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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20529

FORM 10-Q

[X]     Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

[   ]     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
(Exact name of Registrant as specified in its Charter)

(978) 725-7500
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

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LSB CORPORATION AND SUBSIDIARY

INDEX

PART I – FINANCIAL INFORMATION

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PART 1 – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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LSB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.

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LSB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)

1.     BASIS OF PRESENTATION

LSB Corporation (the “Corporation” or the “Company”) is a Massachusetts corporation and the holding company of the wholly-owned subsidiary Lawrence Savings Bank (the “Bank”) a state-chartered Massachusetts savings bank. The Corporation was organized by the Bank on July 1, 2001 to be a bank holding company and to acquire all of the capital stock of the Bank.

The Corporation is supervised by the Board of Governors of the Federal Reserve System (“FRB”), and it is also subject to the jurisdiction of the Massachusetts Division of Banks, while the Bank is subject to the regulations of, and periodic examination by, the Federal Deposit Insurance Corporation (“FDIC”) and the Massachusetts Division of Banks. The Bank’s deposits are insured by the Bank Insurance Fund of the FDIC up to $100,000 per account, as defined by the FDIC, and the Depositors Insurance Fund (“DIF”) for customer deposit amounts in excess of $100,000. The Consolidated Financial Statements include the accounts of LSB Corporation and its wholly-owned consolidated subsidiary, Lawrence Savings Bank, and its wholly-owned subsidiaries, Shawsheen Security Corporation, Shawsheen Security Corporation II, Pemberton Corporation, and Spruce Wood Realty Trust. All inter-company balances and transactions have been eliminated in consolidation. The Company has one reportable operating segment. Certain amounts in prior periods have been re-classified to conform to the current presentation.

The Corporation’s Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, management is required to make estimates and assumptions that affect amounts reported in the balance sheets and statements of income. Actual results could differ significantly from those estimates and judgments. Material estimates that are particularly susceptible to change relate to the allowance for loan losses, income taxes and mortgage servicing rights.

The interim results of consolidated income are not necessarily indicative of the results for any future interim period or for the entire year. These interim Consolidated Financial Statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the annual Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

2.     STOCK OPTIONS

The Corporation measures compensation cost for stock-based plans using the intrinsic value method. The intrinsic value method measures compensation cost, if any, as the fair market value of the Company’s stock at the grant date over the exercise price. All options granted have an exercise price equivalent to the fair market value at the date of grant and, accordingly, no compensation cost has been recorded. If the fair value based method of accounting for stock options had been used, the Company’s net income and earnings per share would have been reduced to the proforma amounts for the three months and nine months ended September 30, and are presented in the table which follows:

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3.     CONTINGENCIES

The Bank was awarded a $4.2 million judgment in 1997. The Bank prevailed on this matter in Appeals Court. The Bank expects to collect this judgment, at least in substantial part, which will have a favorable impact to the Company’s Consolidated Financial Statements. On February 13, 2002, the defendant filed bankruptcy under Chapter 7 (liquidation). Post-judgment interest accrues from the date of the judgment to February 13, 2002 and approximates $1.9 million. However, collectibility of post-judgment interest in addition to the $4.2 million award has not yet been determined.

Bids of approximately $3.3 million for the major assets were approved by the Bankruptcy Court on October 14, 2002. The net amount to be received by the Bank after taxes and bankruptcy expenses is not known at this time. However, it is not likely that the full $4.2 million judgment and post-judgment interest of $1.9 million will be collected.

It is management’s opinion the timing and final amount to be collected cannot be determined at this time. Accordingly, no recognition of this matter has been recorded in the Company’s Consolidated Financial Statements.

4.     SUBSEQUENT EVENTS

During the fourth quarter 1999, the Bank was awarded $1.1 million by a jury verdict in a legal case where the Bank sought to recover damages from loans previously charged-off. In 2000, the court entered final judgment for approximately $1.8 million, which includes accrued interest. This award was appealed by defendants. This case was heard by the Appeals Court on December 11, 2002. A decision by that court awarding the Bank $1.4 million plus statutory interest was rendered on October 21, 2003. Payment in the amount of $2 million for the satisfaction of the judgment in this case was received on October 30, 2003. This amount has not been recorded in the Company’s Consolidated Financial Statements as of September 30, 2003 because the Appeals Court’s decision was not known and the payment was not received by September 30, 2003.

5.     RECENT ACCOUNTING DEVELOPMENTS

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation – Transition and Disclosure. SFAS 148 amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Companies are able to eliminate a “ramp-up” effect that the SFAS No. 123 transition rule creates in the year of adoption. Companies can choose to elect a method that will provide for comparability amongst years reported. In addition, this Statement amends the disclosure requirement of Statement 123 to require prominent disclosures in both annual and interim financial statements about the fair value based method of accounting for stock-based employee compensation and the effect of the method used on reported results.

In April 2003, the FASB announced it will issue new rules requiring all companies to expense the value of employee stock options. Companies will be required to measure the cost according to the fair value of the options at the grant date. The FASB has not yet clarified how the fair value of the options is to be determined. The FASB plans to issue an exposure draft later this year that could become effective in 2004.

In January 2003, the FASB issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51”. FIN No. 46 establishes accounting guidance for consolidation of variable interest entities (“VIE”) that function to support the activities of the primary beneficiary. The primary beneficiary of a VIE entity is the entity that absorbs a majority of the VIEs expected losses, receives a majority of the VIEs expected residual returns, or both, as a result of ownership, controlling interest, contractual relationship or other business relationship with a VIE. Prior to the implementation of FIN No. 46, VIEs were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority of voting interest in the entity. The Company adopted FIN No. 46 as of February 1, 2003 for all arrangements entered into after January 31, 2003 and will adopt as of December 31, 2003 for other arrangements entered into prior to January 31, 2003 per FASB Staff Position No FIN 46-6. The Company does not believe the adoption of this interpretation will have a material impact on the Company’s Consolidated Financial Statements.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The Company has made forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended) in this document that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, projected or anticipated benefits or events related to other future developments involving the Company or the industry in which it operates. When verbs in the present tense such as “believes”, “expects”, “seeks”, “anticipates”, “continues”, “attempts”, or similar expressions are used, forward-looking statements are being made. Stockholders should note that many factors, some of which are discussed elsewhere in this document and in the documents which we incorporate by reference, could affect the future financial results of the Company and could cause the results to differ materially from those expressed in or incorporated by reference in this document. Those factors include fluctuations in interest rates, inflation, government regulations and economic conditions and competition, as well as, possible infrastructure disruptions due to weather, terrorist activity, computer capacity overload or other factors in the geographic and business areas in which the Company conducts its operations. As a result of such risks and uncertainties, the Company’s actual results may differ materially from such forward-looking statements. The Company does not undertake, and specifically disclaims any obligation to publicly release revisions to any such forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

FINANCIAL CONDITION

OVERVIEW

The Company has maintained risk assets below 1% of total assets for the past several years. The Company maintains its commitment to servicing the needs of the local community in the Merrimack Valley area. The Company had total assets of $427.9 million at September 30, 2003 compared to $439.1 million at December 31, 2002. The decrease in asset size at September 30, 2003 from December 31, 2002 is due to the pay down of $11.3 million in borrowed funds as advances from the FHLB became due. The cash used came from the payoff of loans which declined by $37.3 million and the reduction of $9.6 million in Federal Funds. The additional cash was used to purchase investment securities which increased by $35.9 million since December 31, 2002.

INVESTMENTS

The investment securities portfolio totaled $202.3 million or 47.3% of total assets at September 30, 2003, compared to $166.4 million, or 37.9% of total assets at December 31, 2002, an increase of $35.9 million from year-end. The change in mix in the investment securities portfolio was the result of maturities in Commercial Paper, Corporate obligations and municipal obligations. Funds were reinvested in Mortgage-backed Securities (“MBS”), U.S. Government Agency Obligations and Collateralized Mortgage obligations (“CMO”). All CMO’s are included in the Asset-backed Securities category. The increase in investment securities was the result of the utilization of excess funds from loan payoffs, which decreased the loan portfolio by $37.3 million, and a decrease in Federal funds of $9.6 million. During the third quarter of 2003, sales of mortgage-backed securities available for sale totaled $5.7 million resulting in a loss of $14 thousand, which is included in other income.

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The following table reflects the components and carrying values of the investment securities portfolio at September 30, 2003 and December 31, 2002:

LOANS

The following table reflects the loan portfolio at September 30, 2003 and December 31, 2002: