10-Q

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, 2013
	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 [   ]

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 ýNo  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 [   ]       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 10, 2012
Common Stock, $.01 par value per share	1,556,782 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 and Comprehensive 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		24
Item 3.  Quantitative and Qualitative Disclosures About Market Risk		41
Item 4.  Controls and Procedures.		41
PART II. OTHER INFORMATION		42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
SIGNATURES		46

  i

PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements

LSB FINANCIAL CORP.

Consolidated Condensed Balance Sheets

(Dollars in thousands, except per share data)

	March 31, 2013			December 31, 2012
	(unaudited)
Assets
Cash and due from banks	$	1,249		$	25,643
Interest bearing deposits		22,838			5,778
Cash and cash equivalents		24,087			31,421
Interest bearing time deposits		1,747			1,740
Available-for-sale securities		37,998			28,004
Loans held for sale		2,296			1,363
Total loans		279,124			286,157
Less: Allowance for loan losses		(6,062	)		(5,900	)
Net loans		273,062			280,257
Premises and equipment, net		7,157			7,069
Federal Home Loan Bank stock, at cost		3,185			3,185
Bank owned life insurance		6,633			6,595
Interest receivable and other assets		5,025			4,976
Total assets	$	361,190		$	364,610
Liabilities and Shareholders’ Equity
Liabilities
Deposits	$	309,357		$	308,637
Federal Home Loan Bank advances		10,000			15,000
Interest payable and other liabilities		2,279			2,018
Total liabilities		321,636			325,655
Commitments and Contingencies
Shareholders’ Equity
Common stock, $.01 par value
Authorized - 7,000,000 shares Issued and outstanding 2013 - 1,556,782 shares, 2012 - 1,555,972 shares		15			15
Additional paid-in-capital		11,134			11,121
Retained earnings		28,070			27,495
Accumulated other comprehensive income		335			324
Total shareholders’ equity		39,554			38,955
Total liabilities and shareholders’ equity	$	361,190		$	364,610

See notes to consolidated condensed financial statements.

1

LSB FINANCIAL CORP.

Consolidated Condensed Statements of Income and Comprehensive Income

(Dollars in thousands, except per share data)

(Unaudited)

	Three months ended March 31,
	2013			2012
Interest and Dividend Income
Loans	$	3,477		$	4,075
Securities
Taxable		104			66
Tax-exempt		45			39
Other		16			14
Total interest and dividend income		3,642			4,194
Interest Expense
Deposits		569			811
Borrowings		78			99
Total interest expense		647			910
Net Interest Income		2,995			3,284
Provision for Loan Losses		400			600
Net Interest Income After Provision for Loan Losses		2,595			2,684
Non-interest Income
Deposit account service charges and fees		272			325
Net gains on loan sales		430			406
Loss on other real estate owned		(2	)		(83	)
Other		418			260
Total non-interest income		1,118			908
Non-Interest Expense
Salaries and employee benefits		1,527			1,519
Net occupancy and equipment expense		319			318
Computer service		142			148
Advertising		115			88
FDIC insurance premiums		116			119
Other		456			468
Total non-interest expense		2,675			2,660
IncomeBefore Income Taxes		1,038			932
Provision for Income Taxes		385			337
Net Income		653			595
Unrealized appreciation (depreciation) on available-for-sale securities net of taxes (credits) of $7 and $(13), for 2013 and 2012, respectively		11			(19	)
Comprehensive income	$	664		$	576
Basic Earnings Per Share	$	0.42		$	0.38
Diluted Earnings Per Share	$	0.42		$	0.38
Dividends Declared Per Share	$	0.05		$	0.00

See notes to consolidated condensed financial statements.

2

LSB FINANCIAL CORP.

Consolidated Condensed Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2013 and 2012

 (Dollars in thousands, except per share data)

(Unaudited)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance, January 1, 2012	$	15	$	11,010	$	24,913		$	236		$	36,174
Net income						595						595
Other comprehensive income									(19	)		(19	)
Stock options exercised (750 shares)				7								7
Tax benefit related to stock options exercised				2								2
Share-based compensation expense				21								21
Balance, March 31, 2012	$	15	$	11,040	$	25,508		$	217		$	36,780
Balance, January 1, 2013	$	15	$	11,121	$	27,495		$	324		$	38,955
Net income						653						653
Other comprehensive income									11			11
Stock options exercised (810 shares)				9								9
Tax benefit related to stock options exercised				3								3
Dividends on common stock, $0.05 per share						(78	)					(78	)
Share-based compensation expense				1								1
Balance, March 31, 2013	$	15	$	11,134	$	28,070		$	335		$	39,554

See notes to consolidated condensed financial statements.

3

LSB FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three months ended March 31,
	2013			2012
Operating Activities
Net income	$	653		$	595
Items not requiring (providing) cash
Depreciation		111			113
Provision for loan losses		400			600
Amortization of premiums and discounts on securities		53			24
Loss on sale of other real estate owned		2			83
Gain on sale of loans		(430	)		(406	)
Loans originated for sale		(12,417	)		(13,201	)
Proceeds on loans sold		11,914			14,359
Amortization of stock options		1			21
Changes in
Interest receivable and other assets		(181	)		371
Interest payable and other liabilities		255			478
Net cash provided by operating activities		361			3,037
Investing Activities
Net change in interest-bearing deposits		(7	)		---
Purchases of available-for-sale securities		(10,628	)		(4,967	)
Proceeds from paydowns and maturities of available-for-sale securities		598			1,675
Net change in loans		6,633			8,755
Proceeds from sale of other real estate owned		254			1,092
Purchase of premises and equipment		(199	)		(99	)
Net cash provided by (used in) investing activities		(3,349	)		6,456
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts		440			6,029
Net change in certificates of deposit		280			165
Repayment of Federal Home Loan Bank advances		(5,000	)		---
Proceeds from stock options exercised		9			7
Tax benefits related to stock options exercised		3			2
Dividends paid		(78	)		---
Net cash provided by (used in) financing activities		(4,346	)		6,203
Increase (decrease) in Cash and Cash Equivalents		(7,334	)		15,696
Cash and Cash Equivalents, Beginning of Period		31,421			21,708
Cash and Cash Equivalents, End of Period	$	24,087		$	37,404
Supplemental Cash Flows Information
Interest paid	$	594		$	901
Income taxes paid		650			---
Supplemental Non-Cash Disclosures
Capitalization of mortgage servicing rights		150			49
Loans transferred to other real estate owned		162			28

See notes to consolidated condensed financial statements.

4

LSB FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements

March 31, 2013

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, 2012 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 consolidated condensed 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, 2012 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 ended March 31, 2012, 6,000 shares related to stock options outstanding were dilutive and 51,433 were antidilutive.  For the three month period ended March 31, 2013, 41,257 shares related to stock options outstanding were dilutive and 17,116 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,
	2013		2012
Weighted average shares outstanding		1,556,080		1,555,337
Stock options		7,584		664
Shares used to compute diluted  earnings per share		1,563,664		1,556,001
Basic earnings per share	$	0.42	$	0.38
Diluted earnings per share	$	0.42	$	0.38

5

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, 2013:
U.S. Government sponsored agencies	$	16,602	$	101	$	(11	)	$	16,692
Mortgage-backed securities-Government sponsored entities		9,671		192		---			9,863
State and political subdivisions		11,178		277		(12	)		11,443
	$	37,451	$	570	$	(23	)	$	37,998
Available-for-sale Securities:
December 31, 2012
U.S. Government sponsored agencies	$	10,639	$	83	$	(13	)	$	10,709
Mortgage-backed securities-Government sponsored entities		6,989		209		---			7,198
State and political subdivisions		9,840		271		(14	)		10,097
	$	27,468	$	563	$	(27	)	$	28,004

The amortized cost and fair value of available-for-sale securities at March 31, 2013, 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 31,2013
	(in thousands)
Within one year	$	357	$	357
One to five years		12,496		12,679
Five to ten years		14,927		15,099
After ten years		---		---
		27,780		28,135
Mortgage-backed securities		9,671		9,863
Totals	$	37,451	$	37,998

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $2.0 million at March 31, 2013 and $2.0 million at December 31, 2012.

6

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, 2013 and December 31, 2012.

	Less Than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
March 31, 2013
U.S. Government sponsored agencies	$	3,074	$	11	$	---	$	---	$	3,074	$	11
State and political subdivisions		1,647		12		---		---		1,647		12
Total temporarily impaired securities	$	4,721	$	23	$	---	$	---	$	4,721	$	23
December 31, 2012
U.S. Government sponsored agencies	$	3,076	$	13	$	---	$	---	$	3,076	$	13
State and political subdivisions		2,541		14		---		---		2,541		14
Total temporarily impaired securities	$	5,617	$	27	$	---	$	---	$	5,617	$	27

Note 5 - Loans and 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.

All loans that are rated substandard and impaired, or are troubled debt restructures 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 Financial Accounting Standards Board (“FASB”) ASC 310-10 (formerly FAS 114, Accounting by Creditors for Impairment of a Loan). Any allowances for impaired loans are determined by the fair value of the underlying collateral based on the discounted appraised value.  Allowances for loans that are not collateral dependent are determined by the present value of expected future cash flows discounted at the loan’s effective interest rate.  Historical loss rates are applied to all loans not included in the ASC 310-10 calculation.

Historical loss rates for commercial and consumer loans may be adjusted for significant qualitative 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 and historical loss rates are reviewed quarterly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

7

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.

Categories of loans include:

	March 31, 2013			December 31, 2012
Real Estate	(In thousands)
One- to four-family residential	$	96,958		$	99,216
Multi-family residential		61,725			62,823
Commercial real estate		76,104			82,430
Construction and land development		17,120			14,113
Commercial		13,953			13,290
Consumer and other		1,083			1,131
Home equity lines of credit		15,633			16,421
Total loans		282,576			289,424
Less
Net deferred loan fees, premiums and discounts		(441	)		(469	)
Undisbursed portion of loans		(3,010	)		(2,798	)
Allowance for loan losses		(6,062	)		(5,900	)
Net loans	$	273,063		$	280,257

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

8

Construction

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential and Consumer

With respect to residential loans that are secured by one- to four-family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one- to four-family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Additional information on the allocation of loan loss reserves by loan category, which does not include loans held for sale, for the three month periods ending March 31, 2013 and March 31, 2012 and for the year ended December 31, 2012 is provided below.

9

Allowance for Loan Losses and Recorded Investment in Loans for the Three Months Ended March 31, 2013

Three Months Ended March 31, 2013	Commercial			Owner Occupied 1-4			Non-owner Occupied 1-4			Multi- family			Commercial Real Estate			Construction			Land		Consumer and Home Equity			Total
							In thousands
Allowance for losses
Beginning balance	$	633		$	589		$	1,022		$	1,055		$	2,177		$	62		$	154	$	208		$	5,900
Provision charged to expense		239			(64	)		212			(74	)		9			(20	)		129		(31	)		400
Losses charged off		(29	)		---			(241	)		---			(51	)		---			---		---			(321	)
Recoveries		16			---			60			---			---			---			7		---			83
Ending balance		859			525			1,053			981			2,135			42			290		177			6,062
ALL individually evaluated		---			12			23			19			243			---			---		---			297
ALL collectively evaluated		859			513			1,030			962			1,892			42			290		177			5,765
Total ALL		859			525			1,053			981			2,135			42			290		177			6,062
Loans individually evaluated		20			1,682			5,931			2,173			4,131			---			734		91			14,762
Loans collectively evaluated		13,933			45,476			43,869			59,552			71,973			7,673			8,713		16,625			267,814
Total loans evaluated		13,953			47,158			49,800			61,725			76,104			7,673			9,447		16,716			282,576

Allowance for Loan Losses for the Three Months Ended March 31, 2012

Three Months Ended March 31, 2012	Commercial			Owner Occupied 1-4			Non-owner Occupied 1-4			Multi- family			Commercial Real Estate		Construction			Land			Consumer and Home Equity			Total
							In thousands
Allowance for losses
Beginning balance	$	667		$	436		$	1,330		$	646		$	1,788	$	64		$	264		$	136		$	5,331
Provision charged to expense		362			(19	)		(87	)		276			212		(51	)		(121	)		28			600
Losses charged off		(313	)		(6	)		(25	)		(259	)		---		---			(17	)		(11	)		(631	)
Recoveries		---			---			3			1			---		---			1			---			5
Ending balance		716			411			1,221			664			2,000		13			127			153			5,305

Allowance for Loan Losses and Recorded Investment in Loans at December 31, 2012
ALL individually evaluated	---	14	27	24	253	---	---	---	318
ALL collectively evaluated	633	575	995	1,031	1,924	62	154	208	5,582
Total ALL	633	589	1,022	1,055	2,177	62	154	208	5,900
Loans individually evaluated	49	1,653	5,917	2,891	6,233	---	1,379	92	18,214
Loans collectively evaluated	13,241	46,892	44,754	59,932	76,197	8,928	3,806	17,460	271,210
Total loans evaluated	13,290	48,545	50,671	62,823	82,430	8,928	5,185	17,552	289,424

10

Management’s general practice is to charge down collateral dependent loans individually evaluated for impairment to the fair value of the underlying collateral.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except one- to four-family residential properties and consumer, the Company promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges off one- to four-family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of one- to four-family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 120 days past due, and charge-down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.   Charge-offs may be taken sooner than the above-referenced timeframes if circumstances warrant.

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior four years.  Management believes the four year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.

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.

11

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 on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured.  Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

12

The following table provides an analysis of loan quality using the above designations, based on property type at March 31, 2013.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total
							(In thousands)
1- Superior	$	25	$	3,524	$	242	$	---	$	102	$	415	$	190	$	1,681	$	6,179
2 - Good		1,909		19,622		4,245		7,566		10,949		1,212		171		10,733		56,407
3 - Pass Low risk		5,290		15,796		12,338		31,309		19,469		4,362		4,621		3,132		96,317
4 - Pass		4,258		6,349		20,902		16,866		23,022		1,684		1,355		1,170		75,606
4W - Watch		182		641		2,745		2,928		11,206		---		2,413		---		20,115
5 - Special mention		429		---		4,965		2,985		4,636		---		594		---		13,609
6 - Substandard		1,860		1,226		4,363		71		6,720		---		103		---		14,343
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	13,953	$	47,158	$	49,800	$	61,725	$	76,104	$	7,673	$	9,447	$	16,716	$	282,576

The following table provides an analysis of loan quality using the above designations, based on property type at December 31, 2012.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total
							(In thousands)
1- Superior	$	27	$	3,849	$	246	$	---	$	103	$	667	$	193	$	1,787	$	6,872
2 - Good		3,061		20,104		4,299		7,661		10,924		1,123		172		11,311		58,655
3 - Pass Low risk		7,982		16,459		12,625		31,281		31,853		5,383		286		3,374		109,243
4 - Pass		1,689		6,221		24,623		18,010		22,993		1,755		1,387		1,078		77,756
4W - Watch		186		746		2,894		2,954		5,014		---		1,769		---		13,563
5 - Special mention		296		---		2,535		2,139		4,658		---		---		---		9,628
6 - Substandard		49		1,166		3,449		778		6,885		---		1,378		2		13,707
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	13,290	$	48,545	$	50,671	$	62,823	$	82,430	$	8,928	$	5,185	$	17,552	$	289,424

13

Analyses of past due loans segregated by loan type as of March 31, 2013 and December 31, 2012 are provided below.

	Loan Portfolio Aging Analysis as of March 31, 2013
	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Under 90 Days and Not Accruing		Total 90 Days and Accruing
							(In thousands)
Commercial	$	---	$	---	$	20	$	20	$	13,933	$	13,953	$	---	$	---
Owner occupied 1-4		50		---		585		635		46,523		47,158		448		---
Non owner occupied 1-4		304		---		735		1,039		48,761		49,800		1,472		---
Multi-family		---		---		---		---		61,725		61,725		73		---
Commercial Real Estate		107		---		111		218		75,887		76,104		17		---
Construction		---		---		---		---		7,673		7,673		---		---
Land		---		---		140		140		9,306		9,447		---		---
Consumer and home equity		---		---		---		---		16,716		16,716		---		---
Total	$	461	$	---	$	1,591	$	2,052	$	280,524	$	282,576	$	2,010	$	---

	Loan Portfolio Aging Analysis as of December 31, 2012
	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Under 90 Days and Not Accruing		Total 90 Days and Accruing
							(In thousands)
Commercial	$	---	$	---	$	49	$	49	$	13,241	$	13,290	$	---	$	---
Owner occupied 1-4		184		406		107		697		47,848		48,545		862		---
Non owner occupied 1-4		291		216		2,124		2,631		48,040		50,671		543		---
Multi-family		700		78		---		778		62,045		62,823		76		---
Commercial Real Estate		---		---		487		487		81,943		82,430		815		---
Construction		---		---		---		---		8,928		8,928		---		---
Land		---		79		140		219		4,966		5,185		1,238		---
Consumer and home equity		1		2		---		3		17,549		17,552		2		---
Total	$	1,176	$	781	$	2,907	$	4,864	$	284,560	$	289,424	$	3,536	$	---

14

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 the quarter ended March 31, 2013 and impaired loans for the year ended December 31, 2012 and interest recognized for the quarter ended March 31, 2012.

	Impaired Loans as of and for the Quarter Ended March 31, 2013
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
	In thousands
Loans without a specific valuation allowance
Commercial	$	20	$	164	$	---	$	34	$	---
Owner occupied 1-4		1,452		1,545		---		1,422		7
Non-owner occupied 1-4		5,660		6,256		---		5,663		105
Multi-family		2,100		2,112		---		2,456		39
Commercial real estate		2,588		2,983		---		3,627		60
Construction		---		---		---		---		---
Land		734		988		---		1,056		---
Consumer and home equity		91		92		---		92		2
Total loans without a specific valuation allowance		12,645		14,140		---		14,350		213
Loans with a specific valuation allowance
Commercial		---		---		---		---		---
Owner occupied 1-4		230		239		12		231		---
Non-owner occupied 1-4		271		271		23		276		1
Multi-family		73		79		19		76		---
Commercial real estate		1,543		1,543		243		1,555		15
Construction		---		---		---		---		---
Land		---		---		---		---		---
Consumer and home equity		---		---		---		---		---
Total loans with a specific valuation allowance		2,117		2,132		297		2,138		16
Total
Commercial		20		164		---		34		---
Owner occupied 1-4		1,682		1,784		12		1,653		7
Non-owner occupied 1-4		5,931		6,527		23		5,939		106
Multi-family		2,173		2,191		19		2,532		39
Commercial real estate		4,131		4,526		243		5,182		75
Construction		---		---		---		---		---
Land		734		988		---		1,056		---
Consumer and home equity		91		92		---		92		2
Total impaired loans	$	14,762	$	16,272	$	297	$	16,488	$	229

15

	Impaired Loans as of December 31, 2012						Impaired Loans for the Quarter Ended March 31, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
	In thousands
Loans without a specific valuation allowance
Commercial	$	49	$	521	$	---	$	1,455	$	5
Owner occupied 1-4		1,421		1,535		---		2,022		27
Non-owner occupied 1-4		5,636		5,990		---		6,410		83
Multi-family		2,813		2,865		---		3,866		44
Commercial real estate		4,667		5,720		---		8,045		76
Construction		---		---		---		---		---
Land		1,379		1,615		---		2,019		1
Consumer and home equity		92		114		---		196		3
Total loans without a specific valuation allowance		16,057		18,360		---		24,013		239
Loans with a specific valuation allowance
Commercial		---		---		---		---		---
Owner occupied 1-4		232		240		14		94		2
Non-owner occupied 1-4		281		281		27		701		5
Multi-family		78		83		24		173		3
Commercial real estate		1,566		1,567		253		3,794		31
Construction		---		---		---		---		---
Land		---		---		---		---		---
Consumer and home equity		---		---		---		---		---
Total loans with a specific valuation allowance		2,157		2,171		318		4,762		41
Total
Commercial		49		521		---		1,455		5
Owner occupied 1-4		1,653		1,775		14		2,116		29
Non-owner occupied 1-4		5,917		6,271		27		7,111		88
Multi-family		2,891		2,948		24		4,039		47
Commercial real estate		6,233		7,287		253		11,839		107
Construction		---		---		---		---		---
Land		1,379		1,615		---		2,019		1
Consumer and home equity		92		114		---		196		3
Total impaired loans	$	18,214	$	20,531	$	318	$	28,775	$	280

All loans rated substandard that have had an impairment allocated to them and all troubled debt restructures 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 should be identified as an impairment. Fair market value is determined using a current appraisal or evaluation in compliance with federal appraisal regulations.

16

The following table gives a breakdown of non-accruing loans by loan class at March 31, 2013 and at December 31, 2012.

Loan Class	March 31, 2013		December 31, 2012
	(In thousands)
Commercial	$	21	$	49
Owner occupied 1-4		1,033		969
Non owner occupied 1-4		2,450		2,667
Multi-family		73		76
Commercial Real Estate		128		1,302
Construction		---		---
Land		140		1,378
Consumer and home equity		---		2
Total	$	3,845	$	6,443

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.

The following tables present information regarding troubled debt restructurings by class for the three months ended March 31, 2013 and 2012.

	Newly classified troubled debt restructurings for the three months ended March 31, 2013
	(Dollars in thousands)
	Number of loans		Pre-modification Recorded Balance		Post-modification Recorded Balance		Type of Modification
Commercial	$	---	$	---	$	---		---
Owner occupied 1-4		---		---		---		---
Non owner occupied 1-4		5		1,242		969	A/B note, payment adjustment
Multi-family		---		---		---		---
Commercial Real Estate		---		---		---		---
Construction		---		---		---		---
Land		---		---		---		---
Consumer and home equity		---		---		---		---
Total	$	5	$	1,242	$	969

	Newly classified troubled debt restructurings for the three months ended March 31, 2012
	(Dollars in thousands)
	Number of loans		Pre-modification Recorded Balance		Post-modification Recorded Balance		Type of Modification
Commercial	$	---	$	---	$	---		---
Owner occupied 1-4		1		108		108	Below market rate
Non owner occupied 1-4		---		---		---		---
Multi-family		---		---		---		---
Commercial Real Estate		1		245		245	Below market rate
Construction		---		---		---		---
Land		---		---		---		---
Consumer and home equity		---		---		---		---
Total	$	2	$	353	$	353

17

There were no troubled debt restructurings modified in the past 12 months that subsequently defaulted for the three months ended March 31, 2013 or 2012.

Note 7 - Disclosures About Fair Value of Assets and Liabilities

Fair value is 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.  Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.  There is a hierarchy of 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 supported by little or no market activity and are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012:

	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, 2013:
U.S. Government-sponsored agencies	$	16,692		---	$	16,692		---
Mortgage-backed securities		9,863		---		9,863		---
State and political subdivision securities		11,443		---		11,443		---
Totals		37,998		---		37,998		---
December 31, 2012:
U.S. Government-sponsored agencies	$	10,709		---	$	10,709		---
Mortgage-backed securities		7,198		---		7,198		---
State and political subdivision securities		10,097		---		10,097		---
Totals		28,004		---		28,004		---

18

Following is a description of the valuation methodologies and inputs 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.  There have been no significant changes in the valuation techniques during the quarter ended March 31, 2013.

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 quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows.  Such securities are classified in Level 2 of the valuation hierarchy.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012.

			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)
March 31, 2013:
Collateral-dependent impaired loans	$	2,260		—		—	$	2,260
December 31, 2012:
Collateral-dependent impaired loans	$	527		—		—	$	527

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-Dependent Impaired Loans, Net of Allowance for Loan and Lease Losses

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell.  Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

19

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value.  Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary.  Appraisals are reviewed for accuracy and consistency.  Appraisers are selected from the list of approved appraisers maintained by management.  The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.  These discounts and estimates are developed by comparison to historical results.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements.

	Fair Value at 12/31/12	Valuation Technique	Unobservable Inputs	Range (Weighted Average)
		In thousands
March 31, 2013:
Collateral-dependent impaired loans	$2,260	Market comparable properties	Marketability discount	10%
December 31, 2012:
Collateral-dependent impaired loans	$527	Market comparable properties	Marketability discount	10%

Fair Value of Financial Instruments

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012.

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
			In thousands
March 31, 2013:
Financial assets
Cash and cash equivalents	$	24,087	$	24,087	$	—	$	—
Interest bearing time deposits		1,747		—		1,747		—
Loans held for sale		2,296		—		2,296		—
Loans, net of allowance for losses		273,062		—		---		290,498
Federal Home Loan Bank stock		3,185		—		3,185		---
Accrued interest receivable		1,188		—		1,188		—
Financial liabilities
Transaction and Savings Deposits		168,144		168,144		—		—
Time Deposits		141,213		—		—		143,780
Federal Home Loan Bank advances		10,000		—		10,457		—
Accrued interest payable		40		—		40		—
December 31, 2012:
Financial assets
Cash and cash equivalents	$	31,421	$	31,421	$	—	$	—
Interest bearing time deposits		1,740		—		1,740		—
Loans held for sale		1,363		—		1,363		—
Loans, net of allowance for losses		280,257		—		---		299,010
Federal Home Loan Bank stock		3,185		—		3,185		---
Accrued interest receivable		1,133		—		1,133		—
Financial liabilities
Transaction and Savings Deposits		167,704		167,704		—		—
Time Deposits		140,933		—		—		143,181
Federal Home Loan Bank advances		15,000		—		15,515		—
Accrued interest payable		40		—		40		—

20

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 and Interest Bearing Time Deposits

The carrying amount approximates fair value.

Loans Held For Sale

The carrying amount approximates fair value due to the insignificant time between origination and date of sale.  The carrying amount is the amount funded and accrued interest.

Loans

Fair value is estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities.  The market rates used are based on current rates the Bank would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions.

Federal Home Loan Bank Stock

Fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Accrued Interest Receivable and Payable

The carrying amount approximates fair value.  The carrying amount is determined using the interest rate, balance and last payment date.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities.  The market rates used were obtained from a knowledgeable independent third party and reviewed by the Company.  The rates were the average of current rates offered by local competitors of the Bank.

The estimated fair value of demand, NOW, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

Federal Home Loan Bank Advances

Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities.  These rates were obtained from current rates offered by FHLB.

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 commitments to sell securities is estimated based on current market prices for securities 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.

21

Note 8 –Accounting Developments

Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This ASU eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This ASU is effective for both public and nonpublic entities for interim and annual reporting periods beginning on or after December 15, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date. Early adoption is not permitted. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220); Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2015. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210);Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  The main objective of this standard is to address implementation issues about the scope of Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures About offsetting Assets and Liabilities.  The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative period presented.   The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS amends FASB ASC Topic 820,  Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The ASU clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholders’ equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The ASU also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly

22

transaction. The ASU also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. Early adoption was not permitted. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. The amendments do not affect how earnings per share is calculated or presented.  This update is effective for fiscal years and interim periods beginning after December 15, 2011 and is to be applied retrospectively. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements. The Company has presented comprehensive income in a single continuous statement of comprehensive income for the years ended December 31, 2012 and 2011.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.  If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any.  Under the amendments in ASU No. 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test.  An entity may resume performing the qualitative assessment in any subsequent period.  The amendments enacted by ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption was permitted. The adoption of this update did not impact the Company’s financial condition or results of operations.

In December, 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, in an effort to improve comparability between U.S. GAAP and international financial reporting standards (“IFRS”) financial statements with regard to the presentation of offsetting assets and liabilities on the statement of financial position arising from financial and derivative instruments, and repurchase agreements. The ASU establishes additional disclosures presenting the gross amounts of recognized assets and liabilities, offsetting amounts, and the net balance reflected in the statement of financial position. Descriptive information regarding the nature and rights of the offset must also be disclosed. The new standard is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In December, 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05.  In response to stakeholder concerns regarding the

23

operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration.

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 Annual 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 144 years and differs from many of our competitors by 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 22 banks and credit unions that compete with us. We also believe that operating independently under the same name for over 144 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.

Tippecanoe County and the eight surrounding counties comprise Lafayette Savings’ primary market area. Lafayette is the county seat of Tippecanoe County and West Lafayette is the home of Purdue University. There are three things that set Greater Lafayette apart from other urban areas of the country - the presence of a world class university, Purdue University; a government sector due to the presence of the county seat; and the mix of heavy industry and high-tech innovative start-up companies tied to Purdue University. In addition, Greater Lafayette is a regional health care center serving nine counties and has a large campus of Ivy Tech Community College.

The Tippecanoe County unemployment rate peaked at 10.6% in July 2009 and at March 31, 2013 was at 8.1% compared to 9.1% for Indiana and 7.6% nationally. The local housing market has remained fairly stable for the last several years with no price bubble and no resulting price swings. As of the most recent fourth quarter results provided by the Federal Housing Finance Agency, the five year percent change in house prices for the Lafayette Metropolitan Statistical Area (“MSA”) was a 0.18% increase with the one-year change a 1.18% increase. For the fourth quarter of 2012, the most recent report available, housing prices in the MSA increased 0.19%. Existing home sales increased 17% in Tippecanoe County in 2012, while the average price of a home sold in 2012 was 6% higher than in 2011. New home starts increased to 488 in 2012, a 6% increase over 2011.

24

The area’s diversity did not make us immune to the ongoing effects of the recession; however, growth continues, although not at the same rate as before the recession. Current signs of recovery, based on a report from Greater Lafayette Commerce, include increasing manufacturing employment, a continuing commitment to new facilities and renovations at Purdue University, and signs of renewed activity in residential development projects. Capital investments announced and/or made in 2012 totaled $605 million compared to $444 million in 2011 and $640 million in 2010. Purdue, the area’s largest employer, increased enrollment to over 40,000 for the 2012-2013 school year.

Subaru, the area’s largest industrial employer and producer of the Subaru Legacy, Outback and Tribeca, recently announced the addition of more production capacity for a new model to be built there. Wabash National, the area’s second largest industrial employer, continues to hire and intends to employ 60 more welders for a new line for production of bulk liquid storage containers. Nanshan America began operating its new aluminum extrusion plant in Lafayette in 2012 which will employ 200 people. Alcoa will be adding a 115,000 square foot aluminum lithium plant to begin production in 2014.  Overall, about 470 new jobs were created in 2012.  While the developments noted above lead us to believe the most serious problems are behind us as increased hiring and new industry moving to town have continued, we expect the recovery to be long term.

We have seen progress in our problem loans as more borrowers who had fallen behind on their loans are qualifying for troubled debt restructures, have resumed payments or we have acquired control of their properties. 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. In 2012, we acquired 5 properties through deeds-in-lieu of foreclosure and 5 properties through foreclosure and sold 36 OREO properties.  In the first quarter of 2013, we acquired one property through a sheriff’s sale and sold the one property we had in OREO at December 31, 2012.

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 the first quarter of 2013 total deposits remained fairly flat, increasing $720,000, from $308.6 million to $309.4 million. This increase consisted of a $440,000 increase in our core deposits and a $280,000 increase in our higher rate time accounts.  Our reliance on brokered funds remained unchanged in the first quarter of 2013 with the balance remaining at $13.7 million as we wait for maturities which give us the opportunity to repay these funds. 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

25

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 three years while long-term rates have fallen to the 3.0% 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 increased to a record high of 4.12% before falling to 3.87% at year end. The decrease was generally due to the continued decline in loan rates while deposit rates have started to level out.  Our expectation for 2013 and 2014 is that deposits rates will remain at these low levels as the Federal Reserve continues to focus on strengthening the economy. Overall loan rates are expected to stay low or fall slightly.

Rate changes can typically be expected to have an impact on interest income. Because the Federal Reserve has stated it intends to keep rates low, we expect to see little change in the money supply or market rates in 2013. Low rates generally increase borrower preference for fixed rate products which we typically sell on the secondary market. Some existing adjustable rate loans can be expected to reprice to lower rates which could be expected to have a negative impact on our interest income, although many of our loans have already reached their interest rate floors. While we would expect to sell the majority of our fixed rate loans on the secondary market, we expect to book some higher quality loans to replace runoff in the portfolio. Although new loans put on the books in 2012 will be at comparatively low rates we expect they will provide a return above any other opportunities for investment.

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 66 months, 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.

Effect of Current Events

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 Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

26

Also, on July 21, 2010, President Obama signed into law 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 LSB Financial, will be regulated in the future. Among other things, these provisions abolish the OTS 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, impose new capital requirements on bank and thrift holding companies, and impose limits on debit card interchange fees charged by large banks (commonly known as the Durbin Amendment).

The Dodd-Frank Act also established the Consumer Financial Protection Bureau (the “CFPB”) within the Federal Reserve, which has broad authority to regulate consumer financial products and services and entities offering such products and services, including banks. Many of the consumer financial protection functions formerly assigned to the federal banking and other designated agencies are now performed by the CFPB. The CFPB has a large budget and staff, and has broad rulemaking authority over providers of credit, savings, and payment services and products. In this regard, the CFPB has the authority to implement regulations under federal consumer protection laws and enforce those laws against, and examine, financial institutions. State officials also will be authorized to enforce consumer protection rules issued by the CFPB. This bureau also is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. The CFPB also is directed to prevent “unfair, deceptive or abusive practices” and ensure that all consumers have access to markets for consumer financial products and services, and that such markets are fair, transparent, and competitive.  Although the CFPB has begun to implement its regulatory, supervisory, examination and enforcement authority, there continues to be significant uncertainty as to how the agency’s strategies and priorities will impact the Bank and LSB Financial.

The CFPB has indicated that mortgage lending is an area of supervisory focus and that it will concentrate its examination and rulemaking efforts on the variety of mortgage-related topics required under the Dodd-Frank Act, including steering consumers to less-favorable products, discrimination, abusive or unfair lending practices, predatory lending, origination disclosures, minimum mortgage underwriting standards, mortgage loan originator compensation, and servicing practices.  The CFPB recently published several final regulations impacting the mortgage industry, including rules related to ability-to-repay, mortgage servicing, escrow accounts, and mortgage loan originator compensation. The ability-to-repay rule makes lenders liable if they fail to assess ability to repay under a prescribed test, but also creates a safe harbor for so-called “qualified mortgages.”  The “qualified mortgages” standards include a tiered cap structure that places limits on the total amount of certain fees that can be charged on a loan, a 43% cap on debt-to-income (i.e., total monthly payments on debt to monthly gross income), exclusion of interest-only products, and other requirements.  The 43% debt-to-income cap does not apply for the first seven years the rule is in effect for loans that are eligible for sale to Fannie Mae or Freddie Mac or eligible for government guarantee through the FHA or the Veterans Administration. Failure to comply with the ability-to-repay rule may result in possible CFPB enforcement action and special statutory damages plus actual, class action, and attorneys fees damages, all of which a borrower may claim in defense of a foreclosure action at any time.  LSB Financial’s management is currently assessing the impact of these requirements on its mortgage lending business.

27

In addition, the Federal Reserve and other federal bank regulatory agencies have issued a proposed rule under the Dodd-Frank Act that would exempt “qualified residential mortgages” from the securitization risk retention requirements of the Dodd-Frank Act.  The final definition of what constitutes a “qualified residential mortgage” may impact the pricing and depth of the secondary market into which we may sell mortgages we originate.  At this time, we cannot predict the content of final CFPB and other federal agency regulations or the impact they might have on the Company’s financial results.  The CFPB’s authority over mortgage lending, and its authority to change regulations adopted in the past by other regulators (i.e., regulations issued under the Truth in Lending Act, for example), or to rescind or ignore past regulatory guidance, could increase the Company’s compliance costs and litigation exposure.

The January 25, 2013 decision of the D.C. Circuit Court of Appeals invalidating recess appointments to the National Labor Relations Board, calls into question the recess appointment of Richard Cordray as head of the CFPB. What impact this potentially invalid appointment will have on the CFPB regulations promulgated in January, 2013 or actions taken prior to that time is undetermined at this time. The decision may also play a part in determining whether new legislation will be passed respecting the structure and funding of the CFPB, and whether Director Cordray will be appointed when his current term expires. Though it is not possible to predict the outcome of the recess appointment controversy, the decision will have implications for the Company and the Bank with respect to regulations that apply to them and to competition from other entities that may or may not be subject to regulations promulgated by the CFPB.

In addition to the CFPB’s authority over mortgage lending, 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. Moreover, the Dodd-Frank Act requires public companies like the Company to hold shareholder advisory “say-on-pay” votes on executive compensation at least once every three years and submit related proposals to a vote of shareholders. LSB Financial held its first such “say-on-pay” vote at its 2013 annual meeting. At the annual meeting, shareholders cast over 76% of votes in favor of holding future say-on-pay votes on an annual basis. The Company’s Board of Directors had recommended a vote for annual frequency of say-on-pay votes. In light of this result and other factors it considered, the Board has determined that the Corporation will hold future say-on-pay votes on an annual basis until the next advisory vote on the frequency of say-on-pay votes occurs. The next advisory vote regarding the frequency of say-on-pay votes is required to occur no later than the Corporation’s 2019 Annual Meeting of Shareholders.

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 expected to increase 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 continues to actively monitor the implementation of the Dodd-Frank Act and the regulations promulgated thereunder and assess 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, remains uncertain.

On June 7, 2012, the Federal Reserve approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to the Bank.  The FDIC and the OCC subsequently approved these proposed rules on June 12, 2012.  The proposed rules implement the “Basel III”

28

regulatory capital reforms and changes required by the Dodd-Frank Act.  “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The proposed rules include new risk-based capital and leverage ratios, which would be phased in from 2013 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios.  The proposed new minimum capital level requirements applicable to the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions.  The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%.  The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019.  An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount.  These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth.  However, the proposed rules permit the countercyclical buffer to be applied only to “advanced approach banks” ( i.e. , banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Bank.  The proposed rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which would be phased out over time.

The federal bank regulatory agencies also proposed revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness.  These revisions would take effect January 1, 2015.  Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions would be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

The proposed rules set forth certain changes for the calculation of risk-weighted assets, which we would be required to utilize beginning January 1, 2015.  The standardized approach proposed rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) a proposed alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets.

29

The proposed rules received extensive comments during a comment period that ran through October 2012.  In November 2012, the federal bank regulatory agencies jointly stated that they did not expect any of the proposed rules to become effective on the original target date of January 1, 2013. Basel III specified that banks should be compliant with the new capital requirements by January 2015, but on January 6, 2013, the restrictions were eased to provide for annual increases that would result in full compliance in 2019.

Based on our current capital composition and levels, we believe that we would be in compliance with the requirements as set forth in the proposed rules if they were presently in effect.

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, 2012 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. 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

30

loans based on the expected net charge-offs. 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.

31

Financial Condition

SELECTED FINANCIAL CONDITION DATA
(Dollars in Thousands)
	March 31,	December 31,	$		%
	2013	2012	Difference		Difference
Total assets	$361,190	$364,610	$(3,420	)	(0.94	)%
Loans receivable, including loans held for sale, net	275,358	281,620	(6,262	)	(2.22	)
1-4 family residential mortgage loans	99,254	100,579	(1,325	)	(1.32	)
Home equity lines of credit	15,633	16,421	(788	)	(4.80	)
Other real estate loans net of undisbursed portion of loans	154,949	159,367	(4,418	)	(2.77	)
Commercial business loans	13,953	13,290	663		4.99
Consumer loans	1,083	1,131	(48	)	(4.24	)
Loans sold (for quarter and year, respectively)	11,914	84,144	(72,230	)	(85.84	)
Non-performing loans over 90 days past due	1,834	2,907	(1,073	)	(36.91	)
Loans past due 90 days, still accruing	--	--	---		---
Loans less than 90 days past due, not accruing	2,011	3,536	(1,525	)	(43.13	)
Other real estate owned	162	256	(94	)	(36.72	)
Non-performing assets	4,007	6,699	(2,692	)	(40.19	)
Cash and due from banks	1,249	25,643	(24,394	)	(95.13	)
Available-for-sale securities	37,998	28,004	9,994		35.69
Short-term investments	22,838	5,778	17,060		295.26
Interest bearing time deposits	1,747	1,740	7		0.40
Deposits	309,357	308,637	720		0.23
Core deposits	168,144	167,704	440		0.26
Time accounts	141,213	140,933	280		0.20
Brokered deposits	13,690	13,690	---		---
FHLB advances	10,000	15,000	(5,000	)	(33.33	)
Shareholders’ equity (net)	39,554	38,955	599		1.54

Comparison of Financial Condition at March 31, 2013 and December 31, 2012

Our total assets decreased $3.4 million, or 0.94%, during the three months from December 31, 2012 to March 31, 2013.  Primary components of this decrease were a $7.3 million net decrease in cash and due from banks and short-term investments, a $6.3 million decrease in net loans receivable including loans held for sale, offset by a $10.0 million increase in available for sale securities.   Federal Home Loan Bank advances decreased by $5.0 million and deposits increased $720,000.  The net decrease in cash and short-term investments was generally due to the repayment of the maturing FHLB advance and the purchase of securities.  The remaining purchase of securities was funded by loan repayments as borrowers continued to take advantage of unprecedented low rates to refinance their mortgages to lower rate fixed rate mortgages which we sell on the secondary market, and to continuing low loan demand.  In addition, despite the very low rates on deposits we continued to see increases in core transaction and savings accounts as depositors’ uncertainty about the economy led them to place the money in accounts where it was readily available if needed.

32

Non-performing assets, which include non-accruing loans and foreclosed assets, decreased from $6.7 million at December 31, 2012 to $4.0 million at March 31, 2012.  Non-accruing loans at March 31, 2013 were comprised of $3.5 million, or 90.59%, of one- to four-family residential real estate loans; $140,000, or 3.65%, of loans on land; $128,000 or 3.32%, of commercial property loans, $73,000, or 1.91%, of multi-family property loans, and $20,000, or 0.55%,of non real estate loans.  Non-performing assets at March 31, 2013 also included one $162,000 foreclosed property compared to $256,000 at December 31, 2012.  At March 31, 2013, our allowance for loan losses equaled 2.17% of total loans compared to 2.06% at December 31, 2012. The allowance for loan losses at March 31, 2013 totaled 151.29% of non-performing assets compared to 88.06% at December 31, 2012, and 157.66% of non-performing loans at March 31, 2013 compared to 91.57% at December 31, 2012.  Our non-performing assets equaled 1.11% of total assets at March 31, 2013 compared to 1.84% at December 31, 2012.  Non-performing loans totaling $321,000 were charged off in the first three months of 2013, offset by $83,000 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.  We acquired one property in the first quarter of 2013 through a sheriff’s sale.  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 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 has not been notified of any concerns.  The Supervisory Agreement did not require an additional provision for loan loss reserves.  As of July 21, 2011, all functions and all rulemaking authority of the OTS relating to federal savings associations were transferred to the OCC.  As a result, the OCC will now enforce the Supervisory Agreement with the Bank.

Shareholders’ equity increased from $39.0 million at December 31, 2012 to $39.6 million at March 31, 2013, an increase of $599,000, or 1.54%, primarily as a result of net income of $653,000.  Shareholders’ equity to total assets was 10.95% at March 31, 2013 compared to 10.68% at December 31, 2012.

33

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 resulting 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.  Please note that beginning on January 1, 2013, deposits at the Federal Reserve were included in interest earning assets and not in cash accounts.  The average balance of deposits at the Federal Reserve in the first three months of 2013 was $24.8 million compared to $28.8 million for the same period in 2012.  The 2012 average balances were adjusted to include that balance.

	Three months ended March 31, 2013								Three months ended March 31, 2012
	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)	$	277,883		$	3,477		5.00	%	$	297,733		$	4,075		5.47	%
Other investments		64,730			165		1.02			50,037			119		0.95
Total interest-earning assets		342,613			3,642		4.25			347,770			4,194		4.82
Interest-Bearing Liabilities
Savings deposits	$	30,078			4		0.05		$	26,322			6		0.09
Demand and NOW deposits		135,888			77		0.23			130,345			140		0.43
Time deposits		141,829			488		1.38			154,816			665		1.72
Borrowings		13,333			78		2.34			18,000			99		2.20
Total interest-bearing liabilities		321,128			647		0.81			329,483			910		1.10
Net interest income				$	2,995							$	3,284
Net interest rate spread							3.45	%							3.72	%
Net earning assets	$	21,485							$	18,287
Net yield on average interest-earning assets							3.50	%							3.78	%
Average interest-earning assets to average interest-bearing liabilities		1.07	x							1.06	x

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

Results of Operations

Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012.

General.  Net income for the three months ended March 31, 2013 was $653,000, an increase of $58,000, or 9.75%, from the three months ended March 31, 2012.  The increase was primarily due to a $200,000, or 33.33%, decrease in the provision for loan losses and a $210,000 increase in noninterest income, partially offset by a $289,000 decrease in net interest income and a $48,000, or 14.24%, decrease in taxes.  Noninterest expenses increased by $15,000 or 0.56%.

Net Interest Income.  Net interest income for the three months ended March 31, 2013 decreased $289,000, or 8.80%, over the same period in 2012.  This decrease was due to a 28 basis point decrease in our net interest margin (net interest income divided by average interest-earning assets) from 3.78% for the three months ended March 31, 2012 to 3.50%for the three

34

months ended March 31, 2013, offset by a $3.2 million increase in average net interest-earning assets.  The decrease in net interest margin is primarily due to the 57 basis point decrease in the average rate on interest-earning assets from 4.82% for the three months ended March 31, 2012 to 4.25% for the three months ended March 31, 2013. This was offset by a 29 basis point decrease in the average rate on interest-bearing liabilities from 1.10% to 0.81% for the same respective periods.

Interest income on loans decreased $598,000 for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 because of both lower average loan volume and a lower average yield. The average balance of loans held in our portfolio decreased by $19.9 million from $297.7 million from the three month period in 2012 to $277.9 million in 2013.  The average yield on loans decreased by 47 basis points from 5.47% to 5.00% over the same period.

Interest earned on other investments and Federal Home Loan Bank stock increased by $46,000 for the three months ended March 31, 2013 compared to the same period in 2012.  This was primarily the result of a $14.7 million increase in the average balance of investments and Federal Home Loan Bank stock from $50.0 million to $64.7 million over the same periods.  The average yield increased from 0.95% to 1.02% over the comparable periods.

Interest expense for the three months ended March 31, 2013 decreased $263,000, or 28.90%, compared to the same period in 2012 consisting of a $242,000 decrease in interest paid on deposits and a $21,000 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 deposits from 1.04% for the first three months of 2012 to 0.74% for the first three months of 2013.  Average deposits decreased by $3.7 million over this period which included a $13.0 million decrease in the average balance of higher rate time deposits offset by a $9.3 million increase in the average balance of comparatively lower rate demand deposit accounts. The increase in demand accounts was largely due to depositors opting for fund availability over higher rates until they feel more confident about the economic situation.   The decrease in Federal Home Loan Bank advance expense was primarily due to a decrease in the average balance of advances from $18.0 million for the three months of 2012 to $13.3 million for the first three months of 2013 as we paid off a maturing advance as slow loan demand reduced our need for additional funds.  The average rate on advances increased from 2.20% to 2.34% as the maturing advance had a shorter term and a corresponding lower rate.

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.

	03/31/13		12/31/12		03/31/12
	(Dollars in Thousands)
Loans delinquent 30-59 days	$	461	$	1,176	$	870
Loans delinquent 60-89 days		---		781		1,178
Total delinquencies		461		1,957		2,048
Accruing loans past due 90 days		---		---		---
Non-accruing loans		3,845		6,443		12,195
Total non-performing loans		3,845		6,443		12,195
OREO		162		256		599
Total non-performing assets	$	4,007	$	6,699	$	12,794

35

Loans are included in the delinquent 30-59 days category when they become one month past due.  Loans are included in the delinquent 60-89 days category when they become two months past due.  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 generally discontinued when a loan becomes 90 days 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.

Changes in non-performing loans at March 31, 2013 compared to December 31, 2012 were primarily due to the Bank restoring two relationships representing $2.1 million of loans to accrual status due to greatly improved financial situations making full collectability of principal and interest likely, taking $205,000 into OREO, charging off $185,000 of non-performing loans, and receiving payoffs of $166,000.  In addition we received principal payments of $97,000.  Over this period we also had $106,000 of loans on residential properties become non-performing during the first quarter.

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 the 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, 2013 our largest areas of concern were loans on one- to four-family non-owner occupied rental properties and loans on one- to four-family owner occupied properties, and, to a lesser extent loans on non-residential properties.  Loans totaling $1.0 million on one- to four-family rental properties, $635,000 on one- to four-family owner occupied properties and $217,000 on non-residential properties were past due more than 30 days at March 31, 2013.  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 owner occupied property delinquencies typically reflect the elevated

36

unemployment rate in the county.  The non-residential properties are typically loans where the borrowers are seeing increased vacancies and late rent payments because of the slow economy.

We recorded a $400,000 provision for loan losses for the three months ended March 31, 2013 as a result of our analyses of our current loan portfolios, compared to $600,000 during the same period in 2012.  The provisions in the quarter 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 decrease for the first three months of 2013 compared to the same period in 2012 was the improvement in non-accruing and delinquent loans during the period.  During the first three months of 2013, we charged $321,000 against loan loss reserves and had recoveries of $83,000.  We expect to obtain possession of more properties in 2013 that are currently in the process of foreclosure.  The final disposition of these properties may result in a loss.  The $6.1 million allowance for loan losses was considered appropriate to cover probable incurred losses based on our evaluation and our loan mix.  Our ratio of allowance for loan losses to non-performing assets increased from 41.46% at March 31, 2012 to 151.29% at March 31, 2013.  That ratio at December 31, 2012 was 88.06%.

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 $7.1 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. None of these loans are delinquent more than 30 days.  We also have $6.3 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, one loan of $19,000 was delinquent more than 30 days.  Our total high loan-to-value loans at March 31, 2013 were at 32% of capital, well under regulatory guidelines of 100% of capital.  We have $15.63 million of Home Equity Lines of Credit, none of which were delinquent more than 30 days at March 31, 2013.

An analysis of the allowance for loan losses for the three months ended March 31, 2013 and 2012 follows:

	Three months ended March 31,
	2013			2012
	(Dollars in Thousands)
Balance at January 1	$	5,900		$	5,331
Loans charged off		(321	)		(631	)
Recoveries		83			5
Provision		400			600
Balance at March 31	$	6,062		$	5,305

At March 31, 2013, non-performing assets, consisting of non-accruing loans, accruing loans 90 days or more delinquent and other real estate owned, totaled $4.0 million compared to $6.7 million at December 31, 2012.  In addition to our non-performing assets, we identified $20.1 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.

37

At March 31, 2013, 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 2.17% of net loans receivable and 157.66% of non-performing loans at March 31, 2013 compared to 2.06% and 88.06% at December 31, 2012, respectively.  Our non-performing assets equaled 1.11% of total assets at March 31, 2013 compared to 1.84% at December 31, 2012.

Non-Interest Income.  Non-interest income for the three months ended March 31, 2013 increased by $210,000, or 23.13%, compared to the same period in 2012.  This was primarily due to a $158,000 increase in other income, an $81,000 decrease in the loss recognized on the sale of OREO, and a $24,000 gain on the sale of mortgage loans offset by a $53,000 decrease in service charges and fee income.  The increase in other income was due primarily to a $102,000 increase in the gain on the sale of non-bank investment products through our Money Concepts program and from a $55,000 increase in mortgage loan servicing fees primarily due to a $21.4 increase in our servicing portfolio. The decrease in losses on the sale or writedown of OREO properties was primarily due the reduction in the number of OREO properties resulting in the sale of only one OREO property in the first quarter of 2013 for a loss of $2,000 compared to the sale of 21 properties in the first quarter of 2012 for a loss of $83,000. The increase in the gain on sale of mortgage loans was due primarily to generally higher fees received on loan sales including an increase in the sale of federally insured loans which typically generate higher fee income offset by a slight decrease in the number of loans sold. The decrease in service fees was primarily due to a lower volume of customer overdrafts.

Non-Interest Expense.  Non-interest expense for the three months ended March 31, 2013 increased $15,000, or 0.56%, compared to the same period in 2012 due primarily to a $27,000 increase in advertising expenses connected to production of our annual report and the signing of a new bank spokesperson, and an $8,000 increase in salaries and employee benefits, offset by a $12,000 decrease in other expenses primarily due to loan related legal fees, and a $6,000 decrease in computer expenses due to the receipt of a smart phone mobile application credit.

Income Tax Expense.   Our income tax provision increased by $48,000 for the three months ended March 31, 2013 due primarily to increased 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

38

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 current internal policy for liquidity is 5% of total assets. Our liquidity ratio at March 31, 2013 was 15.61% as a percentage of total assets compared to 14.81% at December 31, 2012.

We anticipate that we will have sufficient funds available to meet current funding commitments.  At March 31, 2013, we had outstanding commitments to originate loans and available lines of credit totaling $36.1 million and commitments to provide funds to complete current construction projects in the amount of $3.0 million. We had $1.8 million of outstanding commitments to sell residential loans.  Certificates of deposit which will mature in one year or less totaled $80.1 million at March 31, 2013.  Included in that number are $2.1 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 have no Federal Home Loan Bank advances maturing in the next twelve months.

Capital Resources

Shareholders’ equity totaled $39.6 million at March 31, 2013 compared to $39.0 million at December 31, 2012, an increase of $599,000, or 1.54%, due primarily to net income of $653,000.  Shareholders’ equity to total assets was 10.95% at March 31, 2013 compared to 10.68% at December 31, 2012.

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, 2013 and December 31, 2012, Lafayette Savings was categorized as well capitalized.  Our actual and required capital amounts and ratios at March 31, 2013 and December 31, 2012 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, 2013	(Dollars in Thousands)
Total risk-based capital (to risk-weighted assets)	$	42,109		16.2	%	$	20,790		8.0	%	$	25,987		10.0	%
Tier I capital (to risk-weighted assets)		38,826		14.9			10,394		4.0			15,592		6.0
Tier I capital (to adjusted total assets)		38,826		10.7			10,841		3.0			18,068		5.0
As of December 31, 2012
Total risk-based capital (to risk-weighted assets)	$	41,400		16.0	%	$	20,694		8.0	%	$	25,868		10.0	%
Tier I capital (to risk-weighted assets)		38,134		14.7			10,347		4.0			15,521		6.0
Tier I capital (to adjusted total assets)		38,134		10.5			10,928		3.0			18,213		5.0

39

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.  On July 14, 2011, the OTS notified the Company that certain revisions to the capital plan primarily relating to consolidated capital ratios and consolidated financial statements of the Company were needed. As noted above, as a result of the Dodd-Frank Act, the Bank is being supervised by the OCC and the Company is being supervised by the Federal Reserve from and after July 21, 2011.  The Company requested clarification from the Federal Reserve regarding the requested information and submitted a response on August 30, 2011 explaining a labeling correction that the Company believes addresses the concerns noted by the OTS.

The Bank’s Supervisory Agreement and the MOU require prior written non-objection of the OCC and the Federal Reserve (formerly the OTS) of the declaration or payment of dividends or other capital distributions by the Bank or the Company, respectively.  In addition, the MOU requires prior approval by the Federal Reserve 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.  LSB Financial does not now hold any such debt.  The Company paid a quarterly cash dividend to its shareholders in March 2013. All required regulatory non-objections to the dividend were obtained.

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:

40

·   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 for Smaller Reporting Companies.

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, 2013, 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, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over the financial reporting.

41

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Effective August 31, 2010, the Bank executed an updated Supervisory Agreement (the “Supervisory Agreement”) with the Office of Thrift Supervision (“OTS”) and LSB Financial Corp. (the “Company”) entered into a Memorandum of Understanding (the “MOU”) with the OTS under which the Bank and the Company have agreed to take a number of actions within specified timeframes to address concerns identified by the OTS in connection with its 2010 examination of the Bank. These agreements replace the prior Memorandum of Understanding and Supervisory Agreement between the Bank and the OTS. As a result of the Dodd-Frank Act, from and after July 21, 2011, the Bank is being supervised by the OCC and the Company is being supervised by the Federal Reserve. As a result, the OCC will now enforce the Bank’s Supervisory Agreement and the Federal Reserve will enforce the MOU. The Supervisory Agreement and the MOU will remain in effect until terminated, modified or superseded by the OCC or Federal Reserve, respectively.

The updated Supervisory Agreement eliminates certain requirements satisfied in the Bank’s prior agreement with the OTS.

Under the Supervisory Agreement, by September 30, 2010, the Bank’s board of directors was required to provide to the OTS written workout plans for each adversely classified asset or group of classified assets to any one borrower or loan relationship of $500,000 or greater certain classified assets. The Bank must also present quarterly status reports to the OCC (formerly, the OTS). The Bank timely submitted the required workout plans and has provided, and will continue to provide, the quarterly written asset status reports as required. The Bank believes it is in compliance with this provision of the Supervisory Agreement and that these plans are a useful tool in monitoring the progress of its workouts of classified assets.

The Bank’s board of directors was also required to revise its policy on concentrations of credit and, in the event the revised limits are lower, adopt a plan to bring the Bank into compliance with the revised policy. The Bank’s board must also, on a quarterly basis, review the Bank’s compliance with the revised policy and the appropriateness of its concentration limits given current economic conditions and the Bank’s capital position. On September 20, 2010, the Bank’s board of directors approved a revised Concentrations of Credit Policy and Reduction Plan and continues to review the policy and compliance therewith on a quarterly basis. The Bank believes it is in compliance with these provisions of the Supervisory Agreement, and that its concentrations in the area of one- to four-family non-owner occupied rental properties have been reduced as a result of these actions.

The Bank was also required to revise its policies and procedures related to the establishment and maintenance of its allowance for loan losses and submit the revised policy to the Regional Director of the OTS for review and comment. However, the Supervisory Agreement did not require an additional provision for loan loss reserves. The Bank revised its allowance for loan losses policy on September 21, 2010. On June 20, 2011, the Bank’s board of directors further revised the policy to add clarification with respect to the requirement for outside appraisals. As a result of these actions, the Bank now obtains appraisals performed by a state-certified appraiser on all higher risk transactions. The Bank believes that it is in compliance with this provision of the Supervisory Agreement.

The Supervisory Agreement also required the Bank to revise its written internal asset review and classification program. The Bank revised its internal asset review and classification program policy on September 21, 2010. The Bank’s board of directors has also approved establishment of an asset review committee that will review any loan rating changes. As a result

42

of these actions, the Bank believes it has improved its loan classification process and its identification of troubled debt restructurings and nonaccrual loans. The Bank believes that it is in compliance with this provision of the Supervisory Agreement.

The Bank was required to submit to the OTS an updated business plan for the period beginning January 1, 2011 through December 31, 2012. The Bank submitted a three-year Business Plan to the OTS by October 31, 2010 which sets forth minimum capital goals of 8 percent and 12 percent for Tier 1 (Core) and risk-based capital, respectively. The Plan outlines strategies that will be employed to boost earnings and preserve capital, and includes pro-forma financial projections and budget assumptions. Any material modifications to the Business Plan must receive prior, written non-objection of the OCC (formerly the OTS). By December 31, 2011, and each December 31st thereafter while the Supervisory Agreement remains in effect, the Business Plan must be updated and submitted to the OCC (formerly the OTS). The OTS Regional Director notified the Bank on July 14, 2011 that the Plan was acceptable and should be implemented immediately. The Bank has implemented the Business Plan and there have been no material modifications to the Business Plan since submission. The Bank believes it is in compliance with this provision of the Supervisory Agreement, except to the extent not yet applicable. The Bank believes that these actions relating to its Business Plan have improved its budgeting process.

The Bank’s board of directors is also required to review written quarterly variance reports on the Bank’s compliance with the Business Plan. A copy of each variance report is to be provided to the OCC (formerly the OTS) within five (5) days after review by the board. A budget variance report explaining the reasons for material variances from original projections is submitted to the Bank’s board of directors within 45 days of the quarter end. The board discusses the impact of noted variances and determines whether or not corrective action is required. The Bank believes it is in compliance with this provision of the Supervisory Agreement.

The Supervisory Agreement requires prior written non-objection of the OCC (formerly the OTS) of the declaration or payment of dividends or other capital distributions by the Bank. The Bank has not declared or paid dividends, nor has it made any other capital distribution to the Company without the required prior approval. The Bank’s last approved dividend to the Company was paid on March 1, 2013. All required regulatory non-objections to the dividend declaration were obtained. The Bank is in compliance with this provision of the Supervisory Agreement.

The Supervisory Agreement places restrictions on the Bank with respect to certain operating activities, requiring prior notice to the OCC (formerly the OTS) of changes in directors and senior executive officers and prior written non-objection from the OCC (formerly the OTS) with respect to senior executive officer or director compensation, material third party service provider contracts, and asset growth over certain levels until the approval of the Bank’s Business Plan. Asset growth resulting from lending activities has not exceeded interest credited since third quarter 2010 (the quarter in which the Supervisory Agreement was executed). No payments covered by the Supervisory Agreement’s restriction on “golden parachute payments” as defined in 12 CFR § 359.1(f) have been made or requested since the effective date of the Supervisory Agreement. The appointment of Thomas Parent and Sarah Byrn to the Board of Directors were approved by the OCC. The Bank believes it is in compliance with these provisions of the Supervisory Agreement.

Under the MOU, the Company was required 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. The capital plan is to be updated each year during which the

43

MOU is effective. On July 14, 2011, the OTS notified the Company that certain revisions to the capital plan primarily relating to consolidated capital ratios and consolidated financial statements of the Company were needed. The Company requested clarification from the Federal Reserve regarding the requested information and submitted a response on August 30, 2011 explaining a labeling correction that the Company believes addresses the concerns noted by the OTS.

The MOU also requires prior written non-objection of the Federal Reserve (formerly the OTS) of the declaration or payment of dividends or other capital distributions by the Company and of any Company debt not in the ordinary course (including loans, cumulative preferred stock and subordinated debt) unless such debt is contemplated by the capital plan. The Company does not now hold any such debt. The Company believes it is in compliance with the provisions of the MOU. The Company paid a quarterly cash dividend to its shareholders in March 2013 after receiving all required regulatory non-objections.

The Company believes that the Supervisory Agreement and the MOU have not had, and will not have, a material impact on the financial condition or results of operations of the Bank or the Company, taken as a whole.

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

Item 1A.  Risk Factors

Not Applicable to Smaller Reporting Companies.

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
January1 – January 31, 2013	---	---	---	52,817
February 1 – February 28, 2013	---	---	---	52,817
March 1 – March 31, 2013	---	---	---	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.

44

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

None.

Item 6.  Exhibits

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

45

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 15, 2013	By:	/s/ Randolph F. Williams
		Randolph F. Williams, President
		(Principal Executive Officer)
Date: May 15, 2013	By:	/s/ Mary Jo David
		Mary Jo David, Treasurer
		(Principal Financial and Accounting Officer)

46

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
101	The following materials from the Company’s Form 10-Q for the quarterly period ending March 31, 2013, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income and Comprehensive Income; (iii) Consolidated Statements of Changes in Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.*
*  Users of the XBRL-related information in Exhibit 101 of this Quarterly Report on Form 10-Q are advised, in accordance with Regulation S-T Rule 406T, that this Interactive Data File is deemed not filed as a part of a registration statement for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.  The financial information contained in the XBRL-related documents is unaudited and unreviewed.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Randolph F. Williams, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of LSB Financial Corp. (the “Registrant”);

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the consolidated  financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.   The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d–15(e)) for the Registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

5.   The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 15, 2013

/s/ Randolph F. Williams

Randolph F. Williams

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mary Jo David, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of LSB Financial Corp. (the “Registrant”);

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the consolidated  financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.   The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d–15(e)) for the Registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d.   Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

5.   The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 15, 2013

/s/ Mary Jo David

Mary Jo David

Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

By signing below, each of the undersigned hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his or her capacity as an officer of LSB Financial Corp. (the “Registrant”) that (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in this report fairly presents, in all material respects, the consolidated financial condition of the Registrant at the end of such period and the results of operations of the Registrant for such period.

Date:  May 15, 2013	/s/	Randolph F. Williams
		Randolph F. Williams
		President and Chief Executive Officer
Date:  May 15, 2013	/s/	Mary Jo David
		Mary Jo David
		Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LSB Financial Corp. and will be retained by LSB Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request

XML

Loans and Allowance for Loan Losses - Troubled debt restructurings by class (Details 7) (Loans Receivable, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Loan	Mar. 31, 2012 Loan
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans	5	2
Pre-modification Recorded Balance	$ 1,242	$ 353
Post-modification Recorded Balance	969	353
Commercial
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans
Pre-modification Recorded Balance
Post-modification Recorded Balance
Owner Occupied 1-4
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans		1
Pre-modification Recorded Balance		108
Post-modification Recorded Balance		108
Type of Modification		Below market rate
Non-owner Occupied 1-4
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans	5
Pre-modification Recorded Balance	1,242
Post-modification Recorded Balance	969
Type of Modification	A/B note, payment adjustment
Multi-family
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans
Pre-modification Recorded Balance
Post-modification Recorded Balance
Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans		1
Pre-modification Recorded Balance		245
Post-modification Recorded Balance		245
Type of Modification		Below market rate
Construction
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans
Pre-modification Recorded Balance
Post-modification Recorded Balance
Land
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans
Pre-modification Recorded Balance
Post-modification Recorded Balance
Consumer and Home Equity
Financing Receivable, Modifications [Line Items]
Number of newly restructured loans
Pre-modification Recorded Balance
Post-modification Recorded Balance

XML

Securities (Detail Textuals) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]
Carrying value of securities pledged as collateral	$ 2.0	$ 2.0

XML

Disclosures About Fair Value of Assets and Liabilities - Quantitative information about unobservable inputs used in recurring and nonrecurring (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financial assets
Interest bearing time deposits	$ 1,747	$ 1,740
Loans held for sale	2,296	1,363
Loans, net of allowance for loan losses	273,062	280,257
Federal Home Loan Bank stock, at cost	3,185	3,185
Financial liabilities
Federal Home Loan Bank advances	10,000	15,000
Carrying Amount
Financial assets
Cash and cash equivalents	24,087	31,421
Interest bearing time deposits	1,747	1,740
Loans held for sale	2,296	1,363
Loans, net of allowance for loan losses	273,062	280,257
Federal Home Loan Bank stock, at cost	3,185	3,185
Interest receivable	1,188	1,133
Financial liabilities
Transaction and Savings deposits	168,144	167,704
Time Deposits	141,213	140,933
Federal Home Loan Bank advances	10,000	15,000
Accrued interest payable	40	40
Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets
Cash and cash equivalents	24,087	31,421
Interest bearing time deposits
Loans held for sale
Loans, net of allowance for loan losses
Federal Home Loan Bank stock, at cost
Interest receivable
Financial liabilities
Transaction and Savings deposits	168,144	167,704
Time Deposits
Federal Home Loan Bank advances
Accrued interest payable
Significant Other Observable Inputs (Level 2)
Financial assets
Cash and cash equivalents
Interest bearing time deposits	1,747	1,740
Loans held for sale	2,296	1,363
Loans, net of allowance for loan losses
Federal Home Loan Bank stock, at cost	3,185	3,185
Interest receivable	1,188	1,133
Financial liabilities
Transaction and Savings deposits
Time Deposits
Federal Home Loan Bank advances	10,457	15,515
Accrued interest payable	40	40
Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents
Interest bearing time deposits
Loans held for sale
Loans, net of allowance for loan losses	290,498	299,010
Federal Home Loan Bank stock, at cost
Interest receivable
Financial liabilities
Transaction and Savings deposits
Time Deposits	143,780	143,181
Federal Home Loan Bank advances
Accrued interest payable

XML

General

3 Months Ended

Mar. 31, 2013

General Abstract [Abstract]

General

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, 2012 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 consolidated condensed 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, 2012 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.

XML

Loans and Allowance for Loan Losses - Analysis of loan quality (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	$ 279,124	$ 286,157
Loans Receivable
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	282,576	289,424
Loans Receivable | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	13,953	13,290
Loans Receivable | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	47,158	48,545
Loans Receivable | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	49,800	50,671
Loans Receivable | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	61,725	62,823
Loans Receivable | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	76,104	82,430
Loans Receivable | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	7,673	8,928
Loans Receivable | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	9,447	5,185
Loans Receivable | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	16,716	17,552
Loans Receivable | Superior
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	6,179	6,872
Loans Receivable | Superior | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	25	27
Loans Receivable | Superior | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	3,524	3,849
Loans Receivable | Superior | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	242	246
Loans Receivable | Superior | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Superior | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	102	103
Loans Receivable | Superior | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	415	667
Loans Receivable | Superior | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	190	193
Loans Receivable | Superior | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,681	1,787
Loans Receivable | Good
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	56,407	58,655
Loans Receivable | Good | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,909	3,061
Loans Receivable | Good | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	19,622	20,104
Loans Receivable | Good | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,245	4,299
Loans Receivable | Good | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	7,566	7,661
Loans Receivable | Good | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	10,949	10,924
Loans Receivable | Good | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,212	1,123
Loans Receivable | Good | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	171	172
Loans Receivable | Good | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	10,733	11,311
Loans Receivable | Pass Low risk
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	96,317	109,243
Loans Receivable | Pass Low risk | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	5,290	7,982
Loans Receivable | Pass Low risk | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	15,796	16,459
Loans Receivable | Pass Low risk | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	12,338	12,625
Loans Receivable | Pass Low risk | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	31,309	31,281
Loans Receivable | Pass Low risk | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	19,469	31,853
Loans Receivable | Pass Low risk | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,362	5,383
Loans Receivable | Pass Low risk | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,621	286
Loans Receivable | Pass Low risk | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	3,132	3,374
Loans Receivable | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	75,606	77,756
Loans Receivable | Pass | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,258	1,689
Loans Receivable | Pass | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	6,349	6,221
Loans Receivable | Pass | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	20,902	24,623
Loans Receivable | Pass | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	16,866	18,010
Loans Receivable | Pass | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	23,022	22,993
Loans Receivable | Pass | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,684	1,755
Loans Receivable | Pass | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,355	1,387
Loans Receivable | Pass | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,170	1,078
Loans Receivable | Watch
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	20,115	13,563
Loans Receivable | Watch | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	182	186
Loans Receivable | Watch | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	641	746
Loans Receivable | Watch | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	2,745	2,894
Loans Receivable | Watch | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	2,928	2,954
Loans Receivable | Watch | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	11,206	5,014
Loans Receivable | Watch | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Watch | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	2,413	1,769
Loans Receivable | Watch | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Special mention
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	13,609	9,628
Loans Receivable | Special mention | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	429	296
Loans Receivable | Special mention | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Special mention | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,965	2,535
Loans Receivable | Special mention | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	2,985	2,139
Loans Receivable | Special mention | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,636	4,658
Loans Receivable | Special mention | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Special mention | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	594
Loans Receivable | Special mention | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	14,343	13,707
Loans Receivable | Substandard | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,860	49
Loans Receivable | Substandard | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	1,226	1,166
Loans Receivable | Substandard | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	4,363	3,449
Loans Receivable | Substandard | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	71	778
Loans Receivable | Substandard | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	6,720	6,885
Loans Receivable | Substandard | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Substandard | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated	103	1,378
Loans Receivable | Substandard | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated		2
Loans Receivable | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Doubtful | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Commercial
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Multi-family
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Construction
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Land
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated
Loans Receivable | Loss | Consumer and Home Equity
Financing Receivable, Recorded Investment [Line Items]
Total loans evaluated

XML

Loans and Allowance for Loan Losses - Allowance for loan losses (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
Total ALL	$ 6,062	$ 5,900
Total loans	279,124	286,157
Loans Receivable
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated	297	318
ALL collectively evaluated	5,765	5,582
Total ALL	6,062	5,900	5,305	5,331
Loans individually evaluated	14,762	18,214
Loans collectively evaluated	267,814	271,210
Total loans	282,576	289,424
Loans Receivable | Commercial
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated
ALL collectively evaluated	859	633
Total ALL	859	633	716	667
Loans individually evaluated	20	49
Loans collectively evaluated	13,933	13,241
Total loans	13,953	13,290
Loans Receivable | Owner Occupied 1-4
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated	12	14
ALL collectively evaluated	513	575
Total ALL	525	589	411	436
Loans individually evaluated	1,682	1,653
Loans collectively evaluated	45,476	46,892
Total loans	47,158	48,545
Loans Receivable | Non-owner Occupied 1-4
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated	23	27
ALL collectively evaluated	1,030	995
Total ALL	1,053	1,022	1,221	1,330
Loans individually evaluated	5,931	5,917
Loans collectively evaluated	43,869	44,754
Total loans	49,800	50,671
Loans Receivable | Multi-family
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated	19	24
ALL collectively evaluated	962	1,031
Total ALL	981	1,055	664	646
Loans individually evaluated	2,173	2,891
Loans collectively evaluated	59,552	59,932
Total loans	61,725	62,823
Loans Receivable | Commercial Real Estate
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated	243	253
ALL collectively evaluated	1,892	1,924
Total ALL	2,135	2,177	2,000	1,788
Loans individually evaluated	4,131	6,233
Loans collectively evaluated	71,973	76,197
Total loans	76,104	82,430
Loans Receivable | Construction
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated
ALL collectively evaluated	42	62
Total ALL	42	62	13	64
Loans individually evaluated
Loans collectively evaluated	7,673	8,928
Total loans	7,673	8,928
Loans Receivable | Land
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated
ALL collectively evaluated	290	154
Total ALL	290	154	127	264
Loans individually evaluated	734	1,379
Loans collectively evaluated	8,713	3,806
Total loans	9,447	5,185
Loans Receivable | Consumer and Home Equity
Financing Receivable, Allowance for Credit Loss, Additional Information [Abstract]
ALL individually evaluated
ALL collectively evaluated	177	208
Total ALL	177	208	153	136
Loans individually evaluated	91	92
Loans collectively evaluated	16,625	17,460
Total loans	$ 16,716	$ 17,552

XML

Loans and Allowance for Loan Losses - Analyses of past due loans segregated by loan type (Details 4) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans	$ 279,124	$ 286,157
Loans Receivable
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days	461	1,176
Past due loans 60-89 Days		781
Past due loans Over 90 Days	1,591	2,907
Total Past Due	2,052	4,864
Current	280,524	284,560
Total loans	282,576	289,424
Under 90 Days and Not Accruing	2,010	3,536
Total 90 Days and Accruing
Loans Receivable | Commercial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days
Past due loans 60-89 Days
Past due loans Over 90 Days	20	49
Total Past Due	20	49
Current	13,933	13,241
Total loans	13,953	13,290
Under 90 Days and Not Accruing
Total 90 Days and Accruing
Loans Receivable | Owner Occupied 1-4
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days	50	184
Past due loans 60-89 Days		406
Past due loans Over 90 Days	585	107
Total Past Due	635	697
Current	46,523	47,848
Total loans	47,158	48,545
Under 90 Days and Not Accruing	448	862
Total 90 Days and Accruing
Loans Receivable | Non-owner Occupied 1-4
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days	304	291
Past due loans 60-89 Days		216
Past due loans Over 90 Days	735	2,124
Total Past Due	1,039	2,631
Current	48,761	48,040
Total loans	49,800	50,671
Under 90 Days and Not Accruing	1,472	543
Total 90 Days and Accruing
Loans Receivable | Multi-family
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days		700
Past due loans 60-89 Days		78
Past due loans Over 90 Days
Total Past Due		778
Current	61,725	62,045
Total loans	61,725	62,823
Under 90 Days and Not Accruing	73	76
Total 90 Days and Accruing
Loans Receivable | Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days	107
Past due loans 60-89 Days
Past due loans Over 90 Days	111	487
Total Past Due	218	487
Current	75,887	81,943
Total loans	76,104	82,430
Under 90 Days and Not Accruing	17	815
Total 90 Days and Accruing
Loans Receivable | Construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days
Past due loans 60-89 Days
Past due loans Over 90 Days
Total Past Due
Current	7,673	8,928
Total loans	7,673	8,928
Under 90 Days and Not Accruing
Total 90 Days and Accruing
Loans Receivable | Land
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days
Past due loans 60-89 Days		79
Past due loans Over 90 Days	140	140
Total Past Due	140	219
Current	9,306	4,966
Total loans	9,447	5,185
Under 90 Days and Not Accruing		1,238
Total 90 Days and Accruing
Loans Receivable | Consumer and Home Equity
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due loans 30-59 Days		1
Past due loans 60-89 Days		2
Past due loans Over 90 Days
Total Past Due		3
Current	16,716	17,549
Total loans	16,716	17,552
Under 90 Days and Not Accruing		2
Total 90 Days and Accruing

XML

Loans and Allowance for Loan Losses - Impaired loans and interest recognized (Details 5) (Loans Receivable, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	$ 12,645		$ 16,057
Loans without a specific valuation allowance, Unpaid Principal Balance	14,140		18,360
Loans without a specific valuation allowance Average Impaired Loans	14,350	24,013
Loans without a specific valuation allowance, Interest Income Recognized	213	239
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance	2,117		2,157
Loans with a specific valuation allowance, Unpaid Principal Balance	2,132		2,171
Loans with a specific valuation allowance	297		318
Loans with a specific valuation allowance, Average Impaired Loans	2,138	4,762
Loans with a specific valuation allowance, Interest Income Recognized	16	41
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	14,762		18,214
Total Unpaid Principal Balance	16,272		20,531
Total Specific Allowance	297		318
Total Average Impaired Loans	16,488	28,775
Total Interest Income Recognized	229	280
Commercial
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	20		49
Loans without a specific valuation allowance, Unpaid Principal Balance	164		521
Loans without a specific valuation allowance Average Impaired Loans	34	1,455
Loans without a specific valuation allowance, Interest Income Recognized		5
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance
Loans with a specific valuation allowance, Unpaid Principal Balance
Loans with a specific valuation allowance
Loans with a specific valuation allowance, Average Impaired Loans
Loans with a specific valuation allowance, Interest Income Recognized
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	20		49
Total Unpaid Principal Balance	164		521
Total Specific Allowance
Total Average Impaired Loans	34	1,455
Total Interest Income Recognized		5
Owner Occupied 1-4
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	1,452		1,421
Loans without a specific valuation allowance, Unpaid Principal Balance	1,545		1,535
Loans without a specific valuation allowance Average Impaired Loans	1,422	2,022
Loans without a specific valuation allowance, Interest Income Recognized	7	27
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance	230		232
Loans with a specific valuation allowance, Unpaid Principal Balance	239		240
Loans with a specific valuation allowance	12		14
Loans with a specific valuation allowance, Average Impaired Loans	231	94
Loans with a specific valuation allowance, Interest Income Recognized		2
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	1,682		1,653
Total Unpaid Principal Balance	1,784		1,775
Total Specific Allowance	12		14
Total Average Impaired Loans	1,653	2,116
Total Interest Income Recognized	7	29
Non-owner Occupied 1-4
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	5,660		5,636
Loans without a specific valuation allowance, Unpaid Principal Balance	6,256		5,990
Loans without a specific valuation allowance Average Impaired Loans	5,663	6,410
Loans without a specific valuation allowance, Interest Income Recognized	105	83
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance	271		281
Loans with a specific valuation allowance, Unpaid Principal Balance	271		281
Loans with a specific valuation allowance	23		27
Loans with a specific valuation allowance, Average Impaired Loans	276	701
Loans with a specific valuation allowance, Interest Income Recognized	1	5
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	5,931		5,917
Total Unpaid Principal Balance	6,527		6,271
Total Specific Allowance	23		27
Total Average Impaired Loans	5,939	7,111
Total Interest Income Recognized	106	88
Multi-family
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	2,100		2,813
Loans without a specific valuation allowance, Unpaid Principal Balance	2,112		2,865
Loans without a specific valuation allowance Average Impaired Loans	2,456	3,866
Loans without a specific valuation allowance, Interest Income Recognized	39	44
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance	73		78
Loans with a specific valuation allowance, Unpaid Principal Balance	79		83
Loans with a specific valuation allowance	19		24
Loans with a specific valuation allowance, Average Impaired Loans	76	173
Loans with a specific valuation allowance, Interest Income Recognized		3
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	2,173		2,891
Total Unpaid Principal Balance	2,191		2,948
Total Specific Allowance	19		24
Total Average Impaired Loans	2,532	4,039
Total Interest Income Recognized	39	47
Commercial Real Estate
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	2,588		4,667
Loans without a specific valuation allowance, Unpaid Principal Balance	2,983		5,720
Loans without a specific valuation allowance Average Impaired Loans	3,627	8,045
Loans without a specific valuation allowance, Interest Income Recognized	60	76
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance	1,543		1,566
Loans with a specific valuation allowance, Unpaid Principal Balance	1,543		1,567
Loans with a specific valuation allowance	243		253
Loans with a specific valuation allowance, Average Impaired Loans	1,555	3,794
Loans with a specific valuation allowance, Interest Income Recognized	15	31
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	4,131		6,233
Total Unpaid Principal Balance	4,526		7,287
Total Specific Allowance	243		253
Total Average Impaired Loans	5,182	11,839
Total Interest Income Recognized	75	107
Construction
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance
Loans without a specific valuation allowance, Unpaid Principal Balance
Loans without a specific valuation allowance Average Impaired Loans
Loans without a specific valuation allowance, Interest Income Recognized
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance
Loans with a specific valuation allowance, Unpaid Principal Balance
Loans with a specific valuation allowance
Loans with a specific valuation allowance, Average Impaired Loans
Loans with a specific valuation allowance, Interest Income Recognized
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance
Total Unpaid Principal Balance
Total Specific Allowance
Total Average Impaired Loans
Total Interest Income Recognized
Land
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	734		1,379
Loans without a specific valuation allowance, Unpaid Principal Balance	988		1,615
Loans without a specific valuation allowance Average Impaired Loans	1,056	2,019
Loans without a specific valuation allowance, Interest Income Recognized		1
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance
Loans with a specific valuation allowance, Unpaid Principal Balance
Loans with a specific valuation allowance
Loans with a specific valuation allowance, Average Impaired Loans
Loans with a specific valuation allowance, Interest Income Recognized
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	734		1,379
Total Unpaid Principal Balance	988		1,615
Total Specific Allowance
Total Average Impaired Loans	1,056	2,019
Total Interest Income Recognized		1
Consumer and Home Equity
Loans Without Specific Valuation Allowance [Abstract]
Loans without a specific valuation allowance, Recorded Balance	91		92
Loans without a specific valuation allowance, Unpaid Principal Balance	92		114
Loans without a specific valuation allowance Average Impaired Loans	92	196
Loans without a specific valuation allowance, Interest Income Recognized	2	3
Loans With Specific Valuation Allowance [Abstract]
Loans with a specific valuation allowance, Recorded Balance
Loans with a specific valuation allowance, Unpaid Principal Balance
Loans with a specific valuation allowance
Loans with a specific valuation allowance, Average Impaired Loans
Loans with a specific valuation allowance, Interest Income Recognized
Loans With and With Out Specific Valuation Allowance [Abstract]
Total Recorded Balance	91		92
Total Unpaid Principal Balance	92		114
Total Specific Allowance
Total Average Impaired Loans	92	196
Total Interest Income Recognized	$ 2	$ 3

XML

Consolidated Condensed Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating Activities
Net income	$ 653	$ 595
Items not requiring (providing) cash
Depreciation	111	113
Provision for loan losses	400	600
Amortization of premiums and discounts on securities	53	24
Loss on sale of other real estate owned	2	83
Gain on sale of loans	(430)	(406)
Loans originated for sale	(12,417)	(13,201)
Proceeds on loans sold	11,914	14,359
Amortization of stock options	1	21
Changes in
Interest receivable and other assets	(181)	371
Interest payable and other liabilities	255	478
Net cash provided by operating activities	361	3,037
Investing Activities
Net change in interest-bearing deposits	(7)
Purchases of available-for-sale securities	(10,628)	(4,967)
Proceeds from paydowns and maturities of available-for-sale securities	598	1,675
Net change in loans	6,633	8,755
Proceeds from sale of other real estate owned	254	1,092
Purchase of premises and equipment	(199)	(99)
Net cash provided by (used in) investing activities	(3,349)	6,456
Financing Activities
Net change in demand deposits, money market, NOW and savings accounts	440	6,029
Net change in certificates of deposit	280	165
Repayment of Federal Home Loan Bank advances	(5,000)
Proceeds from stock options exercised	9	7
Tax benefits related to stock options exercised	3	2
Dividends paid	(78)
Net cash provided by (used in) financing activities	(4,346)	6,203
Increase (decrease) in Cash and Cash Equivalents	(7,334)	15,696
Cash and Cash Equivalents, Beginning of Period	31,421	21,708
Cash and Cash Equivalents, End of Period	24,087	37,404
Supplemental Cash Flows Information
Interest paid	594	901
Income taxes paid	650
Supplemental Non-Cash Disclosures
Capitalization of mortgage servicing rights	150	49
Loans transferred to other real estate owned	$ 162	$ 28

XML

Loans and Allowance for Loan Losses - Breakdown of non-accruing loans by loan class (Details 6) (Loans Receivable, USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	$ 3,845	$ 6,443
Commercial
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	21	49
Owner Occupied 1-4
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	1,033	969
Non-owner Occupied 1-4
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	2,450	2,667
Multi-family
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	73	76
Commercial Real Estate
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	128	1,302
Construction
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans
Land
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans	140	1,378
Consumer and Home Equity
Breakdown Of Non Accruing Loans By Loan Class [Line Items]
Non accruing loans		$ 2

XML

Consolidated Condensed Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 1,249	$ 25,643
Interest bearing deposits	22,838	5,778
Cash and cash equivalents	24,087	31,421
Interest bearing time deposits	1,747	1,740
Available-for-sale securities	37,998	28,004
Loans held for sale	2,296	1,363
Total loans	279,124	286,157
Less: Allowance for loan losses	(6,062)	(5,900)
Net loans	273,062	280,257
Premises and equipment, net	7,157	7,069
Federal Home Loan Bank stock, at cost	3,185	3,185
Bank owned life insurance	6,633	6,595
Interest receivable and other assets	5,025	4,976
Total assets	361,190	364,610
Liabilities
Deposits	309,357	308,637
Federal Home Loan Bank advances	10,000	15,000
Interest payable and other liabilities	2,279	2,018
Total liabilities	321,636	325,655
Commitments and Contingencies
Shareholders' Equity
Common stock, $.01 par value Authorized - 7,000,000 sharesIssued and outstanding 2013 - 1,556,782 shares, 2012 - 1,555,972 shares	15	15
Additional paid-in-capital	11,134	11,121
Retained earnings	28,070	27,495
Accumulated other comprehensive income	335	324
Total shareholders' equity	39,554	38,955
Total liabilities and shareholders' equity	$ 361,190	$ 364,610

XML

Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, unless otherwise specified	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income	Total
Balance at Dec. 31, 2011	$ 15	$ 11,010	$ 24,913	$ 236	$ 36,174
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			595		595
Other comprehensive income				(19)	(19)
Stock options exercised (750 and 810 shares for 2012 and 2013 respectively)		7			7
Tax benefit related to stock options exercised		2			2
Share-based compensation expense		21			21
Balance at Mar. 31, 2012	15	11,040	25,508	217	36,780
Balance at Dec. 31, 2012	15	11,121	27,495	324	38,955
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			653		653
Other comprehensive income				11	11
Stock options exercised (750 and 810 shares for 2012 and 2013 respectively)		9			9
Tax benefit related to stock options exercised		3			3
Dividends on common stock, $0.05 per share			(78)		(78)
Share-based compensation expense		1			1
Balance at Mar. 31, 2013	$ 15	$ 11,134	$ 28,070	$ 335	$ 39,554

XML

Disclosures About Fair Value of Assets and Liabilities - Measurement of fair value of assets on nonrecurring basis (Details 1) (Nonrecurring, USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral-dependent impaired loans	$ 2,260	$ 527
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral-dependent impaired loans
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral-dependent impaired loans
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Collateral-dependent impaired loans	$ 2,260	$ 527

XML

Securities - Amortized cost and approximate fair values, together with gross unrealized gains and losses (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Available-for-sale Securities:
Amortized Cost	$ 37,451	$ 27,468
Gross Unrealized Gains	570	563
Gross Unrealized Losses	(23)	(27)
Totals Available-for-sale securities	37,998	28,004
U.S. Government sponsored agencies
Available-for-sale Securities:
Amortized Cost	16,602	10,639
Gross Unrealized Gains	101	83
Gross Unrealized Losses	(11)	(13)
Totals Available-for-sale securities	16,692	10,709
Mortgage-backed securities-Government sponsored entities
Available-for-sale Securities:
Amortized Cost	9,671	6,989
Gross Unrealized Gains	192	209
Gross Unrealized Losses
Totals Available-for-sale securities	9,863	7,198
State and political subdivisions
Available-for-sale Securities:
Amortized Cost	11,178	9,840
Gross Unrealized Gains	277	271
Gross Unrealized Losses	(12)	(14)
Totals Available-for-sale securities	$ 11,443	$ 10,097

XML

Disclosures About Fair Value of Assets and Liabilities - Estimated fair values (Details 2) (Nonrecurring, Significant Unobservable Inputs (Level 3), Market comparable properties, USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Collateral-dependent impaired loans	2,260	527
Weighted Average
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Marketability discount, range (weighted average)	10.00%	10.00%

XML

Securities - Gross unrealized losses and fair value, aggregated by investment category (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months Fair Value	$ 4,721	$ 5,617
Less Than 12 Months Unrealized Losses	23	27
12 Months or More Fair Value
12 Months or More Unrealized Losses
Total Fair Value	4,721	5,617
Total Unrealized Losses	23	27
U.S. Government sponsored agencies
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months Fair Value	3,074	3,076
Less Than 12 Months Unrealized Losses	11	13
12 Months or More Fair Value
12 Months or More Unrealized Losses
Total Fair Value	3,074	3,076
Total Unrealized Losses	11	13
State and political subdivisions
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than 12 Months Fair Value	1,647	2,541
Less Than 12 Months Unrealized Losses	12	14
12 Months or More Fair Value
12 Months or More Unrealized Losses
Total Fair Value	1,647	2,541
Total Unrealized Losses	$ 12	$ 14

XML

Consolidated Condensed Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Statement Of Stockholders Equity [Abstract]
Stock options exercised (in shares)	810	750
Dividends on common stock, per share (in dollars per share)	$ 0.05	$ 0.00

XML

Consolidated Condensed Balance Sheets (Parentheticals) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement Of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	7,000,000	7,000,000
Common stock, shares issued	1,556,782	1,555,972
Common stock, shares outstanding	1,556,782	1,555,972

XML

Securities (Tables)

3 Months Ended

Mar. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Schedule of amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Approximate Fair Value
			(in Thousands)
Available-for-sale Securities:
March 31, 2013:
U.S. Government sponsored agencies	$	16,602	$	101	$	(11	)	$	16,692
Mortgage-backed securities-Government sponsored entities		9,671		192		---			9,863
State and political subdivisions		11,178		277		(12	)		11,443
	$	37,451	$	570	$	(23	)	$	37,998
Available-for-sale Securities:
December 31, 2012
U.S. Government sponsored agencies	$	10,639	$	83	$	(13	)	$	10,709
Mortgage-backed securities-Government sponsored entities		6,989		209		---			7,198
State and political subdivisions		9,840		271		(14	)		10,097
	$	27,468	$	563	$	(27	)	$	28,004

Schedule of amortized cost and fair value of available-for-sale securities by contractual maturity

	Available for Sale
	Amortized Cost		Fair Value
	March 31,2013
	(in thousands)
Within one year	$	357	$	357
One to five years		12,496		12,679
Five to ten years		14,927		15,099
After ten years		---		---
		27,780		28,135
Mortgage-backed securities		9,671		9,863
Totals	$	37,451	$	37,998

Schedule of investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities in a continuous unrealized loss position

	Less Than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
March 31, 2013
U.S. Government sponsored agencies	$	3,074	$	11	$	---	$	---	$	3,074	$	11
State and political subdivisions		1,647		12		---		---		1,647		12
Total temporarily impaired securities	$	4,721	$	23	$	---	$	---	$	4,721	$	23
December 31, 2012
U.S. Government sponsored agencies	$	3,076	$	13	$	---	$	---	$	3,076	$	13
State and political subdivisions		2,541		14		---		---		2,541		14
Total temporarily impaired securities	$	5,617	$	27	$	---	$	---	$	5,617	$	27

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 10, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	LSB FINANCIAL CORP
Entity Central Index Key	0000930405
Trading Symbol	lsbi
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		1,556,782
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

XML

Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2013

Receivables [Abstract]

Schedule of categories of loans

	March 31, 2013			December 31, 2012
Real Estate	(In thousands)
One- to four-family residential	$	96,958		$	99,216
Multi-family residential		61,725			62,823
Commercial real estate		76,104			82,430
Construction and land development		17,120			14,113
Commercial		13,953			13,290
Consumer and other		1,083			1,131
Home equity lines of credit		15,633			16,421
Total loans		282,576			289,424
Less
Net deferred loan fees, premiums and discounts		(441	)		(469	)
Undisbursed portion of loans		(3,010	)		(2,798	)
Allowance for loan losses		(6,062	)		(5,900	)
Net loans	$	273,063		$	280,257

Schedule of allowance for loan losses and recorded investment in loans

Allowance for Loan Losses and Recorded Investment in Loans for the Three Months Ended March 31, 2013

Three Months Ended March 31, 2013	Commercial			Owner Occupied 1-4			Non-owner Occupied 1-4			Multi- family			Commercial Real Estate			Construction			Land		Consumer and Home Equity			Total
							In thousands
Allowance for losses
Beginning balance	$	633		$	589		$	1,022		$	1,055		$	2,177		$	62		$	154	$	208		$	5,900
Provision charged to expense		239			(64	)		212			(74	)		9			(20	)		129		(31	)		400
Losses charged off		(29	)		---			(241	)		---			(51	)		---			---		---			(321	)
Recoveries		16			---			60			---			---			---			7		---			83
Ending balance		859			525			1,053			981			2,135			42			290		177			6,062
ALL individually evaluated		---			12			23			19			243			---			---		---			297
ALL collectively evaluated		859			513			1,030			962			1,892			42			290		177			5,765
Total ALL		859			525			1,053			981			2,135			42			290		177			6,062
Loans individually evaluated		20			1,682			5,931			2,173			4,131			---			734		91			14,762
Loans collectively evaluated		13,933			45,476			43,869			59,552			71,973			7,673			8,713		16,625			267,814
Total loans evaluated		13,953			47,158			49,800			61,725			76,104			7,673			9,447		16,716			282,576

Allowance for Loan Losses for the Three Months Ended March 31, 2012

Three Months Ended March 31, 2012	Commercial			Owner Occupied 1-4			Non-owner Occupied 1-4			Multi- family			Commercial Real Estate		Construction			Land			Consumer and Home Equity			Total
							In thousands
Allowance for losses
Beginning balance	$	667		$	436		$	1,330		$	646		$	1,788	$	64		$	264		$	136		$	5,331
Provision charged to expense		362			(19	)		(87	)		276			212		(51	)		(121	)		28			600
Losses charged off		(313	)		(6	)		(25	)		(259	)		---		---			(17	)		(11	)		(631	)
Recoveries		---			---			3			1			---		---			1			---			5
Ending balance		716			411			1,221			664			2,000		13			127			153			5,305

Allowance for Loan Losses and Recorded Investment in Loans at December 31, 2012
ALL individually evaluated	---	14	27	24	253	---	---	---	318
ALL collectively evaluated	633	575	995	1,031	1,924	62	154	208	5,582
Total ALL	633	589	1,022	1,055	2,177	62	154	208	5,900
Loans individually evaluated	49	1,653	5,917	2,891	6,233	---	1,379	92	18,214
Loans collectively evaluated	13,241	46,892	44,754	59,932	76,197	8,928	3,806	17,460	271,210
Total loans evaluated	13,290	48,545	50,671	62,823	82,430	8,928	5,185	17,552	289,424

Schedule of an analysis of loan quality based on property

The following table provides an analysis of loan quality using the above designations, based on property type at March 31, 2013.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total
							(In thousands)
1- Superior	$	25	$	3,524	$	242	$	---	$	102	$	415	$	190	$	1,681	$	6,179
2 - Good		1,909		19,622		4,245		7,566		10,949		1,212		171		10,733		56,407
3 - Pass Low risk		5,290		15,796		12,338		31,309		19,469		4,362		4,621		3,132		96,317
4 - Pass		4,258		6,349		20,902		16,866		23,022		1,684		1,355		1,170		75,606
4W - Watch		182		641		2,745		2,928		11,206		---		2,413		---		20,115
5 - Special mention		429		---		4,965		2,985		4,636		---		594		---		13,609
6 - Substandard		1,860		1,226		4,363		71		6,720		---		103		---		14,343
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	13,953	$	47,158	$	49,800	$	61,725	$	76,104	$	7,673	$	9,447	$	16,716	$	282,576

The following table provides an analysis of loan quality using the above designations, based on property type at December 31, 2012.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total
							(In thousands)
1- Superior	$	27	$	3,849	$	246	$	---	$	103	$	667	$	193	$	1,787	$	6,872
2 - Good		3,061		20,104		4,299		7,661		10,924		1,123		172		11,311		58,655
3 - Pass Low risk		7,982		16,459		12,625		31,281		31,853		5,383		286		3,374		109,243
4 - Pass		1,689		6,221		24,623		18,010		22,993		1,755		1,387		1,078		77,756
4W - Watch		186		746		2,894		2,954		5,014		---		1,769		---		13,563
5 - Special mention		296		---		2,535		2,139		4,658		---		---		---		9,628
6 - Substandard		49		1,166		3,449		778		6,885		---		1,378		2		13,707
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	13,290	$	48,545	$	50,671	$	62,823	$	82,430	$	8,928	$	5,185	$	17,552	$	289,424

Schedule of loan portfolio aging analysis

	Loan Portfolio Aging Analysis as of March 31, 2013
	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Under 90 Days and Not Accruing		Total 90 Days and Accruing
							(In thousands)
Commercial	$	---	$	---	$	20	$	20	$	13,933	$	13,953	$	---	$	---
Owner occupied 1-4		50		---		585		635		46,523		47,158		448		---
Non owner occupied 1-4		304		---		735		1,039		48,761		49,800		1,472		---
Multi-family		---		---		---		---		61,725		61,725		73		---
Commercial Real Estate		107		---		111		218		75,887		76,104		17		---
Construction		---		---		---		---		7,673		7,673		---		---
Land		---		---		140		140		9,306		9,447		---		---
Consumer and home equity		---		---		---		---		16,716		16,716		---		---
Total	$	461	$	---	$	1,591	$	2,052	$	280,524	$	282,576	$	2,010	$	---

	Loan Portfolio Aging Analysis as of December 31, 2012
	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Under 90 Days and Not Accruing		Total 90 Days and Accruing
							(In thousands)
Commercial	$	---	$	---	$	49	$	49	$	13,241	$	13,290	$	---	$	---
Owner occupied 1-4		184		406		107		697		47,848		48,545		862		---
Non owner occupied 1-4		291		216		2,124		2,631		48,040		50,671		543		---
Multi-family		700		78		---		778		62,045		62,823		76		---
Commercial Real Estate		---		---		487		487		81,943		82,430		815		---
Construction		---		---		---		---		8,928		8,928		---		---
Land		---		79		140		219		4,966		5,185		1,238		---
Consumer and home equity		1		2		---		3		17,549		17,552		2		---
Total	$	1,176	$	781	$	2,907	$	4,864	$	284,560	$	289,424	$	3,536	$	---

Schedule of impaired loans

	Impaired Loans as of and for the Quarter Ended March 31, 2013
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
	In thousands
Loans without a specific valuation allowance
Commercial	$	20	$	164	$	---	$	34	$	---
Owner occupied 1-4		1,452		1,545		---		1,422		7
Non-owner occupied 1-4		5,660		6,256		---		5,663		105
Multi-family		2,100		2,112		---		2,456		39
Commercial real estate		2,588		2,983		---		3,627		60
Construction		---		---		---		---		---
Land		734		988		---		1,056		---
Consumer and home equity		91		92		---		92		2
Total loans without a specific valuation allowance		12,645		14,140		---		14,350		213
Loans with a specific valuation allowance
Commercial		---		---		---		---		---
Owner occupied 1-4		230		239		12		231		---
Non-owner occupied 1-4		271		271		23		276		1
Multi-family		73		79		19		76		---
Commercial real estate		1,543		1,543		243		1,555		15
Construction		---		---		---		---		---
Land		---		---		---		---		---
Consumer and home equity		---		---		---		---		---
Total loans with a specific valuation allowance		2,117		2,132		297		2,138		16
Total
Commercial		20		164		---		34		---
Owner occupied 1-4		1,682		1,784		12		1,653		7
Non-owner occupied 1-4		5,931		6,527		23		5,939		106
Multi-family		2,173		2,191		19		2,532		39
Commercial real estate		4,131		4,526		243		5,182		75
Construction		---		---		---		---		---
Land		734		988		---		1,056		---
Consumer and home equity		91		92		---		92		2
Total impaired loans	$	14,762	$	16,272	$	297	$	16,488	$	229

	Impaired Loans as of December 31, 2012						Impaired Loans for the Quarter Ended March 31, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
	In thousands
Loans without a specific valuation allowance
Commercial	$	49	$	521	$	---	$	1,455	$	5
Owner occupied 1-4		1,421		1,535		---		2,022		27
Non-owner occupied 1-4		5,636		5,990		---		6,410		83
Multi-family		2,813		2,865		---		3,866		44
Commercial real estate		4,667		5,720		---		8,045		76
Construction		---		---		---		---		---
Land		1,379		1,615		---		2,019		1
Consumer and home equity		92		114		---		196		3
Total loans without a specific valuation allowance		16,057		18,360		---		24,013		239
Loans with a specific valuation allowance
Commercial		---		---		---		---		---
Owner occupied 1-4		232		240		14		94		2
Non-owner occupied 1-4		281		281		27		701		5
Multi-family		78		83		24		173		3
Commercial real estate		1,566		1,567		253		3,794		31
Construction		---		---		---		---		---
Land		---		---		---		---		---
Consumer and home equity		---		---		---		---		---
Total loans with a specific valuation allowance		2,157		2,171		318		4,762		41
Total
Commercial		49		521		---		1,455		5
Owner occupied 1-4		1,653		1,775		14		2,116		29
Non-owner occupied 1-4		5,917		6,271		27		7,111		88
Multi-family		2,891		2,948		24		4,039		47
Commercial real estate		6,233		7,287		253		11,839		107
Construction		---		---		---		---		---
Land		1,379		1,615		---		2,019		1
Consumer and home equity		92		114		---		196		3
Total impaired loans	$	18,214	$	20,531	$	318	$	28,775	$	280

Schedule of breakdown of non-accruing loans

Loan Class	March 31, 2013		December 31, 2012
	(In thousands)
Commercial	$	21	$	49
Owner occupied 1-4		1,033		969
Non owner occupied 1-4		2,450		2,667
Multi-family		73		76
Commercial Real Estate		128		1,302
Construction		---		---
Land		140		1,378
Consumer and home equity		---		2
Total	$	3,845	$	6,443

Schedule of newly classified troubled debt restructurings

	Newly classified troubled debt restructurings for the three months ended March 31, 2013
	(Dollars in thousands)
	Number of loans		Pre-modification Recorded Balance		Post-modification Recorded Balance		Type of Modification
Commercial	$	---	$	---	$	---		---
Owner occupied 1-4		---		---		---		---
Non owner occupied 1-4		5		1,242		969	A/B note, payment adjustment
Multi-family		---		---		---		---
Commercial Real Estate		---		---		---		---
Construction		---		---		---		---
Land		---		---		---		---
Consumer and home equity		---		---		---		---
Total	$	5	$	1,242	$	969

	Newly classified troubled debt restructurings for the three months ended March 31, 2012
	(Dollars in thousands)
	Number of loans		Pre-modification Recorded Balance		Post-modification Recorded Balance		Type of Modification
Commercial	$	---	$	---	$	---		---
Owner occupied 1-4		1		108		108	Below market rate
Non owner occupied 1-4		---		---		---		---
Multi-family		---		---		---		---
Commercial Real Estate		1		245		245	Below market rate
Construction		---		---		---		---
Land		---		---		---		---
Consumer and home equity		---		---		---		---
Total	$	2	$	353	$	353

XML

Consolidated Condensed Statements of Income and Comprehensive Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Interest and Dividend Income
Loans	$ 3,477	$ 4,075
Securities
Taxable	104	66
Tax-exempt	45	39
Other	16	14
Total interest and dividend income	3,642	4,194
Interest Expense
Deposits	569	811
Borrowings	78	99
Total interest expense	647	910
Net Interest Income	2,995	3,284
Provision for Loan Losses	400	600
Net Interest Income After Provision for Loan Losses	2,595	2,684
Non-interest Income
Deposit account service charges and fees	272	325
Net gains on loan sales	430	406
Loss on other real estate owned	(2)	(83)
Other	418	260
Total non-interest income	1,118	908
Non-Interest Expense
Salaries and employee benefits	1,527	1,519
Net occupancy and equipment expense	319	318
Computer service	142	148
Advertising	115	88
FDIC insurance premiums	116	119
Other	456	468
Total non-interest expense	2,675	2,660
Income Before Income Taxes	1,038	932
Provision for Income Taxes	385	337
Net Income	653	595
Unrealized appreciation (depreciation) on available-for-sale securities net of taxes (credits) of $7 and $(13), for 2013 and 2012, respectively	11	(19)
Comprehensive income	$ 664	$ 576
Basic Earnings Per Share (in dollars per share)	$ 0.42	$ 0.38
Diluted Earnings Per Share (in dollars per share)	$ 0.42	$ 0.38
Dividends Declared Per Share (in dollars per share)	$ 0.05	$ 0.00

XML

Securities

3 Months Ended

Mar. 31, 2013

Investments, Debt and Equity Securities [Abstract]

Securities

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, 2013:
U.S. Government sponsored agencies	$	16,602	$	101	$	(11	)	$	16,692
Mortgage-backed securities-Government sponsored entities		9,671		192		---			9,863
State and political subdivisions		11,178		277		(12	)		11,443
	$	37,451	$	570	$	(23	)	$	37,998
Available-for-sale Securities:
December 31, 2012
U.S. Government sponsored agencies	$	10,639	$	83	$	(13	)	$	10,709
Mortgage-backed securities-Government sponsored entities		6,989		209		---			7,198
State and political subdivisions		9,840		271		(14	)		10,097
	$	27,468	$	563	$	(27	)	$	28,004

The amortized cost and fair value of available-for-sale securities at March 31, 2013, 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 31,2013
	(in thousands)
Within one year	$	357	$	357
One to five years		12,496		12,679
Five to ten years		14,927		15,099
After ten years		---		---
		27,780		28,135
Mortgage-backed securities		9,671		9,863
Totals	$	37,451	$	37,998

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $2.0 million at March 31, 2013 and $2.0 million at December 31, 2012.

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, 2013 and December 31, 2012.

	Less Than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
March 31, 2013
U.S. Government sponsored agencies	$	3,074	$	11	$	---	$	---	$	3,074	$	11
State and political subdivisions		1,647		12		---		---		1,647		12
Total temporarily impaired securities	$	4,721	$	23	$	---	$	---	$	4,721	$	23
December 31, 2012
U.S. Government sponsored agencies	$	3,076	$	13	$	---	$	---	$	3,076	$	13
State and political subdivisions		2,541		14		---		---		2,541		14
Total temporarily impaired securities	$	5,617	$	27	$	---	$	---	$	5,617	$	27

XML

Earnings per share

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Earnings per share

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 ended March 31, 2012, 6,000 shares related to stock options outstanding were dilutive and 51,433 were antidilutive.  For the three month period ended March 31, 2013, 41,257 shares related to stock options outstanding were dilutive and 17,116 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,
	2013		2012
Weighted average shares outstanding		1,556,080		1,555,337
Stock options		7,584		664
Shares used to compute diluted  earnings per share		1,563,664		1,556,001
Basic earnings per share	$	0.42	$	0.38
Diluted earnings per share	$	0.42	$	0.38

XML

Securities - Amortized cost and fair value of available-for-sale securities by contractual maturity (Details 1) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Available-for-sale Securities, Debt Maturities [Abstract]
Available for sale securities amortized cost within one year	$ 357
Available for sale securities amortized cost one to five years	12,496
Available for sale securities amortized cost five to ten years	14,927
Available for sale securities amortized cost after ten years
Available for sale securities having debt maturities amortized cost	27,780
Available for sale securities amortized cost mortgage backed securities	9,671
Available for sale securities amortized cost, Total	37,451
Available for sale securities fair value within one year	357
Available for sale securities fair value one to five years	12,679
Available for sale securities fair value five to ten years	15,099
Available for sale securities fair value after ten years
Available for sale securities having debt securities fair value	28,135
Available for sale securities fair value mortgage backed securities	9,863
Totals Available-for-sale securities	$ 37,998	$ 28,004

XML

Disclosures About Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Schedule of assets measured at fair value on a recurring basis

	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, 2013:
U.S. Government-sponsored agencies	$	16,692		---	$	16,692		---
Mortgage-backed securities		9,863		---		9,863		---
State and political subdivision securities		11,443		---		11,443		---
Totals		37,998		---		37,998		---
December 31, 2012:
U.S. Government-sponsored agencies	$	10,709		---	$	10,709		---
Mortgage-backed securities		7,198		---		7,198		---
State and political subdivision securities		10,097		---		10,097		---
Totals		28,004		---		28,004		---

Schedule of assets measured at fair value on non recurring basis

			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)
March 31, 2013:
Collateral-dependent impaired loans	$	2,260		—		—	$	2,260
December 31, 2012:
Collateral-dependent impaired loans	$	527		—		—	$	527

Schedule of quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements

	Fair Value at 12/31/12	Valuation Technique	Unobservable Inputs	Range (Weighted Average)
		In thousands
March 31, 2013:
Collateral-dependent impaired loans	$2,260	Market comparable properties	Marketability discount	10%
December 31, 2012:
Collateral-dependent impaired loans	$527	Market comparable properties	Marketability discount	10%

Schedule of estimated fair values of the company's financial instruments and the level within the fair value hierarchy

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
			In thousands
March 31, 2013:
Financial assets
Cash and cash equivalents	$	24,087	$	24,087	$	—	$	—
Interest bearing time deposits		1,747		—		1,747		—
Loans held for sale		2,296		—		2,296		—
Loans, net of allowance for losses		273,062		—		---		290,498
Federal Home Loan Bank stock		3,185		—		3,185		---
Accrued interest receivable		1,188		—		1,188		—
Financial liabilities
Transaction and Savings Deposits		168,144		168,144		—		—
Time Deposits		141,213		—		—		143,780
Federal Home Loan Bank advances		10,000		—		10,457		—
Accrued interest payable		40		—		40		—
December 31, 2012:
Financial assets
Cash and cash equivalents	$	31,421	$	31,421	$	—	$	—
Interest bearing time deposits		1,740		—		1,740		—
Loans held for sale		1,363		—		1,363		—
Loans, net of allowance for losses		280,257		—		---		299,010
Federal Home Loan Bank stock		3,185		—		3,185		---
Accrued interest receivable		1,133		—		1,133		—
Financial liabilities
Transaction and Savings Deposits		167,704		167,704		—		—
Time Deposits		140,933		—		—		143,181
Federal Home Loan Bank advances		15,000		—		15,515		—
Accrued interest payable		40		—		40		—

XML

Accounting Developments

3 Months Ended

Mar. 31, 2013

Accounting Changes and Error Corrections [Abstract]

Accounting Developments

Note 8 –Accounting Developments

Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This ASU eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This ASU is effective for both public and nonpublic entities for interim and annual reporting periods beginning on or after December 15, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date. Early adoption is not permitted. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220); Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2015. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210);Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  The main objective of this standard is to address implementation issues about the scope of Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures About offsetting Assets and Liabilities.  The amendments clarify that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative period presented.   The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS amends FASB ASC Topic 820,  Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The ASU clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholders’ equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The ASU also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The ASU also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. Early adoption was not permitted. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. The amendments do not affect how earnings per share is calculated or presented.  This update is effective for fiscal years and interim periods beginning after December 15, 2011 and is to be applied retrospectively. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements. The Company has presented comprehensive income in a single continuous statement of comprehensive income for the years ended December 31, 2012 and 2011.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment.  If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any.  Under the amendments in ASU No. 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test.  An entity may resume performing the qualitative assessment in any subsequent period.  The amendments enacted by ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption was permitted. The adoption of this update did not impact the Company’s financial condition or results of operations.

In December, 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, in an effort to improve comparability between U.S. GAAP and international financial reporting standards (“IFRS”) financial statements with regard to the presentation of offsetting assets and liabilities on the statement of financial position arising from financial and derivative instruments, and repurchase agreements. The ASU establishes additional disclosures presenting the gross amounts of recognized assets and liabilities, offsetting amounts, and the net balance reflected in the statement of financial position. Descriptive information regarding the nature and rights of the offset must also be disclosed. The new standard is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

In December, 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05.  In response to stakeholder concerns regarding the operational ramifications of the presentation of these reclassifications for current and previous years, the FASB has deferred the implementation date of this provision to allow time for further consideration.

XML

Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2013

Receivables [Abstract]

Loans and Allowance for Loan Losses

Note 5 - Loans and 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.

All loans that are rated substandard and impaired, or are troubled debt restructures 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 Financial Accounting Standards Board (“FASB”) ASC 310-10 (formerly FAS 114, Accounting by Creditors for Impairment of a Loan). Any allowances for impaired loans are determined by the fair value of the underlying collateral based on the discounted appraised value.  Allowances for loans that are not collateral dependent are determined by the present value of expected future cash flows discounted at the loan’s effective interest rate.  Historical loss rates are applied to all loans not included in the ASC 310-10 calculation.

Historical loss rates for commercial and consumer loans may be adjusted for significant qualitative 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 and historical loss rates are reviewed quarterly 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.

Categories of loans include:

	March 31, 2013			December 31, 2012
Real Estate	(In thousands)
One- to four-family residential	$	96,958		$	99,216
Multi-family residential		61,725			62,823
Commercial real estate		76,104			82,430
Construction and land development		17,120			14,113
Commercial		13,953			13,290
Consumer and other		1,083			1,131
Home equity lines of credit		15,633			16,421
Total loans		282,576			289,424
Less
Net deferred loan fees, premiums and discounts		(441	)		(469	)
Undisbursed portion of loans		(3,010	)		(2,798	)
Allowance for loan losses		(6,062	)		(5,900	)
Net loans	$	273,063		$	280,257

The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Construction

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential and Consumer

With respect to residential loans that are secured by one- to four-family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one- to four-family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Additional information on the allocation of loan loss reserves by loan category, which does not include loans held for sale, for the three month periods ending March 31, 2013 and March 31, 2012 and for the year ended December 31, 2012 is provided below.

Allowance for Loan Losses and Recorded Investment in Loans for the Three Months Ended March 31, 2013

Three Months Ended March 31, 2013	Commercial			Owner Occupied 1-4			Non-owner Occupied 1-4			Multi- family			Commercial Real Estate			Construction			Land		Consumer and Home Equity			Total
							In thousands
Allowance for losses
Beginning balance	$	633		$	589		$	1,022		$	1,055		$	2,177		$	62		$	154	$	208		$	5,900
Provision charged to expense		239			(64	)		212			(74	)		9			(20	)		129		(31	)		400
Losses charged off		(29	)		---			(241	)		---			(51	)		---			---		---			(321	)
Recoveries		16			---			60			---			---			---			7		---			83
Ending balance		859			525			1,053			981			2,135			42			290		177			6,062
ALL individually evaluated		---			12			23			19			243			---			---		---			297
ALL collectively evaluated		859			513			1,030			962			1,892			42			290		177			5,765
Total ALL		859			525			1,053			981			2,135			42			290		177			6,062
Loans individually evaluated		20			1,682			5,931			2,173			4,131			---			734		91			14,762
Loans collectively evaluated		13,933			45,476			43,869			59,552			71,973			7,673			8,713		16,625			267,814
Total loans evaluated		13,953			47,158			49,800			61,725			76,104			7,673			9,447		16,716			282,576

Allowance for Loan Losses for the Three Months Ended March 31, 2012

Three Months Ended March 31, 2012	Commercial			Owner Occupied 1-4			Non-owner Occupied 1-4			Multi- family			Commercial Real Estate		Construction			Land			Consumer and Home Equity			Total
							In thousands
Allowance for losses
Beginning balance	$	667		$	436		$	1,330		$	646		$	1,788	$	64		$	264		$	136		$	5,331
Provision charged to expense		362			(19	)		(87	)		276			212		(51	)		(121	)		28			600
Losses charged off		(313	)		(6	)		(25	)		(259	)		---		---			(17	)		(11	)		(631	)
Recoveries		---			---			3			1			---		---			1			---			5
Ending balance		716			411			1,221			664			2,000		13			127			153			5,305

Allowance for Loan Losses and Recorded Investment in Loans at December 31, 2012
ALL individually evaluated	---	14	27	24	253	---	---	---	318
ALL collectively evaluated	633	575	995	1,031	1,924	62	154	208	5,582
Total ALL	633	589	1,022	1,055	2,177	62	154	208	5,900
Loans individually evaluated	49	1,653	5,917	2,891	6,233	---	1,379	92	18,214
Loans collectively evaluated	13,241	46,892	44,754	59,932	76,197	8,928	3,806	17,460	271,210
Total loans evaluated	13,290	48,545	50,671	62,823	82,430	8,928	5,185	17,552	289,424

Management’s general practice is to charge down collateral dependent loans individually evaluated for impairment to the fair value of the underlying collateral.

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except one- to four-family residential properties and consumer, the Company promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges off one- to four-family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of one- to four-family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 120 days past due, and charge-down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.   Charge-offs may be taken sooner than the above-referenced timeframes if circumstances warrant.

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior four years.  Management believes the four year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.

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 on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured.  Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

The following table provides an analysis of loan quality using the above designations, based on property type at March 31, 2013.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total
							(In thousands)
1- Superior	$	25	$	3,524	$	242	$	---	$	102	$	415	$	190	$	1,681	$	6,179
2 - Good		1,909		19,622		4,245		7,566		10,949		1,212		171		10,733		56,407
3 - Pass Low risk		5,290		15,796		12,338		31,309		19,469		4,362		4,621		3,132		96,317
4 - Pass		4,258		6,349		20,902		16,866		23,022		1,684		1,355		1,170		75,606
4W - Watch		182		641		2,745		2,928		11,206		---		2,413		---		20,115
5 - Special mention		429		---		4,965		2,985		4,636		---		594		---		13,609
6 - Substandard		1,860		1,226		4,363		71		6,720		---		103		---		14,343
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	13,953	$	47,158	$	49,800	$	61,725	$	76,104	$	7,673	$	9,447	$	16,716	$	282,576

The following table provides an analysis of loan quality using the above designations, based on property type at December 31, 2012.

Credit Rating	Commercial		Owner Occupied 1-4		Non-owner Occupied 1-4		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Home Equity		Total
							(In thousands)
1- Superior	$	27	$	3,849	$	246	$	---	$	103	$	667	$	193	$	1,787	$	6,872
2 - Good		3,061		20,104		4,299		7,661		10,924		1,123		172		11,311		58,655
3 - Pass Low risk		7,982		16,459		12,625		31,281		31,853		5,383		286		3,374		109,243
4 - Pass		1,689		6,221		24,623		18,010		22,993		1,755		1,387		1,078		77,756
4W - Watch		186		746		2,894		2,954		5,014		---		1,769		---		13,563
5 - Special mention		296		---		2,535		2,139		4,658		---		---		---		9,628
6 - Substandard		49		1,166		3,449		778		6,885		---		1,378		2		13,707
7 - Doubtful		---		---		---		---		---		---		---		---		---
8 - Loss		---		---		---		---		---		---		---		---		---
Total	$	13,290	$	48,545	$	50,671	$	62,823	$	82,430	$	8,928	$	5,185	$	17,552	$	289,424

Analyses of past due loans segregated by loan type as of March 31, 2013 and December 31, 2012 are provided below.

	Loan Portfolio Aging Analysis as of March 31, 2013
	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Under 90 Days and Not Accruing		Total 90 Days and Accruing
							(In thousands)
Commercial	$	---	$	---	$	20	$	20	$	13,933	$	13,953	$	---	$	---
Owner occupied 1-4		50		---		585		635		46,523		47,158		448		---
Non owner occupied 1-4		304		---		735		1,039		48,761		49,800		1,472		---
Multi-family		---		---		---		---		61,725		61,725		73		---
Commercial Real Estate		107		---		111		218		75,887		76,104		17		---
Construction		---		---		---		---		7,673		7,673		---		---
Land		---		---		140		140		9,306		9,447		---		---
Consumer and home equity		---		---		---		---		16,716		16,716		---		---
Total	$	461	$	---	$	1,591	$	2,052	$	280,524	$	282,576	$	2,010	$	---

	Loan Portfolio Aging Analysis as of December 31, 2012
	30-59 Days		60-89 Days		Over 90 Days		Total Past Due		Current		Total Loans		Under 90 Days and Not Accruing		Total 90 Days and Accruing
							(In thousands)
Commercial	$	---	$	---	$	49	$	49	$	13,241	$	13,290	$	---	$	---
Owner occupied 1-4		184		406		107		697		47,848		48,545		862		---
Non owner occupied 1-4		291		216		2,124		2,631		48,040		50,671		543		---
Multi-family		700		78		---		778		62,045		62,823		76		---
Commercial Real Estate		---		---		487		487		81,943		82,430		815		---
Construction		---		---		---		---		8,928		8,928		---		---
Land		---		79		140		219		4,966		5,185		1,238		---
Consumer and home equity		1		2		---		3		17,549		17,552		2		---
Total	$	1,176	$	781	$	2,907	$	4,864	$	284,560	$	289,424	$	3,536	$	---

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 the quarter ended March 31, 2013 and impaired loans for the year ended December 31, 2012 and interest recognized for the quarter ended March 31, 2012.

	Impaired Loans as of and for the Quarter Ended March 31, 2013
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
	In thousands
Loans without a specific valuation allowance
Commercial	$	20	$	164	$	---	$	34	$	---
Owner occupied 1-4		1,452		1,545		---		1,422		7
Non-owner occupied 1-4		5,660		6,256		---		5,663		105
Multi-family		2,100		2,112		---		2,456		39
Commercial real estate		2,588		2,983		---		3,627		60
Construction		---		---		---		---		---
Land		734		988		---		1,056		---
Consumer and home equity		91		92		---		92		2
Total loans without a specific valuation allowance		12,645		14,140		---		14,350		213
Loans with a specific valuation allowance
Commercial		---		---		---		---		---
Owner occupied 1-4		230		239		12		231		---
Non-owner occupied 1-4		271		271		23		276		1
Multi-family		73		79		19		76		---
Commercial real estate		1,543		1,543		243		1,555		15
Construction		---		---		---		---		---
Land		---		---		---		---		---
Consumer and home equity		---		---		---		---		---
Total loans with a specific valuation allowance		2,117		2,132		297		2,138		16
Total
Commercial		20		164		---		34		---
Owner occupied 1-4		1,682		1,784		12		1,653		7
Non-owner occupied 1-4		5,931		6,527		23		5,939		106
Multi-family		2,173		2,191		19		2,532		39
Commercial real estate		4,131		4,526		243		5,182		75
Construction		---		---		---		---		---
Land		734		988		---		1,056		---
Consumer and home equity		91		92		---		92		2
Total impaired loans	$	14,762	$	16,272	$	297	$	16,488	$	229

	Impaired Loans as of December 31, 2012						Impaired Loans for the Quarter Ended March 31, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Impaired Loans		Interest Income Recognized
	In thousands
Loans without a specific valuation allowance
Commercial	$	49	$	521	$	---	$	1,455	$	5
Owner occupied 1-4		1,421		1,535		---		2,022		27
Non-owner occupied 1-4		5,636		5,990		---		6,410		83
Multi-family		2,813		2,865		---		3,866		44
Commercial real estate		4,667		5,720		---		8,045		76
Construction		---		---		---		---		---
Land		1,379		1,615		---		2,019		1
Consumer and home equity		92		114		---		196		3
Total loans without a specific valuation allowance		16,057		18,360		---		24,013		239
Loans with a specific valuation allowance
Commercial		---		---		---		---		---
Owner occupied 1-4		232		240		14		94		2
Non-owner occupied 1-4		281		281		27		701		5
Multi-family		78		83		24		173		3
Commercial real estate		1,566		1,567		253		3,794		31
Construction		---		---		---		---		---
Land		---		---		---		---		---
Consumer and home equity		---		---		---		---		---
Total loans with a specific valuation allowance		2,157		2,171		318		4,762		41
Total
Commercial		49		521		---		1,455		5
Owner occupied 1-4		1,653		1,775		14		2,116		29
Non-owner occupied 1-4		5,917		6,271		27		7,111		88
Multi-family		2,891		2,948		24		4,039		47
Commercial real estate		6,233		7,287		253		11,839		107
Construction		---		---		---		---		---
Land		1,379		1,615		---		2,019		1
Consumer and home equity		92		114		---		196		3
Total impaired loans	$	18,214	$	20,531	$	318	$	28,775	$	280

All loans rated substandard that have had an impairment allocated to them and all troubled debt restructures 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 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, 2013 and at December 31, 2012.

Loan Class	March 31, 2013		December 31, 2012
	(In thousands)
Commercial	$	21	$	49
Owner occupied 1-4		1,033		969
Non owner occupied 1-4		2,450		2,667
Multi-family		73		76
Commercial Real Estate		128		1,302
Construction		---		---
Land		140		1,378
Consumer and home equity		---		2
Total	$	3,845	$	6,443

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.

The following tables present information regarding troubled debt restructurings by class for the three months ended March 31, 2013 and 2012.

	Newly classified troubled debt restructurings for the three months ended March 31, 2013
	(Dollars in thousands)
	Number of loans		Pre-modification Recorded Balance		Post-modification Recorded Balance		Type of Modification
Commercial	$	---	$	---	$	---		---
Owner occupied 1-4		---		---		---		---
Non owner occupied 1-4		5		1,242		969	A/B note, payment adjustment
Multi-family		---		---		---		---
Commercial Real Estate		---		---		---		---
Construction		---		---		---		---
Land		---		---		---		---
Consumer and home equity		---		---		---		---
Total	$	5	$	1,242	$	969

	Newly classified troubled debt restructurings for the three months ended March 31, 2012
	(Dollars in thousands)
	Number of loans		Pre-modification Recorded Balance		Post-modification Recorded Balance		Type of Modification
Commercial	$	---	$	---	$	---		---
Owner occupied 1-4		1		108		108	Below market rate
Non owner occupied 1-4		---		---		---		---
Multi-family		---		---		---		---
Commercial Real Estate		1		245		245	Below market rate
Construction		---		---		---		---
Land		---		---		---		---
Consumer and home equity		---		---		---		---
Total	$	2	$	353	$	353

There were no troubled debt restructurings modified in the past 12 months that subsequently defaulted for the three months ended March 31, 2013 or 2012.

XML

Disclosures About Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Disclosures About Fair Value of Financial Instruments

Note 7 - Disclosures About Fair Value of Assets and Liabilities

Fair value is 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.  Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.  There is a hierarchy of 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 supported by little or no market activity and are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012:

	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, 2013:
U.S. Government-sponsored agencies	$	16,692		---	$	16,692		---
Mortgage-backed securities		9,863		---		9,863		---
State and political subdivision securities		11,443		---		11,443		---
Totals		37,998		---		37,998		---
December 31, 2012:
U.S. Government-sponsored agencies	$	10,709		---	$	10,709		---
Mortgage-backed securities		7,198		---		7,198		---
State and political subdivision securities		10,097		---		10,097		---
Totals		28,004		---		28,004		---

Following is a description of the valuation methodologies and inputs 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.  There have been no significant changes in the valuation techniques during the quarter ended March 31, 2013.

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 quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows.  Such securities are classified in Level 2 of the valuation hierarchy.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012.

			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)
March 31, 2013:
Collateral-dependent impaired loans	$	2,260		—		—	$	2,260
December 31, 2012:
Collateral-dependent impaired loans	$	527		—		—	$	527

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-Dependent Impaired Loans, Net of Allowance for Loan and Lease Losses

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell.  Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value.  Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary.  Appraisals are reviewed for accuracy and consistency.  Appraisers are selected from the list of approved appraisers maintained by management.  The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.  These discounts and estimates are developed by comparison to historical results.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements.

	Fair Value at 12/31/12	Valuation Technique	Unobservable Inputs	Range (Weighted Average)
		In thousands
March 31, 2013:
Collateral-dependent impaired loans	$2,260	Market comparable properties	Marketability discount	10%
December 31, 2012:
Collateral-dependent impaired loans	$527	Market comparable properties	Marketability discount	10%

Fair Value of Financial Instruments

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012.

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
			In thousands
March 31, 2013:
Financial assets
Cash and cash equivalents	$	24,087	$	24,087	$	—	$	—
Interest bearing time deposits		1,747		—		1,747		—
Loans held for sale		2,296		—		2,296		—
Loans, net of allowance for losses		273,062		—		---		290,498
Federal Home Loan Bank stock		3,185		—		3,185		---
Accrued interest receivable		1,188		—		1,188		—
Financial liabilities
Transaction and Savings Deposits		168,144		168,144		—		—
Time Deposits		141,213		—		—		143,780
Federal Home Loan Bank advances		10,000		—		10,457		—
Accrued interest payable		40		—		40		—
December 31, 2012:
Financial assets
Cash and cash equivalents	$	31,421	$	31,421	$	—	$	—
Interest bearing time deposits		1,740		—		1,740		—
Loans held for sale		1,363		—		1,363		—
Loans, net of allowance for losses		280,257		—		---		299,010
Federal Home Loan Bank stock		3,185		—		3,185		---
Accrued interest receivable		1,133		—		1,133		—
Financial liabilities
Transaction and Savings Deposits		167,704		167,704		—		—
Time Deposits		140,933		—		—		143,181
Federal Home Loan Bank advances		15,000		—		15,515		—
Accrued interest payable		40		—		40		—

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 and Interest Bearing Time Deposits

The carrying amount approximates fair value.

Loans Held For Sale

The carrying amount approximates fair value due to the insignificant time between origination and date of sale.  The carrying amount is the amount funded and accrued interest.

Loans

Fair value is estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities.  The market rates used are based on current rates the Bank would impose for similar loans and reflect a market participant assumption about risks associated with non-performance, illiquidity, and the structure and term of the loans along with local economic and market conditions.

Federal Home Loan Bank Stock

Fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Accrued Interest Receivable and Payable

The carrying amount approximates fair value.  The carrying amount is determined using the interest rate, balance and last payment date.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities.  The market rates used were obtained from a knowledgeable independent third party and reviewed by the Company.  The rates were the average of current rates offered by local competitors of the Bank.

The estimated fair value of demand, NOW, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

Federal Home Loan Bank Advances

Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities.  These rates were obtained from current rates offered by FHLB.

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 commitments to sell securities is estimated based on current market prices for securities 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.

XML

Earnings per share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Schedule of information about the number of shares used to compute earnings per share and the results of the computations

	Three months ended March 31,
	2013		2012
Weighted average shares outstanding		1,556,080		1,555,337
Stock options		7,584		664
Shares used to compute diluted  earnings per share		1,563,664		1,556,001
Basic earnings per share	$	0.42	$	0.38
Diluted earnings per share	$	0.42	$	0.38

XML

Disclosures About Fair Value of Assets and Liabilities - Measurement of fair value of assets on recurring basis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Available-for-sale Securities:
Total Available-for-sale securities	$ 37,998	$ 28,004
Recurring | Fair Value
Available-for-sale Securities:
Total Available-for-sale securities	37,998	28,004
Recurring | Fair Value | U.S. government-sponsored agencies
Available-for-sale Securities:
Total Available-for-sale securities	16,692	10,709
Recurring | Fair Value | Mortgage-backed securities-government sponsored entities
Available-for-sale Securities:
Total Available-for-sale securities	9,863	7,198
Recurring | Fair Value | State and political subdivisions
Available-for-sale Securities:
Total Available-for-sale securities	11,443	10,097
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. government-sponsored agencies
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Mortgage-backed securities-government sponsored entities
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | State and political subdivisions
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Significant Other Observable Inputs (Level 2)
Available-for-sale Securities:
Total Available-for-sale securities	37,998	28,004
Recurring | Significant Other Observable Inputs (Level 2) | U.S. government-sponsored agencies
Available-for-sale Securities:
Total Available-for-sale securities	16,692	10,709
Recurring | Significant Other Observable Inputs (Level 2) | Mortgage-backed securities-government sponsored entities
Available-for-sale Securities:
Total Available-for-sale securities	9,863	7,198
Recurring | Significant Other Observable Inputs (Level 2) | State and political subdivisions
Available-for-sale Securities:
Total Available-for-sale securities	11,443	10,097
Recurring | Significant Unobservable Inputs (Level 3)
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Significant Unobservable Inputs (Level 3) | U.S. government-sponsored agencies
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Significant Unobservable Inputs (Level 3) | Mortgage-backed securities-government sponsored entities
Available-for-sale Securities:
Total Available-for-sale securities
Recurring | Significant Unobservable Inputs (Level 3) | State and political subdivisions
Available-for-sale Securities:
Total Available-for-sale securities

XML

Earnings per share (Detail Textuals) (Stock Options)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of potentially dilutive securities outstanding	41,257	6,000
Antidilutive securities excluded from computation of earnings per share	17,116	51,433

XML

Loans and Allowance for Loan Losses - Categories of loans (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Real Estate
Total loans	$ 279,124	$ 286,157
Allowance for loan losses	(6,062)	(5,900)
Net loans	273,062	280,257
Loans Receivable
Real Estate
One-to-four family residential	96,958	99,216
Multi-family residential	61,725	62,823
Commercial real estate	76,104	82,430
Construction and land development	17,120	14,113
Commercial	13,953	13,290
Consumer and other	1,083	1,131
Home equity lines of credit	15,633	16,421
Total loans	282,576	289,424
Net deferred loan fees, premiums and discounts	(441)	(469)
Undisbursed portion of loans	(3,010)	(2,798)
Allowance for loan losses	(6,062)	(5,900)	(5,305)	(5,331)
Net loans	$ 273,063	$ 280,257

XML

Consolidated Condensed Statements of Income and Comprehensive Income (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement [Abstract]
Tax effect of unrealized appreciation (depreciation) on available-for-sale securities	$ 7	$ (13)

XML

Principles of Consolidation

3 Months Ended

Mar. 31, 2013

Principles Of Consolidation [Abstract]

Principles of Consolidation

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. 

XML

Loans and Allowance for Loan Losses - Allocation of loan loss reserves by loan category (Details 1) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Loans Receivable	Mar. 31, 2012 Loans Receivable	Mar. 31, 2013 Loans Receivable Commercial	Mar. 31, 2012 Loans Receivable Commercial	Mar. 31, 2013 Loans Receivable Owner Occupied 1-4	Mar. 31, 2012 Loans Receivable Owner Occupied 1-4	Mar. 31, 2013 Loans Receivable Non-owner Occupied 1-4	Mar. 31, 2012 Loans Receivable Non-owner Occupied 1-4	Mar. 31, 2013 Loans Receivable Multi-family	Mar. 31, 2012 Loans Receivable Multi-family	Mar. 31, 2013 Loans Receivable Commercial Real Estate	Mar. 31, 2012 Loans Receivable Commercial Real Estate	Mar. 31, 2013 Loans Receivable Construction	Mar. 31, 2012 Loans Receivable Construction	Mar. 31, 2013 Loans Receivable Land	Mar. 31, 2012 Loans Receivable Land	Mar. 31, 2013 Loans Receivable Consumer and Home Equity	Mar. 31, 2012 Loans Receivable Consumer and Home Equity
Allowance for losses
Beginning balance	$ 6,062	$ 5,900	$ 5,900	$ 5,331	$ 633	$ 667	$ 589	$ 436	$ 1,022	$ 1,330	$ 1,055	$ 646	$ 2,177	$ 1,788	$ 62	$ 64	$ 154	$ 264	$ 208	$ 136
Provision charged to expense			400	600	239	362	(64)	(19)	212	(87)	(74)	276	9	212	(20)	(51)	129	(121)	(31)	28
Losses charged off			(321)	(631)	(29)	(313)		(6)	(241)	(25)		(259)	(51)					(17)		(11)
Recoveries			83	5	16				60	3		1					7	1
Ending balance	$ 6,062	$ 5,900	$ 6,062	$ 5,305	$ 859	$ 716	$ 525	$ 411	$ 1,053	$ 1,221	$ 981	$ 664	$ 2,135	$ 2,000	$ 42	$ 13	$ 290	$ 127	$ 177	$ 153

XML

Earnings per share - Information about the number of shares used to compute earnings per share (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings Per Share [Abstract]
Weighted average shares outstanding	1,556,080	1,555,337
Stock options	7,584	664
Shares used to compute diluted earnings per share	1,563,664	1,556,001
Basic earnings per share	$ 0.42	$ 0.38
Diluted earnings per share	$ 0.42	$ 0.38