PSB Holdings, Inc. Acquisition of Marathon State Bank

12 Months Ended

Dec. 31, 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 purchased 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 since 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 available for sale		50,547
Loans receivable		23,760
Short-term commercial paper and bankers' acceptances		11,713
Foreclosed assets		0
Premises and equipment		402
Core deposit intangible		0
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 markdown of $490 on Marathon’s loan portfolio on the purchase date, or 2.05% of gross purchased loan principal. 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 markdown is accreted to income as a yield adjustment based on contractual cash flows over the remaining life of the purchased loans.

The gain on bargain purchase was due primarily to PSB’s recognition of fair value associated with Marathon’s investment securities and premises and equipment that was not previously recognized by Marathon in its stockholders’ equity, upon which the purchase price was factored.

Pro forma combined results of operations as if the combination occurred at the beginning of the year-to-date periods ended December 31:

	Year Ended December 31, 2012
	(pro forma combined at beginning of period)
	Net Interest		Noninterest		Net		Earnings
	Income		Income		Income		Per Share
PSB Holdings, Inc.	$	19,670	$	5,706	$	5,587	$	3.36
Marathon State Bank		1,158		880		468		0.28
Pro forma totals	$	20,828	$	6,586	$	6,055	$	3.64

	Year Ended December 31, 2011
	(pro forma combined at beginning of period)
	Net Interest		Noninterest		Net		Earnings
	Income		Income		Income		Per Share
PSB Holdings, Inc.	$	19,557	$	5,337	$	5,305	$	3.21
Marathon State Bank		1,782		44		571		0.34
Pro forma totals	$	21,339	$	5,381	$	5,876	$	3.55