##### 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 June 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
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
  o þ
  Class
    
    Outstanding as of August 6, 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
    
    
    25ITEM 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
  
 
 June 30,
    
    
    December 31,2010
    
    
    2009(In thousands, except share data)ASSETSAssets:Cash and due from banks
    
    $
    7,536
    
    
    $
    8,615Federal funds sold
    
    
    10,222
    
    
    
    6,597Total cash and cash equivalents
    
    
    17,758
    
    
    
    15,212Investment securities available for sale, at fair value,
amortized cost of $193,945 in 2010 and $224,130 in 2009
    
    
    202,270
    
    
    
    230,533Federal Home Loan Bank stock, at cost
    
    
    11,825
    
    
    
    11,825Loans, net of allowance for loan losses
of $7,467 in 2010 and $7,168 in 2009
    
    
    535,046
    
    
    
    529,451Premises and equipment
    
    
    8,501
    
    
    
    7,209Accrued interest receivable
    
    
    2,593
    
    
    
    2,727Deferred income tax asset, net
    
    
    3,087
    
    
    
    4,315Bank-owned life insurance
    
    
    11,350
    
    
    
    11,120Prepaid FDIC insurance
    
    
    2,674
    
    
    
    3,069Other assets
    
    
    1,813
    
    
    
    1,137Total assets
    
    $
    796,917
    
    
    $
    816,598LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Core deposits
    
    $
    273,805
    
    
    $
    252,389Term deposits
    
    
    218,742
    
    
    
    240,405Total deposits
    
    
    492,547
    
    
    
    492,794Long-term borrowed funds
    
    
    221,889
    
    
    
    245,971Short-term borrowed funds
    
    
    8,209
    
    
    
    7,111Subordinated debt
    
    
    6,000
    
    
    
    6,000Mortgagors escrow accounts
    
    
    741
    
    
    
    776Other liabilities
    
    
    3,444
    
    
    
    3,426Total liabilities
    
    
    732,830
    
    
    
    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
June 30, 2010 and December 31, 2009, respectively
    
    
    451
    
    
    
    451Additional paid-in capital
    
    
    60,004
    
    
    
    60,004Accumulated deficit
    
    
    (1,378
    )
    
    
    (3,802
    )Accumulated other comprehensive income, net of tax
    
    
    5,010
    
    
    
    3,867Total stockholders equity
    
    
    64,087
    
    
    
    60,520Total liabilities and stockholders equity
    
    $
    796,917
    
    
    $
    816,598
  3




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##### Table of Contents



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except share data)Interest and dividend income:Loans
    
    $
    7,862
    
    
    $
    7,077
    
    
    $
    15,568
    
    
    $
    13,754Investment securities available for sale
    
    
    2,112
    
    
    
    3,003
    
    
    
    4,490
    
    
    
    6,367Short term investments
    
    
    5
    
    
    
    7
    
    
    
    14
    
    
    
    11Total interest and dividend income
    
    
    9,979
    
    
    
    10,087
    
    
    
    20,072
    
    
    
    20,132Interest expense:Deposits
    
    
    1,959
    
    
    
    2,585
    
    
    
    4,191
    
    
    
    5,245Long-term borrowed funds
    
    
    2,280
    
    
    
    2,770
    
    
    
    4,773
    
    
    
    5,544Short-term borrowed funds
    
    
    3
    
    
    
    4
    
    
    
    7
    
    
    
    43Subordinated debt
    
    
    132
    
    
    
    
    
    
    
    261
    
    
    
    Total interest expense
    
    
    4,374
    
    
    
    5,359
    
    
    
    9,232
    
    
    
    10,832Net interest income
    
    
    5,605
    
    
    
    4,728
    
    
    
    10,840
    
    
    
    9,300Provision for loan losses
    
    
    700
    
    
    
    460
    
    
    
    1,400
    
    
    
    700Net interest income after provision for loan losses
    
    
    4,905
    
    
    
    4,268
    
    
    
    9,440
    
    
    
    8,600Non-interest income:Deposit account fees
    
    
    236
    
    
    
    234
    
    
    
    460
    
    
    
    457Loan servicing fees, net
    
    
    69
    
    
    
    65
    
    
    
    151
    
    
    
    116Gains on sales of investments
    
    
    679
    
    
    
    232
    
    
    
    1,376
    
    
    
    458Income on bank-owned life insurance
    
    
    115
    
    
    
    124
    
    
    
    230
    
    
    
    249Prepayment penalty on FHLB advances
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    Other income
    
    
    139
    
    
    
    119
    
    
    
    261
    
    
    
    225Total non-interest income
    
    
    1,238
    
    
    
    774
    
    
    
    2,329
    
    
    
    1,505Non-interest expense:Salaries and employee benefits
    
    
    1,929
    
    
    
    1,627
    
    
    
    3,745
    
    
    
    3,370Occupancy and equipment
    
    
    467
    
    
    
    346
    
    
    
    942
    
    
    
    720Data processing
    
    
    295
    
    
    
    233
    
    
    
    535
    
    
    
    473Professional
    
    
    129
    
    
    
    152
    
    
    
    241
    
    
    
    337Marketing
    
    
    96
    
    
    
    117
    
    
    
    241
    
    
    
    259Other real estate owned
    
    
    10
    
    
    
    
    
    
    
    15
    
    
    
    2FDIC deposit insurance
    
    
    200
    
    
    
    369
    
    
    
    411
    
    
    
    760Other
    
    
    472
    
    
    
    613
    
    
    
    948
    
    
    
    1,158Total non-interest expense
    
    
    3,598
    
    
    
    3,457
    
    
    
    7,078
    
    
    
    7,079Income before income tax expense
    
    
    2,545
    
    
    
    1,585
    
    
    
    4,691
    
    
    
    3,026Income tax expense
    
    
    946
    
    
    
    524
    
    
    
    1,546
    
    
    
    1,001Net income before preferred stock
dividends and accretion
    
    
    1,599
    
    
    
    1,061
    
    
    
    3,145
    
    
    
    2,025Preferred stock dividends and accretion
    
    
    
    
    
    
    (215
    )
    
    
    
    
    
    
    (374
    )Net income available to common shareholders
    
    $
    1,599
    
    
    $
    846
    
    
    $
    3,145
    
    
    $
    1,651Average basic common shares outstanding
    
    
    4,506,686
    
    
    
    4,471,382
    
    
    
    4,506,686
    
    
    
    4,471,163Common stock equivalents
    
    
    3,538
    
    
    
    1,683
    
    
    
    2,935
    
    
    
    882Average diluted common shares outstanding
    
    
    4,510,224
    
    
    
    4,473,065
    
    
    
    4,509,621
    
    
    
    4,472,045Basic earnings per share
    
    $
    0.35
    
    
    $
    0.19
    
    
    $
    0.70
    
    
    $
    0.36Diluted earnings per share
    
    $
    0.35
    
    
    $
    0.19
    
    
    $
    0.70
    
    
    $
    0.36
  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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,145
    
    
    
    
    
    
    
    3,145Other comprehensive income -
Unrealized gain on securities
available for sale
(tax effect $780)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,143
    
    
    
    1,143Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,288Dividends declared and paid
($0.16 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (721
    )
    
    
    
    
    
    
    (721
    )Balance at June 30, 2010
    
    $
    
    
    
    $
    451
    
    
    $
    60,004
    
    
    $
    (1,378
    )
    
    $
    5,010
    
    
    $
    64,087
  5




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##### Table of Contents



Six months ended June 30,2010
    
    
    2009(In thousands)Cash flows from operating activities:Net income
    
    $
    3,145
    
    
    $
    1,651Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    1,400
    
    
    
    700Gains on sales of securities
    
    
    (1,376
    )
    
    
    (458
    )Net accretion of investment securities
    
    
    (110
    )
    
    
    (393
    )Depreciation and amortization of premises and equipment
    
    
    388
    
    
    
    290Decrease in accrued interest receivable
    
    
    134
    
    
    
    34Deferred income tax benefit
    
    
    (137
    )
    
    
    (115
    )Stock-based compensation
    
    
    
    
    
    
    14Income on bank-owned life insurance
    
    
    (230
    )
    
    
    (249
    )Decrease (increase) in other assets and prepaid FDIC Insurance
    
    
    304
    
    
    
    (52
    )Increase in other liabilities
    
    
    18
    
    
    
    717Net cash provided by operating activities
    
    
    3,536
    
    
    
    2,139Cash flows from investing activities:Proceeds from maturities of investment securities available for sale
    
    
    16,779
    
    
    
    7,987Proceeds from sales of investment securities available for sale
    
    
    25,598
    
    
    
    8,291Purchases of investment securities available for sale
    
    
    (39,929
    )
    
    
    (24,288
    )Principal payments of investment securities available for sale
    
    
    29,224
    
    
    
    45,816Loan originations, net of principal payments
    
    
    (7,248
    )
    
    
    (42,474
    )Loans purchased
    
    
    
    
    
    
    (6,837
    )Proceeds from sales of other real estate owned
    
    
    253
    
    
    
    Purchases of premises and equipment
    
    
    (1,680
    )
    
    
    (1,093
    )Net cash provided by (used in) investing activities
    
    
    22,997
    
    
    
    (12,598
    )Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (247
    )
    
    
    40,068Additions to long-term borrowed funds
    
    
    9,000
    
    
    
    Payments on long-term borrowed funds
    
    
    (33,082
    )
    
    
    (5,078
    )Net increase (decrease) in short-term borrowed funds
    
    
    1,098
    
    
    
    (10,218
    )(Decrease) increase in mortgagors escrow accounts
    
    
    (35
    )
    
    
    13Dividends paid to preferred shareholders
    
    
    
    
    
    
    (319
    )Dividends paid to common shareholders
    
    
    (721
    )
    
    
    (894
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    30Net cash (used in) provided by financing activities
    
    
    (23,987
    )
    
    
    23,602Net increase in cash and cash equivalents
    
    
    2,546
    
    
    
    13,143Cash and cash equivalents, beginning of period
    
    
    15,212
    
    
    
    13,328Cash and cash equivalents, end of period
    
    $
    17,758
    
    
    $
    26,471Cash paid during the period for:Interest on deposits
    
    $
    4,201
    
    
    $
    5,257Interest on borrowed funds
    
    
    5,158
    
    
    
    5,654Income taxes paid
    
    
    1,592
    
    
    
    1,235Supplemental non cash investing and financing activities:Transfers to other real estate owned
    
    
    253
    
    
    
    
  6




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##### Table of Contents



7




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##### Table of Contents



6/30/10
    
    
    12/31/09Amortized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Debt securities:U.S. Treasury obligations
    
    $
    5,548
    
    
    $
    342
    
    
    $
    
    
    
    $
    5,890
    
    
    $
    5,557
    
    
    $
    237
    
    
    $
    
    
    
    $
    5,794Government-sponsored
enterprise obligations (1)
    
    
    39,844
    
    
    
    360
    
    
    
    
    
    
    
    40,204
    
    
    
    33,379
    
    
    
    188
    
    
    
    (49
    )
    
    
    33,518Residential mortgage-backed:U.S. government guaranteed
    
    
    13,102
    
    
    
    718
    
    
    
    
    
    
    
    13,820
    
    
    
    16,037
    
    
    
    483
    
    
    
    
    
    
    
    16,520Government-sponsored
enterprises
    
    
    92,021
    
    
    
    5,993
    
    
    
    (7
    )
    
    
    98,007
    
    
    
    118,537
    
    
    
    5,543
    
    
    
    (71
    )
    
    
    124,009Residential collateralized
mortgage obligations:U.S. government guaranteed
    
    
    25,435
    
    
    
    727
    
    
    
    
    
    
    
    26,162
    
    
    
    21,965
    
    
    
    94
    
    
    
    (80
    )
    
    
    21,979Government-sponsored
enterprises
    
    
    14,537
    
    
    
    302
    
    
    
    
    
    
    
    14,839
    
    
    
    21,283
    
    
    
    389
    
    
    
    
    
    
    
    21,672Private-label
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,415
    
    
    
    93
    
    
    
    
    
    
    
    1,508Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,489
    
    
    
    
    
    
    
    (111
    )
    
    
    2,378Total debt securities
    
    
    190,487
    
    
    
    8,442
    
    
    
    (7
    )
    
    
    198,922
    
    
    
    220,662
    
    
    
    7,027
    
    
    
    (311
    )
    
    
    227,378Equity securities:Mutual funds
    
    
    1,000
    
    
    
    
    
    
    
    (8
    )
    
    
    992
    
    
    
    1,000
    
    
    
    
    
    
    
    (34
    )
    
    
    966Equity securities
    
    
    2,458
    
    
    
    
    
    
    
    (102
    )
    
    
    2,356
    
    
    
    2,468
    
    
    
    
    
    
    
    (279
    )
    
    
    2,189Total equity securities
    
    
    3,458
    
    
    
    
    
    
    
    (110
    )
    
    
    3,348
    
    
    
    3,468
    
    
    
    
    
    
    
    (313
    )
    
    
    3,155Total investment securities
    
    $
    193,945
    
    
    $
    8,442
    
    
    $
    (117
    )
    
    $
    202,270
    
    
    $
    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.  8




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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)Debt securities:Residential mortgage-
backed securities
    
    $
    1,500
    
    
    $
    (7
    )
    
    $
    
    
    
    $
    
    
    
    $
    1,500
    
    
    $
    (7
    )Total debt securities
    
    
    1,500
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    (7
    )Equity securities:Mutual funds
    
    
    
    
    
    
    
    
    
    
    992
    
    
    
    (8
    )
    
    
    992
    
    
    
    (8
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    1,938
    
    
    
    (102
    )
    
    
    1,938
    
    
    
    (102
    )Total equity securities
    
    
    
    
    
    
    
    
    
    
    2,930
    
    
    
    (110
    )
    
    
    2,930
    
    
    
    (110
    )Total temporarily impaired
securities
    
    $
    1,500
    
    
    $
    (7
    )
    
    $
    2,930
    
    
    $
    (110
    )
    
    $
    4,430
    
    
    $
    (117
    )
   Amortized Cost
    
    
    Fair Value(In thousands)Debt securities:Within 1 year
    
    $
    505
    
    
    $
    506After 1 year through 5 years
    
    
    51,303
    
    
    
    52,127After 5 years through 10 years
    
    
    19,409
    
    
    
    19,992After 10 years
    
    
    119,270
    
    
    
    126,297Total debt securities
    
    $
    190,487
    
    
    $
    198,922
    9




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##### Table of Contents



June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In thousands)Financial assets:Cash and due from banks
    
    $
    7,536
    
    
    $
    7,536
    
    
    $
    8,615
    
    
    $
    8,615Federal Funds sold
    
    
    10,222
    
    
    
    10,222
    
    
    
    6,597
    
    
    
    6,597Investment securities available for sale
    
    
    202,270
    
    
    
    202,270
    
    
    
    230,533
    
    
    
    230,533Federal Home Loan Bank stock
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825
    
    
    
    11,825Accrued interest receivable
    
    
    2,593
    
    
    
    2,593
    
    
    
    2,727
    
    
    
    2,727Loans, net
    
    
    535,046
    
    
    
    538,818
    
    
    
    529,451
    
    
    
    526,087Financial liabilities:Core deposits
    
    
    273,805
    
    
    
    273,805
    
    
    
    252,389
    
    
    
    252,389Certificates of deposit
    
    
    218,742
    
    
    
    223,250
    
    
    
    240,405
    
    
    
    244,002Borrowed funds
    
    
    236,098
    
    
    
    257,510
    
    
    
    259,082
    
    
    
    272,320Mortgagors escrow accounts
    
    
    741
    
    
    
    741
    
    
    
    776
    
    
    
    776Accrued interest payable
    
    
    858
    
    
    
    858
    
    
    
    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
    
    $
    5,890
    
    
    $
    
    
    
    $
    
    
    
    $
    5,890All other debt securities
    
    
    
    
    
    
    193,032
    
    
    
    
    
    
    
    193,032Equity securities
    
    
    1,937
    
    
    
    995
    
    
    
    416
    
    
    
    3,348Total recurring assets
    
    $
    7,827
    
    
    $
    194,027
    
    
    $
    416
    
    
    $
    202,270
 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
    
    
    Six months endedJune 30, 2010
    
    
    June 30, 20102010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total Losses
    
    
    Total Losses(In thousands)Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    2,616
    
    
    $
    773
    
    
    $
    1,053Year 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




---



##### Table of Contents



FINANCIAL CONDITION
 SUMMARY
  Investments:
   Loans:
   6/30/10
    
    
    12/31/09(In thousands)Residential real estate
    
    $
    134,573
    
    
    $
    131,441Home equity lines and second mortgages
    
    
    28,593
    
    
    
    27,003Consumer
    
    
    699
    
    
    
    657Retail loans
    
    
    163,865
    
    
    
    159,101Construction and land development
    
    
    53,407
    
    
    
    62,772Commercial real estate
    
    
    284,242
    
    
    
    282,716Commercial business
    
    
    40,999
    
    
    
    32030Corporate loans
    
    
    378,648
    
    
    
    377,518Total loans
    
    
    542,513
    
    
    
    536,619Allowance for loan losses
    
    
    (7,467
    )
    
    
    (7,168
    )Net loans
    
    $
    535,046
    
    
    $
    529,451
 14




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##### Table of Contents



Allowance For Loan Losses:
  Three months ended
    
    
    Six months ended6/30/10
    
    
    6/30/09
    
    
    6/30/10
    
    
    6/30/09(Dollars in thousands)Beginning balance
    
    $
    7,277
    
    
    $
    6,089
    
    
    $
    7,168
    
    
    $
    5,885Provision for loan losses
    
    
    700
    
    
    
    460
    
    
    
    1,400
    
    
    
    700Recoveries on loans previously charged-off
    
    
    4
    
    
    
    1
    
    
    
    5
    
    
    
    2Loans charged-off
    
    
    (514
    )
    
    
    (151
    )
    
    
    (1,106
    )
    
    
    (188
    )Ending balance
    
    $
    7,467
    
    
    $
    6,399
    
    
    $
    7,467
    
    
    $
    6,399Ratios:Annualized net charge-offs to average
loans outstanding
    
    
    0.37
    %
    
    
    0.12
    %
    
    
    0.41
    %
    
    
    0.08
    %Allowance for loan losses to total
loans at end of period
    
    
    1.38
    %
    
    
    1.28
    %
    
    
    1.38
    %
    
    
    1.28
    %
   Risk Assets:
   15




---



##### Table of Contents



6/30/10
    
    
    12/31/09
    
    
    6/30/09(Dollars in thousands)Non-performing loans:Residential real estate
    
    $
    1,311
    
    
    $
    1,211
    
    
    $
    442Construction and land development
    
    
    1,713
    
    
    
    2,527
    
    
    
    349Commercial real estate
    
    
    2,344
    
    
    
    1,528
    
    
    
    3,282Commercial business
    
    
    646
    
    
    
    683
    
    
    
    Equity
    
    
    39
    
    
    
    54
    
    
    
    66Total non-performing loans
    
    
    6,053
    
    
    
    6,003
    
    
    
    4,139Other real estate owned
    
    
    
    
    
    
    
    
    
    
    120Total risk assets
    
    $
    6,053
    
    
    $
    6,003
    
    
    $
    4,259Restructured loans  accruing
    
    $
    5,779
    
    
    $
    2,634
    
    
    $
    1,540Risk assets as a percent of total loans and OREO
    
    
    1.12
    %
    
    
    1.12
    %
    
    
    0.85
    %Risk assets as a percent of total assets
    
    
    0.76
    %
    
    
    0.74
    %
    
    
    0.54
    %
 Deposits:
   16




---



##### Table of Contents



6/30/10
    
    
    12/31/09(In thousands)NOW accounts
    
    $
    23,749
    
    
    $
    20,739Demand deposit accounts
    
    
    37,717
    
    
    
    34,368Savings accounts
    
    
    101,284
    
    
    
    90,642Money market accounts
    
    
    111,055
    
    
    
    106,640Core deposits
    
    
    273,805
    
    
    
    252,389Brokered certificates of deposit
    
    
    20,411
    
    
    
    29,344Certificates of deposit
    
    
    198,331
    
    
    
    211,061Term deposits
    
    
    218,742
    
    
    
    240,405Total deposits
    
    $
    492,547
    
    
    $
    492,794
 Borrowed Funds:
   6/30/10
    
    
    12/31/09(In thousands)Long-term borrowed funds:FHLBB long-term advances
    
    $
    181,889
    
    
    $
    205,971Subordinated debt
    
    
    6,000
    
    
    
    6,000Wholesale repurchase agreements
    
    
    40,000
    
    
    
    40,000227,889
    
    
    
    251,971Short-term borrowed funds:FHLBB short-term borrowings
    
    
    3,000
    
    
    
    Customer repurchase agreements
    
    
    5,209
    
    
    
    7,1118,209
    
    
    
    7,111Total borrowed funds
    
    $
    236,098
    
    
    $
    259,082
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2010 and 2009
 SUMMARY
  17




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##### Table of Contents



Net Interest Income:
  Interest and Dividend Income:
    Interest Expense:
    18




---



##### Table of Contents



Provision for Loan Losses:
  Non-Interest Income:
  Non-Interest Expense:
  Income Taxes:
  19




---



##### Table of Contents



Three months ended
    
    
    Three months ended6/30/10
    
    
    6/30/09Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    9,267
    
    
    $
    5
    
    
    
    0.22
    %
    
    $
    17,269
    
    
    $
    7
    
    
    
    0.16
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    45,859
    
    
    
    238
    
    
    
    2.08
    
    
    
    21,138
    
    
    
    179
    
    
    
    3.40Other bonds and equity securities
    
    
    15,203
    
    
    
    49
    
    
    
    1.29
    
    
    
    19,357
    
    
    
    125
    
    
    
    2.59Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    161,269
    
    
    
    1,825
    
    
    
    4.54
    
    
    
    208,114
    
    
    
    2,699
    
    
    
    5.20Total investment securities
    
    
    231,598
    
    
    
    2,117
    
    
    
    3.67
    
    
    
    265,878
    
    
    
    3,010
    
    
    
    4.54Loans:Residential real estate
    
    
    133,633
    
    
    
    1,769
    
    
    
    5.31
    
    
    
    122,415
    
    
    
    1,680
    
    
    
    5.50Home equity
    
    
    28,049
    
    
    
    268
    
    
    
    3.83
    
    
    
    24,558
    
    
    
    248
    
    
    
    4.05Consumer
    
    
    662
    
    
    
    7
    
    
    
    4.24
    
    
    
    634
    
    
    
    11
    
    
    
    6.96Total retail loans
    
    
    162,344
    
    
    
    2,044
    
    
    
    5.05
    
    
    
    147,607
    
    
    
    1,939
    
    
    
    5.27Construction and land
    
    
    57,966
    
    
    
    828
    
    
    
    5.73
    
    
    
    75,308
    
    
    
    1,014
    
    
    
    5.40Commercial real estate
    
    
    283,763
    
    
    
    4,456
    
    
    
    6.30
    
    
    
    234,589
    
    
    
    3,752
    
    
    
    6.42Commercial
    
    
    39,934
    
    
    
    534
    
    
    
    5.36
    
    
    
    30,044
    
    
    
    372
    
    
    
    4.97Total corporate loans
    
    
    381,663
    
    
    
    5,818
    
    
    
    6.11
    
    
    
    339,941
    
    
    
    5,138
    
    
    
    6.06Total loans
    
    
    544,007
    
    
    
    7,862
    
    
    
    5.80
    
    
    
    487,548
    
    
    
    7,077
    
    
    
    5.82Total interest-earning assets
    
    
    775,605
    
    
    
    9,979
    
    
    
    5.16
    %
    
    
    753,426
    
    
    
    10,087
    
    
    
    5.37
    %Allowance for loan losses
    
    
    (7,432
    )
    
    
    
    
    
    
    
    
    
    
    (6,232
    )Other assets
    
    
    36,397
    
    
    
    
    
    
    
    
    
    
    
    30,861Total assets
    
    $
    804,570
    
    
    
    
    
    
    
    
    
    
    $
    778,055Liabilities and Stockholders
EquityDeposits:NOW accounts
    
    $
    23,967
    
    
    $
    23
    
    
    
    0.38
    %
    
    $
    18,590
    
    
    $
    9
    
    
    
    0.19
    %Regular savings accounts
    
    
    102,802
    
    
    
    227
    
    
    
    0.89
    
    
    
    67,559
    
    
    
    221
    
    
    
    1.31Money market accounts
    
    
    118,029
    
    
    
    323
    
    
    
    1.10
    
    
    
    76,803
    
    
    
    281
    
    
    
    1.47Certificates of deposit
and escrow
    
    
    222,068
    
    
    
    1,386
    
    
    
    2.50
    
    
    
    245,892
    
    
    
    2,074
    
    
    
    3.38Total interest-bearing deposits
    
    
    466,866
    
    
    
    1,959
    
    
    
    1.68
    
    
    
    408,844
    
    
    
    2,585
    
    
    
    2.54Borrowed funds:Long-term borrowed funds
    
    
    231,584
    
    
    
    2,412
    
    
    
    4.18
    
    
    
    256,405
    
    
    
    2,770
    
    
    
    4.33Short-term borrowed funds
    
    
    5,700
    
    
    
    3
    
    
    
    0.21
    
    
    
    6,161
    
    
    
    4
    
    
    
    0.26Total borrowed funds
    
    
    237,284
    
    
    
    2,415
    
    
    
    4.08
    
    
    
    262,566
    
    
    
    2,774
    
    
    
    4.24Total interest-bearing liabilities
    
    
    704,150
    
    
    
    4,374
    
    
    
    2.49
    %
    
    
    671,410
    
    
    
    5,359
    
    
    
    3.20
    %Non-interest-bearing deposits
    
    
    35,206
    
    
    
    
    
    
    
    
    
    
    
    30,515Other liabilities
    
    
    2,701
    
    
    
    
    
    
    
    
    
    
    
    3,013Total liabilities
    
    
    742,057
    
    
    
    
    
    
    
    
    
    
    
    704,938Stockholders equity
    
    
    62,513
    
    
    
    
    
    
    
    
    
    
    
    73,117Total liabilities and
stockholders equity
    
    $
    804,570
    
    
    
    
    
    
    
    
    
    
    $
    778,055Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.67
    %
    
    
    
    
    
    
    
    
    
    
    2.17
    %Net interest income
    
    
    
    
    
    $
    5,605
    
    
    
    
    
    
    
    
    
    
    $
    4,728Net interest margin on average
earning assets
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.52
    %
 20




---



##### Table of Contents



SIX MONTHS ENDED JUNE 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



Six months ended
    
    
    Six months ended6/30/10
    
    
    6/30/09Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    InterestBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInvestment securities:Short-term investments
    
    $
    11,387
    
    
    $
    14
    
    
    
    0.25
    %
    
    $
    13,017
    
    
    $
    11
    
    
    
    0.17
    %U. S. Treasury and government-
sponsored enterprise obligations
    
    
    42,808
    
    
    
    456
    
    
    
    2.15
    
    
    
    21,381
    
    
    
    371
    
    
    
    3.50Corporate and other
investment securities
    
    
    16,147
    
    
    
    127
    
    
    
    1.59
    
    
    
    19,697
    
    
    
    253
    
    
    
    2.59Collateralized mortgage
obligations and mortgage-
backed securities
    
    
    170,794
    
    
    
    3,907
    
    
    
    4.61
    
    
    
    219,687
    
    
    
    5,743
    
    
    
    5.27Total investment securities
    
    
    241,136
    
    
    
    4,504
    
    
    
    3.77
    
    
    
    273,782
    
    
    
    6,378
    
    
    
    4.70Loans:Residential real estate
    
    
    133,297
    
    
    
    3,539
    
    
    
    5.35
    
    
    
    119,304
    
    
    
    3,294
    
    
    
    5.57Home equity
    
    
    27,653
    
    
    
    528
    
    
    
    3.85
    
    
    
    24,179
    
    
    
    497
    
    
    
    4.15Consumer
    
    
    667
    
    
    
    18
    
    
    
    5.44
    
    
    
    706
    
    
    
    24
    
    
    
    6.86Total retail loans
    
    
    161,617
    
    
    
    4,085
    
    
    
    5.10
    
    
    
    144,189
    
    
    
    3,815
    
    
    
    5.34Construction and land
    
    
    60,511
    
    
    
    1,668
    
    
    
    5.56
    
    
    
    74,966
    
    
    
    1,983
    
    
    
    5.33Commercial real estate
    
    
    283,001
    
    
    
    8,875
    
    
    
    6.32
    
    
    
    226,052
    
    
    
    7,214
    
    
    
    6.44Commercial
    
    
    36,558
    
    
    
    940
    
    
    
    5.19
    
    
    
    30,976
    
    
    
    742
    
    
    
    4.83Total corporate loans
    
    
    380,070
    
    
    
    11,483
    
    
    
    6.09
    
    
    
    331,994
    
    
    
    9,939
    
    
    
    6.04Total loans
    
    
    541,687
    
    
    
    15,568
    
    
    
    5.80
    
    
    
    476,183
    
    
    
    13,754
    
    
    
    5.82Total interest-earning assets
    
    
    782,823
    
    
    
    20,072
    
    
    
    5.17
    %
    
    
    749,965
    
    
    
    20,132
    
    
    
    5.41
    %Allowance for loan losses
    
    
    (7,409
    )
    
    
    
    
    
    
    
    
    
    
    (6,100
    )Other assets
    
    
    36,839
    
    
    
    
    
    
    
    
    
    
    
    30,689Total assets
    
    $
    812,253
    
    
    
    
    
    
    
    
    
    
    $
    774,554Liabilities and
Stockholders EquityDeposits:NOW and super NOW accounts
    
    $
    22,599
    
    
    $
    42
    
    
    
    0.37
    %
    
    $
    18,388
    
    
    $
    18
    
    
    
    0.20
    %Regular savings accounts
    
    
    98,926
    
    
    
    474
    
    
    
    0.97
    
    
    
    63,644
    
    
    
    441
    
    
    
    1.40Money market accounts
    
    
    116,889
    
    
    
    663
    
    
    
    1.15
    
    
    
    77,276
    
    
    
    635
    
    
    
    1.66Certificates of deposit
and escrow
    
    
    228,786
    
    
    
    3,012
    
    
    
    2.65
    
    
    
    242,013
    
    
    
    4,151
    
    
    
    3.46Total interest-bearing deposits
    
    
    467,200
    
    
    
    4,191
    
    
    
    1.81
    
    
    
    401,321
    
    
    
    5,245
    
    
    
    2.64Borrowed funds:Long-term borrowed funds
    
    
    239,410
    
    
    
    5,034
    
    
    
    4.24
    
    
    
    257,697
    
    
    
    5,544
    
    
    
    4.34Short-term borrowed funds
    
    
    5,622
    
    
    
    7
    
    
    
    0.25
    
    
    
    10,717
    
    
    
    43
    
    
    
    0.81Total borrowed funds
    
    
    245,032
    
    
    
    5,041
    
    
    
    4.15
    
    
    
    268,414
    
    
    
    5,587
    
    
    
    4.20Total interest-bearing
liabilities
    
    
    712,232
    
    
    
    9,232
    
    
    
    2.62
    %
    
    
    669,735
    
    
    
    10,832
    
    
    
    3.26
    %Non-interest-bearing deposits
    
    
    35,198
    
    
    
    
    
    
    
    
    
    
    
    29,397Other liabilities
    
    
    2,820
    
    
    
    
    
    
    
    
    
    
    
    2,975Total liabilities
    
    
    750,250
    
    
    
    
    
    
    
    
    
    
    
    702,107Stockholders equity
    
    
    62,003
    
    
    
    
    
    
    
    
    
    
    
    72,447Total liabilities and
stockholders equity
    
    $
    812,253
    
    
    
    
    
    
    
    
    
    
    $
    774,554Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.55
    %
    
    
    
    
    
    
    
    
    
    
    2.15
    %Net interest income
    
    
    
    
    
    $
    10,840
    
    
    
    
    
    
    
    
    
    
    $
    9,300Net interest margin on
average earning assets
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    2.50
    %
 23




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES:
         Regulatory Thresholdfor Well CapitalizedCategory
    
    
    06/30/10
    
    
    12/31/09
    
    
    06/30/09LSB Corporation Tier 1 risk-based
    
    
    6.0
    %
    
    
    10.31
    %
    
    
    9.74
    %
    
    
    12.72
    %River Bank Tier 1 leverage ratio
    
    
    5.0
    %
    
    
    7.25
    %
    
    
    6.85
    %
    
    
    8.14
    %River Bank Tier 1 risk-based
    
    
    6.0
    %
    
    
    10.14
    %
    
    
    9.57
    %
    
    
    11.55
    %River Bank total risk-based
    
    
    10.0
    %
    
    
    12.44
    %
    
    
    11.84
    %
    
    
    12.73
    %
  
 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
 
    
   Proposed Merger with Peoples United Financial, Inc.
  25




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##### Table of Contents



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)2.2
    
    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)
 26




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##### Table of Contents



Number
    
    Description3(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 CORPORATIONAugust 13, 2010
    /s/ Gerald T. MulliganGerald T. MulliganPresident and
Chief Executive Officer August 13, 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