[LOGO] TREMONT SAVINGS BANK
December 1997
Dear Shareholder,
Happy Holidays from all of us at TSB Financial, Inc. and Tremont Savings Bank.
I am pleased and proud to present you with our 1997 Annual Report. This report
reflects our operations and financial condition for the year ended September 30,
1997.
For the fiscal year ended September 30, 1997, the Company reported earnings of
$289,486 or $1.27 per share of outstanding common stock. The book value of a
share of TSB Financial, Inc. on September 30, 1997 was $17.07 compared to $15.61
a year ago. As recently as last month there were shares being traded at $16.00.
We are proud to share this information with you and hope you feel as good about
your investment in the Company as we do.
Again this year, the Board of Directors has voted to pay a $.25 per share
dividend to all shareholders as of November 26, 1997. This dividend will be paid
on January 9, 1998.
The big news for the Company and the Bank is the acquisition of a branch banking
center in Stanford, Illinois from Magna Bank. We agreed to purchase this
facility and the accounts associated with it this past fall and will begin
operations there around December 20th. I can't tell you how excited we are about
the prospects for developing our customer base in eastern Tazewell and western
McLean Counties. We are confident that our hometown banking experience and style
will be a benefit to customers and shareholders alike.
As a cost controlling measure, this annual report consists primarily of a
portion of Form 10-KSB (not including exhibits and schedules), which is a
required annual filing with the U.S. Securities and Exchange Commission.
I want to thank you for your interest and investment in the Company. A special
thank you goes to those of you who are customers of the Bank. Please stop by or
call me if you ever have questions or comments regarding our Bank or Company.
Also, remember to watch for announcements about our grand opening in Stanford
sometime next month.
Best Regards,
/s/ Richard A. Jameson
Richard A. Jameson
President
<PAGE>
DIRECTORS OF THE COMPANY AND THE BANK
AS OF DECEMBER 1, 1997
ROLAND E. HOFFMAN JAMES D. PETROV
Farmer Cofounder, Petrov-Watkins
Insurance
RICHARD A. JAMESON DAN STEINER, JR.
President, TSB Financial, Inc. Carpenter, Jerry Kaiser Construction
President, Tremont Savings Bank
BEN A. MILLER DONALD L. SWIGERT
Tremont Township Road Commissioner Owner, Tremont Super Valu
RICHARD D. WARTICK
Pharmacist, Tremont Pharmacy
OFFICERS OF THE COMPANY AND BANK
AS OF DECEMBER 1, 1997
RICHARD A. JAMESON RICHARD D. WARTICK
President Chairman of the Board
JANE M. HINMAN ROLAND E. HOFFMAN
Secretary Vice Chairman of the Board
STOCK TRANSFER AGENT
Inquiries regarding stock transfer,
registration, lost certificates or changes
in name and address should be directed to
the stock transfer agent and registrar by
writing:
First Bankers Trust Co., N.A.
1201 Broadway
Quincy, Illinois 62301
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) for the fiscal year ended September 30, 1997
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from ___________
to _______________
Commission file number 0-24598.
TSB Financial, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 37-1325942
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
100 South Sampson St, Tremont, Illinois 61568
(Address of Principal Executive Offices) (Zip Code)
(309) 925-2511
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12 (b) of the Exchange Act:
None.
Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $0.01 Par Value
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $289,486.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of October 1, 1997 was approximately $3,336,314. As of said date, the
Issuer had 228,124 shares of Common Stock issued and outstanding.
Documents incorporated by reference:
Part III of Form 10-KSB-Proxy statement for annual meeting of stockholders to be
held in 1998.
<PAGE>
TSB FINANCIAL, INC.
Table of Contents
Page
PART I. GENERAL INFORMATION
Item 1. Description of business 5
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II. OTHER INFORMATION
Item 5. Market for Common Equity and Related 7
Stockholder Matters
Item 6. Management's Discussion and Analysis of 8
Plan of Operation
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with Accountants 37
PART III.
Item 9. Section 16(a) Compliance 38
Item 10. Executive Compensation 39
Item 11. Ownership by Related Persons 39
Item 12. Related Transactions and Relationships 39
Item 13. Exhibits and Reports on Form 8-K 39
SIGNATURES 40
<PAGE>
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
TSB Financial, Inc. (the "Company") is a Delaware corporation which was
incorporated on March 3, 1994, to acquire all of the capital stock of the
Tremont Savings Bank, Tremont, Illinois (the "Bank"). The Company's business
consists of the ownership of the Bank and the investment in various government
agency securities. The Company is registered as a bank holding company with the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
under the Bank Holding Company Act, as amended (the "BHCA"), and with the
Illinois Commissioner of Savings and Residential Finance (the "Commissioner")
under the Illinois Savings Bank Act (the "ISBA").
The sole office of the Company and the Bank is located at 100 South Sampson
Street, Tremont, Illinois 61568 and its telephone number is (309) 925-2511.
The Bank is an Illinois-chartered savings bank. It was organized as an
Illinois-chartered savings and loan association in 1924 and converted to an
Illinois-chartered mutual savings bank in 1992. As of September 30, 1997, the
Bank had total assets of $29.9 million, deposits of $21.2 million and restricted
stockholder's equity of $3.9 million. The Bank has no subsidiaries.
The Bank conducts business through its office located in Tremont, Illinois, a
community of approximately 2,100 people in Tazewell County, Illinois. Tazewell
County has a population of 123,600 (1990 census) and is part of the Peoria MSA,
which also includes Peoria and Woodford Counties and has a total population of
approximately 340,000 (1990 census). Tremont is located less than one mile from
Interstate 155, which connects Interstate 74 and Interstate 55, and 15 miles
from downtown Peoria.
The Bank competes with other commercial banks, savings banks, savings and loan
institutions, credit unions and other financial service organizations which
offer services in the Tazewell County market. The Bank is one of the smaller
financial institutions in its market.
The Bank is principally engaged in the business of attracting deposits from the
general public and using such deposits, together with borrowings and other
funds, to originate one-to-four family residential mortgage loans and, to a far
lesser extent, multifamily, commercial real estate and consumer loans (including
savings account loans) in the Bank's principal lending area consisting primarily
of Tremont, Illinois and surrounding communities in Tazewell County, Illinois.
At September 30, 1997, approximately 86.5% of the Bank's gross loan portfolio
consisted of one-to-four family residential mortgage loans and the Bank's entire
real estate loan portfolio consisted of loans secured by properties located in
central Illinois. The Bank has established lending policies which include a
number of underwriting factors to be considered in making a loan, including
location, loan to value ratio, interest rate and credit worthiness of the
borrower. The Bank's deposits are insured to the maximum allowable by the
Savings Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC").
<PAGE>
The Company's results of operations are dependent primarily on net interest
income,which is the difference between the interest earned on its loans and
securities and the interest paid on deposits and borrowings. To a lesser extent,
the Company's operating results are affected by fees, service charges and other
income. Operating expenses of the Company include employee compensation and
benefits, advertising, legal and professional fees, occupancy costs and other
administrative expenses. The Company's operating results are also affected by
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities.
The Bank and the Company are regulated by the Federal Reserve Board. In
addition, the Bank is regulated by the Commissioner and the FDIC. The commercial
banking business is a highly regulated business. See Appendix A for a brief
summary regarding the federal and state statutes and regulations which are
applicable to the Company and the Bank. Supervision, regulation and examination
of banks and bank holding companies by bank regulatory agencies are intended
primarily for the protection of depositors rather than stockholders of bank
holding companies and banks.
The Company and the Bank have a September 30th fiscal year end and employ nine
individuals. No one customer accounts for more than 10% of either the Company's
or the Bank's revenues, loans or deposits.
ITEM 2. DESCRIPTION OF PROPERTY
The main office of the Company and the Bank is located at 100 South Sampson
Street, Tremont, Illinois. The building, built in 1971 and approximately 1,700
square feet, is solely occupied by the Company and the Bank.
Management is of the opinion that this banking facility is of sound
construction, in good operating condition, is appropriately insured and is
adequately equipped for carrying on the business of the Company and the Bank.
The Bank intends to limit its investment in premises, furniture and equipment to
no more than 50% of Bank capital.
ITEM 3. 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 business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the stockholders of the Company for a vote
during the fourth quarter of the fiscal year ended September 30, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table shows, for the indicated periods, the range of prices per
share of the Company's common stock in the over-the-counter market of which the
Company is aware.
These quotations represent inter-dealer prices without retail mark-ups,
mark-downs or commissions and do not necessarily represent actual transactions.
The Company's common stock was first issued on October 1, 1994 at a price to the
public of $10 per share.
bid price dividend paid
high low
10/1/94 - 12/31/94 $10 $8 3/4
1/1/95 - 6/30/95 9 5/8 9 1/4
7/1/95 - 9/30/95 10 5/8 9 5/8
10/1/95 - 12/31/95 11 3/8 10 5/8
1/1/96 - 6/30/96 12 7/8 11 3/8 $.25/sh
7/1/96 - 9/30/96 13 1/8 12 7/8
10/1/96 - 6/30/97 13 3/4 13 1/8 .25/sh
7/1/97 - 9/30/97 14 5/8 13 3/4
At October 1, 1997, there were approximately 266 holders of record of the
Company's common stock.
The Board of Directors has the authority to declare dividends, subject to
statutory and regulatory requirements. The Board of Directors currently
anticipates it will pay an annual cash dividend in one annual payment, and
accordingly, declared an annual dividend of $.25 per share, payable on January
9, 1998, to stockholders of record as of November 26, 1997. However,
declarations of dividends and the amount of any declared dividends are subject
to the discretion of the Board of Directors, and depend upon a number of
factors, including, without limitation, investment opportunities available to
the Company, capital requirements, regulatory limitations, the Company's
financial condition and results of operations. If and when dividends are
declared, the Company will probably be largely dependent upon dividends from the
Bank for funds to pay dividends on the common stock.
The Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies. In the policy statement, the Federal
Reserve Board expressed its view that a bank holding company experiencing
earnings weaknesses should not pay cash dividends exceeding its net income or
which could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve Board
possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to
<PAGE>
prevent or remedy actions that represent unsafe or unsound practices or
violations of applicable statutes and regulations.
Among these powers is the ability to proscribe the payment of dividends by
bank and bank holding companies. In addition to the restrictions on dividends
imposed by the Federal Reserve Board, the Delaware General Corporation Law would
allow the Company to pay dividends only out of its surplus, or if the Company
has no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Under the ISBA and the
regulations of the Commissioner, dividends may be paid by the Bank out of its
net profits (i.e., earnings from current operations, investments and other
assets plus actual recoveries on loans, net of current expenses including
dividends or interest on deposits, additions to reserves as required by the
Commissioner, actual losses, accrued dividends on preferred stock, if any, and
all state and federal taxes). The written approval of the Commissioner must be
obtained, however, before the Bank may declare dividends in any calendar year in
an amount in excess of 50% of its net profits for that calendar year.
Additionally, the Bank will be unable to pay dividends in an amount which would
reduce its capital below the greater of (i) the amount required by the FDIC or
(ii) the amount required for the liquidation account established by the Bank in
connection with its conversion to the stock form of organization. The
Commissioner and the FDIC also have the authority to prohibit the payment of any
dividends by the Bank if the Commissioner or the FDIC determines that the
distribution would constitute an unsafe or unsound practice.
ITEM 6. MANAGEMENT 'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company is a one-bank holding company with 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.
Accordingly, consolidated operations for the Company for the fiscal years ended
September 30, 1997 and 1996 will be compared to the operations of the Bank for
fiscal year ended September 30, 1995.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997
AND SEPTEMBER 30, 1996
For the fiscal year ended September 30, 1997, the Company reported net income of
$289,486. This represents a 39.8% increase over the $207,052 reported for the
fiscal year ended September 30, 1996. On a per share basis, income was reported
at $1.27 for fiscal 1997 compared to $0.86 for fiscal 1996, assuming no dilution
effect. The same comparison, assuming full dilution, was $1.16 and $0.80,
respectively.
<PAGE>
A major contributor to these improved results was a $152,673 reduction in
deposit insurance expense, the result of removing the effect of last year's
one-time special assessment to recapitalize the FDIC Savings Association
Insurance Fund and the savings from the subsequent annual premium reduction.
This savings more than offset increases in salaries and employee benefits,
equipment expense and other expenses.
The Company's net interest income rose $22,503, or 2.3% from fiscal year 1996 to
1997. This relatively small increase was due to increases in both interest
income and interest expense. Interest income rose $268,152, from $2,034,801 for
the twelve months ended September 30, 1996 to $2,303,953 for the twelve months
ended September 30, 1997. The major reason for this increase was a $334,246, or
21.4% increase in interest income from loans, reflecting the Bank's ongoing plan
for controlled growth in lending, particularly consumer lending which offers a
higher rate of interest. This increase in income more than offset the decline in
interest income from investment securities, down $45,787 comparing the past two
fiscal years, and interest income from mortgage-backed securities, down $20,238.
The Company's total investment in these securities was reduced as funds were
reallocated to provide for the growth in loans.
Total interest expense rose $245,649, or 23.0%, from $1,066,057 for the twelve
months ended September 30, 1996, to $1,311,706 for the twelve months ended
September 30, 1997. This increase was evenly split between interest on deposits,
which rose $126,749 from fiscal 1996 to fiscal 1997 and interest on borrowings,
which rose $118,900 comparing the same periods. A significant reason for this
distribution was the Company's ability to attract retail deposits at a lower
cost than that associated with Federal Home Loan Bank advances and channel these
funds to repayment of a portion of the total borrowed funds. The final result of
these activities was that net interest income rose from $986,744 reported for
the fiscal year ended September 30, 1996 to $991,247 reported for the fiscal
year ended September 30, 1997, as earlier mentioned, 2.3%.
With the increase in lending activity, the Company continued to accrue to a
reserve account for potential loan losses. For the twelve months ended September
30, 1997, $22,500 was reserved as compared to the $13,500 reserved a year ago.
Management renewed its plans for monitoring the risk associated with the type of
loans being originated and making reserve allocations accordingly.
Income from sources such as loan fees, service charges, and license sticker
sales declined slightly in fiscal year 1997 due in part to a reduction in annual
loan origination volume from the previous fiscal year. Total fee income was
$90,494 for the twelve months ended September 30, 1997 compared to $98,432 for
the same period ended September 30, 1996, an 8.1% decline.
<PAGE>
Other expenses associated with salaries, occupancy, advertising, equipment and
deposit insurance reflected a 15.3% decline of $115,106, from $751,485 for
fiscal year 1996 to $636,379 for fiscal year 1997. As mentioned, the major
factor was a $152,673 reduction in deposit insurance premiums. Equipment expense
rose from $35,486 for the twelve months ended September 30, 1996 to $50,443 for
the twelve months ended September 30, 1997 due to an increase in depreciation
expense associated with the Company's purchase of enhanced computer equipment
over the last two years. Expense of salaries and employee benefits rose 4.6%,
from $303,204 to $317,178 when comparing fiscal 1996 to fiscal 1997 as a result
of regular wage and salary increases. Computer services dropped $5,166, or 9.3%,
and office supplies dropped $2,188, or 13.9%, as the Company used technology to
improve efficiency.
A 40.2% increase in income taxes was incurred, from $95,139 for 1996 to $133,376
for 1997 as a result of the improved income generation experienced by the
Company. The effective tax rate remained stable at 31.5%.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995.
The Company's net income for the fiscal year ended September 30, 1996 was
$207,052, down $54,461, or 20.8% from the $261,513 reported for the fiscal year
ended September 30, 1995.
On September 30, 1996, legislation was enacted to recapitalize the Savings
Association Insurance Fund. This legislation provided for a one-time special
assessment on all SAIF- insured deposits which the Federal Deposit Insurance
Corporation fixed at $0.657 per $100 of total deposits as of March 31, 1995.
Consequently, on September 30, 1996, the Company recorded a special, one-time
charge to earnings of approximately $82,000, net of taxes, or about $0.35 per
share assuming no dilution and $0.31 per share assuming full dilution. The
legislation also included a provision to reduce the annual deposit insurance
premiums for most thrift institutions beginning in 1997. Based on such a
reduction and the current level of the Company's deposits, the Company expects
to realize annual deposit insurance premium savings of approximately $33,000.
Excluding the effect of the special SAIF assessment, net income was $289,000 for
the year ended September 30 ,1996 compared to $262,000 for the year ended
September 30, 1995, an increase of $27,000 or 10.3%. Primary earnings per share
and fully diluted earnings per share were $1.23 and $1.11, respectively,
excluding the special assessment.
<PAGE>
Interest income revealed a 23.0% increase, from $1,653,770 to $2,034,801 when
comparing twelve month periods ending September 30, 1995 and September 30, 1996,
respectively. Management attributes this to the Bank's increased investment in
loans and investment securities coupled with a slightly higher interest rate
enviroment during fiscal 1996 when compared to fiscal 1995. Average total loans
for the year ended September 30, 1996 was $19.0 million compared to $15.9
million for the same period in 1995, an increase of $3.1 million or 19.5%.
Interest income on investment securities for the year ended September 30, 1996
was $416,343, an increase of $105,237 or 33.8% over that recorded during the
previous year.
Total interest expense for the fiscal year ended September 30, 1996 rose
$309,641 from the fiscal year ended September 30, 1995, primarily due to an
increase in the Bank's use of advances from the Federal Home Loan Bank of
Chicago ("FHLB") to fund loan growth. Interest on FHLB borrowings rose $173,278
between fiscal years ended September 30, 1995 and 1996. Interest expense on
retail deposit accounts increased as well from $739,831 for the year ended
September 30, 1995 to $876,194 for the fiscal year ended September 30, 1996. The
Bank continues to attract retail deposits and strives to acheive a
cost-effective balance between FHLB borrowings and deposits to fund activity in
the area of interest earning assets. The Company's resulting net interest income
was $968,744, up $71,390, or 8.0%, from a year ago.
The provision for loan losses decreased to $13,500 during 1996, compared to
$20,000 during 1995, resulting in an allowance for loan losses of $124,624 at
September 30, 1996 or 0.55% of total loans. Based on the Bank's historically
high loan quality, management believes that the Bank's allowance is adequate to
absorb any future loan charge-offs and will continue to monitor both the quality
of the Bank's loan portfolio and its mix, as it continues to expand its lending
products.
The Bank's income from fees and other charges such as checking fees, loan
origination fees, late payment charges, and sales fees experienced a dramatic
increase from the fiscal year ended September 30, 1995 to the fiscal year ended
September 30, 1996. Income from this source rose from $58,000 to $98,432, a
69.7% increase. The reasons for this increase were fees derived from growth in
retail checking accounts and increased loan originations.
Excluding the special SAIF assessment, other expenses totalled $632,000 for the
year ended September 30, 1996 compared to $551,000 for the same period in 1995,
an increase of 14.7%. Salaries and employee benefits were $28,000 or 10.2%
higher in 1996 compared to 1995 due to staffing increases coupled with regular
salary increases during 1996. Equipment expenses and data processing fees
increased $18,000 and $20,000, respectively, over their 1995 levels. These
increases were attributable to the Bank's data processing center conversion and
computer equipment upgrade during 1996 as the Bank continued to make investments
that will allow the Bank to operate more efficiently as well as to provide new
products and services to its customers.
<PAGE>
Income taxes, as a direct result of reduced income, dropped 22.8%, from $123,220
for the fiscal year ended September 30, 1995 to $95,139 for the fiscal year
ended September 30, 1996. The effective tax rate dropped from 32.0% to 31.5%.
COMPARISON OF FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1997
AND SEPTEMBER 30, 1996
Total assets as of September 30, 1997 remained essentially unchanged at $29.86
million compared to $29.81 million reported as of September 30, 1996. Following
last year's unprecedented growth, the Company endeavored this year to control
growth, manage asset quality and concentrate on the net interest margin. The
result was a slower-growing balance sheet with quality assets.
Net loans reflected this controlled growth, increasing from $22.5 million as of
September 30, 1996 to $24.1 million as of September 30, 1997, a 7.4% increase.
Other asset categories declined correspondingly. Cash and cash equivalents
declined $77,517, or 12.3%, while interest earning deposits dropped $193,663.
Investment securities were reduced from $2.9 million as of September 30, 1996 to
$2.1 million as of September 30, 1997 while mortgage-backed securities
experienced a similar reduction, from $2.5 million to $1.8 million when
comparing the same dates. These reductions are attributable to the regular
payback of principal balances as well as some regularly scheduled maturities of
securities, proceeds of which were not reinvested, but rather used to fund loans
and repay borrowings.
The Company's investment in stock in the Federal Home Loan Bank of Chicago
dropped 19.7%, from $318,300 on September 30, 1996 to $255,400 on September 30,
1997 as the Company repaid borrowings and still met the stock ownership
requirements despite the reduction of its holdings. Other assets, primarily as a
result of the Company's investment in an indexed salary continuation life
insurance policy, rose from $244,000 on September 30, 1996 to $542,796 on
September 30, 1997.
Continuation of the Bank's efforts to attract deposits resulted in an increase
in total deposits of over $1.0 million, from $20.1 million on September 30, 1996
to $21.1 million on September 30, 1997. Certain specials offered by the Bank
throughout the year on certificates of deposit and checking accounts contributed
to this increase. The Bank introduced Medical Savings Accounts during the year
and is the only bank in Tazewell County offering this type of account.
As the Bank liquidated some investment securities and attracted new deposits, it
used a portion of the funds to repay Federal Home Loan Bank advances. The $5.6
million reported on September 30, 1996 was reduced to $4.6 million on September
30, 1997, an 18% drop.
<PAGE>
Other liabilities, which on September 30, 1996 included the accrual for the
previously mentioned SAIF insurance special assessment, dropped dramatically
from $193,323 to $59,996 on September 30, 1997.
On September 30, 1997, the Company's stockholders' equity was $3.9 million or
2.7% more than the previous year's $3.8 million balance. As a result of
management evaluating the Company's own stock as an investment alternative in
analyzing uses of the Company's funds, the Company extended its stock repurchase
plan. The effect of this repurchase was to increase the Company's book value per
share from $15.61 to $17.07 at September 30, 1996 and 1997, respectively. In
addition, the Company paid a dividend to its shareholders for fiscal 1996. The
$0.25 per share dividend resulted in a $60,722 payment to the Company's
stockholders out of the Company's equity. The Company continues to exceed the
minimum capital standards established by its regulators of 4.0% for leverage
capital and 8.0% for risk-based capital with a leverage capital ratio of 13.0%
and a risk-based capital ratio of 23.4% at September 30, 1997.
Stockholders' Equity was calculated as follows:
Stockholders' Equity as of September 30, 1996 $3,790,486
Net Income 289,486
Dividends Paid (60,722)
Purchase of Treasury Stock (214,812)
Change in unearned compensation related
to ESOP and MRP 46,958
Decrease in unrealized losses on securities 42,236
available for sale, net of income tax effect
----------
Stockholders' Equity as of September 30, 1997 $3,893,632
<PAGE>
Item 7. Financial Statements
TSB FINANCIAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditor's Report............................................15
Consolidated Balance Sheet .............................................16
Consolidated Statement of Income........................................17
Consolidated Statement of Changes in Stockholders' Equity...............18
Consolidated Statement of Cash Flows....................................19
Notes to Consolidated Financial Statements..............................21
<PAGE>
[LOGO] GEO. S. OLIVE & CO. LLC
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
TSB Financial, Inc.
Tremont, Illinois
We have audited the consolidated balance sheet of TSB Financial, Inc. and
subsidiary as of September 30, 1997 and 1996, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above
present fairly, in all material respects, the consolidated financial
position of TSB Financial, Inc. and subsidiary as of September 30, 1997 and
1996, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for investment securities in 1995.
/s/ Geo. So. Olive & Co LLC
Decatur, Illinois
October 10, 1997
<PAGE>
<TABLE>
<CAPTION>
TSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30 1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 260,344 $ 290,585
Interest-bearing demand deposits 293,060 340,336
------------ ------------
Cash and cash equivalents 553,404 630,921
Interest-bearing time deposits 290,498 484,161
Investment securities
Available for sale 3,562,383 5,083,268
Held to maturity 355,285 367,866
------------ ------------
Total investment securities 3,917,668 5,451,134
Loans 24,259,899 22,605,870
Allowance for loan losses (124,070) (124,624)
------------ ------------
Net loans 24,135,829 22,481,246
Premises and equipment 163,448 200,316
Federal Home Loan Bank stock 255,400 318,300
Other assets 542,796 244,000
------------ ------------
Total assets $ 29,859,043 $ 29,810,078
============ ============
LIABILITIES
Deposits
Noninterest bearing $ 442,136 $ 501,552
Interest bearing 20,796,166 19,648,385
------------ ------------
Total deposits 21,238,302 20,149,937
FHLB borrowings 4,606,197 5,615,992
Advances by borrowers for taxes and insurance 60,916 60,340
Other liabilities 59,996 193,323
------------ ------------
Total liabilities 25,965,411 26,019,592
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock
Authorized and unissued -- 200,000 shares
Common stock, $.01 value
Authorized -- 550,000 shares
Issued and outstanding-- 269,875 shares 2,699 2,699
Capital surplus 2,218,894 2,218,894
Retained earnings 2,388,176 2,159,413
Treasury stock - 41,751 and 26,087 shares (557,360) (342,548)
Net unrealized loss on securities available for sale (5,892) (48,129)
------------ ------------
4,046,517 3,990,329
Unearned compensation related to ESOP (107,950) (134,938)
Unearned compensation related to MRP (44,935) (64,905)
------------ ------------
Total stockholders' equity 3,893,632 3,790,486
------------ ------------
Total liabilities and stockholders' equity $ 29,859,043 $ 29,810,078
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TSB FINANCIAL, INC, AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $1,885,123 $1,560,363 $1,268,099
Investment securities 384,489 416,343 311,106
Deposits with financial institutions 33,341 58,095 74,565
---------- ---------- ----------
Total interest income 2,302,953 2,034,801 1,653,770
---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,002,943 876,194 739,831
Federal Home Loan Bank borrowings 308,763 189,863 16,585
---------- ---------- ----------
Total interest expense 1,311,706 1,066,057 756,416
---------- ---------- ----------
NET INTEREST INCOME 991,247 968,744 897,354
Provision for losses on loans 22,500 13,500 20,000
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS 968,747 955,244 877,354
---------- ---------- ----------
OTHER INCOME
Loan fees and service charges 33,801 60,297 37,566
Net realized gains on sales of
available-for-sale securities 20,318 9,892
Other income 36,375 28,243 20,434
---------- ---------- ----------
Total other income 90,494 98,432 58,000
---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits 317,178 303,204 275,336
Net occupancy expenses 25,090 21,793 20,827
Equipment expenses 50,443 35,486 16,750
Deposit insurance expense 10,063 162,736 42,905
Data processing fees 50,435 55,601 36,428
Advertising and promotion 18,012 18,046 18,191
Legal and professional fees 42,669 44,716 54,805
Other expenses 122,489 109,903 85,379
---------- ---------- ----------
Total other expenses 636,379 751,485 550,621
---------- ---------- ----------
INCOME BEFORE INCOME TAX 422,862 302,191 384,733
Income tax expense 133,376 95,139 123,220
========== ========== ==========
NET INCOME $ 289,486 $ 207,052 $ 261,513
========== ========== ==========
EARNINGS PER SHARE
Assuming no dilution:
Net income $ 1.27 $ 0.88 $ 1.07
Average number of shares 228,740 234,508 243,787
Assuming full dilution:
Net income $ 1.16 $ 0.88 $ 0.91
Average number of shares 250,596 259,604 287,867
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------
CAPITAL RETAINED TREASURY
SHARES AMOUNT SURPLUS EARNINGS STOCK
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 1, 1994 $2,699 $2,218,894 $1,758,283
Net income for 1995 261,513
Purchase of stock for MRP
Allocation of ESOP shares
Allocation of MRP shares
Cumulative effect of change in
method of accounting for
securities
Net change in unrealized gain
(loss) on securities
available for sale
---------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1995 269,875 2,699 2,218,894 2,019,796
Net income for 1996 207,052
Cash dividend
($.25 per share) (67,435)
Allocation of ESOP shares
Allocation of MRP shares
Net change in unrealized gain
(loss) on securities
available for sale
Purchase of treasury stock (342,548)
---------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1996 269,875 2,699 2,218,894 2,159,413 (342,548)
Net income for 1997 289,486
Cash dividend
($.25 per share) (60,723)
Allocation of ESOP shares
Allocation of MRP shares
Net change in unrealized gain
(loss) on securities
available for sale
Purchase of treasury stock (214,812)
---------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 269,875 $2,699 $2,218,894 $2,388,176 $(557,360)
===========================================================================
</TABLE>
See notes to consolidated financial statements.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON DEFERRED DEFERRED
SECURITIES COMPENSATION COMPENSATION
AVAILABLE RELATED TO RELATED TO
FOR SALE ESOP MRP TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, OCTOBER 1, 1994 $(215,900) $3,763,976
Net income for 1995 261,513
Purchase of stock for MRP (99,854) (99,854)
Allocation of ESOP shares 53,975 53,975
Allocation of MRP shares 14,978 14,978
Cumulative effect of change in
method of accounting for
securities (35,383) (35,383)
Net change in unrealized gain
(loss) on securities
available for sale 42,034 42,034
---------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1995 6,651 (161,925) (84,876) 4,001,239
Net income for 1996 207,052
Cash dividend
($.25 per share) (67,435)
Allocation of ESOP shares 26,987 26,987
Allocation of MRP shares 19,971 19,971
Net change in unrealized gain
(loss) on securities
available for sale (54,780) (54,780)
Purchase of treasury stock (342,548)
---------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1996 (48,129) (134,938) (64,905) 3,790,486
Net income for 1997 289,486
Cash dividend
($.25 per share) (60,723)
Allocation of ESOP shares 26,988 26,988
Allocation of MRP shares 19,970 19,970
Net change in unrealized gain
(loss) on securities
available for sale 42,237 42,237
Purchase of treasury stock (214,812)
---------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 $(5,892) $(107,950) $(44,935) $3,893,632
=====================================================================
</TABLE>
<PAGE>
TSB FINANCIAL, INC. ND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 289,486 $ 207,052 $ 261,513
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 22,500 13,500 20,000
Investment securities amortization
(accretion), net 4,551 (6,040) (1,090)
Federal Home Loan Bank stock dividends (2,700)
Depreciation and amortization 43,733 33,697 11,984
Deferred income tax 33,800 (49,077) 12,909
Investment securities (gains) losses (20,318) (9,892)
Allocation of ESOP shares 26,988 26,987 53,975
Amortization of MRP 19,970 19,971 14,978
Increase in cash surrender value of
life insurance (1,350)
Change in:
Interest receivable (8,171) (70,630) (29,579)
Interest payable and other liabilities (133,327) 115,772 (350,756)
Prepaid expense and other assets 5,168 28,099 (32,241)
----------- ----------- -----------
Net cash provided (used) by operating
activities 283,030 309,439 (41,007)
----------- ----------- -----------
INVESTING ACTIVITIES
Net change in interest-bearing time deposits 193,663 (89,439) 391,207
Purchases of securities available for sale (2,224,025) (685,063)
Proceeds from maturities of securities
available for sale 424,101 446,862 275,551
Proceeds from sales of securities available for
sale 1,177,173 818,128
Purchases of securities held to maturity (1,301,598)
Proceeds from maturities of securities held to maturity 11,949 519,695 122,035
Net change in loans (1,677,079) (5,751,984) (1,079,821)
Purchases of premises and equipment (6,865) (109,588) (33,757)
Purchases of Federal Home Loan Bank of
Chicago stock (12,300) (139,000)
Proceeds from sale of FHLB of Chicago stock 75,200
Purchase of life insurance (350,000)
----------- ----------- -----------
Net cash used by investing activities (164,158) (6,529,351) (2,311,446)
----------- ----------- -----------
</TABLE>
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
(Continued)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net change in deposits $ 1,088,365 $ 1,682,093 $ (77,665)
Proceeds from FHLB borrowings 250,000 4,615,992 1,000,000
Repayment of FHLB borrowings (1,259,795) (500,000)
Net change in advances by borrowers for taxes
and insurance 576 14,684 (1,971)
Purchase of MRP stock (99,854)
Dividends paid (60,723) (67,435)
Purchase of treasury stock (214,812) (342,548)
----------- ----------- -----------
Net cash provided (used) by financing activities (196,389) 5,902,786 320,510
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (77,517) (317,126) (2,031,943)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 630,921 948,047 2,979,990
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 553,404 $ 630,921 $ 948,047
=========== =========== ===========
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 1,321,410 $ 1,061,122 $ 716,243
Income tax paid 132,800 121,936 124,116
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of TSB Financial, Inc. (the "Company") and
its wholly owned subsidiary, Tremont Savings Bank ("the Bank"), conform to
generally accepted accounting principles and reporting practices followed by
thrift industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a state thrift
charter and provides full banking services. As a state-chartered thrift, the
Bank is subject to regulation by the State of Illinois Office of Banks and Real
Estate and the Federal Deposit Insurance Corporation.
The Company generates mortgage and consumer loans and receives deposits from
customers located primarily in central Illinois. The Bank's loans are generally
secured by specific items of collateral including real property consumer assets.
Although the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon economic conditions
in Tremont and the surrounding communities.
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Company and Bank after elimination of all material intercompany transactions
and accounts.
INVESTMENT SECURITIES -- Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately in stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At October 1,1994, investment securities with an approximate carrying value of
$1,631,186 were reclassified as available for sale upon the adoption of
Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENT IN DEBT AND EQUITY SECURITIES. This reclassification resulted in a
decrease in total stockholders' equity, net of taxes, of $35,383.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
September 30, 1997 the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Bank operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using an accelerated method based on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
FEDERAL HOME LOAN BANK STOCK is a required investment for institutions that are
members of the Federal Home Loan Bank (FHLB) system. The required investment in
the common stock is based on a predetermined formula.
TREASURY STOCK is stated at cost. Cost is determined by the first-in, first-out
method.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with the Bank.
EARNINGS PER SHARE have been computed based upon the average common and common
equivalent shares outstanding during each year.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUBSEQUENT EVENTS
In October 1997, the Company received regulatory approval to acquire selected
assets, primarily premises and equipment of Magna Bank, N.A.'s Stanford,
Illinois facility totaling approximately $252,000 and assumed selected deposits
and other liabilities totaling approximately $7,400,000. The amount of the
liabilities assumed in excess of cash received and fair value of assets
purchased will be recorded as core deposit and other intangibles on the
consolidated balance sheet.
Also in October 1997, the Company requested and received approval from the
Securities and Exchange Commission ("SEC") to "deregister" as an SEC regulated
company. Accordingly, the Company will no longer be subject to SEC reporting
requirements.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $1,387,747 $(10,876) $ 1,376,871
State and municipal 418,840 $ 1,900 (7,343) 413,397
Mortgage-backed securities 1,764,725 22,634 (15,244) 1,772,115
---------- -------- ----------- ----------
Total available for sale 3,571,312 24,534 (33,463) 3,562,383
---------- -------- ----------- ----------
Held to maturity
State and municipal 305,640 6,421 312,061
Mortgage-backed securities 49,645 1,196 50,841
---------- -------- ----------- ----------
Total held to maturity 355,285 7,617 0 362,902
---------- -------- ----------- ----------
Total investment securities $3,926,597 $ 32,151 $ (33,463) $3,925,285
========== ======== =========== ==========
1996
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
Available for sale
Federal agencies $1,240,028 $ 18,989 $ (7,204) $1,251,813
State and municipal 1,419,884 (65,275) 1,354,609
Mortgage-backed securities 2,496,276 20,018 (39,448) 2,476,846
---------- -------- ----------- ----------
Total available for sale 5,156,188 39,007 (111,927) 5,083,268
---------- -------- ----------- ----------
Held to maturity
State and municipal 306,037 4,731 310,768
Mortgage-backed securities 61,829 1,109 62,938
---------- -------- ----------- ----------
Total held to maturity 367,866 5,840 0 373,706
---------- -------- ----------- ----------
Total investment securities $5,524,054 $ 44,847 $ (111,927) $5,456,974
========== ======== =========== ==========
</TABLE>
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities held to maturity and available
for sale at September 30, 1997, 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 HELD TO MATURITY
------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
- ------------------------------------------------------------------------------
Within one year
One to five years $ 305,640 $ 312,061
Five to ten years $ 819,316 $ 812,151
After ten years 987,271 978,117
---------- ---------- -------- --------
1,806,587 1,790,268 305,640 312,061
Mortgage-backed securities 1,764,725 1,772,115 49,645 50,841
---------- ---------- -------- --------
Totals $3,571,312 $3,562,383 $355,285 $362,902
========== ========== ======== ========
Securities with a carrying value of $1,418,000 and $731,000 were pledged at
September 30, 1997 and 1996 to secure certain deposits and for other purposes as
permitted or required by law.
Proceeds from sales of securities available for sale during 1997 and 1996 were
$1,177,173 and $818,128. Gross gains of $20,318 and $15,232 and gross losses of
$0 and $5,340 were realized on those sales.
There were no sales of securities during 1995.
On November 30, 1995, the Bank transferred certain securities from held to
maturity to available for sale in accordance with a transition reclassification
allowed by the Financial Accounting Standards Board. Such securities had a
carrying value of $2,146,870 and a fair value of $2,201,674. There were no
securities transferred between classifications during 1997 or 1995.
LOANS AND ALLOWANCE
SEPTEMBER 30 1997 1996
- -------------------------------------------------------------------------------
Real estate mortgage loans
One-to-four family $20,711,752 $21,263,476
Multi-family 130,763 154,186
Commercial and other loans secured by real estate 1,177,646 892,803
Home equity loans 564,975
Consumer loans 2,021,542 1,607,503
----------- -----------
24,606,678 23,917,968
Less
Undisbursed portion of loans 324,031 1,284,444
Deferred loan fees 22,748 27,654
----------- -----------
$24,259,899 $22,605,870
=========== ===========
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30 1997 1996 1995
- -----------------------------------------------------------------------
Allowance for loan losses
Balances, October 1 $ 124,624 $ 115,564 $ 110,500
Provision for loan losses 22,500 13,500 20,000
Recoveries on loans 3,655
Charge-offs (26,709) (4,440) (14,936)
--------- --------- ---------
Balances, September 30 $ 124,070 $ 124,624 $ 115,564
========= ========= =========
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of these loans consist
of the following at September 30:
YEAR ENDED SEPTEMBER 30 1997 1996 1995
- --------------------------------------------------------------------------------
Mortgage loans underlying pass-through certificates
FHLMC $290,634 $378,954 $564,926
======== ======== ========
The amount of impaired loans outstanding during 1997 and 1996 was not material.
The Bank has entered into transactions with certain directors, executive
officers, and their affiliates or associates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features.
The aggregate amount of loans to such related parties was as follows:
Balances, October 1, 1996 $306,035
New loans, including renewals 26,391
Payments, etc., including renewals (53,816)
--------
Balances, September 30, 1997 $278,610
========
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PREMISES AND EQUIPMENT
SEPTEMBER 30 1997 1996
- ------------------------------------------------------------------------
Land $ 5,800 $ 5,800
Buildings and land improvements 172,414 167,035
Furniture and equipment 172,646 171,160
-------- --------
Total cost 350,860 343,995
Accumulated depreciation (187,412) (143,679)
-------- --------
Net $163,448 $200,316
======== ========
OTHER ASSETS AND OTHER LIABILITIES
SEPTEMBER 30 1997 1996
- ------------------------------------------------------------------------
Other assets
Interest receivable
Securities $ 49,279 $ 67,397
Loans 104,997 78,708
Deferred income tax asset 6,646 62,203
Cash surrender value of life insurance 351,350
Prepaid expense and other 30,524 35,692
---------- --------
Total $542,796 $244,000
========== ========
Other liabilities
Interest payable on deposits $ 5,631 $ 9,904
Interest payable on borrowings 24,512 29,940
Federal income tax payable 3,023 2,447
SAIF assessment payable 118,821
Other 26,830 32,211
========== ========
Total $ 59,996 $193,323
========== ========
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSITS
1997 1996
------------------------------
SEPTEMBER 30 AMOUNT Amount
- ---------------------------------------------------------------------------
Demand Deposits $ 3,715,115 $ 3,983,939
Savings deposits 2,522,095 2,584,679
Certificates of $100,000 or more 2,024,851 2,034,829
Certificates 12,976,241 11,546,490
=========== ===========
Total deposits $21,238,302 $20,149,937
=========== ===========
CERTIFICATES MATURING IN YEARS ENDING SEPTEMBER 30: TOTAL
- ---------------------------------------------------------------------------
1998 $10,258,515
1999 3,476,628
2000 934,907
2001 331,042
-----------
Total $15,001,092
===========
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEDERAL HOME LOAN BANK BORROWINGS
SEPTEMBER 30 1997 1996
- ------------------------------------------------------------------------------
Federal Home Loan Bank advances:
At 5.76%; due February, 1997 $ 750,000
At 5.92%; due April, 1997 1,000,000
At 6.32% due April, 1998 $1,000,000
At 6.10%; due July, 1998 1,000,000 1,000,000
At 6.00%; due December, 2001 1,000,000 1,000,000
At 5.83%; due July 2016 356,197 365,992
Federal Home Loan Bank line of credit,
variable rate (6.48% and 5.47% at
September 30, 1997 and 1996) 1,250,000 1,500,000
============================
Total FHLB borrowings $4,606,197 $5,615,992
============================
The terms of a security agreement with the FHLB require the Bank to pledge as
collateral for the borrowings and for its line of credit qualifying first
mortgage loans in an amount equal to at least 160 percent of this line of credit
and all stock in the FHLB.
INCOME TAX
YEAR ENDED SEPTEMBER 30 1997 1996 1995
- -----------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $74,576 $118,952 $ 88,328
State 25,000 25,264 21,983
Deferred
Federal 33,800 (49,077) 12,909
-------------------------------------------
Total income tax expense $133,376 $ 95,139 $123,220
===========================================
1997 1996 1995
- -----------------------------------------------------------------------------
Reconciliation of federal
statutory to actual tax
expense
Federal statutory income
tax at 34% $143,773 $102,745 $130,809
Tax exempt interest (18,139) (18,728) (13,794)
Effect of state income taxes 16,500 16,674 14,509
Other (8,758) (5,552) (8,304)
-------------------------------------------
Actual tax expense $133,376 $ 95,139 $123,220
===========================================
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1997 and 1996, a net cumulative deferred tax asset of $6,646
and $62,203 is included in other assets. The components of the assets are as
follows:
SEPTEMBER 30 1997 1996
- -------------------------------------------------------------------------------
Differences in depreciation methods $(8,748) $(12,467)
Deferred loan fees 9,054 11,006
Differences in accounting for loan losses 3,037 (13,651)
FHLB stock dividend (6,818) (8,927)
Unrealized loss on securities available for sale 3,036 24,793
Differences in accounting for SAIF assessment 47,292
Deferred compensation 5,961 13,910
Other 1,124 247
--------------------------
$ 6,646 $ 62,203
==========================
Assets 22,212 $97,248
Liabilities (15,566) (35,045)
--------------------------
$ 6,646 $62,203
==========================
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying financial statements. The Company's exposure to
credit loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the contractual
or notional amount of those instruments. The Company uses the same credit
policies in making such commitments as it does for instruments that are included
in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
September 30 were as follows:
1997 1996
- ------------------------------------------------------------------------------
Mortgage loan commitments
At variable rates $ 48,000 $109,375
At fixed rates ranging from 7.5% to 10.0% 539,355 141,260
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation.
Collateral held varies, but may include residential real estate, or other assets
of the borrower.
The Company is also subject to claims and lawsuits which arise primarily in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate determination of such possible claims or lawsuits will
not have a material adverse effect on the consolidated financial position of the
Company.
RESTRICTION ON DIVIDENDS
The Company is regulated by the Federal Reserve Board which has enforcement
powers over bank holding companies to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payments of
dividends by bank holding companies.
In addition, Delaware general corporate law would allow the Company to pay
dividends only out of its surplus or, if the Company has no such surplus, out of
its net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
Without prior approval of the State of Illinois law Office of Banks and Real
Estate, the Bank is restricted by regulation as to the maximum amount of
dividends it may pay in any fiscal year to 50 percent of its net profits for
that year. In addition, the Bank is unable to pay dividends in an amount which
would reduce its capital below the greater of (i) the amount required by the
FDIC or (ii) the amount required for the Bank's liquidation account. The FDIC
and the Commissioner also have the authority to prohibit the payment of any
dividends by the Bank if they determine that the distribution would constitute
and unsafe or unsound practice.
At the time of conversion, a liquidation account was established in an amount
equal to the Bank's net worth as reflected in the latest statement of condition
used in its final conversion offering circular. The liquidation account is
maintained for the benefit of eligible deposit account holders who maintain
their deposit accounts in the Bank after conversion. In the event of a complete
liquidation (and only in such event), each eligible deposit account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted subaccount balance for deposit
accounts then held, before any liquidation distribution may be made to
stockholders. Except for the repurchase of stock and payment of dividends, the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account is $1,758,284.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by the regulatory agencies that, if undertaken, could have a
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
At September 30, 1997, the management of the Bank believes that it meets all
capital adequacy requirements to which it is subject. The most recent
notification from the regulatory agency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There have been no
conditions or events since that notification that management believes have
changed this categorization.
The Bank's actual and required capital amounts (in thousands) and ratios are as
follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
REQUIRED FOR ADEQUATE TO BE WELL
ACTUAL CAPITAL (1) CAPITALIZED (1)
----------------------------------------------------------------------
SEPTEMBER 30 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital (1)
(to risk-weighted assets) $3,441 23.4 $1,178 8.0 $1,472 10.0
Tier I capital (1)
(to risk-weighted assets) 3,317 22.5 589 4.0 833 6.0
Tier I capital (1)
(to average assets) 3,317 11.1 896 3.0 1,493 5.0
</TABLE>
(1) As defined by regulatory agencies
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BENEFIT PLANS
The Company has a leveraged employee stock ownership plan ("ESOP"), covering
substantially all of its employees. Employees age 21 and older who have
completed one year of service with the Bank are eligible to participate in the
ESOP. ESOP participants must have completed 1,000 hours of service and been
employed on the last day of the plan year in order to receive an allocation for
that plan year. Participants' benefits vest 100 percent at the end of five years
of service. Vesting will be accelerated upon retirement, death or disability of
the participant. Vested benefits will be payable upon retirement, death,
disability or separation of service. Contributions and forfeitures will be
allocated based on participant compensation.
Benefits under the ESOP will be paid in shares of Company common stock. The ESOP
borrowed funds from the Company to acquire 8 percent of the common stock sold in
the conversion. This loan is secured by the shares purchased with the proceeds,
and will be repaid by the ESOP with funds from Bank contributions and earnings
on ESOP assets. Shared purchased with such loan proceeds will be held in a
suspense account for allocation among participants as the loan is repaid. The
Bank expects to make annual contributions to the ESOP in an amount which, at a
minimum, will enable the ESOP to meet its annual debt service obligations in
accordance with the loan terms. Any contributions in excess of this amount may
be made at the Bank's discretion. Contributions will first be applied to repay
interest on the loan with the remainder to be applied to principal. The loan
will require annual interest and principal payments over and eight-year period
and will bear interest at the rate of 7.5 percent. ESOP compensation expense was
approximately $27,000 during 1997 and 1996. The ESOP shares as of September 30,
were as follows:
1997 1996
----------------------------
Allocated shares 10,434 7,735
Unallocated shares 10,794 13,493
----------------------------
Total ESOP shares 21,228 21,228
----------------------------
Fair value of unallocated
shares at September 30 $157,862 $177,095
============================
During 1995, the Company's stockholders approved the adoption of a management
retention plan ("MRP") as a method of providing directors, employees and
officers of the Bank with a proprietary interest in the Company and to encourage
such persons to remain with the Bank.
The MRP is administered by a committee of outside directors. Directors,
employees and officers are eligible for grants of nontransferable and
nonassignable shares of common stock of the Company held by the MRP.
Participants in the MRP become vested in the shares that have been awarded to
them under the MRP at a rate of 20 percent per year, commencing one year after
the grant date, and 20 percent on each anniversary date thereof for the
following four years. Vesting will be accelerated upon retirement, death or
disability of the participant, or a change in control of the Bank or the
Company. As shares of common stock granted to participants vest, compensation
expense will be recognized and a corresponding reduction in the charge against
stockholders' equity will occur.
Upon its formation, the MRP purchased 10,795 shares of the Company's stock. As
of September 30, 1997, all of these shares had been granted. Compensation
expenses related to the MRP was approximately $20,000 during 1997 and 1996.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Also during 1995, the Company's stockholders approved the adoption of a stock
option plan in which 26,987 common shares were reserved at January 31, 1995 for
issuance under the plan. Under the Company's stock option plan, which is
accounted for in accordance with Accounting Principles Board Opinion (APB) No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, the
Company grants selected executives and other key employees stock option awards
which vest and become fully exercisable at the end of the five years of
continued employment. During 1996, the Company authorized the grant of options
for up to 26,987 shares of the Company's common stock or 10% of the shares
issued in the Company's initial public offering, that expire ten years from the
date of grant. During 1995, the Company granted all 26,987 options at an
exercise price of $9.00 per share which vest over five years. The exercise price
of each option was equal to the market price of the Company's stock on the date
of grant; therefore, no compensation expense was recognized.
1997 1996
- ---------------------------------------------------------
Options granted
Options forfeited 1,350
Options expired
Stock options outstanding 25,637 25,637
Options exercisable 10,248 5,124
The options outstanding at September 30, 1997, have a weighted average exercise
price of $9.00 and a weighted average contractual maturity of 7.4 years.
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma disclosures of net income and earnings per share as if the Company had
accounted for its employee stock options under that Statement. The fair value of
each option grant was estimated on the grant date using an option-pricing model
with the following assumptions:
1996
- ---------------------------------------------------------
Risk-free interest rates 7.00%
Dividend yields 1.59%
Volatility factors of expected
market price of common stock 16.00%
Weighted-average expected life
of the options 7 years
Under SFAS No. 123, compensation cost would be recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The weighted average fair value of the options granted during
1996 was $7.42 per option. Accordingly, the pro forma effect of SFAS No. 123 for
1997 would have been to reduce net income from $289,486 to $269,749.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTEREST-BEARING DEPOSITS -- The fair value of interest-bearing time deposits
approximates carrying value.
SECURITIES AND MORTGAGE-BACKED SECURITIES -- Fair values are based on quoted
market prices.
LOANS -- For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair values for other loans is estimated using
discounted cash flows analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality
INTEREST RECEIVABLE/PAYABLE -- The fair values of interest receivable/payable
approximate carrying values.
FHLB STOCK -- Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
CASH SURRENDER VALUE OF LIFE INSURANCE -- Fair value of life insurance is based
on cash values quoted by the insurance underwriter.
DEPOSITS -- The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
FEDERAL HOME LOAN BANK ADVANCES -- The fair value of FHLB advances are estimated
using a discounted cash flow calculation, based on current rates for similar
debt. Line of credit borrowings consist of adjustable instruments tied to a
variable market interest rate. Fair value approximates carrying value.
OFF-BALANCE SHEET COMMITMENTS -- Commitments include commitments to purchase and
originate mortgage loans and are generally of a short-term nature. The fair
value of such commitments is based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing. The Bank currently does not charge a
commitment fee; accordingly, no value has been assigned to the Bank's
commitments to extend credit.
<PAGE>
TSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
SEPTEMBER 30 AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $553,404 $553,404 $630,921 $630,921
Interest-bearing deposits 290,498 290,498 484,161 484,161
Investment securities available
for sale 3,562,383 3,562,383 5,083,268 5,083,268
Investment securities held to
maturity 355,285 362,902 367,866 367,866
Loans, net 24,135,829 25,065,000 22,481,246 22,219,775
Interest receivable 154,276 154,276 146,105 146,105
Stock FHLB 255,400 255,400 318,300 318,300
Cash surrender value of
life insurance 351,350 351,350
LIABILITIES
Deposits 21,238,302 21,291,000 20,149,937 20,053,531
Long-term debt 4,606,197 4,571,000 5,615,992 5,595,764
Interest payable 30,143 30,143 39,844 39,844
OFF-BALANCE SHEET ASSETS (LIABILITIES)
Commitments to extend credit 0 0 0 0
</TABLE>
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
EARNINGS PER SHARE. In 1997 the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, EARNING PER SHARE, and specified the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock. Statement
128 was issued to simplify the computation of EPS and replaces Primary EPS and
Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. It also requires
dual presentation of Basic EPS and Diluted EPS on the face of the income
statement for all entities with complex capital structures, such as the Company,
and requires a reconciliation of the numerator and denominator of the Basic EPS
computation to the numerator and denominator of the Diluted EPS computation.
Statement 128 is effective for financial statement periods (both interim and
annual) ending after December 15, 1997. Earlier application is not permitted
(although pro forma EPS disclosure in the footnotes for periods prior to
required adoption is permitted). After adoption, all prior period EPS data
presented shall be restated (including interim financial statements, summaries
of earnings and selected financial data) to conform with Statement 128.
Accordingly, the Company will adopt Statement 128 during the fiscal quarter
ending December 31, 1997. Management does not anticipate that this will have a
material impact on its EPS disclosures.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. In 1997 the FASB issued
Statement No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE which lists
the required disclosures related to capital structure that had been included in
a number of previously existing separate statements and opinions. It applies to
all entities, public and non public.
Statement No. 129 is effective for financial statement periods ending after
December 15, 1997. Accordingly, the Company will adopt Statement 129 during
fiscal 1998.
Reporting Comprehensive Income. During 1997 the FASB issued Statement No. 130,
Reporting Comprehensive Income, establishing standards for the reporting of
comprehensive income and its components in financial statements. Statement 130
is applicable to all entities that provide a full set of financial statements.
Enterprises that have no items of other comprehensive income in any period
presented are excluded from the scope of this Statement.
Statement 130 is effective for interim and annual periods beginning after
December 15, 1997. Earlier application is permitted. The Company will adopt
Statement 130 during fiscal year 1998.
<PAGE>
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE. Also in 1997, the FASB issued
Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise", establishing standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
This standard is effective for financial statement periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Due to recent issuance of this standard, management has been unable to
fully evaluate the impact, if any, it may have on the Company's future financial
statement disclosures.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company will file with the Securities and Exchange Commission a definitive
proxy statement for the 1998 Annual Meeting of Stockholders, to be held January
13, 1998 no later than 120 days after the close of its fiscal year ended
September 30, 1997 (the "Proxy Statement"). The information required by this
item is incorporated by references from the Proxy Statement.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's executive officers and directors and persons who own
more than 10% of the Company's Common Stock file reports of ownership and
changes in ownership with the Securities and Exchange Commission and with the
exchange on which the Company's shares of Common Stock are traded. Such persons
are also required to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on the Company's review of the copies of such forms
furnished to the Company, the Company is not aware that any of its directors and
executive officers or 10% stockholders failed to comply with the filing
requirements of Section 16(a) during the relevant period ending September 30,
1997.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by references from the
Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Index to Exhibits Appears at page 40 of this Report.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, as amended, the
Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TSB FINANCIAL, INC.
Date: December 4, 1997 By: _____________________________
Richard A. Jameson
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Issuer and in the capacities and on the dates
indicated.
Signature Title Date
__________________ Director December 4, 1997
Roland E. Hoffman
__________________ President and Director December 4, 1997
Richard A. Jameson
__________________ Director December 4, 1997
Ben A. Miller
__________________ Director December 4, 1997
James D. Petrov
___________________ Director December 4, 1997
Dan Steiner, Jr.
____________________ Director December 4, 1997
Donald L. Swigert
_____________________ Chairman of the Board December 4, 1997
Richard D. Wartick and Director
<PAGE>
APPENDIX A
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of TSB Financial, Inc. (the "Company") and Tremont Savings Bank (the
"Bank") can be affected not only by management decisions and general economic
conditions, but also by the requirements of applicable state and federal
statutes and regulations and the policies of various governmental regulatory
authorities including, but not limited to, the Board of Governors of the Federal
Reserve System (the "FRB"), the Federal Deposit Insurance Corporation (the
"FDIC"), the Illinois Commissioner of Banks and Real Estate (the Commissioner"),
the Internal Revenue Service and state taxing authorities and the Securities and
Exchange Commission (the "SEC"). The effect of such statutes, regulations and
policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Bank, regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Company and the Bank establishes a
comprehensive framework for their respective operations and is intended
primarily for the protection of the FDIC's deposit insurance funds and the
depositors, rather than the shareholders, of financial institutions.
The following references to material statutes and regulations affecting the
Company and the Bank are brief summaries thereof and do not purport to be
complete, and are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and the Bank.
RECENT REGULATORY DEVELOPMENTS
PENDING LEGISLATION, Legislation is pending in the Congress that would
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. The expanded powers generally would be available to a bank holding
company only if the bank holding company and its bank subsidiaries remain
well-capitalized and well-managed. The bills also impose various restrictions on
transactions between the depository institution subsidiaries of bank holding
companies and their nonbank affiliates. These restrictions are intended to
protect the depository institutions from the risks of the new nonbanking
activities permitted to such affiliates. As this time, the Company is unable to
predict whether the proposed legislation will be enacted and, therefore, is
unable to predit the impact such legislation may have on the operations of the
Company and the Bank.
<PAGE>
THE COMPANY
GENERAL. The Company, as the sole shareholder of the Bank, is a bank
holding company. As a bank holding company, the Company is registered with, and
is subject to regulation by, the FRB under the Bank Holding Company Act, as
amended (the "BHCA"). In accordance with FRB policy, the Company is expected to
act as a source of financial strength to the Bank and to commit resources to
support the Bank in circumstances where the Company might not do so absent such
policy. Under the BHCA, the Company is subject to periodic examination by the
FRB and is required to file with the FRB periodic reports of its operations and
such additional information as the FRB may require. The Company is also subject
to regulation by the Commissioner under the Illinois Savings Bank Act, as
amended (the "ISBA").
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain FRB approval before: (i) acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such share (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank; or (iii) merging or
consolidating with another bank holding company. Subject to certain conditions
(including certain deposit concentration limits established by (the BHCA), the
FRB may allow a bank holding company to acquire banks located in any state of
the United States without regard to whether the aquisition is prohibited by the
law of the state in which the target bank is located. In approving interstate
acquistions, however, the FRB is required to give effect to applicable state law
limitations on the aggregate amount of deposits that may by held by the
acquiring bank holding company and its insured depository institution affiliates
in the state in which the target bank is located or which require that the
target bank have been in existence for a minimum period of time (not to exceed
five years) before being acquired by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Company from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing and controlling banks or furnishing
services to banks and their subsidiaries. The principal exception to this
prohibition allows bank holding companies to engage in, and to own shares of
companies engaged in, certain businesses found by the FRB to be "so closely
related to banking...as to be a proper incident thereto." Under current
regulations of the FRB, the Company and its non-bank subsidiaries are permitted
to engage in, among other activities, such banking-related businesses as the
operation of a thrift, sales and consumer finance, equipment leasing, the
operation of a computer service bureau, including software development, and
mortgage banking and brokerage. The BHCA generally does not place territorial
restrictions on the activities of non-bank subsidiaries of bank holding
companies.
Federal legislation also prohibits acquisition of "control" of a bank
or bank holding company, such as the Company, without prior notice to certain
federal bank regulators. "Control" is defined in certain cases as acquisition of
10% of the outstanding shares of a bank or bank holding company.
<PAGE>
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines. If
capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks or
non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assests. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assests of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships) and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion of the
Company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
Further, any banking organization experiencing or antictipating significant
growth would be expected to maintain capital ratios, including tangible capital
positions (i.e.,Tier 1 capital less all intangible assets), well above the
minimum levels.
Under the FRB's guidellines, the capital standards described above
generally apply on a consolidated basis to bank holding companies that have more
than $150 million in total consolidated assets and on a bank-only basis to bank
holding companies that, like the Company, have less than $150 million in total
consolidated assets. Nevertheless, as of September 30, 1997, the Company had
regulatory capital, calculated on a consolidated basis, in excess of the FRB's
minimum requirements, with a risk-based capital ratio of approximately 23.4% and
a leverage ratio of approximately 13.0%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment
of cash dividends by bank holding companies. In the policy statement, the FRB
expressed its view that a bank holding company should not pay cash dividends
exceeding its net income or which can only be funded in ways that weaken the
bank holding company's financial health, such as by borrowing. Additionally, the
FRB possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to proscribe the payment of dividends by banks and bank
holding companies.
In addition to the restrictions on dividends that may be imposed by the
FRB, the Delaware General Corporation Law would allow the Company to pay
dividends only out of its surplus, or if the Company has no such surplus, out of
its net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
<PAGE>
FEDERAL SECURITIES REGULATION. The Company's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company
is subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. The Bank is an Illinois-chartered savings bank, the deposits of
which are insured by the Savings Association Insurance Fund (the "SAIF") of the
FDIC. As a SAIF-insured, Illinois-chartered savings bank, the Bank is subject to
the examination, supervision, reporting and enforcement requirements of the
Commissioner, as the chartering authority of Illinois savings banks, and the
FDIC, as administrator of the SAIF. The Bank is also a member of the Federal
Home Loan Bank System, which provides a central credit facility primarily for
member institutions.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
During the period October 1, 1996 through December 31, 1996, SAIF
assessments ranged from 0.18% of deposits to 0.27% of deposits. During the
period January 1, 1997 through December 31, 1997, SAIF assessments ranged from
0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of the
Bank.
<PAGE>
FICO ASSESSMENTS. Since 1987 , a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due on
the outstanding obligations of the Financing Corporation ("FICO"), the entity
created to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the SAIF's predecessor insurance fund. Pursuant to
federal legislation enacted September 30, 1996, commencing January 1, 1997, both
SAIF members and members of the FDIC's Bank Insurance Fund ("BIF") will be
subject to assessments to cover the interest payments on outstanding FICO
obligations. Such FICO assessments will be in addition to amounts assessed by
the FDIC for deposit insurance. Until January 1, 2000, the FICO assessments made
against BIF members may not exceed 20% of the amount of the FICO assessments
made against SAIF members. Currently, SAIF members pay FICO assessments equal to
approximately 0.063% of deposits while BIF members pay FICO assessments equal to
approximately 0.013% of deposits. Between January 1, 2000 and the maturity of
the outstanding FICO obligations in 2019, BIF members and SAIF members will
share the cost of the interest on the FICO bonds on a pro rata basis. It is
estimated that FICO assessments during this period will be less than 0.025% of
deposits.
COMMISSIONER ASSESSMENTS. Illinois savings banks are required to pay
supervisory fees to the Commissioner to fund the operations of the Commissioner.
The amount of such supervisory fees is based upon each institution's total
assets, including subsidiaries, as reported to the Commissioner. During the year
ended September 30, 1997, the Bank paid supervisory fees to the Commissioner
totaling $4,526.
Capital Requirements. The FDIC has established the following minimum
capital standards for state-chartered insured non-member banks, such as the
Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital to
total assets of 3% for the most highly-rated banks with minimum requirements of
4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital. For purposes of these capital
standards, Tier 1 capital and total capital consist of substantially the same
components as Tier 1 capital and total capital under the FRB's capital
guidelines for bank holding companies (see " --The Company--Capital
Requirements"). Under the ISBA and the regulations of the Commissioner, an
Illinois savings bank must maintain a minimum level of total capital equal to
the higher of 3% of total assets or the amount required to maintain insurance of
deposits by the FDIC.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC provide that additional capital may be required to take adequate account of
interest rate risk or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Similarly, the
Commissioner has the authority to require an Illinois savings bank to maintain a
higher level of capital if the Commissioner deems necessary based on the savings
bank's financial condition, history, management or earnings prospects.
<PAGE>
During the year ended September 30, 1997, the Bank was not required by the
FDIC or the Commissioner to increase its capital to an amount in excess of the
minimum amount required by FDIC regulations. As of September 30, 1997, the Bank
exceeded its minimum regulatory capital requirements with a leverage ratio of
13.0% and a risk-based capital ratio of 23.4%.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions
on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institutiion to divest certain subsidiaries; prohibiting the payment of
principal or interest on subordinated debt; and ultimately, appointing a
receiver for the institution.
DIVIDENDS. Under the ISBA and the regulations of the Commissioner,
dividends may be paid by the Bank out of its net profits (i.e., earnings from
current operations plus actual recoveries on loans, investments and other
assets, net of current expenses (including dividends or interest on deposits),
additions to reserves as required by the Commissioner, actual losses, accrued
dividends on preferred stock, if any, and all state and federal taxes). In
general, without the prior written approval of the Commissioner, the Bank may
not declare dividends in any twelve-month period which, in the aggregate, exceed
its net profits for that twelve-month period. If, however, the Bank's capital
falls below 6% of its total assets, the Bank may not declare dividends in any
twelve-month period which, in the aggregate, exceed 50% of its net profits for
that period, without the prior written approval of the Commissioner.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described above,
the Bank exceeded its minimum capital requirements under applicable guidelines
as of September 30, 1997. As of that date, approximately $2.1 million was
available to be paid as dividends to the Company by the Bank. Notwithstanding
the availability of funds for dividends, however, the FDIC may prohibit the
payment of any dividends by the Bank if the FDIC determines such payment would
constitute an unsafe or unsound practice.
Further, under applicable regulations of the Commissioner, the Bank may not
pay dividends in an amount which would reduce its capital below the greater of
(i) the amount required by the FDIC or (ii) the amount required for the
liquidation account established in connection with the Bank's conversion from
the mutual to the stock form of ownership.
<PAGE>
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to the Company and its
subsidiaries, on investments in the stock or other securities of the Company and
its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and it
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director of officer of the Company or one of its subsidiaries or a principal
stockholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The FDIC has adopted guidelines which
establish operational and managerial standards to promote the safety and
soundness of state non-member banks. The guidelines set forth standards for
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area, and each institution
is responsible for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the FDIC may require the institution to submit a plan for achieving
and maintaining compliance. The preamble to the guidelines states that the FDIC
expects to require a compliance plan from an institution whose failure to meet
one or more of the guidelines is of such severity that it could threaten the
safety and soundness of the institution. Failure to submit an acceptable plan,
or failure to comply with a plan that has been accepted by the FDIC, would
constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as the Bank, have the authority
under Illinois law to establish branches anywhere in the State of Illinois,
subject to receipt of all required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquistions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may by
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of de novo interstate branches or the acquistion
of individual branches of a bank in another state (rather than the acquistion of
an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. The ISBA includes provisions
which permit Illinois savings banks to merge with out-of-state depository
institutions, subject to certain conditions, including receipt of the approval
of the Commissioner.
<PAGE>
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, repectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. Impermissible investments and activities must be
divested or discontinued within certain time frames set by the FDIC. These
restrictions have not had, and are not currently expected to have, a material
impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect,
require depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $49.3 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $49.3 million, the reserve
requirement is $1.479 million plus 10% of the aggregate amount of total
transaction accounts in excess of $49.3 million. The first $4.4 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the FRB. The Bank is in
compliance with the foregoing requirements. &Bfs
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES, LITIGATION REFORM ACT OF
1995
This report contains certain forward looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principles, policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
<PAGE>
Appendix B
Selected Statistical Information
The following tables should be read in conjunction with the balance of
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Set forth below are summaries of historical financial and other data
regarding the Company and, where specified, the Bank.
Fiscal Year
Ended
September 30
1997
SELECTED OPERATING DATA
Total interest income $2,302,953
Total interest expense 1,311,706
---------
Net interest income 991,247
Provision for loan losses 22,500
------
Net interest income after provision for loan losses 968,747
Total non-interest income 90,494
Total non-interest expense 636,379
-------
Income before Income taxes 422,862
Income tax expense 133,376
-------
Net income $ 289,486
OTHER DATA
Return on average assets 0.95%
Return on average equity 7.41%
Equity to total assets 13.04%
Net interest rate spread (1) 2.79%
Net interest margin (2) 3.75%
Ratio of average interest earning assets to average interest
bearing liabilities 112.28%
Non-interest expense to average assets 2.52%
Nonperforming loans to total adjusted loans 0.57%
Net charge-offs (recoveries) to average loans 0.10%
Nonperforming assets to total assets 0.47%
Loan originations $6,145,990
Number of full service Bank offices 1
- ------------------------
(1) Represents the difference between the average yield on interest earning
assets and the cost of interest bearing liabilities. (7.76% - 4.97%)
(2) Represents net interest income as a percentage of average interest earning
assets.
B-1
<PAGE>
The following table sets forth the composition of the Company's loan
portfolio by type of loan and the portion of the Company's total loans which
each category of loan constitutes.
1997 Percent of
Amount Total loans
------ -----------
Real estate loans:
Residential one-to-four family $21,276,727 86.46%
Multi-family 130,763 0.53%
Commercial real estate 1,177,646 4.79%
--------- ----
Total real estate loans $22,585,136 91.78%
Other loans (1) 2,021,542 8.22%
--------- ----
Total loans $24,606,678 100.00%
------
Less:
Unearned fees, discounts 22,748
Undisbursed loan funds 324,031
Allowance for losses 124,070
-------
Net loans $24,135,829
-----------
- ------------------------------
(1) Other loans consist of secured and unsecured consumer loans and savings
account loans.
B-2
<PAGE>
The following table sets forth the contractual maturities of the Company's
loans at September 30, 1997. The table does not include scheduled principal
payments or unscheduled prepayments. Scheduled principal payments and
unscheduled prepayments on the loan portfolio totalled $6.3 million for the
fiscal period ended September 30, 1997, and $5.1 million and $2.7 million for
the fiscal periods ended September 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
At September 30, 1997
---------------------
After 1 After 3 After 5
Up to 1 year to 3 years to 5 years to 10 Beyond 10
year years years years years Total
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $42,898 $191,783 $758,197 $4,066,065 $17,201,892 $22,260,835
Other Loans 131,698 522,410 1,367,434 -- -- 2,021,542
Less:
Unearned discounts and
deferred loans fees 22,478
Allowance for loan losses 124,070
-------
Loans receivable, net $24,135,829
-----------
</TABLE>
The following table sets forth the dollar amount of all loans with
maturities in excess of one year at September 30, 1997, and classifies such
loans by whether they have fixed or adjustable interest rates:
<TABLE>
<CAPTION>
Fixed Adjustable Total
----- ---------- -----
<S> <C> <C> <C>
Residential one-to-four family $11,954,631 $9,191,143 $21,145,774
Residential multifamily and non-
residential 356,084 716,079 1,072,163
Other loans 1,889,844 -- 1,889,844
--------- ---------
Total $14,200,559 $9,907,222 $24,107,781
----------- ---------- -----------
</TABLE>
B-3
<PAGE>
The following table sets forth information concerning delinquent loans at
September 30, 1997, 1996, and 1995, respectively, in dollar amount and as a
percentage of the Company's total loans. The amounts presented represent the
total outstanding principal balances of the related loans rather than the actual
payment amounts which are overdue.
Principal Percent of
Number Balance Total Loans(1)
------ ------- --------------
September 30, 1997
- ------------------
Loans delinquent for:
30-59 days 10 $122,545 0.51%
60-89 days 9 79,722 0.33%
90 days and over 15 139,566 0.58%
-- ------- ----
Total delinquent loans 34 $341,833 1.42%
-- -------- ----
September 30, 1996
- ------------------
Loans delinquent for:
30-59 days 8 $127,752 0.53%
60-89 days 3 31,099 0.13%
90 days and over 4 50,395 0.21%
-- ------ ----
Total delinquent loans 15 $209,246 0.87%
-- -------- ----
September 30, 1995
- ------------------
Loans delinquent for:
30-59 days 10 $156,642 0.91%
60-89 days 8 152,722 0.89%
90 days and over 0 -- --
--
Total delinquent loans 18 $309,364 1.80%
-- -------- ----
- ---------------------------
(1) Percentages are based on the loan balances, not on the number of loans.
B-4
<PAGE>
The following table sets forth information with respect to the Company's
nonperforming assets, including non-accrual loans and real estate acquired
through foreclosure or by deed-in-lieu of foreclosure ("real estate owned").
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total non-accrual loans $139,566 $50,395 $0 $56,793 $141,930
Real estate owned ("REO") -- -- -- --
Total nonperforming assets 6,068 $50,395 $0 $56,793 $141,930
Nonperforming assets to total
adjusted loans 0.58% 0.21% NA 0.36% 0.83%
Nonperforming assets to total assets 0.47% 0.17% NA 0.24% 0.68%
Allowance for loan losses to non-
accrual loans and REO 88.90% 247.29% NA 194.57% 65.10%
</TABLE>
The following table sets forth information with respect to the Company's
classified assets at September 30, 1997. As of the date of this Annual Report on
Form 10-KSB, management is not aware of any potential problem loans with respect
to which it has serious doubts as to the ability of the borrower to comply with
the payment terms of the loans such that additional disclosure in the following
table would be warranted.
<TABLE>
<CAPTION>
Special
Mention Substandard Doubtful Loss Total
------- ----------- -------- ---- -----
<S> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family -- 6,068 -- -- $6,068
Multifamily -- -- -- -- --
Commercial -- -- -- -- --
Construction -- -- -- -- --
REO -- -- -- --
Consumer Loans -- 133,498 -- -- 133,498
------- -------
Total Classified -- $139,566 0 0 $139,566
</TABLE>
B-5
<PAGE>
The following table sets forth an analysis of the Company's allowance for
loan losses at the dates indicated.
<TABLE>
<CAPTION>
At or For the Fiscal Year Ended
September 30
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period $124,624 $115,564 $110,500 $92,400 $68,500
Provision for loan losses 22,500 13,500 20,000 18,100 18,000
Recoveries 3,655 - - - 5,900
Charge-Offs 26,709 4,440 14,936 - -
------ ----- ------
Balance at end of period $124,070 $124,624 $115,564 $110,500 $92,400
-------- -------- -------- -------- -------
Ratio of allowance for
loan losses to total
outstanding loans (gross) 0.50% 0.52% 0.67% 0.69% 0.54%
---- ---- ---- ---- ----
Ratio of net charge-offs
(recoveries) during the
period to average loans
outstanding during the
period 0.10% 0.02% 0.09% - 0.03%
---- ---- ---- ----
Allowance for loan losses
to total non-performing loans 88.90% 247.29% NA 194.57% 65.10%
----- ------ -- ------ -----
</TABLE>
B-6
<PAGE>
The following table sets forth the allocation of the allowance for loan losses
at the dates indicated by category of loans.
<TABLE>
<CAPTION>
At September 30,
1997 1996 1995
---- ---- ----
% of loans % of loans % of loans
in each in each in each
category category category
to to to
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Allocated to:
Mortgage loans $102,070 $116,000 93.28% $115,564 97.93%
Non-mortgage
loans 22,000 8,624 6.72% - 2.07%
------ ----- ---- ----
Total $124,070 $124,624 100.00% $115,564 100.00%
-------- -------- ------ -------- ------
</TABLE>
B-7
<PAGE>
The following table sets forth the composition and maturities of the Company's
Investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
September 30
1997 1996
---- ----
Percent Percent
Carrying of Carrying of
Value Total Value Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
Investment securities
Available for sale
Federal agencies $1,376,871 35.15% $1,251,813 22.96%
State and municipal 413,397 10.55% 1,354,609 24.85%
Mortgage-backed securities 1,772,115 45.23% 2,476,846 45.44%
--------- ----- --------- -----
Total available for sale 3,562,383 90.93% 5,083,268 93.25%
--------- ----- --------- -----
Held to maturity
Federal agencies -- -- -- --
State and municipal 49,645 1.27% 306,037 5.62%
Mortgage-backed securities 305,640 7.80% 61,829 1.13%
------- ---- ------ ----
Total held to maturity 355,285 9.07% 367,866 6.75%
------- ---- ------- ----
Total investment securities $3,917,668 100.00% $5,451,134 100.00%
---------- ------ ---------- ------
</TABLE>
<TABLE>
<CAPTION>
Carrying Value at September 30, 1997
Available Held to Weighted
For Sale Maturity Total Average Yield
-------- -------- ----- -------------
<S> <C> <C> <C> <C>
Due in one year or less -- -- -- --
Due after one through five years -- 305,640 305,640 5.17%
Due after five through ten years 812,151 -- 812,151 6.30%
Due after ten years 978,117 -- 978,117 6.80%
------- -------
$1,790,268 $305,640 $2,095,908
Mortgage backed securities $1,772,115 $49,645 $1,821,760 7.26%
---------- ------- ---------- ----
Totals $3,562,383 $355,285 $3,917,668 6.78%
---------- -------- ---------- ----
</TABLE>
The following table sets forth information relating to the Company's deposit
flows and total deposits for the fiscal year ended September 30, 1997.
Total deposits at the beginning of period $20,149,937
Net increase (decrease) in deposits before
interest crediting 85,422
Interest credited 1,002,943
---------
Net increase (decrease) during period 1,088,365
---------
Total deposits at end of period $21,238,302
-----------
B-8
<PAGE>
The following table sets forth the amounts of deposits by type of account at
September 30, 1997.
<TABLE>
<CAPTION>
Weighted
Percent average
of nominal
Total rate Amount
----- ---- ------
<S> <C> <C> <C>
Transaction Accounts:
Checking/NOW 7.24% 1.40% $1,538,673
Money Market Deposits 10.25% 2.97% 2,176,442
Savings 11.88% 2.25% 2,522,095
----- ---------
Total Transaction Accounts 29.37% 2.29% $6,237,210
Time Deposits
Certificate accounts with original maturities of:
3-5 months 0.44% 3.99% 93,975
6-11 months 7.80% 5.00% 1,657,277
12-23 months 21.63% 5.64% 4,591,272
24-35 months 11.03% 5.85% 2,343,497
36 months or more 15.09% 6.20% 3,203,945
IRA 5.11% 5.80% 1,086,275
Jumbos 9.53% 5.34% 2,024,851
---- ---------
Total Time Deposits 70.63% 5.68% 15,001,092
----- ----------
Total Deposits 100.00% 4.69% $21,238,302
------ -----------
</TABLE>
The following table sets forth the amount of certificates of deposit outstanding
by various rate categories at September 30, 1997.
3.00% - 4.99% $2,647,872
5.00% - 5.99% 8,657,087
6.00% - 6.99% 2,823,354
7.00% - 7.99% 872,779
-------
TOTAL $15,001,092
-----------
The following table sets forth the aggregate amount of outstanding certificates
of deposit in amounts of $100,000 or more and the maturity of these certificates
of deposit at September 30, 1997.
3 months or less $308,890
Over 3 months through 6 months 652,228
Over 6 months through 12 months 550,000
Over 12 months 513,733
-------
$2,024,851
----------
B-9
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1997, which are
expected to reprice or mature in each of the future time periods shown. The
amounts of assets and liabilities shown which reprice or mature within a
particular period were determined in accordance with management's assumptions as
to the prepayment characteristics of certain assets and duration of certain
liabilities. Loans with adjustable rates are shown as being due in the next
adjustment period. The interest rate sensitivity of the Bank's assets and
liabilities illustrated in the following table could vary substantially if
different assumptions are used or if actual experience differs from that
indicated by such assumptions.
<TABLE>
<CAPTION>
At September 30, 1997
---------------------
1 year 1 year to 2 years to 3 years to 5 years to Over
or less 2 years 3 years 5 years 10 years 10 years Total
------- ------- ------- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ 485,558 0 $ 98,000 0 0 0 $ 583,558
Investment securities, net(1) 1,808,090 187,187 305,640 110,000 767,597 748,083 $ 3,926,597
Net loans 7,442,227 4,703,478 2,792,947 2,853,148 3,048,409 3,419,690 $24,259,899
--------- --------- --------- --------- --------- --------- -----------
Total interest-earning
assets $ 9,735,875 $ 4,890,665 $ 3,196,587 $ 2,963,148 $ 3,816,006 $4,167,773 $28,770,054
------------ ----------- ----------- ----------- ----------- ---------- -----------
Interest-bearing liabilities:
Certificates of deposit $ 10,258,515 $ 3,476,628 $ 934,907 $ 331,042 $ 0 $ 0 $15,001,092
Money market deposit accounts 870,577 391,760 274,232 255,950 383,923 0 $ 2,176,442
Savings accounts 504,419 302,651 257,254 379,020 701,188 377,562 $ 2,522,094
NOW accounts 384,669 230,801 184,641 251,111 414,334 73,118 $ 1,538,674
FHLB advances 3,250,000 0 0 1,000,000 0 356,197 $ 4,606,197
--------- -- -- --------- -- ------- -----------
Total interest-bearing
liabilities $ 15,268,180 $ 4,401,840 $ 1,651,034 $ 2,217,123 $ 1,499,445 $ 806,877 $25,844,499
------------ ----------- ----------- ----------- ----------- ---------- -----------
Interest sensitivity gap per
period (5,532,305) 488,825 1,545,553 746,025 2,316,561 3,360,896 2,925,555
Cumulative interest
sensitivity gap (5,532,305) (5,043,840) (3,497,927) (2,751,902) (435,341) 2,925,555
Cumulative gap as a percent
of total interest-earning assets (19.23)% (17.53)% (12.16)% (9.57)% (1.51)% 10.17%
Cumulative interest sensitive
assets as a percent of cumulative
interest sensitive liabilities 63.77% 74.36% 83.59% 88.31% 98.26% 111.32%
</TABLE>
(1) Includes both securities "Available for Sale" and "Held to Maturity". Those
securities available for sale, are included at their amortized cost.
B-10
<PAGE>
The table below sets forth the Company's total loan origination and loan
portfolio repayment and amortization experience during the periods indicated.
The Company does not purchase or sell loans in the secondary market.
<TABLE>
<CAPTION>
For the Fiscal Years Ended September 30,
1997 1996 1995
<S> <C> <C> <C>
Loans receivable, beginning of period $23,917,968 $17,214,531 $16,135,596
Loan originations:
Residential one-to-four family:
Adjustable-rate 1,370,800 3,996,080 1,928,176
Fixed rate 2,805,495 5,496,714 1,591,141
--------- --------- ---------
Total residential one-to-four family 4,176,295 9,492,794 3,519,317
Residential multifamily and
Commercial real estate 360,000 367,500 100,300
------- ------- -------
Total real estate mortgages 4,536,295 9,860,294 3,619,617
Other loans 1,909,520 1,976,153 344,331
--------- --------- -------
Total loan originations 6,445,815 11,836,447 3,963,948
Total principal repayments 5,757,105 5,133,010 2,885,013
Increase (decrease) in gross loans
receivable 688,710 6,703,437 1,078,935
------- --------- ---------
Loans receivable, end of period $24,606,678 $23,917,968 $17,214,531
----------- ----------- -----------
</TABLE>
B-11
<PAGE>
The following tables set forth information relating to month-end average
balances of the Company's statements of financial condition for the fiscal years
ended September 30, 1997, 1996, and 1995, and reflect the average yields on
assets and average costs of liabilities for the periods indicated (derived by
dividing income or expense by the month-end average balance of assets or
liabilities, respectively) as well as the "net interest margin" (which reflects
the net interest divided by average interest earning assets) for the periods
shown and annualized yields on assets and annualized costs of liabilities at
September 30, 1997. Management believes that the use of month-end average
balances instead of daily average balances for the periods presented has not
caused any material difference in the information presented.
<TABLE>
<CAPTION>
Year Ended September 30, 1997 Year Ended September 30, 1996 Year Ended September 30, 1995
--------------------------------- --------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing
deposits $ 945,434 52,772 5.58% $ 1,059,049 $ 58,095 5.49% $ 1,265,725 $ 74,565 5.89%
Investment
securities 2,378,047 161,588 6.79% 3,092,358 207,375 6.71% 2,150,496 136,892 6.37%
Mortgage-backed
and mortgage-
deritive
securities 2,361,464 174,720 7.40% 2,894,744 194,958 6.74% 2,625,455 162,644 6.19%
Loans receivable,
net (1) 23,695,360 1,894,609 8.00% 19,086,983 1,560,363 8.18% 15,942,140 1,268,099 7.95%
Investment in
stock at FHLB,
at cost 281,725 19,264 6.84% 211,133 14,010 6.64% 178,175 11,570 6.49%
------- ------ ------- ------ ------- ------
Total interest earning
assets $29,662,030 $ 2,302,953 7.76% $26,344,267 $ 2,034,801 7.72% $22,161,991 $ 1,653,770 7.46%
----------- ----------- -----------
Non-interest earning
assets 934,193 663,544 499,071
------- ------- -------
Total $30,596,223 $27,007,811 $22,661,062
----------- -----------
Liabilities and retained
earnings:
Interest bearing
liabilities:
Certificates of
deposit $14,662,236 827,996 5.65% $13,017,119 $ 715,248 5.50% $11,936,530 $ 575,409 4.82%
Now and
Money Market 4,060,504 116,291 2.86% 3,834,264 95,962 2.50% 3,627,711 93,705 2.58%
deposits
Savings
accounts 2,604,390 58,656 2.25% 2,785,658 64,984 2.33% 2,813,988 70,717 2.51%
FHLB advances
and other 5,089,875 308,763 6.07% 3,279,187 189,863 5.79% 250,000 16,585 6.63%
--------- ------- --------- ------- ------- ------
Total interest bearing
liabilities $26,417,005 $ 1,311,706 4.97% $22,916,228 $ 1,066,057 4.65% $18,628,229 $ 756,416 4.06%
----------- -----------
Non-interest bearing
liabilities 270,889 171,952 175,004
Retained earnings 3,908,329 3,919,631 3,857,829
--------- --------- ---------
Total $30,596,223 $27,008,711 $22,661,062
----------- ----------- -----------
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
(continued)
Year Ended September 30, 1997 Year Ended September 30, 1996 Year Ended September 30, 1995
--------------------------------- --------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $991,247 $968,744 $897,354
Interest rate spread (2) 2.79% 3.07% 3.40%
Net interest margin (3) 3.34% 3.68% 4.05%
Ratio of average
Interest earning
assets to average
interest bearing
liabilities 112.64% 114.96% 119.00%
</TABLE>
- -----------------------
(1) Includes non-accrual loans.
(2) Interest rate spread represents the difference between the average rate on
interest earning assets and the average cost of interest.
(3) Net interest margin represents net interest income divided by average
interest earning assets.
B-13
<PAGE>
The following table sets forth the change in interest income and interest
expense for the respective periods shown.
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
September 30, 1996 vs. 1997 September 30, 1995 vs. 1996
Increase/(Decrease) Increase/(Decrease)
Attributable to Attributable to
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Deposits (6,283) 960 (5,323) $ (11,665) $ (4,805) $ (16,470)
Investment securities (48,279) 2,492 (45,787) 62,826 7,657 70,483
Mortgage-backed
securities (43,204) 22,966 (20,238) 17,462 14,852 32,314
Loans receivable 367,763 (33,517) 334,246 254,882 37,382 292,264
Stock in FHLB 4,820 434 5,254 2,170 270 2,440
----- --- ----- ----- --- -----
Total 274,817 (6,665) 268,152 325,675 55,356 381,031
Interest expense:
Deposits 88,258 38,491 126,749 124,451 11,922 136,373
FHLB borrowings 109,325 9,575 118,900 175,181 (1,913) 173,268
------- ----- ------- ------- ------ -------
Total 197,583 48,066 245,649 299,632 10,009 309,641
------- ------ ------- ------- ------ -------
Net interest income $ 77,234 ($54,731) $ 22,503 $ 26,043 $ 45,347 $ 71,390
--------- -------- --------- --------- -------- ---------
</TABLE>
<PAGE>
TSB FINANCIAL, INC.
December 12, 1997
Dear Stockholder:
On behalf of the Board of Directors and management of TSB Financial,
Inc., we cordially invite you to attend the Annual Meeting of Stockholders of
TSB Financial, Inc. to be held at 6:30 p.m. on January 13, 1998, at the main
office of the Tremont Savings Bank, located at 100 South Sampson Street,
Tremont, Illinois. The accompanying Notice of Annual Meeting of Stockholders and
Proxy Statement discuss the business to be conducted at the meeting. We have
also enclosed a copy of the Company's 1997 Annual Report to Stockholders for
your review. At the meeting we shall report on Company operations and the
outlook for the year ahead.
Your Board of Directors has nominated three persons to serve as Class I
directors, two of whom are incumbent directors along with one new nominee.
Stockholders will also be asked to ratify the appointment of Geo. S. Olive &
Co., LCC as independent public accountants for the current fiscal year.
We recommend that you vote your shares for the nominees and the
ratification of our accountants.
On October 10, 1997, the Company filed a Form 15 with the SEC to suspend
its reporting obligations under the Securities Exchange Act of 1934 (the
"Exchange Act") with respect to periods after September 30, 1997. Subsequent to
the filing of this Form 10-KSB, the Company does not intend to file reports
under the Exchange Act until its reporting requirements are no longer suspended
under the Exchange Act.
On September 18, 1997, Tremont Savings Bank entered into a Purchase
Agreement with Magna Bank, N.A., to purchase a branch facility and associated
accounts in Stanford, Illinois. The transaction has received regulatory approval
and is expected to be completed on December 20, 1997.
We encourage you to attend the meeting in person. Whether or not you
plan to attend, however, please complete, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD in the enclosed envelope. This will assure that your shares are
represented at the meeting.
We look forward with pleasure to seeing and visiting with you at the
meeting.
Very truly yours,
/s/ Richard A. Jameson
Richard A. Jameson
President
100 S. SAMPSON STREET * P.O. BOX 9 * TREMONT, IL * 61568
PHONE (309) 925-2511 * FAX (309) 925-7411
<PAGE>
TSB FINANCIAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 13, 1998
To the stockholders of TSB FINANCIAL, INC.
The Annual Meeting of the Stockholders of TSB Financial, Inc., a
Delaware Corporation (the "Company"), will be held at the main office of the
Tremont Savings Bank, located at 100 South Sampson Street, Tremont, Illinois,
61568 on Tuesday, January 13, 1998, at 6:30 p.m., local time, for the following
purposes:
1. to elect three (3) Class I directors for terms of three years.
2. to ratify the appointment of Geo. S. Olive & Co., LLC as
independent public accountants for the Company for the fiscal
year ending September 30, 1998.
3. to transact such other business as may properly be brought
before the meeting and any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on November 26,
1997, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting.
By order of the Board of Directors
/s/ Jane M. Hinman
Jane M. Hinman
Secretary
Tremont, Illinois
December 12, 1997
100 S. SAMPSON STREET * P.O. BOX 9 * TREMONT, IL * 61568
PHONE (309) 925-2511 * FAX (309) 925-7411
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of TSB Financial, Inc. (the "Company") of proxies to be
voted at the Annual Meeting of Stockholders to be held at the main office of the
Tremont Savings Bank (the "Bank"), located at 100 South Sampson Street, Tremont,
Illinois, 61568, on Tuesday, January 13, 1998, at 6:30 p.m., local time, and at
any adjournments or postponements thereof.
If you do not expect to be present at this meeting, please sign and
date the enclosed proxy and return it in the accompanying postage-paid return
envelope as promptly as possible. You have the power to revoke your proxy at any
time before it is voted by giving written notice to the Secretary of the
Company, provided such written notice is received by the Secretary prior to the
annual meeting or any adjournment thereof, by submitting a later dated proxy or
by attending the annual meeting and choosing to vote in person. The giving of a
proxy will not affect your right to vote in person if you attend the meeting.
The Company's principal executive offices are located at 100 South
Sampson Street, Tremont, Illinois, 61568. This Proxy Statement and the
accompanying proxy card are being mailed to stockholders on or about December
12, 1997. The Company's 1997 Annual Report to Stockholders is enclosed.
The Company, a Delaware corporation, was organized in March, 1994 for
the purpose of becoming the holding company for the Bank, an Illinois-chartered
mutual savings bank located in Tremont, Illinois. On September 30, 1994, the
Bank was converted from an Illinois-chartered mutual savings bank to an
Illinois-chartered stock savings bank (the "Conversion"), and the Company
acquired all of the stock issued by the Bank in connection with the Conversion.
The Bank is the Company's only subsidiary, and the Company's business presently
consists solely of the ownership of the Bank. At September 30, 1997, the end of
the Company's fiscal year, the Company had total assets of approximately
$29,859,043.
Only holders of the Company's Common Stock (the "Common Stock") of
record at the close of business on November 26, 1997, will be entitled to vote
at the annual meeting or any adjournments or postponements of such meeting. On
November 26, 1997, the Company had 227,124 shares of Common Stock, par value
$0.01 per share, issued and outstanding. For all matters to be voted upon at the
annual meeting, each issued and outstanding share is entitled to one vote.
All shares of Common Stock represented at the annual meeting by
properly executed proxies received prior to or at the annual meeting, and not
revoked, will be voted at the annual meeting in accordance with the instructions
thereon. If no instructions are indicated, properly executed proxies will be
voted for the nominees and for adoption of the proposals set forth in this proxy
statement.
A majority of the outstanding shares of the Common Stock must be
present in person or represented by proxy to constitute a quorum for purposes of
the annual meeting. Abstentions and broker non-votes will be counted for
purposes of determining a quorum. Directors shall be elected by a plurality of
the votes present in person or represented by proxy at the meeting and entitled
to vote. In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
annual meeting and entitled to vote against a proposal and broker non-votes will
have no effect on the vote.
ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders to be held on January 13, 1998,
the stockholders will be entitled to elect three (3) Class I directors for terms
expiring in 2001. The directors of the Company are divided into three classes
having staggered terms of three years. Two of the nominees for election as Class
I directors are incumbent directors. Roger D. Beutel is a new nominee for the
vacated position of Ben Miller, who is retiring after 41 years of service. The
Company has no knowledge that the nominees will refuse or be unable to serve,
but if a nominee becomes unavailable for election, the holders of the proxies
reserve the right to substitute another person of their choice as a nominee when
voting at the moment. Set forth below is information concerning the nominees for
election and for the other persons whose terms of office will continue after the
meeting, including age, the year first elected a director and business
experience during the previous five years of each. The nominees, if elected at
the annual meeting, each will serve as a Class I director for a three year term
expiring in 2001.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THE
NOMINEES FOR DIRECTOR.
NOMINEES
NAME DIRECTOR POSITIONS WITH THE COMPANY
(AGE) SINCE(1) AND THE BANK
CLASS I
(TERM EXPIRES 2001)
Richard D. Wartick 1987 Director and Chairman of the Company and the
(Age 50) Bank
Donald L. Swigert 1995 Director of the Company and the Bank
(Age 61)
Roger D. Beutel - - New Nominee for Director of the Company
(Age 43)
CONTINUING DIRECTORS
CLASS II
(TERM EXPIRES 1999)
Richard A. Jameson 1994 Director and President of the Company and the
(Age 44) Bank
Dan Steiner, Jr. 1986 Director of the Company and the Bank
(Age 59)
CLASS III
(TERM EXPIRES 2000)
Roland E. Hoffman 1969 Director and Vice Chairman of the Company and
(Age 64) the Bank
James D. Petrov 1987 Director of the Company and the Bank
(Age 54)
(1) Reflects the year in which each individual was first selected to the Board
of Directors of the Bank. Each nominee and continuing directors became directors
of the Company in March, 1994, except Donald L. Swigert who became a director in
January, 1995.
All of the Company's directors will hold office for the terms
indicated, or until their earlier death, resignation, removal or
disqualification, and until their respective successors are duly elected and
qualified. All executive officers hold office for a term of one year. There are
no arrangements or understandings between any of the directors, executive
officers or any other person pursuant to which any of the Company's directors or
executive officers have been selected for their representative positions.
The business experience of each of the nominees and continuing directors
for the past five years is as follows:
MR. BEUTEL is a self-employed CPA in Tremont, Illinois. A lifelong
Tremont resident, he graduated from the University of Illinois in 1976 with a
B.S. degree in accounting.
MR. HOFFMAN has been a director and Vice Chairman of the Company since
March, 1994 and Vice Chairman of the Board of Directors of the Bank since 1986,
and has been a self-employed farmer in Tazewell County for the past 25 years.
MR. JAMESON has been a director and President of the Company since
March, 1994, has been a director of the Bank since January, 1994, and has been
President of the Bank since 1985. Mr. Jameson received a B.A. degree from
Northern Illinois University in 1976, graduated from the School of Savings
Institution Management in 1989 and earned a Degree of Distinction from the
Institute of Financial Education in 1988.
MR. PETROV has been a director of the Company since March, 1994 and a
director of the Bank since 1987. He is a cofounder of Petrov-Watkins Insurance
in Tremont, Illinois, of which he has been President since 1988. He was the
managing officer of the Bank from 1969 to 1983.
MR. STEINER has been a director of the Company since March, 1994 and a
director of the Bank since 1986. He has been a carpenter with Jerry Kaiser
Construction in Tremont, Illinois since 1989 and for the 28 previous years had
been the owner of Tremont Counter Tops, Inc. until he sold the business.
MR. SWIGERT has been a director of the Company and of the Bank since
January, 1995. He is co-founder and president of Tremont Foods, Inc. since 1986,
and is the manager of its operating subsidiary, Tremont Super Valu, a grocery
store located in Tremont, Illinois.
MR. WARTICK has been Chairman of the Company since November, 1994, a
director of the Company since March, 1994 and director of the Bank since 1987.
He also has been the owner (until September, 1996) and chief pharmacist at
Tremont Pharmacy, Inc. of Tremont, Illinois since 1982. Board Committees and
Meetings
<PAGE>
BOARD OF COMMITTEES AND MEETINGS
There presently are no committees of the Board of Directors of the
Company, other than the compensation and audit committees. The compensation
committee meets to review salaries and the performance of officers, and
recommends compensation adjustments and promotions of officers. Messrs. Jameson
(ex officio), Petrov, Hoffman and Swigert serve on the compensation committee,
which met three times during the fiscal year.
The audit committee is responsible for overseeing the internal and
external audit functions of the Company. The committee reviews and approves the
scope of the Bank's annual external audit and consults with the Bank's
independent auditors regarding the results of their auditing procedures. Messrs.
Petrov, Miller and Steiner serve on the audit committee, which met one time
during the fiscal year.
The Board of Directors of the Bank has three standing committees: loan,
compliance and investment. Messrs. Jameson, Miller, Swigert and Wartick are
members of the loan committee. The loan committee is responsible for policy
review and oversight of the loan functions of the Bank and approves all real
estate loans. The committee also reviews in detail the lending activities of the
Bank. The committee attempts to meet on a weekly basis and met 35 times during
the fiscal year.
The compliance committee is responsible for overseeing the Bank's
compliance with, and the current status of, federal and state banking laws and
regulations that affect the Bank. Messrs. Hoffman, Jameson and Steiner serve on
the compliance committee, which met three times during the fiscal year.
The investment committee plans the Bank's investment strategy,
primarily concerning the investment of cash and securities. Messrs. Jameson and
Hoffman and Ms. Jane Hinman, the Company's Secretary and Treasurer, serve on the
investment committee, which met five times during the fiscal year.
During the fiscal year ended September 30, 1997, the Company's Board of
Directors held 13 meetings. During fiscal 1997, all directors of the Company
attended at least 75 percent of the meetings of the Board and the committees on
which they serve.
The Chairman of the Board of the Bank receives fees of $400 and all
other Bank directors receive fees of $350 per Bank Board of Directors meeting
and, except for Mr. Jameson, $15 for each committee meeting that they attend.
There are no fees paid for attending Company Board meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid or
granted to the Company's Chief Executive Officer for the three most recent
fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
(a) (b) (c) (d) (f) (g) (i)
Fiscal
Year Securities All Other
Name and Ended Restricted Underlying(#) Compensation
Principal Position September 30th Salary($) Bonus($) Stock Award(s)(1) Options/SARs ($)(2)
<S> <C> <C> <C> <C> <C> <C>
Richard A. Jameson 1995 $48,332 $3,725 $34,947 8,093 $12,107
President 1996 $51,515 -- -- -- $15,691
1997 $56,000 -- -- -- $18,041
</TABLE>
(1) Represents the fair market value of 3,778 shares granted under the Company's
Management Retention Plan (the "MRP") on the date of the grant. The MRP shares
vest in five equal portions annually commencing January 2, 1996. The aggregate
fair market value of such shares at September 30, 1997, was $55,253. Dividends
are paid on MRP shares prior to vesting.
(2) Represents Company contributions to the Company's Employee Stock Ownership
Plan ("ESOP"), and for 1997, amounts paid to lease an automobile for use by Mr.
Jameson.
<PAGE>
Upon consummation of the Conversion, the Company entered into a change
of control agreement with Mr. Jameson which is intended to secure his continuing
employment. The continued success of the Company and the Bank depends to a
significant degree on the skill and competence of Mr. Jameson.
The agreement with Mr. Jameson provides for a rolling three-year term
unless the agreement has been terminated, or the Company or Mr. Jameson has
provided a notice of non-renewal, in either case pursuant to the terms of the
agreement. Notwithstanding any such notice, the term of the agreement will be
extended to three years upon any change in control of the Company. The agreement
will terminate upon the death or disability of Mr. Jameson, in the event of
certain regulatory actions or upon notice by either the Company or Mr. Jameson,
with or without cause. In the event of termination of Mr. Jameson's employment
following a "change of control" of the Company, the successor to the Company is
obligated to make a lump sum payment to him equal to (i) the compensation due to
him at the time of such termination of employment and (ii) an amount equal to
three times his base annual salary, as defined in the agreement, and to continue
benefits for thirty-six (36) months following the date of termination of
employment or until comparable coverage is obtained from a subsequent employer.
For purposes of the agreement, Mr. Jameson's employment will be considered
terminated following a "change of control" or a "change in duties," in each case
as defined in the agreement. The agreement includes a covenant which will limit
his ability to compete with the Company and the Bank in an area encompassing a
fifty mile radius from the Bank's main office for a period of one year following
the termination of his employment with the Company and the Bank.
No stock options were granted in the last fiscal year to the individuals
named in the Summary Compensation Table.
The following table sets forth certain information concerning the number
of stock options at September 30, 1997 held by the individuals named in the
Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying in-the-money
Unexercised Options at
Options at
FY-End(#) FY-End($)
Shares Acquired
Name on Exercise(#) Value Realized($) Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Richard A. Jameson(1) --- $--- 3,236 4,857 $18,203
</TABLE>
(1) Represents options which become exercisable in five equal portions annually
commencing January 1, 1996.
TRANSACTIONS WITH MANAGEMENT
Directors and officers of the Company and the Bank and their associates
were customers of and had transactions with the Bank during the fiscal year
ended September 30, 1997. Additional transactions are expected to take place in
the future. All outstanding loans, commitments to loan, and certificates of
deposit and depository relationships, in the opinion of management, were made in
the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned on November 26, 1997, with respect to
all persons known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock, to each director and nominee, to each
executive officer named in the Summary Compensation Table and to all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP(1) OF CLASS
<S> <C> <C>
5% STOCKHOLDERS
Lance S. Gad 12,700 5.4%
DIRECTORS AND NOMINEES
Roland E. Hoffman 3,808(2) 1.6%
Richard A. Jameson 16,593(3) 7.0%
Ben A. Miller 1,808(4) 0.8%
James D. Petrov 8,858(5) 3.8%
Dan Steiner, Jr. 4,408(6) 1.9%
Donald L. Swigert 2,710(7) 1.2%
Richard D. Wartick 3,958(8) 1.7%
All directors and executive officers as a group (8 persons) 49,411(9) 21.0%
</TABLE>
(1) The information contained in this column is based upon information
furnished to the Company by the persons named above and the members
of the designated group. Such information includes shares vested
under the Company's MRP and shares subject to exercisable options
granted under the Company's 1995 Stock Option Plan. The number of
vested MRP shares and shares subject to exercisable options for each
named individual, respectively, are: 268 and 540 for Messrs.
Hoffman, Miller, Petrov, Steiner and Wartick; 172 and 540 for Mr.
Swigert; and 1510 and 3,236 for Mr. Jameson. The nature of
beneficial ownership for shares shown in this column is sole voting
and investment power, except as set forth above and in the footnotes
below.
(2) Includes 3,000 shares held jointly with Mr. Hoffman's spouse.
(3) Includes 4,770 shares held in joint tenancy with Mr. Jameson's
spouse, 3,231 shares held in an Individual Retirement Account
("IRA") and 150 shares held as custodian for Mr. Jameson's minor
children. Also includes 3,695 shares held in the ESOP, over which
shares Mr. Jameson has sole voting and no investment power.
(4) Includes 1,000 shares held in joint tenancy with Mr. Miller's
spouse.
(5) Includes 3,650 shares held in an IRA account.
(6) Includes 1,600 shares held by Mr. Steiner's spouse.
(7) Includes 2,000 shares held in joint tenancy with Mr. Swigert's
spouse.
(8) Includes 3,000 shares held in joint tenancy with Mr. Wartick's
spouse, 100 shares held in joint tenancy with adult children and 50
shares held in joint tenancy with a minor child.
(9) Includes an aggregate of 4,102 vested MRP shares and 8,634 shares
subject to exercisable options.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's executive officers and directors and persons who own
more than 10% of the Company's Common Stock file reports of ownership and
changes in ownership with the Securities and Exchange Commission and with the
exchange on which the Company's shares of Common Stock are traded. Such persons
are also required to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on the Company's review of the copies of such forms
furnished to the Company, the Company is not aware that any of its directors and
executive officers or 10% stockholders failed to comply with the filing
requirements of Section 16(a) during the twelve month period ending September
30, 1997.
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to ratify the appointment of Geo. S. Olive & Co., LLC
as the Company's independent public accountants for the year ending September
30, 1998. A representative of Geo. S. Olive & Co., LLC is expected to attend the
annual meeting and will be available to respond to appropriate questions and to
make a statement if he or she so desires. If the appointment is not ratified by
the Company's stockholders, the Board of Directors will reconsider the matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF GEO. S. OLIVE & CO., LCC.
GENERAL
Your proxy is solicited by the Board of Directors and the cost of solicitation
will be paid by the Company. In addition to the solicitation of proxies by use
of the mails, officers, directors and regular employees of the Company or the
Bank, acting on the Company's behalf, may solicit proxies by telephone,
facsimilie or personal interview. The Company will, at its expense, upon the
receipt of a request from brokers and other custodians, nominees and
fiduciaries, forward proxy soliciting material to the beneficial owners of
shares held of record (as of the record date for the annual meeting) by such
persons.
OTHER BUSINESS
It is not anticipated that any action will be asked of the stockholders other
than that set forth above, but if other matters properly are brought before the
meeting, the persons named in the proxy will vote in accordance with their best
judgement.
FAILURE TO INDICATE CHOICE
If any stockholder fails to indicate a choice in items (1) and (2) on
the proxy card, the shares of such stockholder shall be voted (FOR) in each
instance.
REPORT ON FORM 10-KSB
THE COMPANY'S REPORT ON FORM 10-KSB (WITHOUT EXHIBITS) WILL BE INCLUDED AS PART
OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS, WHICH WILL BE MAILED TO EACH
STOCKHOLDER OF RECORD AS OF THE RECORD DATE FOR THE ANNUAL MEETING. THE COMPANY
WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED, AND TO EACH
PERSON REPRESENTING THAT HE OR SHE WAS A BENEFICIAL OWNER OF THE COMPANY'S
COMMON STOCK AS OF THE RECORD DATE FOR THE ANNUAL MEETING, UPON WRITTEN REQUEST,
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO. SUCH WRITTEN REQUEST SHOULD BE SENT TO MR. RICHARD A.
JAMESON, TSB FINANCIAL, INC., 100 SOUTH SAMPSON STREET, TREMONT, ILLINOIS 61568.
By order of the Board of Directors
/S/Richard A. Jameson
Richard A. Jameson
President
Tremont, Illinois
December 12, 1997
ALL STOCKHOLDERS ARE URGED TO SIGN AND MAIL THEIR PROXIES PROMPTLY
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Incorporated Filed in Sequential
Exhibit No. Description by Reference to this Report Page No.
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3.1 Certificate of Exhibit 3.1 to the
Incorporation of Registration State-
TSB Financial, Inc. ment of TSB
Financial, Inc. on
Form SB-1, File
No. 33-76222
3.2 Bylaws of TSB Exhibit 3.2 to the
Financial, Inc. Registration State-
ment of TSB
Financial, Inc. on
Form SB-1, File
No. 33-76222
4.1 Revised Specimen Exhibit 4.1(a) to the
Stock Certificate Registration State-
of TSB Financial, ment of TSB
Inc.(See also Financial, Inc. on
Articles VII,X,XI Form SB-1, File
and XVII of Exhibit No. 33-76222
3.1 and Articles III,
X and XI of
Exhibit 3.2)
10.1 TSB Financial, Inc. Exhibit A to the
1994 Stock Option Proxy Statement
Plan included as Exhibit
99.1 to the 1994 Annual
Report on Form 10-KSB
10.2 Form of Stock Option Exhibit 10.2 to the
Agreement for use in Registration State-
connection with the ment of TSB Financial,
TSB Financial, Inc. Inc. on Form SB-1,
1994 Stock Option File No. 33-76222
Plan
10.3 Change of Control Exhibit 10.3(a) to the
Agreement between Registration State-
TSB Financial, Inc. ment of TSB Financial,
and Richard A. Inc. on Form SB-1,
Jameson File No. 33-76222
<PAGE>
Incorporated Filed in Sequential
Exhibit No. Description by Reference to this Report Page No.
- -------------------------------------------------------------------------------------------------
10.4 TSB Financial, Inc. Exhibit 10.4 to the
Employee Stock Registration State-
Ownership Plan ment of TSB Financial,
Inc. on Form SB-1,
File No. 33-76222
10.5 TSB Financial, Inc. Exhibit 10.5 to the
Employee Stock Registration State-
Ownership Plan ment of TSB Financial,
Trust Agreement Inc. on Form SB-1,
File No. 33-76222
10.6 TSB Financial, Inc. Exhibit B to the Proxy
Management Reten- Statement included as
tion Plan and Trust Exhibit 99.1 to the 1994
Annual Report on Form 10-KSB
13.1 TSB Financial, Inc. X
1997 Annual Report
to Stockholders is
furnished for the inform-
ation of the Commission
and is not deemed to be
"filed" as a part of this
Form 10-KSB, except
for portions incorpor-
ated by reference herein.
21.1 Subsidiary of the Exhibit 21.1 to the
Registrant Registration State-
ment of TSB Financial,
Inc. on Form SB-1,
File No. 33-76222
99.1 TSB Financial, Inc. Schedule 14A of TSB
Proxy Statement Financial, Inc. Proxy
for the Annual Statement for the Annual
Meeting to be held Meeting filed on December
January 13, 1998 9, 1997
27.1 Financial Data X
Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000920107
<NAME> TSB FINANCIAL INC
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 260,344
<INT-BEARING-DEPOSITS> 583,558
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,571,312
<INVESTMENTS-CARRYING> 355,285
<INVESTMENTS-MARKET> 362,902
<LOANS> 24,259,899
<ALLOWANCE> 124,070
<TOTAL-ASSETS> 29,859,043
<DEPOSITS> 21,238,302
<SHORT-TERM> 4,606,197
<LIABILITIES-OTHER> 120,912
<LONG-TERM> 0
0
0
<COMMON> 2,699
<OTHER-SE> 3,890,933
<TOTAL-LIABILITIES-AND-EQUITY> 29,859,043
<INTEREST-LOAN> 1,885,123
<INTEREST-INVEST> 384,489
<INTEREST-OTHER> 33,341
<INTEREST-TOTAL> 2,302,953
<INTEREST-DEPOSIT> 1,002,943
<INTEREST-EXPENSE> 1,311,706
<INTEREST-INCOME-NET> 991,247
<LOAN-LOSSES> 22,500
<SECURITIES-GAINS> 20,318
<EXPENSE-OTHER> 636,379
<INCOME-PRETAX> 422,862
<INCOME-PRE-EXTRAORDINARY> 422,862
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,486
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.16
<YIELD-ACTUAL> 7.76
<LOANS-NON> 139,566
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 79,722
<ALLOWANCE-OPEN> 124,624
<CHARGE-OFFS> 26,709
<RECOVERIES> 3,655
<ALLOWANCE-CLOSE> 124,070
<ALLOWANCE-DOMESTIC> 124,070
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
