TSB FINANCIAL, INC.


                                      1996
                                     ANNUAL
                                     REPORT



                          [LOGO] TREMONT SAVINGS BANK


                                                                   December 1996

Dear Shareholder,

Happy Holidays from all of us at TSB Financial, Inc. (the "Company") and Tremont
Savings Bank (the "Bank"). I am pleased and proud to present you with our 1996
Annual Report. This report reflects our operations and financial condition for
the year ended September 30, 1996.

As was reported to you a year ago, we had set a number of goals for ourselves.
One was to grow as a community bank for all households in our market area. I am
extremely proud to report to you that the Company grew from $23.6 million in
total assets to $29.8 million, an unprecedented 26.3% growth rate. We feel this
resulted from our marketing efforts, some very complimentary referrals by
existing customers, and extra effort put forth by our devoted staff. We are very
fortunate to enjoy such a high level of experience and enthusiasm from our
personnel.

A second goal was the stock repurchase program initiated by the Board of
Directors in late 1995. We repurchased 10% of the original outstanding shares
during the past year at a weighted average cost of $12.69 per share and felt
that it was a sound use of Company reserves, especially in light of the fact
that the book value of a share of Company stock during much of the year was
approximately $15.30. At the end of our fiscal year, the book value of a share
of stock stood at $15.61.

Due to legislation passed by Congress to recapitalize the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"),
an expense of $118,800 was levied on the Bank. In spite of this one-time
expense, we produced $207,052 in net earnings or $ .88 per share compared to
$1.07 per share a year ago. Were it not for the SAIF special assessment,
earnings would have been $1.23 per share, a 15% increase over last year.
Additionally, we hope to recoup the special assessment over approximately four
years through reduced insurance premiums.

Despite profits being down due to this uncontrollable expense, the Board of
Directors realized that 1996 was a good year for our Company and has announced a
dividend of $ .25 per share to all stockholders as of December 13, 1996. This
dividend will be payable on January 3, 1997.

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. We
are continually striving to improve on our Company for the benefit of all of us.

Best Regards,


/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



                     DIRECTORS OF THE COMPANY AND THE BANK
                             AS OF DECEMBER 1, 1996

             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, 1996

              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

                                       2


                    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, 1996

[ ]      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 $207,052.

The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of October 1, 1996 was approximately $2,643,752. As of said date, the
Issuer had 242,888 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 1997.

                                       3


                              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                 9
                          Plan of Operation

    Item 7.     Financial  Statements                                  16

    Item 8.     Changes in and Disagreements with Accountants          38

PART III.

    Item 9.     Section 16(a) Compliance                               38

    Item 10.    Executive Compensation                                 38

    Item 11.    Ownership by Related Persons                           38

    Item 12.    Related Transactions and Relationships                 38

    Item 13.    Exhibits and Reports on Form 8-K                       38

  SIGNATURES                                                           39


                                       4


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, 1996, the
Bank had total assets of $29.8 million, deposits of $20.1 million and restricted
stockholder's equity of $3.8 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, 1996, approximately 88.9% 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").


                                       5


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 eight
individuals. No one customer accounts for more than 10% of either the Company's
or the Bank's revenues, loans or deposits.

See Appendix B for the table and schedules which show selected comparative
financial information requested by the Securities and Exchange Act Guide 3,
regarding the business of the Company.


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, 1996.


                                       6


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                      $  9 1/4       $  8 3/4        --
 1/1/95 -  3/31/95                          9 5/8          9 1/4        --
 4/1/95 -  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        --

At October 1, 1996, there were approximately 268 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
3, 1997 to stockholders of record as of December 13, 1996. 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 prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations.


                                       7


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.


                                       8


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, 1996 and 1995 will be compared to the operations of the Bank for
fiscal year ended September 30, 1994.


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.

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.


                                       9


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.

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%.


                                      10



COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994

For the fiscal year ended September 30, 1995, the Company reported net income of
$261,513, an 8.7% decrease from the $286,444 reported during the fiscal year
ended September 30, 1994. This decrease was primarily attributed to increases in
advertising expense, compensation and other expenses.

Interest income increased 10.3%, from $1,498,995 for the fiscal year ended
September 30, 1994 to $1,653,770 for the year ended September 30, 1995. The
increase resulted principally from income on investment securities growing from
$30,370 for fiscal year 1994 to $148,462 for fiscal year 1995, a 388.8%
increase. This increase occurred because management moved funds from short term
deposit accounts, where the proceeds of the September 30, 1994 conversion had
been invested, into municipal and government agency securities. Interest income
from mortgage-backed securities rose 29.9%, from $125,192 to $162,644, as the
adjustable-rate mortgages that underlie the securities adjusted to higher rates
during the past fiscal year. The Bank's interest income from loans rose only
slightly, from $1,263,321 at September 30, 1994 to $1,268,099 at September 30,
1995, a .4% increase.

For the fiscal year ended September 30, 1995, interest expense was $756,416, a
10.5% increase over the $684,517 interest expense for the year ended September
30, 1994. As customer deposits shifted into longer term investments over the
past fiscal year, the Bank's cost of deposits rose 8.6%, from $681,124 for
fiscal year 1994 to $739,831 for fiscal year 1995. Net interest income, a
traditional measure of profitability for savings banks, increased from $814,478
for the twelve months ended September 30, 1994 to $897,354 for the same period
ended September 30, 1995, a 10.2% increase.

In management's continuing effort to position the Bank to be able to absorb any
future losses resulting from lending activity, loan loss reserves were increased
by $20,000 during 1995. This represented a 10.5% increase over the increase in
reserves for 1994. The Bank experienced a loss of $14,936 during fiscal year
1995 on a single defaulted real estate loan.

Other income (items such as loan fees, late payment fees and deposit account
fees) amounted to $58,000 for the year ended September 30, 1995 compared to
$77,659 for the year ended September 30, 1994. The 25.3% decline was attributed
mainly to a reduction in residential mortgage refinancing activity as interest
rates remained relatively stable which also resulted in a corresponding
reduction in fees charged in connection with mortgage loan origination. Other
income did not include any gains from the sale of securities during either
period.

For the twelve months ended September 30, 1995, other expense (items such as
compensation expense, occupancy expense, advertising expense, deposit insurance
premiums and other) was $550,621 a 33.6% increase over the same period in 1994.
Compensation expense, as a result of the timing of payments to the Employee
Stock Ownership Plan, the adoption of the Management Retention Plan in January
and regular wage and salary increases, increased 26.5% from $217,609 for the
year ended September 30, 1994 to $275,336 for the year ended September 30, 1995.


                                      11


Advertising expense rose 38.1% as the Bank strived to increase community
awareness and market share. Legal and professional fees rose from $12,150 for
the twelve months ended September 30, 1994 to $54,805 for the twelve months
ended September 30, 1995, due to non-recurring legal fees and expenses
associated with initial regulatory issues and stockholder filings following
conversion to a stock-owned company. Management anticipates these costs being
reduced in the future. These increases were somewhat offset by a cumulative
reduction in occupancy expense, deposit insurance premiums and computer expense
of $5,600 or 5.3%.

The Company's income tax expense, $175,476 for the fiscal year ended September
30, 1994, declined by $52,256, or 29.8%, to $123,220 for the fiscal year ended
September 30, 1995. This was attributable to management's increased emphasis on
investment in tax free municipal securities, as was planned following the
conversion. The effective tax rate, defined as income tax divided by pre-tax
income, declined from 38% for fiscal year 1994 to 32% for fiscal year 1995.

Earnings per share, calculated as net income divided by the weighted average of
shares outstanding, was $1.07 per share for fiscal year 1995. The weighted
average shares outstanding, 243,787.33, was comprised of total shares
outstanding reduced by shares owned by the Employee Stock Ownership Plan and the
Management Retention Plan. Since stock was not issued in the conversion until
October 1, 1994, there is no comparable per share information for fiscal year
1994.


COMPARISON OF FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995

For the fiscal year ended September 30, 1996, the Company experienced
unprecedented growth in total assets, primarily in the category of net loans.
Total assets on September 30, 1996 were $29.8 million, up $6.2 million or 26.3%
from the $23.6 million reported on September 30, 1995. This was considered by
management as a very positive result of the Company's strategic plan for growth
which had been adopted in the interest of market and competitive positioning.

Net loans accounted for the largest amount of growth over the last fiscal year,
from $16.7 million on September 30, 1995 to $22.5 million on September 30, 1996.
The majority of this increase was in one - to - four family mortgage loans and
consumer loans. One - to - four family mortgage loans averaged $17.8 million for
fiscal 1996 compared to $15.4 million for fiscal 1995. Average consumer loans
outstanding during fiscal 1996 were $930,000 compared to $169,000 during fiscal
1995. This growth was a direct result of increased marketing of the Bank's
lending, emphasis on consumer loan products, and efforts of Bank loan department
personnel.


                                      12


Cash and cash equivalents declined by 33.5%, from $948,047 to $630,921 from
September 30, 1995 to September 30, 1996, respectively, as the result of the
Bank funding new loans. The Bank is required to maintain minimum levels of
liquid assets by its regulators. The Bank's liquidity ratio was 20.3% and 26.3%
at September 30, 1996 and 1995 respectively, well above required minimums.

The Company's investment securities portfolio increased from $5.1 million at
September 30, 1995 to $5.5 million at September 30, 1996. This increase was
primarily attributable to increased investment in state and municipal securities
which grew from $1.1 million at September 30, 1995 to $1.7 million at September
30, 1996. Within its investment securities portfolio, the Company took advantage
of the Financial Accounting Standards Board's one-time reclassification window
during December, 1995 to reclassify securities with a carrying value of $2.1
million and a fair market value of $2.2 million from its held-to-maturity
portfolio to its available-for-sale portfolio. Management feels that this
reclassification will provide the Company with greater flexibility in managing
its liquidity during cycles in the securities markets and the Bank's loan
demand.

The Company's investment in premises and equipment grew 61.0%, from $124,425 on
September 30, 1995 to $200,316 on September 30, 1996 due to a remodeling of the
Bank office in the spring of 1996 along with a new set of computers needed to
effectively run the modernized accounting and teller system installed in June of
1996.

Investment in stock of the FHLB rose from $179,300 to $318,300 on September 30,
1995 and September 30, 1996, respectively. As the Bank took advantage of funding
advances from the FHLB, it was required to meet increased FHLB stock ownership
requirements.

Other assets, totalling $124,174 on September 30, 1995, rose to $244,000 on
September 30, 1996. Management attributes this increase to the annual prepaid
income tax reserve account along with accrued interest receivable on the
increased loan originations and investments.

For the fiscal year ended September 30, 1996, a strategic goal of the Company
was growth for the purposes of market share and return to stockholders. This
growth was accomplished through increases in deposit accounts and borrowed funds
through FHLB advances. Deposit accounts rose 8.7%, from $18.5 million on
September 30, 1995 to $20.1 million on September 30, 1996.

The Company continues to concentrate on customer deposits as a growth area,
especially in the light of the reduction in deposit insurance premiums. Borrowed
funds constituted the largest source of the Company's funding growth, increasing
from $1.0 million on September 30, 1995 to $5.6 million on September 30, 1996.
These loans from the FHLB provided management with an affordable, cost-effective
and accessible tool to assist in dealing with the liquidity demand cycles.

Other liabilities at September 30, 1996 included a $119,000 accrual for the
previously mentioned SAIF insurance special assessment. Without the special
assessment, other liabilities would have been $74,502 at September 30, 1996
compared to $77,551 at September 30, 1995.


                                      13


On September 30, 1996, the Company's stockholders' equity was $3.8 million or
5.0% less than the previous year's $4.0 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 initiated a stock repurchase
plan to buy ten percent of the outstanding shares. The effect of this repurchase
was to increase the Company's book value per share to $15.61 from $14.83 at
September 30, 1996 and 1995, respectively. In addition, the Company paid a
dividend to its shareholders for the first time during fiscal 1996. The $0.25
per share dividend resulted in a $67,435 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 12.9% and a risk-based
capital ratio of 28.2% at September 30, 1996.


Stockholders' Equity was calculated as follows:

Stockholders' Equity as of September 30, 1995        $4,001,239
Net Income                                              207,052
Dividends Paid                                          (67,435)
Purchase of Treasury Stock                             (342,548)
Change in unearned compensation related
  to ESOP and MRP                                        46,958
Increase in unrealized losses on securities
  available for sale, net of income tax effect          (54,780)
                                                     ----------
Stockholders' Equity as of September 30, 1996        $3,790,486


                                      14


ITEM 7. FINANCIAL STATEMENTS


                              TSB FINANCIAL, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditor's Report.................................................16

Consolidated Balance Sheet ..................................................17

Consolidated Statement of Income.............................................18

Consolidated Statement of Changes in Stockholders' Equity....................19

Consolidated Statement of Cash Flows.........................................20

Notes to Consolidated Financial Statements...................................22


                                      15


                          INDEPENDENT AUDITOR'S REPORT


To the Shareholders 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, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
three years in the period ended September 30, 1996. 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, 1996 and 1995, and the
results of their operations and cash flows for the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.

As discussed in the notes to consolidated financial statements, the Company
changed its method of accounting for investment securities in 1995.


/s/ GEO. S. OLIVE & CO. LLC

Decatur, Illinois
October 18, 1996


                                      16


<TABLE>
<CAPTION>
                       TSB FINANCIAL, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET

SEPTEMBER 30                                                           1996            1995
-----------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>         
ASSETS
   Cash and due from banks                                        $    290,585     $    285,824
   Interest-bearing demand deposits                                    340,336          662,223
                                                                  ------------     ------------
         Cash and cash equivalents                                     630,921          948,047
   Interest-bearing time deposits                                      484,161          394,722
   Investment securities
      Available for sale                                             5,083,268        2,044,321
      Held to maturity                                                 367,866        3,034,539
                                                                  ------------     ------------
         Total investment securities                                 5,451,134        5,078,860
   Loans                                                            22,605,870       16,858,326
      Allowance for loan losses                                        124,624          115,564
                                                                  ------------     ------------
                  Net loans                                         22,481,246       16,742,762
   Premises and equipment                                              200,316          124,425
   Federal Home Loan Bank stock                                        318,300          179,300
   Other assets                                                        244,000          124,174
                                                                  ------------     ------------

         Total assets                                             $ 29,810,078     $ 23,592,290
                                                                  ============     ============

LIABILITIES
   Deposits
      Noninterest-bearing                                         $    501,552     $    232,611
      Interest-bearing                                              19,648,385       18,235,233
                                                                  ------------     ------------
         Total deposits                                             20,149,937       18,467,844
   FHLB borrowings                                                   5,615,992        1,000,000
   Advances by borrowers for taxes and insurance                        60,340           45,656
   Other liabilities                                                   193,323           77,551
                                                                  ------------     ------------
         Total liabilities                                          26,019,592       19,591,051
                                                                  ------------     ------------


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                                                 2,159,413        2,019,796
   Treasury stock - 26,987 shares                                     (342,548)
   Net unrealized gain (loss) on securities available for sale         (48,129)           6,651
                                                                  ------------     ------------
                                                                     3,990,329        4,248,040
   Unearned compensation related to ESOP                              (134,938)        (161,925)
   Unearned compensation related to MRP                                (64,905)         (84,876)
                                                                  ------------     ------------
         Total stockholders' equity                                  3,790,486        4,001,239
                                                                  ------------     ------------

         Total liabilities and stockholders' equity               $ 29,810,078     $ 23,592,290
                                                                  ============     ============

See notes to consolidated financial statements.
</TABLE>


                                      17


<TABLE>
<CAPTION>
                       TSB FINANCIAL, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED SEPTEMBER 30                        1996         1995          1994
---------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>       
INTEREST INCOME
   Loans                                   $1,560,363    $1,268,099    $1,263,321
   Investment securities                      416,343       311,106       155,562
   Deposits with financial institutions        58,095        74,565        80,112
                                           ----------    ----------    ----------
         Total interest income              2,034,801     1,653,770     1,498,995
                                           ----------    ----------    ----------

INTEREST EXPENSE
   Deposits                                   876,194       739,831       681,124
   Federal Home Loan Bank borrowings          189,863        16,585         3,393
                                           ----------    ----------    ----------
         Total interest expense             1,066,057       756,416       684,517
                                           ----------    ----------    ----------

NET INTEREST INCOME                           968,744       897,354       814,478
   Provision for losses on loans               13,500        20,000        18,100
                                           ----------    ----------    ----------
NET INTEREST INCOME AFTER PROVISION FOR
   LOSSES ON LOANS                            955,244       877,354       796,378
                                           ----------    ----------    ----------

OTHER INCOME
   Loan fees and service charges               60,297        37,566        58,611
   Net realized gains on sales of
     available-for-sale securities              9,892
   Other income                                28,243        20,434        19,048
                                           ----------    ----------    ----------
         Total other income                    98,432        58,000        77,659
                                           ----------    ----------    ----------

OTHER EXPENSES
   Salaries and employee benefits             303,204       275,336       217,609
   Net occupancy expenses                      21,793        20,827        22,825
   Equipment expense                           35,486        16,750        13,929
   Deposit insurance expense                  162,736        42,905        45,205
   Data processing fees                        55,601        36,428        37,730
   Advertising and promotion                   18,046        18,191        13,177
   Legal and professional fees                 44,716        54,805        12,150
   Other expenses                             109,903        85,379        49,492
                                           ----------    ----------    ----------
         Total other expenses                 751,485       550,621       412,117
                                           ----------    ----------    ----------

INCOME BEFORE INCOME TAX                      302,191       384,733       461,920
   Income tax expense                          95,139       123,220       175,476
                                           ----------    ----------    ----------

NET INCOME                                 $  207,052    $  261,513    $  286,444
                                           ==========    ==========    ==========

EARNINGS PER SHARE
   Assuming no dilution:
      Net income                           $     0.88    $     1.07
      Average number of shares                234,508       243,787
   Assuming full dilution:
      Net income                           $     0.80    $     0.91
      Average number of shares                259,604       287,867

See notes to consolidated financial statements.
</TABLE>


                                      18


<TABLE>
<CAPTION>
                       TSB FINANCIAL, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                                                          NET UNREALIZED
                                                                                          GAIN (LOSS) ON     DEFERRED   
                                     COMMON STOCK                                           SECURITIES     COMPENSATION 
                                   ---------------     CAPITAL      RETAINED    TREASURY     AVAILABLE      RELATED TO  
                                   SHARES   AMOUNT     SURPLUS      EARNINGS     STOCK       FOR SALE          ESOP     
-----------------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>      <C>         <C>           <C>          <C>            <C> 
BALANCES, OCTOBER 1, 1993                                         $1,471,839                                           
   Common stock issued in                                                      
      stock conversion             269,875  $2,699   $2,218,894                                                        
   Purchase of stock for                                                       
      ESOP                                                                                                  $(215,900) 
   Net income for 1994                                               286,444                                           
                                   ------------------------------------------------------------------------------------
                                                                               
BALANCES, SEPTEMBER 30, 1994       269,875   2,699    2,218,894    1,758,283                                 (215,900) 
   Net income for 1995                                               261,513                                           
   Purchase of stock for MRP                                                                                           
   Allocation of ESOP shares                                                                                    53,975 
   Allocation of MRP shares                                                                                            
   Cumulative effect of                                                        
      change in method of                                                      
      accounting for securities,                                               
      net of taxes of $18,228                                                                $(35,383)                 
   Net change in unrealized                                                    
      gain (loss) on securities                                                
      available for sale                                                                        42,034                 
                                   ------------------------------------------------------------------------------------
                                                                               
BALANCES, SEPTEMBER 30, 1995       269,875   2,699    2,218,894    2,019,796                     6,651       (161,925) 
   Net income for 1996                                               207,052                                           
   Cash dividends                                                              
      ($.25 per share)                                              (67,435)                                           
   Allocation of ESOP shares                                                                                    26,987 
   Allocation of MRP shares                                                                                            
   Net change in unrealized gain                                               
      (loss) on securities                                                     
      available for sale                                                                      (54,780)                 
   Purchase of treasury stock                                                  $(342,548)                              
                                   ------------------------------------------------------------------------------------
                                                                               
BALANCES, SEPTEMBER 30, 1996       269,875  $2,699   $2,218,894   $2,159,413   $(342,548)    $(48,129)      $(134,938) 
                                   ====================================================================================
</TABLE>


                       [WIDE TABLE CONTINUED FROM ABOVE]

                                      DEFERRED                   
                                    COMPENSATION                 
                                     RELATED TO                  
                                         MRP          TOTAL     
                                 ------------------------------
                                                               
BALANCES, OCTOBER 1, 1993                          $1,471,839  
   Common stock issued in                                      
      stock conversion                              2,221,593  
   Purchase of stock for                                       
      ESOP                                          (215,900)  
   Net income for 1994                                286,444  
                                 ----------------------------- 
                                                               
BALANCES, SEPTEMBER 30, 1994                        3,763,976  
   Net income for 1995                                261,513  
   Purchase of stock for MRP         $(99,854)       (99,854)  
   Allocation of ESOP shares                           53,975  
   Allocation of MRP shares             14,978         14,978  
   Cumulative effect of                                        
      change in method of                                      
      accounting for securities,                               
      net of taxes of $18,228                        (35,383)  
   Net change in unrealized                                    
      gain (loss) on securities                                
      available for sale                               42,034  
                                 ----------------------------- 
                                                               
BALANCES, SEPTEMBER 30, 1995          (84,876)      4,001,239  
   Net income for 1996                                207,052  
   Cash dividends                                              
      ($.25 per share)                               (67,435)  
   Allocation of ESOP shares                           26,987  
   Allocation of MRP shares             19,971         19,971  
   Net change in unrealized gain                               
      (loss) on securities                                     
      available for sale                             (54,780)  
   Purchase of treasury stock                       (342,548)  
                                 ----------------------------- 
                                                               
BALANCES, SEPTEMBER 30, 1996         $(64,905)     $3,790,486  
                                 ============================= 

   See notes to consolidated financial statements.


                                      19


<TABLE>
<CAPTION>
                       TSB FINANCIAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED SEPTEMBER 30                                     1996           1995            1994
--------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>        
OPERATING ACTIVITIES
   Net income                                          $   207,052     $   261,513     $   286,444
   Adjustments to reconcile net income to net          
      cash provided (used) by operating activities:
      Provision for loan losses                             13,500          20,000          18,100
      Investment securities amortization
         (accretion), net                                   (6,040)         (1,090)         10,937
      Federal Home Loan Bank stock dividends                (2,700)
      Depreciation and amortization                         33,697          11,984          10,483
      Deferred income tax                                  (49,077)         12,909          21,398
      Investment securities (gains) losses                  (9,892)
      Allocation of ESOP shares                             26,987          53,975
      Amortization of MRP                                   19,971          14,978
      Change in:
         Interest receivable                               (70,630)        (29,579)        (18,460)
         Interest payable and other liabilities            115,772        (350,756)        358,016
         Prepaid expense and other assets                   28,099         (32,241)        (16,462)
                                                       -----------     -----------      -----------
         Net cash provided (used) by operating
            activities                                     309,439         (41,007)        670,456
                                                       -----------     -----------      -----------

INVESTING ACTIVITIES
   Net change in interest-bearing time deposits            (89,439)        391,207        (193,285)
   Purchases of securities available for sale           (2,224,025)       (685,063)
   Proceeds from maturities of securities
      available for sale                                   446,862         275,551
   Proceeds from sales of securities available for
      sale                                                 818,128
   Purchases of securities held to maturity                             (1,301,598)     (2,035,595)
   Proceeds from maturities of securities
      held to maturity                                     519,695         122,035         514,378
   Net change in loans                                  (5,751,984)     (1,079,821)      1,211,924
   Purchase of premises and equipment                     (109,588)        (33,757)        (16,133)
   Purchase of Federal Home Loan Bank of
      Chicago stock                                       (139,000)
   Proceeds from sale of FHLB of Chicago stock                                              16,000
                                                       -----------     -----------      -----------
         Net cash used by investing activities          (6,529,351)     (2,311,446)       (502,711)
                                                       -----------     -----------      -----------


                                      20


                           (Continued)
FINANCING ACTIVITIES
   Net change in deposits                             $ 1,682,093     $   (77,665)    $  (900,180)
   Proceeds from FHLB borrowings                        4,615,992       1,000,000         500,000
   Repayment of FHLB borrowings                          (500,000)
   Net change in advances by borrowers for taxes
      and insurance                                        14,684          (1,971)          9,630
   Proceeds from issuance of stock                                                      2,698,750
   Stock issuance expenses                                                               (477,157)
   Purchase of ESOP stock                                                                (215,900)
   Purchase of MRP stock                                                  (99,854)
   Dividends paid                                         (67,435)
   Purchase of treasury stock                            (342,548)
                                                      -----------     -----------     -----------
         Net cash provided by financing activities      5,902,786         320,510       1,615,143
                                                      -----------     -----------     -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                  (317,126)     (2,031,943)      1,782,888
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR              948,047       2,979,990       1,197,102
                                                      -----------     -----------     -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                $   630,921     $   948,047     $ 2,979,990
                                                      ===========     ===========     ===========

ADDITIONAL CASH FLOWS AND SUPPLEMENTARY
   INFORMATION
   Interest paid                                      $ 1,061,122     $   716,243     $   683,923
   Income tax paid                                        121,936         124,116         202,814

   See notes to consolidated financial statements.
</TABLE>


                                      21



                       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 the
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 statement and the
reported amounts of revenues 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 and 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 the Bank after elimination of all intercompany transactions and
accounts.

INVESTMENT SECURITIES--The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, on October 1, 1994.

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. This reclassification
resulted in a decrease in total stockholders' equity, net of taxes, of $35,383.


                                      22


Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts. Realized gains and
losses on sales were included as net security gains (losses). Gains and losses
on the sale of securities were determined on the specific-identification method.

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 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
evaluations by management include consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding and the possibility 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 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, 1996, 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 the period subsequent to the Bank's
conversion to a stock savings bank on September 30, 1994. Fully-diluted earnings
per share assumes the conversion of stock options to be granted under the Stock
Option Plan as of February 1, 1995, the date the Plan was adopted. Net income
per share for the years ended prior to September 30, 1994, are not meaningful.

RECLASSIFICATIONS of certain amounts in the 1995 and 1994 consolidated financial
statements have been made to conform to the 1996 presentation.


                                       23


*  CHANGE IN CHARTER

The Bank converted from a mutual state savings bank to a stock state savings
bank on September 30, 1994, and issued all of its common stock to the Company.
Concurrently with the conversion, the Company issued 269,875 shares of Company
common stock, with $.01 par value, at $10.00 per share. Net proceeds of the
Company's stock issuance, after costs, were approximately $2.2 million.


<TABLE>
<CAPTION>
*  INVESTMENT SECURITIES

                                                                         1996
                                           ---------------------------------------------------------------
                                                              GROSS             GROSS
                                            AMORTIZED       UNREALIZED        UNREALIZED          FAIR
SEPTEMBER 30                                  COST            GAINS             LOSSES            VALUE
----------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>               <C>               <C>        
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
                                          ===========      ===========       ===========       ===========

                                                                         1995
                                           ---------------------------------------------------------------
                                                              GROSS             GROSS
                                            AMORTIZED       UNREALIZED        UNREALIZED          FAIR
SEPTEMBER 30                                  COST            GAINS             LOSSES            VALUE
----------------------------------------------------------------------------------------------------------

Available for sale
   Federal agencies                       $   258,673                                         $   258,673
   Mortgage-backed securities               1,775,571      $    21,256      $   (11,179)        1,785,648
                                          -----------      -----------      -----------       -----------
         Total available for sale           2,034,244           21,256          (11,179)        2,044,321
                                          -----------      -----------      -----------       -----------

Held to maturity
   Federal agencies                         1,082,708           27,948                          1,110,656
   State and municipal                      1,133,814           29,185           (3,935)        1,159,064
   Mortgage-backed securities                 818,017              308          (12,660)          805,665
                                          -----------      -----------      -----------       -----------
         Total held to maturity             3,034,539           57,441          (16,595)        3,075,385
                                          -----------      -----------      -----------       -----------

         Total investment securities      $ 5,068,783      $    78,697      $   (27,774)      $ 5,119,706
                                          ===========      ===========      ===========       ===========
</TABLE>


                                       24


The amortized cost and fair value of securities available for sale and held to
maturity at September 30, 1996, 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.

<TABLE>
<CAPTION>
                                        AVAILABLE FOR SALE                         HELD TO MATURITY
                            -------------------------------------------------------------------------------
                                 AMORTIZED                FAIR              AMORTIZED                FAIR
                                   COST                  VALUE                COST                   VALUE
-----------------------------------------------------------------------------------------------------------
<S>                           <C>                    <C>                   <C>                    <C> 
Within one year                $1,240,028             $1,251,813
One to five years                 110,000                110,000            $306,037               $310,768
Five to ten years                 460,394                443,443
After ten years                   849,490                801,166
                            -------------------------------------------------------------------------------
                                2,659,912              2,606,422             306,037                310,768
Mortgage-backed securities      2,496,276              2,476,846              61,829                 62,938
                            -------------------------------------------------------------------------------

         Totals                $5,156,188             $5,083,268            $367,866               $373,706
                            ===============================================================================
</TABLE>

Securities with a carrying value of $731,000 and $870,000 were pledged at
September 30, 1996 and 1995, to secure certain deposits and for other purposes
as permitted or required by law.

Proceeds from sales of securities available for sale during 1996 were $818,128.
Gross gains of $15,232 and gross losses of $5,340 were realized on those sales.

During 1995 and 1994, there were no sales of securities.

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 1995.


*  LOANS AND ALLOWANCE

<TABLE>
<CAPTION>

SEPTEMBER 30                                             1996             1995
----------------------------------------------------------------------------------
<S>                                                  <C>              <C>        
Real estate mortgage loans
   One-to-four family                                 $21,263,476      $16,192,072
   Multi-family                                           154,186          213,638
Commercial and other loans secured by real estate         892,803          451,925
Consumer loans                                          1,607,503          356,896
                                                      -----------      -----------
                                                       23,917,968       17,214,531
Less
   Undisbursed portion of loans                         1,284,444          315,154
   Deferred loan fees                                      27,654           41,051
                                                      -----------      -----------

                                                      $22,605,870      $16,858,326
                                                      ===========      ===========
</TABLE>


                                       25


SEPTEMBER 30                              1996          1995           1994
-------------------------------------------------------------------------------

Allowance for loan losses
   Balances, October 1                  $115,564      $110,500      $  92,400
   Provision for loan losses              13,500        20,000         18,100
   Recoveries on loans
   Charge-offs                            (4,440)      (14,936)
                                        --------      --------      ---------

   Balances, September 30               $124,624      $115,564      $ 110,500
                                        ========      ========      =========

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:


<TABLE>
<CAPTION>
                                                      1996        1995       1994
-----------------------------------------------------------------------------------

Mortgage loans underlying pass-through certificates
<S>                                                 <C>         <C>        <C>     
   FHLMC                                            $378,954    $564,926   $796,092
                                                    ========    ========   ========
</TABLE>

The Company adopted SFAS No. 114 and No. 118, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN and ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURES, on October 1, 1995. The adoption of SFAS No.
114 and No. 118 did not have a material impact on financial position or results
of operations.

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 as defined to such related parties was as follows:

Balances, October 1, 1995                                           $243,534
New loans, including renewals                                         96,150
Payments, etc., including renewals                                   (33,649)
                                                                    --------

Balances, September 30, 1996                                        $306,035
                                                                    ========


                                       26


*  PREMISES AND EQUIPMENT

SEPTEMBER 30                             1996               1995
------------------------------------------------------------------

Land                                  $   5,800          $   5,800
Buildings and land improvements         167,035            152,831
Furniture and equipment                 171,160             91,110
                                      ---------          ---------
         Total cost                     343,995            249,741
Accumulated depreciation               (143,679)          (125,316)
                                      ---------          ---------

         Net                          $ 200,316           $124,425
                                      =========          =========


*  OTHER ASSETS AND OTHER LIABILITIES

SEPTEMBER 30                                    1996                 1995
-----------------------------------------------------------------------------

Other assets
   Interest receivable
      Securities                             $  67,397            $  64,787
      Loans                                     78,708               10,688
   Federal income tax refundable                                     44,808
   Deferred income tax asset (liability)        62,203             (15,093)
   Prepaid expenses and other                   35,692               18,984
                                             ---------            ---------

         Total                               $ 244,000            $ 124,174
                                             =========            =========

Other liabilities
   Interest payable on deposits              $   9,904            $  29,826
   Federal income tax payable                    2,447
   SAIF assessment payable                     118,821
   Interest payable on borrowings               29,940                5,083
   Other                                        32,211               42,642
                                             ---------            ---------

         Total                               $ 193,323            $  77,551
                                             =========            =========


                                       27


*  DEPOSITS
<TABLE>
<CAPTION>
                                                       1996                   1995
                                          ---------------------------------------------------
                                                          WEIGHTED                   Weighted
                                                          AVERAGE                    Average
SEPTEMBER 30                                  AMOUNT        RATE        Amount         Rate
---------------------------------------------------------------------------------------------
<S>                                      <C>               <C>      <C>               <C>  
NOW accounts                              $  1,449,164      1.27%    $ 1,267,699       1.68%
Money market investment
  accounts                                   2,534,775      4.40       2,170,443       3.10
Savings                                      2,584,679      2.25       2,724,339       2.50
Certificates                                13,581,319      5.49      12,305,363       5.52
                                          ------------               -----------

         Total deposits                   $ 20,149,937               $18,467,844
                                          ============               ===========
</TABLE>


Certificates by rates and maturity:

<TABLE>
<CAPTION>
                                 4.00% TO         5.00% TO          6.00% TO       7.00% TO
                                  4.99%             5.99%            6.99%           7.99%            TOTAL
--------------------------------------------------------------------------------------------------------------

<S>                             <C>             <C>             <C>                <C>           <C>         
1997                            $3,006,463      $4,915,098      $   809,966                       $  8,731,527
1998                               382,550       1,507,872          574,784                          2,465,206
1999                                               641,502          362,167         $852,442         1,856,111
2000                                               270,194          258,281                            528,475
                                ------------------------------------------------------------------------------

      Total                     $3,389,013      $7,334,666       $2,005,198         $852,442       $13,581,319
                                ==============================================================================
</TABLE>


Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30                  1996                  1995                  1994
-------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>                   <C>     
NOW and money market accounts         $  95,962              $ 93,705              $103,512
Savings accounts                         64,984                70,719                78,033
Certificates                            715,248               575,407               499,579
                                      ---------              --------              --------

                                      $ 876,194              $739,831              $681,124
                                      =========              ========              ========
</TABLE>


The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $2,034,829 and $1,521,072 at September 30, 1996 and 1995.


                                       28


*  FEDERAL HOME LOAN BANK BORROWINGS

<TABLE>
<CAPTION>

SEPTEMBER 30                                               1996             1995
-------------------------------------------------------------------------------------
<S>                                                    <C>              <C>
Federal Home Loan Bank advances:
   At 5.76%; due February, 1997                         $  750,000
   At 5.92%; due April, 1997                             1,000,000
   At 6.10%; due July, 1998                              1,000,000       $1,000,000
   At 6.00%; due December, 2001                          1,000,000
   At 5.83%; due July, 2016                                365,992
Federal Home Loan Bank line of credit, variable rate,
   (5.47% at September 30, 1996)                         1,500,000
                                                        ----------       ------------

         Total FHLB borrowings                          $5,615,992       $1,000,000
                                                        ==========       ============
</TABLE>

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 170 percent of this line of credit
and all stock in the FHLB.


*  INCOME TAX

<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30                                         1996                1995             1994
-----------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>               <C>     
Income tax expense
   Currently payable
      Federal                                                 $118,952           $ 88,328          $125,231
      State                                                     25,264             21,983            28,847
   Deferred
      Federal                                                  (49,077)            12,909            21,398
                                                              --------           --------          --------

         Total income tax expense                             $ 95,139           $123,220          $175,476
                                                              ========           ========          ========

                                                                1996               1995              1994
-----------------------------------------------------------------------------------------------------------

Reconciliation of federal statutory to actual tax expense
   Federal statutory income tax at 34%                        $102,745           $130,809          $157,053
   Tax exempt interest                                         (18,728)           (13,794)           (2,018)
   Effect of state income taxes                                 16,674             14,509            19,039
   Other                                                        (5,552)            (8,304)            1,402
                                                              --------           --------          --------

         Actual tax expense                                   $ 95,139           $123,220          $175,476
                                                              ========           ========          ========
</TABLE>


                                       29


At September 30, 1996 and 1995, a net cumulative deferred tax asset (liability)
of $62,203 and $(15,093) is included in other assets. The components of the
asset (liability) are as follows:

<TABLE>
<CAPTION>

SEPTEMBER 30                                                1996                   1995
------------------------------------------------------------------------------------------
<S>                                                      <C>                    <C>      
Differences in depreciation methods                       $ (12,467)             $(10,257)
Deferred loan fees                                           11,006                16,339
Differences in accounting for loan losses                   (13,651)               (8,822)
FHLB stock dividend                                          (8,927)               (8,927)
Unrealized gain (loss) on securities available for sale      24,793                (3,426)
Differences in accounting for SAIF assessment                47,292
Deferred compensation                                        13,910
Other                                                           247
                                                          ---------              --------

                                                          $  62,203              $(15,093)
                                                          =========              ========

Assets                                                      $97,248              $ 16,339
Liabilities                                                 (35,045)              (31,432)
                                                          ---------              --------

                                                          $  62,203              $(15,093)
                                                          =========              ========
</TABLE>

Retained earnings at September 30, 1996 and 1995, include approximately $71,000
for which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions as of September 30,
1988, for tax purposes only. Reduction of amounts so allocated for purposes
other than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which income would
be subject to the then-current corporate income tax rate. The unrecorded
deferred income tax liability on the above amount was approximately $24,000 at
September 30, 1996 and 1995.


*  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 at September
30 were as follows:

                                                    1996                1995
------------------------------------------------------------------------------

Mortgage loan commitments
  At variable rates                               $109,375            $127,475
  At fixed rates ranging from 8.5% to 10.0%        141,260             122,900


                                       30


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 some 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 financial position of the Company.


*  REGULATORY CAPITAL

The Company and Bank are 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 Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank must meet specific capital guidelines
that involve quantitative measures of the Company's and Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and 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, 1996, the management of the company believes that it meets all
capital adequacy requirements to which it is subject. The most recent
notification from the regulatory agency categorized the Company and 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 Company's and Bank's actual and required capital amounts (in thousands) and
ratios are as follows:

<TABLE>
<CAPTION>
                                                                  1996
                                  ---------------------------------------------------------------------
                                                              REQUIRED FOR               TO BE WELL
                                         ACTUAL            ADEQUATE CAPITAL(1)         CAPITALIZED(1)
                                  ---------------------------------------------------------------------
SEPTEMBER 30                       AMOUNT     RATIO        AMOUNT      RATIO         AMOUNT       RATIO
-------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>         <C>          <C>          <C>          <C>  
Total risk-based capital1                                                          
   (to risk-weighted assets)      $3,963       28.2%       $1,124       8.0%         $1,405       10.0%
Core capital1                                                                      
   (to risk-weighted assets)       3,838       27.3           562       4.0             843        6.0
Core capital1                                                                      
   (to adjusted total assets)      3,838       12.9           894       3.0           1,491        5.0
                                                                               
(1) As defined by regulatory agencies

</TABLE>


                                       31


The Company's tangible capital at September 30, 1996 was $3,838, which was 12.9
percent of tangible assets and exceeded the required ratio of 1.5 percent.

The following table reconciles regulatory capital to total stockholders' equity
per the accompanying financial statements at September 30, 1996, (in thousands):

<TABLE>
<CAPTION>

<S>                                                                        <C>   
Regulatory Capital
   Risk-based capital                                                      $3,963
   General allowance for loan losses                                         (125)
                                                                           --------
   Core capital                                                             3,838
   Net unrealized loss on securities available for sale                       (48)
                                                                           --------

         Total stockholders' equity per accompanying financial statements  $3,790
                                                                           ========
</TABLE>

On September 30, 1996, legislation was enacted to recapitalize the Federal
Deposit Insurance Corporation's Savings Association Insurance Fund ("SAIF") as
well as to provide regulatory relief to SAIF insured institutions. As a result
of this legislation, a special assessment was levied on all SAIF assessable
deposits outstanding on March 31, 1995, at a rate of approximately .657 percent
of deposits. Accordingly, the Bank recorded an expense related to this special
assessment of approximately $82,000, net of tax, on the date of enactment.


*  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 the prior approval of the State of Illinois 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
an unsafe or unsound practice.


                                       32


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.


*  BENEFIT PLANS

During 1994, the Bank ceased making contributions to a defined contribution
pension plan for employees. The plan was funded through Bank contributions to a
nationwide plan for savings banks. Contributions to the plan were based upon the
employee's annual salary with the Bank matching the employee's contribution to
the plan up to a maximum of six percent. The cost of the plan was deducted as an
operating expense, which for the year ended September 30, 1994, was $3,920.

During 1994, the Board of Directors approved the adoption of a leveraged
employee stock ownership plan ("ESOP"), which became effective in conjunction
with the Bank's stock conversion on September 30, 1994. Employees age 21 or
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. Shares 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 an eight-year period
and will bear interest at rate of 7.5 percent. ESOP compensation expense was
approximately $27,000 and $54,000 during 1996 and 1995, respectively.
The ESOP shares as of September 30, were as follows:


                                       33


<TABLE>
<CAPTION>
                                                                 1996              1995
                                                             ----------------------------

<S>                                                         <C>                 <C>  
Allocated shares                                                7,735               5,036

Unallocated shares                                             13,493              16,192
                                                             --------            --------

         Total ESOP shares                                     21,228              21,228
                                                             ========            ========



         Fair value of unallocated shares at September 30    $177,095            $172,040
                                                             ========            ========
</TABLE>


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 on 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, 1996, all of these shares had been granted. Compensation
expense related to the MRP was approximately $20,000 and $15,000 during 1996 and
1995, respectively.

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. The Company's incentive stock option plan, which is
accounted for in accordance with Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, the
Company granted selected executives and other key employees stock option awards
which vest and become fully exercisable over a five year period. During 1996,
the Company granted options for 26,987 shares of the Company's common stock at
an exercise price of $9.00. The exercise price of each option, which has a
10-year life, was equal to the market price of the Company's stock on the date
of grant; therefore, no compensation expense was recognized. There were 1,350
options forfeited during 1996, and there were 6,832 options exercisable at
September 30, 1996.


                                       34


*  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.

INTEREST-BEARING TIME 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 value for other loans is estimated using discounted cash flow
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.

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 debt consists 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.


                                       35


The estimated fair values of the Company's financial instruments are as follows:

                                                              1996
                                                -------------------------------
                                                CARRYING OR
                                                  NOTIONAL              FAIR
SEPTEMBER 30                                       AMOUNT               VALUE
-------------------------------------------------------------------------------

ASSETS
   Cash and cash equivalents                       $630,921            $630,921
   Interest-bearing deposits                        484,161             484,161
   Investment securities available for sale       5,083,268           5,083,268
   Investment securities held to maturity           367,866             373,706
   Loans, net                                    22,481,246          22,219,775
   Interest receivable                              146,105             146,105
   Stock in FHLB                                    318,300             318,300

LIABILITIES
   Deposits                                      20,149,937          20,053,531
   Long-term debt                                 5,615,992           5,595,764
   Interest payable                                   9,904               9,904

OFF-BALANCE SHEET ASSETS (LIABILITIES)
   Commitments to extend credit                           0                   0


*  CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

Presented below is condensed financial information as to financial position,
results of operations, and cash flows of the Company:

<TABLE>
<CAPTION>
                             CONDENSED BALANCE SHEET
SEPTEMBER 30                                                  1996                    1995
-----------------------------------------------------------------------------------------------
<S>                                                      <C>                     <C>        
ASSETS
   Cash on deposit                                        $   224,776             $   148,576
   Investment securities available for sale                   504,610                 752,351
   Investment in subsidiary                                 3,016,095               2,936,730
   Other assets                                               132,408                 174,100
                                                          -----------             -----------

         Total assets                                     $ 3,877,889             $ 4,011,757
                                                          ===========             ===========

LIABILITIES                                               $    27,628             $    17,169

STOCKHOLDERS' EQUITY                                        3,850,261               3,994,588
                                                          -----------             -----------

         Total liabilities and stockholders' equity       $ 3,877,889             $ 4,011,757
                                                          ===========             ===========
</TABLE>


                                       36


<TABLE>
<CAPTION>
                          CONDENSED STATEMENT OF INCOME

YEAR ENDED SEPTEMBER 30                                            1996             1995
--------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>      
Equity in earnings of subsidiary                                $ 182,378        $ 229,576
Parent company income                                              24,674           31,937
                                                                ---------        ---------
                                                                
Net Income                                                      $ 207,052        $ 261,513
                                                                =========        =========

                        CONDENSED STATEMENT OF CASH FLOWS

SEPTEMBER 30                                                       1996             1995
-------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
   Net income                                                   $ 207,052        $ 261,513
   Equity in earnings of subsidiary                               (52,378)        (229,576)
   Investment securities accretion                                 (4,613)          (3,606)
   Investment securities gains                                     (1,345)
   Change in
      Other assets                                                  8,705          (12,175)
      Other liabilities                                            10,459           17,169
   Amortization of MRP                                             19,971           14,978
                                                                ---------        ---------
                                                                  187,851           48,303
                                                                ---------        ---------
INVESTING ACTIVITIES
   Proceeds from sales of securities available for sale           171,345
   Purchases of securities held to maturity                                       (748,745)
   Proceeds from maturities of securities held to maturity        100,000
   Proceeds from ESOP payments                                     26,987           53,975
                                                                ---------        ---------
                                                                  298,332         (694,770)
                                                                ---------        ---------

FINANCING ACTIVITIES
   Purchase of MRP stock                                                           (99,854)
   Purchase of treasury stock                                    (342,548)
   Cash dividends                                                 (67,435)
                                                                ---------        ---------
                                                                 (409,983)         (99,854)
                                                                ---------        ---------

NET CHANGE IN CASH                                                 76,200         (746,321)
CASH, BEGINNING OF YEAR                                           148,576          894,897
                                                                ---------        ---------

CASH, END OF YEAR                                               $ 224,776        $ 148,576
                                                                =========        =========
</TABLE>


                                       37


IMPACT OF NEW ACCOUNTING STANDARDS

ACCOUNTING FOR IMPAIRMENT OF LOANS. In 1993 the Financial Accounting Standards
Board ("FASB") issued SFAS No. 114("SFAS 114") entitled "Accounting by Creditors
for Impairment of a Loan." The purpose of SFAS 114 is to eliminate
inconsistencies in the accounting amoung different types of creditors for loans
with similar collection problems by requiring a single method of measuring
impaired loans. Formally restructured loans and loans evaluated as groups or
pools of homogeneous loans (e.g., single family residences) are excluded from
SFAS 114. In October, 1994, FASB issued SFAS No. 118 ("SFAS 118"), "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures."
SFAS 118 amends the disclosure requirements in SFAS 114 to require information
about the recorded investment in certain impaired loans and about how a creditor
recognized interest income related to those impaired loans. The Company adopted
SFAS 114 and 118 as of October 1, 1995. Management does not anticipate such
adoption will have a material impact on the earnings or financial condition of
the Company.

ACCOUNTING FOR CERTAIN SECURITIES. In 1993, FASB issued SFAS No. 115 ("SFAS
115"), "Accounting for Certain Investments in Debt and Equity Securities." SFAS
115 generally requires that debt and equity securities that have readily
determinable fair values be carried at fair value unless they are classified as
held to maturity. Securities can be classified as held to maturity and carried
at amortized cost only if the reporting entity has a positive intent and ability
to hold those securities to maturity. If not classified as held to maturity,
such securities must be classified as trading securities or securities available
for sale and are carried at their market value. The unrealized gains and losses
on securities available for sale are to be excluded from earnings and reported
as a net amount as a separate component of stockholders' equity. Unrealized
gains and losses on trading securities are to be included in earnings. The
statement became effective for fiscal years beginning after December 15, 1993.
SFAS 115 was adopted by the Company on October 1, 1994. At that date, investment
securities with carrying value of $1.6 million were reclassified as available
for sale. This reclassification resulted in a net decrease in equity of $35,000.

On November 28, 1994, the FDIC changed its policy relating to the treatment of
unrealized gains and losses on securities available for sale in accordance with
SFAS 115. Under the new policy, unrealized gains and losses are excluded for
purposes of calculating regulatory capital. The change in FDIC policy resulted
in an increase in regulatory capital of approximately $65,000 and $85,000 at
September 30, 1996 and 1995, respectively.

On November 15, 1995, the FASB issued its Special Report for SFAS No. 115, "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities." The Special Report provides that, concurrent
with the initial adoption of this implementation guidance buy no later than
December 31, 1995, an enterprise may reassess the appropriateness of the
classification of all securities held at that time and account for any resulting
reclassification at fair value. Reclassification from the held to maturity
category that result from this one-time reassessment (which must be made on a
single date) will not call into question the intent of an enterprise to hold
debt securities to maturity in the future. In accordance with such Special
Report, on December 31, 1995, the Company transferred certain securities
included in its held to maturity portfolio which, at the date of transfer, had a
carrying value and fair value of $2.1 million to its available for sale
portfolio.


                                       38


DISCLOSURES ABOUT FINANCIAL INSTRUMENTS. In 1994, the FASB issued SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments." This Statement defines derivative financial instruments as
futures, swaps, option contracts or other financial instruments with similar
characteristics and is effective for the Company's September 30, 1995 financial
statements. The Company has not entered into these types of contracts and
accordingly, management believes that the adoption of this Statement will not
have a material impact on the financial statements of the Company.

ACCOUNTING FOR LONG LIVED ASSETS. In 1995, the FASB issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This Statement establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those aspects to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This Statement is effective for the
Company on October 1, 1996. Management believes that the adoption of the
Statement will not have a material impact on the earnings or financial
statements of the Company.

ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation", establishing financial
accounting and reporting standards for stock-based employee compensation plans.
This statement encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting, which generally does not result
in compensation expense recognition for most plans. Companies that elect to
remain with the existing accounting are required to disclose in a footnote to
the financial statements pro forma net income and, if presented, earnings per
share, as if this Statement has been adopted. The accounting requirements of
this Statement are effective for transactions entered into in fiscal years that
begin after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning after
December 15, 1994.

In November 1993, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued SOP 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," which is effective for fiscal
years beginning after December 15, 1993. SOP 93-6 was applied to the Company for
its fiscal year ending September 30, 1995. SOP 93-6 requires the application of
its guidance for shares acquired by ESOPs after December 31, 1992, but not yet
committed to be released as of the beginning of the year SOP 93-6 is adopted.
SOP 93-6 will, among other things, change the measure of compensation expense
recorded by employers for leverged ESOPs from the cost of ESOP shares to the
fair value of ESOP shares. Under SOP 93-6 the Company recognizes compensation
cost equal to the fair value of the ESOP shares during the periods in which they
become committed to be released. To the extent that the fair value of the
Company's ESOP shares differ from the cost of such shares, this differential is
charged or credited to equity. Employers with internally leveraged ESOPs do not
report the loan receivable from the ESOP as an asset and do not report the ESOP
debt as a liability. See "Management of the Bank-Benefit Plans - Employee Stock
Ownership Plan and Trust."


                                       39


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 1997 Annual Meeting of Stockholders, to be held January
7, 1997 no later than 120 days after the close of its fiscal year ended
September 30, 1996 (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,
1996.


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 42 of this Report.

(b)     Reports on Form 8-K
        None


                                       40


                                   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 1, 1996                  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
---------                         -----                        ----

/s/ Roland E. Hoffman             Director                     December 1, 1996
-----------------------------
Roland E. Hoffman


/s/ Richard A. Jameson            President and Director       December 1, 1996
-----------------------------
Richard A. Jameson


/s/ Ben A. Miller                 Director                     December 1, 1996
-----------------------------
Ben A. Miller


/s/ James D. Petrov               Director                     December 1, 1996
-----------------------------
James D. Petrov


/s/ Dan Steiner, Jr.              Director                     December 1, 1996
-----------------------------
Dan Steiner, Jr.


/s/ Donald L. Swigert             Director                     December 1, 1996
-----------------------------
Donald L. Swigert


/s/ Richard D. Wartick            Chairman of the Board        December 1, 1996
-----------------------------     and Director
Richard D. Wartick                    


                                       41



<TABLE>
<CAPTION>

Exhibit No.         Description         Incorporated by Reference to       Filed in this report  Sequential Page No.

<S>            <C>                      <C>                                <C>                   <C>
   3.1         Certificate of Incor-    Exhibit 3.1 to the Registration
               poration of TSB          Statement of TSB Financial, Inc.
               Financial, Inc.          on Form SB-1, File No. 33-76222

   3.2         Bylaws of TSB            Exhibit 3.2 to the Registration
               Financial, Inc.          Statement of TSB Financial, Inc.
                                        on Form SB-1, File No. 33-76222

   4.1         Revised Specimen         Exhibit 4.1(a) to the Registration
               Stock Certificate        Statement of TSB Financial, Inc.
               of TSB Financial,        on Form SB-1, File No. 33-76222.
               Inc. (See also
               Articles VII, X, XI
               and XVII of Exhibit 3.1
               and Articles III, X and XI of
               Exhibit 3.2)

  10.1         TSB Financial, Inc.      Exhibit A to the Proxy Statement
               Inc. 1994 Stock          included as Exhibit 99.1 to the
               Option                   1994 Annual Report on Form 10-KSB

  10.2         Form of Stock Option     Exhibit 10.2 to the Registration
               Agreement for use in     Statement of TSB Financial, Inc.
               connection with the      on Form SB-1, File No. 33-76222.
               TSB Financial, Inc.
               1994 Stock Option
               Plan.

  10.3         Change of Control        Exhibit 10.3(a) to the Registration
               Agreement between        Statement of TSB Financial, Inc.
               TSB Financial, Inc.      on Form SB-1, File No. 33-76222
               and Richard A. Jameson

  10.4         TSB Financial, Inc.      Exhibit 10.4 to the Registration
               Employee Stock           Statement of TSB Financial, Inc.
               Ownership Plan           on Form SB-1, File No. 33-76222

  10.5         TSB Financial, Inc.      Exhibit 10.5 to the Registration
               Employee Stock           Statement of TSB Financial, Inc. 
               Ownership Plan           on Form SB-1, File No. 33-76222  
               Trust Agreement          

  10.6         TSB Financial, Inc.      Exhibit B to the Proxy Statement
               Management Reten-        included as Exhibit 99.1 to the 1994
               tion Plan and Trust      Annual Report on Form 10-KSB

  13.1         TSB Financial, Inc.                                                   X
               1996 Annual Report
               to Stockholders is
               furnished for the
               information of the
               Commission and is
               not deemed to be 
               "filed" as a part
               of this Form 10-KSB,
               except for portions
               incorporated by 
               reference herein.

  21.1         Subsidiary of the        Exhibit 21.1 to the Registration
               Resigtrant               Statement of TSB Financial, Inc.
                                        on Form SB-1, File No. 33-76222

  99.1         TSB Financial, Inc.      Schedule 14A of TSB Financial, Inc.
               Proxy Statement for the  Proxy Statement for the 1997 Annual
               1997 Annual Meeting to   Meeting filed on December 6, 1996.
               be held January 7, 1997

  27.1         Financial Data Schedule                                               X


</TABLE>