-----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, UrFTHfWVKGNnrLUsQ+josk7kFhte4aI7VTvaA5exVd4zzbL0+8I99nklZf4cS4AR D8wo2yGys33K1hy/CHT29Q== 0000916480-02-000014.txt : 20020514 0000916480-02-000014.hdr.sgml : 20020514 ACCESSION NUMBER: 0000916480-02-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 1934 Act SEC FILE NUMBER: 000-26480 FILM NUMBER: 02645438 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: PEOPLES STATE BANK /WI/ DATE OF NAME CHANGE: 19950721 10-Q 1 psb10q331.txt PSB HOLDINGS, INC. 10-Q 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 March 31, 2002 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 March 31, 2002 was 839,416. PSB HOLDINGS, INC. FORM 10-Q QUARTER ENDED MARCH 31, 2002 PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets March 31, 2002 (unaudited) and December 31, 2001 (derived from audited financial statements) 1 Condensed Consolidated Statements of Income Three Months Ended March 31, 2002 and 2001 (unaudited) 2 Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 2002 (unaudited) 3 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2002 and 2001 (unaudited) 4 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 -i-
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PSB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (March 31, 2002 unaudited, December 31, 2001 derived from audited financial statements) March 31, December 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 ASSETS Cash and due from banks $ 8,756 $ 16,736 Interest-bearing deposits and money market funds 1,518 3,539 Federal funds sold 5,375 5,275 Securities: Held to maturity (fair values of $21,128 and $20,355, respectively) 20,899 20,287 Available for sale (at fair value) 48,089 50,157 Federal Home Loan Bank stock (at cost) 2,182 2,151 Loans held for sale 634 1,403 Loans receivable, net of allowance for loan losses of $3,155 and $2,969, respectively) 237,187 236,574 Accrued interest receivable 1,965 1,873 Foreclosed assets, net 250 421 Premises and equipment 4,885 4,755 OTHER ASSETS 1,321 1,125 TOTAL ASSETS $ 333,061 $ 344,296 LIABILITIES Non-interest bearing deposits $ 33,324 $ 41,507 INTEREST-BEARING DEPOSITS 230,702 232,128 Total deposits 264,026 273,635 Short-term borrowings 3,086 4,327 Long-term Federal Home Loan Bank advances 38,000 38,000 ACCRUED EXPENSES AND OTHER LIABILITIES 1,773 2,984 TOTAL LIABILITIES 306,885 318,946 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 19,144 18,186 Unrealized gain on securities available for sale, net of tax 369 491 TREASURY STOCK, AT COST - 63,009 AND 62,720 SHARES, RESPECTIVELY (2,301) (2,291) TOTAL STOCKHOLDERS' EQUITY 26,176 25,350 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 333,061 $ 344,296
-1-
PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED (dollars in thousands, MARCH 31, EXCEPT PER SHARE DATA - UNAUDITED) 2002 2001 Interest income: Interest and fees on loans $ 4,391 $ 5,021 Interest on securities: Taxable 690 748 Tax-exempt 224 159 OTHER INTEREST AND DIVIDENDS 65 117 TOTAL INTEREST INCOME 5,370 6,045 Interest expense: Deposits 1,766 2,861 Short-term borrowings 46 155 LONG-TERM FHLB ADVANCES 564 542 TOTAL INTEREST EXPENSE 2,376 3,558 Net interest income 2,994 2,487 PROVISION FOR LOAN LOSSES 180 150 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,814 2,337 Noninterest income: Service fees 235 246 Gain on sale of loans 198 29 Investment product sales commissions 45 46 Net gain (loss) on sale of securities - - OTHER NONINTEREST INCOME 87 134 TOTAL NONINTEREST INCOME 565 455 Noninterest expense: Salaries and employee benefits 1,245 1,012 Occupancy 240 236 Data processing and other office operations 132 122 Advertising and promotion 76 58 OTHER NONINTEREST EXPENSES 319 276 TOTAL NONINTEREST EXPENSE 2,012 1,704 Income before provision for income taxes 1,367 1,088 PROVISION FOR INCOME TAXES 409 319 NET INCOME $ 958 $ 769 BASIC AND DILUTED EARNINGS PER SHARE $ 1.14 $ 0.92
-2-
PSB HOLDINGS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Three months ended March 31, 2002 - unaudited Unrealized Gain (Loss) Additional on Securities Common Paid-in Retained Available Treasury (DOLLARS IN THOUSANDS) STOCK CAPITAL EARNINGS FOR SALE STOCK TOTALS Balance January 1, 2002 $ 1,805 $ 7,159 $ 18,186 $ 491 $ (2,291) $ 25,350 Comprehensive income: Net income 958 958 Unrealized loss on securities available for sale, NET OF TAX (122) (122) TOTAL COMPREHENSIVE INCOME 836 Purchase of treasury stock (70) (70) Distribution of treasury stock in settlement of liability to Company directors 60 60 BALANCE MARCH 31, 2002 $ 1,805 $ 7,159 $ 19,144 $ 369 $ (2,301) $ 26,176
-3-
PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 31, 2002 and 2001 - unaudited 2002 2001 Cash flows from operating activities: Net income $ 958 $ 769 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for depreciation and net amortization 179 172 Provision for loan losses 180 150 Gain on sale of loans held for sale (198) (29) Gain on sale of premises and equipment - (54) FHLB stock dividends (31) (40) Changes in operating assets and liabilities: Accrued interest receivable (92) (123) Other assets (70) (123) OTHER LIABILITIES (1,151) (193) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (225) 529 Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits and money market funds 2,021 (2,248) Net (increase) decrease in federal funds sold (100) (9,338) Proceeds from sale and maturities of: Securities held to maturity - 180 Securities available for sale 4,350 8,279 Payment for purchase of: Securities held to maturity (618) (2,695) Securities available for sale (2,496) (7,584) Net decrease in loans 88 620 Capital expenditures (251) (105) Proceeds from sale of premises and equipment - 31 PROCEEDS FROM SALE OF FORECLOSED ASSETS 171 - NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,165 (12,860) Cash flows from financing activities: Net decrease in non-interest-bearing deposits (8,183) (3,522) Net increase (decrease) in interest-bearing deposits (1,426) 9,955 Net decrease in short-term borrowings (1,241) (2,918) Proceeds from long-term FHLB advances - 10,000 PURCHASE OF TREASURY STOCK (70) - NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (10,920) 13,515 Net increase (decrease) in cash and due from banks (7,980) 1,184 CASH AND DUE FROM BANKS AT BEGINNING 16,736 9,226 CASH AND DUE FROM BANKS AT END $ 8,756 $ 10,410
-4-
PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Three months ended March 31, 2002 and 2001 - unaudited Supplemental cash flow information: 2002 2001 Cash paid during the period for: Interest $ 2,527 $ 3,425 Income taxes 317 12 Noncash investing and financing activities: Loans charged off $ 23 $ 22 Loans transferred to foreclosed assets 94 143 Loans originated on sale of foreclosed assets 136 - Distribution of treasury stock in settlement of liability to Company directors 60 -
-5- 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 2001 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 loan losses and the valuations of investments. NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLE 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 requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001. 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 had no impact on the consolidated financial statements as of the date of adoption. -6- NOTE 3 - EARNINGS PER SHARE Basic earnings per share of common stock is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options. Presented below are the calculations for basic and diluted earnings per share:
Three months ended (dollars in thousands, except per share data) March 31, 2002 2001 Net income available to common stockholders $ 958 $ 769 Weighted average shares outstanding 839,615 839,705 Effect of dilutive stock options outstanding 801 - Diluted weighted average shares outstanding 840,416 839,705 Basic earnings per share $ 1.14 $ 0.92 Diluted earnings per share $ 1.14 $ 0.92
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 statement of changes in stockholders' equity. Comprehensive income totaled the following for the periods indicated:
Three Months Ended ($ THOUSANDS - UNAUDITED) 3/31/02 3/31/01 Net income $958 $769 Change in net unrealized gain or loss on SECURITIES AVAILABLE FOR SALE, NET OF TAX (122) 432 COMPREHENSIVE INCOME $836 $1,201
-7- 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, 2001 AND, FROM TIME TO TIME, IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. BALANCE SHEET AT MARCH 31, 2002, TOTAL ASSETS WERE $333,061, AN INCREASE OF $12,299, OR 3.8%, OVER MARCH 31, 2001, WHILE ASSETS DECREASED $11,235 FROM DECEMBER 31, 2001. GROSS LOANS (EXCLUDING LOANS HELD FOR SALE BUT INCLUDING UNAMORTIZED DIRECT LOAN ORIGINATION COSTS) WERE $240,342 AT MARCH 31, 2002, GROWING $14,434 OVER FIRST QUARTER 2001 AND INCREASING $799 OVER FOURTH QUARTER 2001.
TABLE 1: PERIOD-END LOAN COMPOSITION MARCH 31, MARCH 31, DECEMBER 31, 2001 DOLLARS DOLLARS PERCENTAGE OF TOTAL PERCENTAGE (DOLLARS IN THOUSANDS) 2002 2001 2002 2001 DOLLARS OF TOTAL Commercial, industrial and agricultural $ 65,617 $ 66,015 27.2% 29.1% $ 55,363 23.0% Commercial real estate mortgage 97,647 57,110 40.5% 25.2% 98,554 40.9% Residential real estate mortgage 60,669 83,917 25.2% 37.0% 67,723 28.1% Residential real estate loans held for sale 634 950 0.3% 0.4% 1,403 0.6% Consumer home equity 5,028 4,426 2.1% 2.0% 4,576 1.9% CONSUMER AND INSTALLMENT 11,381 14,440 4.7% 6.3% 13,327 5.5% TOTALS $ 240,976 $ 226,858 100.0% 100.0% $ 240,946 100.0%
The decline in overall long-term real estate loan interest rates during 2001 and early 2002 contributed to a reallocation of the Bank's loans held for investment. As part of the Company's strategic and asset liability management plan, residential real estate customer refinancing loans were subsequently sold to investors in the secondary market, but commercial real estate loans were increased. -8- 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. 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 $1,739 to $4,147 at March 31, 2002 from $2,408 at March 31, 2001, primarily because of additional loans going on nonaccrual status. Approximately $826 of the nonaccrual loans is related to one commercial loan relationship. The Company holds a first lien mortgage on the property of this operating business with foreclosure scheduled to occur prior to June 30, 2002. The Company believes it has reasonable buyers for the property and has obtained an independent appraisal which indicates a market value in excess of outstanding principal and estimated foreclosure and selling costs. No significant loss is anticipated. 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 (restructured loans) and 2) foreclosed assets. -9-
Table 2: Allowance for Loan Losses and Nonperforming Assets Three months ended March 31, (DOLLARS IN THOUSANDS) 2002 2001 Allowance for loan losses at beginning $ 2,969 $ 2,407 Provision for loan losses 180 150 Recoveries on loans previously charged-off 29 1 LOANS CHARGED OFF (23) (22) ALLOWANCE FOR LOAN LOSSES AT END $ 3,155 $ 2,536
Table 3: Nonperforming Assets March 31, Dec. 31, (DOLLARS IN THOUSANDS) 2002 2001 2001 Nonaccrual loans $ 2,870 $ 1,189 $ 3,036 Accruing loans past due 90 days or more 34 215 - Restructured loans 993 863 999 Total non-performing loans $ 3,897 $ 2,267 $ 4,035 Foreclosed assets $ 250 $ 141 $ 421 Non-performing loans as a % of gross LOANS RECEIVABLE 1.62% 1.00% 1.68% Total non-performing assets as a % of total ASSETS 1.25% 0.75% 1.29%
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. 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 86.5% at March 31, 2002, and 84.2% at March 31, 2001. Wholesale funding represents the balance of the Company's total funding needs. -10-
Table 4: Period-end Deposit Composition March 31, March 31, December 31, 2001 Dollars Dollars Percentage of total Percentage (DOLLARS IN THOUSANDS) 2002 2001 2002 2001 DOLLARS OF TOTAL Noninterest bearing demand $ 33,324 $ 31,705 12.6% 12.8% $ 41,508 15.2% Interest bearing demand and savings 28,735 23,202 10.9% 9.4% 33,691 12.3% Money market deposits 74,101 74,204 28.1% 29.9% 76,973 28.1% Time deposits 69,687 63,729 26.4% 25.7% 68,233 24.9% TIME DEPOSITS $100 AND OVER 58,179 55,127 22.0% 22.2% 53,230 19.5% TOTALS $264,026 $247,967 100.0% 100.0% $273,635 100.0%
The interest rate paid on money market deposits is adjustable based on a weekly index of national money market funds. As short-term interest rates have decreased during 2001 and 2002, the yield on this account has declined substantially. At the same time, the Company has offered above average (compared to local competition) long term (three years or longer) certificate of deposits rates to stabilize deposit funding cost during a rising rate interest market. Some customers appear to have moved money market funds into time deposits to secure a higher yield. As of March 31, 2002, federal funds sold, loan principal, and investment securities maturing within one year totaled $74,053, while certificates of deposit and short-term borrowings maturing within one year totaled $87,088. Unused credit advances from the Federal Home Loan Bank available to the Company at March 31, 2002 totaled approximately $5,700. 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 time deposits. CAPITAL RESOURCES Stockholders' equity at March 31, 2002 increased $2,700 from $23,476 at March 31, 2001. Stockholders' equity included unrealized gains on securities available for sale, net of their tax effect, of $369 at March 31, 2002 compared to unrealized gains of $307 at March 31, 2001. 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 March 31, 2002, 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. -11-
Table 5: Capital Ratios - Consolidated Holding Company Tier 1 Total Risk- Leverage Based CAPITAL CAPITAL March 31, 2002 7.7% 11.6% December 31, 2001 7.2% 11.2% March 31, 2001 7.3% 11.5% Regulatory minimum for capital adequacy 4.0% 8.0%
RESULTS OF OPERATIONS Net income for the quarter ended March 31, 2002 totaled $958, or $1.14 per share for basic and diluted earnings per share. Comparatively, net income for the quarter ended March 31, 2001 was $769, or $.92 per share for basic and diluted earnings per share. Operating results for the first quarter 2002 generated an annualized return on average assets of 1.14% and an annualized return on average equity of 14.78%, compared to .98% and 13.46% for the comparable period in 2001. The net interest margin for the first quarter 2002 was 3.87% compared to 3.47% for the comparable quarter in 2001. -12- The following table presents consolidated financial data of PSB Holdings, Inc. and Subsidiary.
Table 6: Financial Summary (dollars in thousands, except per share data) Quarter ended March 31, Dec. 31, Sept. 30, June 30, March 31, 2002 2001 2001 2001 2001 EARNINGS AND DIVIDENDS: Net interest income $ 2,994 $ 2,934 $ 2,909 $ 2,630 $ 2,487 Provision for loan losses $ 180 $ 440 $ 150 $ 150 $ 150 Other noninterest income $ 565 $ 798 $ 357 $ 455 $ 455 Other noninterest expense $ 2,012 $ 2,006 $ 1,868 $ 1,738 $ 1,704 Net income $ 958 $ 873 $ 885 $ 839 $ 769 Basic earnings per share $ 1.14 $ 1.04 $ 1.05 $ 1.00 $ 0.92 Diluted earnings per share $ 1.14 $ 1.04 $ 1.05 $ 1.00 $ 0.92 Dividends declared per share $ - $ 0.70 $ - $ 0.38 $ - Net book value per share $ 31.18 $ 30.19 $ 30.25 $ 28.65 $ 27.96 Dividend payout ratio 0.00% 67.31% 0.00% 38.00% 0.00% Average common shares outstanding 839,615 839,705 839,705 839,705 839,705 Balance sheet - average balances: Loans receivable, net $ 238,284 $ 229,994 $ 219,793 $ 220,837 $ 224,038 Assets $ 336,879 $ 331,381 $ 316,592 $ 317,740 $ 313,474 Deposits $ 267,050 $ 261,556 $ 245,177 $ 244,422 $ 244,751 Stockholders' equity $ 25,924 $ 25,671 $ 24,737 $ 23,772 $ 22,859 PERFORMANCE RATIOS: Return on average assets (1) 1.14% 1.05% 1.12% 1.06% 0.98% Return on average stockholders' equity (1) 14.78% 13.60% 14.31% 14.12% 13.46% Average tangible stockholders' equity to average assets 7.59% 7.61% 7.57% 7.53% 7.20% Net loan charge-offs to average loans 0.00% 0.11% 0.02% 0.01% 0.01% Nonperforming loans to gross loans 1.62% 1.68% 0.96% 0.90% 1.00% Allowance for loan losses to gross loans 1.31% 1.24% 1.24% 1.21% 1.12% Net interest rate margin (1)(2) 3.87% 3.89% 4.03% 3.64% 3.47% Net interest rate spread (1)(2) 3.35% 3.38% 3.41% 2.96% 2.69% Service fee revenue as a percent of average demand deposits (1) 2.65% 2.91% 3.21% 3.30% 2.94% Noninterest income as a percent of gross revenue 9.52% 12.56% 5.77% 7.07% 7.00% Efficiency ratio 54.54% 52.20% 55.39% 54.59% 56.35% Noninterest expenses to average assets (1) 2.39% 2.42% 2.36% 2.19% 2.17% STOCK PRICE INFORMATION: High $ 36.00 $ 33.40 $ 31.75 $ 40.00 $ 29.50 Low $ 33.25 $ 30.75 $ 29.00 $ 29.00 $ 27.00 Market value at quarter-end $ 35.50 $ 33.40 $ 31.75 $ 30.00 $ 29.50 (1) Annualized (2) The yield on tax-exempt loans and securities is computed on a tax- equivalent basis using a tax rate of 34%.
-13- NET INTEREST INCOME Net interest income is the most significant component of earnings. Net interest income increased $507 from $2,487 for the quarter ended March 31, 2001 to $2,994 for the current quarter ended March 31, 2002. Tax-adjusted net interest margin as a percent of average interest earning assets also increased from 3.47 percent in March 2001 to 3.87 percent in March 2002. Net interest margin was 3.73 percent for the year ended December 31, 2001. Since March 2001, the Company has benefited from a falling interest rate environment as deposits and short-term borrowings have repriced faster than loans with longer terms. In addition to the increase in tax-adjusted net interest margin percentage, net interest income included income earned from additional loans originated since March 31, 2001. Since March 2001, average loans receivable increased nearly $14 million from $224,038 in March 2001 to $238,284 in March 2002. Yield on earning assets decreased to 6.82% compared to 8.28% at March 31, 2001. Similarly, the costs for interest-bearing liabilities decreased to 3.47% from 5.59%. The majority of the decline in interest-bearing deposits is a result of declines in the index used to determine the yield paid on the Company's money market account, which was 28.1% of total deposits at March 31, 2002. Since March 31, 2001, the money market yield has declined from 4.74% to 1.41% at March 31, 2002. The Company is positioning liabilities for an anticipated rising interest rate market by offering long-term certificate of deposit yields in the top 25% of the local markets served by the subsidiary bank. In addition, loans are originated with terms as short as acceptable in the local market and the Company is accepting lower loan yields for the benefit of faster repricing in the event of an increase in interest rates. -14-
Table 7: Net Interest Income Analysis (dollars in thousands) Quarter ended March 31, 2002 Average Yield/ BALANCE INTEREST RATE Assets Interest earning assets: Loans (1)(2) $ 241,320 $ 4,406 7.30% Taxable securities 49,826 690 5.54% Tax-exempt securities (2) 20,043 339 6.77% FHLB stock 2,177 26 4.78% OTHER INTEREST INCOME 9,151 39 1.70% TOTAL (2) 322,517 5,500 6.82% Non-interest earning assets: Cash and due from banks 9,158 Premises and equipment, net 4,849 Other assets 3,391 Allowance for loan LOSSES (3,036) TOTAL $ 336,879 Liabilities & stockholders' equity Interest bearing liabilities: Savings and demand deposits $ 31,501 $ 93 1.18% Money market deposits 75,738 284 1.50% Time deposits 124,383 1,389 4.47% Short-term borrowings 3,883 46 4.74% LONG-TERM BORROWINGS 38,000 564 5.94% TOTAL 273,505 2,376 3.47% Non-interest bearing liabilities: Demand deposits 35,428 Other liabilities 2,022 STOCKHOLDERS' EQUITY 25,924 TOTAL $ 336,879 Net interest income 3,124 Rate spread 3.35% Net yield on interest earning assets 3.87% (1) Non-accrual loans are included in the daily average loan balances outstanding. (2) The yield on tax-exempt loans and securities is computed on a tax- equivalent basis using a tax rate of 34%.
-15- 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 $180 for the three months ended March 31, 2002, and $150 for the three months ended March 31, 2001. Net charge-offs as a percentage of average loans outstanding were .00% and .01% during the three months ended March 31, 2002 and 2001, 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 24.2% to $565 during the three months ended March 31, 2002, from the comparable first quarter of 2001. There were no gains or losses on securities during the three months ended March 31, 2002 and 2001. Service fees on deposit accounts decreased $11, or 4.5%, for the three months ended March 31, 2002 from the three months ended March 31, 2001. The Company continued to earn a significant amount of income from the sale of long-term fixed rate mortgage loans to outside investors. The Bank does not retain such fixed rate loans as part of its asset liability management strategy. Gain on sale of such loans was $198 in March 2002 compared to $29 during March 2001. The majority of loans sold to outside investors continue to be serviced by the Bank. At March 31, 2002, the Bank serviced $44,486 of loans for outside investors. The Bank has seen customer demand for fixed rate mortgages increase as long-term fixed interest rates in the overall market reached the lowest point in 40 years. The gain on sale of loans during the quarter ended March 31, 2002 was increased $86 from capitalization of originated mortgage servicing rights. At March 31, 2002, mortgage servicing rights totaled $352, which were carried at amortized cost. Total service fee and noninterest income, including gain on sale of loans, was 9.5 percent of gross income during March 2002 compared to 7.0 percent of gross income during March 2001. NONINTEREST EXPENSE Noninterest operating expenses increased $308 to $2,012 in March 2002 compared to $1,704 during March 2001. In addition, operating costs as a percentage of total assets increased from 2.17 percent in March 2001 to 2.39 percent in the current quarter. The majority of the increase in operating expenses was from additional salaries, wages, and benefits paid to employees. As part of the Bank's strategic growth plan, additional employees have joined the Company since -16- 2001 at Bank locations in Wausau and Eagle River, Wisconsin. In addition, average wages and benefits per full time equivalent employee increased approximately 9 percent from March 2001 to March 2002. Separate from salaries and wages, noninterst expenses increased $75, or 10.8% in March 2002 compared to March 2001. 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, 2001. -17- 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) -18- 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, 2001)* 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 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. -19- 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. May 14, 2002 SCOTT M. CATTANACH Scott M. CATTANACH Treasurer and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) -20- EXHIBIT INDEX TO FORM 10-Q OF PSB HOLDINGS, INC. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 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 -21- -----END PRIVACY-ENHANCED MESSAGE-----