UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to __________________
Commission file number: 0-24598
TSB Financial, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 37-1325942
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 South Sampson, Tremont, Illinois 61568
(Address of principal executive offices)
(309) 925-2511
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes __X__ No ____
269,875 shares of the registrant's common stock, par value $.01 per share, were
outstanding at August 9, 1996.
TSB FINANCIAL, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis 8
of Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TSB Financial, Inc. and Subsidiary -- Note to Consolidated condensed Financial
Statements
Note 1. The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-QSB and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles.
In the opinion of management, the consolidated condensed financial statements of
TSB Financial, Inc. (the "Company") and subsidiary at June 30, 1996 and 1995 and
for the nine month periods then ended include all adjustments necessary for a
fair presentation of the results of those periods. All such adjustments are of a
normal recurring nature.
Results of operations for the nine month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1996.
TSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statement of Income
(Unaudited)
THREE MONTHS ENDED JUNE 30 1996 1995
-------- --------
Interest Income
Loans $431,169 $315,887
Mortgage-backed securities 49,937 44,253
Interest-bearing deposits 13,510 17,509
Investment securities 59,678 41,361
-------- --------
Total interest income 554,294 419,010
-------- --------
Interest Expense
Deposits 221,012 197,284
Borowings 53,194 0
-------- --------
Total interest expense 274,206 197,284
Net Interest Income 280,088 221,726
Provision for losses on loans 3,000 1,500
-------- --------
Net Interest Income After Provision 277,088 220,226
for losses on loans
Other Income
Loan fees and service charges 16,573 8,663
Other income 7,714 5,763
-------- --------
Total other income 24,287 14,426
-------- --------
Other Expense
Salaries and employee benefits 86,125 62,191
Net occupancy expense 5,667 4,615
Equipment expense 8,902 4,024
Deposit insurance expense 10,989 10,586
Computer services 17,728 8,791
Office supplies 1,348 2,392
Advertising promotion 7,952 5,249
Other expense 27,764 31,310
-------- --------
Total other expense 166,475 132,158
-------- --------
Income Before Income Tax 134,900 102,494
Income tax expense 47,100 29,031
-------- --------
Net Income $ 87,800 $ 73,463
======== ========
PER SHARE DATA
Assuming no dilution
Net income $ 0.39 $ 0.27
-------- --------
Average number of shares 278,138 269,875
Assuming full dilution
Net income $ 0.32
--------
Average number of shares 278,138
TSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statement of Income
(Unaudited)
NINE MONTHS ENDED JUNE 30 1996 1995
---------- ----------
Interest Income
Loans $1,110,367 $ 937,973
Mortgage-backed securities 146,373 119,063
Interest-bearing deposits 55,307 57,473
Investment securities 153,410 101,608
---------- ----------
Total interest income 1,465,457 1,216,117
---------- ----------
Interest Expense
Deposits 651,178 532,527
Borowings 109,039 3,029
---------- ----------
Total interest expense 760,217 535,556
Net Interest Income 705,240 680,561
Provision for losses on loans 9,000 17,000
---------- ----------
Net Interest Income After Provision 696,240 663,561
for losses on loans
Other Income
Loan fees and service charges 48,907 24,371
Other income 21,032 14,876
---------- ----------
Total other income 69,939 39,247
---------- ----------
Other Expense
Salaries and employee benefits 236,757 182,870
Net occupancy expense 15,958 14,457
Equipment expense 22,189 12,225
Deposit insurance expense 32,258 32,506
Computer services 41,816 27,602
Office supplies 13,612 10,044
Advertising & promotion 16,266 14,523
Other expense 96,129 76,987
---------- ----------
Total other expense 474,985 371,214
---------- ----------
Income before Income Tax 291,194 331,594
Income Tax expense 99,420 114,714
---------- ----------
Net Income $ 191,774 $ 216,880
========== ==========
Per Share Data
Assuming no dilution
Net income $ 0.82 $ 0.80
---------- ----------
Average number of shares 234,824 269,875
Assuming full dilution
Net income $ 0.67
----------
Average number of shares 286,774
<TABLE>
<CAPTION>
TSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statement of Financial Condition
(Unaudited)
JUNE 30 SEPTEMBER 30
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 344,769 $ 285,824
Short-term interest bearing deposits 46,691 662,223
------------ ------------
Total cash and cash equivalents 391,460 948,047
Interest-bearing deposits 580,672 394,722
Investment securities available for sale 3,137,827 258,673
Investment securities held ot maturity -
approximate market value $308,987 and $2,269,720 306,136 2,216,522
Mortgage-backed securities available for sale 2,832,523 1,785,648
Mortgage-backed securities held to maturity -
approximate market value $62,981 and $805,665 62,160 818,017
Loans, net 20,021,967 16,742,762
Premises and equipment 191,439 124,425
Federal Home Loan Bank of Chicago stock, at cost 200,000 179,300
Other assets 200,937 127,600
------------ ------------
TOTAL ASSETS $ 27,925,121 $ 23,595,716
============ ============
LIABILITIES
Deposits $ 19,969,588 $ 18,467,844
Short-term borrowings 4,000,000 1,000,000
Advances by borrowers for taxes and insurance 37,820 45,656
Other liabilities 47,615 80,977
TOTAL LIABILITIES $ 24,055,023 $ 19,594,477
============ ============
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Authorized and unissued- 200,000 shares
Common Stock, $.01 value
Authorized- 550,000 shares
Issued and outstanding- 269,875 2,699 2,699
Treasury Stock (235,750) 0
Capital surplus 2,218,894 2,218,894
Retained earnings- substantially restricted 2,144,135 2,019,796
Net unrealized loss/gain securities available
for sale, net of tax of $6,395 (48,298) 6,651
Unearned compensation related to ESOP and MRP (211,582) (246,801)
Total stockholders' equity 3,870,098 4,001,239
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,925,121 $ 23,595,716
============ ============
See note to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
THREE MONTHS ENDED JUNE 30 1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 191,774 $ 143,417
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 9,000 15,500
Premium and discount amortization, net 535 36,474
Depreciation 19,700 5,376
Deferred income tax (benefit) 0 (15,705)
Allocation of ESOP shares 20,241 13,494
Amortization of MRP 14,978 (94,861)
Change in:
Interest receivable (19,169) (17,788)
Interest payable and other liabilities (16,570) (77,695)
Prepaid expense and other assets (37,835) 29,830
Accrued conversion expenses 0 (334,966)
----------- -----------
Net cash provided (used) by operating activities 182,654 (296,924)
----------- -----------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (185,950) 397,929
Purchases of securities available for sale (1,458,383) 0
Purchases of securities held to maturity 0 (1,401,778)
Proceeds from maturities of securities available for sale 4,234 0
Proceeds from maturities of securities held to maturity 450,000 0
Proceeds from paydowns of mortgage-backed
securities available for sale 368,257 122,505
Purchases of mortgage-backed securities available
for sale (765,567)
Purchases of mortgage-backed securities held to maturity (432,626)
Proceeds from paydowns of mortgage-backed securities
held to maturity 58,952 73,920
Net changes in loans (3,294,093) 78,413
Purchase of premises and equipment (86,714) (2,935)
Purchase of FHLB of Chicago Stock (20,700) (2,700)
----------- -----------
Net cash provided (used) by investing activities (4,929,964) (1,167,272)
FINANCING ACTIVITIES
Net change in deposits 1,501,744 (397,021)
Proceeds from FHLB advances 3,000,000 0
Repayment of FHLB advances 0 (500,000)
Net change in advances by borrowers for
taxes and insurance (7,836) 55,054
Cash dividends (67,435) 0
Purchase of stock (235,750) 0
----------- -----------
Net cash provided (used) by financing activities 4,190,723 (841,967)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (556,587) (2,306,163)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 948,047 2,979,990
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 391,460 $ 673,827
=========== ===========
ADDITIONAL CASH FLOWS AND SUPPLEMENTARY INFORMATION
Interest Paid $ 735,477 $ 338,272
Income tax paid 88,136 90,167
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
GENERAL
The Company is a one-bank holding company with Tremont Savings Bank (the "Bank")
as its wholly-owned subsidiary. The Bank converted from a mutual state savings
bank to a stock state savings bank on September 30, 1994 and issued 100% of its
stock to the Company. The fiscal year end of the Company is September 30th.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS
ENDED JUNE 30, 1996 AND JUNE 30, 1995.
For the quarter ended June 30,1996, net income for the Company was $87,800
compared to $73,463 for the same quarterly period in 1995. Management attributes
this 19.5% increase in part to the increase in interest rates coupled with an
increase in net loans during the period.
Interest income was up 32.3% from $419,010 for the three months ended June 30,
1995 to $554,294 for the three months ended June 30, 1996. The factors for the
increase were interest on loans which increased from $315,887 to $431,169 and
interest on investment securities which rose from $41,361 to $59,678 for the
respective periods. These increases were the result of increased market rates in
general coupled with the increase in net loans of $3.3 million.
Income from other sources such as loan fees, overdraft fees and service charges,
and license plate sticker fees rose from $14,426 for the quarter ended June 30,
1995 to $24,287 for the quarter ended June 30, 1996, a 68.4% increase. This
increase reflects management's continuing efforts to grow and attract new
customers by expanding the products and services offered by the Bank.
Management continually monitors the credit quality and performance of the Bank's
loan portfolio in order to adequately provide for potential loan losses. The
Bank's provision for loan losses for the three month period ending June 30, 1996
was $3,000 compared to $1,500 for the same period in 1995. This increase was a
result of growth in the Bank's loan porfolio during the quarter rather than
indicative of perceived loan quality or performance problems.
Interest expense continued to climb as the Bank strives to sustain growth
through deposit growth and advances from the Federal Home Loan Bank of Chicago
(the "FHLB"). For the quarter ended June 30, 1996 interest expense on deposits
was $221,012, a 12.0% increase over the same quarter in the previous year and
interest expense on FHLB advances was $53,194. There were no borrowings from the
FHLB during the same quarter in 1995. Net interest margin is calculated at 3.4%,
which approximates industry and peer group averages.
Expenses including items such as compensation, occupancy, computer equipment,
advertising and other expenses, rose 26.0%, from $132,158 for the three months
ended June 30, 1995 to $166,475 for the three months ended June 30, 1996.
Management attributes this primarily to increases in equipment depreciation,
which increased from $4,024 to $8,902 for the respective periods due to new
computers, and to equipment associated with a system upgrade and conversion
completed in June 1996, along with an $8,937 increase in data processing
expenses due to the deconversion expenses from the data center that was
replaced. Compensation expense rose from $62,191 for the quarter ended June 30,
1995 to $86,125 for the quarter ended June 30, 1996. Management attributes this
to overtime expense relating to the data system conversion, along with the
expenses associated with the Company's management retention plan which was
approved by the Company's shareholders in February of 1995.
Income tax expense rose $18,069, or 62.2%, from June 1995 to June 1996,
reflective of the rise in net income. The effective tax rate was 34.9% at both
periods.
Primary earnings per share for the quarter ended June 30, 1996 was $0.39
compared to $0.27 for the quarter ended June 30, 1995. These figures were based
on 227,403 and 269,875 weighted average shares outstanding for the respecive
periods.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTH PERIODS
ENDED JUNE 30, 1996 AND JUNE 30, 1995
For the nine month period ended June 30, 1996, the net income for the Company
declined to $191,774 from $216,880 for the same nine month period ended June 30,
1995. Management attributes this decline to increases in other expenses
including with data processing and equipment depreciation expenses associated
with the Bank's computer equipment upgrade and conversion as well as
compensation and office supplies expense.
Income from interest on loans increased 18.4%, from $937,973 for the nine months
ended June 30, 1995 to $1,110,367 for the nine months ended June 30, 1996 due to
growth in the Bank's loan portfolio. Interest income from mortgage-backed
securities rose from $119,063 for the nine month period ended June 30, 1995 to
$146,373 for the nine month period ended June 30, 1996, a 22.9% increase, while
income from investment securities experienced a 51.0% increase, from $101,608 to
$153,410 for the comparative periods. These increases were due to increases in
the Bank's overall mortgage-backed securities and investment securities
portfolios which increased $291,018 and $968,768, respectively and increases in
the yield on the Bank's adjustable rate securities during the period, which also
contributed to the $249,340 increase in total interest income when comparing the
nine month periods ended June 30, 1995 and June 30, 1996.
Other income, including late payment fees, overdraft fees and charges, loan
origination fees and fees from the sale of traveler's cheques, money orders and
license plate stickers, showed a substantial increase of 78.2%, from $39,247 for
the nine months ended June 30, 1995 to $69,939 for the nine months ended June
30, 1996. The increased volume of new checking accounts and the growing
acceptance of the Bank's products were the primary reasons for this increase.
The Bank continues to fund its growth by attracting new deposits and through
borrowings from the FHLB. This is reflected by an 8.1% rise in deposit accounts
and the addition of $3.0 million in FHLB advances. In addition, the effect of
generally rising interest rates has been to increase the cost of these new time
deposits, as well as the existing time deposits as they mature and reprice.
Accordingly, interest expense rose $224,661 or 42.0% to $760,217 for the nine
months ended June 30, 1996 from $535,556 for the same period ended June 30,
1995.
Management continually monitors the credit quality and performance of the Bank's
loan portfolio in order to adequately provide for potential loan losses. The
Bank reduced its provision for loan losses for the nine month period ended June
30, 1996 to $9,000 from $17,000 for the same period ended June 30, 1995, which
is indicative of the Bank's continued strong asset quality.
Items comprising other expenses, including compensation, occupancy, advertising
and data processing, increased as a group by $103,771, or 28.0%, for the nine
month period ending June 30, 1996 compared to the same period ending June 30,
1995. Computer service expense increased $14,214 and equipment expense increased
$9,964, both as a result of the recently completed system upgrade and conversion
by the Bank. Compensation expense increased 29.5%, from $182,870 for the period
ended June 30, 1995 to $236,757 for the period ended June 30, 1996. This
increase was attributable to various stock-based compensation programs approved
by the shareholders and implemented during February of 1995 along with some
increases attributed to extra hours worked by employees during the recent system
conversion.
Income tax expense dropped by 13.3%, from $114,714 to $99,420 for the nine month
periods ended June 30, 1995 and June 30, 1996, respectively, due to a 12.2%
decline in net income before income taxes, from $331,594 to $291,194 for the
comparative periods.
For the nine month period ended June 30, 1996, primary earnings per share was
$0.82 based on 234,824 weighted average shares outstanding compared to $0.80 on
269,875 weighted average shares outstanding for the nine month period ended June
30, 1995.
FINANCIAL CONDITION
Continuing its emphasis on growth, the Company increased its total assets at
June 30, 1996 to $27.9 million compared to $23.6 million at September 30, 1995.
This 18.3% increase was attributable to increased Bank marketing resulting in a
19.6% increase in net loans and an 8.1% increase in total deposits.
Cash and cash equivalents for the Company dropped by $556,587 from
September 30, 1995 to June 30, 1996 as the Bank used its excess liquidity to
help meet its increasing loan demand.
Investment securities classified "Available for Sale" increased $2,879,154 while
securities classified "Held to Maturity" declined $1,910,386 when comparing
totals at September 30, 1995 to June 30, 1996. This large shift was due to a one
time opportunity that allowed the Bank to reevaluate those securities designated
as "available-for-sale" ("AFS") and "held-to-maturity" ("HTM"). Management's
reclassification of securities from HTM to AFS results in greater flexibility in
managing these portfolios in the future. Total investment securities rose
$968,768, or 39.1% as a result of normal investment activity by the Company.
A similar reclassification occurred in mortgage-backed securities owned by the
Company. Those classified AFS rose $1,046,875 from September 30, 1995 to June
30, 1996 while those classified HTM dropped $755,857 between the respective
dates. Total mortgage-backed securities rose from $2,603,665 at September 30,
1995 to $2,894,683 at June 30, 1996, an 11.2% increase due to normal investing
activity by the Company.
As mentioned earlier, the Bank's net loans increased 19.6%, or $3.3 million from
September 30, 1995 to June 30, 1996 as a direct result of increased marketing
activity and the popularity of the discount rate incentive program offering rate
discounts to customers establishing multiple account relationships with the
Bank. Consumer loans also have been growing, rising to over $1.1 million at June
30, 1996 compared to $327,000 at September 30, 1995.
As a result of equipment purchases such as a drive-up ATM, new computer
terminals associated with the data processing system conversion, and other
equipment designed to enhance customer satisfaction and employee efficiency,
premises and equipment increased 53.9%, or $67,014 from September 30, 1995 to
June 30, 1996.
While the Bank strives to grow, deposits have grown, albeit at a slower pace
than assets. Deposits grew from $18.5 million at September 30, 1995 to $20.0
million at June 30, 1996. This 8.1% growth is ahead of industry averages in
spite of ever-growing competition for consumers' investment funds. The growth in
loan demand prompted the Bank to increase its borrowed funds from the FHLB over
the last nine months from $1.0 million at September 30, 1995 to $4.0 million at
June 30, 1996. Management also believed this to be an underutilized source of
funds that are free of deposit insurance premiums.
The Company's stock repurchase program, initiated in August 1995 to repurchase
up to 10% of the Company's outstanding shares, had repurchased 18,850 shares as
of June 30, 1996, or 7.0% of the commonstock initially issued. Stockholders'
equity at June 30, 1996 stood at $3,870,098, down 3.3% from $4,001,239 at
September 30, 1995. This decrease was attributable to the repurchase program as
well as recognition of $48,298 of net unrealized losses on AFS securities. Book
value per share of common stock at June 30, 1996 had increased to $15.42
compared to $14.83 at September 30, 1996. Stockholders' equity as of June 30,
1996 was as follows:
Stockholders' Equity, September 30, 1995 $4,001,239
Decrease in unearned compensation 35,219
Net income 191,774
Increase in net unrealized gain/loss on securities
available for sale (54,949)
Purchase of treasury stock (235,750)
Dividends paid (67,435)
----------
Stockholders' Equity March 31, 1996 $3,870,098
TSB FINANCIAL, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the
Company or its subsidiary is a party other than ordinary
routine litigation incidental to their respective businesses.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TSB FINANCIAL, INC.
Date: August 9, 1996 By: /s/ Richard A. Jameson
---------------------------------
Richard A Jameson, President
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 344,769
<INT-BEARING-DEPOSITS> 46,691
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,137,827
<INVESTMENTS-CARRYING> 306,136
<INVESTMENTS-MARKET> 0
<LOANS> 20,146,531
<ALLOWANCE> 124,564
<TOTAL-ASSETS> 27,925,121
<DEPOSITS> 19,969,588
<SHORT-TERM> 4,000,000
<LIABILITIES-OTHER> 47,615
<LONG-TERM> 0
0
0
<COMMON> 2,699
<OTHER-SE> 3,867,399
<TOTAL-LIABILITIES-AND-EQUITY> 27,925,121
<INTEREST-LOAN> 431,169
<INTEREST-INVEST> 59,678
<INTEREST-OTHER> 63,447
<INTEREST-TOTAL> 554,294
<INTEREST-DEPOSIT> 221,012
<INTEREST-EXPENSE> 53,194
<INTEREST-INCOME-NET> 280,088
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 27,764
<INCOME-PRETAX> 134,900
<INCOME-PRE-EXTRAORDINARY> 134,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,800
<EPS-PRIMARY> .39
<EPS-DILUTED> .32
<YIELD-ACTUAL> 8.22
<LOANS-NON> 37,000
<LOANS-PAST> 114,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 121,564
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 124,564
<ALLOWANCE-DOMESTIC> 124,564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
