    )
    
    
    (12
    )Ending balance
    
    $
    4,517
    
    
    $
    4,184
    
    
    $
    4,517
    
    
    $
    4,184
   Risk Assets:
    6/30/07
    
    
    12/31/06
    
    
    6/30/06(Dollars in thousands)Non-performing loans
    
    $
    153
    
    
    $
    1,057
    
    
    $
    92Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total risk assets
    
    $
    153
    
    
    $
    1,057
    
    
    $
    92Risk assets as a percent of total loans
    
    
    0.05
    %
    
    
    0.37
    %
    
    
    0.04
    %Risk assets as a percent of total assets
    
    
    0.03
    %
    
    
    0.19
    %
    
    
    0.02
    %
 13




---



##### Table of Contents



Deposits:
   6/30/07
    
    
    12/31/06(In thousands)NOW and super NOW accounts
    
    $
    18,560
    
    
    $
    17,707Demand deposit accounts
    
    
    32,059
    
    
    
    31,424Savings accounts
    
    
    31,487
    
    
    
    33,676Money market accounts
    
    
    74,484
    
    
    
    73,163Certificates of deposit
    
    
    158,122
    
    
    
    139,692Total deposits
    
    $
    314,712
    
    
    $
    295,662
 Borrowings:
   6/30/07
    
    
    12/31/06(In thousands)FHLB long-term advances
    
    $
    192,448
    
    
    $
    143,519FHLB short-term borrowings
    
    
    5,000
    
    
    
    36,000Customer repurchase agreements
    
    
    5,595
    
    
    
    5,263Total borrowings
    
    $
    203,043
    
    
    $
    184,782
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2007 AND 2006
 SUMMARY
  14




---



##### Table of Contents



Net Interest Income From Operations:
  Interest Income:
    Interest Expense:
    Provision for Loan Losses:
  15




---



##### Table of Contents



Three months ended
    
    
    Three months ended6/30/07
    
    
    6/30/06Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    14,603
    
    
    $
    190
    
    
    
    5.22
    %
    
    $
    7,971
    
    
    $
    101
    
    
    
    5.08
    %U. S. treasury and Government-
sponsored entities
    
    
    37,732
    
    
    
    370
    
    
    
    3.93
    
    
    
    81,359
    
    
    
    673
    
    
    
    3.32Corporate and other
investment securities
    
    
    18,876
    
    
    
    280
    
    
    
    5.95
    
    
    
    25,092
    
    
    
    153
    
    
    
    2.45Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    161,599
    
    
    
    1,962
    
    
    
    4.87
    
    
    
    161,109
    
    
    
    1,843
    
    
    
    4.59Total investment securities
    
    
    232,810
    
    
    
    2,802
    
    
    
    4.83
    
    
    
    275,531
    
    
    
    2,770
    
    
    
    4.03Loans:Residential real estate
    
    
    71,270
    
    
    
    1,003
    
    
    
    5.64
    
    
    
    64,002
    
    
    
    875
    
    
    
    5.48Equity
    
    
    20,187
    
    
    
    322
    
    
    
    6.40
    
    
    
    11,081
    
    
    
    173
    
    
    
    6.26Consumer
    
    
    849
    
    
    
    14
    
    
    
    6.61
    
    
    
    550
    
    
    
    9
    
    
    
    6.56Total retail loans
    
    
    92,306
    
    
    
    1,339
    
    
    
    5.82
    
    
    
    75,633
    
    
    
    1,057
    
    
    
    5.61Construction
    
    
    53,210
    
    
    
    1,225
    
    
    
    9.23
    
    
    
    33,240
    
    
    
    753
    
    
    
    9.09Commercial real estate
    
    
    152,448
    
    
    
    2,770
    
    
    
    7.29
    
    
    
    128,832
    
    
    
    2,301
    
    
    
    7.16Commercial
    
    
    18,465
    
    
    
    375
    
    
    
    8.15
    
    
    
    8,259
    
    
    
    166
    
    
    
    8.06Total corporate loans
    
    
    224,123
    
    
    
    4,370
    
    
    
    7.82
    
    
    
    170,331
    
    
    
    3,220
    
    
    
    7.58Total loans
    
    
    316,429
    
    
    
    5,709
    
    
    
    7.24
    
    
    
    245,964
    
    
    
    4,277
    
    
    
    6.97Total interest-earning assets
    
    
    549,239
    
    
    
    8,511
    
    
    
    6.22
    %
    
    
    521,495
    
    
    
    7,047
    
    
    
    5.42
    %Allowance for loan losses
    
    
    (4,401
    )
    
    
    
    
    
    
    
    
    
    
    (4,174
    )Other assets
    
    
    16,742
    
    
    
    
    
    
    
    
    
    
    
    22,190Total assets
    
    $
    561,580
    
    
    
    
    
    
    
    
    
    
    $
    539,511Liabilities and Stockholders
EquityDeposits:NOW and super NOW accounts
    
    $
    18,567
    
    
    $
    8
    
    
    
    0.17
    %
    
    $
    35,544
    
    
    $
    11
    
    
    
    0.12
    %Regular savings accounts
    
    
    31,848
    
    
    
    39
    
    
    
    0.49
    
    
    
    39,442
    
    
    
    49
    
    
    
    0.50Money market investment
accounts
    
    
    73,849
    
    
    
    557
    
    
    
    3.03
    
    
    
    79,102
    
    
    
    443
    
    
    
    2.25Certificates of deposit
and escrow
    
    
    152,343
    
    
    
    1,805
    
    
    
    4.75
    
    
    
    131,735
    
    
    
    1,199
    
    
    
    3.65Total interest-bearing deposits
    
    
    276.607
    
    
    
    2,409
    
    
    
    3.49
    
    
    
    285,823
    
    
    
    1,702
    
    
    
    2.39Borrowed funds:Short-term borrowed funds
    
    
    13,847
    
    
    
    161
    
    
    
    4.66
    
    
    
    58,341
    
    
    
    711
    
    
    
    4.89Long-term FHLB advances
    
    
    179,658
    
    
    
    2,097
    
    
    
    4.68
    
    
    
    116,874
    
    
    
    1,331
    
    
    
    4.57Total borrowed funds
    
    
    193,505
    
    
    
    2,258
    
    
    
    4.68
    
    
    
    175,215
    
    
    
    2,042
    
    
    
    4.67Total interest-bearing liabilities
    
    
    470,112
    
    
    
    4,667
    
    
    
    3.98
    %
    
    
    461,038
    
    
    
    3,744
    
    
    
    3.26
    %Non-interest-bearing deposits
    
    
    29,809
    
    
    
    
    
    
    
    
    
    
    
    17,202Other liabilities
    
    
    2,873
    
    
    
    
    
    
    
    
    
    
    
    4,512Total liabilities
    
    
    502,794
    
    
    
    
    
    
    
    
    
    
    
    482,752Stockholders equity
    
    
    58,786
    
    
    
    
    
    
    
    
    
    
    
    56,759Total liabilities and
stockholders equity
    
    $
    561,580
    
    
    
    
    
    
    
    
    
    
    $
    539,511Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.24
    %
    
    
    
    
    
    
    
    
    
    
    2.16
    %Net interest income
    
    
    
    
    
    $
    3,844
    
    
    
    
    
    
    
    
    
    
    $
    3,303Net interest margin on average
earning assets
    
    
    
    
    
    
    
    
    
    
    2.81
    %
    
    
    
    
    
    
    
    
    
    
    2.54
    %
 16




---



##### Table of Contents



Non-Interest Income (Loss):
  Non-Interest Expense:
  Income Taxes:
  SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 SUMMARY
  Net Interest Income From Operations:
  17




---



##### Table of Contents



Interest Income:
    Interest Expense:
    Provision for Loan Losses:
  Non-Interest Income (Loss):
  18




---



##### Table of Contents



Six months ended
    
    
    Six months ended6/30/07
    
    
    6/30/06Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInvestment securities:Short-term investments
    
    $
    11,920
    
    
    $
    312
    
    
    
    5.28
    %
    
    $
    5,173
    
    
    $
    126
    
    
    
    4.91
    %U. S. Treasury and Government-
sponsored entities
    
    
    39,042
    
    
    
    762
    
    
    
    3.94
    
    
    
    91,801
    
    
    
    1,480
    
    
    
    3.25Corporate and municipal bonds
and other securities
    
    
    18,869
    
    
    
    552
    
    
    
    5.90
    
    
    
    25,435
    
    
    
    390
    
    
    
    3.09Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    164,319
    
    
    
    3,972
    
    
    
    4.87
    
    
    
    153,141
    
    
    
    3,361
    
    
    
    4.43Total investment securities
    
    
    234,150
    
    
    
    5,598
    
    
    
    4.82
    
    
    
    275,550
    
    
    
    5,357
    
    
    
    3.92Loans:Residential real estate
    
    
    70,870
    
    
    
    1,988
    
    
    
    5.66
    
    
    
    63,563
    
    
    
    1,696
    
    
    
    5.38Equity
    
    
    20,110
    
    
    
    629
    
    
    
    6.31
    
    
    
    10,862
    
    
    
    333
    
    
    
    6.18Consumer
    
    
    880
    
    
    
    30
    
    
    
    6.87
    
    
    
    541
    
    
    
    17
    
    
    
    6.34Total retail loans
    
    
    91,860
    
    
    
    2,647
    
    
    
    5.81
    
    
    
    74,966
    
    
    
    2,046
    
    
    
    5.50Construction
    
    
    49,736
    
    
    
    2,303
    
    
    
    9.34
    
    
    
    30,050
    
    
    
    1,324
    
    
    
    8.89Commercial real estate
    
    
    148,733
    
    
    
    5,402
    
    
    
    7.32
    
    
    
    128,036
    
    
    
    4,518
    
    
    
    7.12Commercial
    
    
    16,041
    
    
    
    654
    
    
    
    8.22
    
    
    
    8,656
    
    
    
    338
    
    
    
    7.87Total corporate loans
    
    
    214,510
    
    
    
    8,359
    
    
    
    7.86
    
    
    
    166,742
    
    
    
    6,180
    
    
    
    7.47Total loans
    
    
    306,370
    
    
    
    11,006
    
    
    
    7.24
    
    
    
    241,708
    
    
    
    8,226
    
    
    
    6.86Total interest-earning assets
    
    
    540,520
    
    
    
    16,604
    
    
    
    6.19
    %
    
    
    517,258
    
    
    
    13,583
    
    
    
    5.30
    %Allowance for loan losses
    
    
    (4,364
    )
    
    
    
    
    
    
    
    
    
    
    (4,160
    )Other assets
    
    
    16,513
    
    
    
    
    
    
    
    
    
    
    
    19,686Total assets
    
    $
    552,669
    
    
    
    
    
    
    
    
    
    
    $
    532,784Liabilities and Stockholders EquityDeposits:NOW and Super NOW accounts
    
    $
    18,178
    
    
    $
    16
    
    
    
    0.18
    %
    
    $
    35,963
    
    
    $
    22
    
    
    
    0.12
    %Regular savings accounts
    
    
    32,368
    
    
    
    80
    
    
    
    0.50
    
    
    
    40,223
    
    
    
    99
    
    
    
    0.50Money market investment
accounts
    
    
    73,628
    
    
    
    1,082
    
    
    
    2.96
    
    
    
    79,473
    
    
    
    873
    
    
    
    2.22Certificates of deposit
and escrow
    
    
    149,497
    
    
    
    3,446
    
    
    
    4.65
    
    
    
    129,765
    
    
    
    2,254
    
    
    
    3.50Total interest bearing deposits
    
    
    273,671
    
    
    
    4,624
    
    
    
    3.41
    
    
    
    285,424
    
    
    
    3,248
    
    
    
    2.29Borrowed funds:Short-term borrowed funds
    
    
    23,590
    
    
    
    581
    
    
    
    4.97
    
    
    
    45,962
    
    
    
    1,076
    
    
    
    4.72Long-term FHLB Advances
    
    
    164,291
    
    
    
    3,782
    
    
    
    4.64
    
    
    
    121,300
    
    
    
    2,661
    
    
    
    4.42Total borrowed funds
    
    
    187,881
    
    
    
    4,363
    
    
    
    4.68
    
    
    
    167,262
    
    
    
    3,737
    
    
    
    4.51Total interest bearing liabilities
    
    
    461,552
    
    
    
    8,987
    
    
    
    3.93
    %
    
    
    452,686
    
    
    
    6,985
    
    
    
    3.11
    %Non-interest bearing deposits
    
    
    29,449
    
    
    
    
    
    
    
    
    
    
    
    17,320Other liabilities
    
    
    3,290
    
    
    
    
    
    
    
    
    
    
    
    4,494Total liabilities
    
    
    494,291
    
    
    
    
    
    
    
    
    
    
    
    474,500Stockholders equity
    
    
    58,378
    
    
    
    
    
    
    
    
    
    
    
    58,284Total liabilities and
stockholders equity
    
    $
    552,669
    
    
    
    
    
    
    
    
    
    
    $
    532,784Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.26
    %
    
    
    
    
    
    
    
    
    
    
    2.19
    %Net interest income
    
    
    
    
    
    $
    7,617
    
    
    
    
    
    
    
    
    
    
    $
    6,598Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.84
    %
    
    
    
    
    
    
    
    
    
    
    2.57
    %
 19




---



##### Table of Contents



Non-Interest Expense:
  Income Taxes:
  LIQUIDITY AND CAPITAL RESOURCES:
    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
 
   
   
   (c)
    
    The following table sets forth information with respect to any purchase made by or on
behalf of LSB Corporation or any affiliated purchaser, as defined in 204.10b-18(a)(3)
under the Securities Exchange Act of 1934, of shares of LSB Corporation common stock during
the indicated periods:
 Issuer Purchases of Equity SecuritiesTotal number of shares
    
    
    Maximum number ofWeighted
    
    
    purchased as part of
    
    
    shares that may yet beTotal number of
    
    
    Average price paid
    
    
    publicly announced
    
    
    purchased under the2007
    
    Shares purchased
    
    
    per share
    
    
    plans or programs
    
    
    plans or program (1)April 1  April 30
    
    NoneMay 1  May 31
    
    NoneJune 1  June 30
    
    
    9,300
    
    
    $
    16.56
    
    
    
    9,300
    
    
    
    220,700TotalSecond quarter
    
    
    9,300
    
    
    $
    16.56
    
    
    
    9,300
    
    
    
    220,700
 
 (1)
    
    On April 26, 2007, the Company announced a common stock repurchase program to repurchase up to
230,000 shares. The Company has placed no deadline on the duration of the repurchase program.
There were no shares purchased other than through a publicly announced plan or program. 
   
   
   22




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##### Table of Contents



Number
    
    Description31.1
    
    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.
 23




---



##### Table of Contents



LSB CORPORATIONAugust 13, 2007
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive OfficerAugust 13, 2007
    /s/ Diane L. WalkerDiane L. WalkerExecutive Vice President, Treasurer
and
Chief Financial Officer 24




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##### Table of Contents



LSB CORPORATION AND SUBSIDIARY
 
 EXHIBIT INDEX
 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
 25