LSB FINANCIAL CORP - FORM 10-Q

Attached files

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EX-31.1 - CEO CERTIFICATION - LSB FINANCIAL CORP	lsb_10q0331ex311.htm
EX-31.2 - CFO CERTIFICATION - LSB FINANCIAL CORP	lsb_10q0331ex312.htm
EX-32 - JOINT CERTIFICATION - LSB FINANCIAL CORP	lsb_10q0331ex32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

	ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2011

		OR

	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: 0-25070

LSB FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

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


101 Main Street, Lafayette, Indiana		47901
(Address of principal executive offices)		(Zip Code)

(765) 742-1064

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer o (Do not check if a smaller reporting company)	Smaller Reporting Company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date is indicated below.

Class		Outstanding at May 13, 2011
Common Stock, $.01 par value per share		1,553,525 shares

LSB FINANCIAL CORP.

INDEX

PART I	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Consolidated Condensed Balance Sheets	1

	Consolidated Condensed Statements of Income	2

	Consolidated Condensed Statements of Changes in Shareholders’ Equity	3

	Consolidated Condensed Statements of Cash Flows	4

	Notes to Consolidated Condensed Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures.	35

PART II.	OTHER INFORMATION	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	[Removed and Reserved]	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

SIGNATURES		37

PART IFINANCIAL INFORMATION

Item 1.

Financial Statements

LSB FINANCIAL CORP.

Consolidated Condensed Balance Sheets

(Dollars in thousands, except per share data)

	March 31, 2011			December 31, 2010
	(unaudited)
Assets
Cash and due from banks	$	8,495		$	10,593
Short-term investments		4,166			2,980
Cash and cash equivalents		12,661			13,573
Available-for-sale securities		11,994			11,805
Loans held for sale		489			2,265
Total loans		322,177			326,153
Less: Allowance for loan losses		(6,547	)		(5,343	)
Net loans		315,630			320,810
Premises and equipment, net		6,099			6,116
Federal Home Loan Bank stock, at cost		3,583			3,583
Bank owned life insurance		6,306			6,264
Interest receivable and other assets		7,015			7,431
Total Assets	$	363,777		$	371,847

Liabilities and Shareholders’ Equity
Liabilities
Deposits	$	304,929		$	311,458
Federal Home Loan Bank advances		20,500			22,500
Interest payable and other liabilities		2,543			2,312
Total liabilities		327,972			336,270

Commitments and Contingencies

Shareholders’ Equity
Common stock, $.01 par value
Authorized - 7,000,000 shares
Issued and outstanding 2011 - 1,553,525 shares, 2010 - 1,553,525 shares		15			15
Additional paid-in-capital		10,988			10,987
Retained earnings		24,579			24,374
Accumulated other comprehensive income		223			201
Total shareholders’ equity		35,805			35,577

Total liabilities and shareholders’ equity	$	363,777		$	371,847

See notes to consolidated condensed financial statements.

LSB FINANCIAL CORP.

Consolidated Condensed Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

	Three months ended March 31,
	2011			2010
Interest and Dividend Income
Loans	$	4,358		$	4,544
Securities
Taxable		68			59
Tax-exempt		45			62
Other		4			6
Total interest and dividend income		4,475			4,671
Interest Expense
Deposits		990			1,271
Borrowings		121			452
Total interest expense		1,111			1,723
Net Interest Income		3,364			2,948

Provision for Loan Losses		1,176			434
Net Interest Income After Provision for Loan Losses		2,188			2,514

Non-interest Income
Deposit account service charges and fees		292			367
Net gains on loan sales		164			85
Loss on other real estate owned		(24	)		(33	)
Other		260			275
Total non-interest income		692			694

Non-Interest Expense
Salaries and employee benefits		1,410			1,292
Net occupancy and equipment expense		329			339
Computer service		142			127
Advertising		58			56
FDIC insurance premiums		184			159
Other		466			440
Total non-interest expense		2,589			2,413

Income Before Income Taxes		291			795
Provision for Income Taxes		86			263
Net Income	$	205		$	532
Basic Earnings Per Share	$	0.13		$	0.34
Diluted Earnings Per Share	$	0.13		$	0.34

Dividends Declared Per Share	$	0.00		$	0.125

See notes to consolidated condensed financial statements.

LSB FINANCIAL CORP.

Consolidated Condensed Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2011 and 2010

(Dollars in thousands, except per share data)

(Unaudited)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Total

Balance, January 1, 2010	$	15	$	10,985	$	22,646		$	238		$	33,884
Comprehensive income
Net income						532						532
Change in unrealized appreciation on available-for-sale securities, net of taxes									(2	)		(2	)
Total comprehensive income												530
Dividends on common stock, $0.125 per share						(195	)					(195	)
Share-based compensation expense				1								1
Balance, March 31, 2010	$	15	$	10,986	$	22,983		$	236		$	34,220



Balance, January 1, 2011	$	15	$	10,987	$	24,374		$	201		$	35,577
Comprehensive income
Net income						205						205
Change in unrealized appreciation on available-for-sale securities, net of taxes									22			22
Total comprehensive income												227
Share-based compensation expense				1								1
Balance, March 31, 2011	$	15	$	10,988	$	24,579		$	223		$	35,805

See notes to consolidated condensed financial statements.

LSB FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three months ended March 31,
	2011			2010
Operating Activities
Net income	$	205		$	532
Items not requiring (providing) cash
Depreciation		98			110
Provision for loan losses		1,176			434
Amortization of premiums and discounts on securities		16			10
Loss on sale of other real estate owned		24			33
Gain on sale of loans		(164	)		(74	)
Loans originated for sale		(10,211	)		(5,426	)
Proceeds on loans sold		12,151			8,192
Amortization of stock options		1			1
Changes in
Interest receivable and other assets		184			170
Interest payable and other liabilities		217			230
Net cash provided by operating activities		3,697			4,212

Investing Activities
Purchases of available-for-sale securities		(1,038	)		---
Proceeds from maturities of available-for-sale securities		870			353
Net change in loans		4,004			(3,759	)
Proceeds from sale of other real estate owned		165			205
Purchase of premises and equipment		(81	)		(68	)
Net cash provided by (used in) investing activities		3,920			(3,269	)

Financing Activities
Net change in demand deposits, money market, NOW and savings accounts		(960	)		10,575
Net change in certificates of deposit		(5,569	)		2,518
Proceeds from Federal Home Loan Bank advances		4,000			8,000
Repayment of Federal Home Loan Bank advances		(6,000	)		(21,000	)
Dividends paid		---			(195	)
Net cash used in financing activities		(8,529	)		(102	)

Increase (Decrease) in Cash and Cash Equivalents		(912	)		841
Cash and Cash Equivalents, Beginning of Period		13,573			12,901
Cash and Cash Equivalents, End of Period	$	12,661		$	13,742

Supplemental Cash Flows Information
Interest paid	$	1,109		$	1,723
Income taxes paid		400			140

Supplemental Non-Cash Disclosures
Capitalization of mortgage servicing rights		15			11
Loans transferred to other real estate owned		---			274

See notes to consolidated condensed financial statements.

LSB FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements

March 31, 2011

Note 1 – General

The financial statements were prepared in accordance with the instructions for Form 10-Q 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 accounting principles generally accepted in the United States of America. 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. The consolidated condensed balance sheet of LSB Financial Corp. as of December 31, 2010 has been derived from the audited consolidated balance sheet of LSB Financial Corp. as of that date.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission. The results of operations for the periods are not necessarily indicative of the results to be expected for the full year.

Note 2 – Principles of Consolidation

The accompanying financial statements include the accounts of LSB Financial Corp., its wholly owned subsidiary Lafayette Savings Bank, FSB (“Lafayette Savings”), and Lafayette Savings’ wholly owned subsidiaries, LSB Service Corporation and Lafayette Insurance and Investments, Inc. All significant intercompany transactions have been eliminated upon consolidation.

Note 3 – Earnings per share

Earnings per share are 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. For the three month period in 2010, 4,212 shares related to stock options outstanding were dilutive and 32,919 were antidilutive. For the three month period in 2011, 15,327 shares related to stock options outstanding were dilutive and 21,458 were antidilutive. The following table presents information about the number of shares used to compute earnings per share and the results of the computations:

	Three months ended March 31,
	2011		2010

Weighted average shares outstanding		1,553,525		1,553,525
Stock options		2,715		0
Shares used to compute diluted earnings per share		1,556,240		1,554,059
Basic earnings per share	$	0.13	$	0.34
Diluted earnings per share	$	0.13	$	0.34

Note 4 – Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Approximate Fair Value
			(in Thousands)
Available-for-sale Securities:
March 31, 2011:
U.S. Government agencies	$	3,107	$	18	$	(4	)	$	3,121
Mortgage-backed securities – government sponsored entities		2,441		165		---			2,606
State and political subdivisions		6,075		194		(2	)		6,267
	$	11,623	$	377	$	(6	)	$	11,994

December 31, 2010:
U.S. Government sponsored agencies	$	2,081	$	19	$	(4	)	$	2,096
Mortgage-backed securities – government sponsored agencies		2,529		145		---			2,674
State and political subdivisions		6,860		181		(6	)		7,035
	$	11,470	$	345	$	(10	)	$	11,805

The amortized cost and fair value of available-for-sale securities at March 31, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
	Amortized Cost		Fair Value
	March 31, 2011
	(in thousands)

Within one year	$	1,582	$	1,617
One to five years		4,760		4,814
Five to ten years		2,360		2,464
After ten years		480		493
		9,182		9,388

Mortgage-backed securities		2,441		2,606

Totals	$	11,623	$	11,994

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $3.0 million at March 31, 2011 and $3.1 million at December 31, 2010. There were no sales of securities during either period.

The following table shows our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position at March 31, 2011 and December 31, 2010.

	Less Than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2011
U.S. Government sponsored agencies	$	1,565	$	4	$	---	$	---	$	1,565	$	4
State and political subdivisions		448		2		---		---		448		2
Total temporarily impaired securities	$	2,013	$	6	$	---	$	---	$	2,013	$	6
December 31, 2010
U.S. Government sponsored agencies	$	1,042	$	4	$	---	$	---	$	1,042	$	4
State and political subdivisions		874		6		---		---		874		6
Total temporarily impaired securities	$	1,916	$	10	$	---	$	---	$	1,916	$	10

Note 5 - Loans and Allowance for Loan Losses

Categories of loans include:

	March 31, 2011			December 31, 2010
Real Estate
One-to-four family residential	$	122,672		$	122,856
Multi-family residential		50,617			53,458
Commercial real estate		91,964			90,395
Construction and land development		30,228			30,467
Commercial		14,150			16,332
Consumer and other		1,167			1,208
Home equity lines of credit		16,652			17,043
Total loans		327,450			331,759

Less
Net deferred loan fees, premiums and discounts		(489	)		(499	)
Undisbursed portion of loans		(4,784	)		(5,107	)
Allowance for loan losses		(6,547	)		(5,343	)
Net loans	$	315,630		$	320,810

Activity in the allowance for loan losses was as follows:

	2011		2010
Balance, beginning of year	$	5,343	$	3,737
Provision charged to expense		1,176		2,759
Losses charged off, net of recoveries of $38 for 2011 and $109 for 2010		28		(1,153	)
Balance, end of year	$	6,547	$	5,343

Additional information on the allocation of loan loss reserves by loan category, which does not include loans held for sale, for the first three months of 2011 is provided below.

	Allowance for Loan Losses and Recorded Investment in Loans for the Quarter Ended March 31, 2011
March 31, 2011	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- family		Commercial Real Estate		Construction		Land			Consumer and Home Equity		Total
Allowance for losses
Beginning balance	$	565	$	242	$	773	$	1,138	$	2,061	$	---	$	480		84		5,343
Provision charged to expense		162		231		690		17		33		78		(37	)	2		1,176
Losses charged off		---		---		---		---		---		---		---		(9	)	(9	)
Recoveries		---		22		8		---		---		---		7		---		37
Ending balance		727		495		1,471		1,155		2,094		78		450		77		6,547
ALL individually evaluated		184		57		203		961		1,260		---		184		2		2,851
ALL collectively evaluated		711		536		1,423		60		654		112		99		101		3,696
Loans individually evaluated		1,942		1,627		8,821		6,391		11,182		---		4,485		217		34,665
Loans collectively evaluated		12,208		56,765		55,459		44,226		80,782		16,338		9,405		17,602		292,785

Allowance for Loan Losses and Recorded Investment in Loans for the Year Ended December 31, 2010
December 31, 2010	Commercial		Owner Occupied 1-4			Non-owner Occupied 1-4		Multi- family		Commercial Real Estate		Construction			Land		Consumer and Home Equity	Total
Allowance for losses
Beginning balance	$	103	$	402		$	1,214	$	344	$	1,095	$	38		$	518	23	3,737
Provision charged to expense		527		(61	)		3		794		1,140		(46	)		337	65	2,759
Losses charged off		68		117			579		---		211		---			402	5	1,382
Recoveries		3		18			135		---		37		8			27	1	229
Ending balance		565		242			773		1,138		2,061		---			480	84	5,343
ALL individually evaluated		285		122			390		574		1,039		---			242	42	2,694
ALL collectively evaluated		280		120			383		564		1,022		---			238	42	2,649
Loans individually evaluated		4,334		3,365			16,529		11,491		21,828		---			6,865	279	64,691
Loans collectively evaluated		11,998		56,941			46,021		41,967		68,567		15,957			7,645	17,972	267,068

Our policy is to charge off loans when, in management’s opinion, full collectability of principal and interest based on the contractual terms of the loan is unlikely.

We rate all loans by credit quality using the following designations:

GRADE 1 - Pass, superior credit quality

Loans of the highest quality. Financial strength of the borrower (exhibited by extremely low debt-to-income ratios/high debt-service coverage, low loan-to-value ratio, and clean credit history) is such that no loss is anticipated. Probability of serious or rapid deterioration is extremely small.

GRADE 2 - Pass, good credit quality

Loans of good quality. Overall above average credit, with strong capacity to repay (exhibited by higher debt-to-income ratios/lower debt-service coverage than Grade 1, but still better than average levels), sound credit history and employment. Loan-to-value is not as strong as Grade 1, but is greater than Grade 3. Minor loss exposure with the probability of serious financial deterioration unlikely.

GRADE 3 - Pass, low risk

Loans of satisfactory quality. Average quality due to average capacity to repay (exhibited by higher debt-to-income ratios/lower debt-service coverage than Grade 2 but better than levels requiring Loan Committee approval), employment, credit history, loan-to-value ratio, or paying habits. Deterioration possible if adverse factors occur.

GRADE 4 - Pass, acceptable risk

Loans of marginal, but acceptable quality due to below average capacity to repay (exhibited by high debt-to-income ratios/low debt-service coverage), high loan-to-value, or poor paying habits. Deterioration likely if adverse factors occur.

GRADE W-4 - Pass, watch list credit

These loans have the same characteristics as standard Grade 4 loans, with an added significant weakness such as the global debt-service coverage of the borrower being below 1.00. Such loans should have no delinquencies within the previous 12 months.

GRADE 5- Special Mention

Loans in this classification are in a state of change that could adversely affect paying ability, collateral value or which require monthly monitoring to protect the asset value.

GRADE 6- Substandard

A substandard asset with a defined weakness. Heavy debt condition, deterioration of collateral, poor paying habits, or conditions present that unless deficiencies are corrected will result in some loss. Loans 90 or more days past due should be automatically included in this grade.

GRADE 7- Doubtful

Poor quality. Loans in this group are characterized by less than adequate collateral and all of the characteristics of a loan classified as substandard. The possibility of a loss is extremely high, but factors may be underway to minimize the loss or maximize the recovery.

GRADE 8 - Loss

Loans classified loss are considered uncollectible and of such little value that their continuance as an asset is not warranted.

Interest income is generally not accrued on loans which are delinquent 90 days or more, or for loans which management believes, after giving consideration to a number of factors, including economic and business conditions and collection efforts, collection of interest is doubtful. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

The following table provides an analysis of loan quality using the above designations, based on property type at March 31, 2011.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total

1- Superior	$	42	$	3,278	$	121	$	---	$	183	$	---	$	174	$	1,464	$	5,262
2 - Good		2,514		22,065		5,406		8,064		10,523		2,906		904		10,633		63,015
3 - Pass Low risk		4,086		22,999		15,107		25,485		31,862		9,408		711		4,404		114,062
4 - Pass		5,042		6,907		28,687		6,062		26,465		4,025		2,898		1,027		81,113
4W - Watch		132		1,301		4,278		3,900		6,635		---		1,200		74		17,520
5 - Special mention		392		214		1,860		715		5,114		---		3,518		---		11,813
6 - Substandard		1,942		1,628		8,821		6,391		11,182		---		4,484		217		34,665
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	14,150	$	58,392	$	64,280	$	50,617	$	91,964	$	16,339	$	13,889	$	17,819	$	327,450

The following table provides an analysis of loan quality using the above designations, based on property type at December 31, 2010.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total

1- Superior	$	42	$	3,364	$	160	$	112	$	207	$	---	$	218	$	1,458	$	5,565
2 - Good		3,227		20,113		5,353		8,248		10,690		3,073		953		11,079		63,736
3 - Pass Low risk		3,767		26,149		15,514		26,040		31,532		8,843		1,150		4,404		117,399
4 - Pass		4,960		7,113		25,016		7,567		26,414		4,040		5,325		930		81,364
4W - Watch		172		1,351		5,591		4,353		8,331		---		2,483		116		22,398
5 - Special mention		3,899		462		5,535		2,478		4,799		---		---		97		17,269
6 - Substandard		265		1,753		5,382		4,660		8,421		---		4,382		164		25,027
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	16,332	$	60,306	$	62,550	$	53,458	$	90,395	$	15,957	$	14,510	$	18,251	$	331,759

Analyses of past due loans segregated by loan type as of March 31, 2011 and December 31, 2010 are provided below.

	Loan Portfolio Aging Analysis as of March 31, 2011

	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Memo Under 90 Days and Not Accruing		Memo Total 90 Days and Accruing

Commercial	$	105	$	---	$	247	$	352	$	13,798	$	14,150	$	---	$	---
Owner occupied 1-4		433		129		487		1,049		57,344		58,393		1,130		---
Non owner occupied 1-4		1,472		794		2,438		4,704		59,576		64,280		2,818		---
Multi-family		---		---		2,290		2,290		48,327		50,617		559		---
Commercial Real Estate		1,823		176		5,948		7,947		84,017		91,964		245		---
Construction		---		---		---		---		16,338		16,338		---		---
Land		159		---		1,022		1,181		12,708		13,889		1,324		---
Consumer and home equity		---		---		159		159		17,660		17,819		90		---
Total	$	3,992	$	1,099	$	12,591	$	17,681	$	309,768	$	327,450	$	6,166	$	---

	Loan Portfolio Aging Analysis as of December 31, 2010

	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Memo Under 90 Days and Not Accruing		Memo Total 90 Days and Accruing

Commercial	$	60	$	---	$	251	$	311	$	16,021	$	16,332	$	---	$	---
Owner occupied 1-4		139		539		515		1,193		59,113		60,306		715		---
Non owner occupied 1-4		---		176		3,293		3,469		59,080		62,550		1,918		48
Multi-family		---		---		2,289		2,289		51,168		53,458		559		---
Commercial Real Estate		338		55		5,639		6,032		84,363		90,395		213		628
Construction		---		---		---		---		15,957		15,957		---		---
Land		16		---		1,022		1,039		12,472		14,510		1,468		---
Consumer and home equity		5		39		134		178		18,073		18,251		30		---
Total	$	559	$	809	$	13,143	$	14,511	$	317,248	$	331,759	$	4,903	$	676

Impaired loans are those for which we believe it is probable that we will not collect all principal and interest due in accordance with the original terms of the loan agreement. The following table presents impaired loans and interest recognized on them for 2011.

Impaired Loans as of and for the Quarter Ended March 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
Loans without specific valuation allowance
Residential Real Estate	$	13,088	$	13,088	$	---	$	9,967	$	99
Commercial Real Estate		7,584		7,959		---		6,817		54
Non real estate		1,704		1,704		---		865		9

Loans with a specific valuation allowance
Residential Real Estate		1,862		1,852		303		1,981		8
Commercial Real Estate		10,178		10,178		2,364		8,085		38
Non real estate		249		249		184		250		1

Total
Residential Real Estate		14,950		14,940		303		11,948		107
Commercial Real Estate		17,762		18,137		2,364		14,902		92
Non real estate		1,953		1,953		184		1,115		10

Impaired Loans as of and for the Year Ended December 31, 2010
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
Loans without specific valuation allowance
Residential Real Estate	$	7,485	$	6,385	$	---	$	7,661	$	391
Commercial Real Estate		7,238		7,765		---		6,765		343
Non real estate		---		---		---		46		8

Loans with a specific valuation allowance
Residential Real Estate		1,128		1,128		70		818		21
Commercial Real Estate		4,534		4,534		1,125		2,628		77
Non real estate		239		239		169		197		12

Total
Residential Real Estate		8,613		7,513		70		8,479		412
Commercial Real Estate		11,772		12,299		1,125		9,393		420
Non real estate		239		239		169		243		12

All loans rated substandard are considered impaired. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (both principal and interest) according to contractual terms of the loan agreement. Loans that are considered impaired are reviewed to determine if a specific allowance is required based on the borrower’s financial condition, resources and payment record, support from guarantors and the realizable value of any collateral. As a practical expedient the Bank will typically use the collateral fair market value method to determine impairments unless circumstances preclude its use. In this method, any portion of the investment above the current fair market value of the collateral at the time

of modification should be identified as an impairment. Fair market value is determined using a current appraisal or evaluation in compliance with federal appraisal regulations.

The following table gives a breakdown of non-accruing loans by loan class at March 31, 2011.

Loan Class	March 31, 2011		December 31, 2010

Commercial	$	247	$	251
Owner occupied 1-4		1,617		1,230
Non owner occupied 1-4		5,256		5,163
Multi-family		2,848		2,848
Commercial Real Estate		6,193		5,224
Construction		---		---
Land		2,347		2,490
Consumer and home equity		249		164
Total	$	18,757	$	17,370

Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. All interest accrued, but not received for loans placed on non-accrual, is reversed against interest income. Interest subsequently received on such loans is accounted for by using the cost-recovery basis for commercial loans and the cash-basis for retail loans until qualifying for return to accrual status.

Loans to related parties at December 31, 2010 totaled $2,456, reduced by paydowns of $79 and increased by new debt of $770. Loans to related parties at March 31, 2011 totaled $3,147.

Note 6 - Other Comprehensive Income

Other comprehensive income components and related taxes were as follows:

		March 31,
		2011		2010
	(in Thousands)

Net unrealized gain on securities available-for-sale		$	36	$	(3	)
Tax expense			14		(1	)

Other comprehensive income		$	22	$	(2	)

Note 7 - Disclosures About Fair Value of Assets and Liabilities

FASB ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use

of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. Third-party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. government agencies, mortgage-backed securities and state and political subdivisions. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

The following table presents the fair value measurement of assets measured at fair value on a recurring basis and the level within the FASB ASC 820-10 fair value hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
					(in Thousands)
Available-for-sale securities
March 31, 2011
U.S. government sponsored agencies	$	3,121	$	---	$	3,121	$	---
Mortgage-backed securities		2,606		---		2,606		---
State and political subdivisions		6,267		---		6,267		---
Totals		11,994		---		11,994		---

Available-for-sale securities
December 31, 2010
U.S. government agencies	$	2,096	$	---	$	2,096	$	---
Mortgage-backed securities		2,674		---		2,674		---
State and political subdivisions		7,035		---		7,035		---
Totals		11,805		---		11,805		---

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with the provisions of FASB ASC 310-10 (formerly FAS 114, Accounting by Creditors for Impairment of a Loan). Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

Impaired loans are classified within Level 3 of the fair value hierarchy.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the FASB ASC 820-10 fair value hierarchy in which the fair value measurements fall at March 31, 2011 and December 31, 2010:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in Thousands)
Impaired loans March 31, 2011	$	10,102	$	---	$	---	$	10,102

Impaired loans December 31, 2010	$	12,013	$	---	$	---	$	12,013

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

Cash and Cash Equivalents, Loans Held for Sale, Federal Home Loan Bank Stock, Interest Receivable and Interest Payable

The carrying amount approximates fair value.

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-rate time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank Advances

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the

present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

The following table presents estimated fair values of the Company’s financial instruments in accordance with FASB ASC 825 (formerly FAS 107) not previously disclosed at March 31, 2011.

	March 31, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in Thousands)
Financial assets
Cash and cash equivalents	$	12,661	$	12,661	$	13,573	$	13,573
Available-for-sale securities		11,994		11,994		11,805		11,805
Loans held for sale		489		489		2,265		2,265
Loans, net of allowance for loan losses		315,630		325,175		320,810		331,913
Federal Home Loan Bank stock		3,583		3,583		3,583		3,583
Interest receivable		1,314		1,314		1,421		1,421
Financial liabilities
Deposits		304,929		308,806		311,458		316,112
Federal Home Loan Bank advances		20,500		20,790		22,500		22,920
Interest payable		64		64		62		62

Note 8 –Accounting Developments

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 requires that more information be disclosed about the credit quality of a company’s loans and the allowance for loan losses held against those loans. A company will need to disaggregate new and existing disclosure based on how it develops its allowance for loan losses and how it manages credit exposures. Existing disclosures to be presented on a disaggregated basis include a roll-forward of the allowance for loan losses, the related recorded investment in such loans, the nonaccrual status of loans, and impaired loans. Additional disclosure is also required about the credit quality indicators of loans by class at the end of the reporting period, the aging of the past due loans, information about troubled debt restructurings, and significant purchases and sales of loans during the reporting period by class. For public companies, ASU 2010-20 requires certain disclosures as of the end of a reporting period effective for periods ending on or after December 15, 2010. Other required disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The Company adopted the standard as required and disclosures are included with this Form 10-Q.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value

hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The Company’s disclosures about fair value measurements are presented in Note 7: Disclosures About Fair Value of Assets and Liabilities. Those new disclosure requirements were effective for the period ended March 31, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. There was no significant effect on the Company’s financial statement disclosure upon adoption of this ASU.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies the guidance in ASC 310-40 Receivables: Troubled Debt Restructurings by Creditors. Creditors are required to identify a restructuring as a troubled debt restructuring if the restructuring constitutes a concession and the debtor is experiencing financial difficulties. ASU 2011-02 clarifies guidance on whether a creditor has granted a concession and clarifies the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. In addition, ASU 2011-02 also precludes the creditor from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. The effective date of ASU 2011-2 for public entities is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. If, as a result of adoption, an entity identifies newly impaired receivables, an entity should apply the amendments for purposes of measuring impairment prospectively for the first interim or annual period beginning on or after June 15, 2011.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

LSB Financial Corp., an Indiana corporation (“LSB Financial” or the “Company”), is the holding company of Lafayette Savings Bank, FSB (“Lafayette Savings” or the “Bank”). LSB Financial has no separate operations and its business consists only of the business of Lafayette Savings. References in this Quarterly Report to “we,” “us” and “our” refer to LSB Financial and/or Lafayette Savings as the context requires.

Lafayette Savings is, and intends to continue to be, an independent, community-oriented financial institution. The Bank has been in business for 141 years and differs from many of our competitors in having a local board and local decision-making in all areas of business. In general, our business consists of attracting or acquiring deposits and lending that money out primarily as real estate loans to construct and purchase single-family residential properties, multi-family and commercial properties and to fund land development projects. We also make a limited number of commercial business and consumer loans.

We have an experienced and committed staff and enjoy a good reputation for serving the people of the community, for understanding their financial needs and for finding a way to meet those

needs. We contribute time and money to improve the quality of life in our market area and many of our employees volunteer for local non-profit agencies. We believe this sets us apart from the other 19 banks and credit unions that compete with us. We also believe that operating independently under the same name for over 141 years is a benefit to us—especially as local offices of large banks often have less local authority as their companies strive to consolidate. Focusing time and resources on acquiring customers who may be feeling disenfranchised by their no-longer-local or very large bank has proved to be a successful strategy.

In these extraordinary economic times, we find ourselves in a community that to some extent has been sheltered from the worst effects of the slowdown. The Greater Lafayette area enjoys diverse employment including major manufacturers such as Subaru/Toyota, Caterpillar, and Wabash National; a strong education sector with Purdue University and a large local campus of Ivy Tech Community College; government offices of Lafayette, West Lafayette and Tippecanoe County; a growing high-tech presence with the Purdue Research Park, and the growth of a new medical corridor spurred by the building of two new hospitals. The area wasn’t immune to the effects of the recession but there are signs of recovery. Based on a report from Greater Lafayette Commerce, manufacturing employment is slowly returning to pre-recession levels, healthcare facility growth is continuing at a record pace and Purdue University continues an aggressive construction agenda. Capital investments announced and/or made in 2010 totaled $640 million compared to $341 million in 2009 and $593 million in 2008. Wabash National, the area’s second largest industrial employer, reported fourth quarter operating results which were the best since 2007 and noted that forecasts for 2011 showed “an approximate increase of 30 to 60 percent over 2010 levels.” Subaru, the area’s largest industrial employer and producer of the Subaru Legacy, Outback and Tribeca, announced the addition of 100 full-time production positions. In addition, Nanshan America will be opening a plant in Lafayette in 2011 employing 200 people and a new psychiatric hospital has announced it will open in Lafayette and employ 135. In the education sector, Purdue’s West Lafayette 2010-2011 enrollment was up slightly from last year to just under 40,000 students and Ivy Tech’s enrollment set a record with over 8,000 students. The Purdue Research Park includes 100 high-tech and life science businesses, has more than 3,700 employees earning an average annual wage of $54,000 and has about 364,000 square feet of incubation space, making it the largest business incubator complex in the state. The Tippecanoe County unemployment rate peaked at 10.6% in July 2009 but by March 2011 had improved to 6.9% compared to 8.5% for Indiana and 8.8% nationally.

The housing market has remained fairly stable for the last several years with no price bubble and no resulting price swings. The five year percent change in house prices according to the Federal Housing Finance Agency was a 0.99% increase with the one-year change a 1.89% decrease. The number of houses sold in the county in 2010 was down 7% from last year but some of this was influenced by the timing of the tax credits offered to new home buyers. Building permits were virtually unchanged from last year and in the same relatively low range for housing permits over the last four years. Some of this slowdown is believed to be in reaction to earlier overbuilding in the county as well as the increase in available properties due to foreclosure.

We continue to work with borrowers who have fallen behind on their loans. The majority of our delinquent loans are secured by real estate and we believe we have sufficient reserves to cover incurred losses. The challenge is to get delinquent borrowers back on a workable payment schedule or if that is not feasible, to get control of their properties through an overburdened court system.

The funds we use to make loans come primarily from deposits from customers in our market area, from brokered deposits and from Federal Home Loan Bank (“FHLB”) advances. In addition we

maintain an investment portfolio of available-for-sale securities to provide liquidity as needed. Our preference is to rely on local deposits unless the cost is not competitive, but if the need is immediate we will acquire pre-payable FHLB advances which are immediately available for member banks within their borrowing tolerance and can then be replaced with local or brokered deposits as they become available. We will also consider purchasing fixed term FHLB advances or brokered deposits as needed. We generally prefer brokered deposits over FHLB advances when the cost of raising money locally is not competitive. The deposits are available with a range of terms, there is no collateral requirement and the money is predictable as it cannot be withdrawn early except in the case of the death of a depositor and there is no option to have the money rollover at maturity. In 2010 local deposits grew substantially including an increase of $37.8 million or 35.0% in core deposits, primarily because of depositors’ preference for the safety of insured deposits. We saw a decrease in local deposits in the first three months of 2011 primarily in time accounts as deposits are becoming more rate sensitive and willing to tolerate more risk. Because of a limited demand for loans we are not aggressively pursuing deposits. While we always welcome local deposits, the cost and convenience of brokered funds make them a useful alternative. We will also continue to rely on FHLB advances to provide immediate liquidity and help manage interest rate risk.

Our primary source of income is net interest income, which is the difference between the interest income earned on our loan and investment portfolio and the interest expense incurred on deposits and borrowings. Our net interest income depends on the balance of our loan and investment portfolios and the size of our net interest margin – the difference between the income generated from loans and the cost of funding. Our net interest income also depends on the shape of the yield curve. The Federal Reserve has held short-term rates at almost zero for the last two years while long-term rates have stayed in the 4.0% range. Because deposits are generally tied to shorter-term market rates and loans are generally tied to longer-term rates this would typically be viewed as a positive step and in fact our net interest margin has been increasing. Our expectation for 2011 is that deposits rates will gradually increase as the Federal Reserve begins to respond to inflation concerns by raising rates. Overall loan rates are expected to gradually rise.

Rate changes can typically be expected to have an impact on interest income. Because the government is expected to discontinue some stimulus programs, we expect to see the money supply shrink and market rates rise. Rising rates generally increase borrower preference for adjustable rate products which we typically keep in our portfolio, and existing adjustable rate loans can be expected to reprice to higher rates which could be expected to have a positive impact on our interest income. With fewer fixed rate loans we would expect to sell fewer loans on the secondary market. Although new loans put on the books early in 2011 will be at comparatively low rates we expect higher rates later in the year will result in an increase in the average rate of new loans.

Our primary expense is interest on deposits and FHLB advances which are used to fund loan growth. We offer customers in our market area time deposits for terms ranging from three months to five years, checking accounts and savings accounts. We also purchase brokered deposits and FHLB advances as needed to provide funding or improve our interest rate risk position. Generally when interest rates are low, depositors will choose shorter-term products and conversely when rates are high, depositors will choose longer-term products.

We consider expected changes in interest rates when structuring our interest-earning assets and our interest-bearing liabilities. When rates are expected to increase we try to book shorter-term assets that will reprice relatively quickly to higher rates over time, and book longer-term liabilities that will remain for a longer time at lower rates. Conversely, when rates are expected to fall, we would like our

balance sheet to be structured such that loans will reprice more slowly to lower rates and deposits will reprice more quickly. We currently offer a three-year and a five-year certificate of deposit that allows depositors one opportunity to have their rate adjusted to the market rate at a future date to encourage them to choose longer-term deposit products. However, since we are not able to predict market interest rate fluctuations, our asset/liability management strategy may not prevent interest rate changes from having an adverse effect on our results of operations and financial condition.

Our results of operations may also be affected by general and local competitive conditions, particularly those with respect to changes in market rates, government policies and actions of regulatory authorities.

The level of turmoil in the financial services industry does present unusual risks and challenges for the Company, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Possible Implications of Current Events” in the Annual Report to Shareholders filed as Exhibit 13 to the Company’s Form 10-K for the year ended December 31, 2010.

In addition, on July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes provisions affecting large and small financial institutions alike, including several provisions that will profoundly affect how community banks, thrifts, and small bank and thrift holding companies, such as the Company, will be regulated in the future. Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of federal deposit insurance coverage, and impose new capital requirements on bank and thrift holding companies. The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards, and pre-payments. The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, many of which may have an impact on the operating environment of the Company in substantial and unpredictable ways. Consequently, the Dodd-Frank Act is likely to affect our cost of doing business, it may limit or expand our permissible activities, and it may affect the competitive balance within our industry and market areas. The nature and extent of future legislative and regulatory changes affecting financial institutions, including as a result of the Dodd-Frank Act, is very unpredictable at this time. The Company’s management is actively reviewing the provisions of the Dodd-Frank Act and assessing its probable impact on the business, financial condition, and results of operations of the Company. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and the Company in particular, is uncertain at this time.

Critical Accounting Policies

Generally accepted accounting principles are complex and require management to apply significant judgments to various accounting, reporting and disclosure matters. Management of LSB Financial must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. For a complete discussion of LSB Financial’s significant accounting policies,

see Note 1 to the Consolidated Financial Statements as of December 31, 2010 included in the Annual Report to Shareholders filed as Exhibit 13 to the Company’s Form 10-K for the year ended December 31, 2010. Certain policies are considered critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. Management has reviewed the application of these policies with the Audit Committee of LSB Financial’s Board of Directors. These policies include the following:

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of probable losses inherent in Lafayette Savings’ loan portfolios. In determining the appropriate amount of the allowance for loan losses, management makes numerous assumptions, estimates and assessments.

The strategy also emphasizes diversification on an industry and customer level, regular credit quality reviews and quarterly management reviews of large credit exposures and loans experiencing deterioration of credit quality.

Lafayette Savings’ allowance consists of three components: probable losses estimated from individual reviews of specific loans, probable losses estimated from historical loss rates, and probable losses resulting from economic or other deterioration above and beyond what is reflected in the first two components of the allowance.

Larger commercial loans that exhibit probable or observed credit weaknesses and all loans that are rated substandard or lower are subject to individual review. Where appropriate, reserves are allocated to individual loans based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and legal options available to the Bank. Included in the review of individual loans are those that are impaired as provided in FASB ASC 310-10 (formerly FAS 114, Accounting by Creditors for Impairment of a Loan). Any allowances for impaired loans are determined by the present value of expected future cash flows discounted at the loan’s effective interest rate or fair value of the underlying collateral based on the discounted appraised value. Historical loss rates are applied to other commercial loans not subject to specific reserve allocations.

Homogenous smaller balance loans, such as consumer installment and mortgage loans secured by various property types are not individually risk graded. Reserves are established for each pool of loans based on the expected net charge-offs for one year. Loss rates are based on the average net charge-off history by loan category.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs and nonaccrual loans), changes in mix, asset quality trends, risk management and loan administration, changes in the internal lending policies and credit standards, collection practices, examination results from bank regulatory agencies and Lafayette Savings’ internal loan review.

Allowances on individual loans are reviewed quarterly and historical loss rates are reviewed annually and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

Lafayette Savings’ primary market area for lending is Tippecanoe County, Indiana and to a lesser extent the eight surrounding counties. When evaluating the adequacy of the allowance, consideration is given to this regional geographic concentration and the closely associated effect of changing economic conditions on Lafayette Savings’ customers.

Mortgage Servicing Rights

Mortgage servicing rights (MSRs) associated with loans originated and sold, where servicing is retained, are capitalized and included in other intangible assets in the consolidated balance sheet. The value of the capitalized servicing rights represents the present value of the future servicing fees arising from the right to service loans in the portfolio. Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance. Events that may significantly affect the estimates used are changes in interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans. The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value. For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates. Impairment, if any, is recognized through a valuation allowance and is recorded as amortization of intangible assets.

Accounting for Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.

Comparison of Financial Condition at March 31, 2011 and December 31, 2010

Our total assets decreased $8.1 million, or 2.17%, during the three months from December 31, 2010 to March 31, 2011. Primary components of this decrease were a $7.0 million decrease in net loans receivable including loans held for sale and a $912,000 decrease in cash and short-term investments and a $416,000 decrease in other assets. Management attributes the decrease in loans to an increase in residential mortgage loan activity due to the ongoing interest of residential borrowers in refinancing their mortgages to lower, fixed rate mortgages in response to continuing low interest rates. Many of these loans are sold on the secondary market. In addition demand for commercial loans continues to be slow. A $6.5 million decrease in deposits was generally due to an increased willingness by Bank customers to forego the safety of FDIC deposit insurance coverage and search for higher returns from more risky investments. Because of the slower loan demand the Bank was willing to allow these rate-sensitive funds to leave the Bank. We also reduced Federal Home Loan Bank advances from $22.5 million at December 31, 2010 to $20.5 million at March 31, 2011.

Non-performing assets, which include non-accruing loans and foreclosed assets, increased slightly from $18.1 million at December 31, 2010 to $18.7 million at March 31, 2011. Non-performing loans at March 31, 2011 comprised $10.0 million or 54.01% of one- to four-family or multi-family residential real estate loans, $8.5 million or 45.45% of loans on land or commercial property, and $258,000 or 1.38% of commercial business loans. Non-performing assets also include $1.0 million in foreclosed assets. At March 31, 2011, our allowance for loan losses equaled 2.03% of

total loans compared to 1.65% at December 31, 2010. The allowance for loan losses at March 31, 2011 totaled 33.10% of non-performing assets compared to 27.74% at December 31, 2010, and 34.90% of non-performing loans at March 31, 2011 compared to 29.61% at December 31, 2010. Our non-performing assets equaled 5.44% of total assets at March 31, 2011 compared to 5.18% at December 31, 2010. Non-performing loans totaling $9,000 were charged off in the three months of 2011, offset by $37,000 of recoveries.

When a loan is added to our classified loan list, an impairment analysis is completed to determine expected losses upon final disposition of the property. An adjustment to loan loss reserves is made at that time for any anticipated losses. This analysis is updated quarterly thereafter. It may take up to two years to move a foreclosed property through the system to the point where we can obtain title to the property and dispose of it. We attempt to acquire properties through deeds in lieu of foreclosure if there are no other liens on the properties. There were no foreclosed properties acquired in the first three months of 2011. Although we believe we use the best information available to determine the adequacy of our allowance for loan losses, future adjustments to the allowance may be necessary, and net income could be significantly affected if circumstances and/or economic conditions cause substantial changes in the estimates we use in making the determinations about the levels of the allowance for losses. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. These agencies may require the recognition of additions to the allowance based upon their judgments of information available at the time of their examination. Effective August 31, 2010, the Bank entered into a Supervisory Agreement (the “Supervisory Agreement”) with the Office of Thrift Supervision (“OTS”) requiring the Bank, among other things, to submit for review by the OTS revised policies and procedures related to the allowance for loan losses. The Bank has implemented the revised policy which it presumes will address the concerns expressed by the OTS and awaits notification from the OTS that it is acceptable. The Supervisory Agreement does not require an additional provision for loan loss reserves.

Shareholders’ equity increased from $35.6 million at December 31, 2010 to $35.8 million at March 31, 2011, an increase of $228,000, or 0.64%, primarily as a result of net income of $205,000. Shareholders’ equity to total assets was 9.84% at March 31, 2011 compared to 9.57% at December 31, 2010.

Average Balances, Interest Rates and Yields

The following two tables present, for the periods indicated, the total dollar amount of interest income earned on average interest-earning assets and the resultant yields on such assets, as well as the interest expense paid on average interest-bearing liabilities, and the rates paid on such liabilities. No tax equivalent adjustments were made. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

	Three months ended March 31,								Three months ended March 31,
	2011								2010
	Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate			Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate
	(Dollars in Thousands)
Interest-Earning Assets:
Loans receivable(1)	$	319,425		$	4,358		5.46	%	$	320,762		$	4,544		5.67	%
Other investments		20,453			117		2.29			20,719			127		2.45
Total interest-earning assets		339,878			4,475		5.27			341,481			4,671		5.47

Interest-Earning Liabilities
Savings deposits	$	25,673			10		0.16		$	25,816			39		0.60
Demand and NOW deposits		119,369			161		0.54			88,083			140		0.64
Time deposits		162,779			819		2.01			173,000			1,092		2.52
Borrowings		20,167			121		2.40			52,000			452		3.48
Total interest-bearing liabilities		327,988			1,111		1.35			338,899			1,723		2.03

Net interest income				$	3,364							$	2,948
Net interest rate spread							3.92	%							3.44	%
Net earning assets	$	11,890							$	2,582
Net yield on average interest-earning assets							3.96	%							3.45	%
Average interest-earning assets to average interest-bearing liabilities		1.04	x							1.01	x

_________________

(1) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.

Comparison of Operating Results for the Quarter ended March 31, 2011 and March 31, 2010

General. Net income for the three months ended March 31, 2011 was $205,000, a decrease of $327,000, or 61.47%, from the three months ended March 31, 2010. The decrease was primarily due to a $742,000 or 170.97% increase in the provision for loan losses and a $176,000 or 7.29% increase in non-interest expenses partially offset by a $416,000 or 14.11% increase in net interest income and a $177,000 decrease in taxes.

Net Interest Income. Net interest income for the three months ended March 31, 2011 increased $416,000 or 14.11%, over the same period in 2010. This increase was due to a 51 basis point increase in our net interest margin (net interest income divided by average interest-earning assets) from 3.45% for the three months ended March 31, 2010 to 3.96% for the three months ended March 31, 2011 and by a $9.3 million increase in average net interest-earning assets. The increase in net interest margin is primarily due to the 68 basis point decrease in the average rate on interest-bearing liabilities from 2.03% for the three months ended March 31, 2010 to 1.35% for the three months ended March 31, 2011. The average rate on interest-earning assets decreased 20 basis points from 5.47% to 5.27% for the same respective periods.

Interest income on loans decreased $186,000, or 4.09%, for the three months ended March 31, 2011 compared to the same three months in 2010. The average rate on loans fell from 5.67% to 5.46% partly due to the continuing action by the Federal Reserve to keep interest rates low.

Interest earned on other investments and Federal Home Loan Bank stock decreased by $10,000, or 7.87%, for the three months ended March 31, 2011 compared to the same period in 2010. This was primarily the result of a 16 basis point decrease in the average yield on other investments and Federal Home Loan Bank stock. The average balances were virtually unchanged.

Interest expense for the three months ended March 31, 2011 decreased $612,000, or 35.52%, compared to the same period in 2010 due to a $281,000 decrease in interest paid on deposits and a $331,000 decrease in interest expenses on Federal Home Loan Bank advances. The lower deposit costs were primarily due to a decrease in the average rate paid on time deposits from 2.52% for the first three months of 2010 to 2.01% for the first three months of 2011 and a $31.3 million increase in the average balance of lower rate demand deposit accounts and a $10.2 million decrease in the average balance of comparatively higher rate time deposits. The increase in demand accounts was largely due to an increase in public funds while the decrease in time deposits came from depositors opting for higher paying, more risky investments as they feel more confident about the economic situation. The decrease in Federal Home Loan Bank advance expense was due to a decrease in the average rate paid on advances from 3.48% for the first three months of 2010 to 2.40% for the first three months of 2011 because of lower rates in the economy and a $31.8 million decrease in average balances as we used the increase in demand deposit accounts to pay off higher rate advances.

Provision for Loan Losses. The evaluation of the level of loan loss reserves is an ongoing process that includes closely monitoring loan delinquencies. The following chart shows delinquent loans as well as a breakdown of non-performing assets.

	03/31/11		12/31/10		03/31/10
	(in Thousands)

Loans delinquent 30-59 days	$	2,632	$	559	$	427
Loans delinquent 60-89 days		246		809		2,262
Total delinquencies under 90 days		2,878		1,368		2,689
Accruing loans past due 90 days		0		676		1,927
Non-accruing loans		18,757		17,370		15,226
Total non-performing loans		18,757		18,046		17,153
OREO		1,024		1,214		1,785
Total non-performing assets	$	19,781	$	19,260	$	18,938

Loans that are less than 90 days delinquent but are non-accruing are included in the non-accruing loan category but not in the delinquencies under 90 days.

The accrual of interest income is discontinued when a loan becomes 90 days and three payments past due. Loans 90 days past due but not yet three payments past due will continue to accrue interest as long as it has been determined that the loan is well secured and in the process of collection. Troubled debt restructurings that were non-performing at the time of their restructure are considered non-accruing loans until sufficient time has passed for them to establish a pattern of compliance with the terms of the restructure.

The $711,000 increase in non-performing loans at March 31, 2011 compared to December 31, 2010 was primarily due to the addition of $2.3 million in new loans of which $1.8 million were residential properties and $580,000 were nonresidential or land loans. This amount was offset by $1.4 million of payments on loans that were establishing a pattern of compliance after having been placed on nonperforming status and $169,000 of loans that had paid in full or returned to performing status and $9,000 that was charged off.

We establish our provision for loan losses based on a systematic analysis of risk factors in the loan portfolio. The analysis includes consideration of concentrations of credit, past loss experience, current economic conditions, the amount and composition of the loan portfolio, estimated fair value of the underlying collateral, delinquencies and other relevant factors. From time to time, we also use the services of a consultant to assist in the evaluation of our growing commercial real estate loan portfolio. On at least a quarterly basis, a formal analysis of the

adequacy of the allowance is prepared and reviewed by management and the Board of Directors. This analysis serves as a point-in-time assessment of the level of the allowance and serves as a basis for provisions for loan losses.

More specifically, our analysis of the loan portfolio will begin at the time the loan is originated, at which time each loan is assigned a risk rating. If the loan is a commercial credit, the borrower will also be assigned a similar rating. Loans that continue to perform as agreed will be included in one of ten non-classified loan categories. Portions of the allowance are allocated to loan portfolios in the various risk grades, based upon a variety of factors, including historical loss experience, trends in the type and volume of the loan portfolios, trends in delinquent and non-performing loans, and economic trends affecting our market. Loans no longer performing as agreed are assigned a higher risk rating, eventually resulting in their being regarded as classified loans. A collateral re-evaluation is completed on all classified loans. This process results in the allocation of specific amounts of the allowance to individual problem loans, generally based on an analysis of the collateral securing those loans. These components are added together and compared to the balance of our allowance at the evaluation date.

At March 31, 2011 our largest areas of concern were loans on non-residential properties, one- to four-family non-owner occupied rental properties, and, to a lesser extent land development loans. Loans totaling $7.9 million on non-residential properties, $4.7 million on one- to four-family rental properties, and $1.2 million on land development were past due more than 30 days at March 31, 2011. Because of the presence of Purdue University, student housing has been a niche for us, but because of the economy we are seeing problems with vacancies, especially in non-campus housing. The non-residential properties are typically loans where the borrowers are seeing increased vacancies and late rent payments because of the economy. Land loans are of some concern as absorption rates are slower than anticipated on development loans, although sales continue to improve.

We recorded a $1.2 million provision for loan losses for the three months ended March 31, 2011 as a result of our analyses of our current loan portfolios, compared to $434,000 during the same period in 2010. The provisions were necessary to maintain the allowance for loan losses at a level considered appropriate to absorb probable incurred losses in the loan portfolio. The main reason for the increase was the addition of specific reserves on impaired loans due to circumstances arising in the quarter that affected our evaluation of the credits. During the first three months of 2011, we charged $9,000 against loan loss reserves and had recoveries of $37,000. We expect to obtain possession of more properties in 2011 that are currently in the process of foreclosure. The final disposition of these properties may result in a loss. The $6.5 million allowance for loan losses was considered appropriate to cover probable incurred losses based on our evaluation and our loan mix.

Our loan portfolio contains no option ARM products, interest-only loans, or loans with initial teaser rates. While we occasionally make loans with credit scores in the subprime range, these loans are only made if there are sufficient mitigating factors, not as part of a subprime mortgage plan. We occasionally make mortgages that exceed high loan-to-value regulatory guidelines for property type. We currently have $10.2 million of mortgage loans that are other than one- to four-family loans that qualify as high loan-to-value. We typically make these loans only to well-qualified borrowers and none of these loans is delinquent. We also have $7.8 million of one- to four-family loans which either alone or combined with a second mortgage

exceed high loan-to-value guidelines. Of these loans, $1.8 million are currently over 30 days past due. Our total high loan-to-value loans at March 31, 2011 were at 47% of capital, well under regulatory guidelines of 100% of capital. We have $16.7 million of Home Equity Lines of Credit of which four loans totaling $238,000 were delinquent more than 30 days at March 31, 2011.

An analysis of the allowance for loan losses for the three months ended March 31, 2011 and 2010 follows:

(Dollars in Thousands)
	Three months ended March 31,
	2011			2010

Balance at January 1	$	5,343		$	3,737
Loans charged off		(9	)		(50	)
Recoveries		37			0
Provision		1,176			434
Balance at March 31	$	6,547		$	4,121

At March 31, 2011, non-performing assets, consisting of non-performing loans, accruing loans 90 days or more delinquent and other real estate owned, totaled $18.8 million compared to $18.0 million at December 31, 2010. In addition to our non-performing assets, we identified $11.8 million in other loans of concern where information about possible credit problems of borrowers causes management to have doubts as to the ability of the borrowers to comply with present repayment terms and may result in disclosure of such loans as non-performing assets in the future. The vast majority of these loans, as well as our non-performing assets, are well collateralized.

At March 31, 2011, we believe that our allowance for loan losses was appropriate to absorb probable incurred losses inherent in our loan portfolio. Our allowance for losses equaled 2.03% of net loans receivable and 34.90% of non-performing loans at March 31, 2011 compared to 1.65% and 29.61% at December 31, 2010, respectively. Our non-performing assets equaled 5.44% of total assets at March 31, 2011 compared to 5.18% at December 31, 2010.

Non-Interest Income. Non-interest income for the three months ended March 31, 2011 decreased by $2,000, or 0.29%, compared to the same period in 2010. This was primarily due to a $79,000 increase in the gain on the sale of mortgage loans offset by a $75,000 decrease in service charges and fee income. The increase in the gain on sale of mortgage loans was due to an increase in loans sold from $8.2 million in the first quarter of 2010 to $12.2 million for the same period in 2011 primarily because of continuing low loan rates resulting in borrowers refinancing their mortgages to lower rate fixed rate loans that we typically sell on the secondary market. The decrease in service fees was primarily due to a lower volume of customer overdrafts. There was also a $15,000 decrease in other income primarily due to a decrease in

debit card fees pending a reimbursement from the servicer and we also recorded a $9,000 decrease in losses on the sale or writedown of OREO properties.

Non-Interest Expense. Non-interest expense for the three months ended March 31, 2011 increased $176,000 compared to the same period in 2010 due primarily to a $118,000 increase in salaries due primarily to continuing loan origination activity by commission-based loan originators and an increase in health insurance costs, a $25,000 increase in FDIC insurance premiums and a $26,000 increase in other expenses including a $39,000 increase in legal fees reflecting a change in the billing cycle and a $26,000 increase in net loan processing costs related to reimbursements by borrowers, and small increases in accounting fees, dues and subscriptions, demand deposit account losses and others, offset by a $49,000 decrease in costs related to acquiring, maintaining and disposing of foreclosed and OREO properties due to the decrease in the number of foreclosed properties.

Income Tax Expense. Our income tax provision decreased by $177,000 for the three months ended March 31, 2011 compared to the three months ended March 31, 2010, due primarily to decreased pre-tax income.

Liquidity

Our primary sources of funds are deposits, repayment and prepayment of loans, interest earned on or maturation of investment securities and short-term investments, borrowings and funds provided from operations. While maturities and the scheduled amortization of loans, investments and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general market interest rates, economic conditions and competition.

We monitor our cash flow carefully and strive to minimize the level of cash held in low-rate overnight accounts or in cash on hand. We also carefully track the scheduled delivery of loans committed for sale to be added to our cash flow calculations. Our current internal policy for liquidity requires minimum liquidity of 4.0% of total assets.

Liquidity management is both a daily and long-term function for our senior management. We adjust our investment strategy, within the limits established by the investment policy, based upon assessments of expected loan demand, expected cash flows, Federal Home Loan Bank advance opportunities, market yields and objectives of our asset/liability management program. Base levels of liquidity have generally been invested in interest-earning overnight and time deposits with the Federal Home Loan Bank of Indianapolis and more recently at the Federal Reserve since they have started to pay interest on deposits in excess of reserve requirements and because of increasing wire transfer requests due to a change in funding methods now required by title companies. 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.

Our liquidity ratios at March 31, 2011 and December 31, 2010 were 6.70% and 6.53%, respectively, compared to a regulatory liquidity base, and 5.90% and 6.06% compared to total assets at the end of each period.

We anticipate that we will have sufficient funds available to meet current funding commitments. At March 31, 2011, we had outstanding commitments to originate loans and available lines of credit totaling $31.7 million and commitments to provide funds to complete current construction projects in the amount of $4.8 million. We had no outstanding commitments to sell residential loans. Certificates of deposit which will mature in one year or less totaled $82.5 million at March 31, 2011. Included in that number are $2.6 million of brokered deposits. Based on our experience, certificates of deposit held by local depositors have been a relatively stable source of long-term funds as such certificates are generally renewed upon maturity since we have established long-term banking relationships with our customers. Therefore, we believe a significant portion of such deposits will remain with us, although this cannot be assured. Brokered deposits can be expected not to renew at maturity and will have to be replaced with other funding upon maturity. We also have $12.5 million of Federal Home Loan Bank advances maturing in the next twelve months.

Capital Resources

Shareholders’ equity totaled $35.8 million at March 31, 2011 compared to $35.6 million at December 31, 2010, an increase of $228,000 or 0.64%, due primarily to net income of $205,000. Shareholders’ equity to total assets was 9.84% at March 31, 2011 compared to 9.57% at December 31, 2010.

Federal insured savings institutions are required to maintain a minimum level of regulatory capital. If the requirement is not met, regulatory authorities may take legal or administrative actions, including restrictions on growth or operations or, in extreme cases, seizure. As of March 31, 2011 and December 31, 2010, Lafayette Savings was categorized as well capitalized. Our actual and required capital amounts and ratios at March 31, 2011 and December 31, 2010 are presented below:

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2011	(Dollars in Thousands)
Total risk-based capital (to risk-weighted assets)	$	38,637		14.1	%	$	21,874		8.0	%	$	27,343		10.0	%
Tier I capital (to risk-weighted assets)		35,219		12.9			10,937		4.0			16,406		6.0
Tier I capital (to adjusted total assets)		35,219		9.7			10,897		3.0			18,162		5.0
Tier I capital (to adjusted tangible assets)		35,219		9.7			7,265		2.0			N/A		N/A
Tangible capital (to adjusted tangible assets)		35,219		9.7			5,448		1.5			N/A		N/A

As of December 31, 2010
Total risk-based capital (to risk-weighted assets)	$	38,288		13.8	%	$	22,124		8.0	%	$	27,655		10.0	%
Tier I capital (to risk-weighted assets)		34,975		12.6			11,062		4.0			16,593		6.0
Tier I capital (to adjusted total assets)		34,975		9.4			11,148		3.0			18,581		5.0
Tier I capital (to adjusted tangible assets)		34,975		9.4			7,432		2.0			N/A		N/A
Tangible capital (to adjusted tangible assets)		34,975		9.4			5,574		1.5			N/A		N/A

Effective August 31, 2010, the Company entered into a Memorandum of Understanding (“MOU”) with the OTS, requiring the Company to submit to the OTS by October 31, 2010 a capital plan for enhancing the consolidated capital of the Company for the period January 1, 2011 through December 31, 2012. In its submitted capital plan, the Company proposes to maintain risk-based capital ratios above twelve percent (200 basis points above the ten percent well-capitalized level), and core capital above eight percent (300 basis points above the five percent well-capitalized level). The current capital levels shown in the table above are at least 1% above these levels. The Company is awaiting notification from the OTS as to whether the capital plan is acceptable.

The Bank’s Supervisory Agreement and the MOU require prior OTS approval of dividends by the Bank or the Company, respectively. In addition, the MOU requires prior approval by the OTS of any debt at the holding company level not in the ordinary course (including loans, cumulative preferred stock and subordinated debt), unless such debt is contemplated by the capital plan. The holding company does not now hold any such debt.

Disclosure Regarding Forward-Looking Statements

This document, including information included or incorporated by reference, contains, and future filings by LSB Financial on Form 10-K, Form 10-Q and Form 8-K and future oral and written statements by LSB Financial and our management may contain, forward-looking statements about LSB Financial and its subsidiaries which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities, interest rates, cost savings and funding advantages expected or anticipated to be realized by management. Words such as may, could, should, would, believe, anticipate, estimate, expect, intend, plan and similar expressions are intended to identify forward-looking statements. Forward-looking statements by LSB Financial and its management are based on beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise. The important factors we discuss below and elsewhere in this document, as well as other factors discussed under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations in this document and identified in our filings with the SEC and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document.

The following factors, many of which are subject to change based on various other factors beyond our control, could cause our financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements:

·	the strength of the United States economy in general and the strength of the local economies in which we conduct our operations;

·	the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

·	financial market, monetary and interest rate fluctuations, particularly the relative relationship of short-term interest rates to long-term interest rates;

·	the timely development of and acceptance of new products and services of Lafayette Savings and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services;

·	the willingness of users to substitute competitors’ products and services for our products and services;

·	the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting standards, banking, securities and insurance);

·	the impact of technological changes;

·	acquisitions;

·	changes in consumer spending and saving habits; and

·	our success at managing the risks involved in the foregoing.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. An evaluation of the Company’s disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the regulations promulgated under the Securities Exchange Act of 1934, as amended (the “Act”)), as of March 31, 2011, was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) identified in connection with the Company’s evaluation of controls that occurred during the quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over the financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Neither the Company nor the Bank is a party to any pending legal proceedings, other than routine litigation incidental to the business.

Item 1A.

Risk Factors

Not Applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the number and prices paid for repurchased shares.

Issuer Purchases of Equity Securities
Month of Purchase	Total Number of Shares Purchased1		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs2		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs2

January 1 – January 31, 2011		---		---		---		52,817

February 1 – February 28, 2011		---		---		---		52,817

March 1 – March 31, 2011		---		---		---		52,817

Total		---		---		---		52,817

_______________________

1 There were no shares repurchased other than through a publicly announced plan or program.

2 We have in place a program, announced February 6, 2007, to repurchase up to 100,000 shares of our common stock.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

[Removed and Reserved]

Item 5.

Other Information

None.

Item 6.

Exhibits

The exhibits listed in the Index to Exhibits are incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LSB FINANCIAL CORP.
	(Registrant)


Date: May 16, 2011	By:	/s/ Randolph F. Williams
		Randolph F. Williams, President
		(Principal Executive Officer)


Date: May 16, 2011	By:	/s/ Mary Jo David
		Mary Jo David, Treasurer
		(Principal Financial and Accounting Officer)

INDEX TO EXHIBITS

Regulation S-K Exhibit Number		Document

31.1		Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2		Rule 13(a)-14(a) Certification (Chief Financial Officer)
32		Section 906 Certification

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