##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20529
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2009
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 000-32955
 
 LSB Corporation
  
 Massachusetts
    
    04-3557612(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)30 Massachusetts Avenue, North Andover, MA
    
    01845(Address of principal executive offices)
    
    (Zip Code)
 
 (978) 725-7500
 
  þ o
  o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
(Do not check if smaller reporting company)
    
    Smaller Reporting Company þ
  o þ
  Class
    
    Outstanding as of August 10, 2009Common Stock, par value $.10 per share
    
        4,499,936 shares




---



##### 



PART I  FINANCIAL INFORMATION
 Page:ITEM 1 FINANCIAL STATEMENTSConsolidated Balance Sheets
    
    
    
    
    
    
    3Consolidated Statements of Income
    
    
    
    
    
    
    4Consolidated Statements of Changes in Stockholders Equity
    
    
    
    
    
    
    5Consolidated Statements of Cash Flows
    
    
    
    
    
    
    6Notes to Consolidated Financial Statements
    
    
    
    
    
    
    7-12ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS
    
    
    
    
    
    
    12-23ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    
    
    
    
    23ITEM 4. CONTROLS AND PROCEDURES
    
    
    
    
    
    
    24PART II  OTHER INFORMATIONITEM 1 LEGAL PROCEEDINGS
    
    
    
    
    
    
    24ITEM 1A RISK FACTORS
    
    
    
    
    
    
    24ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    
    
    
    
    24ITEM 3 DEFAULTS UPON SENIOR SECURITIES
    
    
    
    
    
    
    24ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    
    
    
    
    24ITEM 5 OTHER INFORMATION
    
    
    
    
    
    
    24ITEM 6 EXHIBITS
    
    
    
    
    
    
    25SIGNATURES
    
    
    
    
    
    
    26EXHIBIT INDEX
    
    
    
    
    
    
    27EX-31.1 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002EX-31.2 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002EX-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 2002EX-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
  2




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##### Table of Contents



PART
1   FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
  
 
 June 30,
    
    
    December 31,2009
    
    
    2008(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    8,555
    
    
    $
    6,859Federal funds sold
    
    
    17,916
    
    
    
    6,469Total cash and cash equivalents
    
    
    26,471
    
    
    
    13,328Investment securities available for sale (amortized cost of
$222,103 in 2009 and $259,057 in 2008)
    
    
    228,920
    
    
    
    264,561Federal Home Loan Bank stock, at cost
    
    
    11,825
    
    
    
    11,825Loans, net of allowance for loan losses
    
    
    495,347
    
    
    
    446,736Premises and equipment
    
    
    6,331
    
    
    
    5,528Accrued interest receivable
    
    
    2,686
    
    
    
    2,720Deferred income tax asset, net
    
    
    4,094
    
    
    
    4,447Bank-owned life insurance
    
    
    10,890
    
    
    
    10,641Other real estate owned
    
    
    120
    
    
    
    120Other assets
    
    
    1,470
    
    
    
    1,418Total assets
    
    $
    788,154
    
    
    $
    761,324LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Core deposits
    
    $
    202,029
    
    
    $
    177,639Term deposits
    
    
    246,702
    
    
    
    231,024Total deposits
    
    
    448,731
    
    
    
    408,663Long-term borrowed funds
    
    
    254,150
    
    
    
    259,228Short-term borrowed funds
    
    
    7,044
    
    
    
    17,262Advance payments by borrowers for taxes and insurance
    
    
    632
    
    
    
    619Other liabilities
    
    
    3,753
    
    
    
    3,410Total liabilities
    
    
    714,310
    
    
    
    689,182Stockholders equity:Preferred stock, Series A, $.10 par value per
share: 5,000,000 shares authorized, none issued
    
    
    
    
    
    
    Cumulative perpetual preferred stock, Series B,
(liquidation preference $1,000 per share)
15,000 shares authorized and issued
    
    
    14,510
    
    
    
    14,455Common stock, $.10 par value per share;
20,000,000 shares authorized;
4,474,286 and 4,470,941 shares issued and outstanding at
June 30, 2009 and December 31, 2008, respectively
    
    
    447
    
    
    
    447Additional paid-in capital
    
    
    60,223
    
    
    
    60,179Accumulated deficit
    
    
    (5,493
    )
    
    
    (6,250
    )Accumulated other comprehensive income, net of tax
    
    
    4,157
    
    
    
    3,311Total stockholders equity
    
    
    73,844
    
    
    
    72,142Total liabilities and stockholders equity
    
    $
    788,154
    
    
    $
    761,324
  3




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except share data)Interest and dividend income:Loans
    
    $
    7,077
    
    
    $
    6,049
    
    
    $
    13,754
    
    
    $
    12,067Investment securities available for sale
    
    
    3,003
    
    
    
    3,356
    
    
    
    6,367
    
    
    
    6,408Federal Home Loan Bank stock
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    256Short term interest income
    
    
    7
    
    
    
    53
    
    
    
    11
    
    
    
    112Total interest and dividend income
    
    
    10,087
    
    
    
    9,560
    
    
    
    20,132
    
    
    
    18,843Interest expense:Deposits
    
    
    2,585
    
    
    
    2,433
    
    
    
    5,245
    
    
    
    5,046Long-term borrowed funds
    
    
    2,770
    
    
    
    2,861
    
    
    
    5,544
    
    
    
    5,606Short-term borrowed funds
    
    
    4
    
    
    
    41
    
    
    
    43
    
    
    
    78Total interest expense
    
    
    5,359
    
    
    
    5,335
    
    
    
    10,832
    
    
    
    10,730Net interest income
    
    
    4,728
    
    
    
    4,225
    
    
    
    9,300
    
    
    
    8,113Provision for loan losses
    
    
    460
    
    
    
    400
    
    
    
    700
    
    
    
    505Net interest income after provision for loan losses
    
    
    4,268
    
    
    
    3,825
    
    
    
    8,600
    
    
    
    7,608Non-interest income:Deposit account fees
    
    
    234
    
    
    
    267
    
    
    
    457
    
    
    
    512Loan servicing fees, net
    
    
    65
    
    
    
    35
    
    
    
    116
    
    
    
    73Gains on sales of investments
    
    
    232
    
    
    
    
    
    
    
    458
    
    
    
    Income on bank-owned life insurance
    
    
    124
    
    
    
    96
    
    
    
    249
    
    
    
    192Other income
    
    
    119
    
    
    
    112
    
    
    
    225
    
    
    
    227Total non-interest income
    
    
    774
    
    
    
    510
    
    
    
    1,505
    
    
    
    1,004Non-interest expense:Salaries and employee benefits
    
    
    1,627
    
    
    
    1,631
    
    
    
    3,370
    
    
    
    3,270Occupancy and equipment
    
    
    346
    
    
    
    321
    
    
    
    720
    
    
    
    673Data processing
    
    
    233
    
    
    
    243
    
    
    
    473
    
    
    
    477Professional
    
    
    152
    
    
    
    132
    
    
    
    337
    
    
    
    262Marketing
    
    
    117
    
    
    
    194
    
    
    
    259
    
    
    
    246Other real estate owned
    
    
    
    
    
    
    44
    
    
    
    2
    
    
    
    55Deposit insurance
    
    
    369
    
    
    
    14
    
    
    
    760
    
    
    
    28Other
    
    
    613
    
    
    
    403
    
    
    
    1,158
    
    
    
    792Total non-interest expense
    
    
    3,457
    
    
    
    2,982
    
    
    
    7,079
    
    
    
    5,803Income before income tax expense
    
    
    1,585
    
    
    
    1,353
    
    
    
    3,026
    
    
    
    2,809Income tax expense
    
    
    524
    
    
    
    410
    
    
    
    1,001
    
    
    
    950Net income
    
    
    1,061
    
    
    
    943
    
    
    
    2,025
    
    
    
    1,859Preferred stock dividends and accretion
    
    
    (215
    )
    
    
    
    
    
    
    (374
    )
    
    
    Net income available to common shareholders
    
    $
    846
    
    
    $
    943
    
    
    $
    1,651
    
    
    $
    1,859Average common shares outstanding
    
    
    4,471,382
    
    
    
    4,459,710
    
    
    
    4,471,163
    
    
    
    4,476,523Common stock equivalents
    
    
    1,683
    
    
    
    22,093
    
    
    
    882
    
    
    
    23,551Average diluted common shares outstanding
    
    
    4,473,065
    
    
    
    4,481,803
    
    
    
    4,472,045
    
    
    
    4,500,074Basic earnings per share
    
    $
    0.19
    
    
    $
    0.21
    
    
    $
    0.36
    
    
    $
    0.41Diluted earnings per share
    
    $
    0.19
    
    
    $
    0.21
    
    
    $
    0.36
    
    
    $
    0.41
  4




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income
    
    
    Equity(In thousands, except share data)Balance at December 31, 2007
    
    $
    
    
    
    $
    452
    
    
    $
    60,382
    
    
    $
    (934
    )
    
    $
    398
    
    
    $
    60,298Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,723
    )
    
    
    
    
    
    
    (2,723
    )Other comprehensive income -
Unrealized gain on securities
available for sale,
(tax effect $1,935)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,913
    
    
    
    2,913Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    156Issuance of preferred stock,
net of discount $549
    
    
    14,451
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,451Accretion of discount on
preferred stock
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    Fair value of warrants
issued with preferred stock
    
    
    
    
    
    
    
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    549Exercise of stock options
and tax benefits (9,500 shares)
    
    
    
    
    
    
    1
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    121Common stock repurchased
(64,620 shares)
    
    
    
    
    
    
    (6
    )
    
    
    (1,028
    )
    
    
    
    
    
    
    
    
    
    
    (1,034
    )Dividends declared and paid
($0.58 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,589
    )
    
    
    
    
    
    
    (2,589
    )Balance at December 31, 2008
    
    
    14,455
    
    
    
    447
    
    
    
    60,179
    
    
    
    (6,250
    )
    
    
    3,311
    
    
    
    72,142Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,025
    
    
    
    
    
    
    
    2,025Other comprehensive income -Unrealized gain on securities
available for sale, (tax effect $467)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    846
    
    
    
    846Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,871Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Accretion of discount on
preferred stock
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    Exercise of stock options
(3,345 shares)
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    30Dividends paid on Series B
preferred stock 5%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319
    )
    
    
    
    
    
    
    (319
    )Dividends declared and paid
($0.20 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (894
    )
    
    
    
    
    
    
    (894
    )Balance at June 30, 2009
    
    $
    14,510
    
    
    $
    447
    
    
    $
    60,223
    
    
    $
    (5,493
    )
    
    $
    4,157
    
    
    $
    73,844
  5




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##### Table of Contents



Six months ended June 30,2009
    
    
    2008(In thousands)Cash flows from operating activities:Net income before preferred stock dividends and accretion
    
    $
    2,025
    
    
    $
    1,859Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    700
    
    
    
    505Gains on sales of investments
    
    
    (458
    )
    
    
    Net accretion of investment securities
    
    
    (393
    )
    
    
    (283
    )Depreciation and amortization of premises and equipment
    
    
    290
    
    
    
    312Decrease (increase) in accrued interest receivable
    
    
    34
    
    
    
    (37
    )Deferred income tax benefit
    
    
    (115
    )
    
    
    (312
    )Stock-based compensation
    
    
    14
    
    
    
    32Increase in cash surrender value of Bank-owned life insurance
    
    
    (249
    )
    
    
    (192
    )(Increase) decrease in other assets
    
    
    (52
    )
    
    
    5Increase in other liabilities
    
    
    343
    
    
    
    93Net cash provided by operating activities
    
    
    2,139
    
    
    
    1,982Cash flows from investing activities:Proceeds from maturities of investment securities available for sale
    
    
    7,987
    
    
    
    750Proceeds from sales of investment securities available for sale
    
    
    8,291
    
    
    
    Purchases of investment securities available for sale
    
    
    (24,288
    )
    
    
    (51,210
    )Purchases of FHLBB stock
    
    
    
    
    
    
    (1,498
    )Principal payments of investment securities available for sale
    
    
    45,816
    
    
    
    24,441Loan originations, net of principal payments
    
    
    (42,474
    )
    
    
    (52,275
    )Loans purchased
    
    
    (6,837
    )
    
    
    Purchases of premises and equipment
    
    
    (1,093
    )
    
    
    (1,004
    )Net cash used in investing activities
    
    
    (12,598
    )
    
    
    (80,796
    )Cash flows from financing activities:Net increase in deposits
    
    
    40,068
    
    
    
    50,197Additions to long-term borrowed funds
    
    
    
    
    
    
    58,000Payments on long-term borrowed funds
    
    
    (5,078
    )
    
    
    (19,075
    )Net (decrease) increase in short-term borrowed funds
    
    
    (10,218
    )
    
    
    3,187Increase (decrease) in advance payments by borrowers
    
    
    13
    
    
    
    (17
    )Dividends paid to preferred shareholders
    
    
    (319
    )
    
    
    Dividends paid to common shareholders
    
    
    (894
    )
    
    
    (1,251
    )Proceeds from exercise of stock options
    
    
    30
    
    
    
    27Common stock repurchased
    
    
    
    
    
    
    (1,035
    )Net cash provided by financing activities
    
    
    23,602
    
    
    
    90,033Net increase in cash and cash equivalents
    
    
    13,143
    
    
    
    11,219Cash and cash equivalents, beginning of period
    
    
    13,328
    
    
    
    7,550Cash and cash equivalents, end of period
    
    $
    26,471
    
    
    $
    18,769Cash paid during the period for:Interest on deposits
    
    $
    5,257
    
    
    $
    5,037Interest on borrowed funds
    
    
    5,654
    
    
    
    5,617Income taxes
    
    
    1,235
    
    
    
    1,494Supplemental noncash investing and financing activities:Transfers to other real estate owned
    
    
    
    
    
    
    692
  6




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##### Table of Contents



1.
    
    BASIS OF PRESENTATION
     2.
    
    INVESTMENTS
  6/30/09
    
    
    12/31/08Amortized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)U.S. Treasury obligations
    
    $
    5,567
    
    
    $
    227
    
    
    $
    
    
    
    $
    5,794
    
    
    $
    5,578
    
    
    $
    426
    
    
    $
    
    
    
    $
    6,004Government-sponsored
enterprise obligations
    
    
    14,215
    
    
    
    140
    
    
    
    (12
    )
    
    
    14,343
    
    
    
    15,485
    
    
    
    240
    
    
    
    (3
    )
    
    
    15,722Mortgage-backed securities
    
    
    167,192
    
    
    
    6,712
    
    
    
    (37
    )
    
    
    173,867
    
    
    
    181,367
    
    
    
    5,919
    
    
    
    (80
    )
    
    
    187,206Collateralized mortgage obligations
    
    
    27,192
    
    
    
    489
    
    
    
    (69
    )
    
    
    27,612
    
    
    
    46,725
    
    
    
    379
    
    
    
    (45
    )
    
    
    47,059Corporate obligations
    
    
    4,469
    
    
    
    6
    
    
    
    (236
    )
    
    
    4,239
    
    
    
    6,433
    
    
    
    
    
    
    
    (750
    )
    
    
    5,683Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (35
    )
    
    
    965
    
    
    
    1,000
    
    
    
    
    
    
    
    (42
    )
    
    
    958Equity securities
    
    
    2,468
    
    
    
    
    
    
    
    (368
    )
    
    
    2,100
    
    
    
    2,469
    
    
    
    
    
    
    
    (540
    )
    
    
    1,929Total investment securities
available for sale
    
    $
    222,103
    
    
    $
    7,574
    
    
    $
    (757
    )
    
    $
    228,920
    
    
    $
    259,057
    
    
    $
    6,964
    
    
    $
    (1,460
    )
    
    $
    264,561
 7




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##### Table of Contents



Less Than 12 Months
    
    

12 Months or Longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value

    
    Losses
    
    
    
    Fair Value
    

    Losses
    
    
    
    Fair Value
    

    Losses(In thousands)Government-sponsored
enterprise obligations
    
    $
    6,002
    
    
    $
    (12
    )
    
    $
    
    
    
    $
    
    
    
    $
    6,002
    
    
    $
    (12
    )Mortgage-backed securities
    
    
    2,053
    
    
    
    (4
    )
    
    
    1,926
    
    
    
    (33
    )
    
    
    3,979
    
    
    
    (37
    )Collateralized mortgage
Obligations
    
    
    2,592
    
    
    
    (60
    )
    
    
    1,003
    
    
    
    (9
    )
    
    
    3,595
    
    
    
    (69
    )Corporate obligations
    
    
    
    
    
    
    
    
    
    
    2,246
    
    
    
    (236
    )
    
    
    2,246
    
    
    
    (236
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    965
    
    
    
    (35
    )
    
    
    965
    
    
    
    (35
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    1,672
    
    
    
    (368
    )
    
    
    1,672
    
    
    
    (368
    )Total temporarily impaired
securities
    
    $
    10,647
    
    
    $
    (76
    )
    
    $
    7,812
    
    
    $
    (681
    )
    
    $
    18,459
    
    
    $
    (757
    )
   Amortized Cost
    
    
    Fair Value(In thousands)U.S. Treasury and government-sponsored enterprise obligations:Within 1 year
    
    $
    501
    
    
    $
    5022 to 5 years
    
    
    19,281
    
    
    
    19,635Subtotal
    
    
    19,782
    
    
    
    20,137Mortgage-backed securities
    
    
    167,192
    
    
    
    173,867Collateralized mortgage obligations:2 to 5 years
    
    
    78
    
    
    
    78After 5 years
    
    
    27,114
    
    
    
    27,534Subtotal
    
    
    27,192
    
    
    
    27,612Corporate obligations:Within 1 year
    
    
    4,469
    
    
    
    4,239Total debt securities available for sale
    
    $
    218,635
    
    
    $
    225,855
 8




---



##### Table of Contents



3.
    
    CONTINGENCIES
  4.
    
    FAIR VALUES OF ASSETS AND LIABILITIES
    Quoted Prices inActive Markets
    
    
    
    
    
    
    SignificantFor Identical
    
    
    Significant Other
    
    
    UnobservableAssets
    
    
    Observable Inputs
    
    
    Inputs
    
    
    TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)June 30, 2009:Investment securities available for sale
    
    $
    7,466
    
    
    $
    221,029
    
    
    $
    425
    
    
    $
    228,920December 31, 2008:Investment securities available for sale
    
    $
    7,504
    
    
    $
    256,632
    
    
    $
    425
    
    
    $
    264,561
  Six months ended June 30,2009
    
    
    2008(In thousands)Balance as of beginning of period
    
    $
    425
    
    
    $
    425Total realized/unrealized gains (losses)
included in net income
    
    
    
    
    
    
    Balance as of end of period
    
    $
    425
    
    
    $
    425Change in unrealized gains/(losses) relating to
instruments still held at the reporting date
    
    $
    
    
    
    $
    
  9




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##### Table of Contents



Assets measured at fair value on a non-recurring basis
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total Losses(In thousands)At or for the six months ended June 30, 2009:Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    1,600
    
    
    $
    (351
    )Other real estate owned
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,720
    
    
    $
    (351
    )
    June 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairValue
    
    Value
    
    Value
    
    Value(In thousands)Financial assets:Cash and due from banks
    
    $
    8,555
    
    
    $
    8,555
    
    
    $
    6,859
    
    
    $
    6,859Short-term investments
    
    
    17,916
    
    
    
    17,916
    
    
    
    6,469
    
    
    
    6,469Investment securities available for sale
    
    
    228,920
    
    
    
    228,920
    
    
    
    264,561
    
    
    
    264,561Federal Home Loan Bank stock
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825Accrued interest receivable
    
    
    2,686
    
    
    
    2,686
    
    
    
    2,720
    
    
    
    2,720Loans, net
    
    
    495,347
    
    
    
    489,602
    
    
    
    446,736
    
    
    
    446,609Financial liabilities:Deposits
    
    
    448,731
    
    
    
    453,584
    
    
    
    408,663
    
    
    
    414,082Borrowed funds
    
    
    261,194
    
    
    
    278,247
    
    
    
    276,490
    
    
    
    297,385Mortgagors escrow accounts
    
    
    632
    
    
    
    632
    
    
    
    619
    
    
    
    619Accrued interest payable
    
    
    1,027
    
    
    
    1,027
    
    
    
    1,106
    
    
    
    1,106
  10




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##### Table of Contents



FASB Accounting Standards Codification
 11




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  EXECUTIVE LEVEL OVERVIEW
  12




---



##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  Investments:
   13




---



##### Table of Contents



Loans:
   6/30/09
    
    
    12/31/08(In thousands)Residential real estate
    
    $
    124,456
    
    
    $
    109,276Home equity lines and second mortgages
    
    
    25,123
    
    
    
    23,972Consumer
    
    
    615
    
    
    
    831Retail loans
    
    
    150,194
    
    
    
    134,079Construction and land development
    
    
    80,442
    
    
    
    78,169Commercial real estate
    
    
    241,484
    
    
    
    206,577Commercial business
    
    
    29,626
    
    
    
    33,796Corporate loans
    
    
    351,552
    
    
    
    318,542Total loans
    
    
    501,746
    
    
    
    452,621Allowance for loan losses
    
    
    (6,399
    )
    
    
    (5,885
    )Net loans
    
    $
    495,347
    
    
    $
    446,736
 Allowance For Loan Losses:
  Three months ended
    
    
    Six months ended6/30/09
    
    
    6/30/08
    
    
    6/30/09
    
    
    6/30/08(Dollars in thousands)Beginning balance
    
    $
    6,089
    
    
    $
    4,874
    
    
    $
    5,885
    
    
    $
    4,810Provision for loan losses
    
    
    460
    
    
    
    400
    
    
    
    700
    
    
    
    505Recoveries on loans previously charged-off
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    2Loans charged-off
    
    
    (151
    )
    
    
    (37
    )
    
    
    (188
    )
    
    
    (79
    )Ending balance
    
    $
    6,399
    
    
    $
    5,238
    
    
    $
    6,399
    
    
    $
    5,238Ratios:Annualized net charge-offs to average
loans outstanding
    
    
    0.12
    %
    
    
    0.02
    %
    
    
    0.08
    %
    
    
    0.04
    %Allowance for loan losses to total
loans at end of period
    
    
    1.28
    %
    
    
    1.28
    %
    
    
    1.28
    %
    
    
    1.28
    %
  14




---



##### Table of Contents



Risk Assets:
    6/30/09
    
    
    12/31/08
    
    
    6/30/08(Dollars in thousands)Non-performing loans
    
    $
    4,139
    
    
    $
    2,606
    
    
    $
    1,455Other real estate owned
    
    
    120
    
    
    
    120
    
    
    
    692Total risk assets
    
    $
    4,259
    
    
    $
    2,726
    
    
    $
    2,147Risk assets as a percent of total loans and OREO
    
    
    0.85
    %
    
    
    0.60
    %
    
    
    0.52
    %Risk assets as a percent of total assets
    
    
    0.54
    %
    
    
    0.36
    %
    
    
    0.30
    %
 Deposits:
  15




---



##### Table of Contents



6/30/09
    
    
    12/31/08(In thousands)NOW accounts
    
    $
    18,199
    
    
    $
    17,239Demand deposit accounts
    
    
    31,133
    
    
    
    27,546Savings accounts
    
    
    72,899
    
    
    
    56,251Money market accounts
    
    
    79,798
    
    
    
    76,603Core deposits
    
    
    202,029
    
    
    
    177,639Brokered certificates of deposit
    
    
    29,391
    
    
    
    32,819Certificates of deposit
    
    
    217,311
    
    
    
    198,205Term deposits
    
    
    246,702
    
    
    
    231,024Total deposits
    
    $
    448,731
    
    
    $
    408,663
 Borrowed Funds:
   6/30/09
    
    
    12/31/08(In thousands)Long-term borrowed funds:FHLBB long-term advances
    
    $
    214,150
    
    
    $
    219,228Wholesale repurchase agreements
    
    
    40,000
    
    
    
    40,000254,150
    
    
    
    259,228Short-term borrowed funds:FHLBB short-term borrowings
    
    
    
    
    
    
    11,000Customer repurchase agreements
    
    
    7,044
    
    
    
    6,2627,044
    
    
    
    17,262Total borrowed funds
    
    $
    261,194
    
    
    $
    276,490
 16




---



##### Table of Contents



RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2009 AND 2008
 SUMMARY
  Net Interest Income:
  Interest Income:
    Interest Expense:
   17




---



##### Table of Contents



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




---



##### Table of Contents



Three months ended
    
    
    Three months ended6/30/09
    
    
    6/30/08Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    17,269
    
    
    $
    7
    
    
    
    0.16
    %
    
    $
    11,547
    
    
    $
    53
    
    
    
    1.85
    %U. S.
Treasury and government-sponsored enterprise obligations
    
    
    21,138
    
    
    
    179
    
    
    
    3.40
    
    
    
    24,997
    
    
    
    252
    
    
    
    4.05Corporate and other
investment securities
    
    
    19,357
    
    
    
    125
    
    
    
    2.59
    
    
    
    30,944
    
    
    
    447
    
    
    
    5.81Collateralized mortgage
obligations and mortgage-backed securities
    
    
    208,114
    
    
    
    2,699
    
    
    
    5.20
    
    
    
    214,700
    
    
    
    2,759
    
    
    
    5.17Total investment securities
    
    
    265,878
    
    
    
    3,010
    
    
    
    4.54
    
    
    
    282,188
    
    
    
    3,511
    
    
    
    5.00Loans:Residential real estate
    
    
    122,415
    
    
    
    1,680
    
    
    
    5.50
    
    
    
    93,086
    
    
    
    1,306
    
    
    
    5.64Home equity
    
    
    24,558
    
    
    
    248
    
    
    
    4.05
    
    
    
    22,564
    
    
    
    291
    
    
    
    5.19Consumer
    
    
    634
    
    
    
    11
    
    
    
    6.96
    
    
    
    951
    
    
    
    16
    
    
    
    6.77Total retail loans
    
    
    147,607
    
    
    
    1,939
    
    
    
    5.27
    
    
    
    116,601
    
    
    
    1,613
    
    
    
    5.56Construction and land
    
    
    75,308
    
    
    
    1,014
    
    
    
    5.40
    
    
    
    64,350
    
    
    
    999
    
    
    
    6.24Commercial real estate
    
    
    234,589
    
    
    
    3,752
    
    
    
    6.42
    
    
    
    180,282
    
    
    
    3,046
    
    
    
    6.80Commercial
    
    
    30,044
    
    
    
    372
    
    
    
    4.97
    
    
    
    25,822
    
    
    
    391
    
    
    
    6.09Total corporate loans
    
    
    339,941
    
    
    
    5,138
    
    
    
    6.06
    
    
    
    270,454
    
    
    
    4,436
    
    
    
    6.60Total loans
    
    
    487,548
    
    
    
    7,077
    
    
    
    5.82
    
    
    
    387,055
    
    
    
    6,049
    
    
    
    6.29Total interest-earning assets
    
    
    753,426
    
    
    
    10,087
    
    
    
    5.37
    %
    
    
    669,243
    
    
    
    9,560
    
    
    
    5.75
    %Allowance for loan losses
    
    
    (6,232
    )
    
    
    
    
    
    
    
    
    
    
    (4,915
    )Other assets
    
    
    30,861
    
    
    
    
    
    
    
    
    
    
    
    26,551Total assets
    
    $
    778,055
    
    
    
    
    
    
    
    
    
    
    $
    690,879Liabilities and Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    18,590
    
    
    $
    9
    
    
    
    0.19
    %
    
    $
    18,175
    
    
    $
    9
    
    
    
    0.20
    %Regular savings accounts
    
    
    67,559
    
    
    
    221
    
    
    
    1.31
    
    
    
    37,513
    
    
    
    105
    
    
    
    1.13Money market accounts
    
    
    76,803
    
    
    
    281
    
    
    
    1.47
    
    
    
    77,978
    
    
    
    412
    
    
    
    2.13Certificates of deposit
and escrow
    
    
    245,892
    
    
    
    2,074
    
    
    
    3.38
    
    
    
    185,723
    
    
    
    1,907
    
    
    
    4.13Total interest-bearing deposits
    
    
    408,844
    
    
    
    2,585
    
    
    
    2.54
    
    
    
    319,389
    
    
    
    2,433
    
    
    
    3.06Borrowed funds:Long-term borrowed funds
    
    
    256,405
    
    
    
    2,770
    
    
    
    4.33
    
    
    
    269,173
    
    
    
    2,861
    
    
    
    4.27Short-term borrowed funds
    
    
    6,161
    
    
    
    4
    
    
    
    0.26
    
    
    
    9,703
    
    
    
    41
    
    
    
    1.70Total borrowed funds
    
    
    262,566
    
    
    
    2,774
    
    
    
    4.24
    
    
    
    278,876
    
    
    
    2,902
    
    
    
    4.19Total interest-bearing liabilities
    
    
    671,410
    
    
    
    5,359
    
    
    
    3.20
    %
    
    
    598,265
    
    
    
    5,335
    
    
    
    3.59
    %Non-interest-bearing deposits
    
    
    30,515
    
    
    
    
    
    
    
    
    
    
    
    29,185Other liabilities
    
    
    3,013
    
    
    
    
    
    
    
    
    
    
    
    2,840Total liabilities
    
    
    704,938
    
    
    
    
    
    
    
    
    
    
    
    630,290Stockholders equity
    
    
    73,117
    
    
    
    
    
    
    
    
    
    
    
    60,589Total liabilities and
stockholders equity
    
    $
    778,055
    
    
    
    
    
    
    
    
    
    
    $
    690,879Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.17
    %
    
    
    
    
    
    
    
    
    
    
    2.16
    %Net interest income
    
    
    
    
    
    $
    4,728
    
    
    
    
    
    
    
    
    
    
    $
    4,225Net interest
margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.52
    %
    
    
    
    
    
    
    
    
    
    
    2.54
    %
 19




---



##### Table of Contents



SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 SUMMARY
  Net Interest Income:
  Interest Income:
    Interest Expense:
   20




---



##### Table of Contents



Provision for Loan Losses:
  Non-Interest Income:
  Non-Interest Expense:
  Income Taxes:
  21




---



##### Table of Contents



Six months ended
    
    
    Six months ended6/30/09
    
    
    6/30/08Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    13,017
    
    
    $
    11
    
    
    
    0.17
    %
    
    $
    9,579
    
    
    $
    112
    
    
    
    2.35
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    21,381
    
    
    
    371
    
    
    
    3.50
    
    
    
    24,213
    
    
    
    497
    
    
    
    4.13Corporate and other
investment securities
    
    
    19,697
    
    
    
    253
    
    
    
    2.59
    
    
    
    27,259
    
    
    
    824
    
    
    
    6.08Collateralized mortgage
obligations and mortgage-backed securities
    
    
    219,687
    
    
    
    5,743
    
    
    
    5.27
    
    
    
    209,497
    
    
    
    5,343
    
    
    
    5.13Total investment securities
    
    
    273,782
    
    
    
    6,378
    
    
    
    4.70
    
    
    
    270,548
    
    
    
    6,776
    
    
    
    5.04Loans:Residential real estate
    
    
    119,304
    
    
    
    3,294
    
    
    
    5.57
    
    
    
    87,826
    
    
    
    2,467
    
    
    
    5.65Home equity
    
    
    24,179
    
    
    
    497
    
    
    
    4.15
    
    
    
    22,504
    
    
    
    612
    
    
    
    5.47Consumer
    
    
    706
    
    
    
    24
    
    
    
    6.86
    
    
    
    953
    
    
    
    34
    
    
    
    7.17Total retail loans
    
    
    144,189
    
    
    
    3,815
    
    
    
    5.34
    
    
    
    111,283
    
    
    
    3,113
    
    
    
    5.63Construction and land
    
    
    74,966
    
    
    
    1,983
    
    
    
    5.33
    
    
    
    60,733
    
    
    
    2,037
    
    
    
    6.74Commercial real estate
    
    
    226,052
    
    
    
    7,214
    
    
    
    6.44
    
    
    
    175,864
    
    
    
    6,045
    
    
    
    6.91Commercial
    
    
    30,976
    
    
    
    742
    
    
    
    4.83
    
    
    
    26,861
    
    
    
    872
    
    
    
    6.53Total corporate loans
    
    
    331,994
    
    
    
    9,939
    
    
    
    6.04
    
    
    
    263,458
    
    
    
    8,954
    
    
    
    6.83Total loans
    
    
    476,183
    
    
    
    13,754
    
    
    
    5.82
    
    
    
    374,741
    
    
    
    12,067
    
    
    
    6.48Total interest-earning assets
    
    
    749,965
    
    
    
    20,132
    
    
    
    5.41
    %
    
    
    645,289
    
    
    
    18,843
    
    
    
    5.87
    %Allowance for loan losses
    
    
    (6,100
    )
    
    
    
    
    
    
    
    
    
    
    (4,882
    )Other assets
    
    
    30,689
    
    
    
    
    
    
    
    
    
    
    
    25,510Total assets
    
    $
    774,554
    
    
    
    
    
    
    
    
    
    
    $
    665,917Liabilities and Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    18,388
    
    
    $
    18
    
    
    
    0.20
    %
    
    $
    17,697
    
    
    $
    17
    
    
    
    0.19
    %Regular savings accounts
    
    
    63,644
    
    
    
    441
    
    
    
    1.40
    
    
    
    33,544
    
    
    
    149
    
    
    
    0.89Money market accounts
    
    
    77,276
    
    
    
    635
    
    
    
    1.66
    
    
    
    76,829
    
    
    
    943
    
    
    
    2.47Certificates of deposit
and escrow
    
    
    242,013
    
    
    
    4,151
    
    
    
    3.46
    
    
    
    179,966
    
    
    
    3,937
    
    
    
    4.40Total interest-bearing deposits
    
    
    401,321
    
    
    
    5,245
    
    
    
    2.64
    
    
    
    308,036
    
    
    
    5,046
    
    
    
    3.29Borrowed funds:Long-term borrowed funds
    
    
    257,697
    
    
    
    5,544
    
    
    
    4.34
    
    
    
    257,164
    
    
    
    5,606
    
    
    
    4.38Short-term borrowed funds
    
    
    10,717
    
    
    
    43
    
    
    
    0.81
    
    
    
    8,309
    
    
    
    78
    
    
    
    1.89Total borrowed funds
    
    
    268,414
    
    
    
    5,587
    
    
    
    4.20
    
    
    
    265,473
    
    
    
    5,684
    
    
    
    4.31Total interest-bearing liabilities
    
    
    669,735
    
    
    
    10,832
    
    
    
    3.26
    %
    
    
    573,509
    
    
    
    10,730
    
    
    
    3.76
    %Non-interest-bearing deposits
    
    
    29,397
    
    
    
    
    
    
    
    
    
    
    
    28,576Other liabilities
    
    
    2,975
    
    
    
    
    
    
    
    
    
    
    
    3,008Total liabilities
    
    
    702,107
    
    
    
    
    
    
    
    
    
    
    
    605,093Stockholders equity
    
    
    72,447
    
    
    
    
    
    
    
    
    
    
    
    60,824Total liabilities and
stockholders equity
    
    $
    774,554
    
    
    
    
    
    
    
    
    
    
    $
    665,917Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.15
    %
    
    
    
    
    
    
    
    
    
    
    2.11
    %Net interest income
    
    
    
    
    
    $
    9,300
    
    
    
    
    
    
    
    
    
    
    $
    8,113Net interest margin on average earning assets
    
    
    
    
    
    
    
    
    
    
    2.50
    %
    
    
    
    
    
    
    
    
    
    
    2.53
    %
 22




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES:
        Regulatory Thresholdfor “Well
Capitalized”Category
    
    06/30/09
    
    12/31/08LSB Corporation Tier 1 risk-based
    
    
    6.0
    %
    
    
    12.72
    %
    
    
    13.30
    %River Bank Tier 1 leverage ratio
    
    
    5.0
    %
    
    
    8.14
    %
    
    
    8.18
    %River Bank Tier 1 risk-based
    
    
    6.0
    %
    
    
    11.55
    %
    
    
    11.83
    %River Bank total risk-based
    
    
    10.0
    %
    
    
    12.73
    %
    
    
    12.97
    %
  
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  23




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##### Table of Contents



ITEM 4: CONTROLS AND PROCEDURES
   
 PART
II  OTHER INFORMATION
 
   
   
  (a)
    
    None.(b)
    
    None.(c)
    
    None.
 
   
   
  (a)
    
    None(b)
    
    None
 24




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##### Table of Contents



Number
    
    Description2
    
    Plan of Reorganization and Acquisition, dated as of March 12, 2001 between LSB Corporation
and Lawrence Savings Bank (Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
filed July 2, 2001, (File Number 000-32955) and incorporated herein by reference)3(i).1
    
    Articles of Organization of LSB Corporation (Filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and incorporated by reference)3(i).2
    
    Articles of Amendment of the Articles of Organization of LSB Corporation, as submitted for
filing in the Office of the Secretary of the Commonwealth of Massachusetts on December 30,
2005, (Filed as Exhibit 3(i).1 to the Companys Current Report on Form 8-K filed January 6,
2006, and incorporated herein by reference)3(ii)
    
    Amended and Restated By-Laws of LSB Corporation (Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed October 31, 2007, and incorporated herein by reference)3(iii)
    
    Lawrence Savings Bank Certificate of Vote of Directors Establishing a Series of a Class of
Stock (Filed as Exhibit 3(iii) to the Companys 2005 Annual Report on Form 10-K and
incorporated herein by reference)4.1
    
    Specimen certificate of shares of common stock of the Company (Filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K filed July 2, 2001, (File Number 000-32955) and
incorporated herein by reference)4.2
    
    Renewed Rights Agreement dated as of November 17, 2005, between LSB Corporation and
Computershare Trust Company, N.A., as Rights Agent (Filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K filed January 31, 2006, and incorporated herein by reference)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.
 25




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##### Table of Contents



LSB CORPORATIONAugust 12, 2009
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive OfficerAugust 12, 2009
    /s/ Diane L. WalkerDiane L. WalkerExecutive Vice President, Treasurer and
Chief Financial Officer 26




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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
    
    
    2831.2
    
    Certification of Chief Financial Officer under Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    2932.1
    
    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
    
    
    3032.2
    
    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
    
    
    31
 27