##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20529

FORM 10-Q

[X]     Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

[   ]     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(Exact name of Registrant as specified in its Charter)



|                                                                                    |  |                                                   
|----------------------------------------------------------------------------------- |  | --------------------------------------------------
|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
(Registrants telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.

|      |  |   
|----- |  | --
|Yes
X |  | No



---

Indicate by a check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

|    |  |     
|--- |  | ----
|Yes |  | No X



---

Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date.

|                                       |  |                                     
|-------------------------------------- |  | ------------------------------------
|Class                                  |  | Outstanding as of September 30, 2003
|                                       |  |                                     
|Common Stock, par value $.10 per share |  | 4,220,462 shares                    





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TABLE OF CONTENTS



|                                                |                                                                                                |                                                                                                                                       |  |  |  |  |  | 
|----------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION                 
|                                                | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                                                |                                                                                                | CONSOLIDATED STATEMENTS OF INCOME                                                                                                    
|                                                |                                                                                                | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY                      FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
|                                                |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                
|                                                |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2003                                                                        
|                                                | ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                |                                                                                                | FINANCIAL CONDITION                                                                                                                  
|                                                |                                                                                                | OVERVIEW                                                                                                                             
|                                                |                                                                                                | INVESTMENTS                                                                                                                          
|                                                |                                                                                                | LOANS                                                                                                                                
|                                                |                                                                                                | ALLOWANCE FOR LOAN LOSSES                                                                                                            
|                                                |                                                                                                | RISK ASSETS                                                                                                                          
|                                                |                                                                                                | DEPOSITS                                                                                                                             
|                                                |                                                                                                | RESULTS OF OPERATIONS                                                                                                                
|                                                |                                                                                                | THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002                                                                                       
|                                                |                                                                                                | NINE MONTHS ENDED SEPTEMER 30, 2003 AND 2002                                                                                         
|                                                |                                                                                                | LIQUIDITY AND CAPITAL RESOURCES                                                                                                      
|                                                | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             
|                                                | ITEM 4: CONTROLS AND PROCEDURES                                                               
|PART II  OTHER INFORMATION                    
|                                                | ITEM 1. LEGAL PROCEEDINGS                                                                     
|                                                | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                             
|                                                | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                       
|                                                | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|                                                | ITEM 5. OTHER INFORMATION                                                                     
|                                                | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                                     
|EXHIBIT INDEX                                  
|EX-31.1 SECTION 302 CERTIFICATION OF THE C.E.O.
|EX-31.2 SECTION 302 CERTIFICATION OF THE C.F.O.
|EX-32.1 SECTION 906 CERTIFICATION OF THE C.E.O.
|EX-32.2 SECTION 906 CERTIFICATION OF THE C.F.O.



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##### Table of Contents



LSB CORPORATION AND SUBSIDIARY

INDEX

PART I  FINANCIAL INFORMATION

|                            |  |                                                                                        |  |      
|--------------------------- |  | -------------------------------------------------------------------------------------- |  | -----
|                            |  |                                                                                        |  | Page 
|                            |  |                                                                                        |  |      
|ITEM 1                      |  | FINANCIAL STATEMENTS:                                                                  |  |      
|                           
|                            |  | Consolidated Balance Sheets                                                            |  | 3    
|                            |  | Consolidated Statements of Income                                                      |  | 4    
|                            |  | Consolidated Statements of Changes in Stockholders Equity                             |  | 5    
|                            |  | Consolidated Statements of Cash Flows                                                  |  | 6    
|                            |  | Notes to Consolidated Financial Statements                                             |  | 7-8  
|                           
|ITEM 2                      |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS: |  |      
|                           
|                            |  | Financial Condition:                                                                   |  |      
|                           
|                            |  | Investment Portfolio                                                                   |  | 9-10 
|                            |  | Loan Portfolio                                                                         |  | 10   
|                            |  | Loan Interest Income                                                                   |  | 11   
|                            |  | Allowance for Loan Losses                                                              |  | 11   
|                            |  | Risk Assets                                                                            |  | 11-12
|                            |  | Deposit Portfolio                                                                      |  | 12   
|                            |  | Deposit Interest Expense                                                               |  | 12   
|                           
|                            |  | Results of Operations:                                                                 |  |      
|                           
|                            |  | Three Months ended September 30, 2003 and 2002                                         |  | 13-14
|                            |  | Nine Months ended September 30, 2003 and 2002                                          |  | 15-16
|                            |  | Liquidity and Capital Resources                                                        |  | 17   
|                           
|ITEM 3                      |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                              |  | 18   
|                           
|ITEM 4                      |  | CONTROLS AND PROCEDURES                                                                |  | 18   
|                           
|PART II  OTHER INFORMATION
|ITEM 1                      |  | LEGAL PROCEEDINGS                                                                      |  | 19   
|                           
|ITEM 2                      |  | CHANGES IN SECURITIES                                                                  |  | 19   
|                           
|ITEM 3                      |  | DEFAULTS UPON SENIOR SECURITIES                                                        |  | 19   
|                           
|ITEM 4                      |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                    |  | 19   
|                           
|ITEM 5                      |  | OTHER INFORMATION                                                                      |  | 19   
|                           
|ITEM 6                      |  | EXHIBITS AND REPORTS ON FORM 8-K                                                       |  | 20   
|                           
|SIGNATURES                  |  | 21                                                                                    
|                           
|EXHIBIT INDEX               |  | 22                                                                                    

2



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##### Table of Contents






PART 1  FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS

LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |         |         | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | -------------- | ------- | ------------ | - | ------- | ------- | 
|                                     |                                                                                                                                                                                                                                                                   |                                            |   | September 30,  |         | December 31,
|                                     |                                                                                                                                                                                                                                                                   |                                            |   | 2003           |         | 2002        
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |             
|                                     |                                                                                                                                                                                                                                                                   |                                            |   | (In Thousands)
|ASSETS                              
|Assets:                              |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     | Cash and due from banks                                                                                                                                                                                                                                           |                                            | $ | 8,017          |         |              |   | 7,136   |        
|                                     | Federal funds sold                                                                                                                                                                                                                                                |                                            |   |               |         |              |   | 9,633   |        
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     |                                                                                                                                                                                                                                                                   | Total cash and cash equivalents            |   |                | 8,017   |              |   |         | 16,769  | 
|                                    
|                                     | Investment securities held to maturity (market value of
$145,488 in 2003 and $116,321 in 2002)                                                                                                                                                                    |                                            |   | 144,505        |         |              |   | 113,325 |        
|                                     | Investment securities available for sale (amortized
cost of $57,680 in 2003 and $52,055 in 2002)                                                                                                                                                                  |                                            |   | 57,774         |         |              |   | 53,084  |        
|                                     | Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                             |                                            |   | 5,950          |         |              |   | 5,950   |        
|                                     | Loans, net of allowance for loan losses                                                                                                                                                                                                                           |                                            |   | 201,573        |         |              |   | 238,960 |        
|                                     | Bank premises and equipment                                                                                                                                                                                                                                       |                                            |   | 2,808          |         |              |   | 3,050   |        
|                                     | Accrued interest receivable                                                                                                                                                                                                                                       |                                            |   | 2,522          |         |              |   | 2,459   |        
|                                     | Deferred income tax asset                                                                                                                                                                                                                                         |                                            |   | 3,120          |         |              |   | 3,686   |        
|                                     | Other assets                                                                                                                                                                                                                                                      |                                            |   | 1,592          |         |              |   | 1,851   |        
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     |                                                                                                                                                                                                                                                                   | Total assets                               |   | $              | 427,861 |              |   | $       | 439,134 | 
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|Liabilities:                         |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     | Interest bearing deposits                                                                                                                                                                                                                                         |                                            | $ | 266,679        |         |              | $ | 265,283 |        
|                                     | Non-interest bearing deposits                                                                                                                                                                                                                                     |                                            |   | 13,852         |         |              |   | 14,182  |        
|                                     | Federal Home Loan Bank advances                                                                                                                                                                                                                                   |                                            |   | 82,346         |         |              |   | 94,237  |        
|                                     | Securities Sold under Agreements to Repurchase                                                                                                                                                                                                                    |                                            |   | 2,005          |         |              |   | 3,950   |        
|                                     | Other borrowed funds                                                                                                                                                                                                                                              |                                            |   | 5,933          |         |              |   | 3,404   |        
|                                     | Advance payments by borrowers for taxes and insurance                                                                                                                                                                                                             |                                            |   | 538            |         |              |   | 518     |        
|                                     | Other liabilities                                                                                                                                                                                                                                                 |                                            |   | 3,489          |         |              |   | 3,501   |        
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     |                                                                                                                                                                                                                                                                   | Total liabilities                          |   |                | 374,842 |              |   |         | 385,075 | 
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                    
|Stockholders 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;
4,439,762 and 4,389,705 shares issued at
September 30, 2003 and December 31, 2002,
respectively, and 4,220,462 and 4,253,205 shares
outstanding at September 30, 2003 and
December 31, 2002 |                                            |   | 444            |         |              |   | 439     |        
|                                     | Additional paid-in capital                                                                                                                                                                                                                                        |                                            |   | 58,115         |         |              |   | 57,845  |        
|                                     | Accumulated deficit                                                                                                                                                                                                                                               |                                            |   | (2,844         | )       |              |   | (3,168  | )      
|                                     | Treasury stock, at cost (219,300 and
136,500 shares at September 30, 2003
and December 31, 2002, respectively)                                                                                                                                                    |                                            |   | (2,758         | )       |              |   | (1,736  | )      
|                                     | Accumulated other comprehensive income                                                                                                                                                                                                                            |                                            |   | 62             |         |              |   | 679     |        
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     |                                                                                                                                                                                                                                                                   | Total stockholders equity                 |   |                | 53,019  |              |   |         | 54,059  | 
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        
|                                     |                                                                                                                                                                                                                                                                   | Total liabilities and stockholders equity |   | $              | 427,861 |              |   | $       | 439,134 | 
|                                     |                                                                                                                                                                                                                                                                   |                                            |   |                |         |              |   |        

The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.

3



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##### Table of Contents






LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |        | 
|---------------------------------------------- | --------------------------------------------------- | - | --------------------------------- | ----- | ----------------- | - | --------- | ----- | ---- | - | --------- | ------ |  | - | --------- | ------ | 
|                                               |                                                     |   | Three months ended                |       | Nine months ended
|                                               |                                                     |   | September 30,                     |       | September 30,    
|                                               |                                                     |   |                                   |       |                  
|                                               |                                                     |   | 2003                              |       | 2002              |   | 2003      |       | 2002
|                                               |                                                     |   |                                   |       |                   |   |           |       |     
|                                               |                                                     |   | (In Thousands, except share data)
|Interest and dividend income:                  |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Loans                                          |                                                     | $ | 3,381                             |       |                   | $ | 4,268     |       |      | $ | 11,069    |        |  | $ | 12,700    |       
|Investment securities held to maturity         |                                                     |   | 1,176                             |       |                   |   | 1,381     |       |      |   | 3,353     |        |  |   | 4,763     |       
|Investment securities available for sale       |                                                     |   | 367                               |       |                   |   | 410       |       |      |   | 1,323     |        |  |   | 1,325     |       
|Federal Home Loan Bank stock                   |                                                     |   | 45                                |       |                   |   | 56        |       |      |   | 140       |        |  |   | 167       |       
|Other interest and dividend income             |                                                     |   | 8                                 |       |                   |   | 43        |       |      |   | 68        |        |  |   | 104       |       
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Total interest and dividend income                  |   |                                   | 4,977 |                   |   |           | 6,158 |      |   |           | 15,953 |  |   |           | 19,059 | 
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Interest expense:                              |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Deposits                                       |                                                     |   | 1,013                             |       |                   |   | 1,433     |       |      |   | 3,259     |        |  |   | 4,510     |       
|Borrowed funds                                 |                                                     |   | 1,117                             |       |                   |   | 1,417     |       |      |   | 3,502     |        |  |   | 4,218     |       
|Securities sold under agreements to repurchase |                                                     |   | 4                                 |       |                   |   | 5         |       |      |   | 14        |        |  |   | 15        |       
|Other borrowed funds                           |                                                     |   | 31                                |       |                   |   | 68        |       |      |   | 105       |        |  |   | 219       |       
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Total interest expense                              |   |                                   | 2,165 |                   |   |           | 2,923 |      |   |           | 6,880  |  |   |           | 8,962  | 
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Net interest income                                 |   |                                   | 2,812 |                   |   |           | 3,235 |      |   |           | 9,073  |  |   |           | 10,097 | 
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Provision for loan losses                      |                                                     |   |                                  |       |                   |   |          |       |      |   |          |        |  |   |          |       
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Net interest income after provision for loan losses |   |                                   | 2,812 |                   |   |           | 3,235 |      |   |           | 9,073  |  |   |           | 10,097 | 
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Non-interest income:                           |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Loan servicing fees                            |                                                     |   | 233                               |       |                   |   | (102      | )     |      |   | 53        |        |  |   | (14       | )     
|Deposit account fees                           |                                                     |   | 183                               |       |                   |   | 172       |       |      |   | 526       |        |  |   | 491       |       
|Gains on sales of mortgage loans               |                                                     |   | 143                               |       |                   |   | 147       |       |      |   | 457       |        |  |   | 323       |       
|Other income                                   |                                                     |   | 99                                |       |                   |   | 106       |       |      |   | 285       |        |  |   | 301       |       
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Total non-interest income                           |   |                                   | 658   |                   |   |           | 323   |      |   |           | 1,321  |  |   |           | 1,101  | 
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Non-interest expense:                          |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Salaries and employee benefits                 |                                                     |   | 1,417                             |       |                   |   | 1,507     |       |      |   | 4,488     |        |  |   | 4,526     |       
|Occupancy and equipment expenses               |                                                     |   | 159                               |       |                   |   | 182       |       |      |   | 581       |        |  |   | 595       |       
|Professional expenses                          |                                                     |   | 187                               |       |                   |   | 170       |       |      |   | 550       |        |  |   | 537       |       
|Data processing expenses                       |                                                     |   | 186                               |       |                   |   | 200       |       |      |   | 547       |        |  |   | 566       |       
|Other expenses                                 |                                                     |   | 468                               |       |                   |   | 470       |       |      |   | 1,295     |        |  |   | 1,365     |       
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Total non-interest expenses                         |   |                                   | 2,417 |                   |   |           | 2,529 |      |   |           | 7,461  |  |   |           | 7,589  | 
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|                                               | Income before income tax expense                    |   |                                   | 1,053 |                   |   |           | 1,029 |      |   |           | 2,933  |  |   |           | 3,609  | 
|Income tax expense                             |                                                     |   | 399                               |       |                   |   | 334       |       |      |   | 1,094     |        |  |   | 1,279     |       
|                                               |                                                     |   |                                   |       |                   |   |           |       |      |   |           |        |  |   |           |       
|Net income                                     |                                                     | $ | 654                               |       |                   | $ | 695       |       |      | $ | 1,839     |        |  | $ | 2,330     |       
|                                               |                                                    
|Average shares outstanding                     |                                                     |   | 4,214,501                         |       |                   |   | 4,343,045 |       |      |   | 4,211,435 |        |  |   | 4,369,759 |       
|Average diluted shares outstanding             |                                                     |   | 4,412,909                         |       |                   |   | 4,515,517 |       |      |   | 4,378,550 |        |  |   | 4,544,412 |       
|                                               |                                                    
|Basic earnings per share                       |                                                     | $ | 0.16                              |       |                   | $ | 0.16      |       |      | $ | 0.44      |        |  | $ | 0.53      |       
|Diluted earnings per share                     |                                                     | $ | 0.15                              |       |                   | $ | 0.15      |       |      | $ | 0.42      |        |  | $ | 0.51      |       
|                                               |                                                    

The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.

4



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##### Table of Contents






LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)

|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |     |       | 
|---------------------------------------------------- | ------------------------------------ | -------------------------- | --- | -------------- |  | ------- | ------ | ------------ |  | -------- | ------ | ------------- |  | ------------- | ------ | - |  | ----- | --- | ----------- |  | - | ------ | --- | ----- | 
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     | Accumulated |  |   |        |    
|                                                     |                                      |                            |     |                |  |         |        | Additional   |  |          |        |               |  |               |        |   |  | Other |     | Total      
|                                                     |                                      |                            |     | Common         |  | Paid-In |        | (Accumulated |  | Treasury |        | Comprehensive |  | Stockholders
|                                                     |                                      |                            |     | Stock          |  | Capital |        | Deficit)     |  | Stock    |        | Income        |  | Equity       
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |              
|                                                     |                                      |                            |     | (In Thousands)
|Balance at December 31, 2001                         |                                      | $                          | 438 |                |  | $       | 57,813 |              |  | $        | (4,348 | )             |  | $             |       |   |  | $     | 189 |             |  | $ | 54,092 |    
|Net income                                           |                                      |                            |    |                |  |         |       |              |  |          | 2,330  |               |  |               |       |   |  |       |    |             |  |   | 2,330  |    
|Other comprehensive income:                          |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |    
|                                                     | Unrealized gain on securities        |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |     |      
|                                                     | available for sale (tax effect $310) |                            |     |               |  |         |        |             |  |          |        |              |  |               |        |  |  |       |     | 602         |  |   |        | 602 |      
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |    
|                                                     |                                      | Total comprehensive income |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |     | 2,932 | 
|Exercise of stock options                            |                                      |                            | 1   |                |  |         | 14     |              |  |          |       |               |  |               |       |   |  |       |    |             |  |   | 15     |    
|Dividends declared and paid
($0.33 per share)        |                                      |                            |    |                |  |         |       |              |  |          | (1,447 | )             |  |               |       |   |  |       |    |             |  |   | (1,447 | )  
|Purchase of 82,500 shares of Treasury
Stock, at cost |                                      |                            |    |                |  |         |       |              |  |          |       |               |  |               | (1,080 | ) |  |       |    |             |  |   | (1,080 | )  
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |    
|Balance at September 30, 2002                        |                                      | $                          | 439 |                |  | $       | 57,827 |              |  | $        | (3,465 | )             |  | $             | (1,080 | ) |  | $     | 791 |             |  | $ | 54,512 |    
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |  |   |        |    

|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |      |       | 
|---------------------------------------------------- | ------------------------------------ | -------------------------- | --- | -------------- |  | ------- | ------ | ------------ |  | -------- | ------ | ------------- |  | ------------- | ------ | - |  | ----- | --- | ----------- | - | - | ------ | ---- | ----- | 
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     | Accumulated |   |   |        |     
|                                                     |                                      |                            |     |                |  |         |        | Additional   |  |          |        |               |  |               |        |   |  | Other |     | Total      
|                                                     |                                      |                            |     | Common         |  | Paid-In |        | (Accumulated |  | Treasury |        | Comprehensive |  | Stockholders
|                                                     |                                      |                            |     | Stock          |  | Capital |        | Deficit)     |  | Stock    |        | Income        |  | Equity       
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |              
|                                                     |                                      |                            |     | (In Thousands)
|Balance at December 31, 2002                         |                                      | $                          | 439 |                |  | $       | 57,845 |              |  | $        | (3,168 | )             |  | $             | (1,736 | ) |  | $     | 679 |             |   | $ | 54,059 |     
|Net income                                           |                                      |                            |    |                |  |         |       |              |  |          | 1,839  |               |  |               |       |   |  |       |    |             |   |   | 1,839  |     
|Other comprehensive income:                          |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |     
|                                                     | Unrealized loss on securities        |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |      |      
|                                                     | available for sale (tax effect $318) |                            |     |               |  |         |        |             |  |          |        |              |  |               |        |  |  |       |     | (617        | ) |   | $      | (617 | )    
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |     
|                                                     |                                      | Total comprehensive income |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |      | 1,222 | 
|Exercise of stock options                            |                                      |                            | 5   |                |  |         | 270    |              |  |          |       |               |  |               |       |   |  |       |    |             |   |   | 275    |     
|Dividends declared and paid
($0.36 per share)        |                                      |                            |    |                |  |         |       |              |  |          | (1,515 | )             |  |               |       |   |  |       |    |             |   |   | (1,515 | )   
|Purchase of 82,800 shares of
Treasury Stock, at cost |                                      |                            |    |                |  |         |       |              |  |          |       |               |  |               | (1,022 | ) |  |       |    |             |   |   | (1,022 | )   
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |     
|Balance at September 30, 2003                        |                                      | $                          | 444 |                |  | $       | 58,115 |              |  | $        | (2,844 | )             |  | $             | (2,758 | ) |  | $     | 62  |             |   | $ | 53,019 |     
|                                                     |                                      |                            |     |                |  |         |        |              |  |          |        |               |  |               |        |   |  |       |     |             |   |   |        |     

The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.

5



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##### Table of Contents






LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                                  |                                                                     |   |                   |       |      |   |          |       | 
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------- | - | ----------------- | ----- | ---- | - | -------- | ----- | 
|                                                                                  |                                                                     |   | Nine months ended
|                                                                                  |                                                                     |   | September 30,    
|                                                                                  |                                                                     |   |                  
|                                                                                  |                                                                     |   | 2003              |       | 2002
|                                                                                  |                                                                     |   |                   |       |     
|                                                                                  |                                                                     |   | (In Thousands)   
|Cash flows from operating activities:                                             |                                                                     |   |                   |       |      |   |          |      
|Net income                                                                        |                                                                     | $ | 1,839             |       |      | $ | 2,330    |      
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                     |   |                   |       |      |   |          |      
|Gains on sales of mortgage loans                                                  |                                                                     |   | (457              | )     |      |   | (323     | )    
|Net amortization of investment securities                                         |                                                                     |   | 1,688             |       |      |   | 1,018    |      
|Loss on sale of investment securities available for sale                          |                                                                     |   | 14                |       |      |   |         |      
|Depreciation of premises and equipment                                            |                                                                     |   | 316               |       |      |   | 341      |      
|Loans originated for sale                                                         |                                                                     |   | (20,622           | )     |      |   | (22,401  | )    
|Proceeds from sales of mortgage loans                                             |                                                                     |   | 22,580            |       |      |   | 24,164   |      
|Increase in accrued interest receivable                                           |                                                                     |   | (63               | )     |      |   | (34      | )    
|Decrease in deferred income tax asset                                             |                                                                     |   | 884               |       |      |   | 1,239    |      
|Decrease (increase) in other assets                                               |                                                                     |   | 251               |       |      |   | (164     | )    
|Increase in advance payments by borrowers                                         |                                                                     |   | 20                |       |      |   | 38       |      
|Decrease in other liabilities                                                     |                                                                     |   | (12               | )     |      |   | (852     | )    
|                                                                                  |                                                                     |   |                   |       |      |   |          |      
|Net cash provided by operating activities                                         |                                                                     |   | 6,438             |       |      |   | 5,356    |      
|                                                                                  |                                                                    
|Cash flows from investing activities:                                             |                                                                     |   |                   |       |      |   |          |      
|Proceeds from sale of mortgage backed securities available for sale               |                                                                     |   | 5,684             |       |      |   | -       |      
|Proceeds from maturities of investment securities held to maturity                |                                                                     |   | 164,900           |       |      |   | 287,818  |      
|Proceeds from maturities of investment securities available for sale              |                                                                     |   | 7,000             |       |      |   | 5,493    |      
|Purchases of investment securities held to maturity                               |                                                                     |   | (198,338          | )     |      |   | (291,463 | )    
|Purchases of mortgage-backed securities held to maturity                          |                                                                     |   | (38,118           | )     |      |   | (2,967   | )    
|Purchases of investment securities available for sale                             |                                                                     |   | (16,712           | )     |      |   | (29,189  | )    
|Purchase of mutual fund available for sale                                        |                                                                     |   | (1,000            | )     |      |   | -       |      
|Purchases of mortgage-backed securities available for sale                        |                                                                     |   | (14,775           | )     |      |   |         |      
|Principal payments of securities held to maturity                                 |                                                                     |   | 39,369            |       |      |   | 25,811   |      
|Principal payments of securities available for sale                               |                                                                     |   | 13,483            |       |      |   | 8,541    |      
|Decrease (increase) in loans, net                                                 |                                                                     |   | 35,886            |       |      |   | (1,609   | )    
|Proceeds from payments on OREO                                                    |                                                                     |   | 8                 |       |      |   | 8        |      
|Purchases of Bank premises and equipment                                          |                                                                     |   | (74               | )     |      |   | (236     | )    
|                                                                                  |                                                                     |   |                   |       |      |   |          |      
|Net cash (used in) provided by investing activities                               |                                                                     |   | (2,687            | )     |      |   | 2,207    |      
|                                                                                  |                                                                    
|Cash flows from financing activities:                                             |                                                                     |   |                   |       |      |   |          |      
|Net increase in deposits                                                          |                                                                     |   | 1,066             |       |      |   | 8,476    |      
|Additions to Federal Home Loan Bank advances                                      |                                                                     |   |                  |       |      |   | 11,000   |      
|Payments on Federal Home Loan Bank advances                                       |                                                                     |   | (11,891           | )     |      |   | (19,304  | )    
|Net decrease in agreements to repurchase securities                               |                                                                     |   | (1,945            | )     |      |   | (1,770   | )    
|Net increase (decrease) in other borrowed funds                                   |                                                                     |   | 2,529             |       |      |   | (466     | )    
|Treasury stock purchased                                                          |                                                                     |   | (1,022            | )     |      |   | (1,080   | )    
|Dividends paid                                                                    |                                                                     |   | (1,515            | )     |      |   | (1,447   | )    
|Proceeds from exercise of stock options                                           |                                                                     |   | 275               |       |      |   | 15       |      
|                                                                                  |                                                                     |   |                   |       |      |   |          |      
|Net cash used in financing activities                                             |                                                                     |   | (12,503           | )     |      |   | (4,576   | )    
|                                                                                  |                                                                    
|Net (decrease) increase in cash and cash equivalents                              |                                                                     |   | (8,752            | )     |      |   | 2,987    |      
|Cash and cash equivalents, beginning of period                                    |                                                                     |   | 16,769            |       |      |   | 13,162   |      
|                                                                                  |                                                                     |   |                   |       |      |   |          |      
|Cash and cash equivalents, end of period                                          |                                                                     | $ | 8,017             |       |      | $ | 16,149   |      
|                                                                                  |                                                                    
|Cash paid during the period for:                                                  |                                                                     |   |                   |       |      |   |          |      
|                                                                                  | Interest on deposits                                                |   | $                 | 3,242 |      |   | $        | 4,485 | 
|                                                                                  | Interest on borrowed funds                                          |   |                   | 3,678 |      |   |          | 4,538 | 
|                                                                                  | Income taxes                                                        |   |                   | 368   |      |   |          | 252   | 
|Cash received during the year for:                                                |                                                                     |   |                   |       |      |   |          |      
|                                                                                  | Income taxes                                                        |   |                   |      |      |   |          | 133   | 
|Supplemental Schedule of non-cash activities:                                     |                                                                     |   |                   |       |      |   |          |      
|                                                                                  | Net change in valuation of investment securities available for sale |   |                   | (935  | )    |   |          | 912   | 
|                                                                                  |                                                                    

The accompanying notes are an integral part of these unaudited Consolidated
Financial Statements.

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LSB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)

1.     BASIS OF PRESENTATION

LSB Corporation (the Corporation or the Company) is a Massachusetts
corporation and the holding company of the wholly-owned subsidiary Lawrence
Savings Bank (the Bank) a state-chartered Massachusetts savings bank. The
Corporation was organized by the Bank on July 1, 2001 to be a bank holding
company and to acquire all of the capital stock of the Bank.

The Corporation is supervised by the Board of Governors of the Federal Reserve
System (FRB), and it is also subject to the jurisdiction of the Massachusetts
Division of Banks, while the Bank is subject to the regulations of, and
periodic examination by, the Federal Deposit Insurance Corporation (FDIC) and
the Massachusetts Division of Banks. The Banks deposits are insured by the
Bank Insurance Fund of the FDIC up to $100,000 per account, as defined by the
FDIC, and the Depositors Insurance Fund (DIF) for customer deposit amounts in
excess of $100,000. The Consolidated Financial Statements include the accounts
of LSB Corporation and its wholly-owned consolidated subsidiary, Lawrence
Savings Bank, and its wholly-owned subsidiaries, Shawsheen Security
Corporation, Shawsheen Security Corporation II, Pemberton Corporation, and
Spruce Wood Realty Trust. All inter-company balances and transactions have
been eliminated in consolidation. The Company has one reportable operating
segment. Certain amounts in prior periods have been re-classified to conform
to the current presentation.

The Corporations Consolidated Financial Statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America. Accordingly, management is required to make estimates and
assumptions that affect amounts reported in the balance sheets and statements
of income. Actual results could differ significantly from those estimates and
judgments. Material estimates that are particularly susceptible to change
relate to the allowance for loan losses, income taxes and mortgage servicing
rights.

The interim results of consolidated income are not necessarily indicative of
the results for any future interim period or for the entire year. These
interim Consolidated Financial Statements do not include all disclosures
associated with annual financial statements and, accordingly, should be read in
conjunction with the annual Consolidated Financial Statements and accompanying
notes included in the Companys Annual Report on Form 10-K as of and for the
year ended December 31, 2002 filed with the Securities and Exchange Commission.

2.     STOCK OPTIONS

The Corporation measures compensation cost for stock-based plans using the
intrinsic value method. The intrinsic value method measures compensation cost,
if any, as the fair market value of the Companys stock at the grant date over
the exercise price. All options granted have an exercise price equivalent to
the fair market value at the date of grant and, accordingly, no compensation
cost has been recorded. If the fair value based method of accounting for stock
options had been used, the Companys net income and earnings per share would
have been reduced to the proforma amounts for the three months and nine months
ended September 30, and are presented in the table which follows:

|                            |             |  |                                   |      |                   |  |         |      |         |  |   |       |  |  |   |       | 
|--------------------------- | ----------- |  | --------------------------------- | ---- | ----------------- |  | ------- | ---- | ------- |  | - | ----- |  |  | - | ----- | 
|                            |             |  | Three months ended                |      | Nine months ended
|                            |             |  |                                   |      |                  
|                            |             |  | 9/30/03                           |      | 9/30/02           |  | 9/30/03 |      | 9/30/02
|                            |             |  |                                   |      |                   |  |         |      |        
|                            |             |  | (In Thousands, except share data)
|Net income:                 |             |  |                                   |      |                   |  |         |      |         |  |   |       |  |  |   |      
|                            | As Reported |  | $                                 | 654  |                   |  | $       | 695  |         |  | $ | 1,839 |  |  | $ | 2,330 | 
|                            | Pro forma   |  |                                   | 610  |                   |  |         | 641  |         |  |   | 1,706 |  |  |   | 2,137 | 
|Basic earnings per share:   |             |  |                                   |      |                   |  |         |      |         |  |   |       |  |  |   |      
|                            | As Reported |  | $                                 | 0.16 |                   |  | $       | 0.16 |         |  | $ | 0.44  |  |  | $ | 0.53  | 
|                            | Pro forma   |  |                                   | 0.14 |                   |  |         | 0.15 |         |  |   | 0.41  |  |  |   | 0.49  | 
|Diluted earnings per share: |             |  |                                   |      |                   |  |         |      |         |  |   |       |  |  |   |      
|                            | As Reported |  | $                                 | 0.15 |                   |  | $       | 0.15 |         |  | $ | 0.42  |  |  | $ | 0.51  | 
|                            | Pro forma   |  |                                   | 0.14 |                   |  |         | 0.14 |         |  |   | 0.39  |  |  |   | 0.47  | 

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##### Table of Contents



3.     CONTINGENCIES

The Bank was awarded a $4.2 million judgment in 1997. The Bank prevailed on
this matter in Appeals Court. The Bank expects to collect this judgment, at
least in substantial part, which will have a favorable impact to the Companys
Consolidated Financial Statements. On February 13, 2002, the defendant filed
bankruptcy under Chapter 7 (liquidation). Post-judgment interest accrues from
the date of the judgment to February 13, 2002 and approximates $1.9 million.
However, collectibility of post-judgment interest in addition to the $4.2
million award has not yet been determined.

Bids of approximately $3.3 million for the major assets were approved by the
Bankruptcy Court on October 14, 2002. The net amount to be received by the
Bank after taxes and bankruptcy expenses is not known at this time. However,
it is not likely that the full $4.2 million judgment and post-judgment interest
of $1.9 million will be collected.

It is managements opinion the timing and final amount to be collected cannot
be determined at this time. Accordingly, no recognition of this matter has
been recorded in the Companys Consolidated Financial Statements.

4.     SUBSEQUENT EVENTS

During the fourth quarter 1999, the Bank was awarded $1.1 million by a jury
verdict in a legal case where the Bank sought to recover damages from loans
previously charged-off. In 2000, the court entered final judgment for
approximately $1.8 million, which includes accrued interest. This award was
appealed by defendants. This case was heard by the Appeals Court on December
11, 2002. A decision by that court awarding the Bank $1.4 million plus
statutory interest was rendered on October 21, 2003. Payment in the amount of
$2 million for the satisfaction of the judgment in this case was received on
October 30, 2003. This amount has not been recorded in the Companys
Consolidated Financial Statements as of September 30, 2003 because the Appeals
Courts decision was not known and the payment was not received by September
30, 2003.

5.     RECENT ACCOUNTING DEVELOPMENTS

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS 148 amends SFAS No. 123, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
Companies are able to eliminate a ramp-up effect that the SFAS No. 123
transition rule creates in the year of adoption. Companies can choose to elect
a method that will provide for comparability amongst years reported. In
addition, this Statement amends the disclosure requirement of Statement 123 to
require prominent disclosures in both annual and interim financial statements
about the fair value based method of accounting for stock-based employee
compensation and the effect of the method used on reported results.

In April 2003, the FASB announced it will issue new rules requiring all
companies to expense the value of employee stock options. Companies will be
required to measure the cost according to the fair value of the options at the
grant date. The FASB has not yet clarified how the fair value of the options
is to be determined. The FASB plans to issue an exposure draft later this year
that could become effective in 2004.

In January 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation
of Variable Interest Entities  an Interpretation of ARB No. 51. FIN No. 46
establishes accounting guidance for consolidation of variable interest entities
(VIE) that function to support the activities of the primary beneficiary.
The primary beneficiary of a VIE entity is the entity that absorbs a majority
of the VIEs expected losses, receives a majority of the VIEs expected residual
returns, or both, as a result of ownership, controlling interest, contractual
relationship or other business relationship with a VIE. Prior to the
implementation of FIN No. 46, VIEs were generally consolidated by an enterprise
when the enterprise had a controlling financial interest through ownership of a
majority of voting interest in the entity. The Company adopted FIN No. 46 as
of February 1, 2003 for all arrangements entered into after January 31, 2003
and will adopt as of December 31, 2003 for other arrangements entered into
prior to January 31, 2003 per FASB Staff Position No FIN 46-6. The Company
does not believe the adoption of this interpretation will have a material
impact on the Companys Consolidated Financial Statements.

8



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##### Table of Contents






ITEM 2.  MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The Company has made forward-looking statements (within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934 as amended) in this document that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations of the Company, projected or
anticipated benefits or events related to other future developments involving
the Company or the industry in which it operates. When verbs in the present
tense such as believes, expects, seeks, anticipates, continues,
attempts, or similar expressions are used, forward-looking statements are
being made. Stockholders should note that many factors, some of which are
discussed elsewhere in this document and in the documents which we incorporate
by reference, could affect the future financial results of the Company and
could cause the results to differ materially from those expressed in or
incorporated by reference in this document. Those factors include fluctuations
in interest rates, inflation, government regulations and economic conditions
and competition, as well as, possible infrastructure disruptions due to
weather, terrorist activity, computer capacity overload or other factors in the
geographic and business areas in which the Company conducts its operations. As
a result of such risks and uncertainties, the Companys actual results may
differ materially from such forward-looking statements. The Company does not
undertake, and specifically disclaims any obligation to publicly release
revisions to any such forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.




FINANCIAL CONDITION




OVERVIEW

The Company has maintained risk assets below 1% of total assets for the past
several years. The Company maintains its commitment to servicing the needs of
the local community in the Merrimack Valley area. The Company had total assets
of $427.9 million at September 30, 2003 compared to $439.1 million at December
31, 2002. The decrease in asset size at September 30, 2003 from December 31,
2002 is due to the pay down of $11.3 million in borrowed funds as advances from
the FHLB became due. The cash used came from the payoff of loans which
declined by $37.3 million and the reduction of $9.6 million in Federal Funds.
The additional cash was used to purchase investment securities which increased
by $35.9 million since December 31, 2002.




INVESTMENTS

The investment securities portfolio totaled $202.3 million or 47.3% of total
assets at September 30, 2003, compared to $166.4 million, or 37.9% of total
assets at December 31, 2002, an increase of $35.9 million from year-end. The
change in mix in the investment securities portfolio was the result of
maturities in Commercial Paper, Corporate obligations and municipal
obligations. Funds were reinvested in Mortgage-backed Securities (MBS), U.S.
Government Agency Obligations and Collateralized Mortgage obligations (CMO).
All CMOs are included in the Asset-backed Securities category. The increase
in investment securities was the result of the utilization of excess funds from
loan payoffs, which decreased the loan portfolio by $37.3 million, and a
decrease in Federal funds of $9.6 million. During the third quarter of 2003,
sales of mortgage-backed securities available for sale totaled $5.7 million
resulting in a loss of $14 thousand, which is included in other income.

9



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##### Table of Contents



The following table reflects the components and carrying values of the
investment securities portfolio at September 30, 2003 and December 31, 2002:

|                                                            |                                  |                                                |         |                |         |          |         |        |         | 
|----------------------------------------------------------- | -------------------------------- | ---------------------------------------------- | ------- | -------------- | ------- | -------- | ------- | ------ | ------- | 
|                                                            |                                  |                                                |         | 9/30/03        |         | 12/31/02
|                                                            |                                  |                                                |         |                |         |         
|                                                            |                                  |                                                |         | (In Thousands)
|Investment securities held to maturity (at amortized cost): |                                  |                                                |         |                |         |          |         |       
|                                                            | US Treasury obligations          |                                                | $       |               |         |          | $       | 6,002  |        
|                                                            | US Government Agency obligations |                                                |         | 52,784         |         |          |         | 26,243 |        
|                                                            | Mortgage-backed securities       |                                                |         | 41,836         |         |          |         | 13,440 |        
|                                                            | Asset-backed securities          |                                                |         | 36,152         |         |          |         | 32,551 |        
|                                                            | Corporate obligations            |                                                |         | 13,733         |         |          |         | 33,068 |        
|                                                            | Municipal obligations            |                                                |         |               |         |          |         | 2,021  |        
|                                                            |                                  |                                                |         |                |         |          |         |       
|                                                            |                                  | Total investment securities held to maturity   |         | $              | 144,505 |          |         | $      | 113,325 | 
|                                                            |                                  |                                                |         |                |         |          |         |       
|Investment securities available for sale (at market value): |                                  |                                                |         |                |         |          |         |       
|                                                            | US Treasury obligations          |                                                | $       | 4,702          |         |          | $       |       |        
|                                                            | US Government Agency obligations |                                                |         | 26,610         |         |          |         | 31,820 |        
|                                                            | Mortgage-backed securities       |                                                |         | 7,727          |         |          |         | 2,850  |        
|                                                            | Asset-backed securities          |                                                |         | 11,336         |         |          |         | 12,079 |        
|                                                            | Corporate obligations            |                                                |         | 6,242          |         |          |         | 4,167  |        
|                                                            | Municipal obligations            |                                                |         |               |         |          |         | 2,000  |        
|                                                            | Mutual Funds                     |                                                |         | 989            |         |          |         |       |        
|                                                            | Equity securities                |                                                |         | 168            |         |          |         | 168    |        
|                                                            |                                  |                                                |         |                |         |          |         |       
|                                                            |                                  | Total investment securities available for sale |         | $              | 57,774  |          |         | $      | 53,084  | 
|                                                            |                                  |                                                |         |                |         |          |         |       
|Total investment securities portfolio                       |                                  | $                                              | 202,279 |                |         | $        | 166,409 |       
|                                                            |                                  |                                                |         |                |         |          |         |       




LOANS

The following table reflects the loan portfolio at September 30, 2003 and
December 31, 2002:

|                             |                  |   |                |         |          |   |         |         | 
|---------------------------- | ---------------- | - | -------------- | ------- | -------- | - | ------- | ------- | 
|                             |                  |   | 9/30/03        |         | 12/31/02
|                             |                  |   |                |         |         
|                             |                  |   | (In Thousands)
|Residential mortgage loans   |                  | $ | 56,608         |         |          | $ | 60,140  |        
|Loans held for sale          |                  |   | 1,078          |         |          |   | 2,579   |        
|Equity loans                 |                  |   | 9,760          |         |          |   | 11,490  |        
|Construction loans           |                  |   | 15,597         |         |          |   | 23,502  |        
|Commercial real estate loans |                  |   | 105,974        |         |          |   | 112,745 |        
|Commercial loans             |                  |   | 15,961         |         |          |   | 32,017  |        
|Consumer loans               |                  |   | 804            |         |          |   | 654     |        
|                             |                  |   |                |         |          |   |         |        
|                             | Total loans      |   |                | 205,782 |          |   |         | 243,127 | 
|Allowance for loan losses    |                  |   | (4,209         | )       |          |   | (4,167  | )      
|                             |                  |   |                |         |          |   |         |        
|                             | Total loans, net |   | $              | 201,573 |          |   | $       | 238,960 | 
|                             |                  |   |                |         |          |   |         |        

Total loans decreased to $205.8 million or 48.1% of total assets at September
30, 2003 from $243.1 million or 55.4% of total assets at December 31, 2002.
The residential mortgage loan balances have declined due to the current low
interest rate environment in which mortgage borrowers are refinancing existing
mortgages and sales into the secondary market. Construction, commercial real
estate and commercial loans have declined due to payoffs.

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The following table lists the components of loan interest income for the three
months and nine months ended September 30, 2003 and 2002:

|                             |                            |   |                    |       |                   |   |         |       |         |   |       |        |  |   |       |        | 
|---------------------------- | -------------------------- | - | ------------------ | ----- | ----------------- | - | ------- | ----- | ------- | - | ----- | ------ |  | - | ----- | ------ | 
|                             |                            |   | Three months ended |       | Nine months ended
|                             |                            |   |                    |       |                  
|                             |                            |   | 9/30/03            |       | 9/30/02           |   | 9/30/03 |       | 9/30/02
|                             |                            |   |                    |       |                   |   |         |       |        
|                             |                            |   | (In Thousands)     |       | (In Thousands)   
|Residential mortgage loans   |                            | $ | 793                |       |                   | $ | 1,176   |       |         | $ | 2,589 |        |  | $ | 3,788 |       
|Loans held for sale          |                            |   | 23                 |       |                   |   | 42      |       |         |   | 107   |        |  |   | 112   |       
|Equity loans                 |                            |   | 127                |       |                   |   | 216     |       |         |   | 424   |        |  |   | 639   |       
|Construction loans           |                            |   | 259                |       |                   |   | 262     |       |         |   | 894   |        |  |   | 854   |       
|Commercial real estate loans |                            |   | 1,906              |       |                   |   | 2,238   |       |         |   | 5,977 |        |  |   | 6,341 |       
|Commercial loans             |                            |   | 263                |       |                   |   | 317     |       |         |   | 1,046 |        |  |   | 912   |       
|Consumer loans               |                            |   | 10                 |       |                   |   | 17      |       |         |   | 32    |        |  |   | 54    |       
|                             |                            |   |                    |       |                   |   |         |       |         |   |       |        |  |   |       |       
|                             | Total loan interest income |   | $                  | 3,381 |                   |   | $       | 4,268 |         |   | $     | 11,069 |  |   | $     | 12,700 | 
|                             |                            |   |                    |       |                   |   |         |       |         |   |       |        |  |   |       |       




ALLOWANCE FOR LOAN LOSSES

The following table summarizes changes in the allowance for loan losses for the
three months and nine months ended September 30, 2003 and 2002:

|                                |             |   |                    |  |                   |   |         |  |         |   |       |  |  |   |       |   | 
|------------------------------- | ----------- | - | ------------------ |  | ----------------- | - | ------- |  | ------- | - | ----- |  |  | - | ----- | - | 
|                                |             |   | Three months ended |  | Nine months ended
|                                |             |   |                    |  |                  
|                                |             |   | 9/30/03            |  | 9/30/02           |   | 9/30/03 |  | 9/30/02
|                                |             |   |                    |  |                   |   |         |  |        
|                                |             |   | (In Thousands)     |  | (In Thousands)   
|Beginning balance               |             | $ | 4,176              |  |                   | $ | 4,074   |  |         | $ | 4,167 |  |  | $ | 4,070 |  
|Provision charged to operations |             |   |                   |  |                   |   |        |  |         |   |      |  |  |   |      |  
|Recoveries on loans previously  |             |   | 33                 |  |                   |   | 3       |  |         |   | 42    |  |  |   | 8     |  
|                                | charged-off |   |                    |  |                   |   |         |  |         |   |       |  |  |   |       |   | 
|Loans charged-off               |             |   |                   |  |                   |   |        |  |         |   |      |  |  |   | (1    | )
|                                |             |   |                    |  |                   |   |         |  |         |   |       |  |  |   |       |  
|Ending balance                  |             | $ | 4,209              |  |                   | $ | 4,077   |  |         | $ | 4,209 |  |  | $ | 4,077 |  
|                                |             |   |                    |  |                   |   |         |  |         |   |       |  |  |   |       |  

The balance of the allowance for loan losses reflects managements assessment
of losses and is based on a review of the risk characteristics of the loan
portfolio. The Company considers many factors in determining the adequacy of
the allowance for loan losses. Collateral value on a loan by loan basis,
trends of loan delinquencies on a portfolio segment level, risk classification
identified in the Companys regular review of individual loans, and economic
conditions are primary factors in establishing allowance levels. Management
believes the allowance level is adequate to absorb estimated credit losses
associated with the loan and lease portfolio, including all binding commitments
to lend and off-balance sheet credit instruments. The allowance for loan
losses reflects information available to management at the end of each period.




RISK ASSETS

Risk assets consist of non-performing loans and other real estate owned.
Non-performing loans consist of both a) loans 90 days or more past due, and b)
loans placed on non-accrual because full collection of the principal balance is
in doubt. Other real estate owned (OREO) is comprised of foreclosed properties
where the Company has formally received title or has possession of the
collateral. Properties are carried at the lower of the investment in the
related loan or the estimated fair value of the property or collateral less
selling costs. Fair value of such property or collateral is determined based
upon independent appraisals and other relevant factors. Management
periodically reviews property values and makes adjustments as required. Gains
from sales of properties, net operating expenses and any subsequent provisions
to increase the allowance for losses on real estate acquired by foreclosure are
charged to other real estate owned expenses. Losses are charged to the
allowance.

Total risk assets were $26 thousand at September 30, 2003. This represents an
increase of $13 thousand from December 31, 2002 and an increase of $12 thousand
from September 30, 2002. These changes were primarily attributable to an
increase in non-performing loans to $22 thousand at September 30, 2003 from $1
thousand at December 31, 2002 and zero at September 30, 2002. The Company had
no impaired loans at September 30, 2003, December 31, 2002 and September 30,
2002, respectively.

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##### Table of Contents



The following table summarizes the Companys risk assets at September 30, 2003,
December 31, 2002 and September 30, 2002:

|                                         |  |                        |      |          |  |         |      |   |  |   |      |  
|---------------------------------------- |  | ---------------------- | ---- | -------- |  | ------- | ---- | - |  | - | ---- | -
|                                         |  | 9/30/03                |      | 12/31/02 |  | 9/30/02
|                                         |  |                        |      |          |  |        
|                                         |  | (Dollars in Thousands)
|Non-performing loans                     |  | $                      | 22   |          |  | $       | 1    |   |  | $ |     |  
|Other real estate owned                  |  |                        | 4    |          |  |         | 12   |   |  |   | 14   |  
|                                         |  |                        |      |          |  |         |      |   |  |   |      |  
|Total risk assets                        |  | $                      | 26   |          |  | $       | 13   |   |  | $ | 14   |  
|                                         |  |                        |      |          |  |         |      |   |  |   |      |  
|Risk assets as a percent of total assets |  |                        | 0.01 | %        |  |         | 0.00 | % |  |   | 0.00 | %
|                                         |  |                        |      |          |  |         |      |   |  |   |      |  

The following table shows the allowance for loan losses as a percent of total
loans at September 30, 2003, December 31, 2002 and September 30, 2002:

|                                                      |  |                        |       |          |  |         |       |   |  |   |       |  
|----------------------------------------------------- |  | ---------------------- | ----- | -------- |  | ------- | ----- | - |  | - | ----- | -
|                                                      |  | 9/30/03                |       | 12/31/02 |  | 9/30/02
|                                                      |  |                        |       |          |  |        
|                                                      |  | (Dollars in Thousands)
|Allowance for loan losses                             |  | $                      | 4,209 |          |  | $       | 4,167 |   |  | $ | 4,077 |  
|Allowance for loan losses as a percent of total loans |  |                        | 2.05  | %        |  |         | 1.71  | % |  |   | 1.72  | %

The allowance for loan losses has remained fairly consistent at $4.2 million at
the end of September 30, 2003 and December 31, 2002. However, allowance for
loan losses as a percent of total loans has increased to 2.05% up from 1.71% at
September 30, 2003 and December 31, 2002, respectively. This increase is due
to the lower balances in the loan portfolio at September 30, 2003 compared to
December 31, 2002.




DEPOSITS

Total interest bearing deposits amounted to $266.7 million at September 30,
2003 compared to $265.3 million at December 31, 2002, an increase of $1.4
million. Included in the certificates of deposit at September 30, 2003 were
brokered deposits of $2.0 million. The change from December 31, 2002 is due to
an increase in money market investment accounts partially offset by a decrease
in certificates of deposit accounts. Although the total balance of interest
bearing deposits remained fairly level, the mix of deposits has changed from
higher interest bearing accounts to lower interest bearing accounts.

The following table reflects the components of interest bearing deposits at
September 30, 2003 and December 31, 2002:

|                                 |                                 |   |                |         |          |   |        |         | 
|-------------------------------- | ------------------------------- | - | -------------- | ------- | -------- | - | ------ | ------- | 
|                                 |                                 |   | 9/30/03        |         | 12/31/02
|                                 |                                 |   |                |         |         
|                                 |                                 |   | (In Thousands)
|NOW and Super NOW accounts       |                                 | $ | 36,890         |         |          | $ | 35,568 |        
|Savings accounts                 |                                 |   | 44,267         |         |          |   | 44,839 |        
|Money market investment accounts |                                 |   | 73,486         |         |          |   | 64,653 |        
|Certificates of deposit          |                                 |   | 83,887         |         |          |   | 92,241 |        
|Retirement accounts              |                                 |   | 28,149         |         |          |   | 27,982 |        
|                                 |                                 |   |                |         |          |   |        |        
|                                 | Total interest bearing deposits |   | $              | 266,679 |          |   | $      | 265,283 | 
|                                 |                                 |   |                |         |          |   |        |        

The following table lists the components of deposit interest expense for the
three months and nine months ended September 30, 2003 and 2002:

|                                 |                                |   |                    |       |                   |   |         |       |         |   |       |       |  |   |       |       | 
|-------------------------------- | ------------------------------ | - | ------------------ | ----- | ----------------- | - | ------- | ----- | ------- | - | ----- | ----- |  | - | ----- | ----- | 
|                                 |                                |   | Three months ended |       | Nine months ended
|                                 |                                |   |                    |       |                  
|                                 |                                |   | 09/30/03           |       | 09/30/02          |   | 9/30/03 |       | 9/30/02
|                                 |                                |   |                    |       |                   |   |         |       |        
|                                 |                                |   | (In Thousands)     |       | (In Thousands)   
|NOW and Super NOW accounts       |                                | $ | 10                 |       |                   | $ | 22      |       |         | $ | 30    |       |  | $ | 66    |      
|Savings deposit accounts         |                                |   | 48                 |       |                   |   | 106     |       |         |   | 161   |       |  |   | 325   |      
|Money market investment accounts |                                |   | 211                |       |                   |   | 299     |       |         |   | 678   |       |  |   | 826   |      
|Certificates of deposit          |                                |   | 510                |       |                   |   | 730     |       |         |   | 1,664 |       |  |   | 2,439 |      
|Retirement accounts              |                                |   | 234                |       |                   |   | 276     |       |         |   | 726   |       |  |   | 854   |      
|                                 |                                |   |                    |       |                   |   |         |       |         |   |       |       |  |   |       |      
|                                 | Total deposit interest expense |   | $                  | 1,013 |                   |   | $       | 1,433 |         |   | $     | 3,259 |  |   | $     | 4,510 | 
|                                 |                                |   |                    |       |                   |   |         |       |         |   |       |       |  |   |       |      

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RESULTS OF OPERATIONS




THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

OVERVIEW

The Company reported net income of $654 thousand or $0.15 diluted earnings per
share and $695 thousand or $0.15 diluted earnings per share for the three
months ended September 30, 2003 and 2002, respectively. The decrease in net
income is primarily attributable to a decrease in net interest income of $423
thousand. Partially offsetting this decline was an increase of $335 thousand
in non-interest income and non-interest expenses declining by $112 thousand.

NET INTEREST INCOME FROM OPERATIONS

Net interest income for the three months ended September 30, 2003 and 2002 was
$2.8 million and $3.2 million, respectively. The net interest rate spread
decreased to 2.34% for the quarter ended September 30, 2003 from 2.57% for the
same quarter of 2002. Interest income in the third quarter of 2003 experienced
an overall decrease due to a declining interest rate environment and lower
average loan balances outstanding from the third quarter of 2002. Interest
expense incurred a similar decline in interest rates resulting in lower rates
paid on deposits and borrowed funds; however, the rates paid on borrowed funds
have declined at a slower pace than rates paid on deposits.

The following table presents the components of net interest income and net
interest rate spread:

|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |      |      |      | 
|--------------------------------------- | ----------------------------------------------------------------------- | ----- | ----- | ----- | ---------------------- | ----- | ---------- | ----- | ------- | ----- | ------- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | 
|                                        |                                                                         |       |       |       | Income/Expense         |       | Yield/Rate
|                                        |                                                                         |       |       |       |                        |       |           
|                                        |                                                                         |       |       |       | Three Months Ended    
|                                        |                                                                         |       |       |       |                       
|                                        |                                                                         |       |       |       | 9/30/03                |       | 9/30/02    |       | 9/30/03 |       | 9/30/02
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |        
|                                        |                                                                         |       |       |       | (Dollars in Thousands)
|Interest income and average yield:      |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|                                        | Loans                                                                   |       | $     | 3,381 |                        |       | $          | 4,268 |         |       |         | 6.44 | %    |      |      | 7.09 | %   
|                                        | Investments, mortgage-backed securities
and other earning assets        |       |       | 1,596 |                        |       |            | 1,890 |         |       |         | 3.00 |      |      |      | 3.92 |     
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|                                        |                                                                         |       | Total |       |                        | 4,977 |            |       |         | 6,158 |         |      |      | 4.71 |      |      |      | 5.68 | 
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|Interest expense and average rate paid: |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|                                        | Deposits                                                                |       |       | 1,013 |                        |       |            | 1,433 |         |       |         | 1.50 |      |      |      | 2.16 |     
|                                        | Federal Home Loan Bank advances                                         |       |       | 1,117 |                        |       |            | 1,417 |         |       |         | 4.99 |      |      |      | 5.38 |     
|                                        | Securities sold under agreements to
repurchase and other borrowed funds |       |       | 35    |                        |       |            | 73    |         |       |         | 1.80 |      |      |      | 5.23 |     
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|                                        |                                                                         | Total |       |       | 2,165                  |       |            |       | 2,923   |       |         |      | 2.37 |      |      |      | 3.11 |     
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|Net interest income                     |                                                                         | $     | 2,812 |       |                        | $     | 3,235      |       |         |       |         |      |      |      |      |     
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|Net interest rate spread                |                                                                         |       |       |       |                        |       |            |       |         |       | 2.34    | %    |      |      | 2.57 | %   
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     
|Net interest margin                     |                                                                         |       |       |       |                        |       |            |       |         |       | 2.66    | %    |      |      | 2.98 | %   
|                                        |                                                                         |       |       |       |                        |       |            |       |         |       |         |      |      |      |      |     

INTEREST INCOME

Interest income for the third quarter of 2003 was $5.0 million as compared to
$6.2 million for the same quarter of 2002. The decrease of $1.2 million in
interest income is due to $834 thousand from lower yields earned on loans and
investment securities. Coupled with lower average loan balances, which
decreased interest income by $497 thousand. Partially offsetting these
declines were higher average investment securities balances which increased
interest income by $150 thousand.

Yields on loans were 6.44% and 7.09% for the quarters ended September 30, 2003
and 2002, respectively. The impact to interest income due to lower yields was
$390 thousand. Lower average loan balances of $208.2 million versus $238.8
million for the quarters ended September 30, 2003 and 2002, respectively,
decreased interest income by $497 thousand.

Yields on investment securities were 3.00% and 3.92% for the quarters ended
September 30, 2003 and 2002, respectively, decreasing interest income by $444
thousand. Higher average investment securities balances of $211.3 million
versus $191.5 million for the same periods increased interest income by $150
thousand.

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##### Table of Contents



INTEREST EXPENSE

Interest expense for the third quarter of 2003 totaled $2.2 million, a decrease
of $758 thousand from the same quarter of 2002. This decrease is primarily due
to lower rates paid on interest bearing liabilities, which impacted interest
expense by $586 thousand. Lower average balances in borrowed funds resulted in
a $186 thousand decrease to interest expense; while higher average balances in
deposits contributed $14 thousand to interest expense.

Rates on deposits were 1.50% and 2.16% for the quarters ended September 30,
2003 and 2002, respectively. This decrease resulted in interest expense
decreasing by $434 thousand. Average deposit balances were $267.2 million
versus $263.4 million for the same periods, which resulted in a $14 thousand
increase to interest expense.

Rates on FHLB advances were 4.99% and 5.38% for the third quarters of 2003 and
2002, respectively. The decrease in rates paid on FHLB advances resulted in
interest expense decreasing by $104 thousand. The average balances of FHLB
advances decreased from quarter to quarter to $89.9 million in the third
quarter 2003 from $104.4 million for the third quarter of 2002, which resulted
in a decrease in interest expense of $182 thousand.

Rates on repurchase agreements and other borrowed funds were 1.80% and 5.23%
for the third quarters of 2003 and 2002, respectively. The decrease in rates
paid on these interest bearing liabilities resulted in interest expense
decreasing by $48 thousand. The average balance decreased to $4.6 million in
2003 from $5.5 million in 2002, which decreased interest expense by $4
thousand.

PROVISION FOR LOAN LOSSES

The provision for loan losses was zero for the quarters ended September 30,
2003 and 2002, respectively. The absence of a provision for loan losses was
based on managements assessment of the adequacy of the allowance based on an
evaluation of the Banks loan portfolio. The balance of the allowance for loan
losses has remained fairly consistent at $4.2 million at September 30, 2003 and
December 31, 2002 due to the uncertainty of potential problems that remain in
the economy.

NON-INTEREST INCOME

Non-interest income amounted to $658 thousand and $323 thousand for the
quarters ended September 30, 2003 and 2002, respectively. The increase in
non-interest income was primarily due to increased income on loan fees to $233
thousand in 2003 compared to a loss of $102 thousand in 2002. The current
quarters income on loan fees can be attributed to $120 thousand in commercial
loan prepayment penalties in the third quarter of 2003. Last years loss on
loan fees can be attributed to provisions for losses on mortgage servicing
rights (MSRs) of $98 thousand in the third quarter of 2002 due to higher
than normal prepayment speeds used in the fair value calculation of MSRs
caused by the current low interest rate environment on mortgage loans.
Deposit account fees increased $11 thousand to $183 thousand in the third
quarter of 2003 due to an increase in NOW account fees. Other income declined
slightly $7 thousand from September 30, 2002 to 2003.

NON-INTEREST EXPENSE

Non-interest expense totaled $2.4 million and $2.5 million for the quarters
ended September 30, 2003 and 2002, respectively. Salaries and employee
benefits decreased by $90 thousand in the third quarter 2003 compared to the
third quarter in 2002 mainly due to several salary reduction initiatives
instituted during 2003 as a result of the net interest margin declining to
2.66%. Occupancy and equipment expenses totaled $159 thousand in 2003, a
decrease of $23 thousand over 2002 due to a decrease in depreciation expenses
and a reduction in building maintenance and repairs expenses. Professional
expenses increased to $187 thousand in the third quarter 2003 compared to $170
thousand in the same period in 2002 due to a rise in audit fees and legal
expenses. Data processing expenses decreased to $186 thousand in the third
quarter of 2003 compared to $200 thousand in the same quarter in 2002. Other
expenses remained stable for both periods.

INCOME TAXES

The Company reported an income tax expense of $399 thousand for the quarter
ended September 30, 2003 or an effective income tax rate of 37.9%. This
compares to an income tax expense of $334 thousand for the quarter ended
September 30, 2002 or effective income tax rate of 32.5%.

The increase in the effective income tax rate in 2003 from 2003 is due to the
Banks State income tax expense increasing as a result of taxable income in the
Bank increasing.

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##### Table of Contents






NINE MONTHS ENDED SEPTEMER 30, 2003 AND 2002

OVERVIEW

The Company reported net income of $1.8 million or $0.42 diluted earnings per
share and $2.3 million or $0.51 diluted earnings per share for the nine months
ended September 30, 2003 and 2002, respectively. During the first nine months
of 2003, net interest income declined to $9.1 million in 2003 down from $10.1
million in 2002. Non-interest income increased to $1.3 million in 2003 from
$1.1 million in 2002. Non-interest expenses remained fairly consistent for the
first nine months of 2003 totaling $7.5 million compared to $7.6 million for
the same period in 2002.

NET INTEREST INCOME FROM OPERATIONS

Net interest income for the nine months ended September 30, 2003 and 2002 was
$9.1 million and $10.1 million, respectively. The net interest rate spread
decreased to 2.55% from 2.75%. The yield on interest bearing assets decreased
more rapidly than the rates paid on interest bearing liabilities. The
following table presents the components of net interest income and net interest
spread:

|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |      |      | 
|----------------------------------------------------------------------- | ---------------------------------------------------------------- | ----- | ----- | ----------------- | ------ | ---------- | ------ | ------- | ------ | ------- | ---- | ---- | ---- |  | ---- | ---- | ---- | 
|                                                                        |                                                                  |       |       | Income/Expense    |        | Yield/Rate
|                                                                        |                                                                  |       |       |                   |        |           
|                                                                        |                                                                  |       |       | Nine Months Ended
|                                                                        |                                                                  |       |       |                  
|                                                                        |                                                                  |       |       | 9/30/03           |        | 9/30/02    |        | 9/30/03 |        | 9/30/02
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |        
|                                                                        |                                                                  |       |       | (In Thousands)   
|Interest income and average yield:                                      |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|                                                                        | Loans                                                            |       | $     | 11,069            |        |            | $      | 12,700  |        |         |      | 6.65 | %    |  |      | 7.25 | %   
|                                                                        | Investments, mortgage-backed
securities and other earning assets |       |       | 4,884             |        |            |        | 6,359   |        |         |      | 3.31 |      |  |      | 4.44 |     
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|                                                                        |                                                                  | Total |       |                   | 15,953 |            |        |         | 19,059 |         |      |      | 5.08 |  |      |      | 5.99 | 
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|Interest expense and average rate paid:                                 |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|                                                                        | Deposits                                                         |       |       | 3,259             |        |            |        | 4,510   |        |         |      | 1.64 |      |  |      | 2.32 |     
|                                                                        | Federal Home Loan Bank advances                                  |       |       | 3,502             |        |            |        | 4,218   |        |         |      | 5.12 |      |  |      | 5.52 |     
|Securities sold under agreements to
repurchase and other borrowed funds |                                                                  |       | 119   |                   |        |            | 234    |         |        |         | 2.81 |      |      |  | 4.51 |     
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|                                                                        |                                                                  | Total |       |                   | 6,880  |            |        |         | 8,962  |         |      |      | 2.53 |  |      |      | 3.24 | 
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|Net interest income                                                     |                                                                  | $     | 9,073 |                   |        | $          | 10,097 |         |        |         |      |      |      |  |      |     
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|Net interest rate spread                                                |                                                                  |       |       |                   |        |            |        |         |        |         | 2.55 | %    |      |  | 2.75 | %   
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     
|Net interest margin                                                     |                                                                  |       |       |                   |        |            |        |         |        |         | 2.89 | %    |      |  | 3.17 | %   
|                                                                        |                                                                  |       |       |                   |        |            |        |         |        |         |      |      |      |  |      |     

INTEREST INCOME

Interest income for the first nine months of 2003 was $16.0 million as compared
to $19.1 million for the same period of 2002. The decrease in interest income
of $3.1 million is due to lower yields on loans and investment securities,
which decreased interest income by $2.7 million. Additionally, lower average
loan balances decreased interest income by $573 thousand. Partially offsetting
these declines were higher average investment securities balances which
increased interest income by $152 thousand.

Yields on loans were 6.65% and 7.25% for the nine months ended September 30,
2003 and 2002, respectively. The impact on interest income due to lower yields
was a reduction of $1.1 million. Lower average loan balances of $222.6 million
in 2003 versus $234.1 million in 2002 resulted in interest income decreasing by
$573 thousand.

Yields on investment securities decreased to 3.31% for the nine months ended
September 30, 2003. This compares to yields on investment securities of 4.44%
for the same period in 2002. This decrease resulted in interest income
declining by $1.6 million. Higher average investment securities balances of
$197.6 million in 2003 versus $191.4 million in 2002 resulted in interest
income increasing by $152 thousand.

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INTEREST EXPENSE

Interest expense for the first nine months of 2003 and 2002 was $6.9 million
and $9.0 million, respectively. The decrease of $2.1 million in interest
expense is primarily due to lower rates paid on deposits and other interest
bearing liabilities, which decreased interest expense by $1.7 million.
Interest expense decreased $441 thousand due to lower average borrowed funds
balances. Higher average deposit balances contributed $76 thousand to interest
expense.

Rates on deposits were 1.64% and 2.32% for the first nine months of 2003 and
2002, respectively. This decrease resulted in interest expense decreasing by
$1.3 million. Average deposit balances were $266.3 million in 2003 up from
$260.1 million in 2002, which resulted in interest expense rising by $76
thousand.

Rates on FHLB advances were 5.12% and 5.52% resulting in interest expense
decreasing by $301 thousand in 2003 from 2002. The average balances for these
interest bearing liabilities decreased to $91.7 million in 2003 from $102.2
million in 2002, which decreased interest expense by $402 thousand.

Rates on repurchase agreements and other borrower funds were 2.81% and 4.51%
for the first nine months of 2003 and 2002, respectively. This decrease
resulted in a decrease of $89 thousand in interest expense. The average
balances of repurchase agreements and other borrowed funds decreased to $5.0
million in 2003s first nine months compared to $6.9 million for 2002s first
nine months, resulting in a decrease of $39 thousand in interest expense.

PROVISION FOR LOAN LOSSES

The provision for loan losses was zero for the nine months ended September 30,
2003 and 2002. The absence of a provision for loan losses was due to the
overall asset quality, low level of risk assets and low level of delinquent
loans of the Company as of September 30, 2003 and 2002. The balance of the
allowance for loan losses has remained fairly consistent at $4.2 million at
September 30, 2003 and December 31, 2002 due to the uncertainty of potential
problems that remain in the economy.

NON-INTEREST INCOME

Non-interest income amounted to $1.3 million and $1.1 million for the nine
months ended September 30, 2003 and 2002, respectively. The increase of $220
thousand in non-interest income primarily resulted from an increase in the
gains on the sales of mortgage loans to $457 thousand from $323 thousand for
the nine months ended September 30, 2003 and 2002, respectively. Also
contributing to the increase was loan fee income of $53 thousand in the first
nine months of 2003 compared to a loss in loan fees of $14 thousand in the same
period of 2002. Deposit account fees increased to $526 thousand in the first
nine months of 2003 from $491 thousand for the same period in the prior year,
resulting from a rise in NOW account fees. Other income declined to $285
thousand from $301 thousand in 2002 primarily attributable to a loss on sale of
a mortgage-backed security of $14 thousand.

NON-INTEREST EXPENSE

Non-interest expense remained fairly consistent and totaled $7.5 million and
$7.6 million for the nine months ended September 30, 2003 and 2002,
respectively. The decrease in non-interest expense is attributable to the
following items. Salaries and employee benefits decreased to $4.5 million in
2003 down by $38 thousand over the same period in 2002. Occupancy and
equipment expenses have declined to $581 thousand for the first nine months in
2003 from $595 thousand in 2002 due to decreased depreciation expenses.
Professional expenses increased slightly to $550 thousand for the nine months
ended of 2003 from $537 thousand over the same period in 2002 due to increased
consulting and legal expenses relating to collection efforts. Data processing
expense decreased to $547 thousand from $566 thousand resulting from a decrease
in service bureau charges. Other expenses declined $70 thousand from the first
nine months of 2002 to the first nine months of 2003 due to a decrease of $60
thousand in marketing expenses.

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INCOME TAXES

The Company reported an income tax expense of $1.1 million and $1.3 million for
the nine months ended September 30, 2003 and 2002, respectively, representing
an effective tax rate of 37.3% and 35.4%, respectively.

The increase in the effective income tax rate in 2003 from 2002 is due to the
Banks State income tax expense increasing as a result of taxable income in the
Bank increasing.




LIQUIDITY AND CAPITAL RESOURCES

The Companys primary source of funds is cash dividends from its wholly-owned
subsidiary, Lawrence Savings Bank (the Bank). The Bank paid dividends to the
Company in the amount of $500 thousand and $3.5 million during the first nine
months of 2003 and 2002, respectively. The Company made payments of dividends
to shareholders in the amount of $1.5 million and $1.4 million in the first
nine months of 2003 and 2002, respectively.

The Banks primary sources of funds include collections of principal payments
and repayments on outstanding loans, increases in deposits, advances from the
Federal Home Loan Bank of Boston (FHLB) and securities sold under agreements to
repurchase. The Bank has a line of credit of $6.8 million with the FHLB. The
Bank also has a $5 million unsecured Federal Funds line of credit.

At September 30, 2003, the Companys stockholders equity was $53.0 million as
compared to $54.1 million at December 31, 2002. The change during the first
nine months of 2003 occurred due to net income of $1.8 million and $275
thousand due to the exercise of stock options. Decreasing stockholders equity
were a $617 thousand decrease in market values on securities available for
sale, net of taxes and was reduced by the declaration of dividends of $1.5
million and stock repurchases totaling $1.0 million. The Companys leverage
ratio at September 30, 2003 and December 31, 2002 was 12.25% and 12.10%,
respectively. The Companys and the Banks total risk based capital ratios
were 20.65% and 20.31% at September 30, 2003, respectively, compared with
17.74% and 16.93% at December 31, 2002, respectively. The Company exceeds all
regulatory minimum capital ratio requirements set forth by the FRB, and the
Bank exceeds all minimum capital ratio requirements as defined by the FDIC.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The response is incorporated herein by reference to the discussion under
the sub-caption Interest Rate Sensitivity of the caption MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS on
pages 18 and 19 of the LSB Corporations Annual Report for the fiscal year
ended December 31, 2002.




ITEM 4:  CONTROLS AND PROCEDURES

The Companys chief executive officer and chief financial officer, after
evaluating the effectiveness of the Companys disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)) as of the date of this report, have concluded that the Companys
disclosure controls and procedures were adequate and designed to ensure that
material information relating to the Company and its subsidiaries would be made
known to them by others within those entities.

There were no significant changes in the Companys internal controls or, to the
Companys knowledge, in other factors that could significantly affect the
Companys disclosure controls and procedures during the last fiscal quarter
that have materially affected, or are reasonable likely to materially affect
the internal controls over financial reporting.

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PART II  OTHER INFORMATION




ITEM 1.  LEGAL PROCEEDINGS

The Company is involved in various legal proceedings incidental to its
business. Other than the following two matters, management does not believe
resolution of such litigation will have a material adverse effect on the
financial condition and operating results of the Company.

In One Litigation Matter

The Bank was awarded a $4.2 million judgment in 1997. The Bank prevailed on
this matter in Appeals Court. The Bank expects to collect this judgment, at
least in substantial part, which will have a favorable impact to the Companys
Consolidated Financial Statements. On February 13, 2002, the defendant filed
bankruptcy under Chapter 7 (liquidation). Post-judgment interest accrues from
the date of the judgment to February 13, 2002 and approximates $1.9 million.
However, collectibility of post-judgment interest in addition to the $4.2
million award has not yet been determined.

Bids of approximately $3.3 million for the major assets were approved by the
Bankruptcy Court on October 14, 2002. The net amount to be received by the
Bank after taxes and bankruptcy expenses is not known at this time. However,
it is not likely that the full $4.2 million judgment and post-judgment interest
of $1.9 million will be collected.

It is managements opinion the timing and final amount to be collected cannot
be determined at this time. Accordingly, no recognition of this matter has
been recorded in the Companys Consolidated Financial Statements.

In Another Litigation Matter

During the fourth quarter 1999, the Bank was awarded $1.1 million by a jury
verdict in a legal case where the Bank sought to recover damages from loans
previously charged-off. In 2000, the court entered final judgment for
approximately $1.8 million, which includes accrued interest. This award was
appealed by defendants. This case was heard by the Appeals Court on December
11, 2002. A decision by that court awarding the Bank $1.4 million plus
statutory interest was rendered on October 21, 2003. Payment in the amount of
$2 million for the satisfaction of the judgment in this case was received on
October 30, 2003. This amount has not been recorded in the Companys
Consolidated Financial Statements as of September 30, 2003 because the Appeals
Courts decision was not known and the payment was not received by September
30, 2003.

For further information, please refer to the discussion under the
caption CONTINGENCIES on page 41 of the Corporations Annual Report for
the fiscal year ended December 31, 2002, which is hereby
incorporated herein by reference.




ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

None.




ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.




ITEM 5.  OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



| | a. |  | Exhibits.                                                                                                                                                                                  
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Please see the Exhibit Index attached hereto.                                                                                                                                              
|
| | b. |  | Reports on Form 8-K.
The following is a list of Form 8-Ks that have been filed by LSB
Corporation with the Securities and Exchange Commission during the
quarter ended September 30, 2003:

|              |  |                                                                                                               
|------------- |  | --------------------------------------------------------------------------------------------------------------
|Date Filed    |  | Items reported                                                                                                
|             
|July 21, 2003 |  | LSB Corporations press release announcing the Companys
Earnings for the quarter ended June 30, 2003.        
|             
|July 28, 2003 |  | LSB Corporations press release announcing the Companys
Dividend to shareholders for the third quarter 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| | LSB CORPORATION AND SUBSIDIARY
| | ------------------------------



|November 13, 2003 | /s/ Paul A. Miller

Paul A. Miller
President and
Chief Executive Officer
|----------------- | ------------------------------------------------------------------------





|November 13, 2003 | /s/ John E. Sharland

John E. Sharland
Senior Vice President
Chief Financial Officer
|----------------- | ------------------------------------------------------------------------------------

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LSB CORPORATION AND SUBSIDIARY

Quarterly Report on Form 10-Q For Quarter Ended September 30, 2003

EXHIBIT INDEX

|     |  |                                                                                          |  |     
|---- |  | ---------------------------------------------------------------------------------------- |  | ----
|     |  |                                                                                          |  | Page
|     |  |                                                                                          |  |     
|    
|31.1 |  | Certification of Chief Executive Officer under Section 302 of the                        |  |     
|    
|     |  | Sarbanes-Oxley Act of 2002                                                               |  | 23  
|    
|31.2 |  | Certification of Chief Financial Officer under Section 302 of the                        |  |     
|    
|     |  | Sarbanes-Oxley Act of 2002                                                               |  | 24  
|    
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the |  |     
|    
|     |  | Sarbanes-Oxley Act of 2002                                                               |  | 25  
|    
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the |  |     
|    
|     |  | Sarbanes-Oxley Act of 2002                                                               |  | 26  

22