-----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, GmglyWvSU7atpg5pPGdkVmSmLjmpBpjiAHEFqwvYGQWC+wNsmDUUn1O8ixuzXY0z ZjPIeELvnoDmCbRJtUpDJw== 0000916480-97-000006.txt : 19970326 0000916480-97-000006.hdr.sgml : 19970326 ACCESSION NUMBER: 0000916480-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26480 FILM NUMBER: 97562239 BUSINESS ADDRESS: STREET 1: 1905 WEST STEWART AVE CITY: WAUSAU STATE: WI ZIP: 54401 BUSINESS PHONE: 7158422191 MAIL ADDRESS: STREET 1: 1905 WEST STEWART AVE CITY: WAUSAU STATE: WI ZIP: 54401 FORMER COMPANY: FORMER CONFORMED NAME: PSB HOLDINGS INC /WI/ DATE OF NAME CHANGE: 19950721 FORMER COMPANY: FORMER CONFORMED NAME: PEOPLES STATE BANK /WI/ DATE OF NAME CHANGE: 19950721 10-K 1 PSB HOLDINGS, INC.'S 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ COMMISSION FILE NO. 0-26480 PSB HOLDINGS, INC. (Exact name of registrant as specified in charter) 1905 W. STEWART AVENUE WISCONSIN WAUSAU, WI 54401 (State of incorporation) 39-1804877 (Address of principal executive office) (I.R.S. Employer Identification Number) Registrant's telephone number, including area code: 715-842-2191 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of each class) Indicate by check 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X There is no established trading market for the common stock. As of March 15, 1997, 895,425 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE PROXY STATEMENT DATED MARCH 25, 1997 (TO THE EXTENT NOTED HEREIN): PART III TABLE OF CONTENTS PAGE PART I ...................................................... 3 Item 1. Business ........................................... 3 Item 2. Properties ......................................... 7 Item 3. Legal Proceedings .................................. 7 Item 4. Submission of Matters to a Vote of Security Holders. 8 PART II ..................................................... 8 Item 5. Market for Registrant's Common Equity and Related Security Holder Matters ............................ 8 Item 6. Selected Financial Data ............................ 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 10 Item 8. Financial Statements and Supplementary Data ........ 23 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................. 50 PART III .................................................... 51 Item 10. Directors and Executive Officers of Registrant ..... 51 Item 11. Executive Compensation ............................. 51 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................... 51 Item 13. Certain Relationships and Related Transactions ..... 51 PART IV ..................................................... 52 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 52 PART I ITEM 1. BUSINESS. FORMATION PSB Holdings, Inc., a Wisconsin corporation (the "Company"), is a one- bank holding company formed in 1995. On May 30, 1995, the Company acquired 100% of the common stock of Peoples State Bank, Wausau, Wisconsin (the "Bank") pursuant to the reorganization of the Bank as a subsidiary of a one-bank holding company. Prior to its acquisition by the Company, the Bank's common stock was registered under the provisions of section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and the Bank filed its annual and quarterly reports, proxy statements, and reports of beneficial ownership with the Federal Deposit Insurance Corporation ("FDIC") pursuant to section 12(i) of the Exchange Act. The Company assumed its status as a reporting company under the Exchange Act by filing Form 8-K as a successor to the Bank under Securities and Exchange Commission Rule 12g-3 on May 30, 1995. BUSINESS OF THE COMPANY The Company is a one-bank holding company regulated by the Board of Governors of the Federal Reserve System (the "Board") under the authority of the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company's sole business is the ownership and management of the Bank. BUSINESS OF THE BANK The Bank was organized as a state banking corporation under the laws of the state of Wisconsin in 1962. In addition to its main office in Wausau, the Bank operates branch offices in the city of Wausau, Rib Mountain Township and Marathon, Wisconsin. The Bank offers personal and commercial deposit services, including checking and savings accounts of various kinds, IRA and other deposit instruments, ATM service and night depository and safety deposit box services. The Bank also engages in consumer and commercial lending, including secured and unsecured term loans and real estate financing. New services are frequently added to the Bank's retail banking business. Since 1995, the Bank has operated a discount brokerage service at its Wausau branch location, and sells annuities, mutual funds and other investments to Bank customers and the general public. Trust services are also provided through affiliations with other independent financial institutions. The Bank maintains an investment subsidiary in Nevada to manage, hold and trade cash and securities. BANK MARKET AREA AND COMPETITION The Bank's primary trade area consists of the greater Wausau, Wisconsin area. The Bank's general trade area encompasses the area within a fifteen-mile radius of the city of Wausau and the area within a ten-mile radius of Marathon, Wisconsin. There is a mix of retail, manufacturing, agricultural and service businesses in the areas served by the Bank. Commercial and retail banking in the state of Wisconsin, and in the Wausau area in particular, is highly competitive with respect to price and services. "Price" includes interest rates paid on deposits, interest rates charged on borrowings and fees charged for fiduciary services, while "services" includes the types of loan, deposit and other products offered, convenience of banking locations and the quality of service rendered to customers. In addition to competition from other commercial banks, the Bank faces significant competition from savings and loan associations, credit unions and other financial institutions or financial service companies within its market area. Savings and loan association deposits constitute a substantial portion of all financial institution deposits within the state of Wisconsin and these associations compete aggressively with commercial banks in the important area of consumer lending and interest-bearing checking accounts. The Bank is subject to direct competition in its trade area from six commercial banks which offer a full line of competitive bank services, loan production offices of banks located outside of the region and numerous savings and loan associations and credit unions. Several of the financial institutions with which the Bank competes are subsidiaries of the three largest state-wide multi-bank holding companies and many of the other financial institutions are also significantly larger and have more resources than the Bank. In addition to competition, the business of the Bank will be affected by general economic conditions, including the level of interest rates and the monetary policies of the Board (see "Monetary Policy"). EMPLOYEES The Company has no employees. Officers of the Company serve as full time employees of the Bank. As of December 31, 1996, the Bank had 81 employees, including 16 employed on a part-time basis. All officers, supervisors and full-time employees are salaried and all part-time employees are paid on an hourly basis. The Bank considers its relations with its employees to be excellent. None of the Bank's employees are covered by a collective bargaining agreement. REGULATION AND SUPERVISION The Company and the Bank are subject to regulation under both federal and state law. The information given below consists of summaries of certain, but not all statutory provisions which regulate the Company's business. These summaries are qualified in their entirety by reference to the statutory provisions. The Company is directly regulated by the Board pursuant to the BHCA and must file reports on a periodic basis. Among other limitations imposed by the BHCA, the Company must obtain prior approval from the Board before acquiring direct or indirect ownership or control of more than 5% of any bank or bank holding company. The BHCA also regulates the entry by the Company into a business other than banking. The deposits of the Bank are insured under the provisions of the Federal Deposit Insurance Act, and the Bank is, therefore, subject to regulation and examination by the Federal Deposit Insurance Corporation ("FDIC"). As a Wisconsin chartered bank, the Bank and the Company are also subject to periodic examination and the regulations of the Division of Banking, Wisconsin Department of Financial Institutions (the "Division"). State and federal banking authorities regulate the Bank's capital adequacy, loans and loan policies (including the extension of credit to affiliates), payment of dividends, establishment of branch offices, mergers and other acquisitions, management personnel, interlocking directors and other aspects of the operation of the Bank. The Bank is subject to civil fines, penalties or imposition of regulatory control for noncompliance with applicable banking regulations and policies. Other financial institutions with which the Bank competes, such as national banking associations, savings and loan associations or credit unions, are subject to regulations which are generally similar, but may be more or less restrictive in certain areas or permit activities or practices unavailable to the Bank. Banking laws and regulations have undergone periodic revisions which often have a direct effect on the Bank's operations and its competitive environment. Certain provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, for example, included a provision setting the Bank's FDIC deposit insurance premiums at a level which reflects certain risk factors, included immediate authority to acquire healthy capital-impaired thrift institutions and eliminated cross-marketing restrictions on bank holding companies which own thrift institutions. Some of the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, contained substantial changes to the regulatory framework previously in effect and imposed new standards on many areas of bank operations, including additional deposit insurance premiums to recapitalize the bank insurance fund. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") significantly expanded interstate banking opportunities in Wisconsin. Under a Wisconsin law enacted in 1995 in response to the Riegle-Neal Act, subject to certain exceptions for banks which have not been in existence and in continuous operations for at least five years, bank holding companies may acquire control of an existing or DE NOVO bank in Wisconsin upon application and approval by the Division. Under the Riegle-Neal Act, banks will also be permitted to operate interstate branches beginning on June 1, 1997. The effect of the new Wisconsin banking provisions will be to increase the level of banking competition for the Bank by broadening the impact of interstate banking within Wisconsin. The activities and operations of the Company and the Bank are subject to a number of other federal and state laws and regulations, including, among others, state usury and consumer credit laws, the Truth-In-Lending Act and Regulation Z, Truth in Savings Act and Regulation DD, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Community Reinvestment Act, anti-redlining legislation and the antitrust laws. MONETARY POLICY The earnings and growth of the Bank, and therefore the Company, are affected by the monetary and fiscal policies of the federal government and governmental agencies. The Board has broad power to expand and contract the supply of money and credit and to regulate the rates which its member banks can pay on time and savings deposits. These broad powers are used to influence inflation and the growth of the economy and directly affect the growth of bank loans, investments and deposits, and may also affect the interest rates charged by banks on loans and paid by banks with respect to deposits. Governmental and Board monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. Management of the Company is not able to anticipate the future impact of such policies and practices on the growth or profitability of the Company. CHANGES IN FEDERAL REGULATORY SCHEME From time to time various formal or informal proposals, including new legislation, relating to, among other things, additional changes with respect to deposit insurance, permitted bank activities and restructuring of the federal regulatory scheme have been made and may be made in the future. Depending on the scope and timing of future regulatory changes, it is possible that there may be a significant impact in the future on the competitive circumstances which will affect the Company. At this time, the Company is unable to predict whether any such changes will be adopted or the effect of any such changes on its future business or operations. EXECUTIVE OFFICERS The executive officers of the Company as of March 18, 1997, their ages and principal occupations during the last five years are set forth below. Gordon C. Gullickson, 68 President of the Company and the Bank. Kenneth M. Selner, 50 Vice President & Secretary of the Company; Executive Vice President of the Bank. Todd R. Toppen, 38 Treasurer of the Company; Vice President of the Bank since 1994, Assistant Vice President 1988 to 1993. ITEM 2. PROPERTIES. The Company shares office space with the Bank. The Bank operates a total of four office locations. The Bank owns each of the buildings in which it conducts operations and each building is occupied solely by the Bank. All buildings are designed for commercial banking operations and are suitable for current operations and anticipated future needs. Each facility contains teller and loan facilities and drive-up teller stations. The Bank's main office was constructed in 1962 and extensively renovated in 1992. Each other facility was constructed by the Bank since 1989. ITEM 3. LEGAL PROCEEDINGS. As of the date of this report, the Company was not involved in any legal proceedings. In the ordinary course of its business, the Bank is engaged from time to time in legal actions as both a plaintiff and a defendant. In some cases, claims for significant compensatory or punitive damages, or unspecified damages, may be made against the Bank. As of the date of this report, the Bank was not a party to any legal or administrative proceedings which, in the opinion of Bank management, would have a material adverse effect on the financial condition of the Bank. As of the date of this report, no director, officer, affiliate of the Bank, or any associate of any such person, is an adverse party in any legal proceedings involving the Bank. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS. MARKET There is no active public market for the Company's common stock. Transactions in the Company's common stock are sporadic and limited and effected at prices determined by the buyer and seller. Management is not advised as to the terms of all such transactions. HOLDERS As of December 31, 1996 there were approximately 974 holders of record of the Company's common stock. DIVIDENDS Per share dividends declared by the Company, during 1996 and 1995 are as follows:
1996 1995 Second Quarter $.33 $.30 Fourth Quarter $.52 $.52
The Company's source of funds for the payment of dividends is dividends paid by the Bank. The payment of dividends by the Bank is regulated by state and federal law. There are no contractual limits presently in effect which limit the Bank's ability to pay dividends to the Company or which limit the Company's ability to pay dividends to its shareholders. ITEM 6. SELECTED FINANCIAL DATA. The following table presents consolidated financial data of the Company and its subsidiary. This information and the following discussion and analysis should be read in conjunction with other financial information presented elsewhere in this report. FINANCIAL SUMMARY AT PERIOD END
($ in thousands, except per share amounts) 1991 1992 1993 1994 1995 1996 Interest Income $ 10,954 $ 11,136 $ 11,103 $ 11,555 $ 13,654 $ 14,824 Net Interest Margin 4,686 5,703 6,347 6,619 6,599 7,055 Net Income 1,466 1,778 2,100 1,951 2,020 2,157 Total Assets 132,619 146,320 158,108 171,470 190,781 204,158 Mortgages 54,075 59,653 70,194 75,953 84,221 93,450 Total Capital Base 12,628 14,055 16,015 16,742 19,232 20,214 Shareholders Equity 11,743 12,958 14,644 15,098 17,452 18,289 Income from operations per share $ 1.67 $ 2.01 $ 2.28 $ 2.17 $ 2.24 $ 2.39 Cash dividends per share .65 .65 .75 .80 .82 .85 Book value per share 13.39 14.76 16.32 16.73 19.34 20.42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion relates to PSB Holdings, Inc. (the "Company") and its subsidiary, Peoples State Bank (the "Bank"). The Company was formed in 1995 and, unless noted, references to "the Company" mean the Company and the Bank on a consolidated basis. Years prior to 1995 refer to the Bank. LIQUIDITY Management has no knowledge of any trends, demands, commitments, events or uncertainties which could result in the Company's liquidity increasing or decreasing. The availability of adequate funds to meet loan commitments, deposit withdrawals, and maturing liabilities is a result of asset and liability management. The liquidity to meet these demands is provided by maturing assets, both short and long-term. Another contributing factor is the availability of funds from external sources, primarily short-term deposits. Liquidity posture provided by external sources of funds such as certificates of deposit of $100,000 or more, short-term borrowed funds, and other managed liabilities changes from time to time depending on the need to maintain short-term money market assets. It often is a matter of matching the cost of a short-term liability to the benefit of an available short-term earning asset. CAPITAL One of the primary objectives of management always has been to maintain a conservative capital position, one sufficient to endure economic and financial disturbances without greatly impairing financial strength. Management has always tried to maintain high quality assets to generate sufficient earnings to support not only asset growth, but also increasingly larger payments of dividends to shareholders. RESULTS OF OPERATIONS Net income for 1996 was $2,156,597 compared with $2,020,170 in 1995, and $1,950,689 in 1994. Net income increased 6.7% in 1996 from 1995 and increased 3.6% in 1995 from 1994. Earnings per share was $2.39 in 1996 compared to $2.24 in 1995, and $2.17 in 1994. The Bank's funding liabilities reprice quickly, while Bank assets reprice over a longer horizon. During unstable rates, something usually lags. Bank deposits are interest sensitive so rising rates tend to reduce balances making less money for loans and investments. Return on assets amounted to 1.10% in 1996, 1.13% in 1995, and 1.21% in 1994. Return on average common stockholders' equity amounted to 11.98% in 1996 compared to 12.15% in 1995, and 12.66% in 1994. Loans to deposits ratio was approximately 76% in 1996, 77% in 1995 and 79% in 1994. STATISTICAL INFORMATION The principal sources of income for the Bank are interest and fees on loans, interest on short-term investments and interest on securities. The total operating income and the percentage of each to total operating income is shown below:
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 Item of Income Interest and fees on loans and short-term borrowings 74.3% 75.2% 73.2% 73.3% 71.0% Interest on securities 18.2% 18.8% 21.0% 21.1% 23.9% Total operating income $15,814 $14,336 $12,218 $11,762 $11,722 (000's omitted)
The Bank does not have any foreign deposits or operations. INTEREST INCOME & EXPENSE VOLUME & RATE CHANGE
1996 compared to 1995 1995 compared to 1994 1994 compared to 1993 1993 compared to 1992 increase (decrease) increase (decrease) increase (decrease) increase (decrease) due to (1) due to (1) due to (1) due to (1) ($ in thousands) VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET Interest earned on: Loans (2) $ 994 (30) 964 $1,244 608 1,852 $ 643 (305) 338 $1 ,299 (1,101) 198 Taxable investment securities 227 (14) 213 72 47 119 261 (151) 110 (114) (163) (277) Non-taxable investment securities (2) 31 (51) (20) 29 (16) 13 4 ( 14) ( 10) 89 (112) (23) Other interest income ( 1) ( 2) ( 3) 74 51 125 4 11 15 (15) ( 5) (20) Total 1,251 (97) 1,154 1,419 690 2,109 912 (459) 453 1,259 (1,381) (122) Interest paid on: Savings and demand deposits 101 (64) 37 (58) 213 155 157 ( 35) 122 231 (227) 4 Time deposits 616 94 710 795 984 1,779 160 (174) ( 14) (56) (692) (748) Short-term borrowings (29) ( 4) ( 33) 55 130 185 44 28 72 159 ( 92) 67 Total 688 26 714 792 1,327 2,119 361 (181) 180 334 (1,011) (677) Net interest earnings $ 563 (123) 440 $ 627 (637) (10) $ 551 ( 278) 273 $ 925 ( 370) 555 (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of change in each. (2) The amount of interest income on non-taxable loans and investment securities has been adjusted to its fully taxable equivalent using a 34% tax rate.
SELECTED FINANCIAL DATA
Year Ended December 31 ($ IN THOUSANDS) 1996 1995 1994 1993 1992 Income Statement Data: Interest Income $14,824 $13,654 $11,555 $11,103 $11,136 Interest Expense 7,769 7,055 4,936 4,757 5,433 Net Income 2,157 2,020 1,951 2,100 1,778 Earnings Per Average Share of Common Stock 2.39 2.24 2.17 2.38 2.01 Dividends Per Share on Common Stock 0.85 0.82 0.80 0.75 0.65 ($ IN THOUSANDS) Balance Sheet Data: Total Assets $204,158 $190,781 $171,470 $158,108 $146,320 Total Deposits 178,129 160,445 140,476 133,769 126,044 Common Equity 1,805 1,805 1,805 1,795 1,756 Total Capitalization 18,289 17,452 15,098 14,644 12,958 Book Value Per Share of Common Stock 20.42 19.34 16.73 16.32 14.76
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND DIFFERENTIALS
1996 1995 1994 Average Yield/ Average Yield/ Average Yield/ ($ IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE Assets Interest earning assets Loans (1)(2)(3) $130,783 $11,766 9.00% $119,657 $10,802 9.03% $105,209 $ 8,950 8.51% Taxable investment securities 38,239 2,376 6.21% 35,428 2,163 6.11% 34,045 2,029 5.96% Nontaxable investment securities(2) 11,202 836 7.46% 10,698 856 8.00% 10,242 843 8.19% Federal funds sold 2,494 139 5.57% 2,515 142 5.65% 757 32 4.23% Total (2) 182,718 15,117 8.27% 168,298 13,963 8.30% 150,253 11,854 7.89% Non-interesting earning assets Cash and due from banks 8,790 7,958 7,946 Premises & equip. - net 3,742 2,637 2,040 Other assets 3,046 2,212 2,004 Less: Allow. loan loss (1,875) (1,751) (1,506) Total 196,421 179,354 160,737 Liabilities & Stockholders' Equity Interest Bearing liabilities Savings and demand deposits 47,179 1,620 3.43% 44,708 1,583 3.54% 46,594 1,428 3.06% Time deposits 94,179 5,536 5.88% 83,518 4,826 5.78% 66,241 3,047 4.60% Short-term borrowings 10,169 613 6.03% 10,732 646 6.02% 9,597 461 4.80% Total 151,527 7,769 5.13% 138,958 7,055 5.08% 122,432 4,936 4.03% Non-interest bearing liabilities Demand deposits 24,729 22,594 21,950 Other liabilities 2,169 1,176 951 Stockholders' equity 17,996 16,626 15,404 Total 196,421 179,354 160,737 Net interest income 7,348 6,908 6,918 Rate Spread 3.14% 3.22% 3.86% Net yield on interest earnings assets 4.02% 4.13% 4.60% (1) For purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding. (2) The amount of interest income on non-taxable investment securities and loans has been adjusted to its fully taxable equivalent. (3) Loan fees are included in total interest income as follows: 1996-$80, 1995-$55, 1994-$77, 1993-$152, 1992-$262.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND DIFFERENTIALS (Continued)
1993 1992 Average Yield/ Average Yield/ ($ IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE Assets Interest earning assets Loans (1)(2)(3) $ 97,705 $ 8,614 8.82% $ 84,296 $ 8,416 9.99% Taxable investment securities 29,706 1,916 6.45% 31,341 2,193 7.00% Nontaxable investment securities(2) 10,299 853 8.28% 9,347 876 9.37% Federal funds sold 615 17 2.76% 1,038 37 3.56% Total (2) 138,325 11,400 8.24% 126,022 11,522 9.14% Non-interesting earning assets Cash and due from banks 7,885 7,342 Premises & equip. - net 2,011 1,919 Other assets 1,799 1,915 Less: Allow. loan loss (1,228) (1,018) Total 148,792 136,180 Liabilities & Stockholders' Equity Interest Bearing liabilities Savings and demand deposits 41,588 1,306 3.14% 35,326 1,302 3.68% Time deposits 62,953 3,061 4.86% 63,885 3,809 5.96% Short-term borrowings 8,622 389 4.51% 5,769 322 5.58% Total 113,163 4,756 4.20% 104,980 5,433 5.17% Non-interest bearing liabilities Demand deposits 20,784 17,620 Other liabilities 916 1,028 Stockholders' equity 13,929 12,552 Total 148,792 136,180 Net interest income 6,644 6,089 Rate Spread 4.04% 3.97% Net yield on interest earnings assets 4.82% 4.83% (1) For purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding. (2) The amount of interest income on non-taxable investment securities and loans has been adjusted to its fully taxable equivalent. (3) Loan fees are included in total interest income as follows: 1996-$80, 1995-$55, 1994-$77, 1993-$152, 1992-$262.
SUMMARY OF LOAN LOSSES EXPERIENCE The following table summarizes loan balances at the end of each period, changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off, by loan category and additions to the allowance which have been charged to expense.
YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992 Average balance of loans for period ($ in thousands) $ 130,783 $ 119,657 $ 105,027 $ 97,705 $ 84,296 Allowance for loan losses at beginning of period $1,780,893 $1,643,646 $1,370,621 $1,096,654 $ 885,259 Loans charged off Commercial & Industrial 47,809 54,088 27,864 95,561 78,299 Agricultural 0 0 0 0 10,000 Real Estate - Mortgage 0 0 10,711 0 0 Installment & Other Consumer Loans 25,133 15,174 10,100 11,151 21,035 Total Charge Offs (72,942) (69,262) (48,675) (106,712) (109,334) Recoveries on loans previously charged off Commercial & Industrial 33,236 22,168 0 22,583 11,000 Agricultural 0 0 0 0 0 Real Estate - Mortgage 0 0 11,810 0 0 Installment & Other Consumer Loans 3,499 4,341 9,890 8,096 9,729 Total Recoveries 36,735 26,509 21,700 30,679 20,729 Net loans charged off (36,207) (42,753) (26,975) (76,033) (88,605) Additions charged to operations 180,000 180,000 300,000 350,000 300,000 Allowance for loan losses at end of period $1,924,686 $1,780,893 $1,643,646 $1,370,621 $1,096,654 Ratio of net charge offs during period to average loans outstanding 0.03% 0.04% 0.03% 0.08% 0.11%
The following table presents information concerning the aggregate amount of non-performing loans. Non-performing loans include loans accounted for on a non-accrual basis and loans contractually past due ninety days or more as to interest or principal payments, but not included in the non-accrual loans.
DECEMBER 31, 1996 1995 1994 1993 1992 ($ in thousands) Loans on a non-accrual basis $247 $376 $646 $1,374 $681 Loans contractually past due ninety days or more as to interest or principal payments $275 $ 0 $ 0 $ 7 $ 91
The gross interest income that would have been recognized on non- accrual loans in 1996 if the loans had been current in accordance with their original terms was approximately $23,000. The Bank's rollover policy is such that notes will be written with limited maturities if they are not in conjunction with amortized payments, or otherwise tied to a variable rate, to allow the bank to restructure the terms and interest rate of the notes to correspond with the Bank's cost of funds. It is the policy of the Bank to place a loan on non-accrual status when the loan's principal and accrued interest is not expected to be collected in full or when the loan becomes contractually past due ninety days or more as to principal or interest. The agricultural related loans comprised 1.3% of the Bank's total loan portfolio as of December 31, 1996. Management feels that the overall quality of the agricultural portfolio is good and that the amount allocated in the allowance for loan losses for this type of loan is adequate. The Bank has no foreign loans outstanding. As of December 31, 1996, there were no loan concentrations to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. By maintaining a diversity of types of borrowers, the Bank has attempted to prevent losses due to economic difficulties of certain industries. The allowance for loan losses is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. In determining the additions to the allowance charged to operating expenses, management considered historical loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, discounted cash flows of expected payments on impaired loans, and current economic conditions that may affect the borrower's ability to pay. Management does not expect the level of charge-offs in any of the loan categories to vary significantly from previous years. The ratio of net charge-offs to average loans outstanding was .03% .04%, .03%, .08%, .11% from 1996 through 1992 respectively. MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY The maturity distribution and interest rate sensitivity of all loans (excluding those loans in nonaccrual status) at December 31, 1996 are:
MATURITY Over one ($ in thousands) One year year thru Over OR LESS FIVE YEARS FIVE YEARS Commercial, industrial, and financial $ 23,647 $ 4,569 $ 256 Agricultural 572 1,248 0 Real estate mortgage 45,524 46,407 1 ,331 Installment & other consumer loans 6,958 6,963 289 Total $ 76,701 $ 59,187 $ 1,876
INTEREST SENSITIVITY Amounts of loans due after one year with: Fixed Variable ($ in thousands) RATE RATE Commercial, industrial, and financial $ 4,675 $ 150 Agriculture 1,248 0 Real estate mortgage 34,543 13,195 Installment & other consumer loans 6,644 608 Total $47,110 $13,953
The amounts of loans outstanding at the indicated dates are shown in the following table according to the type of loan.
DECEMBER 31 1996 1995 1994 1993 1992 ($ in thousands) Commercial, industrial and financial $ 28,531 $ 27,291 $ 23,821 $ 24,432 $18,848 Agricultural 1,820 2,356 2,899 2,566 1,310 Real estate: Mortgage 93,450 84,221 75,994 70,193 59,653 Installment and other consumer loans 14,210 11,457 9,960 8,489 9,537 Total $138,011 $125,325 $112,674 $105,680 $89,348
INVESTMENT PORTFOLIO The carrying amounts of investment securities at the dates indicated are summarized as follows:
($ in thousands) DECEMBER 31 1996 1995 1994 1993 1992 U.S. Treasury and other U.S. Government agencies and corporations $39,224 $ 34,597 $ 35,573 $ 31,327 $ 32,194 State and political subdivisions (domestic) 11,714 10,333 10,981 10,259 9,794 Other securities 647 45 94 358 801 Total $51,585 $ 44,975 $ 46,648 $ 41,944 $ 42,789
RELATIVE MATURITIES & WEIGHTED AVERAGE INTEREST RATES The following table shows the relative maturities and weighted average interest rates on a tax equivalent basis of investment securities as of December 31, 1996.
After one After two After five Within but within but within but within Over ($ in thousands) ONE YEAR TWO YEARS FIVE YEARS TEN YEARS TEN YEARS AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD U.S. Treasury $1,762 6.41% $1,963 5.04% $ 1,022 6.87% $ -- -- $ -- -- U.S. Government agencies and corporations 4,544 6.80% 5,793 6.08% 20,656 6.37% 1,818 6.58% 1,667 6.83% State and political subdivisions (domestic) 2,061 7.64% 1,493 7.10% 4,550 7.11% 3,609 7.05% -- -- Other bonds, notes, and debentures 647 2.30% -- -- -- -- -- -- -- -- Total $9,014 6.90% $9,249 6.02% $26,228 6.52% $5,427 6.89% $1,667 6.83%
DEPOSITS The average balances of deposits and the average rate paid on these deposits during the years ended December 31, 1996, 1995, 1994, 1993, and 1992 are:
1996 1995 1994 1993 1992 ($ in thousands) BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE Non-interest bearing demand deposits $ 24,729 $ 22,594 $ 21,950 $ 20,784 $ 17,620 Interest bearing demand and savings deposits 47,179 3.43% 44,708 3.54% 46,593 3.06% 41,588 3.14% 35,326 3.68% Time deposits 94,179 5.88% 83,518 5.78% 66,241 4.60% 62,953 4.86% 63,885 5.96% Total $166,087 $150,820 $134,784 $125,325 $116,831
The amount of time deposits in amounts of $100,000 or more and outstanding as of December 31, 1996 is approximately $19,384,000. Their maturity distribution is as follows: - three months or less $ 7,423,000 - over three months and through twelve months $10,865,000 - over one year through five years $ 996,000 - over five years $ 100,000 The Bank does not have any deposits in foreign banking offices. The ratio of net income to average total assets and shareholders' equity and certain other ratios are presented below for the years ended December 31, 1996, 1995, 1994, 1993, and 1992.
1996 1995 1994 1993 1992 Net income as a percentage of: Average total assets 1.10% 1.13% 1.21% 1.41% 1.31% Average shareholders' equity 11.98% 12.15% 12.66% 15.08% 14.17% Dividend payout ratio (dividends declared divided by net income) 35.40% 36.63% 37.00% 31.78% 32.08% Average shareholders' equity to average 9.16% 9.27% 9.58% 9.36% 9.22% total assets
SHORT-TERM BORROWINGS The comparison of short-term borrowings as of December 31, follows:
1996 1995 1994 1993 1992 Federal funds purchased and securities sold under repurchase agreement $5,766,631 $11,099,498 $14,210,657 $8,418,867 $5,978,661
The following information relates to federal funds purchased and securities sold under repurchase agreements for the years ended December 31:
1996 1995 1994 1993 1992 As of end of year: Weighted average rate 5.53% 6.18% 5.52% 4.64% 5.15% For the year: Maximum amount outstanding $15,503,184 $13,410,236 $14,210,657 $8,377,335 $6,053,349 Average amount outstanding $10,168,909 $10,732,363 $ 9,594,480 $7,492,218 $5,480,885 Weighted average rate 6.03% 6.00% 4.80% 4.69% 5.68%
SUMMARY QUARTERLY FINANCIAL INFORMATION The following is a summary of the quarterly results of operations for the years ended December 31, 1996 and 1995.
Three months ended March 31 June 30 September 30 December 31 ($ in thousands, except per share data) 1996 Interest Income $3,644 $3,624 $3,722 $3,834 Interest expense 1,919 1,912 1,960 1,978 Net interest income 1,725 1,712 1,762 1,856 Provision for loan losses 45 45 45 45 Net income applicable to common stock 656 495 617 389 Earnings per common share 0.73 0.55 0.68 0.43 1995 Interest Income $3,210 $3,366 $3,477 $3,601 Interest expense 1,535 1,772 1,839 1,909 Net interest income 1,675 1,594 1,638 1,692 Provision for loan losses 75 75 15 15 Net income applicable to common stock 528 453 606 433 Earnings per common share 0.58 0.51 0.67 0.48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITOR'S REPORT Board of Directors PSB Holdings, Inc. Wausau, Wisconsin We have audited the accompanying consolidated balance sheets of PSB HOLDINGS, INC. And Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the three years ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PSB HOLDINGS, INC. And Subsidiary at December 31, 1996 and 1995, and the results of their operations and their cash flows for the three years ended December 31, 1996 in conformity with generally accepted accounting principles. As described in Note 3 to the consolidated financial statements, in 1996 the Company changed its method of accounting for mortgage servicing rights and impairment of long-lived assets. In 1995, the Company changed its method of accounting for impaired loans. In 1994 the Company changed its method of accounting for investment securities and post retirement benefits other than pensions. WIPFLI ULLRICH BERTELSON LLP January 30, 1997 Wausau, Wisconsin PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
1996 1995 ASSETS Cash and cash equivalents $ 10,152,277 $ 10,868,428 Federal funds sold 5,683,000 Investment securities: Held to maturity (fair values of $11,762,878 and $10,428,735, respectively) 11,713,698 10,333,193 Available for sale (at fair value) 39,871,099 34,642,576 Total loans 138,011,133 125,324,694 Less - Allowance for loan losses 1,924,686 1,780,893 Net loans 136,086,447 123,543,801 Premises and equipment 3,701,187 3,444,725 Other assets 2,633,704 2,265,350 TOTAL ASSETS $204,158,412 $190,781,073 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing deposits $ 28,486,255 $ 26,559,435 Interest-bearing deposits 149,642,648 133,885,157 Total deposits 178,128,903 160,444,592 Short-term borrowings 5,766,631 11,099,498 Other liabilities 1,973,954 1,785,419 Total liabilities 185,869,488 173,329,509 Stockholders' equity: Common stock - No-par value with a stated value of $2 per share: Authorized - 1,000,000 shares Issued - 902,425 shares 1,804,850 1,804,850 Additional paid-in capital 7,158,505 5,926,505 Retained earnings 9,649,112 9,487,936 Net unrealized gain (loss) on securities available for sale (8,543) 232,273 Treasury stock, at cost - 7,000 shares (315,000) Total stockholders' equity 18,288,924 17,451,564 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 204,158,412 $190,781,073 See accompanying notes to consolidated financial statements.
PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 Interest income: Interest and fees on loans $ 11,757,028 $ 10,783,294 $ 8,937,418 Interest on investment securities: Taxable 2,330,456 2,129,632 2,010,603 Tax-exempt 552,324 564,702 556,435 Other interest and dividend income 184,151 175,908 50,676 Total interest income 14,823,959 13,653,536 11,555,132 Interest expense: Deposits 7,156,077 6,408,608 4,475,535 Short-term borrowings 612,585 646,238 460,851 Total interest expense 7,768,662 7,054,846 4,936,386 Net interest income 7,055,297 6,598,690 6,618,746 Provision for loan losses 180,000 180,000 300,000 Net interest income after provision for loan losses 6,875,297 6,418,690 6,318,746 Other income: Service fees 518,271 468,219 502,593 Investment security gains (losses) 26,415 (1,596) Gain on sale of other real estate 202,398 Other operating income 269,486 188,055 161,542 Total other income 990,155 682,689 662,539 Other expenses: Salaries and related benefits 2,701,445 2,313,123 2,284,603 Occupancy expenses 708,288 526,912 474,017 Federal deposit insurance premiums 2,000 160,621 289,833 Data processing 195,261 190,864 175,151 Director expense 163,923 138,730 122,499 Other operating expenses 943,938 859,959 810,493 Total other expenses 4,714,855 4,190,209 4,156,596 Income before income taxes 3,150,597 2,911,170 2,824,689 Provision for income taxes 994,000 891,000 874,000 Net income $ 2,156,597 $ 2,020,170 $ 1,950,689 Earnings per share $ 2.39 $ 2.24 $ 2.17 Weighted average shares outstanding 900,641 902,425 900,341 See accompanying notes to consolidated financial statements.
PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 1996, 1995 and 1994
Unrealized Gain (Loss) on Additional Securities Common Paid-In Retained Available Treasury STOCK CAPITAL EARNINGS FOR SALE STOCK Balance, January 1, 1994 $ 1,794,710 $ 4,986,735 $ 7,863,006 $ $ Adoption of SFAS No. 115 369,752 Net income 1,950,689 Employee stock options exercised 10,140 55,770 Transferred from retained earnings 81,000 (81,000) Cash dividend (at $.80 per share) (721,940) Unrealized loss on securities available for sale - Net of tax (1,210,543) Balance December 31, 1994 1,804,850 5,123,505 9,010,755 (840,791) Net income 2,020,170 Transferred from retained earnings 803,000 (803,000) Cash dividend (at $.82 per share) (739,989) Unrealized gain on securities available for sale - Net of tax 1,073,064 Balance, December 31, 1995 1,804,850 5,926,505 9,487,936 232,273 Net income 2,156,597 Transferred from retained earnings 1,232,000 (1,232,000) Cash dividend (at $.85 per share) (763,421) Purchase of treasury stock (315,000) Unrealized loss on securities available for sale - Net of tax (240,816) Balance, December 31, 1996 $ 1,804,850 $ 7,158,505 $ 9,649,112 $ (8,543) $ (315,000) See accompanying notes to consolidated financial statements.
PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 Cash flows from operating activities: Net income $ 2,156,597 $ 2,020,170 $ 1,950,689 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and net amortization 448,472 315,897 371,830 Benefit from deferred income taxes (52,300) (41,300) (80,000) Provision for loan losses 180,000 180,000 300,000 Net (gain) loss on sale of other real estate (202,398) 36,364 Changes in operating assets and liabilities: Other assets (366,173) (97,041) (234,985) Other liabilities 188,535 101,168 408,591 Net cash provided by operating activities 2,352,733 2,478,894 2,752,489 Cash flows from investing activities: Proceeds from sale and maturities of: Held to maturity securities 2,565,079 2,130,000 1,301,222 Available for sale securities 13,109,137 10,309,545 9,328,430 Payment for purchase of: Held to maturity securities (3,963,240) (1,492,188) (2,298,863) Available for sale securities (18,583,686) (7,821,452) (15,393,672) Net increase in loans (12,507,646) (12,693,393) (6,906,080) Decrease (increase) in federal funds sold 5,683,000 (5,683,000) Capital expenditures (659,051) (1,494,890) (455,139) Proceeds from sale of other real estate 14,500 Net cash used in investing activities (14,341,907) (16,745,378) (14,424,102) Cash flows from financing activities: Net increase in deposits 17,684,311 19,968,223 6,707,470 Proceeds from exercise of stock options 65,910 Net increase (decrease) in short-term borrowings (5,332,867) (3,111,159) 5,791,790 Dividends paid (763,421) (739,989) (721,940) Purchase of treasury stock (315,000) Net cash provided by financing activities 11,273,023 16,117,075 11,843,230 Net increase (decrease) in cash and cash equivalents (716,151) 1,850,591 171,617 Cash and cash equivalents at beginning 10,868,428 9,017,837 8,846,220 Cash and cash equivalents at end $10,152,277 $10,868,428 $ 9,017,837 Supplemental cash flow information: Cash paid during the year for: Interest $ 7,738,779 $ 6,873,206 $ 4,786,513 Income taxes 960,348 935,424 886,372 Noncash investing and financing activities: Loans charged off 72,942 69,262 48,675 Loans refinanced from other real estate (215,000) (115,000) See accompanying notes to consolidated financial statements.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPAL BUSINESS ACTIVITY The Company, through its subsidiary, operates a full service financial institution with a primary marketing area including, but not limited to, the greater Wausau, Wisconsin area and Marathon County. It provides a variety of banking products. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of PSB Holdings, Inc., parent company of Peoples State Bank and the bank's wholly- owned subsidiary, PSB Investments, Inc., after elimination of significant intercompany accounts and transactions. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to the general practices within the banking industry. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing deposits in correspondent banks, and interest- bearing deposits in money market funds. INVESTMENT SECURITIES Investment securities are assigned an appropriate classification at the time of purchase in accordance with management's intent. Securities held to maturity represent those securities for which the Company has the positive intent and ability to hold to maturity. Accordingly, these securities are carried at cost adjusted for amortization of premium and accretion of discount calculated using the effective yield method. Unrealized gains and losses on securities held to maturity are not recognized in the financial statements. Trading securities include those securities bought and held principally for the purpose of selling them in the near future. The Company has no trading securities. Securities not classified as either securities held to maturity or trading securities are considered available for sale and reported at fair value determined from estimates of brokers or other sources. Unrealized gains and losses are excluded from earnings but are reported as a separate component of stockholders' equity, net of income tax effects. Any gains and losses on sales of securities are recognized at the time of sale using the specific identification method. INTEREST AND FEES ON LOANS Interest on loans is credited to income as earned. Interest income is not accrued on loans where management has determined collection of such interest doubtful. When a loan is placed on nonaccrual status, previously accrued but unpaid interest deemed uncollectible is reversed and charged against current income. Fees received on loans are credited to income when received. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses in the loan portfolio. Management's NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) determination of the adequacy of the allowance is based upon reviews of individual credits, recent loss experience, current economic conditions, composition of the loan portfolio, and other relevant factors. Provisions for loan losses and recoveries on loans previously charged off are added to the allowance. PREMISES AND EQUIPMENT Premises and equipment are stated at cost. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of property and equipment are reflected in income. Depreciation is computed principally on the straight-line method and is based on the estimated useful lives of the assets varying from 5 to 40 years on buildings, 5 to 20 years on equipment, and 3 years on software. OTHER REAL ESTATE Other real estate is carried at the lower of cost or realizable fair market value at the date of transfer. INCOME TAXES Deferred income taxes have been provided under the liability method prescribed by Statement of Financial Accounting Standards (SFAS) No. 109. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences are expected to reverse. Deferred tax expense is the result of changes in the deferred tax asset and liability. ADVERTISING AND PROMOTIONAL COSTS Costs related to Company advertising and promotion are expensed when paid. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. FUTURE ACCOUNTING CHANGES The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," in June 1996. SFAS No. 125 requires use of a financial-components approach to recognize financial assets and liabilities. Under this approach, after a transfer of financial assets, the Company will recognize the financial and servicing assets and liabilities based on whether control over the asset and liability was maintained or surrendered. This statement is required to be adopted by the Company for transfers and servicing of financial assets and extinguishments of liabilities effective January 1, 1997. The adoption of SFAS No. 125 is not anticipated to have a significant impact on the Company's financial condition or results of operations once implemented. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE Earnings per share are based upon the weighted average number of shares outstanding, which includes the common stock equivalents applicable to shares issuable under the stock options granted. NOTE 2 - FORMATION OF THE HOLDING COMPANY During 1995, a bank holding company, PSB Holdings, Inc. (the Company) was formed to acquire the stock of Peoples State Bank (the bank). On May 24, 1995, the existing bank stockholders voted to exchange their shares of the bank for shares of the Company. The Peoples State Bank stockholders received 902,425 shares of the Company's common stock in exchange for all the outstanding shares of Peoples State Bank. This business combination has been accounted for as a pooling of interests and accordingly, the operations of Peoples State Bank are included for all years presented. NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLES Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long- Lived Assets to be Disposed of." There was no impact on net income as a result of the adoption of SFAS No. 121. The Company had no long-lived assets considered to be impaired at the time of adopting the standard. Effective January 1, 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights." Under this SFAS, the Company is required to record an asset for the value of retained servicing rights on mortgages sold. This asset is amortized to expense as serviced loan principal is paid. The adoption had no effect on the financial statements during the year of adoption. Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." There was no impact on net income as a result of the adoption of SFAS No. 114 at January 1, 1995. Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under this SFAS, the Company must classify its investment securities into one of three different classifications. Investments classified as available for sale must be carried at fair market value and the Company must reflect market value changes in its equity section. The impact of adoption of this statement at January 1, 1994 was to increase the value of securities reflected on the balance sheet by approximately $583,000, increase deferred tax liabilities by approximately $213,000, and increase stockholders' equity by approximately $370,000. Effective January 1, 1994, the Company adopted SFAS No. 106, "Employers' Accounting for Post Retirement Benefits Other Than Pensions." The adoption had no effect on the financial statements. NOTE 4 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS Cash and cash equivalents in the amount of $731,000 are restricted at December 31, 1996 to meet the reserve requirements of the Federal Reserve System. NOTE 5 - INVESTMENT SECURITIES The amortized cost and estimated fair values of investment securities are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair COST GAINS LOSSES VALUE DECEMBER 31, 1996 Securities held to maturity: Obligations of states and political subdivisions $ 11,713,698 $ 88,365 $ 39,185 $ 11,762,878 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 39,233,521 $ 247,027 $ 256,827 $ 39,223,721 Other equity securities 647,378 647,378 Totals $ 39,880,899 $ 247,027 $ 256,827 $ 39,871,099 DECEMBER 31, 1995 Securities held to maturity: Obligations of states and political subdivisions $ 10,333,193 $ 118,919 $ (23,377) $ 10,428,735 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 34,227,943 $ 459,033 $ (89,778) $ 34,597,198 Other equity securities 45,378 45,378 Totals $ 34,273,321 $ 459,033 $ (89,778) $ 34,642,576
NOTE 5 - INVESTMENT SECURITIES (CONTINUED) The amortized cost and estimated fair values of debt securities held to maturity and securities available for sale at December 31, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Fair SECURITIES HELD TO MATURITY COST VALUE Due in one year or less $ 2,060,743 $ 2,074,276 Due after one year through five years 6,177,357 6,219,202 Due after five years through ten years 3,475,598 3,469,400 Totals $ 11,713,698 $ 11,762,878 SECURITIES AVAILABLE FOR SALE Due in one year or less $ 6,252,818 $ 6,305,450 Due after one year through five years 28,563,827 28,486,863 Due after five years through ten years 999,379 999,379 Totals 35,816,024 35,791,692 Mortgage-backed securities 3,417,497 3,432,029 Totals $ 39,233,521 $ 39,223,721
Securities with an approximate carrying value of $9,353,917 and $16,229,069 at December 31, 1996 and 1995, respectively, were pledged to secure public deposits, short-term borrowings, and for other purposes required by law. During 1996, no investment securities were sold. Proceeds from securities sales in 1995 were $4,543,438. Gross gains of $26,415 were realized on those sales. Proceeds from securities sales during 1994 were $1,248,672. Gross losses of $1,596 were realized on those sales. As a member of the Federal Home Loan Bank (FHLB) system, the banking subsidiary is required to hold stock in the FHLB based on asset size. This stock is recorded at cost which approximates fair value. Transfer of the stock is substantially restricted. Equity securities include $602,000 of FHLB stock at December 31, 1996. NOTE 6 - LOANS The composition of loans is as follows:
1996 1995 Commercial $ 30,350,578 $ 29,647,312 Real estate 93,450,237 84,220,917 Consumer 14,210,318 11,456,465 Total loans $138,011,133 $125,324,694
The Company, in the ordinary course of business, grants loans to its executive officers and directors, including their families and firms in which they are principal owners. Substantially all loans to executive officers and directors were made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and did not involve more than the normal risk of collectibility or present other unfavorable features. Activity in such loans is summarized below:
1996 1995 Loans outstanding at beginning of year $ 2,757,077 $ 1,880,372 New loans 474,182 2,165,260 Repayment (636,712) (1,288,555) Loans outstanding at end of year $ 2,594,547 $ 2,757,077
The allowance for loan losses should include specific allowances related to loans which have been judged to be impaired and which fall within the scope of SFAS No. 114. A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan agreement. These specific allowances are based on discounted cash flows of expected future payments using the loan's initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. NOTE 6 - LOANS (CONTINUED) An analysis of impaired loans follows:
1996 1995 AT DECEMBER 31, Nonaccrual $ 42,769 $ Accruing income 269,537 545,590 Total impaired loans 312,306 545,590 Less - Allowance for loan losses 20,000 53,623 Net investment in impaired loans $ 292,306 $ 491,967 YEARS ENDED DECEMBER 31, Average recorded investment, net of allowance for loan losses $ 304,400 $ 590,000 Interest income recognized $ 23,001 $ 63,481
Since the Company evaluates the overall adequacy of the allowance for loan losses on an ongoing basis, the adoption of SFAS No. 114 during 1995 did not affect the amount of the allowance for loan losses or the existing income recognition and charge-off policies for nonperforming loans. The Company continues to maintain a general allowance for loan losses for loans outside of the scope of SFAS No. 114. The allowance for loan losses is maintained at a level which management believes is adequate for possible loan losses. Management periodically evaluates the adequacy of the allowance using the Company's past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change. An analysis of the allowance for loan losses for the three years ended December 31, follows:
1996 1995 1994 Balance January 1 $ 1,780,893 $ 1,643,646 $ 1,370,621 Provision charged to operating expense 180,000 180,000 300,000 Recoveries on loans 36,735 26,509 21,700 Loans charged off (72,942) (69,262) (48,675) Balance December 31 $ 1,924,686 $ 1,780,893 $ 1,643,646
NOTE 7 - PREMISES AND EQUIPMENT An analysis of premises and equipment follows:
1996 1995 Land $ 570,946 $ 570,946 Buildings and improvements 2,949,856 2,937,458 Furniture and equipment 2,414,111 1,715,006 Construction in progress 66,918 Totals 5,934,913 5,290,328 Accumulated depreciation and amortization (2,233,726) (1,845,603) Net book value $ 3,701,187 $ 3,444,725
Depreciation and amortization charged to operating expenses amounted to $402,589 in 1996, $253,596 in 1995, and $229,366 in 1994. NOTE 8 - OTHER REAL ESTATE Included in other assets is other real estate of $27,102 at December 31, 1995. Operating expenses for 1995 and 1994 included charges of $39,708 and $35,691, respectively for expenses related to other real estate. No other real estate was held at December 31, 1996. NOTE 9 - DEPOSITS The book values of deposits consisted of the following at December 31:
1996 1995 Noninterest-bearing checking $ 28,486,255 $ 26,559,435 Interest-bearing checking 8,523,796 7,228,998 Savings 24,352,885 23,077,492 Money market accounts 14,832,676 16,628,362 Time deposits 101,933,291 86,950,305 Total deposits $ 178,128,903 $ 160,444,592
Certificate of deposit accounts with individual balances greater than $100,000 totaled $10,916,231 and $8,033,224 at December 31, 1996 and 1995, respectively. Deposits from Company directors, officers and related parties at December 31, 1996 and 1995 totaled $5,608,102 and $5,028,255, respectively. At December 31, 1996, time deposits have scheduled maturity dates as follows:
1997 $ 89,747,046 1998 8,601,678 1999 3,169,940 2000 414,627 Total $ 101,933,291
NOTE 10 - SHORT-TERM BORROWINGS The composition of short-term borrowings at December 31, follows:
1996 1995 Securities sold under repurchase agreements $ 3,569,631 $ 11,099,498 Federal funds purchased 2,197,000 Total short-term borrowings $ 5,766,631 $ 11,099,498
The following information relates to federal funds purchased and securities sold under repurchase agreements for the years ended December 31:
1996 1995 1994 As of end of year: Weighted average rate 5.53% 6.18% 5.52% For the year: Highest month-end balance $ 15,503,184 $ 13,410,236 $ 14,210,657 Daily average balance 10,101,160 10,732,363 9,594,480 Weighted average rate 6.03% 6.00% 4.80%
NOTE 11 - RETIREMENT PLANS The Company sponsors a defined benefit pension plan which covers substantially all employees. The benefits are based on years of service and the employee's highest consecutive five-year average earnings. Contributions are intended to provide not only benefits attributed for service to date but also for those expected to be earned in the future. The Company's funding policy is to annually contribute the maximum amount deductible for federal income tax purposes. The plan assets are invested primarily in U.S. Treasury and Agency issues, with approximately $375,000 and $100,000 invested in certificates of deposit of the Company's subsidiary at December 31, 1996 and 1995, respectively. Effective January 1, 1997, the Company terminated its defined benefit pension plan. Monthly benefits currently paid to retirees will not be affected by the plan's termination. The Company intends to request regulatory approval to distribute participants' vested defined benefit pension plan balances to participants or into the bank's 401(k) profit-sharing plan. Any shortfall in plan assets under the required distribution of vested benefits will be provided for by the Company. NOTE 11 - RETIREMENT PLANS (CONTINUED) Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," this transaction constitutes a curtailment, which resulted in the recognition of a gain to the Company as of December 31, 1996 determined as follows:
Effect of Before Curtailment After CURTAILMENT (GAIN) LOSS CURTAILMENT Actuarial present value of benefit obligations: Vested benefit obligation $ (1,544,424) $ $(1,544,424) Nonvested benefit obligation (50,786) (50,786) Accumulated benefit obligation (1,595,210) (1,595,210) Effect of projected future compensation levels (635,379) 635,379 Projected benefit obligation (2,230,589) 635,379 (1,595,210) Plan assets at fair value 1,643,439 1,643,439 Projected benefit obligation in excess of plan assets (587,150) 635,379 48,229 Unrecognized net loss 696,176 (634,047) 62,129 Unrecognized net transition asset (62,129) (62,129) Prepaid pension cost recognized in the consolidated balance sheets $ 46,897 $ 1,332 $ 48,229
NOTE 11 - RETIREMENT PLANS (CONTINUED) The following table sets forth the plan's funded status and the amounts reflected in the accompanying balance sheets at December 31:
1996 1995 Actuarial present value of benefit obligations: Vested benefit obligation $ (1,544,424) $ (1,339,794) Nonvested benefit obligation (50,786) (18,811) Accumulated benefit obligation (1,595,210) (1,358,605) Effect of projected future compensation levels (573,313) Projected benefit obligation (1,595,210) (1,931,918) Plan assets at fair value 1,643,439 1,477,034 Plan assets in excess of (less than) projected benefit obligation 48,229 (454,884) Unrecognized net loss 62,129 582,342 Unrecognized net transition asset (62,129) (68,915) Prepaid pension cost recognized in the balance sheet $ 48,229 $ 58,543
Net pension cost for December 31 included the following components:
1996 1995 1994 Service cost - Benefits earned during the period $ 108,080 $ 93,390 $ 73,026 Interest cost on projected benefit obligation 141,725 131,350 110,826 Actual return on plan assets (79,499) (133,375) (29,473) Net amortization and deferral ( 9,345) 47,661 (57,996) Net periodic pension cost $ 160,961 $ 139,026 $ 96,383
The following assumptions were used in determining the projected benefit obligation:
1996 1995 1994 Discount rate 7% 7% 7% Rates of increase in future compensation levels 0% 5% 5% Expected long-term rate of return on assets 7% 7% 7%
The Company also maintains a 401(k) profit-sharing plan for its employees. The Company matches 50 percent of the employee's deferrals up to the first 4 percent of pay deferred. The expense of the plan for the years ended December 31, 1996, 1995, and 1994 was $30,442, $26,846, and $27,330, respectively. The Company also maintains an unfunded retirement plan for its directors. The plan pays directors who have at least 15 years of service at retirement 50 percent of the fees received during their final 5 years as a director. Currently six directors are eligible for benefits. The plan expense totaled $40,000 for the year ended December 31, 1996. There was no plan expense in 1995 or 1994. The liability in the financial statements for this plan at December 31, 1996 was $130,488. NOTE 12 - POST-RETIREMENT HEALTH CARE BENEFITS The Company maintains a post-retirement health care benefit plan which covers the officers of the Company. After retirement, the Company will pay between 25 percent and 50 percent of the health insurance premiums for Company officers. To qualify, an officer must have at least 15 years of service, be at the Company at retirement, and must be at least 62 years of age at retirement. The actual amount paid is based upon years of service. The following table sets forth the plan's funded status and the amounts reflected in the accompanying balance sheets at December 31:
1996 1995 Accumulated post-retirement benefit obligation (APBO): Retirees $ (47,212) $ (47,397) Fully eligible actives (31,299) (27,658) Other actives (113,264) (100,089) Total APBO $ (191,775) $ (175,144) Funded status $ (191,775) $ (175,144) Unrecognized: Prior service cost 95,405 102,801 Net gain (14,409) (14,409) Accumulated post-retirement benefit cost $ (110,779) $ (86,752) The accumulated post-retirement benefit cost is classified on the balance sheets in other liabilities.
Net post-retirement health care cost for December 31 included the following components:
1996 1995 1994 Service cost $ 7,235 $ 5,889 $ 8,481 Interest cost 13,001 11,840 11,120 Amortization of: Prior service cost 7,396 7,396 7,396 Net gain (1,109) Net periodic benefit cost $ 27,632 $ 24,016 $ 26,997
The following assumptions were used to determine the accumulated benefit obligation at December 31:
1996 1995 Discount rate 7.5% 7.5% Health care cost trend rate 7.5% 3.0%
The health care cost trend rate is anticipated to decrease to 5 percent in 0.25 percent per year decrements over a ten-year period.
1996 1995 1994 Impact of 1 percent increase in medical trend rate: On service cost and interest cost $ 778 $ 684 $ 400 On APBO, December 31 7,644 6,981 3,800
NOTE 13 - INCOME TAXES
The components of the income tax provision are as follows: 1996 1995 1994 Current income tax provision: Federal $ 902,300 $ 819,000 $ 838,000 State 144,000 113,300 116,000 Total current 1,046,300 932,300 954,000 Deferred income tax benefit: Federal (41,300) (32,600) (60,000) State (11,000) (8,700) (20,000) Total deferred (52,300) (41,300) (80,000) Total provision for income taxes $ 994,000 $ 891,000 $ 874,000
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The major components of the net deferred tax assets are as follows:
1996 1995 Deferred tax assets: Allowance for loan losses $ 645,000 $ 588,200 Deferred compensation 59,100 44,700 Post-retirement health care benefits 47,400 41,000 Unrealized loss on securities available for sale 663 Other real estate 55,000 Gross deferred tax assets 752,163 728,900 Deferred tax liabilities: Unrealized gain on securities available for sale (136,982) Premises and equipment (115,600) (86,900) Employee pension plan ( 19,100) (77,500) Gross deferred tax liabilities (134,700) (301,382) Net deferred tax assets $ 617,463 $ 427,518
NOTE 13 - INCOME TAXES (CONTINUED) A summary of the source of differences between income taxes at the federal statutory rate and the provision for income taxes for the years ended December 31, follows:
1996 1995 1994 Percent Percent Percent of of of Pretax Pretax Pretax AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME Tax expense at statutory rate $ 1,071,200 34.0% $ 989,800 34.0% $ 960,400 34.0% Increase (decrease) in taxes resulting from: Tax-exempt interest (169,200) (5.4%) (173,400) (6.0%) (174,500) (6.2%) State income tax 88,000 2.8% 69,000 2.4% 76,600 2.7% Other 4,000 .1% 5,600 .2% 11,500 .4% Provision for income taxes $ 994,000 31.5% $ 891,000 30.6% $ 874,000 30.9%
NOTE 14 - STOCK OPTIONS On April 18, 1989, the Company's stockholders authorized 131,750 shares of stock to be set aside for issuance under a stock option plan. Options were granted to virtually all officers and employees totaling 36,250 shares. The options were required to be exercised prior to May 1, 1994. The option price was at the fair market value of the Company's stock as of the date the option was granted. As of December 31, 1994, all options have been exercised or expired. NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK CREDIT RISK The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. These commitments at December 31 are as follows:
1996 1995 Commitments to extend credit $ 14,162,116 $ 8,676,670 Letters of credit 1,341,142 1,192,167 Credit card commitments 1,837,542 1,485,128 Totals $ 17,340,800 $ 11,353,965
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED) CREDIT RISK (CONTINUED) clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit-worthiness on a case by case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. The average amount of these commitments that are collateralized is 80 percent. Credit card commitments are commitments on credit cards issued by the Company and serviced by Elan Financial Services. These commitments are unsecured. CONCENTRATION OF CREDIT RISK The Company grants residential mortgage, commercial and consumer loans predominantly in the greater Wausau area and Marathon County. There are no significant concentrations of credit to any one debtor or industry group. It is felt that the diversity of the local economy will prevent significant losses in the event of an economic downturn. CONTINGENCIES In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements. INTEREST RATE RISK The Company originates and holds adjustable rate mortgage loans with variable rates of interest. The rate of interest on these loans is capped over the life of the loan. At December 31, 1996, none of the approximately $1,010,300 of variable rate loans had reached the interest rate cap. NOTE 16 - CAPITAL REQUIREMENTS Federal banking regulatory agencies have established capital adequacy rules which take into account risk attributable to balance sheet assets and off- balance sheet activities. All banks and bank holding companies must meet a minimum total risk-based capital ratio of 8 percent. Of the 8 percent required, half must be comprised of core capital elements defined as Tier 1 capital. The federal banking agencies also have adopted leverage capital guidelines which banking organizations must meet. Under these guidelines, the most highly rated banking organizations must meet a minimum leverage ratio of at least 3 percent Tier 1 capital to total assets, while lower rated banking organizations must maintain a ratio of at least 4 percent to 5 percent. NOTE 16 - CAPITAL REQUIREMENTS (CONTINUED) The subsidiary bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the bank must meet specific capital guidelines that involve quantitative measures of the bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 1996, the bank meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from the Federal Deposit Insurance Corporation categorized the bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank must maintain minimum total risk-based, Tier I risk- based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since notification that management believes have changed the institution's category. The Company's actual capital amounts and ratios as of December 31, 1996, are presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO Total capital (to risk weighted assets) $ 19,878,000 15.7% $ 10,118,000 greater $ 12,647,000 greater than or than or equal to equal to 8.0% 10.0% Tier I capital (to risk weighted assets) $ 18,297,000 14.5% $ 5,059,000 greater $ 7,588,000 greater than or than or equal to equal to 4.0% 6.0% Tier I capital (to average assets) $ 18,297,000 9.1% $ 8,061,000 greater $ 10,076,000 greater than or than or equal to equal to 4.0% 5.0%
The subsidiary bank is restricted by banking regulations from making dividend distributions above prescribed amounts and limited in making loans and advances to the Company. At December 31, 1996, the retained earnings of the subsidiary available for distribution as dividends without regulatory approval was approximately $7,713,000. NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments. NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: CASH AND SHORT-TERM INVESTMENTS The carrying amounts reported in the balance sheets for cash and cash equivalents and short-term investments approximate their fair values. INVESTMENT SECURITIES Fair values for investment securities are based on quoted market prices. LOANS For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. In addition, for impaired loans, marketability and appraisal values were considered in the fair value determination. The carrying amount of accrued interest approximates its fair value. DEPOSIT LIABILITIES The fair value of deposits with no stated maturity, such as demand deposits, NOW accounts, savings and money market accounts is equal to the amount payable on demand at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected maturities on time deposits. SHORT-TERM BORROWINGS The carrying amount of short-term borrowings approximate their fair values. The carrying amounts and fair values of the Company's financial instruments consisted of the following at December 31:
1996 1995 Carrying Estimated Carrying Estimated AMOUNT FAIR VALUE AMOUNT FAIR VALUE Financial assets: Cash and short-term investments $ 10,152,277 $ 10,152,277 $ 16,551,428 $ 16,551,428 Investment securities 51,584,797 51,633,977 44,975,769 45,071,311 Net loans 136,086,447 136,038,108 123,543,801 124,315,314 Financial liabilities: Deposits 178,128,903 178,548,854 160,444,592 160,952,607 Short-term borrowings 5,766,631 5,766,631 11,099,498 11,099,498
OFF-BALANCE SHEET INSTRUMENTS The fair value of commitments would be estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the current interest rates, and the present credit worthiness of the counter parties. Since this amount is immaterial, no amounts for fair value are presented. LIMITATIONS Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include premises and equipment, other assets and other liabilities. In addition, the tax ramifications related to the realization of the unrealized gains or losses can have a significant effect on fair value estimates and have not been considered in the estimates. NOTE 18 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed balance sheets as of December 31, 1996 and 1995, and condensed statements of income and cash flows for the year ended December 31, 1996 and the seven-month period ended December 31, 1995 (from date of parent company inception) for PSB Holdings, Inc. should be read in conjunction with the consolidated financial statements and the notes thereto.
BALANCE SHEETS December 31, 1996 and 1995 1996 1995 ASSETS Cash and cash equivalents $ 529,371 $ 486,285 Investment in subsidiary 18,139,868 17,337,057 Other assets 98,516 99,033 Total assets $ 18,767,755 $ 17,922,375 LIABILITIES AND STOCKHOLDERS' EQUITY Accrued dividends payable $ 478,831 $ 470,811 Total stockholders' equity 18,288,924 17,451,564 Total liabilities and stockholders' equity $ 18,767,755 $ 17,922,375
STATEMENTS OF INCOME Year Ended December 31, 1996 and Seven-Month Period Ended December 31, 1995
1996 1995 Equity in net income of bank $ 2,201,428 $ 2,028,722 Other expense (65,831) (12,552) Income before credit for income taxes 2,135,597 2,016,170 Credit for income taxes (21,000) (4,000) Net income $ 2,156,597 $ 2,020,170
NOTE 18 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CASH FLOWS Year Ended December 31, 1996 and Seven-Month Period Ended December 31, 1995
1996 1995 Cash flows from operating activities: Net income $ 2,156,597 $ 2,020,170 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in net income of bank (2,201,428) (2,028,722) Net amortization 21,517 12,552 Increase in other assets (21,000) (111,584) Increase in other liabilities 8,020 470,811 Net cash provided by (used in) operating activities (36,293) 363,227 Cash flows from investing activities - Dividends received from bank 1,157,800 863,047 Cash flows from financing activities: Dividends paid (763,421) (739,989) Purchase of treasury stock (315,000) Net cash used in financing activities (1,078,421) (739,989) Net increase in cash and cash equivalents 43,086 486,285 Cash and cash equivalents at beginning 486,285 Cash and cash equivalents at end $ 529,371 $ 486,285
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. Information relating to directors of the Company is incorporated into this Form 10-K by this reference to the material set forth in the table under the caption "Election of Directors", pages 2 and 3, of the Company's proxy statement dated March 25, 1997 (the "1997 Proxy Statement"). Information relating to executive officers is found in Part I of this Form 10-K, page 7. ITEM 11. EXECUTIVE COMPENSATION. Information relating to director compensation is incorporated into this Form 10-K by this reference to the 1997 Proxy Statement under the subcaption "Compensation of Directors", page 4. Information relating to the compensation of executive officers is incorporated into this Form 10-K by this reference to (1) the material set forth under the caption "Executive Officer Compensation" and ending with the material set forth under the subcaption "Pension Plan", pages 6 through 7, in the 1997 Proxy Statement and (2) the material set forth under the subcaption "Compensation Committee and Board Interlocks and Insider Participation", page 8, in the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information relating to security ownership of certain beneficial owners and management is incorporated into this Form 10-K by this reference to the material set forth under the caption "Beneficial Ownership of Common Stock", pages 4 and 5, in the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to transactions with management is incorporated into this Form 10-K by this reference to the material set forth under the caption "Certain Relationships and Related Transactions", pages 8 and 9, in the 1997 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial statements and financial statement schedules filed as part of this report and required by Item 14(d) are set forth on page 23 herein. (b) No reports on Form 8-K were filed by the Company during the fourth quarter of 1996. (c) Exhibits The following exhibits required by Item 601 of Regulation S-K are filed with the Securities and Exchange Commission as part of this report. Exhibits incorporated by reference are indicated by footnote reference to incorporated filing. EXHIBIT (3) - ARTICLES OF INCORPORATION AND BYLAWS PAGE OR INCORPORATED EXHIBIT (a) Restated Articles of Incorporation, as amended ......4(a)(1) (b) Bylaws ............................................ 4(b)(1) EXHIBIT (4) - INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS (a) Articles of Incorporation and Bylaws (see Exhibits 3(a) and (b)) EXHIBIT (10) - MATERIAL CONTRACTS (a) Bonus Plan of Directors of the Bank* ............. 10(a)(2) (b) Bonus Plan of Officers and Employees of the Bank*. 10(b)(2) (c) Non-Qualified Retirement Plan for Directors of the Bank* ........................................ 10(c)(2) EXHIBIT (21) - SUBSIDIARIES OF THE REGISTRANT ......... 22(2) * Denotes Executive Compensation Plans and Arrangements. Where exhibit has been previously filed and is incorporated herein by reference, exhibit numbers set forth herein correspond to the exhibit number where such exhibit can be found in the following reports of the registrant (Commission File No. 0-26480) filed with the Securities and Exchange Commission: (1) Registrant's current report on Form 8-K dated May 30, 1995 (2) Registrant's annual report on Form 10-K for the fiscal year ended December 31, 1995 The above exhibits are available upon request in writing from the Secretary, PSB Holdings, Inc., 1905 W. Stewart Avenue, Wausau, WI 54401. SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PSB Holdings, Inc. By: GORDON P. GULLICKSON March 25, 1997 Gordon P. Gullickson, President Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 25th day of March, 1997. SIGNATURE AND TITLE SIGNATURE AND TITLE GORDON P. GULLICKSON TODD R. TOPPEN Gordon P. Gullickson, President Todd R. Toppen, Treasurer Chief Executive Officer and a (Chief Financial and Director Principal Accounting Officer) DIRECTORS: PATRICK L. CROOKS LAWRENCE HANZ, JR. Patrick L. Crooks Lawrence Hanz, Jr. THOMAS R. POLZER THOMAS A. RIISER Thomas R. Polzer Thomas A. Riiser EUGENE WITTER Eugene Witter EXHIBIT INDEX TO FORM 10-K OF PSB HOLDINGS, INC. FOR THE PERIOD ENDED DECEMBER 31, 1996 Pursuant to Section 102(d) of Regulation S-T (17 C.F.R.
232.102(d)) EXHIBIT 27 - FINANCIAL DATA SCHEDULE Exhibits required by Item 601 of Regulation S-K which have been previously filed and are incorporated by reference are set forth in Part IV, Item 14(c) of the Form 10-K to which this Exhibit Index relates. EX-27 2 ART. 9 FDS FOR 12-MONTHS 10-K
9 1,000 YEAR DEC-31-1996 DEC-31-1996 10,152 0 0 0 39,871 11,713 11,762 138,011 1,925 204,158 178,129 5,767 1,974 0 0 0 1,805 16,484 204,158 11,757 2,883 184 14,824 7,156 7,769 7,055 180 0 4,715 3,150 3,150 0 0 2,156 2.39 2.39 4.02 247 275 0 1,329 1,781 73 37 1,925 1,925 0 0
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