FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number:
PSB HOLDINGS, INC.
(Exact name of registrant as specified in charter)
WISCONSIN 39-1804877
(State of incorporation) (I.R.S Employer Identification
Number)
1905 WEST STEWART AVENUE
WAUSAU, WISCONSIN 54401
(Address of principal executive office)
Registrant's telephone number, including area code: 715-842-2191
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of common shares outstanding at September 30, 1998
was 883,235.
<PAGE>
PSB HOLDINGS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
PAGE NO.
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Statements of
Income, Nine Months Ended and Three Months Ended
September 30, 1998 (unaudited) and
September 30, 1997 (unaudited) 1
Condensed Consolidated Balance
Sheets September 30, 1998 (unaudited)
and December 31, 1997 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Nine Months Ended and Three Months Ended
September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2.Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
PART II.OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to Vote of Securities
Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on form 8-K 14
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<PAGE> PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
($ thousands except share
data -unaudited) Nine Months Ended Three Months Ended
September 30, September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $10,107 $ 9,310 3,386 3,202
Interest on investment
securities
Taxable 1,727 1,793 605 570
Tax-exempt 466 433 163 146
Other interest income 225 66 98 36
Total interest income 12,525 11,602 4,252 3,954
Interest Expense:
Deposits 6,130 5,832 2,058 2,007
Short-term borrowings 413 275 147 81
Total interest expense 6,543 6,107 2,205 2,088
Net interest income 5,982 5,495 2,047 1,866
Provisions for losses on loans 225 155 75 65
Net interest income after
provision for loan losses 5,757 5,340 1,972 1,801
Other income:
Service fees 470 364 180 132
Investment product sales
commissions 116 52 28 18
Gain on sale of loans 235 30 73 23
Net security gains 36 -0- -0- -0-
Net gain on other real estate 20 3 -0- 3
Other operating income 194 135 96 42
Total other income 1,071 584 377 218
Other Expenses
Salaries and related benefits 2,157 1,903 696 625
Loss on settlement of
pension plan 403 -0- -0- -0-
Net occupancy expense 614 530 209 175
Computer operations 78 52 28 26
Other operating expense 1,024 822 345 260
Total other expenses 4,276 3,307 1,278 1,086
Income before income taxes 2,552 2,617 1,071 933
Provision for income taxes 805 849 352 307
Net income $ 1,747 $ 1,768 $ 719 $ 626
Income per share
Basis: Weighted Average of 883,235 shares in 1998
Weighted Average of 887,958 shares in 1997
Net income per share $ 1.98 $ 1.99 $ .81 $ .70
</TABLE>
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<PAGE>
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands) September 30, December 31,
ASSETS 1998* 1997*
<S> <C> <C>
Cash and cash equivalents $ 8,915 $ 10,623
Interest bearing deposits with banks -0- 153
Federal funds sold 1,484 -0-
Investment securities -
Held to maturity
(Market value $14,365 & $12,704 14,067 12,549
at 1998 & 1997 respectively)
Available for sale (at fair market
value, cost $41,349 & $37,422 41,767 37,579
at 1998 & 1997 respectively)
Total loans 149,546 149,317
Allowance for loan losses (1,909) (1,845)
Net loans 147,637 147,472
Bank premises and equipment 3,954 3,746
Other assets 2,548 2,897
TOTAL ASSETS $220,372 $215,019
LIABILITIES
Noninterest-bearing deposits $ 26,915 $ 27,564
Interest-bearing deposits 161,819 159,038
Total deposits 188,734 186,602
Short-term borrowings 3,443 3,960
Long-term borrowings 6,000 3,000
Other liabilities 1,372 2,239
Total liabilities 199,549 195,801
STOCKHOLDERS' EQUITY
Common stock - no-par value, with a stated
value of $2 per share
- 1,000,000 shares authorized
- 902,425 shares issued 1,805 1,805
Additional paid-in capital 7,159 7,159
Retained earnings 12,393 10,956
Accumulated other comprehensive
income, net of tax 269 101
Treasury stock, at cost - 19,190 shares (803) (803)
Total stockholders' equity 20,823 19,218
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $220,372 $215,019
<FN>
*The consolidated balance sheet at September 30, 1998 is unaudited.
The December 31, 1997 consolidated balance sheet is derived from
audited financial statements.
</TABLE>
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<PAGE>
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
($ thousands - unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,747 $ 1,768 $ 719 $ 626
Provision for depreciation, and
net amortization 341 338 127 111
Provisions for loan losse 225 155 75 65
Gain on sale of securities
available for sale (36) -0- -0- -0-
Gain on sale of other real estate (20) -0- -0- -0-
Changes in operating assets and liabilities:
Other assets 216 (52) (145) (58)
Other liabilities (867) (653) (345) (168)
Net cash provided by operating activities 1,606 1,556 431 576
Cash flows from investing activities:
Proceeds from sale and maturities of:
Held to maturity securities 931 1,130 200 150
Available for sale securities 12,168 7,381 674 3,424
Payment for purchase of
Held to maturity securities (2,465) (2,041) (473) (624)
Available for sale securities (16,338) (3,074) (5,978) (601)
Net change in loans (390) (7,867) (2,038) (4,015)
Net decrease in interest-bearing
deposits with banks 153 -0- 383 -0-
Net (increase)decrease in
federal funds sold (1,484) -0- 5,595 -0-
Proceeds from sale of other real estate 356 -0- -0- -0-
Capital expenditures (550 (194) (64) (82)
Net cash used in investing activities (7,619) (4,665) (1,701) (1,748)
Cash flows from financing activities:
Net increase in deposits 2,132 2,814 1,628 1,341
Net increase (decrease) in
short-term borrowings (517) 726 (176) 21
Net increase (decrease) in
federal funds purchased -0- 297 -0- (1,801)
Net increase in long-term borrowings 3,000 125 -0- 125
Dividends paid (310) (310) -0- -0-
Purchase of stock -0- (488) -0- (119)
Net cash provided (used in) by
financing activities 4,305 3,164 1,452 (433)
Net increase (decrease) in cash
and cash equivalents (1,708) 55 182 (1,605)
Cash and cash equivalents at
beginning of period 10,623 10,152 8,733 11,812
Cash and cash equivalents
at end of period $ 8,915 $ 10,207 $ 8,915 $10,207
Supplemental Cash Flow Information:
Cash paid during
period for : Interest 6,543 6,103 2,204 2,084
Income taxes 775 800 373 308
</TABLE>
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<PAGE>
PSB HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements in the opinion of management
reflect all adjustments which are normal and recurring in nature
and which are necessary for a fair statement of the results for the
periods presented. In all regards, the financial statements have
been presented in accordance with generally accepted accounting
principles.
2. Earnings per share of common stock is based on the weighted average
number of common shares outstanding.
3. Refer to notes to the financial statements which appear in the 1997
annual report for the company's accounting policies which are
pertinent to these statements.
4. In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FASB 130), was issued and
establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income
and its components, as recognized under the accounting standards,
to be displayed in a financial statement with the same prominence as
other financial statements. The disclosure requirements of FASB 130
with respect to the Form 10-Q have been included in the
corporation's consolidated balance sheets. Comprehensive income
totaled the following for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended Three months ended
($thousands) 9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C>
Net Income $1,747 $1,768 $ 719 $ 626
Change in net unrealized
gain or securities
available for sale,
net of tax 168 85 178 95
Comprehensive income $1,915 $1,853 $ 897 $ 721
</TABLE>
Statement of Financial Accounting Standards No.131, "Disclosures about
Segments of an Enterprise and Related Information" (FASB 131), also
issued in June 1997, establishes new standards for reporting information
about operating segments in annual and interim financial statements. The
standard also requires descriptive information about the way the operating
segments are determined, the products and services provided by the
segments and the nature of differences between reportable segment
measurements and those used for the consolidated enterprise. This
standard is effective for years beginning after December 15, 1997.
Adoption in interim financial statements is not required until the year
after initial adoption, however comparative prior period information is
required.
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FASB 131 will be adopted, as required, beginning with year-end
1998. The disclosure requirements will have no impact on the
corporation's financial position or results of operations.
<PAGE>
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" (SOP 98-1), which provides guidance as to
when it is or is not appropriate to capitalize the cost of software
developed or obtained for internal use. The corporation elected early
adoption of SOP98-1. The effect of the adoption was not material.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FASB 133). FASB 133 establishes
new accounting and reporting requirements for derivative instruments,
including certain derivative instruments embedded in other contracts and
hedging activities. The standard requires all derivatives to be measured
at fair value and recognized as either assets or liabilities in the
statement of condition. Under certain conditions, a derivative may be
specifically designated as a hedge. Accounting for the changes in the
fair value of a derivative depends on the intended use of the derivative
and the resulting designation. Adoption of the standard is required for
the corporation's December 31, 2000 financial statements with early
adoption allowed as of the beginning of any quarter after June 30, 1998.
Management is in the process of assessing the impact and period of
adoption of the standard. Adoption is not expected to result in a
material financial impact.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS*
(All $ amounts are in thousands, except per share amounts)
RESULTS OF OPERATIONS
TOTAL ASSETS
Total assets have increased by $5,353 from December 31, 1997 to September
30, 1998. This is an increase of 2.49%. In 1997, total assets increased
$4,364 or 2.14% in the first nine months.
LOANS
Net loans have increased by $165 from December 31, 1997 to September 30,
1998. This is an increase of .11%. Real Estate Loans refinancing in the
secondary market have significantly decreased loan growth. In 1997,
loans increased $7,376 or 5.42% in the first nine months.
-5-
Cash decreased by $1,708 as of September 30, 1998 compared to December
31, 1997. Efforts have been successful in decreasing this non-earning
asset. Fed Funds Sold increased $1,484 as of September 30, 1998
compared to December 31, 1997. Investments increased by $5,706.
DEPOSITS
Deposits increased by $2,132 from December 31, 1997 to September 30,
1998. In 1997, deposits increased by $2,814 in the first nine months.
SHORT TERM BORROWINGS
There were no Fed funds purchased as of September 30, 1998. Repurchase
agreements decreased by $517 from December 31, 1997 to September 30,
1998.
<PAGE>
LONG TERM BORROWINGS
An additional advance of $3,000 was taken out at the FHLB Chicago in the
first quarter of 1998.
EQUITY
Equity grew by $1,605 or 8.35% due to the following: Net income for the
first nine months of $1,747, a cash dividend paid of $310, and an
increase in the "Net unrealized gain on securities available for sale"
of $168. The increase in the unrealized gain is a result of the market
prices of the investment portfolio increasing as of September 30, 1998.
In the first nine months of 1997 equity grew by $1,055 or 5.77%.
* Matters discussed in this report with respect to the expectations of
the company or its management are forward-looking statements that
involve risks and uncertainties. A more comprehensive discussion of
the risks and uncertainties which could cause actual results to be
materially different from such expectations are set forth in Part I
of the company's Annual Report of Form 10-K for the year ended December
31, 1997 under the heading "Cautionary Statement Regarding Forward
Looking Information."
OPERATING DATA SUMMARY
GENERAL
Net interest income for the first nine months of 1998 is $487 or 8.86%
greater than it was for the same period in 1997.
NON-INTEREST INCOME
Non-interest income increased by $487 or 83.39% from the period ending
September 30, 1998 compared to the period ending September 30, 1997.
This increase is attributable to the implementation of a profit
improvement project which in many areas increased our service charges
and fees for services, along with service release premium income on real
estate loans sold to the secondary market of $235 in 1998 compared to $30
in the same period of 1997.
-6-
NON-INTEREST EXPENSE
Non-interest expenses increased 29.30% or $969 for the period ending
September 30, 1998 when compared to the period ending September 30,
1997. An additional Pension Plan expense of $403 from the termination
of our DB Pension Plan and expenses related to the opening of a
supermarket branch in March of 1998 contributed to this increase.
NET INCOME
Net income for nine months of 1998 is 1.19% lower than the same period
in 1997 and earnings per share decreased from $1.99 to $1.98, or .50%.
Again, the additional expenses outlined above attributed to the lower
first nine months results of operations.
<PAGE>
<TABLE>
KEY OPERATING RATIOS
(unaudited) Ended September 30, 1998
<CAPTION>
Nine Month Period Three Month Period
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Return on assets (net income
divided by average assets)(1) 1.07% 1.16% 1.30% 1.22%
Return on Average Equity
(net income divided by
average equity) (1) 11.82% 12.53% 14.29% 13.15%
Average Equity to Average Assets 9.04% 9.22% 9.09% 9.25%
Interest Rate Spread (difference
between average yield on interest
earning assets and average cost
of interest bearing
liabilities) (1) 3.23% 3.00% 3.21% 2.97%
Net Interest Margin (net interest
income as a percentage of average
interest earning assets (1) 3.91% 3.77% 3.93% 3.81%
Non-interest Expense to
average assets (1) 2.61% 2.16% 2.31% 2.11%
Allowance for loan losses
to total loans at end of period 1.28% 1.28% 1.28% 1.28%
(1) Annualized
</TABLE>
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at the end of each period,
changes in the allowance for loan losses arising from loans charged off
and recoveries on loans previously charged off, by loan category and
-7-
additions to the allowance which have been charged to expense.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
Sept 30, 1998 December 31, 1997
<S> <C> <C>
Allowance for loan losses at
beginning of period $1,845,064 $1,924,686
Loans charged off
Commercial & Industrial (115,976) (155,650)
Agricultural -0- -0-
Real Estate - Mortgage -0- (136,011)
Installment & Other
Consumer Loans ( 49,064) ( 58,581)
Total Charge Offs (165,040) (350,242)
Recoveries on loans previously
charged off
Commercial & Industrial 316 17,538
Agricultural -0- -0-
Real Estate - Mortgage -0- 18,582
Installment & Other
Consumer Loans 3,298 4,500
Total Recoveries 3,614 40,620
Net loans charged off (161,426) (309,622)
Additions charged to operations 225,000 230,000
Allowance for loan losses
at end of period $1,908,638 $1,845,064
</TABLE>
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<PAGE>
<TABLE>
AGGREGATE AMOUNT OF NON-PERFORMING LOANS
<CAPTION>
Sept 30, December 31,
1998 1997
<S> <C> <C>
Loans on a non-accrual basis
Real estate - mortgage $ 36,858 $ 332,655
Installment loans 53,175 54,665
Credit cards & related plans -0- -0-
Commercial & all other loans 529,379 447,554
Total non-accrual $ 619,412 $ 834,874
Loans contractually past due
thirty through eighty-nine days
and still accruing
Real estate - mortgage $ 807,582 $ 153,578
Installment loans 322,843 162,243
Credit cards & related plans -0- -0-
Commercial & all other loans 1,090,586 57,268
Total 30 - 89 days $2,221,011 $ 373,089
Loans contractually past due
ninety days or more as to
interest or principal payments
Real estate - mortgage $ -0- $ 7,117
Installment loans -0- -0-
Credit cards & related plans -0- -0-
Commercial & all other loans -0- -0-
Total over 90 days $ -0- $ 7,117
</TABLE>
YEAR 2000 DISCLOSURE
YEAR 2000 POLICIES
The company, like virtually all other financial institutions in the
United States, depends on computer technology to process its various
deposit, loan and investment transactions on a daily basis. Management
has initiated a plan to review and address the potential for failure of
computer applications as a result of the failure of a software program
to properly recognize the year 2000 (the "Year 2000 problem" or "Year
2000 issues"). The company's assessment of the possible consequences of
Year 2000 issues on the company's business, results of operations, or
financial condition is referred to herein as its "Year 2000 Project."
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The Year 2000 Project was initiated in July, 1997 and is headed by a
committee of employees of the company's wholly-owned subsidiary, Peoples
State Bank (the "Bank"). The company is a one-bank holding company and
the Bank is its sole operating subsidiary. Members of the Committee are
responsible for day-to-day computer and internal operations at the Bank,
as well as various lending and deposit functions. The Year 2000 Project
Committee (the "Committee") reports on a regular basis to the company's
Board of Directors as to the status of Year 2000 issues and the company's
<PAGE>
progress in addressing and/or resolving identified Year 2000 problems.
The Committee has relied upon its own analysis of the company's exposure
to Year 2000 issues and has reviewed and been guided by its primary bank
regulators and various FFIEC Interagency statements, reports, and
guidance concerning Year 2000 awareness, testing, implementation, and
contingency planning.
The company's assessment of the possible consequences of Year 2000
issues on the company's business, results of operations, or financial
condition is not complete, but is continuing in accordance with the Year
2000 Project and a Year 2000 Compliance Policy adopted by the Committee.
The Year 2000 Project includes the following procedures, some of which,
as indicated, have been completed in whole or in part as of the date of
this report:
1. Identify all computer software and hardware and other equipment
or systems using embedded chips that could fail due to Year 2000
problems or issues. All such computer hardware and other
equipment or systems using embedded chips is referred to herein
as "equipment." All equipment has now been evaluated.
2. Determine status of software and equipment Year 2000
certification by manufacturers or vendors and the extent to
which such manufacturers or vendors anticipate Year 2000
compliance as it relates to services or equipment provided to
the company, with emphasis on software and equipment which is
essential to processing banking transactions and the Bank's day-
to-day record keeping operations. These determinations have
been completed.
In connection with the survey of manufacturers and vendors, test
critical software and equipment for Year 2000 compliance in
accordance with bank regulatory guidelines and the Committee's
internal criteria. The company has completed approximately 30%
of this testing.
Determine if software and equipment should be upgraded,
replaced, or discarded based on surveys and testing. These
determinations have been completed.
3. Identify and survey correspondent banks and other service
providers whose services or products are deemed critical to the
Bank's day-to-day operations to assess their Year 2000
compliance. These steps have been completed.
-10-
4. Develop criteria to identify customers of the Bank whose loan,
deposit or other business is considered significant (as
determined by the Committee's internal evaluation standards),
the loss or disruption of which may, on a combined basis, have a
material adverse effect on the Bank's business, results of
operations, or financial condition. Collectively, these
customers are referred to herein as "selected bank customers."
These criteria have been developed.
<PAGE>
5. Survey selected bank customers to educate such customers as to
the existence and scope of the Year 2000 problem on customers'
business and accounts and to identify possible risks to the
company of those customers' own noncompliance with Year 2000
issues. Additional education of all Bank customers will also
be undertaken. This step is approximately 50% complete. The
company has additional seminar education for customers
planned and has distributed FDIC and other materials to
customers which describe the Year 2000 problem as part of this
process.
A risk assessment was also done at this time for any systems that
were not tested. Testing continues to be conducted periodically as
required to monitor previously failed systems or untested systems
in coordination with manufacturer or vendor certification. Testing
will continue through the year 2000 to check software and equipment
upgrades and modifications.
All vendors of software or equipment deemed critical to the Bank's
operations have been contacted to determine if their products are or will
be Year 2000 compliant. The company will continue to monitor vendor
certifications as to Year 2000 compliance and to take appropriate steps
to modify or replace systems which are not expected to attain compliance
status by July, 1999. Certain upgrading has already been accomplished.
A Year 2000 capability upgrade of hardware on the bank's mainframe
computer was installed in April, 1998. A second mainframe, upgraded in
April, 1998 will be utilized to do Year 2000 network testing.
In addition to surveying selected bank customers with respect to
their Year 2000 compliance readiness, a letter outlining Year 2000
issues, along with a Year 2000 Credit Risk Assessment Worksheet, has
been sent to all commercial loan customers in order to assist the
Committee in determining the level of risk to the Bank which might be
expected as a result of Year 2000 noncompliance among the loan customer
base. Commercial loan application procedures have been amended to
include a questionnaire regarding Year 2000 compliance. Seminars have
been held, and will continue to be held, for commercial customers and
the general public regarding Year 2000 issues and all business checking
accounts have received a brochure regarding the importance of Year 2000
compliance. The Bank's loan committee has been charged with identifying
major employers in the Bank's primary market area and evaluating
potential loss to the Bank's business if those employers operations
would be curtailed or cease due to Year 2000 problems.
-11-
Inquiries to the Bank's investment subsidiary service provider and
correspondent banks have been undertaken to determine the effect of such
entities' compliance with Year 2000 issues.
The Committee has determined that the company does not have non-
information technology systems, such as embedded controllers, which are
material to the operations of the company and that all security and
building operations systems can be operated manually or with alternative
controls should a Year 2000 problem occur.
<PAGE>
COSTS
Replacement of hardware and software which was identified as
non-Year 2000 compliant began in January, 1998. A prerequisite to the
purchase of new or replacement software or equipment is a certification
by the manufacturer or vendor of Year 2000 compliance.
Costs of new software or equipment will be capitalized over their
useful life. All other costs associated with Year 2000 issues are
expensed as incurred. The estimated total cost of evaluation and
compliance with Year 2000 issues is not expected to exceed $150,000 and,
in any event, is not expected to be material to the company.
RISKS
The company does not believe that Year 2000 issues will have a
material adverse effect on its business, results of operations, or
financial condition. There are, however, many risks associated with
Year 2000 that are beyond the control of the company or which may not be
adequately addressed by others before material problems are encountered.
The company, like other financial institutions, depends upon the Federal
Reserve System and other financial institutions to process a wide
variety of financial transactions for itself and its customers and as a
source of credit. The company must rely upon various federal bank
regulatory agencies to make certain that the U.S. banking and payments
system, as a whole, is Year 2000 compliant. While the company believes
that the banking system as a whole will be Year 2000 compliant, and it
has inquired into the readiness of its principal correspondents and
service providers, there can be no assurance of that fact or that one or
more will not encounter significant Year 2000 problems and thereby
adversely affect the company.
The Bank has a diverse customer base. Based on this diversity and
the information received by the Bank to date in response to its customer
surveys and other inquiries, the company believes that its customers as
a whole will not incur material adverse results from Year 2000 related
issues to the extent the Bank will, in turn, incur material defaults in
its loan portfolio. Nevertheless, there is a risk which cannot be
wholly discounted that Year 2000 problems encountered by its customers
may result in significant losses to the company as a result of the
inability to repay loans or as a result of reducing the nonloan portion
of its customers' banking business.
-12-
The company's and the Bank's insurer has indicated that it will not
provide coverages for losses related to Year 2000 issues. This position
is similar to that taken by many insurance carriers. If this coverage
limitation is successfully imposed by insurance companies, insurance
coverage for any claims of business interruption on the part of the
company or its customers or vendors, or claims by or against the company
for failure to perform various contracts or business agreements as a
result of Year 2000 related problems may not be available or may be
available only at premiums that are prohibitive. Losses to the company
are possible as a result of disruptions in the nationwide banking system
and one or more individual customers or sectors may default on loan
obligations or reduce their level of demand for other services or
products offered by the Bank as a result of Year 2000 related problems.
The company does not expect that such events, if they occur, will have a
material adverse affect on the business, results of operations, or
<PAGE>
financial condition of the Bank or the company.
CONTINGENCY PLANS
The Committee has prepared a risk analysis of Year 2000 issues in
conjunction with the Bank's disaster recovery plan to help identify what
risks should be addressed and to develop contingency plans for continued
operations in the event of failure of one or more of the Bank's major
systems. These contingency plans are similar, and in some cases,
identical, to those in place for the Bank's overall business recovery
plans that are or would be used in the event of any type of disaster.
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PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
SHAREHOLDER PROPOSALS AND DISCRETIONARY VOTING
If any shareholder desires to submit a proposal for inclusion in the
proxy statement to be used in connection with the annual meeting of
shareholders to be held in 1999 (the "1999 Annual Meeting"), the proposal
must be in proper form and received by the company no later than November
25, 1998.
The proxy solicited by the Board of Directors of the company will
provide that the proxy will confer discretionary voting authority as to
any matter proposed by a shareholder at the 1999 Annual Meeting if the
company does not receive notice of such proposal on or before February
8, 1999.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K:
(a)Exhibits required by Item 601 of Regulation S-K.
EXHIBIT (3) - ARTICLES OF INCORPORATION AND BYLAWS
-14-
<PAGE>
PAGE OR
INCORPORATED
EXHIBIT <dagger>
(i)Restated Articles of Incorporation, as amended ...4(a)(1)
(ii)Bylaws ........................................ 4(b)(1)
EXHIBIT (4) - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
(a)Articles of Incorporation and
Bylaws (see Exhibits 3(a) and (b))
EXHIBIT (10) - MATERIAL CONTRACTS
(a)Bonus Plan of Directors of the Bank* .......... 10(a)(2)
(b)Bonus Plan of Officers and Employees of the Bank* 10(b)(2)
(c)Non-Qualified Retirement Plan for Directors
of the Bank*................................... 10(c)(2)
EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT ....... 22(2)
EXHIBIT (27) - FINANCIAL DATA SCHEDULE
* Denotes Executive Compensation Plans and Arrangements.
<dagger>Where exhibit has been previously filed and is incorporated
herein by reference, exhibit numbers set forth herein correspond to
the exhibit number where such exhibit can be found in the following
reports of the registrant (Commission File No. 0-26480) filed with the
Securities and Exchange Commission:
(1) Registrant's current report on Form 8-K dated May 30, 1995
(2) Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1995
(b) Reports on Form 8-K:
Form 8-K dated October 9, 1998
Item 5. Other Business, filed for purpose of providing Year 2000
disclosure and notifying shareholders regarding shareholder proposals and
discretionary voting.
-15-
<PAGE> SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 12, 1998 PSB HOLDINGS, INC.
TODD R. TOPPEN
Todd R. Toppen
Secretary and Controller
(On behalf of the Registrant and as
Principal Financial Officer)
<PAGE>
EXHIBIT INDEX<dagger>
TO
FORM 10-Q
OF
PSB HOLDINGS, INC.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. Section 232.102(d))
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<dagger> Exhibits required by Item 601 of Regulation S-K which have been
previously filed and are incorporated by reference are set forth in Item
6 of the Form 10-Q to which this Exhibit Index relates.
-16-
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