-----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, IuPEV8qULyOQFonzxn+ET0PX5Xjx3fps7Gu3H4WWE7JMQebqgbmIrnpYy7Svkq9S zxyGq1PY+eUv5K9tgb/aoQ== 0000916480-02-000053.txt : 20021114 0000916480-02-000053.hdr.sgml : 20021114 20021114104551 ACCESSION NUMBER: 0000916480-02-000053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02822455 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 psb10q93002.txt PSB HOLDINGS, INC. FORM 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 September 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X The number of common shares outstanding at September 30, 2002 was 834,551. PSB HOLDINGS, INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2002 PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets September 30, 2002 (unaudited) and December 31, 2001 (derived from audited financial statements) 1 Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2002 and 2001 (unaudited) 2 Consolidated Statement of Changes in Stockholders' Equity Nine Months Ended September 30, 2002 (unaudited) 3 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2002 and 2001 (unaudited) 4 Notes to 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 21 Item 4. Controls and Procedures 21 (i)
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PSB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS September 30, 2002 unaudited, December 31, 2001 derived from audited financial statements) September 30, December 31, (dollars in thousands, except per share data) 2002 2001 ASSETS Cash and due from banks $10,826 $16,736 Interest-bearing deposits and money market funds 5,056 3,539 Federal funds sold 4,743 5,275 Securities: Held to maturity (fair values of $22,379 and $20,355, respectively) 21,130 20,287 Available for sale (at fair value) 54,543 50,157 Federal Home Loan Bank stock (at cost) 2,236 2,151 Loans held for sale - 1,403 Loans receivable, net of allowance for loan losses of $3,394 and $2,969, respectively 252,286 236,574 Accrued interest receivable 1,906 1,873 Foreclosed assets, net 296 421 Premises and equipment 5,943 4,755 Mortgage servicing rights 534 284 Other assets 806 841 TOTAL ASSETS $ 360,305 $ 344,296 LIABILITIES Non-interest-bearing deposits $ 43,316 $ 41,507 Interest-bearing deposits 245,276 232,128 Total deposits 288,592 273,635 Short-term borrowings 3,514 4,327 Long-term Federal Home Loan Bank advances 38,000 38,000 Accrued expenses and other liabilities 2,109 2,984 Total liabilities 332,215 318,946 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 7,150 7,159 Retained earnings 20,899 18,186 Unrealized gain on securities available for sale, net of tax 735 491 Treasury stock, at cost - 67,874 and 62,720 shares, respectively (2,499) (2,291) Total stockholders' equity 28,090 25,350 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 360,305 $ 344,296
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended (dollars in thousands, SEPTEMBER 30, SEPTEMBER 30, except per share data - unaudited) 2002 2001 2002 2001 Interest income: Interest and fees on loans $ 4,627 $ 4,808 $ 13,466 $ 14,739 Interest on securities: Taxable 665 685 2,033 2,143 Tax-exempt 223 207 674 558 Other interest and dividends 86 133 203 418 Total interest income 5,601 5,833 16,376 17,858 Interest expense: Deposits 1,733 2,273 5,195 7,763 Short-term borrowings 35 74 115 379 Long-term FHLB advances 577 577 1,712 1,689 Total interest expense 2,345 2,924 7,022 9,831 Net interest income 3,256 2,909 9,354 8,027 Provision for loan losses 450 150 810 450 Net interest income after provision for loan losses 2,806 2,759 8,544 7,577 Noninterest income: Service fees 334 246 890 743 Gain on sale of loans 310 34 642 146 Investment and insurance sales commissions 93 31 189 150 Other noninterest income 104 46 287 226 Total noninterest income 841 357 2,008 1,265 Noninterest expense: Salaries and employee benefits 1,320 1,082 3,735 3,110 Occupancy 267 240 832 703 Data processing and other office operations 153 137 413 378 Advertising and promotion 63 83 254 252 Other noninterest expenses 294 326 921 866 Total noninterest expense 2,097 1,868 6,155 5,309 Income before provision for income taxes 1,550 1,248 4,397 3,533 Provision for income taxes 499 363 1,364 1,040 Net income $ 1,051 $ 885 $ 3,033 $ 2,493 Basic earnings per share $ 1.26 $ 1.05 $ 3.62 $ 2.97 Diluted earnings per share $ 1.25 $ 1.05 $ 3.61 $ 2.97
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Nine months ended September 30, 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 3,033 3,033 Unrealized gain on securities available for sale, net of tax 244 244 Total comprehensive income 3,277 Purchase of treasury stock (329) (329) Proceeds from stock options issued out of treasury (9) 61 52 Distribution of treasury stock in settlement of liability to Company directors 60 60 Cash dividends declared $.38 per share (320) (320) Balance September 30, 2002 $ 1,805 $ 7,150 $20,899 $ 735 $(2,499) $28,090
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PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended September 30, 2002 and 2001 - unaudited 2002 2001 Cash flows from operating activities: Net income $ 3,033 $ 2,493 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and net amortization 500 462 Provision for loan losses 810 450 Gain on sale of loans held for sale (642) (146) (Gain) loss on sale of premises and equipment 30 (46) Gain on sale of foreclosed assets (27) - FHLB stock dividends (85) (110) Changes in operating assets and liabilities: Accrued interest receivable (33) (17) Other assets (129) (376) Other liabilities (815) (1,024) Net cash provided by operating activities 2,642 1,686 Cash flows from investing activities: Net increase in interest-bearing deposits and money market funds (1,517) (1,737) Net (increase) decrease in federal funds sold 532 (7,755) Proceeds from sale and maturities of: Securities held to maturity 682 1,010 Securities available for sale 8,848 24,148 Payment for purchase of: Securities held to maturity (1,537) (5,805) Securities available for sale (12,857) (23,698) Net (increase) decrease in loans (14,919) 2,749 Capital expenditures (1,638) (431) Proceeds from sale of premises and equipment 29 41 Proceeds from sale of foreclosed assets 278 - Net cash used in investing activities (22,099) (11,478)
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Consolidated Statements of Cash Flows, continued Cash flows from financing activities: Net increase (decrease) in non-interest-bearing deposits 1,809 (3,392) Net increase in interest-bearing deposits 13,148 11,335 Net decrease in short-term borrowings (813) (7,823) Proceeds from long-term FHLB advances - 10,000 Dividends paid (320) (319) Proceeds from issuance of stock options 52 - Purchase of treasury stock (329) - Net cash provided by financing activities 13,547 9,801 Net increase (decrease) in cash and due from banks (5,910) 9 Cash and due from banks at beginning 16,736 9,226 Cash and due from banks at end $ 10,826 $ 9,235 Supplemental cash flow information: Cash paid during the period for: Interest $ 7,330 $ 10,250 Income taxes 1,300 1,152 Noncash investing and financing activities: Loans charged off $ 444 $ 81 Loans transferred to foreclosed assets 397 642 Loans originated on sale of foreclosed assets 331 - 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, mortgage servicing right asset, 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 Nine months ended (dollars in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 Net income available to common stockholders $1,051 $ 885 $3,033 $2,493 Weighted average shares outstanding 836,418 839,705 838,471 839,705 Effect of dilutive stock options outstanding 2,356 - 1,554 - Diluted weighted average shares outstanding 838,774 839,705 840,025 839,705 Basic earnings per share $ 1.26 $ 1.05 $ 3.62 $ 2.97 Diluted earnings per share $ 1.25 $ 1.05 $ 3.61 $ 2.97
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 Nine months ended SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 Net income $1,051 $ 885 $3,033 $2,493 Change in net unrealized gain or loss on securities available for sale, net of tax (187) 453 244 957 Comprehensive income $ 864 $1,338 $3,277 $3,450
-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 September 30, 2002, total assets were $360,305, an increase of $41,839, or 13.1%, over September 30, 2001. Assets increased $16,009, or 4.6% from December 31, 2001. Gross loans (including loans held for sale and unamortized direct loan origination costs) were $255,680 at September 30, 2002, growing $30,892 over third quarter 2001 and increasing $14,734 over fourth quarter 2001. Loan growth through September 30, 2002 was funded by a reallocation of short-term investments, cash holdings, and overnight funds held at December 31, 2001 and deposit growth primarily by acquisition of broker and national certificates of deposit.
Table 1: Period-End Loan Composition September 30, September 30 December 31, 2001 DOLLARS DOLLARS PERCENTAGE OF TOTAL Percentage (dollars in thousands) 2002 2001 2002 2001 DOLLARS OF TOTAL Commercial, industrial and agricultural $ 66,463 $ 66,630 26.0% 29.6% $55,363 23.0% Commercial real estate mortgage 106,902 67,290 41.7% 29.9% 98,554 40.9% Residential real estate mortgage 64,823 72,845 25.4% 32.4% 67,723 28.1% Residential real estate loans held for sale - 203 0.0% 0.1% 1,403 0.6% Consumer home equity 6,601 4,419 2.6% 2.0% 4,576 1.9% Consumer and installment 10,891 13,401 4.3% 6.0% 13,327 5.5% Totals $255,680 $224,788 100.0% 100.0% $240,946 100.0%
The decline in overall long-term real estate loan interest rates during 2001 and again during 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 -8- real estate and industrial 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. As the Company reallocated resources to handle demand for residential real estate loans, it experienced substantial repayments of consumer retail installment loans that were not replaced. In its markets, the Company faces substantial competition from credit unions and other financial institutions for retail installment lending such as for auto loans. During the fourth quarter 2002, the Company refocused efforts to increase retail installment loans by competitively seeking high quality individual borrowers and offering low interest rates as compared to local competitors. 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 according to the contractual terms will continue. 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 $2,232 to $4,735 at September 30, 2002 from $2,503 at September 30, 2001, primarily because of additional loans going on nonaccrual status. Nonperforming assets have also increased $279 from $4,456 at December 31, 2001.
Table 2: Allowance for Loan Losses Three months ended Nine months ended SEPTEMBER 30, SEPTEMBER 30, (dollars in thousands) 2002 2001 2002 2001 Allowance for loan losses at beginning $ 3,254 $ 2,682 $ 2,969 $ 2,407 Provision for loan losses 450 150 810 450 Recoveries on loans previously charged-off 11 - 59 1 Loans charged off (321) (55) (444) (81) Allowance for loan losses at end $ 3,394 $ 2,777 $ 3,394 $ 2,777
-9- 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. At September 30, 2002 nonaccrual loans included $587 of loan principal to a borrower secured by non real-estate commercial collateral. During September 2002, the Company was notified of the borrower's bankruptcy. The Bank was not the lead lender in the commercial relationship, and due to inadequate collateral protection, an additional $270 of loan loss provisions were recorded to cover estimated principal losses not specifically identified and reserved previously. During October 2002, a charge-off of $376 was authorized and recorded. The remaining principal balance on this relationship of approximately $211 is fully reserved in the allowance for loan losses as of September 30, 2002 from provisions made prior to September 30, 2002. The increase in loans charged off during 2002 (both through September 30, 2002, and in October, 2002) is primarily due to the Company coming to terms with problem loan relationships that have existed and been on the balance sheet for many years. During 2002, the Company changed internal policy making it more difficult for borrowers to qualify to be removed from nonaccrual status. In general, borrowers placed on nonaccrual status must bring all past due amounts current, and make six monthly contractual payments on time before qualifying for removal from nonaccrual. At September 30, 2002, $712 of nonaccrual principal was less than 30 days past due, but had not yet made six consecutive months of regular contractual payments. Therefore, the change in policy has accounted for some of the increase in nonaccrual loans. Management believes it has identified and is proactively dealing with significant problem loan relationships. The increase in nonaccrual loans is not believed to be due primarily to the general economic recession or Bank loan concentrations in volatile economic sectors. Management expects the level of nonaccrual loans held at December 31, 2002 to be substantially reduced.
Table 3: Nonperforming Assets SEPTEMBER 30, DECEMBER 31, (dollars in thousands) 2002 2001 2001 Nonaccrual loans $ 3,784 $ 1,395 $ 3,036 Accruing loans past due 90 days or more - 333 - Restructured loans 655 428 999 Total nonperforming loans 4,439 2,156 4,035 Foreclosed assets 296 347 421 Total nonperforming assets $ 4,735 $ 2,503 $ 4,456 Nonperforming loans as a % of gross loans receivable 1.74% 1.11% 1.68% Total nonperforming assets as a % of total assets 1.31% 0.79% 1.29%
-10- 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 funding. Retail consumer deposits as a percentage of total funding sources were 75.2% at September 30, 2002, and 78.5% at September 30, 2001. Wholesale funding and broker and national certificates of deposit represent the balance of the Company's total funding needs.
Table 4: Period-end Deposit Composition September 30, September 30, December 31, 2001 DOLLARS DOLLARS PERCENTAGE OF TOTAL Percentage (dollars in thousands) 2002 2001 2002 2001 DOLLARS OF TOTAL Non-interest-bearing demand $ 43,316 $ 31,465 15.0% 12.6% $ 41,508 15.2% Interest-bearing demand and savings 32,848 28,192 11.4% 11.3% 33,691 12.3% Money market deposits 74,119 73,950 25.7% 29.6% 76,973 28.1% Retail time deposits less than $100 60,656 60,178 20.9% 24.2% 58,829 21.6% Retail time deposits $100 and over 37,424 34,889 13.0% 14.0% 37,033 13.5% Broker & national time deposits less than $100 12,946 9,503 4.5% 3.8% 9,404 3.4% Broker & national time deposits $100 & over 27,283 11,300 9.5% 4.5% 16,197 5.9% Totals $288,592 $249,477 100.0% 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 deposit rates to stabilize deposit funding cost if market interest rates increase. Some customers appear to have moved money market funds into time deposits to secure a higher yield.
Table 5: Summary of Changes by Significant Deposit Source September 30, Change from prior year 2002 2001 $ % Total time deposits $100 and over $ 64,707 $ 46,189 $ 18,518 40.1% Total broker and national time deposits 40,229 20,803 19,426 93.4% Total retail time deposits 98,080 95,067 3,013 3.2% Core deposits, including money market deposits 150,283 133,607 16,676 12.5% Total retail deposits including core deposits 248,363 228,674 19,689 8.6%
-11- 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. For example, late in October, 2002, the average offering rate for a 12 month certificate of deposit as published by Ratewatch Premium Report for the three community banks with the highest rates in the Company's largest market area was 55 basis points higher than available brokered deposits for a 12-month term. To lower deposit funding costs, the Company does use brokers to accumulate national funds generally in excess of $100 per account. In addition, lower rate long-term broker certificates have been used in limited cases to fund "match" longer term loan commitments desired by customers that are held on the balance sheet as loans held for investment. Consequently, broker and national deposits increased substantially over the prior year, while local retail deposits have shown moderate growth in comparison. During September 2002, the Company opened a new full service retail and commercial branch location in Rhinelander, Wisconsin. Formerly, the Bank operated only a grocery store branch location. The Bank believes the retail markets in which they operate can provide retail deposit growth needed for asset growth in the long-term as local retail certificate of deposit rates begin to approximate national rates for similar funds. As of September 30, 2002, federal funds sold and short-term investments, loan principal, and investment securities maturing within one year totaled $131,890, while certificates of deposit, short-term borrowings and long- term borrowings maturing within one year totaled $96,731. Unused credit advances from the Federal Home Loan Bank of Chicago available to the Company at September 30, 2002 totaled approximately $26,559. In addition, the Bank had commitments from other correspondent banks for federal funds purchased up to $22,500. 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. The Company believes its current liquidity position and sources of funds for liquidity management is adequate. Table 6 below presents maturity repricing information as of September 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. Assets and liabilities with contractual calls or prepayment options are repriced according to the likelihood of the call or prepayment being exercised in the current interest rate environment. -12-
Table 6: Interest Rate Sensitivity Gap Analysis September 30, 2002 (dollars in thousands) 0-90 DAYS 91-180 DAYS 181-365 DAYS 1-2 YRS. BYND 2-5 YRS. BEYOND 5 YRS. TOTAL Earning assets: Loans $ 92,113 $ 19,007 $ 35,999 $ 57,922 $ 45,488 $ 5,151 $255,680 Securities 8,043 7,389 13,154 19,316 12,709 15,062 75,673 FHLB stock 2,236 2,236 Other earning assets 9,799 9,799 Total $112,191 $ 26,396 $ 49,153 $ 77,238 $ 58,197 $ 20,213 $343,388 Cumulative rate sensitive assets $112,191 $138,587 $187,740 $264,978 $323,175 $343,388 Interest-bearing liabilities Interest-bearing deposits $ 92,836 $ 19,744 $ 46,185 $ 22,602 $ 29,416 $ 34,493 $245,276 Short-term borrowings 653 351 1,439 300 771 3,514 Long-term FHLB advances 10,000 6,000 19,000 3,000 38,000 Total $ 93,489 $ 30,095 $ 47,624 $ 28,902 $ 49,187 $ 37,493 $286,790 Cumulative interest sensitive liabilities $ 93,489 $123,584 $171,208 $200,110 $249,297 $286,790 Interest sensitivity gap for the individual period $ 18,702 $ (3,699) $ 1,529 $ 48,336 $ 9,010 $ (17,280) Ratio of rate sensitive assets to rate sensitive liabilities for the individual period 120% 88% 103% 267% 118% 54% Cumulative interest sensitivity gap $ 18,702 $ 15,003 $ 16,532 $ 64,868 $ 73,878 $ 56,598 Cumulative ratio of rate sensitive assets to rate sensitive liabilities 120% 112% 110% 132% 130% 120%
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. A formal liquidity contingency plan exists that directs management to the least expensive liquidity sources to fund sudden and unanticipated liquidity needs. The Company also uses various policy measures to assess adequacy of the Bank's liquidity and interest rate risk as described below. BASIC SURPLUS The Company measures basic surplus as the amount of existing net liquid assets (after deducting short-term liabilities and coverage for anticipated deposit funding outflows during the next 30 days) divided by total assets. The basic surplus calculation does not consider unused but available correspondent bank federal funds purchased, as those funds are subject to availability based on the correspondent bank's own liquidity needs and therefore are not guaranteed contractual funds. At September 30, 2002, the Company's basic surplus, including available FHLB advances not yet utilized was above the 5% minimum required by policy. -13- INTEREST RATE RISK LIMITS The Company balances the need for liquidity with the opportunity for increased net interest income available from longer term loans held for investment and securities. To measure the impact on net interest income from interest rate changes, the Company models interest rate simulations on a quarterly basis. Company policy is that projected net interest income over the next 12 months will not be reduced by more than 15% given a change in interest rates of up to 200 basis points. At September 30, 2002, projected net income for the next 12 months changed less than the 15% required by policy and was considered acceptable by management. CORE FUNDING UTILIZATION To assess whether interest rate sensitivity beyond one year helps mitigate or exacerbate the short-term rate sensitive position, a quarterly measure of core funding utilization is made. Core funding is defined as liabilities with a maturity in excess of 60 months and capital. "Core" deposits including DDA, NOW and non-maturity savings accounts (except money market accounts) are also considered core long-term funding sources. The core funding utilization ratio is defined as assets with a maturity in excess of 60 months divided by core funding. The Company's target for the core funding utilization ratio is to remain at 80% or below given the same 200 basis point changes in rates that apply to the guidelines for interest rate risk limits exposure described previously. At September 30, 2002, the Company's core fund utilization ratio was within policy requirements. CAPITAL RESOURCES Stockholders' equity at September 30, 2002 increased $2,684, or 10.6% from September 2001 to $28,090. Stockholders' equity included unrealized gains on securities available for sale, net of their tax effect, of $735 at September 30, 2002 compared to unrealized gains of $832 at September 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 September 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 to recur on an annual basis. The Company anticipates purchasing on the open market and holding as treasury approximately 8,400 shares during 2002. At September 30, 2002 approximately 6,400 of the 8,400 shares for 2002 had been purchased by the Company. Through September 30, 2002, the average price paid by the Company for treasury shares acquired during 2002 was $40.21 per share. Current monthly net income allows the Company to increase assets by approximately $5 million per month and maintain a leverage capital ratio above 7.0%. Although the Company is currently purchasing treasury shares under the buyback program described above, management is pursuing a growth strategy which requires significant capital to be maintained to support asset growth. -14- Therefore, large scale stock buybacks or dividend payments in excess of past periods are not anticipated. Recently, the Bank hired two additional commercial lenders, and opened a new brick and mortar full service branch in Rhinelander, Wisconsin. Previously, the Bank had a grocery store location in Rhinelander which generated significant loan growth even in that limited facility. With the new Rhinelander location and additional lenders, the Bank needs existing capital to significantly increase loans held for investment in the near term.
Table 7: Capital Ratios - Consolidated Holding Company Tier 1 Total Risk- Leverage Based CAPITAL CAPITAL September 30, 2002 7.6% 11.6% December 31, 2001 7.2% 11.2% September 30, 2001 7.7% 12.0% Regulatory minimum for capital adequacy 4.0% 8.0%
On October 4, 2002, the Company announced approval of a 2-for-1 stock split payable December 2, 2002, to shareholders of record on November 19, 2002, subject to shareholder approval of an increase in authorized shares. This special meeting to vote on the increase in authorized shares is scheduled for November 19, 2002. The stock split will increase the number of issued shares in circulation to approximately 1.7 million shares, and place the "post split" value per share in the low $20's per share. The split is anticipated to increase interest in institutional investors in the Company's stock while making it easier for smaller investors to purchase shares, both of which are expected to increase stock liquidity. RESULTS OF OPERATIONS Net income for the quarter ended September 30, 2002 totaled $1,051, or $1.25 per share on a diluted basis ($1.26 per basic earnings per share). Comparatively, net income for the quarter ended September 30, 2001 was $885, or $1.05 per share for basic and diluted earnings per share. Operating results for the third quarter 2002 generated an annualized return on average assets of 1.17% and an annualized return on average equity of 15.00%, compared to 1.12% and 14.31% for the comparable period in 2001. The net interest margin for the third quarter 2002 was 3.95% compared to 4.03% for the comparable quarter in 2001. The following Table 8 presents consolidated quarterly summary financial data of PSB Holdings, Inc. and Subsidiary. -15-
Table 8: Financial Summary (dollars in thousands, except per share data) QUARTER ENDED Sept. 30, June 30, March 31, Dec. 31, Sept. 30, EARNINGS AND DIVIDENDS: 2002 2002 2002 2001 2001 Net interest income $ 3,256 $ 3,104 $ 2,994 $ 2,934 $ 2,909 Provision for loan losses $ 450 $ 180 $ 180 $ 440 150 Other noninterest income $ 841 $ 602 $ 565 $ 798 357 Other noninterest expense $ 2,097 $ 2,046 $ 2,012 $ 2,006 1,868 Net income $ 1,051 $ 1,024 $ 958 $ 873 885 Basic earnings per share $ 1.26 $ 1.22 $ 1.14 $ 1.04 $ 1.05 Diluted earnings per share $ 1.25 $ 1.22 $ 1.14 $ 1.04 $ 1.05 Dividends declared per share $ - $ 0.38 $ - $ 0.70 $ - Net book value per share $ 33.66 $ 32.68 $ 31.18 $ 30.19 $ 30.25 Dividend payout ratio 0.00% 31.15% 0.00% 67.31% 0.00% Average common shares outstanding 836,418 839,416 839,615 839,705 839,705 BALANCE SHEET - AVERAGE BALANCES: Loans receivable, net $249,691 $240,602 $238,284 $ 229,994 $219,793 Assets $355,224 $336,125 $336,879 $ 331,381 $316,592 Deposits $283,889 $265,931 $267,050 $ 261,556 $245,177 Stockholders' equity $ 27,792 $ 26,972 $ 25,924 $ 25,671 $ 24,737 PERFORMANCE RATIOS: Return on average assets (1) 1.17% 1.22% 1.14% 1.05% 1.12% Return on average stockholders' equity (1) 15.00% 15.23% 14.78% 13.60% 14.31% Average tangible stockholders' equity to average assets 7.61% 7.87% 7.59% 7.61% 7.57% Net loan charge-offs to average loans 0.12% 0.03% 0.00% 0.11% 0.02% Nonperforming loans to gross loans 1.74% 1.23% 1.62% 1.68% 0.96% Allowance for loan losses to gross loans 1.33% 1.30% 1.31% 1.24% 1.24% Net interest rate margin (1)(2) 3.95% 4.04% 3.87% 3.89% 4.03% Net interest rate spread (1)(2) 3.43% 3.53% 3.35% 3.38% 3.41% Service fee revenue as a percent of average demand deposits (1) 3.41% 3.76% 2.65% 2.91% 3.21% Noninterest income as a percent of gross revenue 13.05% 10.02% 9.52% 12.56% 5.77% Efficiency ratio 49.52% 53.23% 54.54% 52.20% 55.38% Noninterest expenses to average assets (1) 2.34% 2.44% 2.39% 2.42% 2.36% STOCK PRICE INFORMATION: High $ 42.10 $ 39.25 $ 36.00 $ 33.40 $ 31.75 Low $ 38.35 $ 35.00 $ 33.25 $ 30.75 $ 29.00 Market value at quarter-end $ 41.15 $ 38.50 $ 35.50 $ 33.40 $ 31.75 (1) Annualized (2) The yield on tax-exempt loans and securities is computed on a tax-equivalent basis using a tax rate of 34%.
-16- NET INTEREST INCOME Net interest income is the most significant component of earnings. Net interest income increased $347 from $2,909 for the quarter ended September 30, 2001 to $3,256 for the current quarter ended September 30, 2002. Tax- adjusted net interest margin as a percent of average interest earning assets declined from 4.03 percent in September 2001 to 3.95 percent in September 2002. Net interest margin was 3.73 percent for the year ended December 31, 2001. Since early 2001, the Company benefited from a falling interest rate environment as deposits and short-term borrowings have repriced faster at lower rates than loans with longer terms and maturities. However, during the third quarter 2002, it appears that short-term deposits have been significantly repriced to current levels, but that loans are renewed and originated at continually lower rates. This situation was anticipated and is not unusual in the banking industry. The Company considers the current short-term interest rate environment to be temporary. The primary strategies currently utilized by the Company to manage net interest margin include: 1. Consider national and broker certificate of deposit offering rates when determining local retail certificate pricing. Ensure core deposits are priced appropriately considering existing rates and changes in short-term interest rates in the national markets. 2. Increase interest rate pricing on commercial loans that provide option features to the borrower, such as prepayment without penalty. 3. Originate adjustable rate commercial loans to allow the bank to benefit from anticipated increases in short-term interest rates on which many commercial loans are based. Management recognizes that in the short-term such a strategy would reduce net interest income in the event of a decrease in the prime rate or other short-term rate indexes. In addition to the change in tax-adjusted net interest margin percentage, net interest income increased from income earned from additional loans originated since September 30, 2001. Since September 2001, average loans receivable (net of allowances for loan loss) increased $29,898, or 13.6%. Yield on earning assets decreased 125 basis points to 6.68% compared to 7.93% at September 30, 2001. Similarly, the costs for interest-bearing liabilities decreased 127 basis points to 3.25% from 4.52%. Decreased national market short-term term interest rates have impacted all types of earning assets and paying liabilities and the Company believes current short-term rates represent the approximate bottom of the rate cycle. Refer to the previous discussion on management of net interest margin for the Company's strategy in this area. -17-
Table 9: Net Interest Income Analysis (dollars in thousands) Quarter ended Sept. 30, 2002 Nine months ended Sept. 30, 2002 Average Yield/ Average Yield/ BALANCE INTEREST RATE BALANCE INTEREST RATE Assets Interest-earning assets: Loans (1)(2) $ 252,879 $ 4,650 7.30% $ 246,040 $ 13,525 7.35% Taxable securities 50,678 665 5.21% 49,901 2,033 5.45% Tax-exempt securities (2) 20,431 338 6.56% 20,400 1,021 6.69% FHLB stock 2,234 27 4.79% 2,204 81 4.91% Other 14,698 59 1.59% 9,893 122 1.65% Total (2) 340,920 5,739 6.68% 328,438 16,782 6.83% Non-interest-earning assets: Cash and due from banks 8,529 9,023 Premises and equipment, net 5,692 5,226 Other assets 3,271 3,231 Allowance for loan losses (3,188) (3,140) Total $ 355,224 $ 342,778 Liabilities & stockholders' equity Interest-bearing liabilities: Savings and demand deposits $ 34,110 $ 88 1.02% $ 32,018 $ 267 1.11% Money market deposits 72,555 267 1.46% 73,312 818 1.49% Time deposits 138,413 1,378 3.95% 130,834 4,110 4.20% Short-term borrowings 3,363 35 4.13% 3,521 115 4.37% Long-term borrowings 38,000 577 6.02% 38,000 1,712 6.02% Total 286,441 2,345 3.25% 277,685 7,022 3.38% Non-interest-bearing liabilities: Demand deposits 38,811 36,178 Other liabilities 2,180 2,009 Stockholders' equity 27,792 26,906 Total $ 355,224 $ 342,778 Net interest income 3,394 9,760 Rate spread 3.43% 3.45% Net yield on interest-earning assets 3.95% 3.97% (1) Nonaccrual 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%.
-18- 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 $450 for the three months ended September 30, 2002, and $150 for the three months ended September 30, 2001. Net charge-offs as a percentage of average loans outstanding were .12% and .02% during the three months ended September 30, 2002 and 2001, respectively. At September 30, 2002 nonaccrual loans included $587 of loan principal to a borrower secured by non real-estate commercial collateral. During September 2002, the Company was notified of the borrower's bankruptcy. The Bank was not the lead lender in the commercial relationship, and due to inadequate collateral protection, an additional $270 of loan loss provisions were recorded to cover estimated principal losses not specifically identified and reserved previously. During October 2002, a charge-off of $376 was authorized and recorded. The remaining principal balance on this relationship of approximately $211 is fully reserved in the allowance for loan losses as of September 30, 2002 from provisions made prior to September 30, 2002. 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 allowance 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 $484 to $841 during the three months ended September 30, 2002, from $357 in the comparable third quarter of 2001. There were no gains or losses on securities during the three months ended September 30, 2002 and 2001. Service fees on deposit accounts increased $88, or 35.8%, for the three months ended September 30, 2002 from the three months ended September 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 $310 in September 2002 compared to $34 during September 2001 for an increase of $276. The majority of loans sold to outside investors continue to be serviced by the Bank directly with the customer. At September 30, 2002, the Bank serviced $64,780 of loans for outside investors compared to $18,848 serviced at September 30, 2001. The Bank has seen customer demand for fixed rate -19- mortgages increase as long-term fixed interest rates in the overall market reached historical low levels. The gain on sale of loans during the quarter ended September 30, 2002 was increased $167 from capitalization of originated mortgage servicing rights. At September 30, 2002, mortgage servicing rights totaled $534, which were carried at amortized cost. There were no mortgage servicing rights recorded at September 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 September 30, 2002, approximately 86% of the $36 million of sold loans originated during calendar 2001 with servicing rights retained are still outstanding and serviced by the bank. During the past quarter, the Bank introduced a new annuity investment product for customers looking for a higher yield than available on traditional certificates of deposit. The product generated an additional $47 of commission income during the third quarter 2002. Total investment and insurance product commissions increased $62 to $93 in the quarter ended September 30, 2002 compared to $31 for September 2001. The remaining increase in noninterest income came primarily from an increase in debit card interchange income and mortgage servicing fees, accounting for approximately $44 of the increase of $58 in other noninterest income during the quarter ended September 30, 2002 compared to the third quarter of 2001. NONINTEREST EXPENSE Noninterest operating expenses increased $229, or 12.3% to $2,097 in September 2002 compared to $1,868 during September 2001. However, operating costs as a percentage of average assets decreased from 2.36 percent in September 2001 to 2.34 percent in the current quarter. The majority of the increase in operating expenses was from additional salaries, wages, and benefits paid to employees. Average wages and benefits before year-end incentive compensation dependant upon overall Company profitability was $45,138 per full time equivalent employee (FTE) during the quarter ended September 30, 2002 compared to $43,578 per FTE in the third quarter 2001 for an increase of 3.6% during the past 12 months. Separate from salaries and wages, noninterest expenses decreased $9, or 1.1%. Additional wage and other operating costs have been offset by increased revenue, as the expense efficiency ratio has improved from 55.4% in September 2001, to 49.5% in the current quarter. -20- 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. ITEM 4. CONTROLS AND PROCEDURES The Company maintains controls and other procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized, and reported in accordance with Securities and Exchange Commission rules, and that such information is accumulated and communicated to the Company's management, including the President and Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management's control objectives. Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the President and Chief Executive Officer along with the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the foregoing, the President and Chief Executive Officer along with the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's Exchange Act reports. There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. -21- 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)* 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. -22- (b) Reports on Form 8-K: FORM 8-K DATED JULY 18, 2002. The Company filed a current report on Form 8-K on July 18, 2002, reporting earnings for the quarter ended June 30, 2002 under Item 5 and additional related disclosure under Item 9, Regulation FD Disclosure. -23- 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 14, 2002 SCOTT M. CATTANACH Scott M. Cattanach Treasurer (On behalf of the Registrant and as Principal Financial Officer) -24- CERTIFICATIONS I, David K. Kopperud, certify that: 1. I have reviewed this quarterly report on Form 10-Q of PSB Holdings, Inc. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and -25- 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 DAVID K. KOPPERUD David K. Kopperud President and Chief Executive Officer -26- CERTIFICATIONS I, Scott M. Cattanach, certify that: 1. I have reviewed this quarterly report on Form 10-Q of PSB Holdings, Inc. (the "registrant"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and -27- 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 SCOTT M. CATTANACH Scott M. Cattanach Treasurer (Principal Financial Officer) -28- EXHIBIT INDEX to FORM 10-Q of PSB HOLDINGS, INC. for the quarterly period ended September 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. -29- 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 September 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: November 14, 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 September 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: November 14, 2002 SCOTT M. CATTANACH Scott M. Cattanach Treasurer (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----