##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2010
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 000-32955
 
 LSB Corporation
  
 Massachusetts
(State or other jurisdiction of 
incorporation or organization)
    
    04-3557612
(I.R.S. Employer
Identification Number)30 Massachusetts Avenue, North Andover, MA
(Address of principal executive offices)
    
    01845
(Zip Code)
 
 (978) 725-7500
 
  þ o
  o o
  Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company þ  o þ
  Class
    
    Outstanding as of November 10, 2010Common Stock, par value $.10 per share
    
    4,506,686 shares




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##### 



Page:PART I  FINANCIAL INFORMATIONITEM 1
    
    FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Changes in Stockholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7-12ITEM 2
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    12-24ITEM 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    24ITEM 4
    
    CONTROLS AND PROCEDURES
    
    
    25PART II  OTHER INFORMATIONITEM 1
    
    LEGAL PROCEEDINGS
    
    
    25ITEM 1A
    
    RISK FACTORS
    
    
    26ITEM 6
    
    EXHIBITS
    
    
    26-27SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART 1   FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 
 
 September 30,
    
    
    December 31,2010
    
    
    2009(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    7,908
    
    
    $
    8,615Federal funds sold
    
    
    24,619
    
    
    
    6,597Total cash and cash equivalents
    
    
    32,527
    
    
    
    15,212Investment securities available for sale, at fair value,
amortized cost of $163,961 in 2010 and $224,130 in 2009
    
    
    170,954
    
    
    
    230,533Federal Home Loan Bank stock, at cost
    
    
    11,825
    
    
    
    11,825Loans, net of allowance for loan losses
of $7,075 in 2010 and $7,168 in 2009
    
    
    532,175
    
    
    
    529,451Premises and equipment
    
    
    8,604
    
    
    
    7,209Accrued interest receivable
    
    
    2,469
    
    
    
    2,727Deferred income tax asset, net
    
    
    4,195
    
    
    
    4,315Bank-owned life insurance
    
    
    11,466
    
    
    
    11,120Other real estate owned
    
    
    2,432
    
    
    
    Prepaid FDIC insurance
    
    
    2,484
    
    
    
    3,069Other assets
    
    
    1,221
    
    
    
    1,137Total assets
    
    $
    780,352
    
    
    $
    816,598LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Core deposits
    
    $
    262,683
    
    
    $
    252,389Retail term deposits
    
    
    197,510
    
    
    
    211,061Brokered term deposits
    
    
    14,950
    
    
    
    29,344Total deposits
    
    
    475,143
    
    
    
    492,794Long-term borrowed funds
    
    
    221,847
    
    
    
    245,971Short-term borrowed funds
    
    
    7,730
    
    
    
    7,111Subordinated debt
    
    
    6,000
    
    
    
    6,000Mortgagors escrow accounts
    
    
    949
    
    
    
    776Other liabilities
    
    
    4,673
    
    
    
    3,426Total liabilities
    
    
    716,342
    
    
    
    756,078Stockholders equity:Preferred stock, Series A, $.10 par value per share:
5,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,506,686 shares issued and outstanding at
September 30, 2010 and December 31, 2009, respectively
    
    
    451
    
    
    
    451Additional paid-in capital
    
    
    60,004
    
    
    
    60,004Accumulated deficit
    
    
    (645
    )
    
    
    (3,802
    )Accumulated other comprehensive income
    
    
    4,200
    
    
    
    3,867Total stockholders equity
    
    
    64,010
    
    
    
    60,520Total liabilities and stockholders equity
    
    $
    780,352
    
    
    $
    816,598
  3




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except share data)Interest and dividend income:Loans
    
    $
    7,921
    
    
    $
    7,462
    
    
    $
    23,489
    
    
    $
    21,216Investment securities available for sale
    
    
    1,857
    
    
    
    2,795
    
    
    
    6,347
    
    
    
    9,162Short term investments
    
    
    8
    
    
    
    11
    
    
    
    22
    
    
    
    22Total interest and dividend income
    
    
    9,786
    
    
    
    10,268
    
    
    
    29,858
    
    
    
    30,400Interest expense:Deposits
    
    
    1,828
    
    
    
    2,501
    
    
    
    6,018
    
    
    
    7,746Long-term borrowed funds
    
    
    2,262
    
    
    
    2,721
    
    
    
    7,035
    
    
    
    8,265Short-term borrowed funds
    
    
    4
    
    
    
    4
    
    
    
    12
    
    
    
    47Subordinated debt
    
    
    132
    
    
    
    
    
    
    
    393
    
    
    
    Total interest expense
    
    
    4,226
    
    
    
    5,226
    
    
    
    13,458
    
    
    
    16,058Net interest income
    
    
    5,560
    
    
    
    5,042
    
    
    
    16,400
    
    
    
    14,342Provision for loan losses
    
    
    750
    
    
    
    400
    
    
    
    2,150
    
    
    
    1,100Net interest income, after provision for loan losses
    
    
    4,810
    
    
    
    4,642
    
    
    
    14,250
    
    
    
    13,242Non-interest income:Deposit account fees
    
    
    249
    
    
    
    253
    
    
    
    710
    
    
    
    710Loan servicing fees, net
    
    
    76
    
    
    
    34
    
    
    
    227
    
    
    
    150Gain on sales of securities, net
    
    
    688
    
    
    
    572
    
    
    
    2,064
    
    
    
    1,030Income on bank-owned life insurance
    
    
    116
    
    
    
    115
    
    
    
    346
    
    
    
    364Prepayment penalty on FHLB advances
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    Other income
    
    
    133
    
    
    
    122
    
    
    
    394
    
    
    
    347Total non-interest income
    
    
    1,262
    
    
    
    1,096
    
    
    
    3,592
    
    
    
    2,601Non-interest expense:Salaries and employee benefits
    
    
    2,097
    
    
    
    1,643
    
    
    
    5,842
    
    
    
    5,013Occupancy and equipment
    
    
    422
    
    
    
    357
    
    
    
    1,364
    
    
    
    1,077Data processing
    
    
    207
    
    
    
    228
    
    
    
    741
    
    
    
    702Professional
    
    
    71
    
    
    
    113
    
    
    
    312
    
    
    
    450Marketing
    
    
    67
    
    
    
    116
    
    
    
    307
    
    
    
    374Other real estate owned
    
    
    184
    
    
    
    4
    
    
    
    199
    
    
    
    6FDIC deposit insurance
    
    
    201
    
    
    
    262
    
    
    
    612
    
    
    
    1,022Merger expense
    
    
    475
    
    
    
    
    
    
    
    475
    
    
    
    Other
    
    
    501
    
    
    
    544
    
    
    
    1,452
    
    
    
    1,702Total non-interest expense
    
    
    4,225
    
    
    
    3,267
    
    
    
    11,304
    
    
    
    10,346Income before income tax expense
    
    
    1,847
    
    
    
    2,471
    
    
    
    6,538
    
    
    
    5,497Income tax provision
    
    
    708
    
    
    
    910
    
    
    
    2,254
    
    
    
    1,911Net income before preferred stock
dividends and accretion
    
    
    1,139
    
    
    
    1,561
    
    
    
    4,284
    
    
    
    3,586Preferred stock dividends and accretion
    
    
    
    
    
    
    (215
    )
    
    
    
    
    
    
    (588
    )Net income available to common shareholders
    
    $
    1,139
    
    
    $
    1,346
    
    
    $
    4,284
    
    
    $
    2,998Average basic common shares outstanding
    
    
    4,506,686
    
    
    
    4,495,356
    
    
    
    4,506,686
    
    
    
    4,479,316Common stock equivalents
    
    
    42,102
    
    
    
    1,324
    
    
    
    15,853
    
    
    
    1,031Average diluted common shares outstanding
    
    
    4,548,788
    
    
    
    4,496,680
    
    
    
    4,522,539
    
    
    
    4,480,347Basic earnings per share
    
    $
    0.25
    
    
    $
    0.30
    
    
    $
    0.95
    
    
    $
    0.66Diluted earnings per share
    
    $
    0.25
    
    
    $
    0.30
    
    
    $
    0.95
    
    
    $
    0.66
  4




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Equity(In thousands, except share data)Balance at December 31, 2008
    
    $
    14,455
    
    
    $
    447
    
    
    $
    60,179
    
    
    $
    (6,250
    )
    
    $
    3,311
    
    
    $
    72,142Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,037
    
    
    
    
    
    
    
    5,037Other comprehensive income -
Unrealized gain on securities
available for sale
(tax effect $343)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    556
    
    
    
    556Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,593Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    121Exercise of stock options
and tax benefits (28,995 shares)
    
    
    
    
    
    
    4
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    268Common dividends declared and
paid ($0.30 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,344
    )
    
    
    
    
    
    
    (1,344
    )Preferred dividends declared
and paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )
    
    
    
    
    
    
    (700
    )Accretion of discount on
preferred stock
    
    
    545
    
    
    
    
    
    
    
    
    
    
    
    (545
    )
    
    
    
    
    
    
    Redemption of preferred stock
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Repurchase of warrants issued
with preferred stock
    
    
    
    
    
    
    
    
    
    
    (560
    )
    
    
    
    
    
    
    
    
    
    
    (560
    )Balance at December 31, 2009
    
    
    
    
    
    
    451
    
    
    
    60,004
    
    
    
    (3,802
    )
    
    
    3,867
    
    
    
    60,520Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,284
    
    
    
    
    
    
    
    4,284Other comprehensive income -
Unrealized gain on securities
available for sale, net
(tax effect $257)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    333Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,617Dividends declared and paid
($0.25 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,127
    )
    
    
    
    
    
    
    (1,127
    )Balance at September 30, 2010
    
    $
    
    
    
    $
    451
    
    
    $
    60,004
    
    
    $
    (645
    )
    
    $
    4,200
    
    
    $
    64,010
  5




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##### Table of Contents



Nine months ended September 30,2010
    
    
    2009(In thousands)Cash flows from operating activities:Net income
    
    $
    4,284
    
    
    $
    2,998Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    2,150
    
    
    
    1,100Gains on sales of securities
    
    
    (2,064
    )
    
    
    (1,030
    )Net accretion of investment securities
    
    
    (110
    )
    
    
    (528
    )Depreciation and amortization of premises and equipment
    
    
    567
    
    
    
    453Decrease in accrued interest receivable
    
    
    258
    
    
    
    25Deferred income tax (benefit) provision
    
    
    (136
    )
    
    
    132Stock-based compensation
    
    
    
    
    
    
    19Income on bank-owned life insurance
    
    
    (346
    )
    
    
    (364
    )Decrease in other assets and prepaid FDIC Insurance
    
    
    500
    
    
    
    15Increase in other liabilities
    
    
    1,247
    
    
    
    719Net cash provided by operating activities
    
    
    6,350
    
    
    
    3,539Cash flows from investing activities:Proceeds from maturities of investment securities available for sale
    
    
    23,279
    
    
    
    20,367Proceeds from sales of investment securities available for sale
    
    
    42,254
    
    
    
    19,348Purchases of investment securities available for sale
    
    
    (44,943
    )
    
    
    (74,902
    )Principal payments of investment securities available for sale
    
    
    41,753
    
    
    
    64,167Loan originations, net of principal payments
    
    
    (7,603
    )
    
    
    (59,333
    )Loans purchased
    
    
    
    
    
    
    (6,837
    )Proceeds from sales of other real estate owned
    
    
    297
    
    
    
    Purchases of premises and equipment
    
    
    (1,962
    )
    
    
    (1,378
    )Net cash provided by (used in) investing activities
    
    
    53,075
    
    
    
    (38,568
    )Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (17,651
    )
    
    
    62,688Additions to long-term borrowed funds
    
    
    9,000
    
    
    
    Payments on long-term borrowed funds
    
    
    (33,124
    )
    
    
    (10,117
    )Net increase (decrease) in short-term borrowed funds
    
    
    619
    
    
    
    (11,558
    )Increase in mortgagors escrow accounts
    
    
    173
    
    
    
    267Dividends paid to preferred shareholders
    
    
    
    
    
    
    (507
    )Dividends paid to common shareholders
    
    
    (1,127
    )
    
    
    (1,119
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    265Net cash (used in) provided by financing activities
    
    
    (42,110
    )
    
    
    39,919Net increase in cash and cash equivalents
    
    
    17,315
    
    
    
    4,890Cash and cash equivalents, beginning of period
    
    
    15,212
    
    
    
    13,328Cash and cash equivalents, end of period
    
    $
    32,527
    
    
    $
    18,218Cash paid during the period for:Interest on deposits
    
    $
    6,041
    
    
    $
    7,758Interest on borrowed funds
    
    
    7,562
    
    
    
    8,399Income taxes paid
    
    
    1,608
    
    
    
    1,791Supplemental non cash investing and financing activities:Transfers to other real estate owned
    
    $
    2,729
    
    
    
    
  6




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##### Table of Contents



7




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##### Table of Contents



9/30/10
    
    
    12/31/09Amortized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Debt securities:U.S. Treasury obligations
    
    $
    5,544
    
    
    $
    366
    
    
    $
    
    
    
    $
    5,910
    
    
    $
    5,557
    
    
    $
    237
    
    
    $
    
    
    
    $
    5,794Government-sponsored enterprise obligations (1)
    
    
    38,329
    
    
    
    353
    
    
    
    (1
    )
    
    
    38,681
    
    
    
    33,379
    
    
    
    188
    
    
    
    (49
    )
    
    
    33,518Residentialmortgage-backed:U.S. government guaranteed
    
    
    11,270
    
    
    
    611
    
    
    
    
    
    
    
    11,881
    
    
    
    16,037
    
    
    
    483
    
    
    
    
    
    
    
    16,520Government-sponsored enterprises
    
    
    76,313
    
    
    
    4,805
    
    
    
    
    
    
    
    81,118
    
    
    
    118,537
    
    
    
    5,543
    
    
    
    (71
    )
    
    
    124,009Residential collateralized mortgage obligations:U.S. government guaranteed
    
    
    23,106
    
    
    
    764
    
    
    
    
    
    
    
    23,870
    
    
    
    21,965
    
    
    
    94
    
    
    
    (80
    )
    
    
    21,979Government-sponsored enterprises
    
    
    5,942
    
    
    
    86
    
    
    
    
    
    
    
    6,028
    
    
    
    21,283
    
    
    
    389
    
    
    
    
    
    
    
    21,672Private-label
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,415
    
    
    
    93
    
    
    
    
    
    
    
    1,508Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,489
    
    
    
    
    
    
    
    (111
    )
    
    
    2,378Total debt securities
    
    
    160,504
    
    
    
    6,985
    
    
    
    (1
    )
    
    
    167,488
    
    
    
    220,662
    
    
    
    7,027
    
    
    
    (311
    )
    
    
    227,378Equity securities:Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (1
    )
    
    
    999
    
    
    
    1,000
    
    
    
    
    
    
    
    (34
    )
    
    
    966Equity securities
    
    
    2,457
    
    
    
    10
    
    
    
    
    
    
    
    2,467
    
    
    
    2,468
    
    
    
    
    
    
    
    (279
    )
    
    
    2,189Total equity securities
    
    
    3,457
    
    
    
    10
    
    
    
    (1
    )
    
    
    3,466
    
    
    
    3,468
    
    
    
    
    
    
    
    (313
    )
    
    
    3,155Total investment securities
    
    $
    163,961
    
    
    $
    6,995
    
    
    $
    (2
    )
    
    $
    170,954
    
    
    $
    224,130
    
    
    $
    7,027
    
    
    $
    (624
    )
    
    $
    230,533
 (1)
    
    Government-sponsored enterprise obligations include investment securities issued by
government sponsored enterprises (GSEs) such as Federal National Mortgage Association
(FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Bank
(FHLB). These investment securities do not represent obligations of the U.S. Government
and are not backed by the full faith and credit of the Treasury.   Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In thousands)Debt securities:Government-sponsored enterprises
    
    $
    4,008
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,008
    
    
    $
    (1
    )Total debt securities
    
    
    4,008
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    4,008
    
    
    
    (1
    )Equity securities:Mutual funds
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    (1
    )
    
    
    999
    
    
    
    (1
    )Total equity securities
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    (1
    )
    
    
    999
    
    
    
    (1
    )Total temporarily impaired securities
    
    $
    4,008
    
    
    $
    (1
    )
    
    $
    999
    
    
    $
    (1
    )
    
    $
    5,007
    
    
    $
    (2
    )
 8




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##### Table of Contents



Amortized Cost
    
    
    Fair Value(In thousands)Debt securities:Within 1 year
    
    $
    499
    
    
    $
    500After 1 year through 5 years
    
    
    46,241
    
    
    
    47,078After 5 years through 10 years
    
    
    16,733
    
    
    
    17,201After 10 years
    
    
    97,031
    
    
    
    102,709Total debt securities
    
    $
    160,504
    
    
    $
    167,488
   George Assad, Jr. v. LSB Corporation et al. William S. Madden v. LSB Corporation et al., George Assad, Jr. v. LSB Corporation et al.
   9




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##### Table of Contents



September 30, 2010
    
    December 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(In thousands)Financial assets:Cash and due from banks
    
    $
    7,908
    
    
    $
    7,908
    
    
    $
    8,615
    
    
    $
    8,615Federal Funds sold
    
    
    24,619
    
    
    
    24,619
    
    
    
    6,597
    
    
    
    6,597Investment securities available for sale
    
    
    170,954
    
    
    
    170,954
    
    
    
    230,533
    
    
    
    230,533Federal Home Loan Bank stock
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825Accrued interest receivable
    
    
    2,469
    
    
    
    2,469
    
    
    
    2,727
    
    
    
    2,727Loans, net
    
    
    532,175
    
    
    
    545,924
    
    
    
    529,451
    
    
    
    526,087Financial liabilities:Core deposits
    
    
    262,683
    
    
    
    262,683
    
    
    
    252,389
    
    
    
    252,389Certificates of deposit
    
    
    212,460
    
    
    
    218,004
    
    
    
    240,405
    
    
    
    244,002Borrowed funds
    
    
    235,577
    
    
    
    261,108
    
    
    
    259,082
    
    
    
    272,320Mortgagors escrow accounts
    
    
    949
    
    
    
    949
    
    
    
    776
    
    
    
    776Accrued interest payable
    
    
    841
    
    
    
    841
    
    
    
    987
    
    
    
    987
  10




---



##### Table of Contents



2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Investment securities
available for sale:U.S. Treasury obligations
    
    $
    5,910
    
    
    $
    
    
    
    $
    
    
    
    $
    5,910All other debt securities
    
    
    
    
    
    
    161,578
    
    
    
    
    
    
    
    161,578Equity securities
    
    
    2,049
    
    
    
    1,001
    
    
    
    416
    
    
    
    3,466Total recurring assets
    
    $
    7,959
    
    
    $
    162,579
    
    
    $
    416
    
    
    $
    170,954
 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Investment securities
available for sale:U.S. Treasury obligations
    
    $
    5,794
    
    
    $
    
    
    
    $
    
    
    
    $
    5,794All other debt securities
    
    
    
    
    
    
    221,584
    
    
    
    
    
    
    
    221,584Equity securities
    
    
    1,760
    
    
    
    970
    
    
    
    425
    
    
    
    3,155Total recurring assets
    
    $
    7,554
    
    
    $
    222,554
    
    
    $
    425
    
    
    $
    230,533
   Three months ended
    
    Nine months endedSeptember 30, 2010
    
    September 30, 20102010
    
    Level 1
    
    Level 2
    
    Level 3
    
    Total Losses
    
    Total Losses(In thousands)Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    2,513
    
    
    $
    122
    
    
    $
    398Other real estate owned
    
    $
    
    
    
    $
    
    
    
    $
    2,432
    
    
    $
    613
    
    
    $
    1,138Year endedDecember 31, 20092009
    
    Level 1
    
    Level 2
    
    Level 3
    




    Total Losses(In thousands)Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    2,781
    
    

    


    $
    415
    11




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##### Table of Contents



Disclosures about the Credit Quality
of Financing Receivables and the Allowance for Credit Losses.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  12




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##### Table of Contents



EXECUTIVE LEVEL OVERVIEW
       13




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##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  Investments:
   Loans:
   9/30/10
    
    
    12/31/09(In thousands)Residential real estate
    
    $
    134,918
    
    
    $
    131,441Home equity lines and second mortgages
    
    
    28,493
    
    
    
    27,003Consumer
    
    
    733
    
    
    
    657Retail loans
    
    
    164,144
    
    
    
    159,101Construction and land development
    
    
    52,923
    
    
    
    62,772Commercial real estate
    
    
    283,488
    
    
    
    282,716Commercial business
    
    
    38,695
    
    
    
    32030Corporate loans
    
    
    375,106
    
    
    
    377,518Total loans
    
    
    539,250
    
    
    
    536,619Allowance for loan losses
    
    
    (7,075
    )
    
    
    (7,168
    )Net loans
    
    $
    532,175
    
    
    $
    529,451
 14




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##### Table of Contents



Allowance For Loan Losses:
  Three months ended
    
    
    Nine months ended9/30/10
    
    
    9/30/09
    
    
    9/30/10
    
    
    9/30/09(Dollars in thousands)Beginning balance
    
    $
    7,467
    
    
    $
    6,399
    
    
    $
    7,168
    
    
    $
    5,885Provision for loan losses
    
    
    750
    
    
    
    400
    
    
    
    2,150
    
    
    
    1,100Recoveries on loans previously charged-off
    
    
    46
    
    
    
    1
    
    
    
    51
    
    
    
    3Loans charged-off
    
    
    (1,188
    )
    
    
    (164
    )
    
    
    (2,294
    )
    
    
    (352
    )Ending balance
    
    $
    7,075
    
    
    $
    6,636
    
    
    $
    7,075
    
    
    $
    6,636Ratios:Annualized net charge-offs to average
loans outstanding
    
    
    0.84
    %
    
    
    0.13
    %
    
    
    0.55
    %
    
    
    0.10
    %Allowance for loan losses to total
loans at end of period
    
    
    1.31
    %
    
    
    1.28
    %
    
    
    1.31
    %
    
    
    1.28
    %
   Risk Assets:
    15




---



##### Table of Contents



9/30/10
    
    
    12/31/09
    
    
    9/30/09(Dollars in thousands)Non-performing loans:Residential real estate
    
    $
    1,247
    
    
    $
    1,211
    
    
    $
    986Construction and land development
    
    
    285
    
    
    
    2,527
    
    
    
    350Commercial real estate
    
    
    2,285
    
    
    
    1,528
    
    
    
    1,478Commercial business
    
    
    437
    
    
    
    683
    
    
    
    668Equity
    
    
    39
    
    
    
    54
    
    
    
    66Total non-performing loans
    
    
    4,293
    
    
    
    6,003
    
    
    
    3,548Other real estate owned
    
    
    2,432
    
    
    
    
    
    
    
    120Total risk assets
    
    $
    6,725
    
    
    $
    6,003
    
    
    $
    3,668Restructured loans  accruing
    
    $
    5,385
    
    
    $
    2,634
    
    
    $
    2,089Risk assets as a percent of total loans and OREO
    
    
    1.24
    %
    
    
    1.12
    %
    
    
    0.71
    %Risk assets as a percent of total assets
    
    
    0.86
    %
    
    
    0.74
    %
    
    
    0.45
    %
 Deposits:
   16




---



##### Table of Contents



9/30/10
    
    
    12/31/09(In thousands)NOW accounts
    
    $
    24,995
    
    
    $
    20,739Demand deposit accounts
    
    
    38,516
    
    
    
    34,368Savings accounts
    
    
    100,984
    
    
    
    90,642Money market accounts
    
    
    98,188
    
    
    
    106,640Core deposits
    
    
    262,683
    
    
    
    252,389Brokered certificates of deposit
    
    
    14,950
    
    
    
    29,344Retail certificates of deposit
    
    
    197,510
    
    
    
    211,061Term deposits
    
    
    212,460
    
    
    
    240,405Total deposits
    
    $
    475,143
    
    
    $
    492,794
 Borrowed Funds:
   9/30/10
    
    
    12/31/09(In thousands)Long-term borrowed funds:FHLBB long-term advances
    
    $
    181,847
    
    
    $
    205,971Subordinated debt
    
    
    6,000
    
    
    
    6,000Wholesale repurchase agreements
    
    
    40,000
    
    
    
    40,000227,847
    
    
    
    251,971Short-term borrowed funds:Customer repurchase agreements
    
    
    7,730
    
    
    
    7,1117,730
    
    
    
    7,111Total borrowed funds
    
    $
    235,577
    
    
    $
    259,082
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
 SUMMARY
  17




---



##### Table of Contents



Net Interest Income:
  Interest and Dividend Income:
    Interest Expense:
    Provision for Loan Losses:
  18




---



##### Table of Contents



Non-Interest Income:
  Non-Interest Expense:
  Income Taxes:
  19




---



##### Table of Contents



Three months ended
    
    
    Three months ended9/30/10
    
    
    9/30/09Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    13,260
    
    
    $
    8
    
    
    
    0.24
    %
    
    $
    18,057
    
    
    $
    11
    
    
    
    0.24
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    44,634
    
    
    
    219
    
    
    
    1.95
    
    
    
    26,640
    
    
    
    148
    
    
    
    2.20Other bonds and equity securities
    
    
    15,225
    
    
    
    57
    
    
    
    1.49
    
    
    
    18,983
    
    
    
    107
    
    
    
    2.24Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    146,499
    
    
    
    1,581
    
    
    
    4.28
    
    
    
    199,933
    
    
    
    2,540
    
    
    
    5.04Total investment securities
    
    
    219,618
    
    
    
    1,865
    
    
    
    3.37
    
    
    
    263,613
    
    
    
    2,806
    
    
    
    4.22Loans:Residential real estate
    
    
    134,280
    
    
    
    1,716
    
    
    
    5.07
    
    
    
    127,655
    
    
    
    1,735
    
    
    
    5.39Home equity
    
    
    28,634
    
    
    
    278
    
    
    
    3.85
    
    
    
    25,611
    
    
    
    257
    
    
    
    3.98Consumer
    
    
    827
    
    
    
    16
    
    
    
    7.68
    
    
    
    636
    
    
    
    11
    
    
    
    6.86Total retail loans
    
    
    163,741
    
    
    
    2,010
    
    
    
    4.87
    
    
    
    153,902
    
    
    
    2,003
    
    
    
    5.16Construction and land
    
    
    53,159
    
    
    
    783
    
    
    
    5.84
    
    
    
    79,821
    
    
    
    1,170
    
    
    
    5.82Commercial real estate
    
    
    284,719
    
    
    
    4,568
    
    
    
    6.37
    
    
    
    244,662
    
    
    
    3,937
    
    
    
    6.38Commercial
    
    
    40,437
    
    
    
    560
    
    
    
    5.49
    
    
    
    29,407
    
    
    
    352
    
    
    
    4.75Total corporate loans
    
    
    378,315
    
    
    
    5,911
    
    
    
    6.20
    
    
    
    353,890
    
    
    
    5,459
    
    
    
    6.12Total loans
    
    
    542,056
    
    
    
    7,921
    
    
    
    5.80
    
    
    
    507,792
    
    
    
    7,462
    
    
    
    5.83Total interest-earning assets
    
    
    761 674
    
    
    
    9,786
    
    
    
    5.10
    %
    
    
    771,405
    
    
    
    10,268
    
    
    
    5.28
    %Allowance for loan losses
    
    
    (7,491
    )
    
    
    
    
    
    
    
    
    
    
    (6,454
    )Other assets
    
    
    37,014
    
    
    
    
    
    
    
    
    
    
    
    30,855Total assets
    
    $
    791,197
    
    
    
    
    
    
    
    
    
    
    $
    795,806Liabilities and Stockholders EquityDeposits:NOW accounts
    
    $
    24,306
    
    
    $
    24
    
    
    
    0.39
    %
    
    $
    18,482
    
    
    $
    9
    
    
    
    0.19
    %Regular savings accounts
    
    
    100,550
    
    
    
    215
    
    
    
    0.85
    
    
    
    80,411
    
    
    
    244
    
    
    
    1.20Money market accounts
    
    
    108,997
    
    
    
    279
    
    
    
    1.02
    
    
    
    86,088
    
    
    
    277
    
    
    
    1.28Certificates of deposit
and escrow
    
    
    216,748
    
    
    
    1,310
    
    
    
    2.40
    
    
    
    244,543
    
    
    
    1,971
    
    
    
    3.20Total interest-bearing deposits
    
    
    450,601
    
    
    
    1,828
    
    
    
    1.61
    
    
    
    429,524
    
    
    
    2,501
    
    
    
    2.31Borrowed funds:Long-term borrowed funds
    
    
    227,861
    
    
    
    2,394
    
    
    
    4.17
    
    
    
    250,309
    
    
    
    2,721
    
    
    
    4.31Short-term borrowed funds
    
    
    7,571
    
    
    
    4
    
    
    
    0.21
    
    
    
    5,819
    
    
    
    4
    
    
    
    0.27Total borrowed funds
    
    
    235,432
    
    
    
    2,398
    
    
    
    4.04
    
    
    
    256,128
    
    
    
    2,725
    
    
    
    4.22Total interest-bearing liabilities
    
    
    686,033
    
    
    
    4,226
    
    
    
    2.44
    %
    
    
    685,652
    
    
    
    5,226
    
    
    
    3.02
    %Non-interest-bearing deposits
    
    
    37,640
    
    
    
    
    
    
    
    
    
    
    
    32,383Other liabilities
    
    
    3,437
    
    
    
    
    
    
    
    
    
    
    
    3,211Total liabilities
    
    
    727,110
    
    
    
    
    
    
    
    
    
    
    
    721,246Stockholders equity
    
    
    64,087
    
    
    
    
    
    
    
    
    
    
    
    74,560Total liabilities and
stockholders equity
    
    $
    791,197
    
    
    
    
    
    
    
    
    
    
    $
    795,806Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.66
    %
    
    
    
    
    
    
    
    
    
    
    2.26
    %Net interest income
    
    
    
    
    
    $
    5,560
    
    
    
    
    
    
    
    
    
    
    $
    5,042Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.59
    %
 20




---



##### Table of Contents



NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 SUMMARY
  Net Interest Income:
  Interest and Dividend Income:
    Interest Expense:
    21




---



##### Table of Contents



Provision for Loan Losses:
  Non-Interest Income:
  Non-Interest Expense:
  Income Taxes:
  22




---



##### Table of Contents



Nine months ended
    
    
    Nine months ended9/30/10
    
    
    9/30/09Average
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    12,018
    
    
    $
    22
    
    
    
    0.24
    %
    
    $
    14,715
    
    
    $
    22
    
    
    
    0.20
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    43,423
    
    
    
    675
    
    
    
    2.08
    
    
    
    23,153
    
    
    
    519
    
    
    
    3.00Corporate and other
investment securities
    
    
    15,836
    
    
    
    184
    
    
    
    1.55
    
    
    
    19,456
    
    
    
    360
    
    
    
    2.47Collateralized mortgage
obligations and mortgage-backed securities
    
    
    162,607
    
    
    
    5,488
    
    
    
    4.51
    
    
    
    213,031
    
    
    
    8,283
    
    
    
    5.20Total investment securities
    
    
    233,884
    
    
    
    6,369
    
    
    
    3.64
    
    
    
    270,355
    
    
    
    9,184
    
    
    
    4.54Loans:Residential real estate
    
    
    133,629
    
    
    
    5,256
    
    
    
    5.26
    
    
    
    122,118
    
    
    
    5,029
    
    
    
    5.51Home equity
    
    
    27,984
    
    
    
    805
    
    
    
    3.85
    
    
    
    24,661
    
    
    
    754
    
    
    
    4.09Consumer
    
    
    721
    
    
    
    33
    
    
    
    6.12
    
    
    
    683
    
    
    
    35
    
    
    
    6.85Total retail loans
    
    
    162,334
    
    
    
    6,094
    
    
    
    5.02
    
    
    
    147,462
    
    
    
    5,818
    
    
    
    5.28Construction and land
    
    
    58,034
    
    
    
    2,451
    
    
    
    5.65
    
    
    
    66,769
    
    
    
    2,759
    
    
    
    5.52Commercial real estate
    
    
    283,579
    
    
    
    13,444
    
    
    
    6.34
    
    
    
    242,157
    
    
    
    11,545
    
    
    
    6.37Commercial
    
    
    37,865
    
    
    
    1,500
    
    
    
    5.30
    
    
    
    30,447
    
    
    
    1,094
    
    
    
    4.80Total corporate loans
    
    
    379,478
    
    
    
    17,395
    
    
    
    6.13
    
    
    
    339,373
    
    
    
    15,398
    
    
    
    6.07Total loans
    
    
    541,812
    
    
    
    23,489
    
    
    
    5.80
    
    
    
    486,835
    
    
    
    21,216
    
    
    
    5.83Total interest-earning assets
    
    
    775,696
    
    
    
    29,858
    
    
    
    5.15
    %
    
    
    757,190
    
    
    
    30,400
    
    
    
    5.37
    %Allowance for loan losses
    
    
    (7,437
    )
    
    
    
    
    
    
    
    
    
    
    (6,219
    )Other assets
    
    
    36,350
    
    
    
    
    
    
    
    
    
    
    
    30,745Total assets
    
    $
    804,609
    
    
    
    
    
    
    
    
    
    
    $
    781,716Liabilities and Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    23,174
    
    
    $
    66
    
    
    
    0.38
    %
    
    $
    18,419
    
    
    $
    27
    
    
    
    0.20
    %Regular savings accounts
    
    
    99,473
    
    
    
    689
    
    
    
    0.93
    
    
    
    69,294
    
    
    
    685
    
    
    
    1.32Money market accounts
    
    
    113,727
    
    
    
    941
    
    
    
    1.11
    
    
    
    80,245
    
    
    
    911
    
    
    
    1.52Certificates of deposit
and escrow
    
    
    224,729
    
    
    
    4,322
    
    
    
    2.57
    
    
    
    242,867
    
    
    
    6,123
    
    
    
    3.37Total interest-bearing deposits
    
    
    461,103
    
    
    
    6,018
    
    
    
    1.74
    
    
    
    410,825
    
    
    
    7,746
    
    
    
    2.52Borrowed funds:Long-term borrowed funds
    
    
    235,518
    
    
    
    7,428
    
    
    
    4.22
    
    
    
    255,207
    
    
    
    8,265
    
    
    
    4.33Short-term borrowed funds
    
    
    6,279
    
    
    
    12
    
    
    
    0.26
    
    
    
    9,067
    
    
    
    47
    
    
    
    0.69Total borrowed funds
    
    
    241,797
    
    
    
    7,440
    
    
    
    4.11
    
    
    
    264,274
    
    
    
    8,312
    
    
    
    4.21Total interest-bearing liabilities
    
    
    702,900
    
    
    
    13,458
    
    
    
    2.56
    %
    
    
    675,099
    
    
    
    16,058
    
    
    
    3.18
    %Non-interest-bearing deposits
    
    
    36,002
    
    
    
    
    
    
    
    
    
    
    
    30,403Other liabilities
    
    
    3,042
    
    
    
    
    
    
    
    
    
    
    
    3,055Total liabilities
    
    
    741,944
    
    
    
    
    
    
    
    
    
    
    
    708,557Stockholders equity
    
    
    62,665
    
    
    
    
    
    
    
    
    
    
    
    73,159Total liabilities and
stockholders equity
    
    $
    804,609
    
    
    
    
    
    
    
    
    
    
    $
    781,716Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.59
    %
    
    
    
    
    
    
    
    
    
    
    2.19
    %Net interest income
    
    
    
    
    
    $
    16,400
    
    
    
    
    
    
    
    
    
    
    $
    14,342Net interest margin on average earning assets
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    2.53
    %
 23




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES:
         Regulatory Thresholdfor Well CapitalizedCategory
    
    09/30/10
    
    12/31/09
    
    09/30/09LSB Corporation Tier 1 risk-based
    
    
    6.0
    %
    
    
    10.48
    %
    
    
    9.74
    %
    
    
    12.64
    %River Bank Tier 1 leverage ratio
    
    
    5.0
    %
    
    
    7.42
    %
    
    
    6.85
    %
    
    
    8.17
    %River Bank Tier 1 risk-based
    
    
    6.0
    %
    
    
    10.23
    %
    
    
    9.57
    %
    
    
    11.54
    %River Bank total risk-based
    
    
    10.0
    %
    
    
    12.53
    %
    
    
    11.84
    %
    
    
    12.72
    %
  
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  24




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##### Table of Contents



ITEM 4: CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
  George Assad, Jr. v. LSB Corporation et al. William S. Madden v. LSB Corporation et al., George Assad, Jr. v. LSB Corporation et al.
  25




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##### Table of Contents



Proposed Merger with Peoples United Financial, Inc.
  Financial Regulatory Reform Legislation
    
  Number
    
    Description2.1
    
    Plan of Reorganization and Acquisition, dated as of March 12, 2001 between LSB Corporation
and Lawrence Savings Bank (Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 2, 2001, (File Number 000-32955) and incorporated herein by reference)
 26




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##### Table of Contents



Number
    
    Description2.2
    
    Agreement and Plan of Merger, dated as of July 15, 2010, by and among LSB Corporation, River
Bank, Peoples United Financial, Inc., Peoples United Bank, and Bridgeport Merger Corporation
(filed as Exhibit 2.1 to the Companys Current Report on Form 8-K filed July 16, 2010, and
incorporated herein by reference)3(i).1
    
    Articles of Organization of LSB Corporation (Filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated by reference)3(i).2
    
    Articles of Amendment of the Articles of Organization of LSB Corporation, as submitted for
filing in the Office of the Secretary of the Commonwealth of Massachusetts on December 30,
2005, (Filed as Exhibit 3(i).1 to the Companys Current Report on Form 8-K filed January 6,
2006, and incorporated herein by reference)3(i).3
    
    Articles of Amendment to the Articles of Organization of LSB Corporation, establishing the
fixed rate cumulative perpetual preferred stock, Series B (Filed as Exhibit 3.1 to the
Companys Current Report of Form 8-K filed December 17, 2008, and incorporated herein by
reference)3(ii)
    
    Amended and Restated By-Laws of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed October 31, 2007, and incorporated herein by reference)3(iii)
    
    Lawrence Savings Bank Certificate of Vote of Directors Establishing a Series of a Class of
Stock (Filed as Exhibit 3(iii) to the Companys 2005 Annual Report on Form 10-K and
incorporated herein by reference)4.1
    
    Specimen certificate of shares of common stock of the Company (Filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and
incorporated herein by reference)4.2
    
    Renewed Rights Agreement dated as of November 17, 2005, between LSB Corporation and
Computershare Trust Company, N.A., as Rights Agent (Filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K filed January 31, 2006, and incorporated herein by reference)4.3
    
    Amendment to Renewed Rights Agreement, dated as of July 15, 2010, by and between LSB
Corporation and Computershare Trust Company (filed as Exhibit 4.1 to the Companys Current
Report on Form 8-K filed July 16, 2010, and incorporated herein by reference).31.1
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002.
 27




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##### Table of Contents



LSB CORPORATIONNovember 10, 2010
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive OfficerNovember 10, 2010
    /s/ Diane L. WalkerDiane L. WalkerExecutive Vice President, Treasurer and
Chief Financial Officer 28




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##### Table of Contents



LSB CORPORATION AND SUBSIDIARY
 
 EXHIBIT INDEX
 Page31.1
    
    Certification of Chief Executive Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    3031.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    3132.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    3232.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    33
 29