Commitments, Contingencies, and Credit Risk

12 Months Ended

Dec. 31, 2013

Commitments Contingencies And Credit Risk

Commitments, Contingencies, and Credit Risk

NOTE 18 Commitments, Contingencies, and Credit Risk

Financial Instruments With Off-Balance-Sheet Credit Risk

PSB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets.

PSB’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. PSB uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. These commitments at December 31 are as follows:

	2013		2012
Commitments to extend credit – Fixed and variable rates	$	89,645	$	74,121
Commercial standby letters of credit – Variable rate		4,533		4,951
Unused home equity lines of credit – Variable rate		24,082		22,999
Unused credit card commitments – Variable rate		234		3,217
Credit enhancement under the FHLB of Chicago
Mortgage Partnership Finance program		949		1,945
Totals	$	119,443	$	107,233

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. PSB evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.

Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which PSB deems necessary. The commitments are generally structured to allow for 100% collateralization on all letters of credit.

Unfunded commitments under home equity lines of credit are commitments for possible future extensions of credit to existing customers. These lines of credit are secured by residential mortgages not to exceed the collateral property fair market value upon origination and may or may not contain a specific maturity date.

Credit card commitments were commitments on credit cards issued by PSB and serviced by Elan Financial Services (a subsidiary of U.S. Bancorp). These commitments were unsecured. During 2013, PSB sold its credit card loan balances to Elan Financial Services at a loss of $31 ($19 after tax benefits) on proceeds of $671. At December 31, 2013, certain card balances for which PSB provides full recourse against losses were still retained. Aggregate exposure on the full recourse balances was $328 at December 31, 2013, including $234 of unused commitments.

PSB participates in the FHLB Mortgage Partnership Finance Program (the “Program”) and also originates loans for purchase by FNMA. PSB enters into forward commitments to sell mortgage loans to these various secondary market agency providers under which loans are funded by the agencies and PSB receives an agency fee reported as a component of gain on sale of loans. PSB had approximately $1,507 and $10,123 in firm commitments outstanding to deliver loans to these providers at December 31, 2013 and 2012, respectively, from rate lock commitments made with customers. Until November 2008, loans delivered by PSB to the Program carried a contractually agreed-upon credit enhancement from PSB with the commitment to perform servicing of the loan.

Concentration of Credit Risk

PSB grants residential mortgage, commercial, and consumer loans predominantly in Marathon, Oneida, and Vilas counties in Wisconsin. There are no significant concentrations of credit to any one debtor or industry group. Management believes the diversity of the local economy prevents significant losses during economic downturns.

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.