##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20529
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2007
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 000-32955
 
 LSB Corporation
  
 Massachusetts
    
    04-3557612(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)30 Massachusetts Avenue, North Andover, MA
(Address of principal executive offices)
    
    01845
(Zip Code)
 (978) 725-7500
 
 þ o
  o o þ
  o þ
  Class
    
    Outstanding as of November 8, 2007Common Stock, par value $.10 per share
    
    4,516,561 shares




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##### 



PART I  FINANCIAL INFORMATION
 Page:ITEM 1
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-9ITEM 2
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    10-21ITEM 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    21ITEM 4
    
    CONTROLS AND PROCEDURES
    
    
    21PART II  OTHER INFORMATIONITEM 1
    
    LEGAL PROCEEDINGS
    
    
    22ITEM 1A
    
    RISK FACTORS
    
    
    22ITEM 2
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22ITEM 3
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    22ITEM 4
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22ITEM 5
    
    OTHER INFORMATION
    
    
    23ITEM 6
    
    EXHIBITS
    
    
    23SIGNATURES
    
    
    
    
    24EXHIBIT INDEX
    
    
    25EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
  2




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##### Table of Contents



PART 1   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 
 September 30,
    
    
    December 31,2007
    
    
    2006(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    7,651
    
    
    $
    6,896Federal funds sold
    
    
    10,294
    
    
    
    11,871Total cash and cash equivalents
    
    
    17,945
    
    
    
    18,767Investment securities available for sale (amortized cost of
$217,725 in 2007 and $221,652 in 2006)
    
    
    215,747
    
    
    
    218,682Federal Home Loan Bank stock, at cost
    
    
    10,185
    
    
    
    10,046Loans, net of allowance for loan losses
    
    
    344,543
    
    
    
    283,854Premises and equipment
    
    
    3,372
    
    
    
    3,807Accrued interest receivable
    
    
    2,604
    
    
    
    2,259Deferred income tax asset, net
    
    
    3,403
    
    
    
    3,606Bank-owned life insurance
    
    
    10,103
    
    
    
    Other assets
    
    
    1,235
    
    
    
    1,944Total assets
    
    $
    609,137
    
    
    $
    542,965LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits
    
    $
    326,617
    
    
    $
    295,662Borrowed funds
    
    
    219,649
    
    
    
    184,782Advance payments by borrowers for taxes and insurance
    
    
    734
    
    
    
    586Other liabilities
    
    
    3,233
    
    
    
    3,404Total liabilities
    
    
    550,233
    
    
    
    484,434Stockholders equity:Preferred
stock, $.10 par value per share: 5,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,550,961 and 4,593,617 shares issued and outstanding at
September 30, 2007 and December 31, 2006, respectively
    
    
    456
    
    
    
    459Additional paid-in capital
    
    
    60,830
    
    
    
    61,578Accumulated deficit
    
    
    (1,392
    )
    
    
    (2,090
    )Accumulated other comprehensive loss, net of tax
    
    
    (990
    )
    
    
    (1,416
    )Total stockholders equity
    
    
    58,904
    
    
    
    58,531Total liabilities and stockholders equity
    
    $
    609,137
    
    
    $
    542,965
  3




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except share data)Interest and dividend income:Loans
    
    $
    6,209
    
    
    $
    4,568
    
    
    $
    17,215
    
    
    $
    12,794Investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,925Investment securities available for sale
    
    
    2,562
    
    
    
    2,631
    
    
    
    7,522
    
    
    
    5,805Federal Home Loan Bank stock
    
    
    163
    
    
    
    273
    
    
    
    490
    
    
    
    404Short-term interest income
    
    
    166
    
    
    
    81
    
    
    
    477
    
    
    
    207Total interest and dividend income
    
    
    9,100
    
    
    
    7,553
    
    
    
    25,704
    
    
    
    21,135Interest expense:Deposits
    
    
    2,697
    
    
    
    1,990
    
    
    
    7,321
    
    
    
    5,238Borrowed funds
    
    
    2,565
    
    
    
    1,934
    
    
    
    6,928
    
    
    
    5,670Total interest expense
    
    
    5,262
    
    
    
    3,924
    
    
    
    14,249
    
    
    
    10,908Net interest income
    
    
    3,838
    
    
    
    3,629
    
    
    
    11,455
    
    
    
    10,227Provision for loan losses
    
    
    250
    
    
    
    30
    
    
    
    465
    
    
    
    60Net interest income after provision for loan losses
    
    
    3,588
    
    
    
    3,599
    
    
    
    10,990
    
    
    
    10,167Non-interest income (loss):Settlement gains on pension plan
    
    
    357
    
    
    
    
    
    
    
    357
    
    
    
    Deposit account fees
    
    
    308
    
    
    
    188
    
    
    
    745
    
    
    
    586Loan servicing fees, net
    
    
    45
    
    
    
    24
    
    
    
    159
    
    
    
    66Gain on sales of mortgage loans, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Loss on sales of investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,417
    )Other income
    
    
    215
    
    
    
    115
    
    
    
    452
    
    
    
    341Total non-interest income (loss)
    
    
    925
    
    
    
    327
    
    
    
    1,713
    
    
    
    (1,418
    )Non-interest expense:Salaries and employee benefits
    
    
    1,718
    
    
    
    1,656
    
    
    
    5,098
    
    
    
    5,660Occupancy and equipment expense
    
    
    333
    
    
    
    263
    
    
    
    922
    
    
    
    1,087Data processing expense
    
    
    236
    
    
    
    250
    
    
    
    761
    
    
    
    745Marketing expense
    
    
    100
    
    
    
    18
    
    
    
    320
    
    
    
    473Professional expense
    
    
    127
    
    
    
    113
    
    
    
    347
    
    
    
    464Other expense
    
    
    390
    
    
    
    345
    
    
    
    1,187
    
    
    
    1,588Total non-interest expense
    
    
    2,904
    
    
    
    2,645
    
    
    
    8,635
    
    
    
    10,017Income (loss) before income tax expense (benefit)
    
    
    1,609
    
    
    
    1,281
    
    
    
    4,068
    
    
    
    (1,268
    )Income tax expense (benefit)
    
    
    577
    
    
    
    473
    
    
    
    1,440
    
    
    
    (394
    )Net income (loss)
    
    $
    1,032
    
    
    $
    808
    
    
    $
    2,628
    
    
    $
    (874
    )Average shares outstanding
    
    
    4,573,371
    
    
    
    4,559,260
    
    
    
    4,591,186
    
    
    
    4,531,934Common stock equivalents
    
    
    25,958
    
    
    
    38,123
    
    
    
    28,230
    
    
    
    49,256Average diluted shares outstanding
    
    
    4,599,329
    
    
    
    4,597,383
    
    
    
    4,619,416
    
    
    
    4,581,190Basic earnings per share
    
    $
    0.23
    
    
    $
    0.18
    
    
    $
    0.57
    
    
    $
    (0.19
    )Diluted earnings per share
    
    $
    0.22
    
    
    $
    0.18
    
    
    $
    0.57
    
    
    $
    (0.19
    )
  4




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##### Table of Contents



(Accumulated
    
    
    AccumulatedAdditional
    
    
    Deficit)/
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2005
    
    $
    446
    
    
    $
    59,856
    
    
    $
    326
    
    
    $
    (706
    )
    
    $
    59,922Net income
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    126Other comprehensive loss:Unrealized loss on securities
available for sale, net (tax effect $619)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,160
    )
    
    
    (1,160
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,034
    )Stock-based compensation
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    400Exercise of stock options
and tax benefit
    
    
    13
    
    
    
    1,322
    
    
    
    
    
    
    
    
    
    
    
    1,335Adjustment to initially apply
SFAS No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    450Dividends declared and paid
($0.56 per share)
    
    
    
    
    
    
    
    
    
    
    (2,542
    )
    
    
    
    
    
    
    (2,542
    )Balance at December 31, 2006
    
    $
    459
    
    
    $
    61,578
    
    
    $
    (2,090
    )
    
    $
    (1,416
    )
    
    $
    58,531
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity(In thousands, except per share data)Balance at December 31, 2006
    
    $
    459
    
    
    $
    61,578
    
    
    $
    (2,090
    )
    
    $
    (1,416
    )
    
    $
    58,531Net income
    
    
    
    
    
    
    
    
    
    
    2,628
    
    
    
    
    
    
    
    2,628Other comprehensive income:Unrealized loss on securities
available for sale, net (tax
effect $355)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    637
    
    
    
    637Pension plan settlement gain,
net (tax effect $146)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )
    
    
    (211
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,054Stock-based compensation
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    27Common stock repurchased
    
    
    (5
    )
    
    
    (912
    )
    
    
    
    
    
    
    
    
    
    
    (917
    )Exercise of stock options
and tax benefit
    
    
    2
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    139Dividends declared and paid
($0.42 per share)
    
    
    
    
    
    
    
    
    
    
    (1,930
    )
    
    
    
    
    
    
    (1,930
    )Balance at September 30, 2007
    
    $
    456
    
    
    $
    60,830
    
    
    $
    (1,392
    )
    
    $
    (990
    )
    
    $
    58,904
  5




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##### Table of Contents



Nine months ended September 30,2007
    
    
    2006(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    2,628
    
    
    $
    (874
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Provision for loan losses
    
    
    465
    
    
    
    60Gains on sales of mortgage loans, net
    
    
    
    
    
    
    (6
    )Losses on sales of investment securities
    
    
    
    
    
    
    2,417Settlement gains on pension
    
    
    (357
    )
    
    
    Net amortization (accretion) of investment securities
    
    
    (103
    )
    
    
    577Depreciation and amortization of premises and equipment
    
    
    456
    
    
    
    496Loans originated for sale
    
    
    
    
    
    
    (1,043
    )Proceeds from sales of mortgage loans
    
    
    
    
    
    
    1,521(Increase) decrease in accrued interest receivable
    
    
    (345
    )
    
    
    168Deferred income tax benefit
    
    
    (6
    )
    
    
    (296
    )Stock-based compensation
    
    
    27
    
    
    
    95Increase in cash surrender value on Bank-owned life insurance
    
    
    (103
    )
    
    
    Decrease (increase) in other assets
    
    
    709
    
    
    
    (337
    )Decrease in other liabilities
    
    
    (171
    )
    
    
    (255
    )Net cash provided by operating activities
    
    
    3,200
    
    
    
    2,523Cash flows from investing activities:Proceeds from maturities of investment securities held to maturity
    
    
    
    
    
    
    2,900Proceeds from maturities of investment securities available for sale
    
    
    11,500
    
    
    
    11,500Sales of investment securities available for sale
    
    
    
    
    
    
    78,457Purchases of investment securities available for sale
    
    
    (27,737
    )
    
    
    (83,810
    )Purchases of other equity securities available for sale
    
    
    
    
    
    
    (107
    )Purchases of Bank-owned life insurance
    
    
    (10,000
    )
    
    
    Redemption of FHLB stock
    
    
    65
    
    
    
    750Purchase FHLB stock
    
    
    (204
    )
    
    
    Principal payments of investment securities held to maturity
    
    
    
    
    
    
    4,680Principal payments of investment securities available for sale
    
    
    20,267
    
    
    
    12,922Increase in loans, net
    
    
    (61,154
    )
    
    
    (30,419
    )Purchases of premises and equipment
    
    
    (21
    )
    
    
    (910
    )Net cash provided by (used in) investing activities
    
    
    (67,284
    )
    
    
    (4,037
    )Cash flows from financing activities:Net increase (decrease) in deposits
    
    
    30,955
    
    
    
    (1,277
    )Additions to Federal Home Loan Bank advances
    
    
    134,000
    
    
    
    37,000Payments on Federal Home Loan Bank advances
    
    
    (89,105
    )
    
    
    (55,308
    )Net increase in agreements to repurchase securities
    
    
    25,972
    
    
    
    1,305Net (decrease) increase in other borrowed funds
    
    
    (36,000
    )
    
    
    21,000Increase in advance payments by borrowers
    
    
    148
    
    
    
    130Dividends paid
    
    
    (1,930
    )
    
    
    (1,901
    )Proceeds from exercise of stock options
    
    
    117
    
    
    
    1,159Tax benefit from exercise of stock options
    
    
    22
    
    
    
    91Common stock repurchased
    
    
    (917
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    63,262
    
    
    
    2,199Net increase in cash and cash equivalents
    
    
    (822
    )
    
    
    685Cash and cash equivalents, beginning of period
    
    
    18,767
    
    
    
    10,687Cash and cash equivalents, end of period
    
    $
    17,945
    
    
    $
    11,372Cash paid during the period for:Interest on deposits
    
    $
    7,321
    
    
    $
    5,233Interest on borrowed funds
    
    
    6,928
    
    
    
    5,588Income taxes
    
    
    1,440
    
    
    
    906
  6




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7




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2007Weighted
    
    Wtd. Avg.Average
    
    RemainingOption
    
    Exercise
    
    ContractualShares
    
    Price ($)
    
    Term (years)Balance, January 1
    
    
    244,900
    
    
    $
    14.07
    
    
    
    5.4Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (13,300
    )
    
    $
    8.76
    
    
    
    2.1Forfeited
    
    
    (2,000
    )
    
    $
    16.41
    
    
    
    6.5Expired
    
    
    (6,500
    )
    
    $
    16.77
    
    
    
    0.0Balance, September 30
    
    
    223,100
    
    
    $
    14.29
    
    
    
    5.7Options exercisable at September 30
    
    
    202,600
    
    
    $
    14.11
    
    
    
    5.6Weighted average grant date fair
value of options granted
    
    
    n/a
    
    
    
    n/a
   Nonvested Shares Issued Under the PlansStock Awards
    
    Stock OptionsWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageGrant Date
    
    
    
    
    
    Grant DateShares
    
    Fair Value
    
    Shares
    
    Fair ValueNonvested at January 1, 2007
    
    
    
    
    
    $
    
    
    
    
    35,575
    
    
    $
    16.59Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    
    
    
    
    (14,075
    )
    
    $
    16.77Forfeited
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    $
    16.41Nonvested at September 30, 2007
    
    
    
    
    
    $
    
    
    
    
    20,500
    
    
    $
    16.48
    8




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9




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  Critical Accounting Policies & Estimates
  EXECUTIVE LEVEL OVERVIEW
    10




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FINANCIAL CONDITION
 SUMMARY
  Investments:
    11




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##### Table of Contents



9/30/07
    
    
    12/31/06Amortized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Investment securities
available for sale:U.S. treasury obligations
    
    $
    5,594
    
    
    $
    3
    
    
    $
    (253
    )
    
    $
    5,344
    
    
    $
    5,605
    
    
    $
    
    
    
    $
    (391
    )
    
    $
    5,214Federal agency bonds
    
    
    653
    
    
    
    7
    
    
    
    (2
    )
    
    
    658
    
    
    
    839
    
    
    
    10
    
    
    
    (2
    )
    
    
    847Government-sponsored entities
    
    
    24,834
    
    
    
    22
    
    
    
    (137
    )
    
    
    24,719
    
    
    
    34,871
    
    
    
    4
    
    
    
    (532
    )
    
    
    34,343U.S. treasury and Government
sponsored entities
    
    
    31,081
    
    
    
    32
    
    
    
    (392
    )
    
    
    30,721
    
    
    
    41,315
    
    
    
    14
    
    
    
    (925
    )
    
    
    40,404Mortgage-backed securities
    
    
    113,942
    
    
    
    554
    
    
    
    (1,109
    )
    
    
    113,387
    
    
    
    98,608
    
    
    
    606
    
    
    
    (1,316
    )
    
    
    97,898Collateralized mortgage obligations
    
    
    64,831
    
    
    
    98
    
    
    
    (1,017
    )
    
    
    63,912
    
    
    
    72,899
    
    
    
    73
    
    
    
    (1,417
    )
    
    
    71,555Collateralized mortgage obligations
and mortgage-backed securities
    
    
    178,773
    
    
    
    652
    
    
    
    (2,126
    )
    
    
    177,299
    
    
    
    171,507
    
    
    
    679
    
    
    
    (2,733
    )
    
    
    169,453Corporate obligations
    
    
    6,359
    
    
    
    43
    
    
    
    (131
    )
    
    
    6,271
    
    
    
    7,316
    
    
    
    50
    
    
    
    (2
    )
    
    
    7,364Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (56
    )
    
    
    944
    
    
    
    1,000
    
    
    
    
    
    
    
    (53
    )
    
    
    947Equity securities
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    512
    
    
    
    514
    
    
    
    
    
    
    
    
    
    
    
    514Corporate and other investment
securities
    
    
    7,871
    
    
    
    43
    
    
    
    (187
    )
    
    
    7,727
    
    
    
    8,830
    
    
    
    50
    
    
    
    (55
    )
    
    
    8,825Total investment securities
available for sale
    
    $
    217,725
    
    
    $
    727
    
    
    $
    (2,705
    )
    
    $
    215,747
    
    
    $
    221,652
    
    
    $
    743
    
    
    $
    (3,713
    )
    
    $
    218,682
 Loans:
   9/30/07
    
    
    12/31/06(In thousands)Residential mortgage loans
    
    $
    76,223
    
    
    $
    69,876Home equity lines and loans
    
    
    21,734
    
    
    
    20,339Consumer loans
    
    
    1,038
    
    
    
    975Total retail loans
    
    
    98,995
    
    
    
    91,190Construction loans
    
    
    54,020
    
    
    
    43,283Commercial real estate loans
    
    
    168,227
    
    
    
    142,820Commercial loans
    
    
    28,064
    
    
    
    10,870Total corporate loans
    
    
    250,311
    
    
    
    196,973Total loans
    
    
    349,306
    
    
    
    288,163Allowance for loan losses
    
    
    (4,763
    )
    
    
    (4,309
    )Total loans, net
    
    $
    344,543
    
    
    $
    283,854
 12




---



##### Table of Contents



Allowance For Loan Losses:
  Three months ended
    
    
    Nine months ended9/30/07
    
    
    9/30/06
    
    
    9/30/07
    
    
    9/30/06(In thousands)Beginning balance
    
    $
    4,517
    
    
    $
    4,184
    
    
    $
    4,309
    
    
    $
    4,126Provision charged to operations
    
    
    250
    
    
    
    30
    
    
    
    465
    
    
    
    60Recoveries on loans previously charged-off
    
    
    3
    
    
    
    9
    
    
    
    10
    
    
    
    49Loans charged-off
    
    
    (7
    )
    
    
    (9
    )
    
    
    (21
    )
    
    
    (21
    )Ending balance
    
    $
    4,763
    
    
    $
    4,214
    
    
    $
    4,763
    
    
    $
    4,214
   Risk Assets:
    9/30/07
    
    
    12/31/06
    
    
    9/30/06(Dollars in thousands)Non-performing loans
    
    $
    343
    
    
    $
    1,057
    
    
    $
    1,142Other real estate owned
    
    
    
    
    
    
    
    
    
    
    Total risk assets
    
    $
    343
    
    
    $
    1,057
    
    
    $
    1,142Risk assets as a percent of total loans
    
    
    0.10
    %
    
    
    0.37
    %
    
    
    0.43
    %Risk assets as a percent of total assets
    
    
    0.06
    %
    
    
    0.19
    %
    
    
    0.22
    %
 13




---



##### Table of Contents



Deposits:
   9/30/07
    
    
    12/31/06(In thousands)NOW and super NOW accounts
    
    $
    17,875
    
    
    $
    17,707Demand deposit accounts
    
    
    30,290
    
    
    
    31,424Savings accounts
    
    
    29,364
    
    
    
    33,676Money market accounts
    
    
    75,476
    
    
    
    73,163Brokered certificates of deposit
    
    
    5,461
    
    
    
    Certificates of deposit
    
    
    168,151
    
    
    
    139,692Total deposits
    
    $
    326,617
    
    
    $
    295,662
 Borrowings:
   9/30/07
    
    
    12/31/06(In thousands)FHLB long-term advances
    
    $
    188,414
    
    
    $
    143,519FHLB short-term borrowings
    
    
    
    
    
    
    36,000Brokered repurchase agreements
    
    
    25,000
    
    
    
    Customer repurchase agreements
    
    
    6,235
    
    
    
    5,263Total borrowings
    
    $
    219,649
    
    
    $
    184,782
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 SUMMARY
  14




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##### Table of Contents



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




---



##### Table of Contents



Three months ended
    
    
    Three months ended9/30/07
    
    
    9/30/06Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    12,895
    
    
    $
    166
    
    
    
    5.11
    %
    
    $
    6,010
    
    
    $
    81
    
    
    
    5.35
    %U. S. treasury and Government-
sponsored entities
    
    
    32,552
    
    
    
    330
    
    
    
    4.02
    
    
    
    44,731
    
    
    
    428
    
    
    
    3.80Corporate and other
investment securities
    
    
    18,730
    
    
    
    281
    
    
    
    5.95
    
    
    
    18,085
    
    
    
    388
    
    
    
    8.51Collateralized mortgage
obligations and mortgage-backed securities
    
    
    169,657
    
    
    
    2,114
    
    
    
    4.94
    
    
    
    176,111
    
    
    
    2,088
    
    
    
    4.70Total investment securities
    
    
    233,834
    
    
    
    2,891
    
    
    
    4.91
    
    
    
    244,937
    
    
    
    2,985
    
    
    
    4.83Loans:Residential real estate
    
    
    72,939
    
    
    
    1,036
    
    
    
    5.64
    
    
    
    66,345
    
    
    
    911
    
    
    
    5.45Equity
    
    
    21,284
    
    
    
    349
    
    
    
    6.51
    
    
    
    15,786
    
    
    
    243
    
    
    
    6.11Consumer
    
    
    880
    
    
    
    14
    
    
    
    6.31
    
    
    
    812
    
    
    
    12
    
    
    
    5.86Total retail loans
    
    
    95,103
    
    
    
    1,399
    
    
    
    5.84
    
    
    
    82,943
    
    
    
    1,166
    
    
    
    5.58Construction
    
    
    54,220
    
    
    
    1,251
    
    
    
    9.15
    
    
    
    33,411
    
    
    
    800
    
    
    
    9.50Commercial real estate
    
    
    164,283
    
    
    
    3,062
    
    
    
    7.39
    
    
    
    132,606
    
    
    
    2,414
    
    
    
    7.22Commercial
    
    
    25,948
    
    
    
    497
    
    
    
    7.60
    
    
    
    9,025
    
    
    
    188
    
    
    
    8.26Total corporate loans
    
    
    244,451
    
    
    
    4,810
    
    
    
    7.81
    
    
    
    175,042
    
    
    
    3,402
    
    
    
    7.71Total loans
    
    
    339,554
    
    
    
    6,209
    
    
    
    7.25
    
    
    
    257,985
    
    
    
    4,568
    
    
    
    7.02Total interest-earning assets
    
    
    573,388
    
    
    
    9,100
    
    
    
    6.30
    %
    
    
    502,922
    
    
    
    7,553
    
    
    
    5.96
    %Allowance for loan losses
    
    
    (4,546
    )
    
    
    
    
    
    
    
    
    
    
    (4,200
    )Other assets
    
    
    26,368
    
    
    
    
    
    
    
    
    
    
    
    18,871Total assets
    
    $
    595,210
    
    
    
    
    
    
    
    
    
    
    $
    517,593Liabilities and Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    17,571
    
    
    $
    8
    
    
    
    0.18
    %
    
    $
    22,200
    
    
    $
    8
    
    
    
    0.14
    %Regular savings accounts
    
    
    30,234
    
    
    
    38
    
    
    
    0.50
    
    
    
    36,995
    
    
    
    46
    
    
    
    0.49Money market investment
accounts
    
    
    74,512
    
    
    
    584
    
    
    
    3.11
    
    
    
    75,856
    
    
    
    552
    
    
    
    2.89Certificates of deposit
and escrow
    
    
    168,040
    
    
    
    2,067
    
    
    
    4.88
    
    
    
    139,678
    
    
    
    1,384
    
    
    
    3.93Total interest-bearing deposits
    
    
    290,357
    
    
    
    2,697
    
    
    
    3.69
    
    
    
    274,729
    
    
    
    1,990
    
    
    
    2.87Borrowed funds:Short-term borrowed funds
    
    
    23,033
    
    
    
    269
    
    
    
    4.63
    
    
    
    57,694
    
    
    
    762
    
    
    
    5.24Long-term FHLB advances
    
    
    191,426
    
    
    
    2,296
    
    
    
    4.76
    
    
    
    96,631
    
    
    
    1,172
    
    
    
    4.81Total borrowed funds
    
    
    214,459
    
    
    
    2,565
    
    
    
    4.75
    
    
    
    154,325
    
    
    
    1,934
    
    
    
    4.97Total interest-bearing liabilities
    
    
    504,816
    
    
    
    5,262
    
    
    
    4.14
    %
    
    
    429,054
    
    
    
    3,924
    
    
    
    3.63
    %Non-interest-bearing deposits
    
    
    29,561
    
    
    
    
    
    
    
    
    
    
    
    28,524Other liabilities
    
    
    2,844
    
    
    
    
    
    
    
    
    
    
    
    4,994Total liabilities
    
    
    537,221
    
    
    
    
    
    
    
    
    
    
    
    462,572Stockholders equity
    
    
    57,989
    
    
    
    
    
    
    
    
    
    
    
    55,021Total liabilities and
stockholders equity
    
    $
    595,210
    
    
    
    
    
    
    
    
    
    
    $
    517,593Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.16
    %
    
    
    
    
    
    
    
    
    
    
    2.33
    %Net interest income
    
    
    
    
    
    $
    3,838
    
    
    
    
    
    
    
    
    
    
    $
    3,629Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.66
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
 16




---



##### Table of Contents



Non-Interest Income:
  Non-Interest Expense:
  Income Taxes:
  NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 SUMMARY
  Net Interest Income From Operations:
  17




---



##### Table of Contents



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




---



##### Table of Contents



Nine months ended
    
    
    Nine months ended9/30/07
    
    
    9/30/06Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)ASSETSInvestment securities:Short term investments
    
    $
    12,248
    
    
    $
    477
    
    
    
    5.21
    %
    
    $
    5,456
    
    
    $
    207
    
    
    
    5.07
    %U. S. Treasury and Government-
sponsored entities
    
    
    36,855
    
    
    
    1,093
    
    
    
    3.97
    
    
    
    75,939
    
    
    
    1,908
    
    
    
    3.36Corporate and municipal bonds
and other securities
    
    
    18,822
    
    
    
    832
    
    
    
    5.91
    
    
    
    22,957
    
    
    
    779
    
    
    
    4.54Collateralized mortgage obligations and
mortgage-backed securities
    
    
    166,118
    
    
    
    6,087
    
    
    
    4.90
    
    
    
    160,883
    
    
    
    5,447
    
    
    
    4.53Total investment securities
    
    
    234,043
    
    
    
    8,489
    
    
    
    4.85
    
    
    
    265,235
    
    
    
    8,341
    
    
    
    4.20Loans:Residential real estate
    
    
    71,567
    
    
    
    3,024
    
    
    
    5.65
    
    
    
    64,501
    
    
    
    2,607
    
    
    
    5.40Equity
    
    
    20,506
    
    
    
    979
    
    
    
    6.38
    
    
    
    12,521
    
    
    
    576
    
    
    
    6.15Consumer
    
    
    880
    
    
    
    44
    
    
    
    6.68
    
    
    
    632
    
    
    
    29
    
    
    
    6.13Total retail loans
    
    
    92,953
    
    
    
    4,047
    
    
    
    5.82
    
    
    
    77,654
    
    
    
    3,212
    
    
    
    5.53Construction
    
    
    51,247
    
    
    
    3,554
    
    
    
    9.27
    
    
    
    31,182
    
    
    
    2,124
    
    
    
    9.11Commercial real estate
    
    
    153,972
    
    
    
    8,463
    
    
    
    7.35
    
    
    
    129,577
    
    
    
    6,932
    
    
    
    7.15Commercial
    
    
    19,380
    
    
    
    1,151
    
    
    
    7.94
    
    
    
    8,780
    
    
    
    526
    
    
    
    8.01Total corporate loans
    
    
    224,599
    
    
    
    13,168
    
    
    
    7.84
    
    
    
    169,539
    
    
    
    9,582
    
    
    
    7.56Total loans
    
    
    317,552
    
    
    
    17,215
    
    
    
    7.25
    
    
    
    247,193
    
    
    
    12,794
    
    
    
    6.92Total interest-earning assets
    
    
    551,595
    
    
    
    25,704
    
    
    
    6.23
    %
    
    
    512,428
    
    
    
    21,135
    
    
    
    5.51
    %Allowance for loan losses
    
    
    (4,425
    )
    
    
    
    
    
    
    
    
    
    
    (4,174
    )Other assets
    
    
    19,835
    
    
    
    
    
    
    
    
    
    
    
    19,410Total assets
    
    $
    567,005
    
    
    
    
    
    
    
    
    
    
    $
    527,664Liabilities and Stockholders EquityDeposits:NOW and Super NOW accounts
    
    $
    17,973
    
    
    $
    25
    
    
    
    0.19
    %
    
    $
    31,325
    
    
    $
    30
    
    
    
    0.13
    %Regular savings accounts
    
    
    31,649
    
    
    
    118
    
    
    
    0.50
    
    
    
    39,123
    
    
    
    146
    
    
    
    0.50Money market investment
accounts
    
    
    73,926
    
    
    
    1,666
    
    
    
    3.01
    
    
    
    78,254
    
    
    
    1,425
    
    
    
    2.43Certificates of deposit
and escrow
    
    
    155,746
    
    
    
    5,512
    
    
    
    4.73
    
    
    
    133,105
    
    
    
    3,637
    
    
    
    3.65Total interest bearing deposits
    
    
    279,294
    
    
    
    7,321
    
    
    
    3.50
    
    
    
    281,807
    
    
    
    5,238
    
    
    
    2.49Borrowed funds:Short-term borrowed funds
    
    
    23,403
    
    
    
    850
    
    
    
    4.86
    
    
    
    49,916
    
    
    
    1,838
    
    
    
    4.92Long-term FHLB Advances
    
    
    173,435
    
    
    
    6,078
    
    
    
    4.69
    
    
    
    112,986
    
    
    
    3,832
    
    
    
    4.53Total borrowed funds
    
    
    196,838
    
    
    
    6,928
    
    
    
    4.71
    
    
    
    162,902
    
    
    
    5,670
    
    
    
    4.65Total-interest bearing liabilities
    
    
    476,132
    
    
    
    14,249
    
    
    
    4.00
    %
    
    
    444,709
    
    
    
    10,908
    
    
    
    3.28
    %Non-interest bearing deposits
    
    
    29,487
    
    
    
    
    
    
    
    
    
    
    
    21,108Other liabilities
    
    
    3,139
    
    
    
    
    
    
    
    
    
    
    
    4,661Total liabilities
    
    
    508,758
    
    
    
    
    
    
    
    
    
    
    
    470,478Stockholders equity
    
    
    58,247
    
    
    
    
    
    
    
    
    
    
    
    57,186Total liabilities and
stockholders equity
    
    $
    567,005
    
    
    
    
    
    
    
    
    
    
    $
    527,664Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.23
    %
    
    
    
    
    
    
    
    
    
    
    2.23
    %Net interest income
    
    
    
    
    
    $
    11,455
    
    
    
    
    
    
    
    
    
    
    $
    10,227Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.78
    %
    
    
    
    
    
    
    
    
    
    
    2.67
    %
 19




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##### Table of Contents



Non-Interest Expense:
  Income Taxes:
  LIQUIDITY AND CAPITAL RESOURCES:
    20




---



##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
   21




---



##### Table of Contents



PART II  OTHER INFORMATION
 
   
   
  (a)
    
    None.(b)
    
    None.(c)
    
    The following table sets forth information with respect to any purchase made by or on
behalf of LSB Corporation or any affiliated purchaser, as defined in 204.10b-18(a)(3)
under the Securities Exchange Act of 1934, of shares of LSB Corporation common stock during
the indicated periods:
 Issuer Purchases of Equity SecuritiesTotal number of shares
    
    
    Maximum number ofWeighted
    
    
    purchased as part of
    
    
    shares that may yet beTotal number of
    
    
    Average price paid
    
    
    publicly announced
    
    
    purchased under the2007
    
    Shares purchased
    
    
    per share
    
    
    plans or programs
    
    
    plans or program (1)April 1  April 30
    
    NoneMay 1  May 31
    
    NoneJune 1  June 30
    
    
    9,300
    
    
    $
    16.56
    
    
    
    9,300
    
    
    
    220,700TotalSecond quarter
    
    
    9,300
    
    
    $
    16.56
    
    
    
    9,300
    
    
    
    220,700July 1  July 31
    
    
    10,700
    
    
    $
    16.62
    
    
    
    10,700
    
    
    
    210,000Aug. 1  Aug. 31
    
    
    29,856
    
    
    $
    16.30
    
    
    
    29,856
    
    
    
    180,144Sept. 1  Sept. 30
    
    
    6,100
    
    
    $
    16.14
    
    
    
    6,100
    
    
    
    174,044TotalThird quarter
    
    
    46,656
    
    
    $
    16.35
    
    
    
    46,656
    
    
    
    174,044Total year-to-date
    
    
    55,956
    
    
    $
    16.39
    
    
    
    55,956
    
    
    
    174,044
 
 (1)
    
    On April 26, 2007, the Company announced a common stock repurchase program to repurchase up to
230,000 shares. The Company has placed no deadline on the duration of the repurchase program.
There were no shares purchased other than through this publicly announced plan or program. 
   
   22




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##### Table of Contents



(a)
    
    None(b)
    
    None
 
  Number
    
    Description31.1
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.32.3
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.
 23




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##### Table of Contents



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




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##### Table of Contents



LSB CORPORATION AND SUBSIDIARY
 
 EXHIBIT INDEX
 31.1
    
    Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
 25