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 JUNE 30, 1999
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: 0-26480
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 June 30, 1999 was 883,235.
<PAGE>
PSB HOLDINGS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Six Months Ended and Three Months Ended
June 30, 1999 (unaudited) and
June 30, 1998 (unaudited) 1
Condensed Consolidated Balance
Sheets June 30, 1999 (unaudited)
and December 31, 1998 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Six Months Ended and Three Months Ended
June 30, 1999 (unaudited)
and June 30, 1998 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to Vote of Securities
Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on form 8-K 18
-i-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
($ thousands except share data -unaudited) Six Months Ended Three Months Ended
June 30, June 30
<S> <C> <C> <C> <C>
Interest Income 1999 1998 1999 1998
Interest and fees on loans $ 6,659 $ 6,722 $ 3,392 $ 3,405
Interest on investment securities
Taxable 1,412 1,139 701 556
Tax-exempt 331 303 163 155
Other interest income 58 109 25 66
Total interest income 8,460 8,273 4,281 4,182
Interest Expense:
Deposits 3,749 4,072 1,861 2,036
Short-term borrowings 256 266 175 138
Long-term borrowings 138 0 57 0
Total interest expense 4,143 4,338 2,093 2,174
Net interest income 4,317 3,935 2,188 2,008
Provisions for losses on loans 150 150 75 75
Net interest income after provision for
loan losses 4,167 3,785 2,113 1,933
Non-interest income:
Service fees 305 290 152 159
Gain on sale of loans 169 161 78 106
Net gain on sale of securities available
for sale 0 36 0 0
Other operating income 249 206 166 109
Total non-interest income 723 693 396 374
Other Expenses
Salaries and related benefits 1,610 1,864 852 818
Net occupancy expense 430 399 215 205
Computer operations 68 50 33 26
Loss on uncollected items 46 0 0 0
Other operating expense 737 684 364 324
Total non-interest expenses 2,891 2,997 1,464 1,373
Income before income taxes 1,999 1,481 1,045 934
Provision for income taxes 642 453 323 296
Net income $ 1,357 $ 1,028 $ 722 $ 638
Income per share
Basis: Weighted Average of 883,235 shares in 1999 and 1998
Basic and diluted earnings per share $ 1.54 $ 1.16 $ .82 $ .72
</TABLE>
-1-
<PAGE>
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands)
June 30, December 31,
ASSETS 1999* 1998*
<S> <C> <C>
Cash and due from banks $ 8,829 $ 8,752
Interest bearing deposits and money
market funds 669 741
Federal funds sold 0 3,934
Investment securities -
Held to maturity (fair values of $14,697
and $14,346 respectively) 14,838 14,068
Available for sale (at fair value) 46,626 47,886
Loans held for sale 237 3,120
Loans receivable, net of allowance for
loan losses of $2,082 and $1,947 in 1999 and
1998, respectively 164,944 148,582
Accrued interest receivable 1,722 1,725
Premises and equipment 3,874 3,886
Other assets 944 797
TOTAL ASSETS $ 242,683 $233,491
LIABILITIES
Noninterest-bearing deposits $ 30,460 $33,150
Interest-bearing deposits 166,933 166,650
Total deposits 197,393 199,800
Short-term borrowings 18,415 4,550
Long-term borrowings 4,230 6,000
Other liabilities 1,672 2,585
Total liabilities 221,710 212,935
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 13,245 12,223
Net unrealized gain (loss) on
securities available for sale, net of tax (433) 172
Treasury stock, at cost - 19,190 shares (803) (803)
Total stockholders' equity 20,973 20,556
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 242,683 $233,491
<FN>
*The consolidated balance sheet at June 30, 1999 is unaudited. The
December 31, 1998 consolidated balance sheet is derived from audited
financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
($ thousands - unaudited) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,357 $ 1,028 $ 722 $ 638
Provision for depreciation, and
net amortization 255 214 130 118
Provisions for loan losses 150 150 75 75
Gain on sale of loans (169) (161) (78) (106)
Loss on uncollected items 46 0 0 0
Gain on sale of securities available
for sale 0 (36) 0 0
Gain on sale of other real estate (21) (20) (21) (20)
Changes in operating assets and liabilities:
Other assets 799 522 954 261
Other liabilities (913) (522) 0 245
Net cash provided by operating activities 1,504 1,175 1,782 1,211
Cash flows from investing activities:
Proceeds from sale and maturities of:
Held to maturity securities 1,903 731 1,088 466
Available for sale securities 7,755 11,494 2,390 3,484
Payment for purchase of:
Held to maturity securities (2,664) (1,992) (1,255) (1,577)
Available for sale securities (7,993) (10,360) (3,836) (4,961)
Net change in loans (13,629) 1,648 (13,331) 3,553
Net change in interest-bearing deposits 72 (230) 717 198
Net change in federal funds sold 3,934 (7,079) 0 (3,374)
Proceeds from sale of other real estate 66 356 66 356
Capital expenditures (224) (486) (107) (186)
Net cash used in investing activities (10,780) (5,918) (14,268) (2,041)
Cash flows from financing activities:
Net change in deposits (2,407) 504 4,552 764
Net change in short-term borrowings 13,865 (341) 10,662 (12)
Net change in long-term borrowings (1,770) 3,000 (1,770) 0
Dividends paid (335) (310) (335) (310)
Net cash provided by financing
activities 9,353 2,853 13,109 442
Net increase (decrease) in cash and
cash equivalents 77 (1,890) 623 (388)
Cash and cash equivalents at
beginning of period 8,752 10,623 8,206 9,121
Cash and cash equivalents at
end of quarter $ 8,829 $ 8,733 $ 8,829 $ 8,733
Supplemental Cash Flow Information:
Cash paid during the period for :
Interest 4,143 4,339 2,093 2,175
Income taxes 647 402 580 402
</TABLE>
-3-
<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 1998
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>
Six months ended Three months ended
($ thousands) 6/30/99 6/30/98 3/30/99 3/30/98
<S> <C> <C> <C> <C>
Net Income $ 1,357 $ 1,028 $ 722 $ 638
Change in net unrealized gain
or loss on securities available
for sale, net of tax (605) (10) (394) (6)
Comprehensive income $ 752 $ 1,018 $ 328 $ 632
</TABLE>
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, 2001 financial statements
with early adoption allowed as of the beginning of any quarter after
June 20, 1998. Management is in the process of assessing the impact and
period of adoption of the standard. Adoption is not expected to result
in material financial impact.
-4-
<PAGE>
<TABLE>
5. Investment Securities
The amortized cost and estimated fair value of investment securities
are as follows:
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
($ thousands) COST GAINS LOSSES VALUE
JUNE 30, 1999
<S> <C> <C> <C> <C>
Securities held to maturity:
Obligations of states and
political subdivisions $ 14,838 $ 79 $ 221 $ 14,697
Securities available for sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 45,339 $ 56 $ 747 $ 44,648
Other equity securities 1,978 1,978
Totals $ 47,317 $ 56 $ 747 $ 46,626
DECEMBER 31, 1998
Securities held to maturity
Obligations of states and
political subdivisions $ 14,068 $ 278 $ 955 $ 14,346
Securities available for sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 46,920 $ 342 $ 77 $ 47,185
Other equity securities 701 701
Totals $ 47,621 $ 342 $ 77 $ 47,886
</TABLE>
-5-
<PAGE>
<TABLE>
6. Loans
The composition of gross loans at June 30, 1999, and December 31,
1998, follows:
<CAPTION>
June 30, 1999 % of total December 31, 1998 % of total
($ Thousands)
<S> <C> <C> <C> <C>
Commercial 46,087 27.59% 40,514 26.91%
Real Estate 107,968 64.64% 98,260 65.28%
Consumer 12,971 7.77% 11,755 7.81%
Total $167,026 100.00% $150,529 100.00%
</TABLE>
Gross loans outstanding increased 10.96% for the six months ended
June 30, 1999; increasing to $167,027 at June 30, 1999 from $150,529
at December 31, 1998.
The Company's process for monitoring loan quality includes weekly
analysis of delinquencies, non-performing assets, and potential
problem loans. Loans are placed on a nonaccrual status when they
become contractually past due 90 days or more as to interest or
principal payments. All interest accrued but not collected for
loans (including applicable impaired loans) that are placed on
nonaccrual or charged off is reversed to interest income. The
interest on these loans is accounted for on the cash basis until
qualifying for return to accrual status. Loans are returned to
accrual status when all the principal and interest amounts
contractually due have been collected and there is reasonable
assurance that repayment will continue within a reasonable time
frame.
A loan is considered impaired when, based on current information, it
is probable that the bank will not collect all amounts due in
accordance with the contractual terms of the loan agreement.
Impairment is based on discounted cash flows of expected future
payments using the loan's initial effective interest rate or the
fair value of the collateral if the loan is collateral dependent.
The decision of management to place loans in this category does not
necessarily mean that the Company expects losses to occur but that
management recognized that a higher degree of risk is associated
with these loans.
The aggregate amount of non-performing assets was $1,173 and $582 at
June 30, 1999, and December 31, 1998, respectively. Non-performing
assets are those which are either contractually past due 90 days or
more as to interest or principal payments, on a nonaccrual status,
or the terms of which have been renegotiated to provide a reduction
or deferral of interest or principal.
-6-
<PAGE>
<TABLE>
The following table shows the amount of non-performing assets and other
real estate owned as of the dates indicated.
<CAPTION>
AGGREGATE AMOUNT OF NON-PERFORMING LOANS AND OTHER REAL ESTATE
June 30, % of total December 31, % of total
($ thousands) 1999 LOANS 1998 LOANS
<S> <C> <C> <C> <C>
Loans on a non-accrual basis
Real estate - mortgage $ 243 .14% $ 35 .02%
Installment loans 58 .03% 58 .04%
Credit cards & related plans 0 0
Commercial & all other loans 872 .52% 489 .32%
Total non-accrual $ 1,173 .70% $ 582 .39%
Loans contractually past due
thirty through eighty-nine days
and still accruing
Real estate - mortgage $ 828 .50% $ 520 .35%
Installment loans 200 .12% 120 .08%
Credit cards & related plans 0 0
Commercial & all other loans 1,095 .65% 704 .47%
Total 30 - 89 days $ 2,123 1.27% $ 1,344 .89%
Loans contractually past due
ninety days or more as to
interest or principal payments
Real estate - mortgage $ 0 $ 0
Installment loans 0 0
Credit cards & related plans 0 0
Commercial & all other loans 0 0
Total over 90 days $ 0 $ 0
Other real estate owned $ 0 $ 0
</TABLE>
-7-
<PAGE>
<TABLE>
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
additions to the allowance which have been charged to expense.
<CAPTION>
Six Months Ended Year Ended
($ thousands) JUNE 30, 1999 DECEMBER 31, 1998
<S> <C> <C>
Allowance for loan losses at
beginning of period $ 1,947 $ 1,845
Loans charged off
Commercial & Industrial (21) (138)
Agricultural 0 0
Real Estate - Mortgage (52) 0
Installment & Other
Consumer Loans (11) (69)
Total Charge Offs (84) (207)
Recoveries on loans previously
charged off
Commercial & Industrial 62 0
Agricultural 0 0
Real Estate - Mortgage 3 0
Installment & Other
Consumer Loans 4 9
Total Recoveries 69 9
Net loans charged off (15) (198)
Additions charged to operations 150 300
Allowance for loan losses
at end of period $ 2,082 $ 1,947
</TABLE>
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(All $ amounts are in thousands, except per share amounts)
This discussion will focus on information about the Company's financial
condition and results of operations that are not otherwise apparent from
the consolidated financial statements included in this report.
Reference should be made to those statements presented elsewhere in this
report for an understanding of the following discussion and analysis.
<PAGE>
This report contains certain of management's expectations and other
forward-looking information regarding the Company. While the Company
believes that these forward-looking statements are based on reasonable
assumptions, all such statements involve risk and uncertainties that
could cause actual results to differ materially from these contemplated
in this report. 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,
1998 under the heading "Cautionary Statement Regarding Forward Looking
Information."
BALANCE SHEET
During the first six months of 1999, total assets increased by $9.2
million. Fed funds sold and investments decreased $4.4 million. The
decrease was mainly due to the $3.9 decrease in fed funds sold. Total
loans increased $13.6 million. The majority of the increase in the loan
portfolio was from real estate loans. Real estate loans increased $9.7
million and commerical loans increased $5.6 million. Total deposits
decreased $2.4 million. Short term borrowings increased $13.9 million.
Within short term borrowings, fed funds purchased increased $10.3
million and repurchase agreements increased $3.5 million.
LIQUIDITY
Liquidity refers to the ability of the Company to generate adequate
amounts of cash to meet the Company's need for cash. The Company
manages its liquidity to provide adequate funds to support borrowing
needs and deposit flow of its customers. Management views liquidity as
the ability to raise cash at a reasonable cost or with a minimum of loss
and as a measure of balance sheet flexibility to react to marketplace,
regulatory and competitive changes. The primary sources of the
Company's liquidity are marketable assets maturing within one year. At
June 30, 1999, the carrying value of debt securities maturing within one
year amounted to $4,565 or 7.43% of the total debt securities portfolio.
The Company attempts, when possible, to match relative maturities of
assets and liabilities, while maintaining the desired net interest
margin.
Marketable assets maturing within one year will continue to be the
primary source of liquidity along with stable earnings, and strong
capital position.
-9-
CAPITAL RESOURCES
Stockholders' equity at June 30, 1999 increased $417, or 2.03% since
December 31, 1998. This net increase was composed of: net income for
the first six months of $1,357, a cash dividend of $335 and a decrease
in the "Net unrealized gain on securities available for sale" of $605.
Equity to assets at June 30, 1999 was 8.64%.
Cash dividends of $0.38 per share were declared in the first half of
1999, representing a payout ratio of 24.73% for the period.
<PAGE>
The adequacy of the Company's capital is regularly reviewed to ensure
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. As of June 30, 1999, the
Company's tier 1 risk-based capital ratio, total risk-based capital, and
tier 1 leverage ratio were well in excess of regulatory minimums.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1999, totaled $1,358, an
increase of $330 over the $1,028 earned during the same period of 1998.
Earnings per share were $1.54 for the six months ended June 30, 1999 and
$0.82 for the same period in 1998. Cash dividends declared were $0.38
per share in June 1999 and $.35 per share in June 1998.
Return on average common stockholders' equity amounted to 13.07% for the
six months ended June 30, 1999; compared to 10.63% for the six months
ended June 30, 1998.
Return on average assets for the six months ended June 30, 1999 amounted
to 1.17%; compared to .95 for the six months ended June 30, 1998.
NET INTEREST INCOME
Net interest income is the most significant component of earnings. For
analysis purposes, interest earned on tax exempt assets is adjusted to a
fully taxable equivalent basis.
Average earning assets grew $10.0 million in the first half of 1999.
The annualized net interest margin for the first half of 1999 was 3.97%,
or 9 basis points less than the 4.06% margin in the first half of 1998.
The interest rate spread also decreased, to 3.16% from 3.23% reported
for June 30, 1998.
The Company's net interest income was impacted by the interest rate
environment encountered in the first half of 1999 as compared to 1998.
The lower rate enviroment dropped our yields on earning assets to 7.70%
compared to 8.10% in 1998. However, our costs for interest bearing
deposits also dropped to 4.64% from 5.16%.
-10-
PROVISION FOR CREDIT LOSSES
Management determines the adequacy of the allowance for credit losses
based on past loan experience, current economic conditions, composition
of the loan portfolio, and the potential for future loss. Accordingly,
the amount charged to expense is based on management's evaluation of the
loan portfolio. It is the Company's policy that when available
information confirms that specific loans and leases, or portions
thereof, including impaired loans, are uncollectible, these amounts are
promptly charged off against the allowance. The provision for credit
losses was $150 for the six months ended June 30, 1999 and $150 for the
six months ended June 30, 1998. The allowance for credit losses as a
percentage of gross loans outstanding was $2,082 or 1.25% of total loans
on June 30, 1999, compared to $1,947 or 1.29% of total loans on December
31, 1998. Net charge-offs as a percentage of average loans outstanding
<PAGE>
were .01% during the six months ended June 30, 1999 and .02% during the
first six months of 1998.
Non-performing loans are reviewed to determine exposure for potential
loss within each loan category. The adequacy of the allowance for
credit losses is assessed based on credit quality and other pertinent
loan portfolio information. The adequacy of the reserve and the
provision for credit losses is consistent with the composition of the
loan portfolio and recent credit quality history.
NON-INTEREST INCOME
Non-interest income increased 4.12% to $723 during the six months ended
June 30, 1999, from $694 during the six months ended June 30, 1998.
There were no gains or losses on securities during the six months ended
June 30, 1999. Fee income on deposit accounts increased $15 to $305
during the six months ended June 30, 1999, from $290 during the six
months ended June 30, 1998. Other fee income and fiduciary fees
increased $39 to $61 for the six months ended June 30, 1999 from $23 for
the six months ended June 30, 1998. Other operations income decreased
$4 during the six months ended June 30, 1999 from the six months ended
June 30, 1998.
NON-INTEREST EXPENSE
Non-interest expenses decreased 3.81% to $2,890 for the six months ended
June 30, 1999, from $2,998 for the six months ended June 30, 1998. In
1998 an additional Pension plan expense of $402 from the termination of
our Defined Benefit Pension Plan was recorded. The Company is expanding
the use of technology throughout its banks in order to provide increased
customer service and allow for more efficient consolidation of its
operational areas. The Company has placed emphasis on increased
productivity and standardization of programs and procedures throughout
all of its locations.
-11-
<PAGE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS
(unaudited) Ended June 30, 1999
SIX MONTH PERIOD THREE MONTH PERIOD
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Return on assets (net income divided
by average assets) (1) 1.17% .95% 1.22% 1.17%
Return on Average Equity (net income
divided by average equity) (1) 13.07% 10.63% 13.77% 2.93%
Average Equity to Average Assets 8.95% 8.93% 8.90% 9.06%
Interest Rate Spread (difference between
average yield on interest earning assets
and average cost of interest bearing
liabilities) (1) 3.16% 3.23% 3.17% 3.31%
Net Interest Margin (net interest
income as a percentage of average
interest earning assets) (1) 3.97% 4.06% 3.97% 4.16%
Non-interest Expense to average
assets (1) 2.54% 2.72% 2.56% 2.52%
Allowance for loan losses to total loans
at end of period 1.25% 1.33% 1.25% 1.33%
<FN>
(1) Annualized
</TABLE>
-12-
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
The following table presents consolidated financial data of PSB
Holdings, Inc. and Subsidiary.
<CAPTION>
1999
Second First
QUARTER QUARTER
(Dollars in thousands, except per share amounts)
<S> <C> <C>
FINANCIAL HIGHLIGHTS:
Earnings and Dividends:
Net interest revenue $ 2,188 $ 2,129
Provision for credit losses 75 75
Other noninterest income 396 327
Other noninterest expense 1,464 1,427
Net income 722 635
Per common share
Basic and diluted earnings .82 .72
Dividends declared .38 0
Book value 23.75 23.75
Average common shares (000's) 883 883
Dividend payout ratio 24.73% 0
Balance Sheet Summary:
Loans net of unearned income 165,181 152,017
Assets 242,683 229,246
Deposits 197,393 192,841
Shareholders equity 20,973 20,980
Average balances:
Loans net of unearned income 165,307 151,652
Assets 241,987 227,383
Deposits 197,866 192,462
Shareholders equity 21,017 20,641
Performance Ratios:
Return of average assets 1.19% 1.11%
Return of average common equity 13.77% 12.36%
Tangible Equity to assets 8.82% 9.01%
Net loan charge-offs as a percentage
of average loans .01% .05%
Nonperforming assets as a percentage
of average loans .71% .20%
Net interest margin 3.97% 3.97%
Efficiency ratio 55.69% 55.42%
Liquidity ratio 28.89% 33.18%
Fee revenue as a percentage of
average assets .16% .14%
</TABLE>
-13-
<PAGE>
YEAR 2000 DISCLOSURE
YEAR 2000
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 software program to
properly recognize the Year 2000 (the "Year 2000 problem" or "Year 2000
issues"). The term "Year 2000 readiness," or terms of similar import,
mean that the particular software or equipment referred to has been
modified or replaced and the Company believes that such modified or
replaced equipment or processes will operate as designed after 1999
without Year 2000 problems.
The Company assessment of, and corrective actions with respect to, the
possible consequences of Year 2000 issues on its consolidated financial
condition, liquidity or results of operations is referred to herein as
its "Year 2000 Project." The Year 2000 Project is under the supervision
of the Year 2000 Project Committee (the "Committee"), composed of
employees of the Company's wholly-owned subsidiary, Peoples State Bank
(the "Bank"). The Committee reports on a regular basis to the Board of
Directors as to the status of Year 2000 issues and the Company's
progress in addressing and/or resolving identified Year 2000 problems.
In accordance with the Year 2000 Project and Year 2000 Compliance Policy
adopted by the Committee, an assessment of software and equipment to
determine which major computer components will need to be updated or
replaced has been completed. The Company has undertaken software and
equipment upgrades, including the bank's mainframe computer, and will
continue to monitor vendor certifications as to Year 2000 compliance.
All systems are either Year 2000 compliant or will function, for the
Company's purposes, even if not fully Year 2000 compliant. Testing has
been conducted on all major mission critical systems and all such
systems appear to be Year 2000 ready. Testing will continue through the
year 2000 on software and equipment upgrades and modifications.
The Year 2000 Project also involves gathering data from Bank customers
to assist the Committee in determining the level of risk to the Bank
which might be expected as a result of Year 2000 noncompliance. Bank
operations, such as commercial loan application procedures, have been
modified to address the Year 2000 issue. The Bank has also attempted to
educate its customer base about the Year 2000 issue and has attempted to
identify major employers in the Bank's primary market area to evaluate
potential loss to the Bank's business if those employers' operations
would be curtailed or cease due to Year 2000 problems. Inquiries have
also been made to the Bank's investment subsidiary service provider and
correspondent banks to determine the effect of such entities' compliance
with Year 2000 issues.
The Committee has determined that it does not have non-information
technology systems, such as embedded controllers, which are material to
-14-
<PAGE>
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.
COSTS
Costs on new software or equipment will be capitalized over the useful
life. All other costs associated with Year 2000 issues are expensed as
incurred. Internal costs of Year 2000 readiness are not being tracked,
but principally relate to payroll costs of Company personnel. 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 consolidated financial condition, liquidity or
results of operations. 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 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 of them will not encounter significant Year 2000 problems and
thereby adversely affect the Company. Similarly, while the Company
faces potential disruptions in its operations from Year 2000 problems as
a result of the failure of the power grid, telecommunications, or other
utilities, it is not aware that any material disruption in these
infrastructures is reasonable likely to occur.
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 that the Bank would, 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 of certain customers to repay loans or as a result of
reducing the nonloan portion of its customers' banking business.
To the extent the Company incurs losses arising from Year 2000 issues,
it may also have insurance coverage. The scope and amount of
reimbursement for such losses will depend upon the nature of any claims
which arise.
-15-
<PAGE>
CONTINGENCY PLAN
The Committee has prepared a business resumption contingency plan which
will be implemented, in part, in conjunction with the Bank's disaster
recovery plan in the event of failure of one or more of the Bank's major
systems. The business resumption contingency plan involves the
identification by the Committee of core business processes,
establishment of event time lines, and preparation of a risk analysis of
mission critical systems. Work on the business contingency readiness
was completed during the second quarter of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information provided in
response to Item 7A of the Company's Form 10-K for the year ended
December 31, 1998.
-16-
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
<PAGE>
<TABLE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
The annual meeting of shareholders of the Company was held on April
20, 1999. The matters voted upon, including the number of votes cast
for, against or withheld, as well as the number of abstentions and
broker non-votes, as to each such matter were as follows:
<CAPTION>
MATTER SHARES
Broker
For Withheld Against Abstain Non-Vote
Election of Directors
<S> <C> <C> <C> <C> <C>
(a) Leonard C. Britten 549,494 1,656 N/A N/A 0
(b) Gordon P. Connor 551,150 N/A N/A 0
(c) Patrick L. Crooks 551,119 31 N/A N/A 0
(d) William J. Fish 551,150 N/A N/A 0
(e) George L. Geisler 549,244 1,906 N/A N/A 0
(f) Charles A. Ghidorzi 544,905 6,245 N/A N/A 0
(g) Gordon P. Gullickson 550,865 285 N/A N/A 0
(h) Lawrence Hanz, Jr. 550,750 400 N/A N/A 0
(i) Thomas R. Polzer 551,060 90 N/A N/A 0
(j) William M. Reif 551,150 N/A N/A 0
-17-
(k) Thomas A. Riiser 551,150 0 N/A N/A 0
(l) Eugene Witter 550,805 345 N/A N/A 0
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
The following exhibits required by Item 601 of Regulation S-K are filed
with the Securities and Exchange Commission as part of this report.
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference to Exhibit 4(a) to the Company's Current Report on
Form 8-K dated May 30, 1995)
<PAGE>
3.2 Bylaws (incorporated by reference to Exhibit 4(b) to the
Company's Current Report on Form 8-K dated May 30, 1995)
4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and 3.2)
10.1 Bonus Plan of Directors of the Bank (incorporated by reference
to Exhibit 10(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995)*
10.2 Bonus Plan of Officers and Employees of the Bank* (incorporated
by reference to Exhibit 10(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995)*
10.3 Non-Qualified Retirement Plan for Directors of the Bank
(incorporated by reference to Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995)*
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995)
27.1 Financial Data Schedule (electronic filing only)
*Denotes Executive Compensation Plans and Arrangements
-18-
(b) Reports on Form 8-K:
None.
-19-
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.
PSB HOLDINGS, INC.
August 13, 1999 TODD R. TOPPEN
Todd R. Toppen
Secretary and Controller
(On behalf of the Registrant and as
Principal Financial Officer)
-20-
<PAGE>
EXHIBIT INDEX<dagger>
TO
FORM 10-Q
OF
PSB HOLDINGS, INC.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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.
-21-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,829
<INT-BEARING-DEPOSITS> 669
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,626
<INVESTMENTS-CARRYING> 14,838
<INVESTMENTS-MARKET> 14,697
<LOANS> 167,263
<ALLOWANCE> 2,082
<TOTAL-ASSETS> 242,683
<DEPOSITS> 197,393
<SHORT-TERM> 18,415
<LIABILITIES-OTHER> 1,672
<LONG-TERM> 4,230
0
0
<COMMON> 1,805
<OTHER-SE> 19,168
<TOTAL-LIABILITIES-AND-EQUITY> 242,683
<INTEREST-LOAN> 6,659
<INTEREST-INVEST> 1,743
<INTEREST-OTHER> 58
<INTEREST-TOTAL> 8,460
<INTEREST-DEPOSIT> 3,749
<INTEREST-EXPENSE> 4,143
<INTEREST-INCOME-NET> 4,317
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,891
<INCOME-PRETAX> 1,999
<INCOME-PRE-EXTRAORDINARY> 1,999
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,357
<EPS-BASIC> 1.54
<EPS-DILUTED> 1.54
<YIELD-ACTUAL> 4.26
<LOANS-NON> 1,173
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,123
<ALLOWANCE-OPEN> 1,947
<CHARGE-OFFS> 84
<RECOVERIES> 69
<ALLOWANCE-CLOSE> 2,082
<ALLOWANCE-DOMESTIC> 2,082
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
