##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM
10 - KSB
 (
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended December 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 000-52223
 TSB Financial Corporation
  North Carolina
    
    20-4814503(State or other jurisdiction of
incorporation)
    
    (IRS Employer jurisdiction 
Identification No.)
 1057 Providence Road, Charlotte, North Carolina 28207
 (704)331-8686
 Securities registered under Section 12(b) of the Exchange Act:
    
    NoneSecurities registered under Section 12(g) of the Exchange Act:
    
    Common Stock, $.01 par value(Title of Class)
 o o
 þ o
 o o
 o þ
      o þ




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TABLE OF CONTENTS  PART IItem 1 BUSINESSItem 2 DESCRIPTION OF PROPERTYItem 3 LEGAL PROCEEDINGSItem 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPart IIItem 6 MANAGEMENTS DISCUSSION AND ANALYSISItem 7 FINANCIAL STATEMENTSPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESItem 8A CONTROLS AND PROCEDURESItem 8B OTHER INFORMATIONPART IIIItem 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACTItem 10 EXECUTIVE COMPENSATIONItem 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERSITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPNEDENCEITEM 13: EXHIBITSItem 14 PRINCIPAL ACCOUNTANT FEES AND SERVICESSIGNATURESEXHIBIT INDEXExhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1    Table of Contents  
 PART I
 
 Item 1 BUSINESS
 General
     Primary Market Area
  Services
  2




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Lending Activities
 General
  Real Estate-Secured Loans
      Home Equity Lines of Credit
  Commercial Loans
  3




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Consumer Loans
   Loan Administration and Underwriting
    4




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Allowance for Loan Losses
   Deposit Activities
  Investment Portfolio
  5




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Competition
    Employees
  Supervision and Regulation
 Banks and bank holding companies are subject to extensive federal and state governmental regulation
and supervision. The following is a summary of some of the basic statutes and regulations that
apply to the Company and the Bank. However, it is not a complete discussion of all the laws that
affect our business, and it is qualified in its entirety by reference to the particular statutory
or regulatory provision being described.
 General
  6




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Gramm-Leach-Bliley Act
   7




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Payment of Dividends
    Capital Adequacy
     8




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Prompt Corrective Action
     Required to beAdequately
    
    Required to be
    
    The BanksRisk-based capital ratios:
    

capitalized
    

Well Capitalized
    
    Capital RatiosLeverage Capital Ratio (Tier 1 Capital to average assets)
    
    
    4
    %
    
    
    5
    %
    
    
    9
    %Tier I Capital Ratio (Tier 1 Capital to risk-weighted assets)
    
    
    4
    %
    
    
    6
    %
    
    
    11
    %Total Capital Ratio (Total Capital to risk-weighted assets)
    
    
    8
    %
    
    
    10
    %
    
    
    12
    %
 9




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Reserve Requirements
  FDIC Insurance Assessments
  Risk CategoryI*Minimum
    
    Maximum
    
    II
    
    III
    
    IVAnnual Rates (in basis points)
    
    
    5
    
    
    
    7
    
    
    
    10
    
    
    
    28
    
    
    
    43
 
 *
    
    Within Risk Category I, those institutions that pose the least risk are assessed at the minimum
assessment rate and those that pose the greatest risk are assessed at the maximum assessment rate.
An institution that poses an intermediate risk within Risk Category I is charged a rate between the
minimum and maximum that varies incrementally by institution.     10




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Community Reinvestment
  Interstate Banking and Branching
   USA Patriot Act of 2001
  Sarbanes-Oxley Act of 2002
   11




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12




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Federal Income Taxation
    State Taxation
  Statistical Data
  
 Item 2 DESCRIPTION OF PROPERTY
  13




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Item 3 LEGAL PROCEEDINGS
  
 Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Part II
 Item 5
    
    MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY
   Low
    
    HighThe BankAugust 16, 2005  September 30, 2005
    
    $
    20.45
    
    
    $
    20.77October 1, 2005  December 31, 2005
    
    
    19.09
    
    
    
    20.77January 1, 2006  March 31, 2006
    
    
    18.64
    
    
    
    21.25April 1, 2006  June 30, 2006
    
    
    20.05
    
    
    
    23.50July 1, 2006  September 13, 2006
    
    
    20.10
    
    
    
    23.00The CompanySeptember 14, 2006  September 30, 2006
    
    $
    20.30
    
    
    $
    21.25October 1, 2006  December 31, 2006
    
    
    18.55
    
    
    
    20.50
    14




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Item 6 MANAGEMENTS DISCUSSION AND ANALYSIS
  Forward
 Looking Statements
  Executive Overview
   Critical Accounting Estimates
    15




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Results of Operations  2006 Compared to 2005
    16




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2006
    
    
    2005Interest
    
    
    Annualized
    
    
    
    
    
    
    Interest
    
    
    AnnualizedAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Yield/Cost %
    
    
    Balance
    
    
    Expense
    
    
    Yield/Cost %Interest-earning assets:Federal funds sold
    
    $
    1,152
    
    
    $
    56
    
    
    
    4.86
    %
    
    $
    1,919
    
    
    $
    52
    
    
    
    2.71
    %Investment securities
    
    
    37,924
    
    
    
    1,707
    
    
    
    4.50
    %
    
    
    33,214
    
    
    
    1,362
    
    
    
    4.10
    %Loans
    
    
    137,813
    
    
    
    10,145
    
    
    
    7.36
    %
    
    
    120,174
    
    
    
    7,562
    
    
    
    6.29
    %Total interest-earning assets
    
    
    176,889
    
    
    
    11,908
    
    
    
    
    
    
    
    155,307
    
    
    
    8,976Yield on average interest-earning assets
    
    
    
    
    
    
    
    
    
    
    6.73
    %
    
    
    
    
    
    
    
    
    
    
    5.78
    %Non-interest-earning assets:Cash and due from banks
    
    
    3,352
    
    
    
    
    
    
    
    
    
    
    
    3,009Premises and equipment
    
    
    1,308
    
    
    
    
    
    
    
    
    
    
    
    1,390Other assets
    
    
    4,980
    
    
    
    
    
    
    
    
    
    
    
    3,402Total non-interest-earning assets
    
    
    9,640
    
    
    
    
    
    
    
    
    
    
    
    7,801Total assets
    
    $
    186,529
    
    
    
    
    
    
    
    
    
    
    $
    163,108Interest-bearing liabilities:NOW accounts
    
    $
    20,790
    
    
    $
    524
    
    
    
    2.52
    %
    
    $
    15,365
    
    
    $
    204
    
    
    
    1.33
    %Money market and savings
    
    
    21,036
    
    
    
    536
    
    
    
    2.55
    %
    
    
    21,104
    
    
    
    287
    
    
    
    1.36
    %Time certificates and IRAs
    
    
    93,792
    
    
    
    4,147
    
    
    
    4.42
    %
    
    
    75,597
    
    
    
    2,331
    
    
    
    3.08
    %Other borrowed funds
    
    
    13,705
    
    
    
    611
    
    
    
    4.46
    %
    
    
    12,300
    
    
    
    457
    
    
    
    3.72
    %Total interest-bearing liabilities
    
    
    149,323
    
    
    
    5,818
    
    
    
    
    
    
    
    124,366
    
    
    
    3,279Cost on avgerage interest-
bearing liabilities
    
    
    
    
    
    
    
    
    
    
    3.90
    %
    
    
    
    
    
    
    
    
    
    
    2.64
    %Non-interest-bearing liabilities:Demand deposits
    
    
    22,852
    
    
    
    
    
    
    
    
    
    
    
    25,232Other liabilities
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    565Total non-interest-bearing liabilities
    
    
    23,301
    
    
    
    
    
    
    
    
    
    
    
    25,797Total liabilities
    
    
    172,624
    
    
    
    
    
    
    
    
    
    
    
    150,163Stockholders equity
    
    
    13,905
    
    
    
    
    
    
    
    
    
    
    
    12,945Total liabilities and equity
    
    $
    186,529
    
    
    
    
    
    
    
    
    
    
    $
    163,108Net interest income and
Interest rate spread
    
    
    
    
    
    $
    6,090
    
    
    
    2.83
    %
    
    
    
    
    
    $
    5,697
    
    
    
    3.14
    %Net yield on average interest-
earning assets
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.67
    %
  17




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2006 Compared to 2005Interest
    
    
    VarianceIncome/
    
    
    AttributedExpense
    
    
    toVariance
    
    
    Rate
    
    
    VolumeInterest-earning assetsFederal funds sold
    
    $
    4
    
    
    $
    41
    
    
    $
    (37
    )Investment securities
    
    
    345
    
    
    
    133
    
    
    
    212Loans
    
    
    2,583
    
    
    
    1,286
    
    
    
    1,297Total
    
    
    2,932
    
    
    
    1,460
    
    
    
    1,472Interest-bearing liabilities:NOW accounts
    
    
    320
    
    
    
    183
    
    
    
    137Money market and savings
    
    
    250
    
    
    
    251
    
    
    
    (1
    )Time certificates and IRAs
    
    
    1,815
    
    
    
    1,013
    
    
    
    802Other borrowed funds
    
    
    154
    
    
    
    91
    
    
    
    63Total
    
    
    2,539
    
    
    
    1,538
    
    
    
    1,001Net Interest Income
    
    $
    393
    
    
    $
    (78
    )
    
    $
    471
     Liquidity, Interest Rate Sensitivity and Market Risks
  18




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One Year
    
    
    One to
    
    
    OverDecember 31, 2006
    
    or Less
    
    
    Five Years
    
    
    Five Years
    
    
    TotalInterest-earning assets:Federal funds sold
    
    $
    4,834
    
    
    $
    
    
    
    $
    
    
    
    $
    4,834Investment securities
    
    
    5,048
    
    
    
    17,846
    
    
    
    13,083
    
    
    
    35,977Loans
    
    
    72,407
    
    
    
    59,143
    
    
    
    13,440
    
    
    
    144,990Total
    
    $
    82,289
    
    
    $
    76,989
    
    
    $
    26,523
    
    
    $
    185,801Interest-bearing liabilities:Savings, NOW, money market
    
    $
    21,697
    
    
    $
    
    
    
    $
    31,810
    
    
    $
    53,507Time deposits, $100,000 and over
    
    
    45,645
    
    
    
    1,900
    
    
    
    
    
    
    
    47,545Time deposits, under $100,000
    
    
    36,942
    
    
    
    3,960
    
    
    
    
    
    
    
    40,903Other borrowings
    
    
    1,732
    
    
    
    8,093
    
    
    
    3,000
    
    
    
    12,825Total
    
    $
    106,016
    
    
    $
    13,953
    
    
    $
    34,810
    
    
    $
    154,780Interest sensitivity gap
    
    $
    (23,727
    )
    
    $
    63,036
    
    
    $
    (8,287
    )
    
    $
    31,021Cummulative gap
    
    $
    (23,727
    )
    
    $
    39,309
    
    
    $
    31,022Ratio of interest-sensitive assets to
interest-sensitive liabilities
    
    
    77.62
    %
    
    
    551.77
    %
    
    
    76.19
    %
    
    
    120.04
    %Cummulative ratio of interest-sensitive
assets to interest-sensitive liabilities
    
    
    77.62
    %
    
    
    132.77
    %
    
    
    120.04
    %
    
    
    120.04
    %
 19




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Due within
    
    
    Due after One
    
    
    Due afterOne Year
    
    
    Year through Five years
    
    
    Five Years
    
    
    TotalCommercial
    
    $
    13,698
    
    
    $
    9,693
    
    
    $
    417
    
    
    $
    23,808Real Estate
    
    
    22,196
    
    
    
    61,029
    
    
    
    9,604
    
    
    $
    92,829HELOC
    
    
    25,913
    
    
    
    
    
    
    
    
    
    
    $
    25,913Consumer & Other
    
    
    1,038
    
    
    
    1,266
    
    
    
    136
    
    
    $
    2,440Total Loans
    
    $
    62,845
    
    
    $
    71,988
    
    
    $
    10,157
    
    
    $
    144,990Total Fixed Rate
    
    $
    45,181
    
    
    $
    55,082
    
    
    $
    7,205
    
    
    $
    107,468Total Floating Rate
    
    
    17,664
    
    
    
    16,906
    
    
    
    2,952
    
    
    
    37,522Total Loans
    
    $
    62,845
    
    
    $
    71,988
    
    
    $
    10,157
    
    
    $
    144,990
   One Year
    
    
    Five Years
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    AverageDue One
    
    
    Through Five
    
    
    Through Ten
    
    
    Greater Than
    
    
    
    
    
    
    Market
    
    
    LifeYear or Less
    
    
    Years
    
    
    Years
    
    
    Ten Years
    
    
    Total
    
    
    Value
    
    
    in YearsDecember 31, 2006U.S. Government agencies
    
    $
    3,501
    
    
    $
    9,829
    
    
    $
    
    
    
    $
    
    
    
    $
    13,330
    
    
    $
    13,160
    
    
    
    2.1Mortgage backed securities
    
    
    1,547
    
    
    
    6,779
    
    
    
    2,873
    
    
    
    1,199
    
    
    
    12,398
    
    
    
    12,248
    
    
    
    4.6Municipal securities
    
    
    
    
    
    
    1,238
    
    
    
    2,892
    
    
    
    6,119
    
    
    
    10,249
    
    
    
    10,252
    
    
    
    12.8Total
    
    $
    5,048
    
    
    $
    17,846
    
    
    $
    5,765
    
    
    $
    7,318
    
    
    $
    35,977
    
    
    $
    35,660
    
    
    
    6.0Weighted average yields:U.S. Government agencies
    
    
    3.30
    %
    
    
    4.51
    %
    
    
    
    
    
    
    
    
    
    
    4.19
    %Mortgage backed securities
    
    
    5.04
    %
    
    
    4.99
    %
    
    
    5.17
    %
    
    
    5.33
    %
    
    
    5.07
    %Municipal securities
    
    
    
    
    
    
    5.89
    %
    
    
    6.27
    %
    
    
    6.41
    %
    
    
    6.00
    %Total
    
    
    2.88
    %
    
    
    3.82
    %
    
    
    4.06
    %
    
    
    5.26
    %
    
    
    5.01
    %December 31, 2005U.S. Government agencies
    
    $
    1,499
    
    
    $
    13,982
    
    
    $
    995
    
    
    $
    
    
    
    $
    16,476
    
    
    $
    16,143
    
    
    
    2.7Mortgage backed securities
    
    
    
    
    
    
    
    
    
    
    3,880
    
    
    
    10,436
    
    
    
    14,316
    
    
    
    14,017
    
    
    
    4.2Municipal securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,770
    
    
    
    4,770
    
    
    
    4,786
    
    
    
    10.7Total
    
    $
    1,499
    
    
    $
    13,982
    
    
    $
    4,875
    
    
    $
    15,206
    
    
    $
    35,562
    
    
    $
    34,946
    
    
    
    4.4Weighted average yields:U.S. Government agencies
    
    
    2.88
    %
    
    
    3.82
    %
    
    
    4.75
    %
    
    
    
    
    
    
    3.92
    %Mortgage backed securities
    
    
    
    
    
    
    
    
    
    
    3.88
    %
    
    
    4.96
    %
    
    
    4.68
    %Municipal securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.93
    %
    
    
    5.93
    %Total
    
    
    2.88
    %
    
    
    3.82
    %
    
    
    4.06
    %
    
    
    5.26
    %
    
    
    4.49
    %
 20




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2006Remaining maturity of three months or less
    
    $
    20,912Remaining maturity of three months through six months
    
    
    15,908Remaining maturity of six months through twelve months
    
    
    8,825Remaining maturity over twelve months
    
    
    1,900Total
    
    $
    47,545
   2006
    
    2005
    
    2004Annualized return on average assets
    
    
    0.65
    %
    
    
    0.67
    %
    
    
    0.58
    %Annualized return on average stockholders equity
    
    
    8.75
    %
    
    
    8.50
    %
    
    
    6.65
    %Average stockholders equity as a percentage of average assets
    
    
    7.45
    %
    
    
    7.94
    %
    
    
    8.79
    %
 Lending Activities
 General
 Composition
  December 31, 2006
    
    
    December 31, 2005Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentCommercial
    
    $
    23,808
    
    
    
    16
    %
    
    $
    25,536
    
    
    
    20
    %Real estate
    
    
    92,829
    
    
    
    64
    %
    
    
    70,652
    
    
    
    56
    %Home equity line of credit
    
    
    25,913
    
    
    
    18
    %
    
    
    27,534
    
    
    
    22
    %Consumer and other
    
    
    2,440
    
    
    
    2
    %
    
    
    1,580
    
    
    
    1
    %Total loans
    
    $
    144,990
    
    
    
    100
    %
    
    $
    125,302
    
    
    
    100
    %
 
 *
    
    Each loan category includes deferred origination fees. Asset Classification
  21




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Allowances for Loan Losses
     22




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December 31,2006
    
    
    2005
    
    
    2004Beginning balance
    
    $
    1,623
    
    
    $
    1,526
    
    
    $
    1,318Charge-offs
    
    
    
    
    
    
    (55
    )
    
    
    Recoveries
    
    
    
    
    
    
    20
    
    
    
    62Provision for loan losses
    
    
    74
    
    
    
    132
    
    
    
    146Ending balance
    
    $
    1,697
    
    
    $
    1,623
    
    
    $
    1,526
   December 31,2006
    
    
    2005
    
    
    2004Amount
    
    
    % of Loans
    
    
    Amount
    
    
    % of Loans
    
    
    Amount
    
    
    % of LoansCommercial
    
    $
    401
    
    
    
    13
    %
    
    $
    308
    
    
    
    20
    %
    
    $
    340
    
    
    
    24
    %Real estate
    
    
    987
    
    
    
    68
    %
    
    
    669
    
    
    
    57
    %
    
    
    722
    
    
    
    52
    %Home equity lines of credit
    
    
    221
    
    
    
    18
    %
    
    
    138
    
    
    
    22
    %
    
    
    134
    
    
    
    23
    %Consumer
    
    
    33
    
    
    
    1
    %
    
    
    15
    
    
    
    1
    %
    
    
    16
    
    
    
    1
    %Unallocated
    
    
    55
    
    
    
    
    
    
    
    493
    
    
    
    
    
    
    
    314
    
    
    
    Total
    
    $
    1,697
    
    
    
    100
    %
    
    $
    1,623
    
    
    
    100
    %
    
    $
    1,526
    
    
    
    100
    %
 Investments
    23




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Deposits and Borrowings
 General
 Deposits
    December 31, 2006
    
    
    December 31, 2005Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentInterest-bearing deposits:NOW accounts
    
    $
    31,810
    
    
    
    19
    %
    
    $
    16,995
    
    
    
    12
    %Money market and savings
    
    
    21,696
    
    
    
    13
    %
    
    
    16,213
    
    
    
    12
    %Time deposits
    
    
    88,448
    
    
    
    53
    %
    
    
    84,735
    
    
    
    60
    %Total interest bearing deposits
    
    
    141,954
    
    
    
    85
    %
    
    
    117,943
    
    
    
    84
    %Non-interest bearing deposits:Demand deposits
    
    
    25,926
    
    
    
    15
    %
    
    
    22,373
    
    
    
    16
    %Total deposits
    
    $
    167,880
    
    
    
    100
    %
    
    $
    140,316
    
    
    
    100
    %
  Borrowings
  24




---



##### Table of Contents



2006
    
    2005Federal funds purchased and securities sold
under repurchase agreements:Average interest rate:At year end
    
    
    4.84
    %
    
    
    3.81
    %For the year
    
    
    4.91
    %
    
    
    3.01
    %Average amount outstanding during the year
    
    $
    5,558
    
    
    $
    4,300Maximum amount outstanding during the year
    
    
    13,376
    
    
    
    10,053Amount outstanding at year end
    
    
    1,732
    
    
    
    9,152
 Capital Resources
   Trust
    
    
    
    JuniorPreferred
    
    
    
    SubordinatedDate of
    
    Securities
    
    Interest
    
    Debt Owed
    
    FinalIssuing Entity
    
    Issuance
    
    Outstanding
    
    Rate
    
    To Trust
    
    MaturityTSB Statutory Trust I
    
    December 14, 2006
    
    $
    3,000
    
    
    Floating
    
    
    
    
    
    March 14, 2037TSB Financial Corporation
    
    December 14, 2006
    
    
    
    
    
    Floating
    
    $
    3,093
    
    
    March 14, 2037
    Off Balance Sheet Arrangements
   25




---



##### Table of Contents



Stock Compensation Plans .
    26




---



##### Table of Contents



2005Net income as reported
    
    $
    1,100,000Less: Total stock-based employee compensation expense
determined under fair value method for all awards, net
    
    
    59,000Pro forma net income
    
    $
    1,041,000Net income per share:As reported:Basic
    
    $
    1.13Diluted
    
    $
    1.08Pro forma:Basic
    
    $
    1.07Diluted
    
    $
    1.02
 Segment Information.
   Recent Accounting Pronouncements and Regulatory Changes
   Fair Value Measurements
 27




---



##### Table of Contents



Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R)
 Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in the Current Year Financial Statements (SAB No.
108)
   28




---



##### Table of Contents



Item 7 FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Charlotte, North Carolina  March 20, 2007
 29




---



##### Table of Contents



PART
I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TSB Financial Corporation
CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2006
    
    
    2005AssetsCash and due from banks
    
    $
    8,798
    
    
    $
    4,609Securities available for sale
    
    
    35,660
    
    
    
    34,947Federal Home Loan Bank stock
    
    
    702
    
    
    
    662Loans
    
    
    144,990
    
    
    
    125,302Less allowance for loan losses
    
    
    (1,697
    )
    
    
    (1,623
    )Net loans
    
    
    143,293
    
    
    
    123,679Premises and equipment, net
    
    
    1,287
    
    
    
    1,351Interest receivable
    
    
    914
    
    
    
    725Other assets
    
    
    5,238
    
    
    
    5,123Total assets
    
    $
    195,892
    
    
    $
    171,096Liabilities and Shareholders EquityDepositsDemand, NOW, and money market accounts
    
    $
    70,476
    
    
    $
    47,077Savings
    
    
    8,956
    
    
    
    8,505Time deposits of $100,000 or more
    
    
    47,545
    
    
    
    45,615Other time deposits
    
    
    40,903
    
    
    
    39,119Total deposits
    
    
    167,880
    
    
    
    140,316Other borrowed funds, short term
    
    
    1,732
    
    
    
    9,152Other borrowed funds, long term
    
    
    11,093
    
    
    
    8,000Interest payable
    
    
    295
    
    
    
    168Other liabilities
    
    
    14
    
    
    
    181Total liabilities
    
    
    181,014
    
    
    
    157,817Commitments and Contingencies (See note 15)Shareholders equityCommon stock, $.01 par value, 20,000,000 shares authorized,
985,672 shares issued and outstanding at December 31, 2006;
$3.50 par value, 20,000,000 shares authorized,
884,987 issued and outstanding at December 31, 2005
    
    
    10
    
    
    
    3,097Additional paid in capital
    
    
    13,281
    
    
    
    8,296Retained earnings
    
    
    1,781
    
    
    
    2,265Accumulated other comprehensive loss
    
    
    (194
    )
    
    
    (379
    )Total shareholders equity
    
    
    14,878
    
    
    
    13,279Total liabilities and shareholders equity
    
    $
    195,892
    
    
    $
    171,096
  30




---



##### Table of Contents



TSB Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME
 Year Ended December 31,2006
    
    
    2005Interest incomeInterest and fees on loans
    
    $
    10,145
    
    
    $
    7,562Federal funds sold
    
    
    56
    
    
    
    52Investment securitiesState and municipal (non taxable)
    
    
    289
    
    
    
    148Other investments (taxable)
    
    
    1,418
    
    
    
    1,214Total interest income
    
    
    11,908
    
    
    
    8,976Interest expenseSavings, NOW, and money market accounts
    
    
    1,061
    
    
    
    491Time deposits of $100,000 or more
    
    
    2,280
    
    
    
    1,262Other time deposits
    
    
    1,866
    
    
    
    1,069Borrowed funds, short term
    
    
    273
    
    
    
    130Borrowed funds, long term
    
    
    338
    
    
    
    327Total interest expense
    
    
    5,818
    
    
    
    3,279Net interest income
    
    
    6,090
    
    
    
    5,697Provision for loan losses
    
    
    74
    
    
    
    132Net interest income after provision for loan losses
    
    
    6,016
    
    
    
    5,565Service charges on deposit accounts
    
    
    322
    
    
    
    295Mortgage banking income
    
    
    2
    
    
    
    28Gain/(Loss) on sale of securities
    
    
    (149
    )
    
    
    3Other
    
    
    467
    
    
    
    275Total non-interest income
    
    
    642
    
    
    
    601Personnel
    
    
    2,812
    
    
    
    2,477Occupancy, net
    
    
    544
    
    
    
    520Furniture and equipment
    
    
    106
    
    
    
    154Other
    
    
    1,471
    
    
    
    1,401Total non-interest expense
    
    
    4,933
    
    
    
    4,552Net income before income taxes
    
    
    1,725
    
    
    
    1,614Income tax expense
    
    
    509
    
    
    
    514Net income
    
    $
    1,216
    
    
    $
    1,100Net income per share:Basic
    
    $
    1.24
    
    
    $
    1.13Diluted
    
    $
    1.19
    
    
    $
    1.08Weighted average shares outstanding:Basic
    
    
    978,580
    
    
    
    973,064Diluted
    
    
    1,020,839
    
    
    
    1,018,503
  31




---



##### Table of Contents



Statements of Changes in Shareholders Equity
For the Years Ended December 31, 2006 and 2005
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    
    
    
    
    Paid In
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, December 31, 2004
    
    
    883,142
    
    
    $
    6,624
    
    
    $
    4,738
    
    
    $
    1,164
    
    
    $
    17
    
    
    $
    12,542Issuance of common stock through
employee stock purchase plan
    
    
    1,130
    
    
    
    8
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    19Issuance of common stock through
exercise of stock options
    
    
    715
    
    
    
    5
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    13Reduction of par value from $7.50
per share to $3.50 per share
    
    
    
    
    
    
    (3,540
    )
    
    
    3,540
    
    
    
    
    
    
    
    
    
    
    
    Unrealized holding losses on
available-for-sale securities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    (396
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    
    
    
    
    1,100Balance, December 31, 2005
    
    
    884,987
    
    
    $
    3,097
    
    
    $
    8,296
    
    
    $
    2,265
    
    
    $
    (379
    )
    
    $
    13,279Issuance of common stock through
employee stock purchase plan
    
    
    1,161
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Issuance of common stock through
exercise of stock options
    
    
    11,097
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    145Eleven-for-ten stock split effected in
the form of a 10% stock dividend
    
    
    88,427
    
    
    
    
    
    
    
    1,699
    
    
    
    (1,699
    )
    
    
    
    
    
    
    Reduction of par value from $3.50
per share to $.01 per share in
connection with holding company
reorganization
    
    
    
    
    
    
    3,087
    
    
    
    3,100
    
    
    
    
    
    
    
    
    
    
    
    Expense for employee
stock based compensation
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Unrealized holding gains on
available-for-sale securities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    185Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,216
    
    
    
    
    
    
    
    1,216Balance, December 31, 2006
    
    
    985,672
    
    
    $
    10
    
    
    $
    13,294
    
    
    $
    1,781
    
    
    $
    (194
    )
    
    $
    14,878
  32




---



##### Table of Contents



TSB Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,216
    
    
    $
    1,100Adjustments to reconcile net income to net cash provided by operations:Depreciation and amortization
    
    
    183
    
    
    
    218Provision for loan losses
    
    
    74
    
    
    
    132Stock based compensation
    
    
    32
    
    
    
    Loss (gain) on sale of securities available for sale
    
    
    149
    
    
    
    (3
    )Gain on sale of investment in Mortgage Company
    
    
    (123
    )
    
    
    Increase in cash surrender value of bank-owned life insurance
    
    
    (129
    )
    
    
    123Increase in other assets
    
    
    (326
    )
    
    
    (553
    )Decrease in other liabilities
    
    
    (40
    )
    
    
    (177
    )Net cash provided by operations
    
    
    1,036
    
    
    
    840Cash flows from investing activities:Purchase of securities available for sale
    
    
    (8,980
    )
    
    
    (16,613
    )Proceeds from the sale of securities available for sale
    
    
    4,653
    
    
    
    2,092Proceeds from the maturity of securities available for sale
    
    
    3,741
    
    
    
    3,887Proceeds from the sale of Mortgage Company
    
    
    160
    
    
    
    Sale (purchase) of Federal Home Loan Bank Stock
    
    
    (40
    )
    
    
    276Net increase in loans
    
    
    (19,688
    )
    
    
    (8,601
    )Purchase of premises and equipment
    
    
    (97
    )
    
    
    (124
    )Net cash used in investing activities
    
    
    (20,251
    )
    
    
    (19,083
    )Cash flows from financing activities:Net increase in demand and savings deposits
    
    
    23,850
    
    
    
    1,536Net increase in time deposits
    
    
    3,715
    
    
    
    18,768Net (decrease) in other short term borrowed funds
    
    
    (7,420
    )
    
    
    (830
    )Net increase in other long term borrowed funds
    
    
    3,093
    
    
    
    Proceeds from the issuance of common stock
    
    
    166
    
    
    
    32Tax benefit from exercise of stock options
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    23,404
    
    
    
    19,506Net increase in cash and cash equivalents
    
    
    4,189
    
    
    
    1,263Cash and cash equivalents, beginning of period
    
    
    4,609
    
    
    
    3,346Cash and cash equivalents, end of period
    
    $
    8,798
    
    
    $
    4,609Supplemental Disclosure:Cash paid for interest
    
    $
    5,691
    
    
    $
    3,207Cash paid for income taxes
    
    $
    592
    
    
    $
    175
  33




---



##### Table of Contents



Notes to Consolidated Financial Statements
  Organization.
  Use of Estimates in the Preparation of Financial Statements.
  Securities.
    Loans and Allowance for Loan Losses.
     34




---



##### Table of Contents



Premises and Equipment.
  Foreclosed Properties.
  Income Taxes.
  Net Income Per Share.
    2006
    
    2005Weighted average common shares outstanding
    
    
    978,580
    
    
    
    973,171Effect of dilutive options
    
    
    42,259
    
    
    
    45,066Weighted average common shares outstanding used to calculate
diluted earnings per common share
    
    
    1,020,839
    
    
    
    1,018,237
  35




---



##### Table of Contents



Cash Flows.
  Stock Compensation Plans.
   2005Net income as reported
    
    $
    1,100,000Less: Total stock-based employee compensation expense
determined under fair value method for all awards, net
    
    
    59,000Pro forma net income
    
    $
    1,041,000Net income per share:As reported:Basic
    
    $
    1.13Diluted
    
    $
    1.08Pro forma:Basic
    
    $
    1.07Diluted
    
    $
    1.02
 Segment Information
   Recent Accounting Pronouncements
  36




---



##### Table of Contents




 37




---



##### Table of Contents



Reclassifications.
    Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    Value2006US Government agencies
    
    $
    13,330
    
    
    $
    1
    
    
    $
    (171
    )
    
    $
    13,160Mortgage backed securities
    
    
    12,398
    
    
    
    8
    
    
    
    (158
    )
    
    $
    12,248Municipal securities
    
    
    10,249
    
    
    
    39
    
    
    
    (36
    )
    
    
    10,252$
    35,977
    
    
    $
    48
    
    
    $
    (365
    )
    
    $
    35,6602005US Government agencies
    
    $
    16,475
    
    
    $
    
    
    
    $
    (334
    )
    
    $
    16,142Mortgage backed securities
    
    
    14,316
    
    
    
    2
    
    
    
    (300
    )
    
    $
    14,017Municipal securities
    
    
    4,771
    
    
    
    35
    
    
    
    (18
    )
    
    
    4,788$
    35,562
    
    
    $
    37
    
    
    $
    (652
    )
    
    $
    34,947
  EstimatedAmortized
    
    
    MarketCost
    
    
    ValueDue within one year
    
    $
    5,048
    
    
    $
    4,991Due within one to five years
    
    
    17,846
    
    
    
    17,626Due within five to ten years
    
    
    5,765
    
    
    
    5,732Due greater than ten years
    
    
    7,318
    
    
    
    7,311$
    35,977
    
    
    $
    35,660
  38




---



##### Table of Contents



Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2006:
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesUS Government agencies
    
    $
    
    
    
    $
    
    
    
    $
    11,659
    
    
    $
    (171
    )
    
    $
    11,659
    
    
    $
    (171
    )Mortgage backed securities
    
    
    954
    
    
    
    (4
    )
    
    
    9,911
    
    
    
    (154
    )
    
    
    10,865
    
    
    
    (158
    )Municipal securities
    
    
    4,026
    
    
    
    (26
    )
    
    
    461
    
    
    
    (10
    )
    
    
    4,487
    
    
    
    (36
    )$
    4,980
    
    
    $
    (30
    )
    
    $
    22,031
    
    
    $
    (335
    )
    
    $
    27,011
    
    
    $
    (365
    )
 Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2005:
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesUS Government agencies
    
    $
    6,873
    
    
    $
    (116
    )
    
    $
    9,269
    
    
    $
    (218
    )
    
    $
    16,142
    
    
    $
    (334
    )Mortgage backed securities
    
    
    10,901
    
    
    
    (169
    )
    
    
    2,997
    
    
    
    (131
    )
    
    
    13,898
    
    
    
    (300
    )Municipal securities
    
    
    1,098
    
    
    
    (6
    )
    
    
    462
    
    
    
    (12
    )
    
    
    1,560
    
    
    
    (18
    )$
    18,872
    
    
    $
    (291
    )
    
    $
    12,728
    
    
    $
    (361
    )
    
    $
    31,600
    
    
    $
    (652
    )
       2006
    
    
    2005Commercial
    
    $
    23,818
    
    
    $
    25,509Real estate-mortgage
    
    
    93,009
    
    
    
    70,780Consumer
    
    
    2,279
    
    
    
    1,455Home equity
    
    
    25,913
    
    
    
    27,534Loans in process
    
    
    41
    
    
    
    19Demand deposit line of credit
    
    
    82
    
    
    
    87145,142
    
    
    
    125,384Deferred origination fees, net
    
    
    (152
    )
    
    
    (82
    )Allowance for loan losses
    
    
    (1,697
    )
    
    
    (1,623
    )$
    143,293
    
    
    $
    123,679
  39




---



##### Table of Contents



2006
    
    
    2005Balance, beginning of year
    
    $
    1,623
    
    
    $
    1,526Provision for loan losses
    
    
    74
    
    
    
    132Charge-offs
    
    
    
    
    
    
    (55
    )Recoveries
    
    
    
    
    
    
    20Balance, end of year
    
    $
    1,697
    
    
    $
    1,623
     2006
    
    
    2005Leasehold improvements
    
    $
    282
    
    
    $
    282Land
    
    
    600
    
    
    
    600Buildings
    
    
    385
    
    
    
    385Furniture and fixtures
    
    
    854
    
    
    
    818Automobiles
    
    
    108
    
    
    
    108Equipment
    
    
    483
    
    
    
    693Total cost
    
    
    2,712
    
    
    
    2,886Less accumulated depreciation and amortization
    
    
    1,425
    
    
    
    1,535Total cost less depreciation and amortization
    
    $
    1,287
    
    
    $
    1,351
    2007
    
    $
    83,3332008
    
    
    5,0562009
    
    
    112010
    
    
    48$
    88,448
   40




---



##### Table of Contents



2007
    
    $
    4042008
    
    
    2062009
    
    
    13The years after 2009
    
    
    4Total
    
    $
    627
   2006
    
    
    2005Short term borrowingsFederal funds purchased
    
    $
    
    
    
    $
    7,076Repurchase agreements
    
    
    1,732
    
    
    
    2,0761,732
    
    
    
    9,152Long term borrowingsFederal Home Loan Bank borrowings
    
    
    8,000
    
    
    
    8,000Trust Preferred Securities
    
    
    3,093
    
    
    
    11,093
    
    
    
    8,000Total other borrowed funds
    
    $
    12,825
    
    
    $
    17,152
   Trust
    
    
    
    JuniorPreferred
    
    
    
    SubordinatedDate of
    
    Securities
    
    Interest
    
    Debt Owed
    
    FinalIssuing Entity
    
    Issuance
    
    Outstanding
    
    Rate
    
    To Trust
    
    MaturityTSB Statutory Trust I
    
    December 14, 2006
    
    $
    3,000,000
    
    
    Floating
    
    
    
    
    
    March 14, 2037TSB Financial Corporation
    
    December 14, 2006
    
    
    -
    
    
    Floating
    
    $
    3,093,000
    
    
    March 14, 2037
    41




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##### Table of Contents



Outstanding OptionsShares
    
    
    
    
    
    
    WeightedAvailable For
    
    
    Number
    
    
    AverageFuture Grant
    
    
    Outstanding
    
    
    Exercise PriceAt December 31, 2004
    
    
    24,825
    
    
    
    166,082
    
    
    $
    13.75Options granted
    
    
    (15,070
    )
    
    
    15,070
    
    
    
    19.95Options exercised
    
    
    
    
    
    
    (787
    )
    
    
    14.87Options expired and forfeited
    
    
    
    
    
    
    At December 31, 2005
    
    
    9,755
    
    
    
    180,365
    
    
    
    14.25Options granted
    
    
    (13,200
    )
    
    
    13,200
    
    
    
    19.68Options exercised
    
    
    
    
    
    
    (11,097
    )
    
    
    13.18Options expired and forfeited
    
    
    4,710
    
    
    
    (4,710
    )
    
    
    18.13At December 31, 2006
    
    
    1,265
    
    
    
    177,758
    
    
    $
    14.61
    42




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##### Table of Contents



For the TwelveMonthsDecember 31, 2006Income before income tax
    
    $
    (32
    )Net income
    
    $
    (22
    )Cash flow from operating activities
    
    $
    Cash flow provided by financing activities
    
    $
    Basic earnings per share
    
    $
    .02Diluted earnings per share
    
    $
    .02
    2006
    
    
    2005Current tax provision:Federal
    
    $
    453
    
    
    $
    518State
    
    
    73
    
    
    
    79526
    
    
    
    597Deferred tax provision :Federal
    
    
    (14
    )
    
    
    (67
    )State
    
    
    (3
    )
    
    
    (15
    )(17
    )
    
    
    (83
    )Provision for income tax expense before adjustment
to deferred tax asset valuation allowance
    
    
    509
    
    
    
    514Increase (decrease) in valuation allowance
    
    
    
    
    
    
    Net provision for income taxes
    
    $
    509
    
    
    $
    514
  2006
    
    
    2005Tax computed at statutory rate of 34%
    
    $
    586
    
    
    $
    549Effect of state income taxes
    
    
    46
    
    
    
    42Tax exempt income
    
    
    (128
    )
    
    
    (88
    )Other
    
    
    5
    
    
    
    11$
    509
    
    
    $
    514
 43




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##### Table of Contents



2006
    
    
    2005Deferred tax assets:Allowance for loan losses
    
    $
    527
    
    
    $
    498Deferred compensation
    
    
    30
    
    
    
    40Available for sale securities
    
    
    123
    
    
    
    236Other
    
    
    16
    
    
    
    10Total deferred tax assets
    
    
    696
    
    
    
    784Deferred tax liabilities:Premises and equipment
    
    
    (13
    )
    
    
    (19
    )Deferred loan costs
    
    
    (39
    )
    
    
    (39
    )Prepaid expenses
    
    
    (40
    )
    
    
    (27
    )Total deferred tax liability
    
    
    (92
    )
    
    
    (84
    )Net recorded deferred tax asset
    
    $
    604
    
    
    $
    700
    2006
    
    
    2005Unrealized holding losses on securities available for sale
    
    $
    (365
    )
    
    $
    (652
    )Tax effect
    
    
    171
    
    
    
    275Unrealized holding losses on securities available for sale, net of tax
    
    
    (194
    )
    
    
    (377
    )Reclassification adjustment for realized gains
    
    
    149
    
    
    
    (3
    )Tax effect
    
    
    (57
    )
    
    
    1Other comprehensive loss, net of tax
    
    $
    (102
    )
    
    $
    (379
    )Net income
    
    
    1,216
    
    
    
    1,100Total comprehensive income
    
    $
    1,114
    
    
    $
    721
      44




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##### Table of Contents



Bank
 For Capital
    
    To BeActual
    
    Adequacy Purposes
    
    Well CapitalizedAmount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent2006:Total Capital (to Risk Weighted Assets)
    
    $
    19,631
    
    
    
    12
    %
    
    $
    12,784
    
    
    
    8
    %
    
    $
    15,980
    
    
    
    10
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    17,934
    
    
    
    11
    %
    
    
    6,392
    
    
    
    4
    %
    
    
    9,588
    
    
    
    6
    %Tier 1 Capital (to Average Assets)
    
    
    17,934
    
    
    
    9
    %
    
    
    7,339
    
    
    
    4
    %
    
    
    9,173
    
    
    
    5
    %2005:Total Capital (to Risk Weighted Assets)
    
    $
    15,281
    
    
    
    10
    %
    
    $
    11,739
    
    
    
    8
    %
    
    $
    14,674
    
    
    
    10
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    13,658
    
    
    
    9
    %
    
    
    5,869
    
    
    
    4
    %
    
    
    8,804
    
    
    
    6
    %Tier 1 Capital (to Average Assets)
    
    
    13,658
    
    
    
    8
    %
    
    
    6,699
    
    
    
    4
    %
    
    
    8,374
    
    
    
    5
    %
 Company
 For Capital
    
    To BeActual
    
    Adequacy Purposes
    
    Well Capitalized2006:
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentTotal Capital (to Risk Weighted Assets)
    
    $
    19,370
    
    
    
    12
    %
    
    $
    12,784
    
    
    
    8
    %
    
    $
    15,980
    
    
    
    10
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    17,673
    
    
    
    11
    %
    
    
    6,392
    
    
    
    4
    %
    
    
    9,588
    
    
    
    6
    %Tier 1 Capital (to Average Assets)
    
    
    17,673
    
    
    
    10
    %
    
    
    7,339
    
    
    
    4
    %
    
    
    9,173
    
    
    
    5
    %
         Cash and cash equivalents.
  Securities.
 45




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##### Table of Contents



Federal Home Loan Bank Stock.
  The Bankers Bank Stock.
  Loans.
  Off-balance sheet instruments.
  Deposits, Borrowings, and Securities Sold Under Agreements to Repurchase.
  Interest payable and receivable.
   2006
    
    2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedValue
    
    Fair Value
    
    Value
    
    Fair ValueFINANCIAL ASSETSCash and cash equivalents
    
    $
    8,798
    
    
    $
    8,798
    
    
    $
    4,609
    
    
    $
    4,609Securities available for sale
    
    
    35,660
    
    
    
    35,660
    
    
    
    34,947
    
    
    
    34,947Federal Home Loan Bank Stock
    
    
    702
    
    
    
    702
    
    
    
    662
    
    
    
    662Loans, net
    
    
    143,293
    
    
    
    141,554
    
    
    
    123,679
    
    
    
    122,318Interest receivable
    
    
    914
    
    
    
    914
    
    
    
    725
    
    
    
    725FINANCIAL LIABILITIESDeposits with no stated maturity
    
    $
    79,431
    
    
    $
    79,431
    
    
    $
    55,582
    
    
    $
    55,582Deposits with stated maturity
    
    
    88,448
    
    
    
    89,212
    
    
    
    84,735
    
    
    
    84,617Other borrowings
    
    
    12,825
    
    
    
    12,825
    
    
    
    17,152
    
    
    
    17,152Interest payable
    
    
    295
    
    
    
    295
    
    
    
    168
    
    
    
    168
 46




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##### Table of Contents



2006AssetsCash and due from banks
    
    $
    111Investment in TSB Statutory Trust I
    
    
    93Investment in The Scottish Bank, at equity
    
    
    17,740Other assets
    
    
    19Total assets
    
    $
    17,963Liabilities and Stockholders EquityLiabilities:Junior subordinated debentures payable to
TSB Statutory Trust I
    
    $
    3,093Other
    
    
    (8
    )Stockholders equity
    
    
    14,878Total liabilities and stockholders equity
    
    $
    17,963
  2006Interest Expense:
    
    $
    9Non-interest Income:Equity in earnings of subsidiary bank
    
    
    441Non-interest Expense:Other
    
    
    78Income before income tax benefit
    
    
    354Income tax benefit
    
    
    (26
    )Net Income
    
    $
    380
 47




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##### Table of Contents



2006Cash Flows from Operating Activities:Net income
    
    $
    380Noncash items included in net income:Equity in undistributies earnings of
The Scottish Bank
    
    
    (441
    )Income tax (benefit)
    
    
    (26
    )Increase in other assets
    
    
    Increase in other liabilities
    
    
    (2
    )Net cash used in operating activities
    
    
    (89
    )Cash Flows from Investing Activities:Upstream dividends received from The Scottish Bank
    
    
    200Investment in TSB Statutory Trust I
    
    
    (93
    )Investment in The Scottish Bank
    
    
    (3,000
    )Net cash provided (used) in investing activities
    
    
    (2,893
    )Cash Flows from Financing Activites:Junior subordinated debentures issued to
TSB Statutory Trust I
    
    
    3,093Net cash provided (used) in financing activities
    
    
    3,093Net increase (decrease) in cash
    
    
    111Beginning
    
    
    Ending
    
    $
    111
 48




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##### Table of Contents



Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
  
 Item 8A CONTROLS AND PROCEDURES
  
 Item 8B OTHER INFORMATION
  
 PART III
 
 Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
    
 Item 10 EXECUTIVE COMPENSATION
  49




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##### Table of Contents



Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
   Number of securities remainingNumber of securities
    
    
    
    
    
    
    available for future issuanceto be issued upon
    
    
    Weighted-average
    
    
    under equity compensationexercise of outstanding
    
    
    exercise price of
    
    
    plans (excludingPlan
    
    options, warrants, and
    
    
    outstanding options,
    
    
    securities reflected inCategory
    
    rights
    
    
    warrants, and grants
    
    
    column (a))(a)
    
    
    (b)
    
    
    (C)Equity compensation
plans approved by
security holders
    
    
    177,758
    
    
    $
    14.61
    
    
    
    1,265Equity compensation
plans not approved by
security holders
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    177,758
    
    
    $
    14.61
    
    
    
    1,265
 50




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##### Table of Contents



ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPNEDENCE
  
 ITEM 13: EXHIBITS
             51




---



##### Table of Contents



*
    
    Management compensatory plan or arrangement 52




---



##### Table of Contents



Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 SIGNATURES
  TSB Financial Corporation
RegistrantDate:
March 23,
2007
    By:
    /s/ John B. Stedman, Jr.John B. Stedman, Jr.
          President and Chief Executive Officer  /s/ Jan H. Hollar
    
    
    
    Date:
    
    March 23, 2007Jan H. Hollar, Chief Financial Officer and 
Principal Accounting Officer/s/ William B. Allen
    
    
    
    Date:
    
    March 23, 2007William B. Allen, Director/s/ James H. Barnhardt
    
    
    
    Date:
    
    March 23, 2007James H. Barnhardt, Jr., Director/s/ William B. Barnhardt
    
    
    
    Date:
    
    March 23, 2007William B. Barnhardt, Director/s/ Amy Rice Blumenthal
    
    
    
    Date:
    
    March 23, 2007Amy Rice Blumenthal, Director/s/ P.W. Davis, III
    
    
    
    Date:
    
    March 23, 2007P.W. Davis, III, Director/s/ Jubal A. Early
    
    
    
    Date:
    
    March 23, 2007Jubal A. Early, Director/s/ Herbert L. Harriss
    
    
    
    Date:
    
    March 23, 2007Herbert L. Harriss, Director
 53




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##### Table of Contents



/s/ William States Lee, IV
    
    
    
    Date:
    
    March 23, 2007William States Lee, IV, Director/s/ Donald J. Sherrill
    
    
    
    Date:
    
    March 23, 2007Donald J. Sherrill, Director/s/ Marc H. Silverman
    
    
    
    Date:
    
    March 23, 2007Marc H. Silverman, Director/s/ John B. Stedman, Jr.
    
    
    
    Date:
    
    March 23, 2007John B. Stedman, Jr., President, Chief
Executive Officer, and Director/s/ David J. Zimmerman
    
    
    
    Date:
    
    March 23, 2007David J. Zimmerman, Director
 54




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##### Table of Contents



Exhibit No.
    
    ExhibitExhibit 23
    
    Consent of Dixon Hughes, PLLCExhibit 31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)Exhibit 32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 55