-----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, I8mRMC9gd+NJvCqJk4lZjIlIKlRUrRuYlnjLzskU+UUv2utsR6Vb5EAQqR2ecfE6 dNK/CXyumvTiZVyhcxbpjQ== 0000916480-02-000033.txt : 20020814 0000916480-02-000033.hdr.sgml : 20020814 20020814102755 ACCESSION NUMBER: 0000916480-02-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02732137 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 psb10q.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 June 30, 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 June 30, 2002 was 839,416. PSB HOLDINGS, INC. FORM 10-Q QUARTER ENDED JUNE 30, 2002 PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 2002 (unaudited) and December 31, 2001 (derived from audited financial statements) 1 Condensed Consolidated Statements of Income Three Months and Six Months Ended June 30, 2002 and 2001 (unaudited) 2 Consolidated Statement of Changes in Stockholders' Equity Six Months Ended June 30, 2002 (unaudited) 3 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 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 19 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 19 -i- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PSB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (June 30, 2002 unaudited, December 31, 2001 derived from audit financial statements) June 30, December 31, (dollars in thousands, except per share data) 2002 2001 ASSETS Cash and due from banks $ 9,474 $ 16,736 Interest-bearing deposits and money market funds 1,691 3,539 Federal funds sold 2,400 5,275 Securities: Held to maturity (fair values of $21,500 and $20,355, respectively) 20,821 20,287 Available for sale (at fair value) 49,856 50,157 Federal Home Loan Bank stock (at cost) 2,209 2,151 Loans held for sale 358 1,403 Loans receivable, net of allowance for loan losses of $3,254 and $2,969, respectively 246,684 236,574 Accrued interest receivable 1,861 1,873 Foreclosed assets, net 337 421 Premises and equipment 5,372 4,755 Other assets 1,041 1,125 TOTAL ASSETS $342,104 $344,296 LIABILITIES Non-interest bearing deposits $ 36,947 $ 41,507 Interest-bearing deposits 234,141 232,128 Total deposits 271,088 273,635 Short-term borrowings 3,194 4,327 Long-term Federal Home Loan Bank advances 38,000 38,000 Accrued expenses and other liabilities 2,389 2,984 Total liabilities 314,671 318,946 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 19,848 18,186 Unrealized gain on securities available for sale, net of tax 922 491 Treasury stock, at cost - 63,009 and 62,720 shares, respectively (2,301) (2,291) Total stockholders' equity 27,433 25,350 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 342,104 $ 344,296
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended (dollars in thousands, JUNE 30, JUNE 30, except per share data - unaudited) 2002 2001 2002 2001 Interest income: Interest and fees on loans $ 4,448 $ 4,910 $ 8,839 $ 9,931 Interest on securities: Taxable 678 710 1,368 1,458 Tax-exempt 227 192 451 351 Other interest and dividends 52 167 117 284 Total interest income 5,405 5,979 10,775 12,024 Interest expense: Deposits 1,696 2,629 3,462 5,490 Short-term borrowings 34 150 80 305 Long-term FHLB advances 571 570 1,135 1,112 Total interest expense 2,301 3,349 4,677 6,907 Net interest income 3,104 2,630 6,098 5,117 Provision for loan losses 180 150 360 300 Net interest income after provision for loan losses 2,924 2,480 5,738 4,817 Noninterest income: Service fees 321 252 556 498 Gain on sale of loans 134 83 332 112 Investment and insurance sales commissions 51 74 96 120 Other noninterest income 96 46 183 180 Total noninterest income 602 455 1,167 910 Noninterest expense: Salaries and employee benefits 1,170 1,016 2,415 2,028 Occupancy 325 227 565 463 Data processing and other office operations 128 120 260 242 Advertising and promotion 115 104 191 169 Other noninterest expenses 308 271 627 540 Total noninterest expense 2,046 1,738 4,058 3,442 Income before provision for income taxes 1,480 1,197 2,847 2,285 Provision for income taxes 456 358 865 677 Net income $ 1,024 $ 839 $ 1,982 $ 1,608 Basic and diluted earnings per share $ 1.22 $ 1.00 $ 2.36 $ 1.91
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Six months ended June 30, 2002 - unaudited Unrealized Gain on Additional 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 1,982 1,982 Unrealized gain on securities available for sale, net of tax 431 431 Total comprehensive income 2,413 Purchase of treasury stock (70) (70) Distribution of treasury stock in settlement of liability to Company directors 60 60 Cash dividends declared $.38 per share (320) (320) Balance June 30, 2002 $ 1,805 $ 7,159 $19,848 $ 922 $ (2,301) $27,433
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2002 and 2001 - unaudited 2002 2001 Cash flows from operating activities: Net income $ 1,982 $ 1,608 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and net amortization 331 310 Provision for loan losses 360 300 Gain on sale of loans held for sale (332) (112) (Gain) loss on sale of premises and equipment 30 (54) Gain on sale of foreclosed assets (27) - FHLB stock dividends (58) (76) Changes in operating assets and liabilities: Accrued interest receivable 12 131 Other assets (112) (446) Other liabilities (535) (190) Net cash provided by operating activities 1,651 1,471 Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits and money market funds 1,848 (715) Net (increase) decrease in federal funds sold 2,875 (9,507) Proceeds from sale and maturities of: Securities held to maturity 579 930 Securities available for sale 5,989 19,664 Payment for purchase of: Securities held to maturity (1,120) (5,805) Securities available for sale (5,009) (17,457) Purchase of FHLB stock - - Net (increase) decrease in loans (9,294) 5,590 Capital expenditures (945) (264) Proceeds from sale of premises and equipment 29 31 Proceeds from sale of foreclosed assets 205 - Net cash used in investing activities (4,843) (7,533)
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CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED Cash flows from financing activities: 2002 2001 Net decrease in non-interest-bearing deposits (4,560) (5,695) Net increase in interest-bearing deposits 2,013 5,038 Net decrease in short-term borrowings (1,133) (2,468) Proceeds from long-term FHLB advances - 10,000 Dividends paid (320) (319) Purchase of treasury stock (70) - Net cash provided by (used in) financing activities (4,070) 6,556 Net increase (decrease) in cash and due from banks (7,262) 494 Cash and due from banks at beginning 16,736 9,226 Cash and due from banks at end $ 9,474 $ 9,720 Supplemental cash flow information: Cash paid during the period for: Interest $ 4,878 $ 6,860 Income taxes 770 760 Noncash investing and financing activities: Loans charged off $ 123 $ 26 Loans transferred to foreclosed assets 273 533 Loans originated on sale of foreclosed assets 217 - 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 are 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 Six months ended (dollars in thousands, except per share data) JUNE 30, JUNE 30, 2002 2001 2002 2001 Net income available to common stockholders $ 1,024 $ 839 $ 1,982 $ 1,608 Weighted average shares outstanding 839,416 839,705 839,515 839,705 Effect of dilutive stock options outstanding 1,655 - 1,080 - Diluted weighted average shares outstanding 841,071 839,705 840,595 839,705 Basic earnings per share $ 1.22 $ 1.00 $ 2.36 $ 1.91 Diluted earnings per share $ 1.22 $ 1.00 $ 2.36 $ 1.91
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:
(dollars in thousands - unaudited) Three months ended Six months ended JUNE 30, JUNE 30, 2002 2001 2002 2001 Net income $ 1,024 $ 839 $ 1,982 $ 1,608 Change in net unrealized gain on securities available for sale, net of tax 553 72 431 504 Comprehensive income $ 1,577 $ 911 $ 2,413 $ 2,112
-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 June 30, 2002, total assets were $342,104, an increase of $27,387, or 8.7%, over June 30, 2001, while assets decreased $2,192 from December 31, 2001. Gross loans (including loans held for sale and unamortized direct loan origination costs) were $250,296 at June 30, 2002, growing $28,328 over second quarter 2001 and increasing $9,350 over year-end 2001. Because total assets since December 31, 2001 have remained nearly the same, the recent loan growth has been funded by short-term investments, cash holdings, and overnight funds held at December 31, 2001.
Table 1: Period-End Loan Composition June 30, June 30, December 31, 2001 DOLLARS DOLLARS PERCENTAGE OF TOTAL Percentage (dollars in thousands) 2002 2001 2002 2001 DOLLARS OF TOTAL Commercial, industrial and agricultural $ 69,165 $ 63,551 27.6% 28.6% $ 55,363 23.0% Commercial real estate mortgage 99,917 62,365 39.9% 28.1% 98,554 40.9% Residential real estate mortgage 63,898 76,580 25.5% 34.5% 67,723 28.1% Residential real estate loans held for sale 358 986 0.1% 0.4% 1,403 0.6% Consumer home equity 5,771 4,295 2.3% 1.9% 4,576 1.9% Consumer and installment 11,187 14,191 4.6% 6.5% 13,327 5.5% Totals $250,296 $221,968 100.0% 100.0% $240,946 100.0%
-8- 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, long-term residential real estate customer refinancing loans were subsequently sold to investors in the secondary market, and commercial real estate loans were increased to continue asset growth. During the past quarter, the Company has also aggressively sought high quality adjustable rate commercial and industrial loans to match short- term liabilities during anticipated future increases in short-term interest rates. 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 repayment of the loan is collateral-dependent. The aggregate amount of nonperforming assets increased $1,016 to $3,399 at June 30, 2002 from $2,383 at June 30, 2001, primarily because of additional loans going on nonaccrual status. However, nonperforming assets have decreased $1,057 from $4,456 at December 31, 2001. Approximately $815 of the nonaccrual loans at June 30, 2002 and December 31, 2001 is related to one commercial loan relationship. The Company holds a first lien mortgage on the property of this operating business which was sold on June 27, 2002. Bankruptcy court approval of the sale is anticipated to occur before September 30, 2002 with no loss of principal to the Company. The Company anticipates providing first lien mortgage financing to the new owners under normal collateral and down payment equity terms. -9-
Table 2: Allowance for Loan Losses Three Months Ended Six Months Ended (dollars in thousands, JUNE 30, JUNE 30, except per share data - unaudited) 2002 2001 2002 2001 Allowance for loan losses at beginning $3,155 $2,536 $2,969 $2,407 Provision for loan losses 180 150 360 300 Recoveries on loans previously charged-off 19 48 1 Loans charged off (100) (4) (123) (26) Allowance for loan losses at end $3,254 $2,682 $3,254 $2,682
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.
Table 3: Nonperforming Assets JUNE 30, Dec. 31, (dollars in thousands) 2002 2001 2001 Nonaccrual loans $ 2,355 $ 1,167 $ 3,036 Accruing loans past due 90 days or more 13 23 - Restructured loans 694 795 999 Total non-performing loans 3,062 1,985 4,035 Foreclosed assets 337 398 421 Total non-performing assets $ 3,399 $ 2,383 $ 4,456 Non-performing loans as a % of gross loans receivable 1.23% 0.90% 1.68% Total non-performing assets as a % of total assets 0.99% 0.76% 1.29%
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. Retail consumer deposits as a percentage of total funding sources were 79.2% at June 30, 2002, and 78.2% at June 30, 2001. Wholesale funding and broker certificates of deposit represent the balance of the Company's total funding needs. -10-
Table 4: Period-end Deposit Composition June 30, June 30, December 31, 2001 DOLLARS DOLLARS PERCENTAGE OF TOTAL Percentage (dollars in thousands) 2002 2001 2002 2001 DOLLARS OF TOTAL Noninterest bearing demand $ 36,947 $ 29,497 13.6% 12.2% $ 41,508 15.2% Interest bearing demand and savings 30,526 24,486 11.3% 10.2% 33,691 12.3% Money market deposits 69,467 78,034 25.6% 32.4% 76,973 28.1% Time deposits 76,361 65,211 28.2% 27.1% 68,233 24.9% Time deposits $100 and over 57,787 43,649 21.3% 18.1% 53,230 19.5% Totals $271,088 $240,877 100.0% 100.0% $273,635 100.0%
The interest rate paid on money market deposits is adjustable based on the Company's discretion but generally tracks the movements 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 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. The Company's retail deposit offices are in locations that during the past year have demanded consumer retail deposit rates generally greater than national rates for equivalent certificate of deposit terms. To lower deposit funding costs, the Company does use brokers to accumulate national funds generally in excess of $100 per account. Broker deposits totaled $23,720 at June 20, 2002 compared to $15,698 at June 30, 2001. Excluding broker deposits, retail certificates of deposit increased $17,266 to $110,428 at June 30, 2002 from $93,162 in June 30, 2001. As of June 30, 2002, federal funds sold and short-term investments, loan principal, and investment securities maturing within one year totaled $164,671, while certificates of deposit, short-term borrowings and long- term borrowings maturing within one year totaled $98,421. Unused credit advances from the Federal Home Loan Bank available to the Company at June 30, 2002 totaled approximately $7,343. 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. Table 5 below presents maturity repricing information as of June 30, 2002. The following repricing methodologies should be noted: 1. Money market deposit accounts are considered fully repriced within 90 days. NOW and savings accounts are considered "core" deposits as they are generally insensitive to interest rate changes. These deposits are considered to reprice beyond 5 years. 2. Nonaccrual loans are considered to reprice beyond 5 years. 3. The likelihood of the call or prepayment being exercised in the current interest rate environment may be a factor in the repricing of contractual calls or prepayment options. 4. The impact of rising or falling interest rate is based on a parallel yield curve change that is fully implemented within a 12 month time horizon. -11-
Table 5: Interest Rate Sensitivity Gap Analysis JUNE 30, 2002 (dollars in thousands) 0-90 DAYS 91-180 DAYS 181-365 DAYS 1-2 YRS. BEYOND 2 YRS. BEYOND 5 YRS TOTAL Earning assets: Loans $ 85,944 $ 28,079 $ 28,916 $ 53,165 $ 47,811 $ 6,381 $250,296 Securities 2,941 6,611 5,880 12,664 26,319 16,262 70,677 FHLB stock 2,209 2,209 Other earning assets 4,091 4,091 Total $ 95,185 $ 34,690 $ 34,796 $ 65,829 $ 74,130 $ 22,643 $327,273 Cumulative rate sensitive assets $ 95,185 $129,875 $164,671 $230,500 $304,630 $327,273 Interest-bearing liabilities Interest-bearing deposits $ 99,159 $ 16,587 $ 40,584 $ 24,208 $ 21,364 $ 32,239 $234,141 Short-term borrowings 302 545 1,481 104 762 3,194 Long-term FHLB advances 10,000 6,000 19,000 3,000 38,000 Total $ 99,461 $ 17,132 $ 52,065 $ 30,312 $ 41,126 $ 35,239 $275,335 Cumulative interest sensitive liabilities $ 99,461 $116,593 $168,658 $198,970 $240,096 $275,335 Interest sensitivity gap for the individual period $ (4,276) $ 17,558 $(17,269) $ 35,517 $ 33,004 $(12,596) Ratio of rate sensitive assets to rate sensitive liabilities for the individual period 96% 202% 67% 217% 180% 64% Cumulative interest sensitivity gap $ 4,276 $ 13,282 $ (3,987) $ 31,530 $ 64,534 $ 51,938 Cumulative ratio of rate sensitive assets to rate sensitive liabilities 96% 111% 98% 116% 127% 119%
CUMULATIVE RATIO OF RATE SENSITIVE ASSETS TO RATE SENSITIVE LIABILITIES No change in interest rates 96% 111% 98% 116% 127% 119% Interest rates down 1.0% 96% 112% 100% 122% 128% 119% Interest rates up 2.0% 95% 108% 94% 113% 125% 119%
The Asset/Liability Committee uses financial modeling techniques that measure the interest rate risk. Policies established by the Bank's Asset/Liability Committee are intended to limit exposure of earnings at risk. Management considers that an acceptable range for the cumulative rate sensitivity ratio is 70-150%. -12- CAPITAL RESOURCES Stockholders' equity at June 30, 2002 increased $3,365, or 14.0% from June 2001 to $27,433. Stockholders' equity included unrealized gains on securities available for sale, net of their tax effect, of $922 at June 30, 2002 compared to unrealized gains of $379 at June 30, 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 June 30, 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. On July 12, 2002, the Company announced an ongoing share repurchase program of up to 1% of outstanding shares per year. The Company anticipates to purchase on the open market and hold as treasury approximately 8,400 shares during the remainder of 2002.
Table 6: Capital Ratios - Consolidated Holding Company Tier 1 Total Risk- Leverage Based CAPITAL CAPITAL June 30, 2002 7.8% 11.4% December 31, 2001 7.2% 11.2% June 30, 2001 7.5% 12.0% Regulatory minimum for capital adequacy 4.0% 8.0%
RESULTS OF OPERATIONS Net income for the quarter ended June 30, 2002 totaled $1,024, or $1.22 per share for basic and diluted earnings per share. Comparatively, net income for the quarter ended June 30, 2001 was $839, or $1.00 per share for basic and diluted earnings per share. Operating results for the second quarter 2002 generated an annualized return on average assets of 1.22% and an annualized return on average equity of 15.23%, compared to 1.06% and 14.22% for the comparable period in 2001. The net interest margin for the second quarter 2002 was 4.04% compared to 3.64% for the comparable quarter in 2001. The following Table 7 presents consolidated quarterly summary financial data of PSB Holdings, Inc. and Subsidiary. -13-
Table 7: Financial Summary (dollars in thousands, except per share data) QUARTER ENDED June 30, March 31, Dec. 31, Sept. 30, June 30, EARNINGS AND DIVIDENDS: 2002 2002 2001 2001 2001 Net interest income $ 3,104 $ 2,994 $ 2,934 $ 2,909 $ 2,630 Provision for loan losses $ 180 $ 180 $ 440 $ 150 $ 150 Other noninterest income $ 602 $ 565 $ 798 $ 357 $ 455 Other noninterest expense $ 2,046 $ 2,012 $ 2,006 $ 1,868 $ 1,738 Net income $ 1,024 $ 958 $ 873 $ 885 $ 839 Basic earnings per share $ 1.22 $ 1.14 $ 1.04 $ 1.05 $ 1.00 Diluted earnings per share $ 1.22 $ 1.14 $ 1.04 $ 1.05 $ 1.00 Dividends declared per share $ 0.38 $ - $ 0.70 $ - $ 0.38 Net book value per share $ 32.68 $ 31.18 $ 30.19 $ 30.25 $ 28.65 Dividend payout ratio 31.15% 0.00% 67.31% 0.00% 38.00% Average common shares outstanding 839,416 839,615 839,705 839,705 839,705 BALANCE SHEET - AVERAGE BALANCES: Loans receivable, net $ 240,602 $ 238,284 $ 229,994 $ 219,793 $ 220,837 Assets $ 336,125 $ 336,879 $ 331,381 $ 316,592 $ 317,740 Deposits $ 265,931 $ 267,050 $ 261,556 $ 245,177 $ 244,422 Stockholders' equity $ 26,972 $ 25,924 $ 25,671 $ 24,737 $ 23,772 PERFORMANCE RATIOS: Return on average assets (1) 1.22% 1.14% 1.05% 1.12% 1.06% Return on average stockholders' 15.23% 14.78% 13.60% 14.31% 14.12% equity (1) Average tangible stockholders' equity to average assets 7.87% 7.59% 7.61% 7.57% 7.53% Net loan charge-offs to average loans 0.03% 0.00% 0.11% 0.02% 0.01% Nonperforming loans to gross loans 1.23% 1.62% 1.68% 0.96% 0.90% Allowance for loan losses to gross loans 1.30% 1.31% 1.24% 1.24% 1.21% Net interest rate margin (1)(2) 4.04% 3.87% 3.89% 4.03% 3.64% Net interest rate spread (1)(2) 3.53% 3.35% 3.38% 3.41% 2.96% Service fee revenue as a percent of average demand deposits (1) 3.76% 2.65% 2.91% 3.21% 3.30% Noninterest income as a percent of gross revenue 10.02% 9.52% 12.56% 5.77% 7.07% Efficiency ratio 53.23% 54.54% 52.20% 55.39% 54.59% Noninterest expenses to average assets (1) 2.44% 2.39% 2.42% 2.36% 2.19% STOCK PRICE INFORMATION: High $ 39.25 $ 36.00 $ 33.40 $ 31.75 $ 40.00 Low $ 35.00 $ 33.25 $ 30.75 $ 29.00 $ 29.00 Market value at quarter-end $ 38.50 $ 35.50 $ 33.40 $ 31.75 $ 30.00 (1) Annualized (2) The yield on tax-exempt loans and securities is computed on a tax- equivalent basis using a tax rate of 34%.
NET INTEREST INCOME Net interest income is the most significant component of earnings. Net interest income increased $474 from $2,630 for the quarter ended June 30, 2001 to $3,104 for the current quarter ended June 30, 2002. Tax-adjusted net interest margin as a percent of average interest earning assets also increased from 3.64 percent in June 2001 to 4.04 percent in June 2002. Net interest margin -14- was 3.73 percent for the year ended December 31, 2001. Since June 2001, the Company has benefited from a falling interest rate environment as deposits and short-term borrowings have repriced faster at lower rates 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 June 30, 2001. Since June 2001, average loans receivable increased $19,765, or 9.0%. Yield on earning assets decreased 119 basis points to 6.91% compared to 8.10% at June 30, 2001. Similarly, the costs for interest-bearing liabilities decreased 176 basis points to 3.38% from 5.14%. 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 25.6% of total deposits at June 30, 2002. Since June 30, 2001, the money market yield has declined from 3.54% to 1.46% at June 30, 2002. Through June 30, 2002, the Company positioned liabilities for an anticipated rising interest rate market by offering long-term certificate of deposit yields in the top 25% in each of the local markets served by the 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. Although the Company believes short-term interest rates during the next 12 months are unlikely to increase substantially, the benefits of longer-term (three to five years) fixed rate funding and increasing long-term net interest margins outweigh the impact of higher funding rates on short-term profits. As of June 30, 2002, certificate of deposit funding with remaining maturities in excess of 3 years was $18,324 representing 13.7% of total certificates of deposit with an average rate of 4.89%. -15-
Table 8: Net Interest Income Analysis (dollars in thousands) QUARTER ENDED JUNE 30, 2002 SIX MONTHS ENDED JUNE 30, 2002 Average Yield/ Average Yield/ BALANCE INTEREST RATE BALANCE INTEREST RATE Assets Interest earning assets: Loans (1)(2) $243,797 $ 4,469 7.35% $242,564 $ 8,875 7.38% Taxable securities 49,189 678 5.53% 49,506 1,368 5.57% Tax-exempt securities (2) 20,723 344 6.66% 20,385 683 6.76% FHLB stock 2,202 28 5.10% 2,189 54 4.97% Other 5,771 24 1.67% 7,452 63 1.70% Total (2) 321,682 5,543 6.91% 322,096 11,043 6.91% Non-interest earning assets: Cash and due from banks 9,389 9,274 Premises and equipment, net 5,127 4,989 Other assets 3,122 3,207 Allowance for loan losses (3,195) (3,116) Total $336,125 $336,450 Liabilities & stockholders' equity Interest bearing liabilities: Savings and demand deposits $ 30,353 $ 86 1.14% $ 30,955 $ 179 1.17% Money market deposits 71,764 267 1.49% 73,739 551 1.51% Time deposits 129,551 1,343 4.16% 126,981 2,732 4.34% Short-term borrowings 3,324 34 4.10% 3,602 80 4.48% Long-term borrowings 38,000 571 6.03% 38,000 1,135 6.02% Total 272,992 2,301 3.38% 273,277 4,677 3.45% Non-interest bearing liabilities: Demand deposits 34,263 34,840 Other liabilities 1,898 1,909 Stockholders' equity 26,972 26,424 Total $ 336,125 $ 336,450 Net interest income 3,242 6,366 Rate spread 3.53% 3.46% Net yield on interest earning assets 4.04% 3.99% (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%.
-16- 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 June 30, 2002, and $150 for the three months ended June 30, 2001. Net charge-offs as a percentage of average loans outstanding were .03% and .01% during the three months ended June 30, 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 32.3% to $602 during the three months ended June 30, 2002, from the comparable second quarter of 2001. There were no gains or losses on securities during the three months ended June 30, 2002 and 2001. Service fees on deposit accounts increased $69, or 27.4%, for the three months ended June 30, 2002 from the three months ended June 30, 2001. During the first quarter 2002, the Bank began to offer a new overdraft protection product that increased the level of collected service fees. In addition, commercial deposit account service charges have increased due to reduced customer "earnings credits" which are based on the declining short-term deposit interest rates experienced by the market as whole. 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 $134 in June 2002 compared to $83 during June 2001. The majority of loans sold to outside investors continue to be serviced by the Bank directly with the customer. At June 30, 2002, the Bank serviced $50,114 of loans for outside investors compared to $9,605 serviced at June 30, 2001. 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 June 30, 2002 was increased $63 from capitalization of originated mortgage servicing rights. At June 30, 2002, mortgage servicing rights totaled $391, which were carried at amortized cost. There were no mortgage servicing rights recorded at June 30, 2001. Growth in loan sale income has come primarily from new customers and not refinancing of loans already serviced by the Bank for others. As of July 31, 2002, almost 97% of the $36 million of sold loans originated during 2001 with servicing rights retained are still outstanding and serviced by the bank. Total service fee and noninterest income, including gain on sale of loans, was 10.0 percent of gross income during June 2002 compared to 7.1 percent of gross income during June 2001. -17- NONINTEREST EXPENSE Noninterest operating expenses increased $308, or 17.7% to $2,046 in June 2002 compared to $1,738 during June 2001. In addition, operating costs as a percentage of average assets increased from 2.19 percent in June 2001 to 2.44 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 June 2001 at Bank locations in Wausau and Eagle River, Wisconsin. Separate from salaries and wages, noninterest expenses increased $154, or 21.3%. Of this total, occupancy expenses increased $98 compared to the prior quarter due to operating a new branch location in Eagle River, Wisconsin and building and equipment maintenance required by the Bank's home office facility. These additional wage and other operating costs have been offset by increased revenue, as the expense efficiency ratio has improved from 54.6% in June 2001, to 53.2% in the current quarter. -18- 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. PART II - OTHER INFORMATION 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) 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)* -19- 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) 99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002. *Denotes Executive Compensation Plans and Arrangements. (b) Reports on Form 8-K: FORM 8-K DATED APRIL 15, 2002. The Company filed a current report on Form 8-K on April 15, 2002, reporting earnings for the quarter ended March 31, 2002 under Item 5 and additional related disclosure under Item 9, Regulation FD Disclosure. -20- 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. August 14, 2002 SCOTT M. CATTANACH Scott M. Cattanach Treasurer and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) -21- EXHIBIT INDEX to FORM 10-Q of PSB HOLDINGS, INC. for the quarterly period ended June 30, 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: 99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002. -22- EX-99.1 4 psbex99.txt PSB HOLDINGS, INC. EXHIBIT 99.1 - CERTIFICATION Exhibit 99.1 CERTIFICATION OF PSB HOLDINGS, INC. UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002 The undersigned Chief Executive Officer of PSB Holdings, Inc. (the "Company") certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Date: August 13, 2002 DAVID K. KOPPERUD David K. Kopperud President and CEO The undersigned Chief Financial Officer of PSB Holdings, Inc. (the "Company") certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: August 14, 2002 SCOTT M. CATTANACH Scott M. Cattanach Treasurer (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----