SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-QSB

     [X]        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

     [ ]       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                                  EXCHANGE ACT

                For the transition period from ______ to ________

                         Commission file number 0-25070.

                               LSB FINANCIAL CORP.
        (Exact Name of Small Business Issuer as Specified in its Charter)

                Indiana                                        35-1934975
   (State or other jurisdiction of                          (I.R.S. Employer
    Incorporation or organization)                         Identification No.)

  101 Main Street, Lafayette, Indiana                             47902
(Address or principal executive offices)                       (Zip Code)

Issuer's telephone number, including area code: (765) 742-1064

     Check  whether  the Issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the Issuer was required to file such  reports),  and (2) has
been subject to such requirements for the past 90 days. YES [X] NO[ ]

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date:

              CLASS                              OUTSTANDING AT NOVEMBER 9, 1998
              -----                              -------------------------------
Common stock, par value $.01 per share                      932,936

        Transitional Small Business Disclosure Format:   YES [ ]   NO [X]

<PAGE>


LSB FINANCIAL CORP.

INDEX

PART I.   FINANCIAL INFORMATION..........................................    1
Item 1.   Financial Statements (Unaudited)...............................    1

Consolidated Statements of Financial Condition ..........................    1
Consolidated Statements of Income........................................    2
Consolidated Statements of Changes in Shareholders' Equity...............    3
Consolidated Statements of Cash Flow.....................................    4
Notes to Consolidated Financial Statements...............................  5-6

Item 2.   Management's Discussion of Recent Operating Results............ 7-11

PART II.  OTHER INFORMATION..............................................   12

          SIGNATURES.....................................................   13

          EXHIBIT INDEX..................................................   14

<PAGE>


                               LSB FINANCIAL CORP.
                        STATEMENTS OF FINANCIAL CONDITION
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                         December 31,    September 30,
                                                             1997            1998
                                                        ------------------------------
<S>                                                       <C>             <C>      
Assets
  Cash and cash equivalents                               $   9,938       $  11,223
  Available-for-sale securities                               7,863          10,783
  Loans held for sale                                         1,265           2,997
   Total loans                                              178,745         193,036
  Less: Allowance for loan losses                            (1,478)         (1,558)
                                                        ------------------------------
    Net loans                                               177,267         191,478

  Premises and equipment, net                                 4,912           4,965
  FHLB stock, at cost                                         2,600           2,825
  Accrued interest receivable and other assets                2,739           2,773
                                                        ------------------------------
   Total Assets                                           $ 206,584       $ 227,044
                                                        ==============================

Liabilities and Shareholders' Equity

Liabilities
  Deposits                                                $ 137,686       $ 157,387
  Advances from FHLB                                         50,000          50,000
  Note payable                                                  189             164
  Accrued interest payable and other liabilities                975           1,315
                                                        ------------------------------
    Total liabilities                                       188,850         208,866


Shareholders' Equity
  Common stock                                                    9               9
  Additional paid-in-capital                                  7,854           8,409
  Retained earnings                                          10,677          10,374
  Unearned ESOP shares                                         (570)           (510)
  Unamortized cost of recognition and retention plan           (242)           (175)
  Accumulated other comprehensive income                          6              71
                                                        ------------------------------
    Total shareholders' equity                               17,734          18,178
                                                        ------------------------------
Total liabilities and shareholders' equity                $ 206,584       $ 227,044
                                                        ==============================
</TABLE>

See accompanying notes

<PAGE>


                               LSB FINANCIAL CORP.
                              STATEMENTS OF INCOME
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                           Three months ended        Nine months ended
                                                              September 30,             September 30,
                                                           1997         1998         1997         1998
                                                       --------------------------------------------------
<S>                                                      <C>          <C>          <C>          <C>    
Interest Income
  Loans, including related fees                          $ 3,702      $ 4,092      $10,569      $11,863
  Available-for-sale securities                              170          199          497          617
  FHLB stock                                                  54           59          154          161
                                                       --------------------------------------------------
    Total interest income                                  3,926        4,350       11,220       12,641

Interest Expense
  Deposits                                                 1,540        1,741        4,395        4,984
  Borrowings                                                 726          772        2,020        2,272
                                                       --------------------------------------------------
    Total interest expense                                 2,266        2,513        6,415        7,256

Net interest income                                        1,660        1,837        4,805        5,385
  Provision for loan losses                                   24           30           72           84
                                                       --------------------------------------------------
Net interest income after provision for loan losses        1,636        1,807        4,733        5,301

Noninterest Income
  Service charges and fees                                   120          131          308          401
  Net gain on mortgage loans originated for sale              63           90          168          329
  Gain on sale of securities                                   0            0            0            0
  Other                                                       63           98          167          283
                                                       --------------------------------------------------
    Total noninterest income                                 246          319          643        1,013


Noninterest Expense
  Salaries and benefits                                      603          710        1,788        2,070
  Occupancy and equipment, net                               194          238          573          646
  Computer service                                            60           65          186          190
  Advertising                                                 81           80          220          257
  Other                                                      257          309          741          885
                                                       --------------------------------------------------
    Total noninterest expense                              1,195        1,402        3,508        4,048

Income before income taxes                                   687          724        1,868        2,266
  Less: income taxes                                         273          295          736          923
                                                       --------------------------------------------------
Net income                                               $   414      $   429      $ 1,132      $ 1,343
                                                       ==================================================

Earnings per share (Note 3)                              $  0.44      $  0.48      $  1.19      $  1.55
Diluted Earnings per Share                               $  0.44      $  0.46      $  1.19      $  1.49
Book value per share                                     $ 19.21      $ 20.75      $ 19.21      $ 20.75
</TABLE>

See accompanying notes

<PAGE>


                               LSB FINANCIAL CORP.
                       CONSOLIDATED STATEMENTS OF CHANGES
                             IN SHAREHOLDERS' EQUITY
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                  Unamortized
                                                                                    Cost of                  Accumulated
                                               Additional              Unearned   Recognition                   Other
                                       Common    Paid-In    Retained     ESOP    and Retention   Treasury   Comprehensive
                                        Stock    Capital    Earnings    Shares        Plan        Stock         Income       Total
                                     -----------------------------------------------------------------------------------------------
<S>                                      <C>     <C>         <C>         <C>         <C>         <C>             <C>        <C>    
Balance at January 1, 1997               $11     $10,143     $10,289     ($653)      ($332)      ($2,629)        ($33)      $16,796

Exercise of stock option                               3                                                                          3
ESOP shares earned                                    65                    62                                                  127
RRP expense                                                                             68                                       68
Treasury stock acquired and retired       (2)     (3,260)                                          2,629                       (633)
Cash dividends paid                                             (233)                                                          (233)
Stock dividends paid                                 867        (867)                                                             0
  Comprehensive income
    Net income                                                  1132                                                          1,132
    Change in unrealized gain/(loss)                                                                               30            30
                                                                                                                            -------
Total comprehensive income                                                                                                    1,162
                                     -----------------------------------------------------------------------------------------------
Balance at September 30, 1997             $9      $7,818     $10,321     ($591)      ($264)           $0          ($3)      $17,290
                                     ===============================================================================================


Balance at January 1, 1998                $9      $7,854     $10,677     ($570)      ($242)           $0           $6       $17,734
Exercise of stock option                   1          19                                                                         20
ESOP shares earned                                   129                    60                                                  189
RRP expense                                                                             67                                       67
Treasury stock acquired and retired                 (952)                                                                      (952)
Cash Dividends paid                                             (280)                                                          (280)
Stock Dividends paid                      (1)      1,359      (1,366)                                                            (8)
  Comprehensive income
    Net income                                                 1,343                                                          1,343
    Change in unrealized loss                                                                                      65            65
                                                                                                                            -------
Total comprehensive income                                                                                                    1,408
                                     -----------------------------------------------------------------------------------------------
Balance at September 30, 1998             $9      $8,409     $10,374     ($510)      ($175)           $0          $71       $18,178
                                     ===============================================================================================
</TABLE>

See accompanying notes

<PAGE>


                               LSB FINANCIAL CORP.
                            STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                           For the 9 months ended
                                                               September 30,
                                                            1997           1998
                                                        ---------------------------
<S>                                                       <C>            <C>     
Cash Flows from Operating Activities
Net Income                                                $  1,132       $  1,343
Adjustments to reconcile net income to net
  cash from operating activities
    Depreciation and amortization                              260            294
    Net amortization/(accretion) on securities                  26             (2)
    Gain on sale of securities                                   0              0
    Writedown  of loans held for sale                            0              0
    Gain on sale of loans                                     (168)          (329)
    Loans originated for sale, net of sales proceeds         5,406         (1,403)
    Deferred loan fees, net                                    (50)           (64)
    Provision for loan losses                                   72             84
    Employee stock ownership plan shares earned                127            189
    Change in assets and liabilities
      Accrued interest receivable                             (143)           (91)
      Other assets                                            (184)            72
      Accrued interest payable                                 (19)           (21)
      Other liabilities                                          1            137
                                                        ---------------------------
Net cash from operating activities                           6,460            209

Cash Flows from Investing Activities
Purchases of available-for-sale securities                  (3,672)        (6,297)
Proceeds from paydowns and maturities of
  available-for-sale securities                              1,973          3,497
Sales of available-for-sale securities                           0              0
Purchase of Federal Home Loan Bank stock                       (25)          (225)
Loans made to customers net of payments received           (21,808)       (14,232)
Property and equipment expenditures                            (52)          (347)
                                                        ---------------------------
Net cash from investing activities                         (23,584)       (17,604)

Cash Flows from Financing Activities
Net change in deposits                                      18,545         19,702
Proceeds from Federal Home Loan Bank advances               29,000         12,500
Payments on Federal Home Loan Bank advances                (32,500)       (12,500)
Net change in advances from borrowers
  for taxes and insurance                                      161            223
Payments on note payable                                       (23)           (25)
Treasury Stock Purchased                                      (633)          (952)
Dividends paid                                                (233)          (288)
Stock options exercised                                          3             20
                                                        ---------------------------
Net cash from financing activities                          14,320         18,680

Net change in cash and equivalents                          (2,804)         1,285
Cash and equivalents at January 1                            9,798          9,938
                                                        ---------------------------

Cash and equivalents at September 30                      $  6,994       $ 11,223
                                                        ===========================
</TABLE>

       See accompanying notes

<PAGE>


                               LSB FINANCIAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998

Note 1 - General

The financial  statements were prepared in accordance with the  instructions for
Form 10-QSB and, therefore,  do not include all of the disclosures necessary for
a complete  presentation of financial  position,  results of operations and cash
flows in conformity with generally accepted  accounting  principles.  Except for
the adoption of required accounting changes,  these interim financial statements
have been prepared on a basis  consistent with the annual  financial  statements
and include, in the opinion of management,  all adjustments,  consisting of only
normal recurring  adjustments,  necessary for a fair presentation of the results
of operations and financial position for and at the end of such interim periods.

Note 2 - Principles of Consolidation

The  accompanying  financial  statements  include the accounts of LSB  Financial
Corp. (the Company),  its wholly owned  subsidiary  Lafayette  Savings Bank, FSB
(the Bank) and the Bank's wholly owned subsidiaries, LSB Service Corporation and
Lafayette  Insurance and Investments,  Inc. Lafayette Insurance and Investments,
Inc.  was formed  December  30, 1996 and began  operations  in May of 1997.  All
significant intercompany transactions have been eliminated upon consolidation.

Note 3 - Earnings per share

Earnings per share are computed based upon the weighted average number of shares
outstanding  during the period.  Diluted  earnings per share further  assume the
issuance  of any  potentially  dilutive  shares.  Unearned  ESOP  shares are not
considered to be outstanding for the earnings per share computation. On June 30,
1998, a 5.00% stock dividend was paid to shareholders of record on June 8, 1998.
This  dividend  resulted in the  issuance  of 45,289  shares with a value at the
record date of $1.4  million.  All share and per share data has been restated to
reflect the effect of this dividend.  The following  table presents  information
about the number of shares used to compute earnings per share and the results of
the computations:

<TABLE>
<CAPTION>
                                            Quarter ended                Year-to-date
                                             September 30                September 30
                                          1998         1997           1998         1997
                                      -----------   -----------   -----------   -----------
<S>                                      <C>           <C>           <C>           <C>     
Weighted average shares outstanding       887,655       897,894       864,727       868,913
(excluding unearned ESOP shares)

Shares used to compute diluted
    earnings per share                    925,010       933,089       900,749       902,432


Earnings per share                       $   0.48      $   0.46      $   1.55      $   1.24

Diluted earnings per share               $   0.46      $   0.44      $   1.49      $   1.19
</TABLE>
<PAGE>

Note 4 - Accounting Changes

Effective  January 1, 1997, the Company adopted a new accounting  standard which
requires  disclosure  of  comprehensive  income for all  periods.  Comprehensive
income  includes  both  net  income  and  other  comprehensive   income.   Other
comprehensive  income  includes  the  change in  unrealized  gains and losses on
securities  available for sale, foreign currency  translation  adjustments,  and
additional minimum pension liability adjustments.



<PAGE>


         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATION


Forward Looking Statements

     Except  for  the  historical  information  contained  herein,  the  matters
discussed  in this report may be deemed to be  forward-looking  statements  that
involve risks and  uncertainties.  Words or phrases "will likely  result",  "are
expected to", "will  continue",  "is  anticipated",  "estimate",  "project",  or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private  Securities  Litigation  Reform Act of 1995.  Factors
which  could cause  actual  results to differ  include,  but are not limited to,
fluctuations in interest rates,  changes in economic conditions in the Company's
market area, changes in policies by regulatory  agencies,  the acceptance of new
products,  the impact of competitive  products and pricing,  and the other risks
detailed from time to time in the Company's's SEC reports,  including the report
on Form 10-KSB for the year ended  December  31,  1997.  These  forward  looking
statements  represent the Company's judgement as of the date of this report. The
Company   disclaims,   however,   any  intent  or  obligation  to  update  these
forward-looking statements.

Impact of the Year 2000

     The Company has conducted a comprehensive review of its computer systems to
identify  applications  that could be affected by the "Year 2000" issue, and has
developed  an  implementation  plan to address  the issue.  The  Company's  data
processing  and other  critical  systems are  supplied by outside  vendors.  The
Company has already  contacted  each vendor to request  timetables for Year 2000
compliance  and expected  costs,  if any, to be passed along to the Company.  To
date, the Company has been informed that most of its primary  service  providers
anticipate  that all  reprogramming  efforts will be completed in enough time to
allow for testing.  The Company  plans to test the mission  critical  systems by
March 1999. All vendors have either  certified their current system as Year 2000
compliant or have stated that they will provide an upgrade to the system to make
it  compliant.  The Company will pursue  other  options if it appears that these
vendors will be unable to comply. The Company has prepared contingency plans for
all mission critical  systems.  Management does not expect these costs to have a
significant impact on its financial position or results of operations,  however,
there can be no assurance that the vendors' systems will be Year 2000 compliant,
consequently  the Company  could incur  incremental  costs to convert to another
vendor.  The Company has  identified  certain of its hardware and software  that
will not be Year 2000  compliant  and has already  purchased  new  equipment and
software.  These  capital  expenditures  are  expected  to  total  approximately
$182,000.

Financial Condition

     Comparison  of Financial  Condition at September  30, 1998 and December 31,
1997.

     Total assets  increased  $20.5 million during the nine months from December
31, 1997 to


<PAGE>



September 30, 1998. This increase was primarily due to a $14.2 million  increase
in the  Company's  loan  portfolio  augmented by a $1.7 million  increase in the
Company's  loans held for sale as the Company  continued its efforts to grow and
migrate its balance sheet toward the higher-yielding multi-family and commercial
real estate,  land  development  and consumer loan  portfolios.  A $19.7 million
increase  in  deposits  was  used  to fund  loan  growth.  Non-performing  loans
increased  from $2.1  million at December  31, 1997 to $2.5 million at September
30, 1998.  Non-performing  loans at September 30, 1998 consisted of $2.1 million
of purchased equipment leases, $285,000 in single-family residences and $178,000
in  non-mortgage  loans.  Shareholders'  equity  increased from $17.7 million at
December  31,  1997 to $18.2  million at  September  30,  1998,  an  increase of
$444,000  primarily  due to $1.3 million in net income  partially  offset by the
repurchase  of an  additional  $268,000  of the  Company's  stock  as part of an
ongoing  5.00% stock  buy-back  program and by  $191,000  in cash  dividends  to
shareholders.

Comparison  of  Operating  Results  for the Nine  Months and the  Quarter  Ended
September 30, 1997 and September 30, 1998.

     General.  Net income for the nine months ended  September 30, 1998 was $1.3
million,  an increase of $211,000 or 18.64% over net income of $1.1  million for
the nine months ended  September 30, 1997.  This increase was primarily due to a
$580,000  increase  in net  interest  income  and a  $370,000  increase  in non-
interest income in the first nine months of 1998,  offset by a $540,000 increase
in operating expenses and a $187,000 increase in the provision for income taxes.
Net income for the third  quarter of 1998 was $429,000  compared to $414,000 for
the same period in 1997 due  primarily  to a $177,000  increase in net  interest
income  and a $73,000  increase  in  non-interest  income,  offset by a $207,000
increase in  non-interest  expenses and a $22,000  increase in the provision for
income taxes.

     Net  Interest  Income.  Net  interest  income  for the  nine  months  ended
September 30, 1998 increased $580,000,  or 12.07%, over the same period in 1997.
Net interest income for the third quarter of 1998 similarly  increased $177,000,
or  10.66%,  over the  same  period  in 1997.  These  increases  were  primarily
attributable to the success of management's continuing efforts to grow and focus
on higher-yielding multi-family and commercial real estate, land development and
consumer  loans.  The Company's net interest margin (net interest income divided
by average  interest-earning  assets)  decreased  from 3.55% for the nine months
ended  September 30, 1997 to 3.49% for the nine months ended September 30, 1998.
The decline in yield was offset by increased volume as average  interest-earning
assets increased from $180.6 million for the first nine months of 1997 to $206.0
million  for the first nine  months of 1998.  The  interest  rate spread for the
first nine months decreased from 3.37% for 1997 to 3.31% for 1998.

     Interest  income on loans  increased  $1.3  million  or 12.24% for the nine
months  ended  September  30,  1998  compared  to the same nine  months in 1997,
primarily  the  result  of  an  increase  of  $20.7  million  in  average  loans
outstanding.  This  increase was  primarily  due to an active  residential  real
estate market in 1998 due to a continued low interest rate environment, a strong
local economy and the ongoing success of the Company's focus on multi-family and
commercial real estate,  land  development and consumer loan  production.  These
higher-yielding  portfolios increased from $80.7 million at December 31, 1997 to
$101.9 million at September 30, 1998.


<PAGE>



The average yield on loans  remained  virtually  constant at 8.47% for the first
nine months of 1997 and 8.45% for the first nine  months of 1998,  as the higher
yield  in the  non-residential  portfolios  was  offset  by the  lower  rates on
one-to-four  family loans.  Interest income on loans increased  $390,000 for the
third  quarter of 1998  compared to the third quarter of 1997 due primarily to a
$20.7 million increase in average loans.

     Interest  earned on other  investments and FHLB stock increased by $127,000
for the nine months ended September 30, 1998 compared to the same nine months in
1997.  This was the result of an overall  $4.7  million  increase in the average
balance of other  investments  primarily due to the Company's efforts to rebuild
its liquidity  portfolio with an eye toward  addressing its relatively  high tax
burden, offset by a decrease in the average yield from 6.12% for the first three
quarters  of 1997 to 5.51% due  primarily  to  falling  interest  rates over the
period.  Interest earned on these  investments  for the third quarter  increased
$34,000  due to a $6.9  million  increase in average  investments  due to a $9.9
million  increase  in  deposits  which  were  temporarily  placed in short  term
investments  pending  anticipated loan growth and partially offset by a decrease
in average yields from 6.39% to 4.93% resulting from falling  interest rates and
the increase in shorter term investments.

     Interest  expense for the nine months ended  September  30, 1998  increased
$841,000  over the same period in 1997.  This  increase was  primarily due to an
increase of $24.5 million in average interest-bearing liabilities, consisting of
an additional  $20.0 million in the average balance of customer deposit accounts
and a $4.5  million  increase in the average  balance of Federal  Home Loan Bank
advances  drawn to fund loan demand.  The average rate paid on  interest-bearing
liabilities  was 4.92% for the first nine months of 1997 and 4.87% for the first
nine months of 1998.  Interest expense increased  $247,000 for the third quarter
of 1998 over the same period in 1997  primarily due to a $24.0 million  increase
in average  interest-bearing  liabilities  partially offset by a decrease in the
average cost of liabilities from 5.02% to 4.91% due to falling interest rates.

     Provision for Loan Losses.  The Company  establishes its provision for loan
losses based on a systematic analysis of risk factors in the loan portfolio. The
analysis includes  evaluation of concentration of credit,  past loss experience,
current economic  conditions,  the amount and composition of the loan portfolio,
estimated fair value of the underlying collateral, loan commitments outstanding,
delinquencies,  and industry standards.  From time to time, management also uses
the  services  of a  consultant  to  assist  in the  evaluation  of its  growing
multi-family  and commercial real estate loan portfolio.  Management's  analysis
results in the allocations of allowance  amounts for each loan type. During 1996
the Company recorded an $800,000 provision for loan losses primarily in response
to the situation involving Bennett Funding Group (Bennett) of Syracuse, New York
through which the Company owned $2.4 million of equipment  leases.  A settlement
involving the restructuring of these loans was reached during the second quarter
of 1997 and  resulted  in a write  down of  $319,000.  Management  continues  to
allocate  $651,000 of the $1.6 million allowance to the remaining leases and the
restructured  loan to provide for  potential  losses.  It is believed  that this
reserve  allocation will be sufficient to cover any losses. The Company recorded
an $84,000  provision  for loan losses during the first nine months of 1998 as a
result of its  analysis of the current loan  portfolio.  In addition to the $2.1
million of Bennett leases there were $463,000 of  non-performing or restructured
loans at September 30, 1998, consisting of three single


<PAGE>



family residences and seven non-mortgage  loans. The Company's allowance equaled
0.79% and 0.83% of total loans  receivable,  including  loans held for sale,  at
September  30, 1998 and September 30, 1997  respectively.  Non-performing  loans
totaled $2.1  million at December  31, 1997 and $2.5  million at  September  30,
1998, representing 1.02% and 1.11% of total assets respectively.

     Non-Interest  Income.   Non-interest  income  for  the  nine  months  ended
September  30, 1998  increased by $370,000,  or 57.54%,  over the same period in
1997.  This was primarily due to a $161,000  increase in the gain on the sale of
mortgage  loans in the  secondary  market  resulting  from the  increased  sales
activity, a $93,000 increase in service charges and fees on deposit accounts due
to the increased  number of these accounts,  and a $116,000  increase in fees on
various  debit and  credit  card  products.  Non-interest  income  for the third
quarter of 1998 increased by $73,000 over the same period in 1997, primarily due
to a $27,000  increase in the gain on the sale of loans in the secondary  market
and a $35,000 increase in fees on various debit and credit card products.

     Non-Interest  Expense.  Non-interest  expense  for the  nine  months  ended
September 30, 1998 increased  $540,000,  or 15.39% over the same period in 1997.
The major components of this increase  included a $282,000  increase in salaries
and employee benefits and a $73,000 increase in occupancy and equipment expense.
The increase in salaries was incurred primarily in connection with the increased
loan origination  activity,  and the increase in occupancy expense was primarily
due to the purchase of hardware and software in response to attaining  Year 2000
compliance.  Non-interest  expense for the third  quarter of 1998  increased  by
$207,000 over the same period in 1997,  primarily due to a $107,000  increase in
salaries and employee benefits,  and a $44,000 increase in occupancy expenses as
a result of Year 2000 compliance efforts.

     Income Tax  Expense.  The  Company's  income  tax  provision  increased  by
$187,000  for the nine months  ended  September  30,  1998  compared to the same
period in 1997.  This was  primarily due to the increase in income before income
taxes.  The  Company's  income  tax  provision  for the  third  quarter  of 1998
increased $22,000 over the same period in 1997 for the same reason.

     Liquidity.  Liquidity management is both a daily and long-term function for
the Bank's senior management.  The Bank adjusts its investment strategy,  within
the limits  established  by the  investment  policy,  based upon  assessments of
expected loan demand,  expected cash flows, FHLB advance  opportunities,  market
yields and objectives of its asset/liability  management program. Base levels of
liquidity have generally  been invested in  interest-earning  overnight and time
deposits with the FHLB of Indianapolis. Funds for which a demand is not foreseen
in the near  future are  invested in  investment  and other  securities  for the
purpose of yield enhancement and asset/liability management.

     The Bank is required to maintain  minimum levels of liquidity as defined by
regulatory agencies. The liquidity requirement,  which can vary, is based upon a
percentage  of deposits and short term  borrowings  and is currently  4.0%.  The
Bank's internal policy for liquidity is 6% to 8%. The Company's liquidity ratios
at December 31, 1997 and September 30, 1998 were 7.76% and 9.78%, respectively.


<PAGE>




     Capital Resources.  Shareholders' equity totaled $18.2 million at September
30, 1998 compared to $17.7 million at December 31, 1997, an increase of $444,000
or 2.50%, due to net income of $1.3 million, and a $256,000 decrease in unearned
ESOP shares and unamortized  cost of Bank Recognition and Retention Plan shares,
offset by $280,000 of cash dividends paid to  shareholders  and $952,000 used to
repurchase  shares.  Federal  regulations  require the Bank to maintain  certain
minimum levels of regulatory capital. The regulations currently require tangible
capital as defined by regulation  to be at least 1.5% of total  assets,  as also
defined by regulation, that core capital as defined be 4.0% of total assets, and
that risk  based  capital be at least  8.0% of  risk-based  assets as defined by
regulations. At September 30, 1998 the Bank's capital ratios were as follows:

                                                 Amount         Percent of
                                                  (000)      applicable assets
                                                 -------     -----------------
     Tangible capital                            $16,584           7.32%
     Requirement                                   3,396           1.50
                                                 -------          -----
     Excess                                      $13,188           6.19%
                                                 =======          =====


     Core capital                                $16,584           7.32%
     Requirement                                   9,056           4.00
                                                 -------          -----
     Excess                                      $ 7,528           3.32%
                                                 =======          =====


     Risk-based Capital                          $17,632          11.72%
     Requirement                                  12,039           8.00
                                                 -------          -----
     Excess                                      $ 5.593           3.72%
                                                 =======          =====



<PAGE>


                           PART II - OTHER INFORMATION



Item 1.  LEGAL PROCEEDINGS

     The Company and the Bank,  from time to time,  are involved as plaintiff or
defendant in various  legal  actions  arising in the normal  course of business.
While  the  ultimate  outcome  of these  proceedings  cannot be  predicted  with
certainty,  it is the opinion of  management,  after  consultation  with counsel
representing the Bank in the  proceedings,  that the resolution of any prior and
pending  proceedings  should  not have a material  effect on the  Company or the
Bank's financial condition or results of operations.

Item 2.  CHANGES IN SECURITIES

None to be reported.

Item 3.  DEFAULTS UPON SENIOR SECURITIES

None to be reported.

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

None to be reported.

Item 5. OTHER INFORMATION

None to be reported.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits:

               See Exhibit Index

     (b)  Reports on Form 8-K

               None to be reported.




<PAGE>



                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                      LSB FINANCIAL CORP.
                                      (Registrant)



Date   November 9, 1998               /S/JOHN W. COREY                       
                                      ------------------------------------------
                                              John W. Corey, President
                                              (Principal Executive Officer)
     

Date   November 9, 1998               /S/MARY JO DAVID                     
                                      ------------------------------------------
                                              Mary Jo David, Treasurer
                                              (Principal Financial and
                                              Accounting Officer)


<PAGE>


                                INDEX TO EXHIBITS


Exhibit
Number
------

    11                  Computation of Per Share Earnings

    27                  Financial Data Schedule