##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2009
 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
  Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o(Do not check if a smaller reporting company)
Smaller Reporting Company þ
  o þ
  Class
    
    Outstanding as of November 6, 2009Common Stock, par value $.10 per share
    
    4,499,936 shares




---



##### 



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
    
    
    7-11ITEM 2
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    12-24ITEM 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    25ITEM 4T
    
    CONTROLS AND PROCEDURES
    
    
    25PART II  OTHER INFORMATIONITEM 1
    
    LEGAL PROCEEDINGS
    
    
    25ITEM 1A
    
    RISK FACTORS
    
    
    25ITEM 2
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    25-26ITEM 3
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    26ITEM 4
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    26ITEM 5
    
    OTHER INFORMATION
    
    
    26ITEM 6
    
    EXHIBITS
    
    
    26SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29EX-31.1 Section 302 Certification of Chief Executive OfficerEX-31.2 Section 302 Certification of Chief Financial OfficerEX-32.1 Section 906 Certification of Chief Executive OfficerEX-32.2 Section 906 Certification of Chief Financial Officer
  2




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##### Table of Contents



PART 1   FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 
 
 September 30,
    
    
    December 31,2009
    
    
    2008(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    8,000
    
    
    $
    6,859Federal funds sold
    
    
    10,218
    
    
    
    6,469Total cash and cash equivalents
    
    
    18,218
    
    
    
    13,328Investment securities available for sale (amortized cost of
$231,635 in 2009 and $259,057 in 2008)
    
    
    240,341
    
    
    
    264,561Federal Home Loan Bank stock, at cost
    
    
    11,825
    
    
    
    11,825Loans, net of allowance for loan losses
    
    
    511,806
    
    
    
    446,736Premises and equipment
    
    
    6,453
    
    
    
    5,528Accrued interest receivable
    
    
    2,695
    
    
    
    2,720Deferred income tax asset, net
    
    
    3,087
    
    
    
    4,447Bank-owned life insurance
    
    
    11,005
    
    
    
    10,641Other real estate owned
    
    
    120
    
    
    
    120Other assets
    
    
    1,403
    
    
    
    1,418Total assets
    
    $
    806,953
    
    
    $
    761,324LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Core deposits
    
    $
    232,255
    
    
    $
    177,639Term deposits
    
    
    239,096
    
    
    
    231,024Total deposits
    
    
    471,351
    
    
    
    408,663Long-term borrowed funds
    
    
    249,111
    
    
    
    259,228Short-term borrowed funds
    
    
    5,704
    
    
    
    17,262Mortgagors escrow accounts
    
    
    886
    
    
    
    619Other liabilities
    
    
    3,541
    
    
    
    3,410Total liabilities
    
    
    730,593
    
    
    
    689,182Stockholders equity:Preferred stock, Series A, $.10 par value per share:
5,000,000 shares authorized, none issued
    
    
    
    
    
    
    Cumulative perpetual preferred stock, Series B,
(liquidation preference $1,000 per share)
15,000 shares authorized and issued
    
    
    14,537
    
    
    
    14,455Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,499,936 and 4,470,941 shares issued and outstanding at
September 30, 2009 and December 31, 2008, respectively
    
    
    450
    
    
    
    447Additional paid-in capital
    
    
    60,460
    
    
    
    60,179Accumulated deficit
    
    
    (4,372
    )
    
    
    (6,250
    )Accumulated other comprehensive income, net of tax
    
    
    5,285
    
    
    
    3,311Total stockholders equity
    
    
    76,360
    
    
    
    72,142Total liabilities and stockholders equity
    
    $
    806,953
    
    
    $
    761,324
  3




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except share data)Interest and dividend income:Loans
    
    $
    7,462
    
    
    $
    6,570
    
    
    $
    21,216
    
    
    $
    18,636Investment securities available for sale
    
    
    2,795
    
    
    
    3,212
    
    
    
    9,162
    
    
    
    9,621Federal Home Loan Bank stock
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    344Short-term interest income
    
    
    11
    
    
    
    55
    
    
    
    22
    
    
    
    167Total interest and dividend income
    
    
    10,268
    
    
    
    9,925
    
    
    
    30,400
    
    
    
    28,768Interest expense:Deposits
    
    
    2,501
    
    
    
    2,521
    
    
    
    7,746
    
    
    
    7,566Long-term borrowed funds
    
    
    2,721
    
    
    
    2,911
    
    
    
    8,265
    
    
    
    8,519Short-term borrowed funds
    
    
    4
    
    
    
    50
    
    
    
    47
    
    
    
    127Total interest expense
    
    
    5,226
    
    
    
    5,482
    
    
    
    16,058
    
    
    
    16,212Net interest income
    
    
    5,042
    
    
    
    4,443
    
    
    
    14,342
    
    
    
    12,556Provision for loan losses
    
    
    400
    
    
    
    330
    
    
    
    1,100
    
    
    
    835Net interest income after provision for loan losses
    
    
    4,642
    
    
    
    4,113
    
    
    
    13,242
    
    
    
    11,721Non-interest income (loss):Impairment write-downs on securities
    
    
    
    
    
    
    (9,383
    )
    
    
    
    
    
    
    (9,383
    )Deposit account fees
    
    
    253
    
    
    
    269
    
    
    
    710
    
    
    
    782Loan servicing fees, net
    
    
    34
    
    
    
    27
    
    
    
    150
    
    
    
    100Gains on sales of investments
    
    
    572
    
    
    
    
    
    
    
    1,030
    
    
    
    Income on bank-owned life insurance
    
    
    115
    
    
    
    124
    
    
    
    364
    
    
    
    317Other income
    
    
    122
    
    
    
    115
    
    
    
    347
    
    
    
    341Total non-interest income (loss)
    
    
    1,096
    
    
    
    (8,848
    )
    
    
    2,601
    
    
    
    (7,843
    )Non-interest expense:Salaries and employee benefits
    
    
    1,643
    
    
    
    1,692
    
    
    
    5,013
    
    
    
    4,963Occupancy and equipment
    
    
    357
    
    
    
    312
    
    
    
    1,077
    
    
    
    985Data processing
    
    
    228
    
    
    
    228
    
    
    
    702
    
    
    
    705Professional
    
    
    113
    
    
    
    160
    
    
    
    450
    
    
    
    422Marketing
    
    
    116
    
    
    
    98
    
    
    
    374
    
    
    
    344Other real estate owned
    
    
    4
    
    
    
    60
    
    
    
    6
    
    
    
    116Deposit insurance
    
    
    262
    
    
    
    18
    
    
    
    1,022
    
    
    
    47Other
    
    
    544
    
    
    
    417
    
    
    
    1,702
    
    
    
    1,206Total non-interest expense
    
    
    3,267
    
    
    
    2,985
    
    
    
    10,346
    
    
    
    8,788Income (loss) before income tax expense
    
    
    2,471
    
    
    
    (7,720
    )
    
    
    5,497
    
    
    
    (4,910
    )Income tax expense
    
    
    910
    
    
    
    530
    
    
    
    1,911
    
    
    
    1,481Net income (loss)
    
    
    1,561
    
    
    
    (8,250
    )
    
    
    3,586
    
    
    
    (6,391
    )Preferred stock dividends and accretion
    
    
    (215
    )
    
    
    
    
    
    
    (588
    )
    
    
    Net income (loss) available to common shareholders
    
    $
    1,346
    
    
    $
    (8,250
    )
    
    $
    2,998
    
    
    $
    (6,391
    )Average common shares outstanding
    
    
    4,495,356
    
    
    
    4,456,821
    
    
    
    4,479,316
    
    
    
    4,469,884Common stock equivalents
    
    
    1,324
    
    
    
    12,661
    
    
    
    1,031
    
    
    
    19,881Average diluted common shares outstanding
    
    
    4,496,680
    
    
    
    4,469,482
    
    
    
    4,480,347
    
    
    
    4,489,765Basic earnings (loss) per share
    
    $
    0.30
    
    
    $
    (1.85
    )
    
    $
    0.66
    
    
    $
    (1.43
    )Diluted earnings (loss) per share
    
    $
    0.30
    
    
    $
    (1.85
    )
    
    $
    0.66
    
    
    $
    (1.42
    )
  4




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Equity(In thousands, except share data)Balance at December 31, 2007
    
    $
    
    
    
    $
    452
    
    
    $
    60,382
    
    
    $
    (934
    )
    
    $
    398
    
    
    $
    60,298Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,723
    )
    
    
    
    
    
    
    (2,723
    )Other comprehensive income 
Unrealized gain on securities
available for sale,
(tax effect $1,935)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,913
    
    
    
    2,913Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    156Issuance of preferred stock,
net of discount $549
    
    
    14,451
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,451Accretion of discount on
preferred stock
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    Fair value of warrants
issued with preferred stock
    
    
    
    
    
    
    
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    549Exercise of stock options
and tax benefits (9,500 shares)
    
    
    
    
    
    
    1
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    121Common stock repurchased
(64,620 shares)
    
    
    
    
    
    
    (6
    )
    
    
    (1,028
    )
    
    
    
    
    
    
    
    
    
    
    (1,034
    )Dividends declared and paid
($0.58 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,589
    )
    
    
    
    
    
    
    (2,589
    )Balance at December 31, 2008
    
    
    14,455
    
    
    
    447
    
    
    
    60,179
    
    
    
    (6,250
    )
    
    
    3,311
    
    
    
    72,142Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,586
    
    
    
    
    
    
    
    3,586Other comprehensive income 
Unrealized gain on securities
available for sale, (tax effect $1,228)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,974
    
    
    
    1,974Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,560Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Accretion of discount on
preferred stock
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    Exercise of stock options
(28,995 shares)
    
    
    
    
    
    
    3
    
    
    
    262
    
    
    
    
    
    
    
    
    
    
    
    265Dividends paid on Series B
preferred stock 5%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (507
    )
    
    
    
    
    
    
    (507
    )Dividends declared and paid
($0.25 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,119
    )
    
    
    
    
    
    
    (1,119
    )Balance at September 30, 2009
    
    $
    14,537
    
    
    $
    450
    
    
    $
    60,460
    
    
    $
    (4,372
    )
    
    $
    5,285
    
    
    $
    76,360
  5




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##### Table of Contents



Nine months ended September 30,2009
    
    
    2008(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    3,586
    
    
    $
    (6,391
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Provision for loan losses
    
    
    1,100
    
    
    
    835Impairment write-down on securities
    
    
    
    
    
    
    9,383Net losses on sales of other real estate owned
    
    
    
    
    
    
    52Gains on sales of investments
    
    
    (1,030
    )
    
    
    Net accretion of investment securities
    
    
    (528
    )
    
    
    (386
    )Depreciation and amortization of premises and equipment
    
    
    453
    
    
    
    472Decrease (increase) in accrued interest receivable
    
    
    25
    
    
    
    (189
    )Deferred income tax provision (benefit)
    
    
    132
    
    
    
    (172
    )Stock-based compensation
    
    
    19
    
    
    
    47Income on Bank-owned life insurance
    
    
    (364
    )
    
    
    (317
    )Decrease (increase) in other assets
    
    
    15
    
    
    
    (40
    )Increase in other liabilities
    
    
    131
    
    
    
    806Net cash provided by operating activities
    
    
    3,539
    
    
    
    4,100Cash flows from investing activities:Proceeds from maturities of investment securities available for sale
    
    
    20,367
    
    
    
    8,246Proceeds from sales of investment securities available for sale
    
    
    19,348
    
    
    
    Purchases of investment securities available for sale
    
    
    (74,902
    )
    
    
    (62,841
    )Purchases of FHLBB stock
    
    
    
    
    
    
    (1,602
    )Principal payments of investment securities available for sale
    
    
    64,167
    
    
    
    33,984Loan originations, net of principal payments
    
    
    (59,333
    )
    
    
    (80,470
    )Proceeds from sales of other real estate owned
    
    
    
    
    
    
    490Loans purchased
    
    
    (6,837
    )
    
    
    Purchases of premises and equipment
    
    
    (1,378
    )
    
    
    (1,897
    )Net cash used in investing activities
    
    
    (38,568
    )
    
    
    (104,090
    )Cash flows from financing activities:Net increase in deposits
    
    
    62,688
    
    
    
    78,278Additions to long-term borrowed funds
    
    
    
    
    
    
    63,000Payments on long-term borrowed funds
    
    
    (10,117
    )
    
    
    (27,111
    )Net (decrease) increase in short-term borrowed funds
    
    
    (11,558
    )
    
    
    1,563Increase in advance payments by borrowers
    
    
    267
    
    
    
    144Dividends paid to preferred shareholders
    
    
    (507
    )
    
    
    Dividends paid to common shareholders
    
    
    (1,119
    )
    
    
    (1,920
    )Proceeds from exercise of stock options
    
    
    265
    
    
    
    117Common stock repurchased
    
    
    
    
    
    
    (1,035
    )Net cash provided by financing activities
    
    
    39,919
    
    
    
    113,036Net increase in cash and cash equivalents
    
    
    4,890
    
    
    
    13,046Cash and cash equivalents, beginning of period
    
    
    13,328
    
    
    
    7,550Cash and cash equivalents, end of period
    
    $
    18,218
    
    
    $
    20,596Cash paid during the period for:Interest on deposits
    
    $
    7,758
    
    
    $
    7,547Interest on borrowed funds
    
    
    8,399
    
    
    
    8,593Income taxes
    
    
    1,791
    
    
    
    1,775Supplemental noncash investing and financing activities:Transfers to other real estate owned
    
    
    
    
    
    
    1,481
  6




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##### Table of Contents



9/30/09
    
    
    12/31/08Amortized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)U.S. Treasury obligations
    
    $
    5,561
    
    
    $
    275
    
    
    $
    
    
    
    $
    5,836
    
    
    $
    5,578
    
    
    $
    426
    
    
    $
    
    
    
    $
    6,004Government-sponsored
enterprise obligations
    
    
    24,508
    
    
    
    220
    
    
    
    (3
    )
    
    
    24,725
    
    
    
    15,485
    
    
    
    240
    
    
    
    (3
    )
    
    
    15,722Mortgage-backed securities
    
    
    155,480
    
    
    
    7,960
    
    
    
    (2
    )
    
    
    163,438
    
    
    
    181,367
    
    
    
    5,919
    
    
    
    (80
    )
    
    
    187,206Collateralized mortgage obligations
    
    
    40,132
    
    
    
    654
    
    
    
    
    
    
    
    40,786
    
    
    
    46,725
    
    
    
    379
    
    
    
    (45
    )
    
    
    47,059Corporate obligations
    
    
    2,486
    
    
    
    
    
    
    
    (130
    )
    
    
    2,356
    
    
    
    6,433
    
    
    
    
    
    
    
    (750
    )
    
    
    5,683Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (20
    )
    
    
    980
    
    
    
    1,000
    
    
    
    
    
    
    
    (42
    )
    
    
    958Equity securities
    
    
    2,468
    
    
    
    
    
    
    
    (248
    )
    
    
    2,220
    
    
    
    2,469
    
    
    
    
    
    
    
    (540
    )
    
    
    1,929Total investment securities
available for sale
    
    $
    231,635
    
    
    $
    9,109
    
    
    $
    (403
    )
    
    $
    240,341
    
    
    $
    259,057
    
    
    $
    6,964
    
    
    $
    (1,460
    )
    
    $
    264,561
 7




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##### Table of Contents



Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In thousands)Government-sponsored
enterprise obligations
    
    $
    4,997
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,997
    
    
    $
    (3
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    1,696
    
    
    
    (2
    )
    
    
    1,696
    
    
    
    (2
    )Collateralized mortgage
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate obligations
    
    
    
    
    
    
    
    
    
    
    2,356
    
    
    
    (130
    )
    
    
    2,356
    
    
    
    (130
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    980
    
    
    
    (20
    )
    
    
    980
    
    
    
    (20
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    1,792
    
    
    
    (248
    )
    
    
    1,792
    
    
    
    (248
    )Total temporarily impaired
securities
    
    $
    4,997
    
    
    $
    (3
    )
    
    $
    6,824
    
    
    $
    (400
    )
    
    $
    11,821
    
    
    $
    (403
    )
   Amortized Cost
    
    
    Fair Value(In thousands)U.S. Treasury and government-sponsored enterprise obligations:Within 1 year
    
    $
    499
    
    
    $
    5002 to 5 years
    
    
    29,570
    
    
    
    30,061Subtotal
    
    
    30,069
    
    
    
    30,561Mortgage-backed securities
    
    
    155,480
    
    
    
    163,438Collateralized mortgage obligations:2 to 5 years
    
    
    76
    
    
    
    84After 5 years
    
    
    40,056
    
    
    
    40,702Subtotal
    
    
    40,132
    
    
    
    40,786Corporate obligations:Within 1 year
    
    
    2,486
    
    
    
    2,356Total debt securities available for sale
    
    $
    228,167
    
    
    $
    237,141
 8




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##### Table of Contents



September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(In thousands)Financial assets:Cash and due from banks
    
    $
    8,000
    
    
    $
    8,000
    
    
    $
    6,859
    
    
    $
    6,859Short-term investments
    
    
    10,218
    
    
    
    10,218
    
    
    
    6,469
    
    
    
    6,469Investment securities available for sale
    
    
    240,341
    
    
    
    240,341
    
    
    
    264,561
    
    
    
    264,561Federal Home Loan Bank stock
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825Accrued interest receivable
    
    
    2,695
    
    
    
    2,695
    
    
    
    2,720
    
    
    
    2,720Loans, net
    
    
    511,806
    
    
    
    517,888
    
    
    
    446,736
    
    
    
    446,609Financial liabilities:Core deposits
    
    
    232,255
    
    
    
    232,255
    
    
    
    177,639
    
    
    
    177,639Certificates of deposit
    
    
    239,096
    
    
    
    243,827
    
    
    
    231,024
    
    
    
    236,443Borrowed funds
    
    
    254,815
    
    
    
    273,566
    
    
    
    276,490
    
    
    
    297,385Mortgagors escrow accounts
    
    
    886
    
    
    
    886
    
    
    
    619
    
    
    
    619Accrued interest payable
    
    
    1,006
    
    
    
    1,006
    
    
    
    1,106
    
    
    
    1,106
  9




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##### Table of Contents



Assets measured at fair value on a recurring basis
  Quoted Prices inActive Markets
    
    
    
    
    
    
    SignificantFor Identical
    
    
    Significant Other
    
    
    UnobservableAssets
    
    
    Observable Inputs
    
    
    Inputs
    
    
    TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)September 30, 2009:Investment securities available for sale
    
    $
    7,628
    
    
    $
    232,288
    
    
    $
    425
    
    
    $
    240,341December 31, 2008:Investment securities available for sale
    
    $
    7,504
    
    
    $
    256,632
    
    
    $
    425
    
    
    $
    264,561
   Assets measured at fair value on a non-recurring basis
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total Losses(In thousands)At or for the nine months
ended September 30, 2009:Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    4,587
    
    
    $
    (399
    )Other real estate owned
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,707
    
    
    $
    (399
    )
    10




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##### Table of Contents



11




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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 AND ESTIMATES
  EXECUTIVE LEVEL OVERVIEW
   12




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##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  Investments:
   Loans:
  13




---



##### Table of Contents



9/30/09
    
    
    12/31/08(In thousands)Residential real estate
    
    $
    129,832
    
    
    $
    109,276Home equity lines and second mortgages
    
    
    26,191
    
    
    
    23,972Consumer
    
    
    832
    
    
    
    831Retail loans
    
    
    156,855
    
    
    
    134,079Construction and land development
    
    
    81,461
    
    
    
    78,169Commercial real estate
    
    
    250,267
    
    
    
    206,577Commercial business
    
    
    29,859
    
    
    
    33,796Corporate loans
    
    
    361,587
    
    
    
    318,542Total loans
    
    
    518,442
    
    
    
    452,621Allowance for loan losses
    
    
    (6,636
    )
    
    
    (5,885
    )Net loans
    
    $
    511,806
    
    
    $
    446,736
 Allowance For Loan Losses:
  Three months ended
    
    
    Nine months ended9/30/09
    
    
    9/30/08
    
    
    9/30/09
    
    
    9/30/08(Dollars in thousands)Beginning balance
    
    $
    6,399
    
    
    $
    5,238
    
    
    $
    5,885
    
    
    $
    4,810Provision for loan losses
    
    
    400
    
    
    
    330
    
    
    
    1,100
    
    
    
    835Recoveries on loans previously charged-off
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    3Loans charged-off
    
    
    (164
    )
    
    
    (34
    )
    
    
    (352
    )
    
    
    (113
    )Ending balance
    
    $
    6,636
    
    
    $
    5,535
    
    
    $
    6,636
    
    
    $
    5,535Ratios:Annualized net charge-offs to average
loans outstanding
    
    
    0.13
    %
    
    
    0.03
    %
    
    
    0.10
    %
    
    
    0.04
    %Allowance for loan losses to total
loans at end of period
    
    
    1.28
    %
    
    
    1.27
    %
    
    
    1.28
    %
    
    
    1.27
    %
   14




---



##### Table of Contents



Risk Assets:
     9/30/09
    
    
    12/31/08
    
    
    9/30/08(Dollars in thousands)Non-performing loans:Residential
    
    $
    1,052
    
    
    $
    305
    
    
    $
    128Construction and land development
    
    
    350
    
    
    
    350
    
    
    
    490Commercial real estate
    
    
    1,478
    
    
    
    1,951
    
    
    
    Commercial business
    
    
    668
    
    
    
    
    
    
    
    Total non-performing loans
    
    
    3,548
    
    
    
    2,606
    
    
    
    618Other real estate owned
    
    
    120
    
    
    
    120
    
    
    
    939Total risk assets
    
    $
    3,668
    
    
    $
    2,726
    
    
    $
    1,557Risk assets as a percent of total loans and OREO
    
    
    0.71
    %
    
    
    0.60
    %
    
    
    0.36
    %Risk assets as a percent of total assets
    
    
    0.45
    %
    
    
    0.36
    %
    
    
    0.21
    %
 Deposits:
  15




---



##### Table of Contents



9/30/09
    
    
    12/31/08(In thousands)NOW accounts
    
    $
    19,345
    
    
    $
    17,239Demand deposit accounts
    
    
    37,747
    
    
    
    27,546Savings accounts
    
    
    85,736
    
    
    
    56,251Money market accounts
    
    
    89,427
    
    
    
    76,603Core deposits
    
    
    232,255
    
    
    
    177,639Brokered certificates of deposit
    
    
    29,344
    
    
    
    32,819Certificates of deposit
    
    
    209,752
    
    
    
    198,205Term deposits
    
    
    239,096
    
    
    
    231,024Total deposits
    
    $
    471,351
    
    
    $
    408,663
 Borrowed Funds:
   9/30/09
    
    
    12/31/08(In thousands)Long-term borrowed funds:FHLBB long-term advances
    
    $
    209,111
    
    
    $
    219,228Wholesale repurchase agreements
    
    
    40,000
    
    
    
    40,000249,111
    
    
    
    259,228Short-term borrowed funds:FHLBB short-term borrowings
    
    
    
    
    
    
    11,000Customer repurchase agreements
    
    
    5,704
    
    
    
    6,2625,704
    
    
    
    17,262Total borrowed funds
    
    $
    254,815
    
    
    $
    276,490
 RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 SUMMARY
  16




---



##### Table of Contents



Net Interest Income:
  Interest and Dividend Income:
    Interest Expense:
    17




---



##### Table of Contents



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




---



##### Table of Contents



Three months ended
    
    
    Three months ended9/30/09
    
    
    9/30/08Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    18,057
    
    
    $
    11
    
    
    
    0.24
    %
    
    $
    12,094
    
    
    $
    55
    
    
    
    1.81
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    26,640
    
    
    
    148
    
    
    
    2.20
    
    
    
    23,057
    
    
    
    229
    
    
    
    3.95Corporate and other
investment securities
    
    
    18,983
    
    
    
    107
    
    
    
    2.24
    
    
    
    28,453
    
    
    
    338
    
    
    
    4.73Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    199,933
    
    
    
    2,540
    
    
    
    5.04
    
    
    
    210,005
    
    
    
    2,733
    
    
    
    5.18Total investment securities
    
    
    263,613
    
    
    
    2,806
    
    
    
    4.22
    
    
    
    273,609
    
    
    
    3,355
    
    
    
    4.88Loans:Residential real estate
    
    
    127,655
    
    
    
    1,735
    
    
    
    5.39
    
    
    
    101,850
    
    
    
    1,431
    
    
    
    5.59Home equity
    
    
    25,611
    
    
    
    257
    
    
    
    3.98
    
    
    
    22,922
    
    
    
    295
    
    
    
    5.12Consumer
    
    
    636
    
    
    
    11
    
    
    
    6.86
    
    
    
    1,100
    
    
    
    16
    
    
    
    5.79Total retail loans
    
    
    153,902
    
    
    
    2,003
    
    
    
    5.16
    
    
    
    125,872
    
    
    
    1,742
    
    
    
    5.51Construction and land
    
    
    79,821
    
    
    
    1,170
    
    
    
    5.82
    
    
    
    68,585
    
    
    
    1,062
    
    
    
    6.16Commercial real estate
    
    
    244,662
    
    
    
    3,937
    
    
    
    6.38
    
    
    
    199,705
    
    
    
    3,356
    
    
    
    6.69Commercial
    
    
    29,407
    
    
    
    352
    
    
    
    4.75
    
    
    
    26,792
    
    
    
    410
    
    
    
    6.09Total corporate loans
    
    
    353,890
    
    
    
    5,459
    
    
    
    6.12
    
    
    
    295,082
    
    
    
    4,828
    
    
    
    6.51Total loans
    
    
    507,792
    
    
    
    7,462
    
    
    
    5.83
    
    
    
    420,954
    
    
    
    6,570
    
    
    
    6.21Total interest-earning assets
    
    
    771,405
    
    
    
    10,268
    
    
    
    5.28
    %
    
    
    694,563
    
    
    
    9,925
    
    
    
    5.68
    %Allowance for loan losses
    
    
    (6,454
    )
    
    
    
    
    
    
    
    
    
    
    (5,328
    )Other assets
    
    
    30,855
    
    
    
    
    
    
    
    
    
    
    
    29,482Total assets
    
    $
    795,806
    
    
    
    
    
    
    
    
    
    
    $
    718,717Liabilities and Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    18,482
    
    
    $
    9
    
    
    
    0.19
    %
    
    $
    18,402
    
    
    $
    9
    
    
    
    0.19
    %Regular savings accounts
    
    
    80,411
    
    
    
    244
    
    
    
    1.20
    
    
    
    46,605
    
    
    
    183
    
    
    
    1.56Money market accounts
    
    
    86,088
    
    
    
    277
    
    
    
    1.28
    
    
    
    87,856
    
    
    
    497
    
    
    
    2.25Certificates of deposit
and escrow
    
    
    244,543
    
    
    
    1,971
    
    
    
    3.20
    
    
    
    200,742
    
    
    
    1,832
    
    
    
    3.63Total interest-bearing deposits
    
    
    429,524
    
    
    
    2,501
    
    
    
    2.31
    
    
    
    353,605
    
    
    
    2,521
    
    
    
    2.84Borrowed funds:Long-term borrowed funds
    
    
    250,309
    
    
    
    2,721
    
    
    
    4.31
    
    
    
    265,409
    
    
    
    2,911
    
    
    
    4.36Short-term borrowed funds
    
    
    5,819
    
    
    
    4
    
    
    
    0.27
    
    
    
    10,109
    
    
    
    50
    
    
    
    1.97Total borrowed funds
    
    
    256,128
    
    
    
    2,725
    
    
    
    4.22
    
    
    
    275,518
    
    
    
    2,961
    
    
    
    4.28Total interest-bearing liabilities
    
    
    685,652
    
    
    
    5,226
    
    
    
    3.02
    %
    
    
    629,123
    
    
    
    5,482
    
    
    
    3.47
    %Non-interest-bearing deposits
    
    
    32,383
    
    
    
    
    
    
    
    
    
    
    
    29,294Other liabilities
    
    
    3,211
    
    
    
    
    
    
    
    
    
    
    
    2,804Total liabilities
    
    
    721,246
    
    
    
    
    
    
    
    
    
    
    
    661,221Stockholders equity
    
    
    74,560
    
    
    
    
    
    
    
    
    
    
    
    57,496Total liabilities and
stockholders equity
    
    $
    795,806
    
    
    
    
    
    
    
    
    
    
    $
    718,717Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.26
    %
    
    
    
    
    
    
    
    
    
    
    2.21
    %Net interest income
    
    
    
    
    
    $
    5,042
    
    
    
    
    
    
    
    
    
    
    $
    4,443Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.59
    %
    
    
    
    
    
    
    
    
    
    
    2.54
    %
 19




---



##### Table of Contents



NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 SUMMARY
  Net Interest Income:
  Interest and Dividend Income:
    Interest Expense:
   20




---



##### Table of Contents



Provision for Loan Losses:
  Non-Interest Income (Loss):
  Non-Interest Expense:
  21




---



##### Table of Contents



Income Taxes:
  22




---



##### Table of Contents



Nine months ended
    
    
    Nine months ended9/30/09
    
    
    9/30/08Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    14,715
    
    
    $
    22
    
    
    
    0.20
    %
    
    $
    10,424
    
    
    $
    167
    
    
    
    2.14
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    23,153
    
    
    
    519
    
    
    
    3.00
    
    
    
    23,825
    
    
    
    726
    
    
    
    4.07Corporate and other
investment securities
    
    
    19,456
    
    
    
    360
    
    
    
    2.47
    
    
    
    27,660
    
    
    
    1,161
    
    
    
    5.61Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    213,031
    
    
    
    8,283
    
    
    
    5.20
    
    
    
    209,667
    
    
    
    8,078
    
    
    
    5.15Total investment securities
    
    
    270,355
    
    
    
    9,184
    
    
    
    4.54
    
    
    
    271,576
    
    
    
    10,132
    
    
    
    4.98Loans:Residential real estate
    
    
    122,118
    
    
    
    5,029
    
    
    
    5.51
    
    
    
    92,535
    
    
    
    3,898
    
    
    
    5.63Home equity
    
    
    24,661
    
    
    
    754
    
    
    
    4.09
    
    
    
    22,645
    
    
    
    907
    
    
    
    5.35Consumer
    
    
    683
    
    
    
    35
    
    
    
    6.85
    
    
    
    1,002
    
    
    
    49
    
    
    
    6.53Total retail loans
    
    
    147,462
    
    
    
    5,818
    
    
    
    5.28
    
    
    
    116,182
    
    
    
    4,854
    
    
    
    5.58Construction and land
    
    
    66,769
    
    
    
    2,759
    
    
    
    5.52
    
    
    
    63,290
    
    
    
    3,099
    
    
    
    6.54Commercial real estate
    
    
    242,157
    
    
    
    11,545
    
    
    
    6.37
    
    
    
    183,949
    
    
    
    9,401
    
    
    
    6.83Commercial
    
    
    30,447
    
    
    
    1,094
    
    
    
    4.80
    
    
    
    26,837
    
    
    
    1,282
    
    
    
    6.38Total corporate loans
    
    
    339,373
    
    
    
    15,398
    
    
    
    6.07
    
    
    
    274,076
    
    
    
    13,782
    
    
    
    6.72Total loans
    
    
    486,835
    
    
    
    21,216
    
    
    
    5.83
    
    
    
    390,258
    
    
    
    18,636
    
    
    
    6.38Total interest-earning assets
    
    
    757,190
    
    
    
    30,400
    
    
    
    5.37
    %
    
    
    661,834
    
    
    
    28,768
    
    
    
    5.81
    %Allowance for loan losses
    
    
    (6,219
    )
    
    
    
    
    
    
    
    
    
    
    (5,032
    )Other assets
    
    
    30,745
    
    
    
    
    
    
    
    
    
    
    
    26,843Total assets
    
    $
    781,716
    
    
    
    
    
    
    
    
    
    
    $
    683,645Liabilities and Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    18,419
    
    
    $
    27
    
    
    
    0.20
    %
    
    $
    17,933
    
    
    $
    26
    
    
    
    0.19
    %Regular savings accounts
    
    
    69,294
    
    
    
    685
    
    
    
    1.32
    
    
    
    37,929
    
    
    
    332
    
    
    
    1.17Money market accounts
    
    
    80,245
    
    
    
    911
    
    
    
    1.52
    
    
    
    80,532
    
    
    
    1,439
    
    
    
    2.39Certificates of deposit
and escrow
    
    
    242,867
    
    
    
    6,123
    
    
    
    3.37
    
    
    
    186,942
    
    
    
    5,769
    
    
    
    4.12Total interest-bearing deposits
    
    
    410,825
    
    
    
    7,746
    
    
    
    2.52
    
    
    
    323,336
    
    
    
    7,566
    
    
    
    3.13Borrowed funds:Long-term borrowed funds
    
    
    255,207
    
    
    
    8,265
    
    
    
    4.33
    
    
    
    259,933
    
    
    
    8,519
    
    
    
    4.38Short-term borrowed funds
    
    
    9,067
    
    
    
    47
    
    
    
    0.69
    
    
    
    8,913
    
    
    
    127
    
    
    
    1.90Total borrowed funds
    
    
    264,274
    
    
    
    8,312
    
    
    
    4.21
    
    
    
    268,846
    
    
    
    8,646
    
    
    
    4.30Total interest-bearing liabilities
    
    
    675,099
    
    
    
    16,058
    
    
    
    3.18
    %
    
    
    592,182
    
    
    
    16,212
    
    
    
    3.66
    %Non-interest-bearing deposits
    
    
    30,403
    
    
    
    
    
    
    
    
    
    
    
    28,817Other liabilities
    
    
    3,055
    
    
    
    
    
    
    
    
    
    
    
    2,939Total liabilities
    
    
    708,557
    
    
    
    
    
    
    
    
    
    
    
    623,938Stockholders equity
    
    
    73,159
    
    
    
    
    
    
    
    
    
    
    
    59,707Total liabilities and
stockholders equity
    
    $
    781,716
    
    
    
    
    
    
    
    
    
    
    $
    683,645Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.19
    %
    
    
    
    
    
    
    
    
    
    
    2.15
    %Net interest income
    
    
    
    
    
    $
    14,342
    
    
    
    
    
    
    
    
    
    
    $
    12,556Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.53
    %
    
    
    
    
    
    
    
    
    
    
    2.53
    %
 23




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES:
        Regulatory Thresholdfor Well CapitalizedCategory
    
    09/30/09
    
    12/31/08
    
    09/30/08LSB Corporation Tier 1 risk-based
    
    
    6.0
    %
    
    
    12.64
    %
    
    
    13.30
    %
    
    
    10.62
    %River Bank Tier 1 leverage ratio
    
    
    5.0
    %
    
    
    8.17
    %
    
    
    8.18
    %
    
    
    7.33
    %River Bank Tier 1 risk-based
    
    
    6.0
    %
    
    
    11.54
    %
    
    
    11.83
    %
    
    
    10.54
    %River Bank total risk-based
    
    
    10.0
    %
    
    
    12.72
    %
    
    
    12.97
    %
    
    
    11.64
    %
   24




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##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4T: CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
   
   When the Company becomes subject to the full SEC requirements under Section 404 of the
Sarbanes-Oxley Act of 2002, it will likely incur significant costs in connection with first
providing internal control reports.
 
  (a)
    
    None.(b)
    
    None.
 25




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##### Table of Contents



(c)
    
    None.
 
   
   
  (a)
    
    None.(b)
    
    None.
 
  Number
    
    Description2
    
    Plan of Reorganization and Acquisition, dated as of March 12, 2001 between LSB Corporation
and Lawrence Savings Bank (Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 2, 2001, (File Number 000-32955) and incorporated herein by reference)3(i).1
    
    Articles of Organization of LSB Corporation (Filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated by reference)3(i).2
    
    Articles of Amendment of the Articles of Organization of LSB Corporation, as submitted for
filing in the Office of the Secretary of the Commonwealth of Massachusetts on December 30,
2005, (Filed as Exhibit 3(i).1 to the Companys Current Report on Form 8-K filed January 6,
2006, and incorporated herein by reference)3(ii)
    
    Amended and Restated By-Laws of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed October 31, 2007, and incorporated herein by reference)3(iii)
    
    Lawrence Savings Bank Certificate of Vote of Directors Establishing a Series of a Class of
Stock (Filed as Exhibit 3(iii) to the Companys 2005 Annual Report on Form 10-K and
incorporated herein by reference)4.1
    
    Specimen certificate of shares of common stock of the Company (Filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and
incorporated herein by reference)4.2
    
    Renewed Rights Agreement dated as of November 17, 2005, between LSB Corporation and
Computershare Trust Company, N.A., as Rights Agent (Filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K filed January 31, 2006, and incorporated herein by reference)10.1
    
    Subordinated Debt Agreement dated October 20, 2009, between River Bank and Commerce Bank &
Trust Company (Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed October
23, 2009, and incorporated herein by reference).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.
 26




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##### Table of Contents



Number
    
    Description32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    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.
 27




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##### Table of Contents



LSB CORPORATIONNovember 12, 2009
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive OfficerNovember 12, 2009
    /s/ Diane L. WalkerDiane L. WalkerExecutive Vice President, Treasurer and
Chief Financial Officer 28




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##### Table of Contents



LSB CORPORATION AND SUBSIDIARY
 
 EXHIBIT INDEX
 Page31.1
    
    Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    3031.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    3132.1
    
    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
    
    
    3232.2
    
    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
    
    
    33
 29