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, 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:
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, 1999 was 883,235.
<PAGE>
PSB HOLDINGS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Nine Months Ended and Three Months Ended
September 30, 1999 (unaudited) and
September 30, 1998 (unaudited) 1
Condensed Consolidated Balance
Sheets September 30, 1999 (unaudited)
and December 31, 1998 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Nine Months Ended and Three Months Ended
September 30, 1999 (unaudited)
and September 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 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to Vote of
Securities Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on form 8-K 11
-1-
<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
<S> <C> <C> <C> <C>
Interest income 1999 1998 1999 1998
Interest and fees on loans $10,261 $10,107 $ 3,602 $ 3,386
Interest on investment securities
Taxable 2,113 1,727 701 605
Tax-exempt 493 466 162 163
Other interest income 140 225 82 98
Total interest income 13,007 12,525 4,547 4,252
Interest expense:
Deposits 5,659 6,130 1,910 2,058
Short-term borrowings 447 413 191 147
Long-term borrowings 245 -0- 107 -0-
Total interest expense 6,351 6,543 2,208 2,205
Net interest income 6,656 5,982 2,339 2,047
Provision for losses on loans 255 225 105 75
Net interest income after
provision for loan losses 6,401 5,757 2,234 1,972
Non-interest income:
Service fees 474 470 169 180
Gain on sale of loans 206 235 37 73
Net gain on sale of
securities available for sale -0- 36 -0- -0-
Other operating income 328 330 79 124
Total non-interest income 1,008 1,071 285 377
Non-interest expenses
Salaries and related benefits 2,375 2,560 765 696
Net occupancy expense 635 614 205 209
Computer operations 99 78 31 28
Other operating expense 1,161 1,024 378 345
Total non-interest expenses 4,270 4,276 1,379 1,278
Income before income taxes 3,139 2,552 1,140 1,071
Provision for income taxes 1,023 805 381 352
Net income $ 2,116 $ 1,747 $ 759 $ 719
Income per share
Basis: Weighted Average of 883,235 shares in 1999 and 1998
Basic and diluted earnings per
share $ 2.40 $ 1.98 $ .86 $ .81
</TABLE>
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<PAGE>
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
($ thousands)
September 30, December 31,
ASSETS 1999* 1998*
<S> <C> <C>
Cash and due from banks $ 10,356 $ 8,752
Interest bearing deposits and money market funds 1,431 741
Federal funds sold -0- 3,934
Investment securities -
Held to maturity (fair values of $14,333
and $14,346 respectively) 14,568 14,068
Available for sale (at fair value) 44,442 47,886
Loans held for sale 389 3,120
Loans receivable, net of allowance for loans
losses of $2,177 and $1,947 in 1999
and 1998, respectively 170,159 148,582
Accrued interest receivable 2,015 1,725
Premises and equipment 3,849 3,886
Other assets 1,014 797
TOTAL ASSETS $ 248,223 $233,491
LIABILITIES
Noninterest-bearing deposits $ 33,214 $ 33,150
Interest-bearing deposits 172,531 166,650
Total deposits 205,745 199,800
Short-term borrowings 10,592 4,550
Long-term borrowings 9,000 6,000
Other liabilities 1,338 2,585
Total liabilities 226,675 212,935
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 14,004 12,223
Net unrealized gain (loss) on securities available
for sale, net of tax (617) 172
Treasury stock, at cost - 19,190 shares (803) (803)
Total stockholders' equity 21,548 20,556
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $248,223 $233,491
<FN>
*The consolidated balance sheet at September 30, 1999 is unaudited. The
December 31, 1998 consolidated balance sheet is derived from audited financial
statements.
</TABLE>
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<PAGE>
<TABLE>
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
($ thousands - unaudited) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,116 $ 1,747 $ 759 $ 719
Provision for depreciation, and
net amortization 338 341 83 127
Provisions for loan losses 255 225 105 75
Gain on sale of loans (206) (235) (37) (73)
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) 0 0
Changes in operating assets and liabilities:
Other assets (508) 264 (1,307) (258)
Other liabilities (1,247) (446) (334) 75
Net cash provided by (used in)
operating activities 773 1,840 (731) 665
Cash flows from investing activities:
Proceeds from sale and maturities of:
Held to maturity securities 2,171 931 268 200
Available for sale securities 9,265 12,168 1,510 674
Payment for purchase of
Held to maturity securities (2,664) (2,465) 0 (473)
Available for sale securities (7,880) (16,338) (1,117) (5,978)
Net change in loans (19,101) (425) (5,472) (2,073)
Net change in interest-bearing deposits 690 153 618 383
Net change in federal funds sold 3,934 (1,484) 0 5,595
Proceeds from sale of other real estate 66 157 0 (199)
Capital expenditures (302) (550) (77) (64)
Net cash used in investing activities (13,821) (7,853) (4,270) (1,935)
Cash flows from financing activities:
Net change in deposits 5,945 2,132 8,351 1,627
Net change in short-term borrowings 6,042 (517) (7,823) (175)
Net change in long-term borrowings 3,000 3,000 6,000 0
Dividends paid (335) (310) 0 0
Net cash provided by financing activities 14,652 4,305 6,528 1,452
Net increase (decrease) in cash and cash
equivalents 1,604 (1,708) 1,527 182
Cash and cash equivalents at beginning of period 8,752 10,623 8,829 8,733
Cash and cash equivalents at end of quarter $10,356 $ 8,915 $10,356 $8,915
Supplemental Cash Flow Information:
Cash paid during the period for :
Interest 6,351 6,543 2,208 2,204
Income taxes 1,067 775 420 373
</TABLE>
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<PAGE>
PSB HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements in the opinion of management
reflect all adjustments which are normal and recurring in nature and
which are necessary for a fair statement of the results for the
periods presented. In all regards, the financial statements have
been presented in accordance with generally accepted accounting
principles.
2. Earnings per share of common stock is based on the weighted average
number of common shares outstanding.
3. Refer to notes to the financial statements which appear in the 1998
annual report for the company's accounting policies which are
pertinent to these statements.
4. In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FASB 130), was issued and
establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income
and its components, as recognized under the accounting standards, to
be displayed in a financial statement with the same prominence as
other financial statements. The disclosure requirements of FASB 130
with respect to the Form 10-Q have been included in the
corporation's consolidated balance sheets. Comprehensive income
totaled the following for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended Three months ended
($ thousands) 9/30/99 9/30/98 9/30/99 9/30/98
<S> <C> <C> <C> <C>
Net Income $ 2,116 $ 1,747 $ 759 $ 719
Change in net unrealized
gain or loss on securities
available for sale, net
of tax (789) 168 (184) 178
Comprehensive income $ 1,327 $ 1,915 $ 575 $ 897
</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 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 material financial impact.
-5-
<PAGE>
5. Investment Securities
<TABLE>
The amortized cost and estimated fair value of investment securities are
as follows:
<CAPTION>
Gross Estimated
Amortized Unrealized Unrealized Fair
($ thousands) COST GAINS LOSSES VALUE
SEPTEMBER 30, 1999
<S> <C> <C> <C> <C>
Securities held to maturity:
Obligations of states and
political subdivisions $ 14,568 $ 46 $ 281 $ 14,333
Securities available for sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 44,679 $ 41 $ 1,026 $ 43,694
Other equity securities 1,978 1,978
Totals $ 46,657 $ 41 $ 1,026 $ 45,672
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>
-6-
<PAGE>
<TABLE>
6. Loans
The composition of gross loans (excluding loans held for sale) at
September 30, 1999, and December 31, 1998, follows:
<CAPTION>
September 30, 1999 % of total December 31, 1998 % of total
($ Thousands)
<S> <C> <C> <C> <C>
Commercial 46,208 26.81% 40,514 26.91%
Real Estate 112,314 65.17% 98,260 65.28%
Consumer 13,814 8.02% 11,755 7.81%
Total $172,336 100.00% $150,529 100.00%
</TABLE>
Gross loans outstanding increased 14.75% for the nine months ended
September 30, 1999: increasing to $172,336 at September 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 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 $1,018 and $582 at
September 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.
-7-
<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
September 30, % of total December 31, % of total
1999 LOANS 1998 LOANS
<S> <C> <C> <C> <C>
Loans on a non-accrual basis
Real estate - mortgage $ 292 .17% $ 35 .02%
Installment loans 69 .04% 58 .04%
Credit cards & related plans 0 0
Commercial & all other loans 657 .38% 489 .32%
Total non-accrual $ 1,018 .59% $ 582 .39%
Loans contractually past due
thirty through eighty-nine days
and still accruing
Real estate - mortgage $ 173 .10% $ 520 .35%
Installment loans 210 .12% 120 .08%
Credit cards & related plans 0 0
Commercial & all other loans 1,121 .65% 704 .47%
Total 30 - 89 days $ 1,504 .87% $ 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>
-8-
<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>
Nine Months Ended Year Ended
($ thousands) SEPTEMBER 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 (72) 0
Installment & Other
Consumer Loans (21) (69)
Total Charge Offs (114) (207)
Recoveries on loans previously
charged off
Commercial & Industrial 66 0
Agricultural 0 0
Real Estate - Mortgage 8 0
Installment & Other
Consumer Loans 15 9
Total Recoveries 89 9
Net loans charged off (25) (198)
Additions charged to operations 255 300
Allowance for loan losses
at end of period $2,177 $1,947
</TABLE>
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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.
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
<PAGE>
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 nine months of 1999, total assets increased by $16,000.
Fed funds sold and investments decreased $5,600. The decrease was mainly
due to the $3,000 decease in fed funds sold. Total loans (excluding
loans held for sale) increased $21,800. The majority of the increase in
the loan portfolio was from real estate loans. Real estate loans
increased $14,100 and commercial loans increased $5,700. Total deposits
decreased $5,900. Short term borrowings increased $6,000. Within short
term borrowings, fed funds purchased increased $400 and repurchase
agreements increased $5,600. Long term borrowings increased $3,000 from
an additional FHLB advance.
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 September 30, 1999,
the carrying value of debt securities maturing within one year amounted
to $3,448 or 5.92% 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.
-10-
CAPITAL RESOURCES
Stockholders' equity at September 30, 1999 increased $992, or 4.83% since
December 31, 1998. This net increase was composed of: net income for the
first nine months of $2,116, a cash dividend of $335 and a decrease in
the "Net unrealized gain on securities available for sale" of $789.
Equity to assets at September 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 ended June
30, 1999.
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 September 30, 1999, the
<PAGE>
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 nine months ended September 30, 1999, totaled $2,116,
an increase of $369 over the $1,747 earned during the same period of
1998. Earnings per share were $2.40 for the nine months ended September
30, 1999 and $1.98 for the same period in 1998. Cash dividends declared
were $0.38 per share in June 1999 and $0.35 per share in June 1998.
Return on average common stockholders' equity amounted to 13.51% for the
nine months ended September 30, 1999; compared to 11.82% for the nine
months ended September 30, 1998.
Return on average assets for the nine months ended September 30, 1999
amounted to 1.19%; compared to 1.07% for the nine months ended September
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 $18.8 million in the first nine months of
1999. The annualized net interest margin for the first nine months of
1999 was 3.98% or 8 basis points more than the 3.91% margin in the first
nine months of 1998. The interest rate spread also increased, to 3.18%
from 3.08% reported for September 30, 1998.
The Company's net interest income was impacted by the interest rate
environment encountered in the first nine months of 1999 as compared to
1998. The lower rate environment dropped our yields on earning assets to
7.78% compared to 8.17% in 1998. However, our costs for interest bearing
deposits also dropped to 4.60% from 5.09%
-11-
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
$255 for the nine months ended September 30, 1999 and $225 for the nine
months ended September 30, 1998. The allowance for credit losses as a
percentage of gross loans outstanding was $2,177 or 1.26% of total loans
on September 30, 1999, compared to $1,927 or 1.29% of total loans on
December 31, 1998. Net charge-offs as a percentage of average loans
outstanding were .01% during the nine months ended September 30, 1999
and .11% during the first nine months of 1998.
<PAGE>
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 decreased 5.88% to $1,008 during the nine months
ended September 30, 1999, from $1,071 during the nine months ended
September 30, 1998. There were no gains or losses on securities during
the nine months ended September 30, 1999. Fee income on deposit accounts
increased $4 to $474 during the nine months ended September 30, 1999,
from $470 during nine months ended September 30, 1998. Gain on the
sale of loans decreased $29 to $206 for the nine months ended September
30, 1999 from $235 for the nine months ended September 30, 1998. Other
non-interest income remained similar to the prior period.
NON-INTEREST EXPENSE
Non-interest expenses increased 10.22% to $4,270 for the nine months
ended September 30, 1999, from $3,874 for the nine months ended
September 30, 1998 before an additional Pension plan expense of $402
from the termination of our Defined Benefit Pension Plan recorded in
1998. 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.
-12-
<PAGE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS
(unaudited) Ended September 30, 1999
NINE MONTH PERIOD Three Month Period
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Return on assets (net income divided
by average assets) (1) 1.19% 1.07% 1.23% 1.30%
Return on Average Equity (net income
divided by average equity) (1) 13.51% 11.82% 14.38% 14.29%
Average Equity to Average Assets 8.81% 9.04% 8.55% 9.09%
Interest Rate Spread (difference between
average yield on interest earning assets
and average cost of interest bearing
liabilities) (1) 3.18% 3.08% 3.22% 3.07%
Net Interest Margin (net interest income
as a percentage of average interest
earning assets) (1) 3.98% 3.91% 4.01% 3.94%
Non-interest Expense to average assets (1) 2.49% 2.61% 2.40% 2.31%
Allowance for loan losses to total loans
at end of period 1.26% 1.28% 1.26% 1.28%
<FN>
(1) Annualized
</TABLE>
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<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
The following table presents consolidated financial data of PSB Holdings, Inc.
and Subsidiary.
<CAPTION>
1999
Third Second First
QUARTER QUARTER QUARTER
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS:
Earnings and Dividends:
Net interest revenue $2,339 $2,188 $2,129
Provision for credit losses 105 75 75
Other noninterest income 285 396 327
Other noninterest expense 1,379 1,464 1,427
Net income 759 722 635
Per common share
Basic and diluted earnings .86 .82 .72
Dividends declared 0 .38 0
Book value 24.40 23.75 23.75
Average common shares (000's) 883 883 883
Dividend payout ratio 0 24.73% 0
Balance Sheet Summary:
Loans net of unearned income 170,548 165,181 152,017
Assets 249,453 242,683 229,246
Deposits 205,745 197,393 192,841
Shareholders equity 21,548 20,973 20,980
Average balances:
Loans net of unearned income 167,938 165,307 151,652
Assets 246,973 241,987 227,383
Deposits 202,864 197,886 192,462
Shareholders equity 21,106 21,017 20,641
Performance Ratios:
Return on average assets (1) 1.22% 1.19% 1.11%
Return on average common equity (1) 14.38% 13.77% 12.36%
Tangible Equity to assets 8.89% 8.82% 9.01%
Net loan charge-offs as a percentage
of average loans .01% .01% .05%
Nonperforming assets as a percentage
of average loans .59% .71% .20%
Net interest margin (1) 4.01% 3.97% 3.97%
Efficiency ratio (tax adjusted) 56.93% 55.69% 55.42%
Liquidity ratio 28.33% 28.89% 33.18%
Fee revenue as a percentage of
average assets .11% .16% .14%
<FN>
(1) annualized
</TABLE>
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<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
the operations of the Company and that all security and building
-15-
<PAGE>
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.
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
<PAGE>
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.
-17-
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
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)
2.2 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)
<PAGE>
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)*
-18-
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
(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.
November 12, 1999 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, 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.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,356
<INT-BEARING-DEPOSITS> 1,431
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,442
<INVESTMENTS-CARRYING> 14,568
<INVESTMENTS-MARKET> 14,333
<LOANS> 172,725
<ALLOWANCE> 2,177
<TOTAL-ASSETS> 248,223
<DEPOSITS> 205,745
<SHORT-TERM> 10,592
<LIABILITIES-OTHER> 1,338
<LONG-TERM> 9,000
0
0
<COMMON> 1,805
<OTHER-SE> 19,743
<TOTAL-LIABILITIES-AND-EQUITY> 248,223
<INTEREST-LOAN> 10,261
<INTEREST-INVEST> 2,606
<INTEREST-OTHER> 140
<INTEREST-TOTAL> 13,007
<INTEREST-DEPOSIT> 5,659
<INTEREST-EXPENSE> 6,351
<INTEREST-INCOME-NET> 6,656
<LOAN-LOSSES> 255
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,270
<INCOME-PRETAX> 3,139
<INCOME-PRE-EXTRAORDINARY> 3,139
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,116
<EPS-BASIC> 2.40
<EPS-DILUTED> 2.40
<YIELD-ACTUAL> 4.25
<LOANS-NON> 1,018
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,504
<ALLOWANCE-OPEN> 1,947
<CHARGE-OFFS> 114
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 2,177
<ALLOWANCE-DOMESTIC> 2,177
<ALLOWANCE-FOREIGN> 0
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</TABLE>
