10-Q 1 psb10q93.txt PSB HOLDINGS, INC. 10-Q - 9/30/01 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, 2001 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, 2001 was 839,705. PSB HOLDINGS, INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 2001 (unaudited) and December 31, 2000 (derived from audited financial statements) 1 Condensed Consolidated Statements of Income Three Months Ended and Nine Months Ended September 30, 2001 and 2000 (unaudited) 2 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 (unaudited) 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 -i- PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PSB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS ($ thousands - September 30, 2001 unaudited, December 31, 2000 derived from audited financial statements) September 30, December 31, 2001 2000 ASSETS Cash and due from banks $ 9,235 $ 9,226 Federal funds sold 7,808 53 Interest-bearing deposits and money market funds 1,825 88 Investment securities: Held to maturity (fair values of $19,363 and $14,005, respectively) 18,764 13,975 Available for sale (at fair value) 49,115 48,123 Federal Home Loan Bank stock (at cost) 2,118 2,008 Loans held for sale 203 114 Loans receivable, net of allowance for loan losses of $2,777 at September 30, 2001 and $2,407 at December 31, 2000 221,808 224,702 Accrued interest receivable 2,119 2,102 Premises and equipment 4,537 4,751 OTHER ASSETS 934 1,097 TOTAL ASSETS $318,466 $306,239 LIABILITIES Non-interest-bearing deposits $31,800 $35,192 INTEREST-BEARING DEPOSITS 217,677 206,342 Total deposits 249,477 241,534 Short-term borrowings 3,692 11,515 Long-term borrowings 38,000 28,000 OTHER LIABILITIES 1,891 2,915 TOTAL LIABILITIES 293,060 283,964 STOCKHOLDERS' EQUITY Common stock - No par value with a stated value of $2 per share: Authorized - 1,000,000 shares Issued - 902,425 shares 1,805 1,805 Additional paid-in capital 7,159 7,159 Retained earnings 17,901 15,727 Unrealized gain (loss) on securities available for sale, net of tax 832 (125) Treasury stock, at cost - 62,720 shares at September 30, 2001 and DECEMBER 31, 2000 (2,291) (2,291) TOTAL STOCKHOLDERS' EQUITY 25,406 22,275 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $318,466 $306,239
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Nine Months Ended Three Months Ended September 30, September 30, ($ THOUSANDS EXCEPT SHARE DATA - UNAUDITED) 2001 2000 2001 2000 Interest income: Interest and fees on loans $ 14,739 $ 13,185 $ 4,808 $ 4,752 Interest on investment securities: Taxable 2,143 2,159 685 726 Tax-exempt 558 447 207 147 OTHER INTEREST AND DIVIDENDS 418 89 133 41 TOTAL INTEREST INCOME 17,858 15,880 5,833 5,666 Interest expense: Deposits 7,763 7,177 2,273 2,770 Short-term borrowings 379 888 74 297 LONG-TERM BORROWINGS 1,689 913 577 347 TOTAL INTEREST EXPENSE 9,831 8,978 2,924 3,414 Net interest income 8,027 6,902 2,909 2,252 PROVISION FOR LOAN LOSSES 450 450 150 150 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,577 6,452 2,759 2,102 Noninterest income: Service fees 743 609 246 261 Net realized gain on sale of premises and equipment 46 (8) Gain on Sale of loans 146 35 34 17 Investment product sales commissions 150 149 31 48 OTHER OPERATING INCOME 180 241 54 29 TOTAL NONINTEREST INCOME 1,265 1,034 357 355 Noninterest expenses: Salaries and employee benefits 3,110 2,984 1,082 1,056 Occupancy 703 698 240 235 Data processing and other office operations 378 332 137 104 OTHER OPERATING 1,118 929 409 311 TOTAL NONINTEREST EXPENSES 5,309 4,943 1,868 1,706 Income before income taxes 3,533 2,543 1,248 751 PROVISION FOR INCOME TAXES 1,040 745 363 206 NET INCOME $ 2,493 $ 1,798 $ 885 $ 545 BASIC AND DILUTED EARNINGS PER SHARE $2.97 $2.08 $1.05 $0.64 WEIGHTED AVERAGE SHARES OUTSTANDING 839,705 864,255 839,705 847,895 -2-
PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOW Nine Months Ended September 30, ($ THOUSANDS - UNAUDITED) 2001 2000 Cash flows from operating activities: Net income $ 2,493 $ 1,798 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and net amortization 462 419 Provision for loan losses 450 450 Gain on sale of loans (146) (35) Gain on sale of premises and equipment (46) Changes in operating assets and liabilities: Other assets (393) (726) OTHER LIABILITIES (1,024) 33 NET CASH PROVIDED BY OPERATING ACTIVITIES: 1,796 1,939 Cash flows from investing activities: Proceeds from sale and maturities of: Held to maturity securities 1,010 929 Available for sale securities 24,148 4,889 Payment for purchase of: Held to maturity securities (5,805) (585) Available for sale securities (23,698) (6,247) Net change in Federal Home Loan Bank stock (110) Net change in loans 2,749 (37,669) Net change in interest-bearing deposits (1,737) (543) Net change in federal funds sold (7,755) Capital expenditures (431) (1,224) PROCEEDS FROM SALE OF PREMISES AND EQUIPMENT 41 NET CASH USED IN INVESTING ACTIVITIES (11,588) (40,450) Cash flows from financing activities: Net change in deposits 7,943 29,697 Net change in short-term borrowings (7,823) 1,414 Net change in long-term borrowings 10,000 9,000 Dividends paid (319) (326) PURCHASE OF TREASURY STOCK (1,422) NET CASH PROVIDED BY FINANCING ACTIVITIES 9,801 38,363 Net increase (decrease) in cash and due from banks 9 (148) Cash and due from banks at beginning 9,226 11,926 CASH AND DUE FROM BANKS AT END $ 9,235 $11,778 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $10,250 $ 8,612 Income taxes 1,152 733 -3-
PSB HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 ("Company") 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. 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 the Company's 2000 annual report on Form 10-K, 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 credit losses and the valuations of investments. NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLE Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." Under these SFAS, the Company must recognize all material derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Changes in fair value are generally recognized in earnings during the period the changes occur. The adoption of SFAS No. 133 and No. 138 did not have a material impact on the Company's financial condition or results of operations. Effective April 1, 2001, the Company adopted SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This SFAS revises the standards for accounting for and reporting securitizations and other transfers of financial assets and collateral and extinguishments of liabilities originally governed by SFAS No. 125. The adoption of SFAS No. 140 did not have a material impact on the Company's financial condition or results of operations. -4- NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLE (Continued) In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets acquired outside of a business combination should be accounted for upon acquisition and how goodwill and other intangible assets should be accounted for after they have been initially recognized. SFAS No. 142 eliminates the amortization for goodwill and other intangible assets with indefinite lives. Other intangible assets with a finite life will be amortized over their useful life. Goodwill and other intangible assets with indefinite useful lives shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Corporation's adoption of SFAS No. 142 on January 1, 2002 is not anticipated to have a material impact on the consolidated financial statements as of the date of adoption. NOTE 3 - EARNINGS PER SHARE Earnings per share of common stock is based on the weighted average number of common shares outstanding during the period. On April 17, 2001, the stockholders of the Company approved an incentive stock option plan. The plan calls for up to 15,000 options to purchase common shares to be issued to selected officers. No grants have been made as of September 30, 2001. NOTE 4 - COMPREHENSIVE INCOME Generally accepted accounting principles require 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 with respect to the Form 10-Q have been included in the Company's consolidated balance sheets. Comprehensive income totaled the following for the periods indicated:
Nine Months Ended Three Months Ended ($ THOUSANDS - UNAUDITED) 9/30/01 9/30/00 9/30/01 9/30/00 Net income $2,493 $1,798 $885 $545 Change in net unrealized gain or loss on SECURITIES AVAILABLE FOR SALE, NET OF TAX 957 323 453 285 COMPREHENSIVE INCOME $3,450 $2,121 $1,338 $830
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NOTE 5 - INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities are as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair ($ THOUSANDS) COST GAINS LOSSES VALUE SEPTEMBER 30, 2001 Securities held to maturity: Obligations of states and political SUBDIVISIONS $18,764 $600 $1 $19,363 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $47,651 $1,293 $1 $48,943 OTHER EQUITY SECURITIES 172 172 TOTALS $47,823 $1,293 $1 $49,115 DECEMBER 31, 2000 Securities held to maturity: Obligations of states and political SUBDIVISIONS $13,975 $101 $71 $14,005 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $48,279 $195 $399 $48,075 OTHER EQUITY SECURITIES 48 48 TOTALS $48,327 $195 $399 $48,123
-6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is presented to assist in the understanding and evaluation of the Company's financial condition and results of operations. It is intended to complement the unaudited financial statements, footnotes, and supplemental financial data appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. Dollar amounts are in thousands, except per share amounts. Forward-looking statements have been made in this document that are subject to risks and uncertainties. While the Company believes these forward-looking statements are based on reasonable assumptions, all such statements involve risk and uncertainties that could cause actual results to differ materially from those contemplated in this report. The assumptions, risks, and uncertainties relating to the forward-looking statements in this report include those described under the caption "Cautionary Statements Regarding Forward-Looking Information" in Part I of the Company's Form 10-K for the year ended December 31, 2000 and, from time to time, in the Company's other filings with the Securities and Exchange Commission. BALANCE SHEET At September 30, 2001, total assets were $318,466, an increase of $18,060, or 6.0%, over September 30, 2000, while assets grew $12,227 over December 31, 2000. Gross loans (excluding loans held for sale) were $224,585 at September 30, 2001, growing $4,370 over third quarter 2000 and decreasing $2,524 over fourth quarter 2000.
Table 1: Period-End Loan Composition SEPTEMBER 30 PERCENT DECEMBER 31 PERCENT 2001 OF TOTAL 2000 OF TOTAL Commercial and financial $ 49,621 22.09% $ 53,421 23.52% Real estate 158,215 70.45% 157,904 69.53% CONSUMER INSTALLMENT 16,749 7.46% 15,784 6.95% TOTAL LOANS $224,585 100.00% $227,109 100.00%
The loan portfolio is the Company's primary asset subject to credit risk. The Company's process for monitoring credit risks includes weekly analysis of loan quality, delinquencies, non-performing assets, and potential problem loans. Loans are placed on a nonaccrual status when they become contractually past due 90 days or more as to interest or principal payments. All interest accrued but not collected for loans (including applicable impaired loans) that are placed on nonaccrual or charged off is reversed to interest income. The interest on these loans is accounted for on the cash basis until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due have been collected and there is reasonable assurance that repayment will continue within a reasonable time frame. -7- BALANCE SHEET (Continued) The term "impaired loan" refers to certain commercial loans with respect to which, based on current information, it is probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan agreement. Impairment is based on discounted cash flows of expected future payments using the loan's effective interest rate or the fair value of the collateral if the loan is collateral-dependent. The aggregate amount of nonperforming assets increased $1,710 to $2,503 at September 30, 2001 from $793 at September 30, 2000, primarily because of additional restructured loans. Nonperforming assets include: 1) loans that are either contractually past due 90 days or more as to interest or principal payments, on a nonaccrual status, or the terms of which have been renegotiated to provide a reduction or deferral of interest or principal and 2) other real estate owned.
Table 2: Allowance for Loan Losses and Nonperforming Assets NINE MONTHS ENDED 9/30/2001 9/30/2000 Allowance for loan losses at beginning of period $2,407 $2,099 Provision charged to operating expense 450 450 Recoveries on loans 1 23 LOANS CHARGED OFF (81) (135) ALLOWANCE FOR LOAN LOSSES AT END OF PERIOD $2,777 $2,437
Table 3: Nonperforming Assets NINE MONTHS ENDED 9/30/2001 9/30/2000 Nonaccrual loans $1,395 $ 759 Loans past due 90 days or more and still accruing interest 333 0 Restructured loans 428 0 Total nonperforming loans 2,156 759 OTHER REAL ESTATE OWNED 347 34 TOTAL NONPERFORMING ASSETS $2,503 $ 793
Management is not aware of any additional loans that represent material credits or of any information that causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. -8- LIQUIDITY Liquidity refers to the ability of the Company to generate adequate amounts of cash to meet the Company's need for cash. The Company manages its liquidity to provide adequate funds to support borrowing needs and deposit flow of its customers. Management views liquidity as the ability to raise cash at a reasonable cost or with a minimum of loss and as a measure of balance sheet flexibility to react to marketplace, regulatory, and competitive changes. Deposit growth is the primary source of liquidity. Deposits as a percentage of total funding sources were 85.7% at September 30, 2001 and 83.9% at September 30, 2000. Wholesale funding represents the balance of the Company's total funding needs. As of September 30, 2001, loan principal and investment securities maturing within one year totaled $104,211, while certificates of deposit and short-term borrowings maturing within one year totaled $87,292. Unused credit advances available to the Company at September 30, 2001 totaled approximately $14,000. The primary funding sources utilized are Federal Home Loan Bank advances, federal funds purchased, repurchase agreements from a base of individuals, businesses and public entities, and brokered CDS. The Company attempts, when possible, to match relative maturities of assets and liabilities while maintaining the desired net interest margin. CAPITAL RESOURCES Stockholders' equity at September 30, 2001 increased $3,986 from $21,420 at September 30, 2000. Stockholders' equity included unrealized gains on securities available for sale, net of their tax effect, of $832 at September 30, 2001 compared to unrealized losses of $720 at September 30, 2000. The adequacy of the Company's capital is regularly reviewed to ensure sufficient capital is available for current and future needs and is in compliance with regulatory guidelines. As of September 30, 2001, the Subsidiary Bank's tier 1 risk-based capital ratio, total risk-based capital, and tier 1 leverage ratio were well in excess of regulatory minimums.
Table 4: Capital Ratios - Subsidiary Bank TIER 1 TOTAL TIER 1 CAPITAL CAPITAL LEVERAGE September 30, 2001 10.81% 11.96% 7.77% September 30, 2000 10.42% 11.56% 7.37% Regulatory requirements to be considered well-capitalized 6.00% 10.00% 5.00%
-9- RESULTS OF OPERATIONS Net income for the quarter ended September 30, 2001, totaled $885, or $1.05 per share for basic and diluted earnings per share. Comparatively, net income for the quarter ended September 30, 2000 was $545, or $.64 per share for basic and diluted earnings per share. Operating results for the third quarter 2001 generated an annualized return on average assets of 1.12% and an annualized return on average equity of 14.31%, compared to .74% and 10.26% for the comparable period in 2000. The net interest margin for the third quarter 2001 was 4.03% compared to 3.40% for the comparable quarter in 2000. -10-
Table 5: Summary Results of Operations The following table presents consolidated financial data of PSB Holdings, Inc. and Subsidiary. 2001 2000 Third Second First Fourth Third ($ THOUSANDS EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER QUARTER FINANCIAL HIGHLIGHTS Earnings and dividends: Net interest income $2,909 $2,630 $2,487 $2,503 $2,252 Provision for credit losses 150 150 150 150 150 Other noninterest income 357 455 455 408 355 Other noninterest expense 1,868 1,738 1,704 1,533 1,706 Net income 885 839 769 872 545 Per common share: Basic and diluted earnings 1.05 1.00 0.91 1.04 0.64 Dividends declared 0.00 0.38 0.00 0.65 0.00 Book value 30.25 28.65 27.96 26.53 25.44 Average common shares 839,705 839,705 839,705 840,512 847,895 Dividend payout ratio 0.00% 38.02% 0.00% 62.04% 0.00% Balance sheet summary: Loans net of unearned income 221,808 218,300 223,373 224,702 217,778 Assets 318,466 314,717 320,762 306,239 300,406 Deposits 249,477 240,877 247,967 241,534 232,051 Stockholders' equity 25,406 24,068 23,476 22,274 21,420 Average balances: Loans net of unearned income 219,793 220,837 224,038 221,240 214,773 Assets 316,592 317,740 313,474 303,323 292,743 Deposits 245,177 244,422 244,751 236,793 227,016 Stockholders' equity 24,737 23,772 22,859 21,847 21,244 Performance Ratios: Return on average assets (1) 1.12% 1.06% 0.98% 1.15% 0.74% Return on average common equity (1) 14.31% 14.12% 13.46% 15.97% 10.26% Tangible equity to assets 7.72% 7.53% 7.22% 7.31% 7.37% Net loan charge-offs as a percentage of average loans 0.02% 0.01% 0.01% 0.08% 0.01% Nonperforming assets as a percentage of average gross loans 1.12% 1.07% 1.06% 1.11% 0.35% Net interest margin (1) (2) 4.03% 3.64% 3.47% 3.62% 3.40% Efficiency ratio (2) 55.38% 54.59% 56.35% 51.29% 63.59% Service fee revenue as a percent of average assets (1) 0.31% 0.32% 0.31% 0.32% 0.36% (1) Annualized. (2) Tax-exempt income has been adjusted to its fully taxable equivalent with a 34% tax rate.
-11- NET INTEREST INCOME Net interest income is the most significant component of earnings. Net interest income for the three months ended September 30, 2001 was $2,909. Comparatively, net interest income for the third quarter 2000 was $2,252. Fully taxable equivalent net interest income for the third quarter 2001 increased $688 from third quarter 2000 to $3,016. Average earning assets grew $44,300 from the third quarter 2000. The net interest margin for the three months ended September 30, 2001 was 4.03% or 63 basis points higher than the 3.4% margin in the third quarter 2000. Yields on earning assets decreased to 7.93% compared to 8.38% in 2000. Similarly, the costs for interest-bearing liabilities decreased to 4.52% from 5.75%. The Company is trying to position more assets to reprice with the market to maintain or increase the net interest margin. PROVISION FOR LOAN LOSSES Management determines the adequacy of the provision for loan losses based on past loan experience, current economic conditions, composition of the loan portfolio, and the potential for future loss. Accordingly, the amount charged to expense is based on management's evaluation of the loan portfolio. It is the Company's policy that when available information confirms that specific loans and leases, or portions thereof, including impaired loans, are uncollectible, these amounts are promptly charged off against the allowance. The provision for loan losses was $150 for the three months ended September 30, 2001 and September 30, 2000. Net charge- offs as a percentage of average loans outstanding were .02% and .01% during the three months ended September 30, 2001 and September 30, 2000, respectively. Nonperforming loans are reviewed to determine exposure for potential loss within each loan category. The adequacy of the allowance for loan losses is assessed based on credit quality and other pertinent loan portfolio information. The adequacy of the reserve and the provision for loan losses is consistent with the composition of the loan portfolio and recent credit quality history. NONINTEREST INCOME Noninterest income increased 0.6% to $357 during the three months ended September 30, 2001, from the comparable third quarter of 2000. There were no gains or losses on securities during the three months ended September 30, 2001 and 2000. Service fees on deposit accounts decreased $15, or 5.7%, for the three months ended September 30, 2001 from the three months ended September 30, 2000. NONINTEREST EXPENSE Noninterest expense increased 9.5% to $1,868 for the three months ended September 30, 2001, from $1,706 for the three months ended September 30, 2000. -12-
Table 6: Key Operating Ratios Three Months Ended and Nine Months Ended September 30, 2001 and 2000 (unaudited) NINE-MONTH PERIOD THREE-MONTH PERIOD 2001 2000 2001 2000 Return on assets (net income divided by average assets) (1) 1.06% 0.86% 1.12% 0.74% Return on average equity (net income divided by average equity) (1) 13.94% 11.29% 14.31% 10.26% Average equity to average assets 7.63% 7.58% 7.81% 7.26% Interest rate spread (difference between average yield on interest-earning assets and average cost of interest-bearing liabilities) (1) (2) 3.00% 2.88% 3.41% 2.63% Net interest margin (net interest income as a percentage of average interest- earning assets) (1) (2) 3.75% 3.65% 4.03% 3.40% Noninterest expense to average assets (1) 2.27% 2.35% 2.36% 2.33% Allowance for loan losses to total loans at end of period 1.24% 1.11% 1.24% 1.11% (1) Annualized. (2) Tax-exempt income has been adjusted to its fully taxable equivalent with a 34% tax rate.
-13- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the information provided in response to Item 7A of the Company's Form 10-K for the year ended December 31, 2000. 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 Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits. The following exhibits have been filed with the Securities and Exchange Commission. Exhibits filed as part of this report, and listed below, are set forth on the Exhibit Index which follows the signature page. Exhibit NUMBER DESCRIPTION 3.1 Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and 3.2) -14- 10.1 Bonus Plan of Directors of the Bank (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 10.2 Non-Qualified Retirement Plan for Directors of the Bank (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 10.3 Senior Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000)* 10.4 Consulting Agreement with Chairman of the Board (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000)* 10.5 2001 Stock Option Plan (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2001)* 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000) *Denotes Executive Compensation Plans and Arrangements. (b) Reports on Form 8-K: None. -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. PSB HOLDINGS, INC. November 13, 2001 TODD R. TOPPEN Todd R. Toppen Secretary and Controller (On behalf of the Registrant and as Principal Financial Officer) -16- EXHIBIT INDEX TO FORM 10-Q OF PSB HOLDINGS, INC. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 Pursuant to Section 102(d) of Regulation S-T (17 C.F.R. Section 232.102(d)) The following exhibits are filed as part this report: NONE -17-