-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MSdTq4KDtX5MSO4H7oG48PHDqEQw29GU819pGNxQltUiAssXuBk5OLISv0BYAnVR Px/BKe8qmbetNMja8fYwyg== 0000916480-98-000031.txt : 19981118 0000916480-98-000031.hdr.sgml : 19981118 ACCESSION NUMBER: 0000916480-98-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSB HOLDINGS INC /WI/ CENTRAL INDEX KEY: 0000948368 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 391804877 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26480 FILM NUMBER: 98750344 BUSINESS ADDRESS: STREET 1: 1905 WEST STEWART AVE CITY: WAUSAU STATE: WI ZIP: 54401 BUSINESS PHONE: 7158422191 MAIL ADDRESS: STREET 1: 1905 WEST STEWART AVE CITY: WAUSAU STATE: WI ZIP: 54401 FORMER COMPANY: FORMER CONFORMED NAME: PSB HOLDINGS INC /WI/ DATE OF NAME CHANGE: 19950721 FORMER COMPANY: FORMER CONFORMED NAME: PEOPLES STATE BANK /WI/ DATE OF NAME CHANGE: 19950721 10-Q 1 10-Q FOR 09/30/98 FOR PSB HOLDINGS, INC. 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, 1998 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, 1998 was 883,235. PSB HOLDINGS, INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1998 PAGE NO. PART I.FINANCIAL INFORMATION Item 1.Financial Statements Consolidated Statements of Income, Nine Months Ended and Three Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited) 1 Condensed Consolidated Balance Sheets September 30, 1998 (unaudited) and December 31, 1997 (derived from audited financial statements) 2 Condensed Consolidated Statements of Cash Flows Nine Months Ended and Three Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited) 3 Notes to Condensed Consolidated Financial Statements 4 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II.OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to Vote of Securities Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on form 8-K 14 -i- PART I. FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME
($ thousands except share data -unaudited) Nine Months Ended Three Months Ended September 30, September 30 1998 1997 1998 1997 Interest Income Interest and fees on loans $10,107 $ 9,310 3,386 3,202 Interest on investment securities Taxable 1,727 1,793 605 570 Tax-exempt 466 433 163 146 Other interest income 225 66 98 36 Total interest income 12,525 11,602 4,252 3,954 Interest Expense: Deposits 6,130 5,832 2,058 2,007 Short-term borrowings 413 275 147 81 Total interest expense 6,543 6,107 2,205 2,088 Net interest income 5,982 5,495 2,047 1,866 Provisions for losses on loans 225 155 75 65 Net interest income after provision for loan losses 5,757 5,340 1,972 1,801 Other income: Service fees 470 364 180 132 Investment product sales commissions 116 52 28 18 Gain on sale of loans 235 30 73 23 Net security gains 36 -0- -0- -0- Net gain on other real estate 20 3 -0- 3 Other operating income 194 135 96 42 Total other income 1,071 584 377 218 Other Expenses Salaries and related benefits 2,157 1,903 696 625 Loss on settlement of pension plan 403 -0- -0- -0- Net occupancy expense 614 530 209 175 Computer operations 78 52 28 26 Other operating expense 1,024 822 345 260 Total other expenses 4,276 3,307 1,278 1,086 Income before income taxes 2,552 2,617 1,071 933 Provision for income taxes 805 849 352 307 Net income $ 1,747 $ 1,768 $ 719 $ 626 Income per share Basis: Weighted Average of 883,235 shares in 1998 Weighted Average of 887,958 shares in 1997 Net income per share $ 1.98 $ 1.99 $ .81 $ .70
-1- PSB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
($ thousands) September 30, December 31, ASSETS 1998* 1997* Cash and cash equivalents $ 8,915 $ 10,623 Interest bearing deposits with banks -0- 153 Federal funds sold 1,484 -0- Investment securities - Held to maturity (Market value $14,365 & $12,704 14,067 12,549 at 1998 & 1997 respectively) Available for sale (at fair market value, cost $41,349 & $37,422 41,767 37,579 at 1998 & 1997 respectively) Total loans 149,546 149,317 Allowance for loan losses (1,909) (1,845) Net loans 147,637 147,472 Bank premises and equipment 3,954 3,746 Other assets 2,548 2,897 TOTAL ASSETS $220,372 $215,019 LIABILITIES Noninterest-bearing deposits $ 26,915 $ 27,564 Interest-bearing deposits 161,819 159,038 Total deposits 188,734 186,602 Short-term borrowings 3,443 3,960 Long-term borrowings 6,000 3,000 Other liabilities 1,372 2,239 Total liabilities 199,549 195,801 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 12,393 10,956 Accumulated other comprehensive income, net of tax 269 101 Treasury stock, at cost - 19,190 shares (803) (803) Total stockholders' equity 20,823 19,218 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $220,372 $215,019 *The consolidated balance sheet at September 30, 1998 is unaudited. The December 31, 1997 consolidated balance sheet is derived from audited financial statements.
-2- PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended Three Months Ended September 30, September 30, 1998 1997 1998 1997 ($ thousands - unaudited) Cash flows from operating activities: Net income $ 1,747 $ 1,768 $ 719 $ 626 Provision for depreciation, and net amortization 341 338 127 111 Provisions for loan losse 225 155 75 65 Gain on sale of securities available for sale (36) -0- -0- -0- Gain on sale of other real estate (20) -0- -0- -0- Changes in operating assets and liabilities: Other assets 216 (52) (145) (58) Other liabilities (867) (653) (345) (168) Net cash provided by operating activities 1,606 1,556 431 576 Cash flows from investing activities: Proceeds from sale and maturities of: Held to maturity securities 931 1,130 200 150 Available for sale securities 12,168 7,381 674 3,424 Payment for purchase of Held to maturity securities (2,465) (2,041) (473) (624) Available for sale securities (16,338) (3,074) (5,978) (601) Net change in loans (390) (7,867) (2,038) (4,015) Net decrease in interest-bearing deposits with banks 153 -0- 383 -0- Net (increase)decrease in federal funds sold (1,484) -0- 5,595 -0- Proceeds from sale of other real estate 356 -0- -0- -0- Capital expenditures (550 (194) (64) (82) Net cash used in investing activities (7,619) (4,665) (1,701) (1,748) Cash flows from financing activities: Net increase in deposits 2,132 2,814 1,628 1,341 Net increase (decrease) in short-term borrowings (517) 726 (176) 21 Net increase (decrease) in federal funds purchased -0- 297 -0- (1,801) Net increase in long-term borrowings 3,000 125 -0- 125 Dividends paid (310) (310) -0- -0- Purchase of stock -0- (488) -0- (119) Net cash provided (used in) by financing activities 4,305 3,164 1,452 (433) Net increase (decrease) in cash and cash equivalents (1,708) 55 182 (1,605) Cash and cash equivalents at beginning of period 10,623 10,152 8,733 11,812 Cash and cash equivalents at end of period $ 8,915 $ 10,207 $ 8,915 $10,207 Supplemental Cash Flow Information: Cash paid during period for : Interest 6,543 6,103 2,204 2,084 Income taxes 775 800 373 308
-3- PSB HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying financial statements in the opinion of management reflect all adjustments which are normal and recurring in nature and which are necessary for a fair statement of the results for the periods presented. In all regards, the financial statements have been presented in accordance with generally accepted accounting principles. 2. Earnings per share of common stock is based on the weighted average number of common shares outstanding. 3. Refer to notes to the financial statements which appear in the 1997 annual report for the company's accounting policies which are pertinent to these statements. 4. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FASB 130), was issued and establishes standards for reporting and displaying comprehensive income and its components. FASB 130 requires comprehensive income and its components, as recognized under the accounting standards, to be displayed in a financial statement with the same prominence as other financial statements. The disclosure requirements of FASB 130 with respect to the Form 10-Q have been included in the corporation's consolidated balance sheets. Comprehensive income totaled the following for the periods indicated:
Nine months ended Three months ended ($thousands) 9/30/98 9/30/97 9/30/98 9/30/97 Net Income $1,747 $1,768 $ 719 $ 626 Change in net unrealized gain or securities available for sale, net of tax 168 85 178 95 Comprehensive income $1,915 $1,853 $ 897 $ 721
Statement of Financial Accounting Standards No.131, "Disclosures about Segments of an Enterprise and Related Information" (FASB 131), also issued in June 1997, establishes new standards for reporting information about operating segments in annual and interim financial statements. The standard also requires descriptive information about the way the operating segments are determined, the products and services provided by the segments and the nature of differences between reportable segment measurements and those used for the consolidated enterprise. This standard is effective for years beginning after December 15, 1997. Adoption in interim financial statements is not required until the year after initial adoption, however comparative prior period information is required. -4- FASB 131 will be adopted, as required, beginning with year-end 1998. The disclosure requirements will have no impact on the corporation's financial position or results of operations. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. The corporation elected early adoption of SOP98-1. The effect of the adoption was not material. 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, 2000 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 a material financial impact. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS* (All $ amounts are in thousands, except per share amounts) RESULTS OF OPERATIONS TOTAL ASSETS Total assets have increased by $5,353 from December 31, 1997 to September 30, 1998. This is an increase of 2.49%. In 1997, total assets increased $4,364 or 2.14% in the first nine months. LOANS Net loans have increased by $165 from December 31, 1997 to September 30, 1998. This is an increase of .11%. Real Estate Loans refinancing in the secondary market have significantly decreased loan growth. In 1997, loans increased $7,376 or 5.42% in the first nine months. -5- Cash decreased by $1,708 as of September 30, 1998 compared to December 31, 1997. Efforts have been successful in decreasing this non-earning asset. Fed Funds Sold increased $1,484 as of September 30, 1998 compared to December 31, 1997. Investments increased by $5,706. DEPOSITS Deposits increased by $2,132 from December 31, 1997 to September 30, 1998. In 1997, deposits increased by $2,814 in the first nine months. SHORT TERM BORROWINGS There were no Fed funds purchased as of September 30, 1998. Repurchase agreements decreased by $517 from December 31, 1997 to September 30, 1998. LONG TERM BORROWINGS An additional advance of $3,000 was taken out at the FHLB Chicago in the first quarter of 1998. EQUITY Equity grew by $1,605 or 8.35% due to the following: Net income for the first nine months of $1,747, a cash dividend paid of $310, and an increase in the "Net unrealized gain on securities available for sale" of $168. The increase in the unrealized gain is a result of the market prices of the investment portfolio increasing as of September 30, 1998. In the first nine months of 1997 equity grew by $1,055 or 5.77%. * Matters discussed in this report with respect to the expectations of the company or its management are forward-looking statements that involve risks and uncertainties. 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, 1997 under the heading "Cautionary Statement Regarding Forward Looking Information." OPERATING DATA SUMMARY GENERAL Net interest income for the first nine months of 1998 is $487 or 8.86% greater than it was for the same period in 1997. NON-INTEREST INCOME Non-interest income increased by $487 or 83.39% from the period ending September 30, 1998 compared to the period ending September 30, 1997. This increase is attributable to the implementation of a profit improvement project which in many areas increased our service charges and fees for services, along with service release premium income on real estate loans sold to the secondary market of $235 in 1998 compared to $30 in the same period of 1997. -6- NON-INTEREST EXPENSE Non-interest expenses increased 29.30% or $969 for the period ending September 30, 1998 when compared to the period ending September 30, 1997. An additional Pension Plan expense of $403 from the termination of our DB Pension Plan and expenses related to the opening of a supermarket branch in March of 1998 contributed to this increase. NET INCOME Net income for nine months of 1998 is 1.19% lower than the same period in 1997 and earnings per share decreased from $1.99 to $1.98, or .50%. Again, the additional expenses outlined above attributed to the lower first nine months results of operations. KEY OPERATING RATIOS (unaudited) Ended September 30, 1998
Nine Month Period Three Month Period 1998 1997 1998 1997 Return on assets (net income divided by average assets)(1) 1.07% 1.16% 1.30% 1.22% Return on Average Equity (net income divided by average equity) (1) 11.82% 12.53% 14.29% 13.15% Average Equity to Average Assets 9.04% 9.22% 9.09% 9.25% Interest Rate Spread (difference between average yield on interest earning assets and average cost of interest bearing liabilities) (1) 3.23% 3.00% 3.21% 2.97% Net Interest Margin (net interest income as a percentage of average interest earning assets (1) 3.91% 3.77% 3.93% 3.81% Non-interest Expense to average assets (1) 2.61% 2.16% 2.31% 2.11% Allowance for loan losses to total loans at end of period 1.28% 1.28% 1.28% 1.28% (1) Annualized
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 -7- additions to the allowance which have been charged to expense.
Nine Months Ended Year Ended Sept 30, 1998 December 31, 1997 Allowance for loan losses at beginning of period $1,845,064 $1,924,686 Loans charged off Commercial & Industrial (115,976) (155,650) Agricultural -0- -0- Real Estate - Mortgage -0- (136,011) Installment & Other Consumer Loans ( 49,064) ( 58,581) Total Charge Offs (165,040) (350,242) Recoveries on loans previously charged off Commercial & Industrial 316 17,538 Agricultural -0- -0- Real Estate - Mortgage -0- 18,582 Installment & Other Consumer Loans 3,298 4,500 Total Recoveries 3,614 40,620 Net loans charged off (161,426) (309,622) Additions charged to operations 225,000 230,000 Allowance for loan losses at end of period $1,908,638 $1,845,064
-8- AGGREGATE AMOUNT OF NON-PERFORMING LOANS
Sept 30, December 31, 1998 1997 Loans on a non-accrual basis Real estate - mortgage $ 36,858 $ 332,655 Installment loans 53,175 54,665 Credit cards & related plans -0- -0- Commercial & all other loans 529,379 447,554 Total non-accrual $ 619,412 $ 834,874 Loans contractually past due thirty through eighty-nine days and still accruing Real estate - mortgage $ 807,582 $ 153,578 Installment loans 322,843 162,243 Credit cards & related plans -0- -0- Commercial & all other loans 1,090,586 57,268 Total 30 - 89 days $2,221,011 $ 373,089 Loans contractually past due ninety days or more as to interest or principal payments Real estate - mortgage $ -0- $ 7,117 Installment loans -0- -0- Credit cards & related plans -0- -0- Commercial & all other loans -0- -0- Total over 90 days $ -0- $ 7,117
YEAR 2000 DISCLOSURE YEAR 2000 POLICIES 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 a software program to properly recognize the year 2000 (the "Year 2000 problem" or "Year 2000 issues"). The company's assessment of the possible consequences of Year 2000 issues on the company's business, results of operations, or financial condition is referred to herein as its "Year 2000 Project." -9- The Year 2000 Project was initiated in July, 1997 and is headed by a committee of employees of the company's wholly-owned subsidiary, Peoples State Bank (the "Bank"). The company is a one-bank holding company and the Bank is its sole operating subsidiary. Members of the Committee are responsible for day-to-day computer and internal operations at the Bank, as well as various lending and deposit functions. The Year 2000 Project Committee (the "Committee") reports on a regular basis to the company's 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. The Committee has relied upon its own analysis of the company's exposure to Year 2000 issues and has reviewed and been guided by its primary bank regulators and various FFIEC Interagency statements, reports, and guidance concerning Year 2000 awareness, testing, implementation, and contingency planning. The company's assessment of the possible consequences of Year 2000 issues on the company's business, results of operations, or financial condition is not complete, but is continuing in accordance with the Year 2000 Project and a Year 2000 Compliance Policy adopted by the Committee. The Year 2000 Project includes the following procedures, some of which, as indicated, have been completed in whole or in part as of the date of this report: 1. Identify all computer software and hardware and other equipment or systems using embedded chips that could fail due to Year 2000 problems or issues. All such computer hardware and other equipment or systems using embedded chips is referred to herein as "equipment." All equipment has now been evaluated. 2. Determine status of software and equipment Year 2000 certification by manufacturers or vendors and the extent to which such manufacturers or vendors anticipate Year 2000 compliance as it relates to services or equipment provided to the company, with emphasis on software and equipment which is essential to processing banking transactions and the Bank's day- to-day record keeping operations. These determinations have been completed. In connection with the survey of manufacturers and vendors, test critical software and equipment for Year 2000 compliance in accordance with bank regulatory guidelines and the Committee's internal criteria. The company has completed approximately 30% of this testing. Determine if software and equipment should be upgraded, replaced, or discarded based on surveys and testing. These determinations have been completed. 3. Identify and survey correspondent banks and other service providers whose services or products are deemed critical to the Bank's day-to-day operations to assess their Year 2000 compliance. These steps have been completed. -10- 4. Develop criteria to identify customers of the Bank whose loan, deposit or other business is considered significant (as determined by the Committee's internal evaluation standards), the loss or disruption of which may, on a combined basis, have a material adverse effect on the Bank's business, results of operations, or financial condition. Collectively, these customers are referred to herein as "selected bank customers." These criteria have been developed. 5. Survey selected bank customers to educate such customers as to the existence and scope of the Year 2000 problem on customers' business and accounts and to identify possible risks to the company of those customers' own noncompliance with Year 2000 issues. Additional education of all Bank customers will also be undertaken. This step is approximately 50% complete. The company has additional seminar education for customers planned and has distributed FDIC and other materials to customers which describe the Year 2000 problem as part of this process. A risk assessment was also done at this time for any systems that were not tested. Testing continues to be conducted periodically as required to monitor previously failed systems or untested systems in coordination with manufacturer or vendor certification. Testing will continue through the year 2000 to check software and equipment upgrades and modifications. All vendors of software or equipment deemed critical to the Bank's operations have been contacted to determine if their products are or will be Year 2000 compliant. The company will continue to monitor vendor certifications as to Year 2000 compliance and to take appropriate steps to modify or replace systems which are not expected to attain compliance status by July, 1999. Certain upgrading has already been accomplished. A Year 2000 capability upgrade of hardware on the bank's mainframe computer was installed in April, 1998. A second mainframe, upgraded in April, 1998 will be utilized to do Year 2000 network testing. In addition to surveying selected bank customers with respect to their Year 2000 compliance readiness, a letter outlining Year 2000 issues, along with a Year 2000 Credit Risk Assessment Worksheet, has been sent to all commercial loan customers in order to assist the Committee in determining the level of risk to the Bank which might be expected as a result of Year 2000 noncompliance among the loan customer base. Commercial loan application procedures have been amended to include a questionnaire regarding Year 2000 compliance. Seminars have been held, and will continue to be held, for commercial customers and the general public regarding Year 2000 issues and all business checking accounts have received a brochure regarding the importance of Year 2000 compliance. The Bank's loan committee has been charged with identifying major employers in the Bank's primary market area and evaluating potential loss to the Bank's business if those employers operations would be curtailed or cease due to Year 2000 problems. -11- Inquiries to the Bank's investment subsidiary service provider and correspondent banks have been undertaken to determine the effect of such entities' compliance with Year 2000 issues. The Committee has determined that the company 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 operations systems can be operated manually or with alternative controls should a Year 2000 problem occur. COSTS Replacement of hardware and software which was identified as non-Year 2000 compliant began in January, 1998. A prerequisite to the purchase of new or replacement software or equipment is a certification by the manufacturer or vendor of Year 2000 compliance. Costs of new software or equipment will be capitalized over their useful life. All other costs associated with Year 2000 issues are expensed as incurred. 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 business, results of operations, or financial condition. 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 that 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 will not encounter significant Year 2000 problems and thereby adversely affect the company. 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 the Bank will, 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 to repay loans or as a result of reducing the nonloan portion of its customers' banking business. -12- The company's and the Bank's insurer has indicated that it will not provide coverages for losses related to Year 2000 issues. This position is similar to that taken by many insurance carriers. If this coverage limitation is successfully imposed by insurance companies, insurance coverage for any claims of business interruption on the part of the company or its customers or vendors, or claims by or against the company for failure to perform various contracts or business agreements as a result of Year 2000 related problems may not be available or may be available only at premiums that are prohibitive. Losses to the company are possible as a result of disruptions in the nationwide banking system and one or more individual customers or sectors may default on loan obligations or reduce their level of demand for other services or products offered by the Bank as a result of Year 2000 related problems. The company does not expect that such events, if they occur, will have a material adverse affect on the business, results of operations, or financial condition of the Bank or the company. CONTINGENCY PLANS The Committee has prepared a risk analysis of Year 2000 issues in conjunction with the Bank's disaster recovery plan to help identify what risks should be addressed and to develop contingency plans for continued operations in the event of failure of one or more of the Bank's major systems. These contingency plans are similar, and in some cases, identical, to those in place for the Bank's overall business recovery plans that are or would be used in the event of any type of disaster. -13- 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 SHAREHOLDER PROPOSALS AND DISCRETIONARY VOTING If any shareholder desires to submit a proposal for inclusion in the proxy statement to be used in connection with the annual meeting of shareholders to be held in 1999 (the "1999 Annual Meeting"), the proposal must be in proper form and received by the company no later than November 25, 1998. The proxy solicited by the Board of Directors of the company will provide that the proxy will confer discretionary voting authority as to any matter proposed by a shareholder at the 1999 Annual Meeting if the company does not receive notice of such proposal on or before February 8, 1999. ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K: (a)Exhibits required by Item 601 of Regulation S-K. EXHIBIT (3) - ARTICLES OF INCORPORATION AND BYLAWS -14- PAGE OR INCORPORATED EXHIBIT (i)Restated Articles of Incorporation, as amended ...4(a)(1) (ii)Bylaws ........................................ 4(b)(1) EXHIBIT (4) - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS (a)Articles of Incorporation and Bylaws (see Exhibits 3(a) and (b)) EXHIBIT (10) - MATERIAL CONTRACTS (a)Bonus Plan of Directors of the Bank* .......... 10(a)(2) (b)Bonus Plan of Officers and Employees of the Bank* 10(b)(2) (c)Non-Qualified Retirement Plan for Directors of the Bank*................................... 10(c)(2) EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT ....... 22(2) EXHIBIT (27) - FINANCIAL DATA SCHEDULE * Denotes Executive Compensation Plans and Arrangements. Where exhibit has been previously filed and is incorporated herein by reference, exhibit numbers set forth herein correspond to the exhibit number where such exhibit can be found in the following reports of the registrant (Commission File No. 0-26480) filed with the Securities and Exchange Commission: (1) Registrant's current report on Form 8-K dated May 30, 1995 (2) Registrant's annual report on Form 10-K for the fiscal year ended December 31, 1995 (b) Reports on Form 8-K: Form 8-K dated October 9, 1998 Item 5. Other Business, filed for purpose of providing Year 2000 disclosure and notifying shareholders regarding shareholder proposals and discretionary voting. -15- 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. November 12, 1998 PSB HOLDINGS, INC. TODD R. TOPPEN Todd R. Toppen Secretary and Controller (On behalf of the Registrant and as Principal Financial Officer) EXHIBIT INDEX TO FORM 10-Q OF PSB HOLDINGS, INC. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 Pursuant to Section 102(d) of Regulation S-T (17 C.F.R. Section 232.102(d)) EXHIBIT 27 - FINANCIAL DATA SCHEDULE 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. -16- EX-27 2 ART. 9 FDS FOR 3-MONTHS 10Q ENDED SEPTEMBER 30, 1998
9 1,000 9-MOS DEC-31-1998 SEP-30-1998 8,915 0 1,484 0 41,767 14,067 14,365 149,546 1,909 220,372 188,734 3,443 1,372 6,000 0 0 1,805 19,018 220,372 10,107 2,193 225 12,525 6,130 6,543 5,982 225 36 4,276 2,552 2,552 0 0 1,747 1.98 1.98 4.06 619 0 0 2,221 1,845 165 4 1,909 1,909 0 0
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