10-Q/A

FORM 10-Q/A

(Amendment No. 1)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

(Mark One)
T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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 T   No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes T   No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	£	Smaller reporting company	T
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Exchange Act).

Yes o   No T

The number of common shares outstanding at August 15, 2011 was 1,574,456.

EXPLANATORY NOTE

The sole purpose of this Amendment No. 1 to the Quarterly Report of PSB Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2011, filed with the Securities and Exchange Commission on August 15, 2011 (the “Form 10-Q”), is to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T.  Exhibit 101 to this report provides the consolidated financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language), and includes the following:

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

No other changes have been made to the Form 10-Q.  This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 are not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended; they are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended; and they are not otherwise subject to liability under those sections.

2

Item 6.  Exhibits

Exhibits required by Item 601 of Regulation S-K.

Exhibit
Number	Description
31.1	Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002*
31.2	Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002*
32.1	Certifications under Section 906 of Sarbanes-Oxley Act of 2002*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Definition Linkbase Document**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**
* Previously filed **In accordance with Regulation S-T, the XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall be deemed “furnished” and not “filed.”

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.
September 14, 2011	SCOTT M. CATTANACH
	Scott M. Cattanach
	Treasurer
	(On behalf of the Registrant and as
	Principal Financial Officer)

3

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Assets
Securities held to maturity, fair value	$ 51,348	$ 51,662
Stockholders' equity
Preferred stock, authorized (in shares)	30,000	30,000
Stated value common stock - no par value	$ 1	$ 1
Common stock, authorized (in shares)	3,000,000	3,000,000
Common stock, issued (in shares)	1,751,431	1,751,431
Common stock, outstanding (in shares)	1,574,456	1,564,297
Treasury stock, at cost (in shares)	176,975	187,134

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest and dividend income:
Loans, including fees	$ 6,112	$ 6,372	$ 12,156	$ 12,501
Securities:
Taxable	705	779	1,383	1,534
Tax-exempt	281	317	578	645
Other interest and dividends	15	5	39	7
Total interest and dividend income	7,113	7,473	14,156	14,687
Interest expense:
Deposits	1,396	1,787	2,825	3,670
FHLB advances	459	468	916	928
Other borrowings	165	168	332	399
Senior subordinated notes	141	142	283	284
Junior subordinated debentures	86	113	170	226
Total interest expense	2,247	2,678	4,526	5,507
Net interest income	4,866	4,795	9,630	9,180
Provision for loan losses	430	585	790	1,045
Net interest income after provision for loan losses	4,436	4,210	8,840	8,135
Noninterest income:
Service fees	408	497	787	845
Mortgage banking	281	283	706	546
Investment and insurance sales commissions	142	205	272	344
Net loss on sale of securities	0	(20)	0	(20)
Increase in cash surrender value of life insurance	102	103	208	204
Other noninterest income	264	229	621	469
Total noninterest income	1,197	1,297	2,594	2,388
Noninterest expense:
Salaries and employee benefits	1,991	2,058	4,101	4,110
Occupancy and facilities	412	480	865	1,014
Loss on foreclosed assets	278	38	573	149
Data processing and other office operations	313	304	626	530
Advertising and promotion	54	79	115	153
FDIC insurance premiums	149	241	338	473
Other noninterest expenses	672	601	1,204	1,212
Total noninterest expense	3,869	3,801	7,822	7,641
Income before provision for income taxes	1,764	1,706	3,612	2,882
Provision for income taxes	538	498	1,101	793
Net income	$ 1,226	$ 1,208	$ 2,511	$ 2,089
Basic earnings per share (in dollars per share)	$ 0.78	$ 0.77	$ 1.60	$ 1.34
Diluted earnings per share (in dollars per share)	$ 0.78	$ 0.77	$ 1.59	$ 1.33

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Document And Entity Information (USD $)	3 Months Ended
	Jun. 30, 2011	Aug. 15, 2011	Jun. 30, 2010
Entity Registrant Name	PSB HOLDINGS INC /WI/
Entity Central Index Key	0000948368
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 28,201,000
Entity Common Stock, Shares Outstanding		1,574,456
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011

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FORECLOSED ASSETS

6 Months Ended

Jun. 30, 2011

FORECLOSED ASSETS [Abstract]

FORECLOSED ASSETS

NOTE 5 – FORECLOSED ASSETS

Real estate and other property acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value (after deducting estimated costs to sell) at the date of foreclosure, establishing a new cost basis.  Costs related to development and improvement of property are capitalized, whereas costs related to holding property are expensed.  After foreclosure, valuations are periodically performed by management, and the real estate or other property is carried at the lower of carrying amount or fair value less estimated costs to sell.  Revenue and expenses from operations and changes in any valuation allowance are included in loss on foreclosed assets.

A summary of activity in foreclosed assets for the three months and six months ended June 30, 2011 and 2010 is as follows:

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Balance at beginning of period	$	4,828		$	4,986		$	4,967		$	3,776
Transfer of loans at net realizable value to foreclosed assets		–			1,725			135			2,950
Sale proceeds		(256	)		(465	)		(330	)		(475	)
Loans made on sale of foreclosed assets		–			–			–			–
Net gain from sale of foreclosed assets		–			2			24			2
Provision for write-down charged to operations		(233	)		(25	)		(457	)		(30	)
Balance at end of period	$	4,339		$	6,223		$	4,339		$	6,223

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2011

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

NOTE 10 – EARNINGS PER SHARE

Basic earnings per share of common stock are based on the weighted average number of common shares outstanding during the period.  Unvested but issued restricted shares are considered to be outstanding shares and used to calculate the weighted average number of shares outstanding and determine net book value per share.  Diluted earnings per share is calculated by dividing net income by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options.

Presented below are the calculations for basic and diluted earnings per share:

	Three months ended June 30,				Six months ended June 30,
(dollars in thousands, except per share data – unaudited)	2011		2010		2011		2010
Net income	$	1,226	$	1,208	$	2,511	$	2,089
Weighted average shares outstanding		1,573,954		1,564,297		1,573,393		1,564,214
Effect of dilutive stock options outstanding		927		748		1,078		704
Diluted weighted average shares outstanding		1,574,881		1,565,045		1,574,471		1,564,918
Basic earnings per share	$	0.78	$	0.77	$	1.60	$	1.34
Diluted earnings per share	$	0.78	$	0.77	$	1.59	$	1.33

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GENERAL

6 Months Ended

Jun. 30, 2011

GENERAL [Abstract]

GENERAL

NOTE 1 – GENERAL

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly PSB Holdings, Inc.'s (“PSB”) financial position, results of its operations, and cash flows for the periods presented, and all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of all subsidiaries. All material intercompany transactions and balances are eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Any reference to “PSB” refers to the consolidated or individual operations of PSB Holdings, Inc. and its subsidiary Peoples State Bank. Dollar amounts are in thousands, except per share amounts.

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with generally accepted accounting principles have been omitted or abbreviated. The information contained in the consolidated financial statements and footnotes in PSB's Annual Report on Form 10-K for the year ended December 31, 2010 should be referred to in connection with the reading of these unaudited interim financial statements.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are susceptible to significant change include the determination of the allowance for loan losses, mortgage servicing right assets, and the valuation of investment securities.

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OTHER BORROWINGS

6 Months Ended

Jun. 30, 2011

OTHER BORROWINGS [Abstract]

OTHER BORROWINGS

NOTE 7 – OTHER BORROWINGS

Other borrowings consist of the following obligations at June 30, 2011 and December 31, 2010

	June 30, 2011		December 31, 2010
Federal funds purchased	$	4,319	$	–
Short-term repurchase agreements		7,320		18,011
Wholesale structured repurchase agreements		13,500		13,500
Total other borrowings	$	25,139	$	31,511

PSB pledges various securities available for sale as collateral for repurchase agreements.  The fair value of securities pledged for repurchase agreements totaled $31,211 at June 30, 2011 and $36,639 at December 31, 2010.

The following information relates to securities sold under repurchase agreements and other borrowings for the three months and six months ended June 30, 2011 and June 30, 2010:

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
As of end of period – weighted average rate		2.61	%		2.70	%		2.61	%		2.70	%
For the period:
Highest month-end balance	$	27,279		$	24,864		$	32,644		$	30,185
Daily average balance	$	26,154		$	23,352		$	28,421		$	25,201
Weighted average rate		2.53	%		2.89	%		2.36	%		3.19	%

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 12 – FAIR VALUE MEASUREMENTS

Certain assets and liabilities are recorded or disclosed at fair value to provide financial statement users additional insight into PSB's quality of earnings.  Under current accounting guidance, PSB groups assets and liabilities which are recorded at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest).  All transfers between levels are recognized as occurring at the end of the reporting period.

Following is a brief description of each level of the fair value hierarchy:

Level 1 – Fair value measurement is based on quoted prices for identical assets or liabilities in active markets.

Level 2 – Fair value measurement is based on (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; or (3) valuation models and methodologies for which all significant assumptions are or can be corroborated by observable market data.

Level 3 – Fair value measurement is based on valuation models and methodologies that incorporate at least one significant assumption that cannot be corroborated by observable market data.  Level 3 measurements reflect PSB's estimates about assumptions market participants would use in measuring fair value of the asset or liability.

Some assets and liabilities, such as securities available for sale and interest rate swaps, are measured at fair value on a recurring basis under GAAP.  Other assets and liabilities, such as impaired loans, foreclosed assets, mortgage servicing rights, mortgage rate lock commitments, and guarantee liabilities are measured at fair value on a nonrecurring basis.

Following is a description of the valuation methodology used for each asset and liability measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset or liability within the fair value hierarchy.

Securities available for sale – Securities available for sale may be classified as Level 1, Level 2, or Level 3 measurements within the fair value hierarchy.  Level 1 securities include equity securities traded on a national exchange.  The fair value measurement of a Level 1 security is based on the quoted price of the security.  Level 2 securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage-related securities.  The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data and represents a market approach to fair value.

At June 30, 2011 and December 31, 2010, Level 3 securities include common stock investments in Bankers' Bank Wisconsin and FNMA preferred stock that are not traded on an active market.  Amortized historical cost of the common stock is assumed to approximate fair value of these investments.

Loans – Loans are not measured at fair value on a recurring basis.  However, loans considered to be impaired may be measured at fair value on a nonrecurring basis.  The fair value measurement of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral.  All other impaired loan fair value measurements are based on the present value of expected future cash flows discounted at the applicable effective interest rate and, thus, are not fair value measurements.  Fair value measurements of underlying collateral that utilize observable market data, such as independent appraisals reflecting recent comparable sales, are considered Level 2 measurements.  Other fair value measurements that incorporate internal collateral appraisals or estimated assumptions market participants would use to measure fair value, such as discounted cash flow measurements, are considered Level 3 measurements and represent an income approach to fair value.

Foreclosed assets – Real estate and other property acquired through, or in lieu of, loan foreclosure are not measured at fair value on a recurring basis.  Initially, foreclosed assets are recorded at fair value less estimated costs to sell at the date of foreclosure.  Valuations are periodically performed by management, and the real estate or other property is carried at the lower of carrying amount or fair value less estimated costs to sell.  Fair value measurements are based on current formal or informal appraisals of property value compared to recent comparable sales of similar property.  Independent appraisals reflecting comparable sales are considered Level 2 measurements, while internal assessments of appraised value based on current market activity are considered Level 3 measurements and represent an income approach to fair value.

Mortgage servicing rights – Mortgage servicing rights are not measured at fair value on a recurring basis.  However, mortgage servicing rights that are impaired are measured at fair value on a nonrecurring basis.  Serviced loan pools are stratified by year of origination and term of the loan, and a valuation model is used to calculate the present value of expected future cash flows for each stratum.  When the carrying value of a stratum exceeds its fair value, the stratum is measured at fair value.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as costs to service, a discount rate, custodial earnings rate, ancillary income, default rates and losses, and prepayment speeds.  Although some of these assumptions are based on observable market data, other assumptions are based on unobservable estimates of what market participants would use to measure fair value.  As a result, the fair value measurement of mortgage servicing rights is considered a Level 3 measurement and represents an income approach to fair value.  Significant unobservable inputs at June 30, 2011, used to measure fair value included:

	Portfolio Range			2011 Originations
Direct annual servicing cost per loan	$	60 – $100		$	100
Direct annual servicing cost per foreclosed loan	$	0 – $500		$	500
Cash flow discount rate		8.25% – 12	%		12	%
Short-term reinvestment on float of payments to investors		.25% – 5.25	%		.25	%
Estimated future delinquent loans as a percentage of serviced loans		0 – .70	%		.70	%
Estimated foreclosed principal as a percentage of serviced loans		0 – .25	%		.25	%
Late fee assessed as a percentage of principal on delinquent loans		5	%		5	%

Mortgage rate lock commitments – The fair value of mortgage rate lock commitments is not measured on a recurring basis.  Fair value is based on current secondary market pricing for delivery of similar loans and the value of originated mortgage servicing rights on loans expected to be delivered.  Although some of these assumptions are based on observable market data, other assumptions are based on unobservable estimates of what market participants would use to measure fair value.  As a result, the fair value measurement of mortgage rate lock commitments is considered a Level 3 measurement and represent an income approach to fair value.  Significant unobservable inputs at June 30, 2011 and December 31, 2010, used to measure fair value included:

· Estimated failure to close on 10% of period-end rate lock commitments

· Estimated combined cash gain on sale of principal and originated mortgage servicing rate equal to 1% of mortgage rate lock loan principal

Interest rate swap agreements – Fair values for interest rate swap agreements are based on the amounts required to settle the contracts based on valuations provided by third-party dealers in the contracts.

Guarantee liability – Guarantees by PSB of customer payment obligations to a third party are measured at fair value using Level 3 inputs on a nonrecurring basis.  Fair value measurements include fair value of interest rate swaps covered by the guarantee, transaction fees received for offering the guarantee, and the credit risk and performance of the customer for which the guarantee is given.  Because recognition of initial transaction fees adjusted by amortization of such fees over the period of the guarantee is used to estimate fair value, these measurements represent a cost approach to fair value.  There was no guarantee liability outstanding at June 30, 2011 or December 31, 2010.

			Recurring Fair Value Measurements Using
	($000s)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value on a recurring basis at June 30, 2011:
Securities available for sale:
U.S. Treasury and agency debentures	$	528	$	–	$	528	$	–
U.S. agency issued residential MBS and CMO		60,242		–		60,242		–
Privately issued residential MBS and CMO		638		–		638		–
Other equity securities		51		–		–		51
Total securities available for sale		61,459		–		61,408		51
Assets – interest rate swaps		233		–		233		–
Total assets		61,692		–		61,641		51
Liabilities – Interest rate swaps	$	379	$	–	$	379	$	–
Assets measured at fair value on a recurring basis at December 31, 2010:
Securities available for sale:
U.S. Treasury and agency debentures	$	1,041	$	–	$	1,041	$	–
U.S. agency issued residential MBS and CMO		53,201		–		53,201		–
Privately issued residential MBS and CMO		980		–		980		–
Other equity securities		51		–		–		51
Total securities available for sale		55,273		–		55,222		51
Liabilities – Interest rate swaps	$	25	$	–	$	25	$	–

Reconciliation of fair value measurements using significant unobservable inputs:

(dollars in thousands)	Securities Available For Sale
Balance at January 1, 2010:	$	1,609
Total realized/unrealized gains and (losses):
Included in earnings		–
Included in other comprehensive income		(108	)
Purchases		400
Balance at June 30, 2010	$	1,901
Total gains or (losses) for the period included in earnings attributable to the
change in unrealized gains or losses relating to assets still held at June 30, 2010	$	–
Balance at January 1, 2011	$	51
Total realized/unrealized gains and (losses):
Included in earnings		–
Included in other comprehensive income		–
Purchases, maturities, and sales		–
Transferred from Level 2 to Level 3		–
Balance at June 30, 2011	$	51
Total gains or (losses) for the period included in earnings attributable to the
change in unrealized gains or losses relating to assets still held at June 30, 2011	$	–

			Nonrecurring Fair Value Measurements Using
	($000s)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets measured at fair value on a nonrecurring basis at June 30, 2011:
Impaired loans	$	1,970	$	–	$	–	$	1,970
Foreclosed assets		4,339		–		–		4,339
Mortgage servicing rights		1,230		–		–		1,230
Mortgage rate lock commitments		27		–		–		27
Total assets	$	7,539	$	–	$	–	$	7,539
Assets measured at fair value on a nonrecurring basis at December 31, 2010:
Impaired loans	$	1,147	$	–	$	–	$	1,147
Foreclosed assets		4,967		–		–		4,967
Mortgage servicing rights		1,100		–		–		1,100
Mortgage rate lock commitments		57		–		–		57
Total assets	$	7,271	$	–	$	–	$	7,271

At June 30, 2011, loans with a carrying amount of $2,646 were considered impaired and were written down to their estimated fair value of $1,970 net of a valuation allowance of $676.  At December 31, 2010, loans with a carrying amount of $2,643 were considered impaired and were written down to their estimated fair value of $1,147, net of a valuation allowance of $1,496.  Changes in the valuation allowances are reflected through earnings as a component of the provision for loan losses.

At June 30, 2011, mortgage servicing rights with a carrying amount of $1,288 were considered impaired and were written down to their estimated fair value of $1,230, resulting in an impairment allowance of $58.  At December 31, 2010, mortgage servicing rights with a carrying amount of $1,303 were considered impaired and were written down to their estimated fair value of $1,100, resulting in an impairment allowance of $203.  Changes in the impairment allowances are reflected through earnings as a component of mortgage banking income.

PSB estimates fair value of all financial instruments regardless of whether such instruments are measured at fair value.  The following methods and assumptions were used by PSB to estimate fair value of financial instruments not previously discussed.

Cash and cash equivalents – Fair value approximates the carrying value.

Securities held to maturity – Fair value of securities held to maturity is based on dealer quotations on similar securities at near period-end, which is considered a Level 2 measurement.

Bank certificates of deposit – Fair value of fixed rate certificates of deposit is estimated by discounting future cash flows using current rates at which similar certificates could be purchased.

Loans – Fair value of variable rate loans that reprice frequently are based on carrying values.  Loans with an active sale market, such as one- to four-family residential mortgage loans, estimate fair value based on sales of loans with similar structure and credit quality.  Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings.  Fair value of impaired and other nonperforming loans are estimated using discounted expected future cash flows or the fair value of underlying collateral, if applicable.

Loans held for sale – Loans held for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value.  The fair value measurement of a loan held for sale is based on current secondary market prices for similar loans, which is considered a Level 2 measurement.

Federal Home Loan Bank stock – Fair value is the redeemable (carrying) value based on the redemption provisions of the Federal Home Loan Bank.

Accrued interest receivable and payable – Fair value approximates the carrying value.

Cash value of life insurance – Fair value is based on reported values of the assets by the issuer which are redeemable to the insured.

Deposits – Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, by definition, is the amount payable on demand on the reporting date.  Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently offered on issue of similar time deposits.

FHLB advances and other borrowings – Fair value of fixed rate, fixed term borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made.  Fair value of borrowings with variable rates or maturing within 90 days approximates the carrying value of these borrowings.

Senior subordinated notes and junior subordinated debentures – Fair value of fixed rate, fixed term notes and debentures are estimated by discounting future cash flows using the current rates at which similar borrowings would be made.

The carrying amounts and fair values of PSB's financial instruments consisted of the following:

	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	11,155	$	11,155	$	40,331	$	40,331
Securities		112,870		112,807		108,379		106,935
Other investments		2,484		2,526		2,484		2,510
Net loans receivable and loans held for sale		438,064		446,622		432,237		441,157
Accrued interest receivable		2,072		2,072		2,238		2,238
Mortgage servicing rights		1,230		1,230		1,100		1,100
Mortgage rate lock commitments		27		27		57		57
FHLB stock		3,250		3,250		3,250		3,250
Cash surrender value of life insurance		11,199		11,199		10,899		10,899
Interest rate swap agreements		233		233		–		–
Financial liabilities:
Deposits	$	448,667	$	451,591	$	465,257	$	468,331
FHLB advances		59,124		61,626		57,434		59,909
Other borrowings		25,139		26,643		31,511		33,105
Senior subordinated notes		7,000		6,750		7,000		6,695
Junior subordinated debentures		7,732		4,261		7,732		3,986
Interest rate swap agreements		379		379		25		25
Accrued interest payable		783		783		848		848

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6 Months Ended

Jun. 30, 2011

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

PSB is exposed to certain risks relating to its ongoing business operations.  The primary risk managed by using derivative instruments is interest rate risk.  Interest rate swaps are entered into to manage interest rate risk associated with PSB's variable rate junior subordinated debentures.  Accounting standards require PSB to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet.  PSB designates its interest rate swap associated with the junior subordinated debentures as a cash flow hedge of variable-rate debt.  For derivative financial instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative instrument representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

From time to time, PSB will also enter into fixed interest rate swaps with customers in connection with their floating rate loans to PSB.  When fixed rate swaps are originated with customers, an identical offsetting swap is also entered into by PSB with a correspondent bank.  These swap arrangements are intended to offset each other as “back to back” swaps and allow PSB's loan customer to obtain fixed rate loan financing via the swap while PSB exchanges these fixed payments with a correspondent bank.

In these arrangements, PSB's net cash flows and interest income are equal to the floating rate loan originated in connection with the swap.  These customer swaps are not designated as hedging instruments and are accounted for at fair value with changes in fair value recognized in the income statement during the current period.

PSB is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements.  PSB controls the credit risk of its financial contracts through credit approvals, limits, and monitoring procedures, and does not expect any counterparties to fail their obligations.  PSB swaps originated with correspondent banks are over-the-counter (OTC) contracts.  Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amounts, exercise prices, and maturity.

As of June 30, 2011 and December 31, 2010, PSB had the following outstanding interest rate swap that was entered into to hedge variable-rate debt:

	June 30, 2011			December 31, 2010
Notional amount:	$	7,500		$	7,500
Pay fixed rate:		2.72	%		2.72	%
Receive variable rate:		0.25	%		0.30	%
Maturity:		September 2017			September 2017
Unrealized gain (loss) fair value:	$	(146	)	$	(25	)

This agreement provides for PSB to receive payments at a variable rate determined by the three-month LIBOR in exchange for making payments at a fixed rate.  Actual maturities may differ from scheduled maturities due to call options and/or early termination provisions.  No interest rate swap agreements were terminated prior to maturity in 2011.  Risk management results for the six months ended June 30, 2011, related to the balance sheet hedging of variable rate debt indicates that the hedge was 100% effective, and no component of the derivative instrument's gain or loss was excluded from the assessment of hedge effectiveness.

As of June 30, 2011, approximately $179 of losses reported in other comprehensive income related to the interest rate swap are expected to be reclassified into interest expense as a yield adjustment of the hedged borrowings during the 12-month period ending June 30, 2012.  The interest rate swap agreement was secured by cash and cash equivalents of $310 at June 30, 2011, and by $350 at December 31, 2010.

As of June 30, 2011, PSB had a number of outstanding interest rate swaps with customers and correspondent banks associated with its lending activities that are not designated as hedges.  There were no customer related swaps outstanding at December 31, 2010.

At period end, the following floating interest rate swaps were outstanding with customers:

	June 30, 2011			December 31, 2010
Notional amount:	$	8,090			–
Receive fixed rate (average):		2.14	%		0.00	%
Pay variable rate (average):		0.19	%		0.00	%
Maturity:		March 2015
Unrealized gain (loss) fair value:	$	233			–

At period end, the following offsetting fixed interest rate swaps were outstanding with correspondent banks:

	June 30, 2011			December 31, 2010
Notional amount:	$	8,090			–
Pay fixed rate (average):		2.14	%		0.00	%
Receive variable rate (average):		0.19	%		0.00	%
Maturity:		March 2015
Unrealized gain (loss) fair value:	$	(233	)		–

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DEPOSITS

6 Months Ended

Jun. 30, 2011

DEPOSITS [Abstract]

DEPOSITS

NOTE 6 – DEPOSITS

The distribution of deposits at June 30, 2011 and December 31, 2010 is as follows:

	June 30, 2011		December 31, 2010
Non-interest bearing demand	$	55,460	$	57,932
Interest bearing demand (NOWs)		94,696		106,569
Savings		26,888		24,662
Money market		98,498		105,866
Retail and local time		95,756		103,397
Broker and national time		77,369		66,831
Total deposits	$	448,667	$	465,257

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Consolidated Statement of Changes in Stockholders Equity (Unaudited) (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2011
Consolidated Statement of Changes in Stockholders Equity [Abstract]
Cash dividends declared (in dollars per share)	$ 0.37

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SECURITIES

6 Months Ended

Jun. 30, 2011

SECURITIES [Abstract]

SECURITIES

NOTE 2 – SECURITIES

The amortized cost and estimated fair value of investment securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2011
Securities available for sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	502	$	26	$	–	$	528
U.S. agency issued residential mortgage-backed securities		16,925		1,150		–		18,075
U.S. agency issued residential collateralized mortgage obligations		41,146		1,021		–		42,167
Privately issued residential collateralized mortgage obligations		624		14		–		638
Other equity securities		51		–		–		51
Totals	$	59,248	$	2,211	$	–	$	61,459
Securities held to maturity
Obligations of states and political subdivisions	$	49,530	$	346	$	168	$	49,708
Nonrated trust preferred securities		1,478		22		260		1,240
Nonrated senior subordinated notes		403		–		3		400
Totals	$	51,411	$	368	$	431	$	51,348

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2010
Securities available for sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	1,003	$	38	$	–	$	1,041
U.S. agency issued residential mortgage-backed securities		16,580		1,110		–		17,690
U.S. agency issued residential collateralized mortgage obligations		34,934		652		75		35,511
Privately issued residential collateralized mortgage obligations		964		18		2		980
Other equity securities		51		–		–		51
Totals	$	53,532	$	1,818	$	77	$	55,273
Securities held to maturity
Obligations of states and political subdivisions	$	51,234	$	7	$	1,435	$	49,806
Nonrated trust preferred securities		1,468		25		37		1,456
Nonrated senior subordinated notes		404		–		4		400
Totals	$	53,106	$	32	$	1,476	$	51,662

Securities with a fair value of $49,451 and $60,111 at June 30, 2011 and December 31, 2010, respectively, were pledged to secure public deposits, other borrowings, and for other purposes required by law.

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COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2011

COMPREHENSIVE INCOME [Abstract]

COMPREHENSIVE INCOME

NOTE 3 – COMPREHENSIVE INCOME

Comprehensive income as defined by current accounting standards for the three months and six months ended June 30, 2011 and 2010 is as follows:

	Three months ended June 30,					Six months ended June 30,
(dollars in thousands – unaudited)	2011			2010		2011			2010
Net income	$	1,226		$	1,208	$	2,511		$	2,089
Unrealized gain on securities available for sale, net of tax		337			97		284			219
Reclassification adjustment for security loss included in net income, net of tax		–			12		–			12
Amortization of unrealized gain on securities available for sale transferred to
securities held to maturity included in net income, net of tax		(77	)		–		(163	)		–
Unrealized loss on interest rate swap, net of tax		(155	)		–		(129	)		–
Reclassification of interest rate swap settlements included in earnings, net of tax		28			–		55			–
Comprehensive income	$	1,359		$	1,317	$	2,558		$	2,320

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CONTINGENCIES

6 Months Ended

Jun. 30, 2011

CONTINGENCIES [Abstract]

CONTINGENCIES

NOTE 11 – CONTINGENCIES

In the normal course of business, PSB is involved in various legal proceedings.  In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

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LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2011

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES [Abstract]

LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

NOTE 4 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans

Loans that management has the intent to hold for the foreseeable future or until maturity or pay-off are generally reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.  Interest on loans is credited to income as earned.  Interest income is not accrued on loans where management has determined collection of such interest is doubtful or those loans which are past due 90 days or more as to principal or interest payments.  When a loan is placed on nonaccrual status, previously accrued but unpaid interest deemed uncollectible is reversed and charged against current income.  After being placed on nonaccrual status, additional income is recorded only to the extent that payments are received and the collection of principal becomes reasonably assured.  Interest income recognition on loans considered to be impaired is consistent with the recognition on all other loans.  Loan origination fees and certain direct loan origination costs are deferred and recognized as an adjustment of the related loan yield using the interest method.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense.  Loans are charged against the allowance for loan losses when management believes the collectibility of the principal is unlikely.

Management maintains the allowance for loan losses at a level to cover probable credit losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio.  In accordance with current accounting standards, the allowance is provided for losses that have been incurred based on events that have occurred as of the balance sheet date.  The allowance is based on past events and current economic conditions and does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.  While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions.

The allowance for loan losses includes specific allowances related to loans which have been judged to be impaired.  A loan is impaired when, based on current information, it is probable that PSB will not collect all amounts due in accordance with the contractual terms of the loan agreement.  Management has determined that impaired loans include nonaccrual loans, loans identified as restructurings of troubled debt, and loans accruing interest with elevated risk of default in the near term based on a variety of credit factors.  Specific allowances on impaired loans are 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.

In addition, various regulatory agencies periodically review the allowance for loan losses.  These agencies may require PSB to make additions to the allowance for loan losses based on their judgments of collectibility resulting from information available to them at the time of their examination.

The composition of loans at period-end, categorized by the type of the loan, is as follows:

	June 30, 2011			December 31, 2010
Commercial, industrial, and municipal	$	130,747		$	129,063
Commercial real estate mortgage		185,200			180,937
Construction and development		28,033			35,310
Residential real estate mortgage		75,203			71,675
Residential real estate home equity		24,976			23,774
Consumer and individual		3,745			3,929
Subtotals – Gross loans		447,904			444,688
Loans in process of disbursement		(2,565	)		(5,177	)
Subtotals – Disbursed loans		445,339			439,511
Net deferred loan costs		223			250
Allowance for loan losses		(7,817	)		(7,960	)
Net loans receivable	$	437,745		$	431,801

The following is a summary of information pertaining to impaired loans:

	June 30, 2011		December 31, 2010
Impaired loans without a valuation allowance	$	3,639	$	8,773
Impaired loans with a valuation allowance		13,628		2,643
Total impaired loans before valuation allowances		17,267		11,416
Valuation allowance related to impaired loans		3,387		1,496
Net impaired loans	$	13,880	$	9,920

Activity in the allowance for loan losses during the six months ended June 30, 2011, follows:

Allowance for loan losses:	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Unallocated		Total
Beginning balance	$	3,862		$	3,674		$	211		$	213		$	–	$	7,960
Provision		579			(653	)		932			(68	)		–		790
Recoveries		139			6			–			5			–		150
Charge offs		(766	)		(132	)		(102	)		(83	)		–		(1,083	)
Ending balance	$	3,814		$	2,895		$	1,041		$	67		$	–	$	7,817
Individually evaluated for impairment	$	1,943		$	882		$	542		$	20		$	–	$	3,387
Collectively evaluated for impairment	$	1,871		$	2,013		$	499		$	47		$	–	$	4,430
Loans receivable (gross):
Individually evaluated for impairment	$	7,338		$	7,688		$	2,163		$	78		$	–	$	17,267
Collectively evaluated for impairment	$	123,409		$	192,238		$	111,323		$	3,667		$	–	$	430,637

The commercial credit exposure based on internally assigned credit grade at June 30, 2011 and at December 31, 2010, follows:

At June 30, 2011	Commercial		Commercial Real Estate		Construction & Development		Agricultural		Government		Total
High quality (credit risk rating 1)	$	58	$	–	$	–	$	–	$	–	$	58
Minimal risk (2)		6,811		21,609		451		653		1,780		31,304
Average risk (3)		56,299		115,987		7,609		1,572		5,262		186,729
Acceptable risk (4)		41,355		31,052		2,357		393		–		75,157
Watch risk (5)		8,523		8,998		3,892		–		–		21,413
Substandard risk (6)		703		247		36		–		–		986
Impaired loans (7)		7,023		7,307		381		315		–		15,026
Total	$	120,772	$	185,200	$	14,726	$	2,933	$	7,042	$	330,673

At December 31, 2010	Commercial		Commercial Real Estate		Construction & Development		Agricultural		Government		Total
High quality (credit risk rating 1)	$	83	$	–	$	–	$	–	$	–	$	83
Minimal risk (2)		3,854		27,792		1,055		664		1,922		35,287
Average risk (3)		57,667		107,639		7,865		1,507		6,024		180,702
Acceptable risk (4)		37,373		33,482		12,594		293		–		83,742
Watch risk (5)		10,303		6,560		145		–		–		17,008
Substandard risk (6)		4,797		3,010		237		–		–		8,044
Impaired loans (7)		4,218		2,454		345		358		–		7,375
Total	$	118,295	$	180,937	$	22,241	$	2,822	$	7,946	$	332,241

The consumer credit exposure based on payment activity at June 30, 2011 and at December 31, 2010, follows:

At June 30, 2011	Residential – Prime		Residential – HELOC		Construction & Development		Consumer		Total
Performing	$	73,602	$	24,877	$	13,209	$	3,684	$	115,372
Nonperforming		1,601		99		98		61		1,859
Total	$	75,203	$	24,976	$	13,307	$	3,745	$	117,231

At December 31, 2010	Residential – Prime		Residential – HELOC		Construction & Development		Consumer		Total
Performing	$	70,242	$	23,632	$	12,928	$	3,851	$	110,653
Nonperforming		1,433		142		141		78		1,794
Total	$	71,675	$	23,774	$	13,069	$	3,929	$	112,447

The payment age analysis of loans receivable disbursed at June 30, 2011 and at December 31, 2010 follows:

Loan Class at June 30, 2011	30-59 Days		60-89 Days		90+ Days		Total Past Due		Current		Total Loans		90+ and Accruing
Commercial:
Commercial and industrial	$	567	$	269	$	2,743	$	3,579	$	117,193	$	120,772	$	–
Agricultural		–		179		–		179		2,754		2,933		–
Government		–		–		–		–		7,042		7,042		–
Commercial real estate:
Commercial real estate		868		411		864		2,143		183,057		185,200		–
Commercial construction and development		–		–		444		444		13,618		14,061		–
Residential real estate:
Residential – prime		285		298		1,323		1,906		73,297		75,203		–
Residential – HELOC		114		–		69		183		24,793		24,976		–
Residential – construction and development		–		–		78		78		11,328		11,407		–
Consumer		21		1		60		82		3,663		3,745		–
Total	$	1,855	$	1,158	$	5,581	$	8,594	$	436,745	$	445,339	$	–

Loan Class at December 31, 2010	30-59 Days		60-89 Days		90+ Days		Total Past Due		Current		Total Loans		90+ and Accruing
Commercial:
Commercial and industrial	$	2,235	$	694	$	2,305	$	5,234	$	113,061	$	118,295	$	–
Agricultural		–		–		72		72		2,750		2,822		–
Government		–		–		–		–		7,946		7,946		–
Commercial real estate:
Commercial real estate		178		355		1,545		2,078		178,859		180,937		–
Commercial construction and development		–		145		448		593		17,930		18,523		–
Residential real estate:
Residential – prime		649		267		758		1,674		70,001		71,675		–
Residential – HELOC		26		35		78		139		23,635		23,774		–
Residential – construction and development		17		–		99		116		11,494		11,610		–
Consumer		8		3		78		89		3,840		3,929		–
Total	$	3,113	$	1,499	$	5,383	$	9,995	$	429,516	$	439,511	$	–

Impaired loans at June 30, 2011, and during the six months then ended, by loan class, follows:

At June 30, 2011	Unpaid Principal Balance		Related Allowance		Recorded Investment		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial & industrial	$	1,372	$	–	$	1,372	$	2,292	$	20
Commercial real estate		1,920		–		1,920		3,622		51
Commercial construction & development		–		–		–		120		–
Agricultural		300		–		300		300		8
Government		–		–		–		–		–
Residential – prime		47		–		47		338		1
Residential – HELOC		–		–		–		23		–
Residential construction & development		–		–		–		12		–
Consumer		–		–		–		11		–
With an allowance recorded:
Commercial & industrial	$	5,651	$	1,940	$	3,711	$	2,298	$	65
Commercial real estate		5,247		733		4,514		2,388		94
Commercial construction & development		521		149		372		342		2
Agricultural		15		3		12		11		–
Government		–		–		–		–		–
Residential – prime		1,729		387		1,342		922		9
Residential – HELOC		289		126		163		112		4
Residential construction & development		98		29		69		54		–
Consumer		78		20		58		39		1
Totals:
Commercial & industrial	$	7,023	$	1,940	$	5,083	$	4,590	$	85
Commercial real estate		7,167		733		6,434		6,010		145
Commercial construction & development		521		149		372		462		2
Agricultural		315		3		312		311		8
Government		–		–		–		–		–
Residential – prime		1,776		387		1,389		1,260		10
Residential – HELOC		289		126		163		135		4
Residential construction & development		98		29		69		66		–
Consumer		78		20		58		50		1

Loans on nonaccrual status by loan class at June 30, 2011 and December 31, 2010, follows:

	June 30, 2011		December 31, 2010
Commercial:
Commercial and industrial	$	3,904	$	4,546
Agricultural		15		72
Government		–		–
Commercial real estate:
Commercial real estate		1,606		2,119
Commercial  construction and development		449		508
Residential real estate:
Residential – prime		1,601		1,433
Residential – HELOC		99		142
Residential construction and development		98		141
Consumer		61		78
Total	$	7,833	$	9,039

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FUTURE ACCOUNTING CHANGE

6 Months Ended

Jun. 30, 2011

FUTURE ACCOUNTING CHANGE [Abstract]

FUTURE ACCOUNTING CHANGE

NOTE 14 – FUTURE ACCOUNTING CHANGE

FASB ASC Topic 310, Receivables.  In April 2011, new authoritative accounting guidance concerning a creditor's determination of whether a loan restructuring is a troubled debt restructuring was issued.   The amendments clarified existing guidance concerning the creditor's evaluation of whether it has granted a concession and whether the concession was to a borrower experiencing financial difficulties.  The guidance clarified that a troubled debt restructuring includes modifications to a borrower experiencing financial difficulties that did not otherwise have access to funds at a market rate for debt with similar risk characteristics as the restructured debt.  In addition, a creditor may conclude that a debtor is experiencing financial difficulties even through the debtor is not currently in payment default if the debtor would be in default on any of its debt in the foreseeable future without the loan modification.  The clarifying guidance is expected to result in more consistent application of required accounting and disclosure for troubled debt restructurings.  These amendments are effective during the quarter ended September 30, 2011 and applied retrospectively to loans restructured since January 1, 2011.  Changes to measurements of impairment would be recorded in the quarter ended September 30, 2011 along with enhanced disclosure concerning restructured loans and the related restructured terms.  PSB does not expect to incur a change to measurement of impairment upon adoption of these amendments.

FASB ASC Topic 820, Fair Value Measurements. In May 2011, new authoritative accounting guidance concerning fair value measurements was issued.  Significant provisions of the new guidance now require both domestic and international companies to follow existing United States guidance in measuring fair value.  In addition, certain Level 3 unobservable inputs and impacts to fair value from sensitivity of these inputs to changes must be disclosed.  Lastly, the level of fair value hierarchy used to estimate fair value of financial instruments not accounted for at fair value on the balance sheet (such as loans receivable and deposits) must be disclosed.  These new disclosures are effective during the quarter ended March 31, 2012 and are not expected to have significant impact to PSB upon adoption.

FASB ASC Topic 220, Comprehensive Income.  In June 2011, new authoritative accounting guidance was approved that will require changes to the presentation of comprehensive net income.  Effective for the quarter ended March 31, 2012, PSB will have the option to present comprehensive income as an extension of the basic income statement or in a separate statement directly after the basic income statement.  Currently, comprehensive income is disclosed as part of the statement of changes in stockholders' equity.  PSB does not expect adoption of the new comprehensive income disclosure standard to have a significant impact on PSB's comprehensive income presentation.

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Consolidated Statement of Changes in Stockholders Equity (Unaudited) (USD $) In Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]
Balance January 1, 2011 at Dec. 31, 2010	$ 46,690	$ 1,751	$ 5,506	$ 41,974	$ 2,528	$ (5,069)
Comprehensive income:
Net income	2,511			2,511
Unrealized gain on securities available for sale, net of tax	284				284
Amortization of unrealized gain on securities available for sale transferred to securities held to maturity included in net income, net of tax	(163)				(163)
Unrealized loss on interest rate swap, net of tax	(129)				(129)
Reclassification of interest rate swap settlements included in earnings, net of tax	55				55
Total comprehensive income	2,558
Exercise of stock options	24		(16)			40
Issuance of new restricted stock grants	0		(236)			236
Vesting of existing restricted stock grants	45		45
Cash dividends declared	(574)			(574)
Cash dividends declared on unvested restricted stock grants	(12)			(12)
Balance June 30, 2011 at Jun. 30, 2011	$ 48,731	$ 1,751	$ 5,299	$ 43,899	$ 2,575	$ (4,793)

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2011

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE 15 – SUBSEQUENT EVENTS

Management has reviewed PSB's operations for potential disclosure of information or financial statement impacts related to events occurring after June 30, 2011 but prior to the release of these financial statements.  Based on the results of this review, no subsequent event disclosures or financial statement impacts to the recently completed quarter are required as of the release date.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income	$ 2,511	$ 2,089
Provision for depreciation and net amortization	1,069	974
Provision for loan losses	790	1,045
Deferred net loan origination costs	(156)	(135)
Gain on sale of loans	(401)	(412)
Provision for (recapture of) servicing right valuation allowance	(145)	7
Loss on sale of foreclosed assets	433	28
Loss on sale of securities	0	20
Increase in cash surrender value of life insurance	(208)	(204)
Accrued interest receivable	166	(105)
Other assets	131	213
Other liabilities	(556)	(314)
Net cash provided by operating activities	3,634	3,206
Proceeds from sale and maturities of:
Securities available for sale	7,930	13,628
Securities held to maturity	2,230	0
Payment for purchase of:
Securities available for sale	(13,941)	(14,674)
Securities held to maturity	(831)	0
Net increase in loans	(6,500)	(7,962)
Capital expenditures	(102)	(735)
Proceeds from sale of foreclosed assets	330	475
Purchase of bank-owned life insurance	(92)	0
Net cash used in investing activities	(10,976)	(9,268)
Cash flows from financing activities:
Net decrease in non-interest-bearing deposits	(2,472)	(5,285)
Net increase (decrease) in interest-bearing deposits	(14,118)	1,398
Net increase (decrease) in FHLB advances	1,690	(725)
Net decrease in other borrowings	(6,372)	(3,546)
Dividends declared	(586)	(565)
Proceeds from exercise of stock options	24	0
Net cash used in financing activities	(21,834)	(8,723)
Net decrease in cash and cash equivalents	(29,176)	(14,785)
Cash and cash equivalents at beginning	40,331	26,337
Cash and cash equivalents at end	11,155	11,552
Cash paid during the period for:
Interest	4,591	5,625
Income taxes	1,025	423
Loans charged off	1,083	995
Loans transferred to foreclosed assets	135	2,950
Issuance of unvested restricted stock grants at fair value	200	75
Vesting of restricted stock grants	$ 45	$ 21

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2011

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

NOTE 9 – STOCK-BASED COMPENSATION

Under the terms of an incentive stock option plan adopted during 2001, shares of unissued common stock were reserved for options to officers and key employees at prices not less than the fair market value of the shares at the date of the grant.  These options expire 10 years after the grant date with the options scheduled to expire during 2011 and 2012.   No additional shares of common stock remain reserved for future grants under the option plan approved by the shareholders.  As of June 30, 2011, 2,181 options were outstanding and eligible to be exercised at a weighted average exercise price of $16.09 per share.  As of December 31, 2010, 3,645 options were outstanding and eligible to be exercised at a weighted average exercise price of $15.99 per share.  During the six months ended June 30, 2011, 1,464 options were exercised at $15.83 per share.  There were no options exercised during the six months ended June 30, 2010, although 636 options shares lapsed with an average exercise price of $15.84 per share.

PSB granted restricted stock to certain employees having an initial market value of $200 and $75 during the three months ended March 31, 2011, and 2010, respectively.  No restricted shares were granted during the three months ended June 30, 2011 or 2010.  Restricted shares vest to employees based on continued PSB service over a six-year period and are recognized as compensation expense over the vesting period.  Cash dividends are paid on unvested shares at the same time and amount as paid to PSB common shareholders.  Cash dividends paid on unvested restricted stock shares are charged to retained earnings as significantly all restricted shares are expected to vest to employees.  Unvested shares are subject to forfeiture upon employee termination.  During the six months ended June 30, compensation expense recorded from amortization of restricted shares expected to vest to employees was $45 and $21 during 2011 and 2010, respectively.

The following table summarizes information regarding restricted stock outstanding at June 30, 2011 and 2010 including activity during the six months then ended.

	Shares			Weighted Average Grant Price
January 1, 2010		14,332		$	17.44
Restricted stock granted		4,983			15.05
Restricted stock legally vested		(785	)		(25.53	)
June 30, 2010		18,530		$	16.46
January 1, 2011		18,530		$	16.46
Restricted stock granted		8,695			23.00
Restricted stock legally vested		(2,867	)		(17.45	)
June 30, 2011		24,358		$	18.67

Scheduled compensation expense per calendar year assuming all restricted shares eventually vest to employees would be as follows:

2011	$	78
2012		85
2013		105
2014		85
2015		55
Thereafter		40
Totals	$	448

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CURRENT YEAR ACCOUNTING CHANGES

6 Months Ended

Jun. 30, 2011

CURRENT YEAR ACCOUNTING CHANGES [Abstract]

CURRENT YEAR ACCOUNTING CHANGES

NOTE 13 – CURRENT YEAR ACCOUNTING CHANGES

FASB ASC Topic 310, “Receivables.” New authoritative accounting guidance issued in July 2010 under ASC Topic 310, “Receivables,” required extensive new disclosures surrounding the allowance for loan losses although it did not change any credit loss recognition or measurement rules.  The new rules require disclosures to include a breakdown of allowance for loan loss activity by portfolio segment as well as problem loan disclosures by detailed class of loan.  In addition, disclosures on internal credit grading metrics and information on impaired, nonaccrual, and restructured loans are also required.  The period-end disclosures were effective for financial periods ending December 31, 2010 but deferred presentation of loan loss allowance by loan portfolio segment until the quarter ended March 31, 2011.  PSB adopted the rules for loan loss allowance disclosures by loan segment effective March 31, 2011.

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Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Cash and due from banks	$ 10,077	$ 9,601
Interest-bearing deposits and money market funds	1,078	227
Federal funds sold	0	30,503
Cash and cash equivalents	11,155	40,331
Securities available for sale (at fair value)	61,459	55,273
Securities held to maturity (fair value of $51,348 and $51,662, respectively)	51,411	53,106
Other investments	2,484	2,484
Loans held for sale	319	436
Loans receivable, net	437,745	431,801
Accrued interest receivable	2,072	2,238
Foreclosed assets	4,339	4,967
Premises and equipment, net	10,213	10,464
Mortgage servicing rights, net	1,230	1,100
Federal Home Loan Bank stock (at cost)	3,250	3,250
Cash surrender value of bank-owned life insurance	11,199	10,899
Other assets	4,551	4,744
TOTAL ASSETS	601,427	621,093
Liabilities
Non-interest-bearing deposits	55,460	57,932
Interest-bearing deposits	393,207	407,325
Total deposits	448,667	465,257
Federal Home Loan Bank advances	59,124	57,434
Other borrowings	25,139	31,511
Senior subordinated notes	7,000	7,000
Junior subordinated debentures	7,732	7,732
Accrued expenses and other liabilities	5,034	5,469
Total liabilities	552,696	574,403
Stockholders' equity
Preferred stock - no par value: Authorized - 30,000 shares; no shares issued or outstanding	0	0
Common stock, no par value with a stated value of $1 per share; Authorized 3,000,000 shares; Issued 1,751,431; Outstanding: 1,574,456 and 1,564,297 shares, respectively	1,751	1,751
Additional paid-in capital	5,299	5,506
Retained earnings	43,899	41,974
Accumulated other comprehensive income (loss), net of tax	2,575	2,528
Treasury stock, at cost	(4,793)	(5,069)
Total stockholders' equity	48,731	46,690
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 601,427	$ 621,093