LSB Financial Corp. Announces Second Quarter and Year-to-Date Results;
Suspension of Quarterly Dividend

Lafayette, IN. - LSB Financial Corp. (NASDAQ:LSBI), the parent company of Lafayette Savings Bank, FSB, today reported quarterly earnings of $457,000 or $0.29 diluted earnings per share compared to $312,000 or $0.20 diluted earnings per share a year earlier. Earnings year-to-date were $989,000 or $0.64 diluted earnings per share compared to $614,000 or $0.40 per share in 2009. Randolph F. Williams, president and CEO stated, “We are pleased to report that despite the continued slow economy, we achieved another profitable quarter and further positioned the Bank for the ongoing economic challenges. As with most community banks, net interest income - the difference between the income generated from loans and investments and the cost of funding - represents a significant portion of our earnings. Our improved performance this quarter was fueled by a substantial $613,000 or 24% increase in our net interest margin. This increase is reflected in our net interest margin which increased from 2.74% in June of last year to the current level of 3.54%. A positive sign for the local economic recovery is that in the first half of the year a surprising 50% of our residential volume came from people purchasing new homes rather than from borrowers refinancing existing mortgages. Noninterest expenses were down $132,000 in the second quarter of 2010 from $2.7 million the second quarter of 2009 to $2.6 million for the second quarter of 2010. For the year-to-date, non-interest expenses were down $265,000.”

Our net interest income was offset by a $76,000 increase in the provision for loan losses from $389,000 to $465,000 compared to the second quarter last year. For the year-to-date the provision for loan losses was down slightly from $958,000 to $899,000. The gain on sale of loans in the quarter decreased $360,000, a $797,000 decrease year-to-date, primarily due to a strategic decision to keep a larger share of residential loan originations in the Bank’s own portfolio to stay within regulatory thresholds rather than to sell them on the secondary market. We also showed a $127,000 increase in the loss on OREO properties for the quarter, $195,000 year-to-date, as we made adjustments to recognize new valuations or property deterioration. The Bank continues to maintain a strong capital base with a Tier I capital ratio at June 30, 2010 of 9.11% which is in excess of the 5.00% required to remain categorized as well-capitalized as defined by the regulators but down slightly from the 9.13% at December 31, 2009.

Mr. Williams stated, “Despite the positives mentioned above, we remain tentative about the economic recovery, the negative impact of unemployment on our local market and the chance of a double-dip recession. The recent adoption of the new Dodd-Frank Wall Street Reform and Consumer Protection Act introduced additional uncertainty into the banking industry. Among other things, that legislation could impose higher capital requirements on bank and thrift holding companies. Consequently, until the ramifications of the legislation and the prospects for economic recovery become clearer, the Company will not be paying a dividend to shareholders. We intend to focus our attention on reducing the level of non-performing assets which remain a challenge, and this will be a key priority for the remainder of 2010. We will also focus our efforts on growing capital, maintaining liquidity, improving our operational efficiencies, building core customer relationships and ultimately improving shareholder value.

The closing market price of LSB stock on August 12, 2010 was $11.30 per share as reported by the Nasdaq Global Market.