PSB HOLDINGS, INC. ACQUISITION OF MARATHON STATE BANK

6 Months Ended

Jun. 30, 2012

Psb Holdings Inc. Acquisition Of Marathon State Bank

PSB HOLDINGS, INC. ACQUISITION OF MARATHON STATE BANK

NOTE 2 – PSB HOLDINGS, INC. ACQUISITION OF MARATHON STATE BANK

On June 14, 2012, PSB completed its purchase of Marathon State Bank, a privately owned bank with $107 million in total assets located in the Village of Marathon City, Wisconsin (“Marathon”). Under the terms of the agreement, PSB paid $5,505 in cash, which was equal to 100% of Marathon’s tangible net book value following a special dividend by Marathon to its shareholders to reduce its book equity ratio to 6% of total assets. The following table outlines the fair value of Marathon assets and liabilities acquired including determination of the gain on bargain purchase using an accounting date of June 1, 2012. A core deposit intangible was not recorded on the purchase as the fair value calculation determined it was insignificant.

Cash purchase price	$	5,505
Fair value of assets acquired:
Cash and due from banks		20,392
Securities		50,547
Loans receivable		23,760
Short-term commercial paper and bankers’ acceptances		11,713
Foreclosed assets		—
Premises and equipment		402
Core deposit intangible		—
Accrued interest receivable and other assets		550
Total fair value of assets acquired		107,364
Fair value of liabilities assumed:
Non-interest bearing deposits		23,255
Interest-bearing deposits		77,611
Accrued interest payable and other liabilities		142
Total fair value of liabilities assumed		101,008
Fair value of net assets acquired		6,356
Gain on bargain purchase	$	851

PSB recorded a total credit mark down of $490 on Marathon’s loan portfolio on the purchase date, or 1.52% of purchased loan principal (including non-rated commercial paper and bankers’ acceptances). Purchased impaired loan principal totaled $310 on which a $21 credit write-down was recorded. Due to the insignificant amount of total purchased impaired loans, the entire $490 credit mark down will be accreted to income as a yield adjustment based on contractual cash flows over the remaining life of the purchased loans. 

Pro forma combined results of operations as if the combination occurred at the beginning of the quarterly and year to date periods ended June 30, 2012:

	Quarter ended June 30, 2012 (pro forma combined at beginning of period)
		Net interest		Noninterest		Net		Earnings
($000s)		income		income		income		per share
PSB Holdings, Inc.	$	4,747	$	1,469	$	1,364	$	0.82
Marathon State Bank		382		860		523		0.31
Pro forma Totals	$	5,129	$	2,329	$	1,887	$	1.13
		Six months ended June 30, 2012 (pro forma combined at beginning of period)
		Net interest		Noninterest		Net		Earnings
($000s)		income		income		income		per share
PSB Holdings, Inc.	$	9,563	$	2,711	$	2,544	$	1.53
Marathon State Bank		808		872		600		0.36
Pro forma Totals	$	10,371	$	3,583	$	3,144	$	1.89

Pro forma combined results of operations as if the combination occurred at the beginning of the quarterly and year to date periods ended June 30, 2011:

	Quarter ended June 30, 2011 (pro forma combined at beginning of period)
		Net interest		Noninterest		Net		Earnings
($000s)		income		income		income		per share
PSB Holdings, Inc.	$	4,866	$	1,197	$	1,226	$	0.74
Marathon State Bank		443		10		151		0.09
Pro forma Totals	$	5,309	$	1,207	$	1,377	$	0.83
	Six months ended June 30, 2011 (pro forma combined at beginning of period)
		Net interest		Noninterest		Net		Earnings
($000s)		income		income		income		per share
PSB Holdings, Inc.	$	9,630	$	2,594	$	2,511	$	1.51
Marathon State Bank		879		26		289		0.18
Pro forma Totals	$	10,509	$	2,620	$	2,800	$	1.69