-----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, W0KHvVuj7xlCCOxeMu/7KGBYbqWia7SFR14CGnC2wfAmC/+R13mveYVgmVZNIDam N1OOX9PMz+H8t8ILBHmmzg== 0000916480-98-000010.txt : 19980331 0000916480-98-000010.hdr.sgml : 19980331 ACCESSION NUMBER: 0000916480-98-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: SEC FILE NUMBER: 000-26480 FILM NUMBER: 98578097 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 PBS 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 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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, 1998, 883,235 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE PROXY STATEMENT DATED MARCH 31, 1998 (PART III) * TO THE EXTENT NOTED HEREIN -1- TABLE OF CONTENTS PAGE PART I Item 1. Business ............................................ 3 Item 2. Properties .......................................... 8 Item 3. Legal Proceedings ................................... 8 Item 4. Submission of Matters to a Vote of Security Holders . 8 PART II Item 5. Market for Registrant's Common Equity and Related Security Holder Matters ............................. 9 Item 6. Selected Financial Data ............................. 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 11 Item 7A. Quantitative and Qualitative Disclosure About Market Risk ......................................... 26 Item 8. Financial Statements and Supplementary Data ......... 28 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................. 57 PART III Item 10. Directors and Executive Officers of Registrant ..... 58 Item 11. Executive Compensation ............................. 58 Item 12. Security Ownership of Certain Beneficial Owners and Management ..................................... 58 Item 13. Certain Relationships and Related Transactions ..... 58 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................ 59 -2- PART I ITEM 1. BUSINESS. FORMATION PSB Holdings, Inc., a Wisconsin corporation (the "Company"), is a one- bank holding company formed in 1995. The Company owns 100% of the common stock of Peoples State Bank, Wausau, Wisconsin (the "Bank"). 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 City, 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. The Bank offers discount brokerage services at its Wausau branch location, including the sale of 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 City, 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 -3- 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 its primary trade area, the Bank has approximately 15% of total financial institution assets, deposits and loans. 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, 1997, the Bank had 91 employees, including 21 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 is 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 -4- 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. Wisconsin law provides that the Company may not acquire more than 10% of the stock of an existing Wisconsin state bank unless such acquisition is approved by 75% of the shares of the bank entitled to vote. 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 FDIC. As a Wisconsin chartered bank, the Bank and the Company are also subject to periodic examination and the regulations of the Wisconsin Department of Financial Institutions. 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. Under the Deposit Insurance Funds Act of 1996, the FDIC has lowered the rates on assessments paid to the Saving Association Insurance Fund ("SAIF") while simultaneously widening the spread between the lowest and highest rates to improve the effectiveness of the FDIC's risk-based premium system. The FDIC also established a process, similar to that which was applied to the Bank Insurance Fund ("BIF"), for adjusting the rate schedules for both the SAIF and the BIF within a limited range to maintain each of the fund balances at the target designated reserve ratio. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") significantly expanded interstate banking opportunities in Wisconsin. 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 Administrator of the Division of Banking, Wisconsin Department of Financial Institutions. Banks are also permitted to operate interstate branches beginning in Wisconsin. The effect of the new -5- 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 paid by banks in respect of 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, 1998, their ages and principal occupations during the last five years are set forth below.
Gordon C. Gullickson, 69 President of the Company and the Bank. -6- Kenneth M. Selner, 51 Vice President & Secretary of the Company; Executive Vice President of the Bank. Todd R. Toppen, 39 Treasurer of the Company; Vice President of the Bank since 1994, Assistant Vice President 1988 to 1993.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION Certain statements contained in each of the Company's annual reports to shareholders, Forms 10-K, 8-K and 10-Q, proxy statements, prospectuses and any other written or oral statement made by or on behalf of the Company subsequent to filing of this Form 10-K may include one or more "forward-looking statements" within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934 as enacted in the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In addition, certain statements in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of the Company which are not statements of historical fact will constitute forward-looking statements within the meaning of the Reform Act. Examples of forward-looking statements include, but are not limited to: (i) expectations concerning financial performance of the Company, (ii) expectations concerning the payment of dividends, (iii) statements of plans and objectives of the Company, (iv) statements of future economic performance and (v) statements of assumptions underlying such statements. Words such as "believes", "anticipates", "expects", "intends", "targeted" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. In making forward-looking statements within the meaning of the Reform Act, the Company undertakes no obligation to publicly update or revise any such statement. Forward-looking statements of the Company are based on information available to the Company as of the date of such statements and reflect the Company's expectations as of such date, but are subject to risks and uncertainties that may cause actual results to vary materially. In addition to specific factors which may be described in connection with any of the Company's forward-looking statements, factors which could cause actual results to differ materially from those discussed in the forward- looking statements include, but are not limited to the following: (i) the strength of the U.S. economy in general and the strength of the local economy; (ii) the effects of and changes in government policies, including interest rate policies of the Board of Governors of the Federal Reserve System; (iii) inflation, interest rate, market and monetary fluctuations; (iv) the timely development of and acceptance of new products and services, (v) changes in consumer spending, borrowing and saving habits; (vi) increased competition in the Company's principal market area; (vii) technological changes; (viii) acquisitions; (ix) the effect of changes in laws and regulations, (x) the effect of changes -7- in accounting policies and practices, and (xi) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation. 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. 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 1997. -8- 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, 1997 there were approximately 974 holders of record of the Company's common stock. DIVIDENDS Per share dividends declared by the Company in its two most recent fiscal years were:
1997 1996 Second Quarter $.35 $.33 Fourth Quarter $.55 $.52
The Company's source of funds for the payment of dividends is dividends paid by the Bank. The payment of dividends by the Bank is limited by Wisconsin law to payment from retained earnings. Among other things, Wisconsin chartered banks cannot pay dividends if (1) the payment of a dividend would impair the bank's capital structure, (2) in certain cases, the bank's surplus is not equal to its common capital or (3) dividends declared in any one year would exceed the total net profits in that year after deducting losses and bad debts and any required transfers to surplus. Federal regulatory approval is required if the total dividends declared by a bank in any year will exceed the total of its net profits for that year combined with its retained net profits for the preceding two years less any required transfers to surplus. Federal regulators also have authority to prohibit a bank from engaging in what, in their opinion, constitutes an unsafe or unsound practice in conducting its business, including the payment of dividends. There are no contractual limits presently in effect which limit the Bank's ability to pay dividends to the Company or which limit the Company's ability to pay dividends to its shareholders. -9- ITEM 6. SELECTED FINANCIAL DATA. The following table presents consolidated financial data of the Company and its subsidiary. This information and the following discussion and analysis should be read in conjunction with other financial information presented elsewhere in this report. FINANCIAL SUMMARY AT PERIOD END
($ in thousands, except per share amounts) 1997 1996 1995 1994 1993 1992 Interest Income $ 15,744 $ 14,824 $ 13,654 $ 11,555 $ 11,103 $ 11,136 Net Interest Margin 7,491 7,055 6,599 6,619 6,347 5,703 Net Income 2,103 2,157 2,020 1,951 2,100 1,778 Total Assets 215,019 204,158 190,781 171,470 158,108 146,320 Mortgages 103,254 93,450 84,221 75,953 70,194 59,653 Total Capital Base 21,062 20,214 19,232 16,742 16,015 14,055 Shareholders' Equity 19,217 18,289 17,452 15,098 14,644 12,958 Basic and diluted earnings per share $ 2.37 $ 2.39 $ 2.24 $ 2.17 $ 2.28 $ 2.01 Cash dividends per share .90 .85 .82 .80 .75 .65 Book value per share 21.76 20.42 19.34 16.73 16.32 14.76
-10- ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion relates to Company and 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. Management's discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties which may cause actual results to differ materially from those in such statements. For a discussion of certain factors that may cause such forward-looking statements to differ materially from actual results see Item 1, Cautionary Statement Regarding Forward-Looking Information. RESULTS OF OPERATIONS The Company's consolidated net income for 1997 was $2,102,709 compared with $2,156,597 in 1996, and $2,020,170 in 1995. Net income decreased 2.5% in 1997 from 1996 and increased 6.7% in 1996 from 1995. The main factor contributing to the decrease in net earnings in 1997 is that in 1996 a gain was realized on the sale of other real estate. Other factors, including net interest margin, were higher in 1997. The Company continues to provide funds for loans in its market area. The Company promotes quality service in order to attract new customers and build stronger relationships with existing customers. Return on average common stockholders' equity amounted to 11.15% in 1997 compared to 11.98% in 1996, and 12.15% in 1995. Return on average assets for 1997 amounted to 1.02% compared to 1.10% for 1996 and 1.13% in 1995. Net income per share amounted to $2.37 in 1997, compared to $2.39 in 1996 and $2.24 in 1995. Cash dividend declared in 1997 were $.90, compared to $.85 per share in 1996 and $.82 in 1995. The per share ratio of dividends to shareholders to net income was 37.85% in 1997, compared to 35.40 in 1996 and 36.63% in 1995. -11- NET INTEREST INCOME The following table shows how net interest income is impacted by the change in volume and interest rates. 1997 and 1996 data shows a favorable spread due to both increased volume and rate changes. Growth in net interest income will continue to be moderate and interest margins will need to be managed carefully during 1998. INTEREST INCOME & EXPENSE VOLUME & RATE CHANGE
1997 compared to 1996 1996 compared to 1995 1995 compared to 1994 1994 compared to 1993 increase (decrease) increase (decrease) increase (decrease) increase (decrease) due to (1) due to (1) due to (1) due to (1) ($ in thousands) VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET Interest earned on: Loans (2) $ 916 15 931 $ 994 (30) 964 $ 1,244 608 1,852 $ 643 (305) 338 Taxable investment securities (22) 62 40 227 (14) 213 72 47 119 261 (151) 110 Non-taxable investment securities (2) 74 (32) 42 31 (51) (20) 29 (16) 13 4 (14) (10) Other interest income (118) 39 ( 79) (1) (2) (3) 74 51 125 4 11 15 Total 850 84 934 1,251 (97) 1,154 1,419 690 2,109 912 (459) 453 Interest paid on: Savings and demand deposits 175 72 247 101 (64) 37 (58) 213 155 157 (35) 122 Time deposits 493 (24) 469 616 94 710 795 984 1,779 160 (174) (14) Other borrowings (235) 2 (233) (29) (4) (33) 55 130 185 44 28 72 Total 433 50 483 688 26 714 792 1,327 2,119 361 (181) 180 Net interest earnings $ 417 34 451 $ 563 (123) 440 $ 627 (637) (10) $ 551 (278) 273 (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.
The following table demonstrates how the changing interest rate environment affected the net yield on earning assets (on fully tax equivalent basis) for the three-year period ending December 31, 1997.
Year Ended December 31, 1997 1996 1995 Yield Change Yield Change Yield Change Yield on earning assets 8.36% .09% 8.27% -.03% 8.30% + .41 Effective rate on all liabilities as a % of earning assets 5.13 .00 5.13 .05 5.08 +1.05 Net yield on earning assets 4.07 .05 4.02 (-.11) 4.13 ( .47)
-12- The 1997 figures as a percent of average assets reflect an increase in interest income. The increase is due to the strategic pricing of loans and deposits during 1997. The Company will focus on increasing net interest income in 1998 through continued control of interest expense, maintaining the level of interest rates on loans, and managing rates on the investment portfolio. Average earing assets increased 5.05% to $191,926 in 1997, from $182,718 in 1995. Included in this increase was a 7.78% increase in average loans to $140,962 in 1997, up from $130,783 in 1996, and an 8.88% increase in average tax exempt investments to $12,197 in 1997, up from $11,202 in 1996. The following table sets forth average consolidated balance sheet data and average rate data on a tax equivalent basis for the periods, indicated. -13- DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND DIFFERENTIALS
1997 1996 1995 Average Yield/ Average Yield/ Average Yield/ ($ in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Interest earning assets Loans (1)(2)(3) $140,962 $12,692 9.00% $130,783 $11,766 9.00% $119,657 $10,802 9.03% Taxable investment securities 37,877 2,427 6.41% 38,239 2,376 6.21% 35,428 2,163 6.11% Nontaxable investment securities(2) 12,197 879 7.21% 11,202 836 7.46% 10,698 856 8.00% Federal funds sold 890 48 5.39% 2,494 139 5.57% 2,515 142 5.65% Total (2) 191,926 16,046 8.36% 182,718 15,117 8.27% 168,298 13,963 8.30% Non-interesting earning assets Cash and due from banks 8,347 8,790 7,958 Premises & equip. - net 3,660 3,742 2,637 Other assets 3,981 3,046 2,212 Less: Allow. loan loss (1,846) (1,875) (1,751) Total 206,068 196,421 179,354 Liabilities & Stockholders' Equity Interest Bearing liabili- ties Savings and demand deposits 52,265 1,867 3.57% 47,179 1,620 3.43% 44,708 1,583 3.54% Time deposits 102,566 6,005 5.85% 94,179 5,536 5.88% 83,518 4,826 5.78% Short-term borrowings 5,556 343 6.18% 10,169 613 6.03% 10,732 646 6.02% Long-term Borrowings 638 38 5.96% Total 161,025 8,253 5.13% 151,527 7,769 5.13% 138,958 7,055 5.08% Non-interest bearing liabilities Demand deposits 24,403 24,729 22,594 Other liabilities 1,788 2,169 1,176 Stockholders' equity 18,852 17,996 16,626 Total 206,068 196,421 179,354 Net interest income 7,793 7,348 6,908 Rate Spread 3.23% 3.14% 3.22% Net yield on interest earnings assets 4.07% 4.02% 4.13% (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: 1997-$164, 1996-$80, 1995-$55, 1994-$77, 1993-$152.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND DIFFERENTIALS (Continued)
1994 1993 Average Yield/ Average Yield/ ($ in thousands) Balance Interest Rate Balance Interest Rate Assets Interest earning assets Loans (1)(2)(3) $105,209 $ 8,950 8.51% $ 97,705 $ 8,614 8.82% Taxable investment securities 34,045 2,029 5.96% 29,706 1,916 6.45% Nontaxable investment securities(2) 10,242 843 8.19% 10,299 853 8.28% Federal funds sold 757 32 4.23% 615 17 2.76% Total (2) 150,253 11,854 7.89% 138,325 11,400 8.24% Non-interesting earning assets Cash and due from banks 7,946 7,885 Premises & equip. - net 2,040 2,011 Other assets 2,004 1,799 Less: Allow. loan loss (1,506) (1,228) Total 160,737 148,792 Liabilities & Stockholders' Equity Interest Bearing liabili- ties Savings and demand deposits 46,594 1,428 3.06% 41,588 1,306 3.14% Time deposits 66,241 3,047 4.60% 62,953 3,061 4.86% Short-term borrowings 9,597 461 4.80% 8,622 389 4.51% Long-term Borrowings Total 122,432 4,936 4.03% 113,163 4,756 4.20% Non-interest bearing liabilities Demand deposits 21,950 20,784 Other liabilities 951 916 Stockholders' equity 15,404 13,929 Total 160,737 148,792 Net interest income 6,918 6,644 Rate Spread 3.86% 4.04% Net yield on interest earnings assets 4.60% 4.82% (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: 1997-$164, 1996-$80, 1995-$55, 1994-$77, 1993-$152.
-14- The preceding table shows a 1997 increase of .05% on net yield on interest earning assets. The average rate on taxable investment securities increased .20% in 1997 to 6.41%, up from 6.21% in 1996. Time deposits decreased slightly by .03% while funds shifted into the more liquid money market deposit accounts, which the Company offered throughout 1997 in an effort to retain deposits to support loan demand. Total deposits at December 31, 1997 showed an increase of $8,473,802 increasing to $186,602,705 from $178,128,903 at December 31, 1996. Average deposits for 1997 increased $13,473,000 to $154,831,000 from $141,358,000 in 1996. Average short term borrowing decreased $4,613,000 from $10,169,000 in 1996 to $5,556,000 in 1997. The average rate on all interest bearing liabilities remained the same in 1997 as in 1996. Loan growth is expected to increase in 1998 due to the increase in fixed rate and in house home equity loan products being offered and promoted. The sale of additional real estate loans in the secondary market will also provide increased loan servicing income.
Year Ended December 31, 1997 1996 1995 1994 1993 Item of income Interest and fees on loans and short-term borrowings 76.9% 74.3% 75.2% 73.2% 73.3% Interest of securities 17.9% 18.2% 18.8% 21.0% 21.1% Total operating income 16,489 15,814 14,336 12,218 11,762 (000's omitted) The bank does not have any foreign deposits or operations
NON-INTEREST INCOME The following table shows the major components of non-interest income.
1997 1996 1995 Noninterest income: Service fees $483,756 $518,271 $468,219 Net realized gain on sale of securities available for sale 3,120 26,415 Gain on sale of other real estate 202,398 Other operating income 257,828 269,486 188,055 Total noninterest income 744,704 990,155 682,689
Service fees decreased to $483,756 in 1997, compared to $518,271 in 1996 primarily because business checking account net charges were lower in 1997 as a result of higher earnings credit rates. -15- NON-INTEREST EXPENSE The following table shows the major components on non-interest expense.
1997 1996 1995 Salaries and employee benefits $2,948,292 $2,701,445 $2,313,123 Occupancy 727,583 708,288 526,912 Federal deposit insurance premiums 21,442 2,000 160,621 Data processing 74,701 195,261 190,864 Director expense 179,800 163,923 138,730 Other operating 980,222 943,938 859,959 Total noninterest expense $4,932,040 $4,714,855 $4,190,209
Salaries increased $246,847 primarily due to the increased number of employees. The number of full-time equivalent employees at the end of 1997 were 78 compared to 70 at the end of 1996. Occupancy expense increased slightly in 1997 after a significant increase in 1996 due to the acquisition of the in-house data processing system. Data processing costs decreased by 61.7% in 1997 compared to 1996 as a result of efficiencies gained by the in-house system. Other operating expense increased in 1997 due to an increase in educational, marketing, and charitable contribution expense. PROVISIONS FOR LOAN LOSSES Management determines the adequacy of the allowance 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, or portions thereof, including impaired loans, are uncollectible, these amounts are promptly charged off against the allowance. The provision for loan losses was $230,000 in 1997; compared to $180,000 in 1996 and $180,000 in 1995. The allowance for loan losses as a percentage of gross loans outstanding was 1.24% at December 31, 1997; 1.39% at December 31, 1996; and 1.42% at December 31, 1995. The increased provision in 1997 is intended to provide adequate reserves for potential losses. Charge-offs as a percentage of average loans outstanding were .22% in 1997; .03% in 1996; and .04% in 1995. Charge- offs have not been concentrated in any industry or business segment as reflected in the schedule below. Management feels the allowance for loan losses is adequate as of December 31, 1997. -16- The allowance for loan losses shown in the following table represents a general allowance available to absorb future losses within the entire portfolio.
YEAR ENDED DECEMBER 31 1997 1996 1995 1994 1993 Average balance of loans for period ($ in thousands) $140,823 $130,783 $119,657 $105,027 $97,705 Allowance for loan losses at beginning of period 1,924,686 1,780,893 1,643,646 1,370,621 1,096,654 Loans charged off Commercial & Industrial (155,650) (47,809) (54,088) (27,864) (95,561) Agriculture 0 0 0 0 0 Real Estate - Mortgage (136,011) 0 0 (10,711) 0 Installment & Other Consumer Loans (58,581) (25,133) (15,174) (10,100) (11,151) Total Charge Offs (350,242) (72,942) (69,262) (48,675) (106,712) Recoveries on loans previously charged off Commercial & Industrial 17,538 33,236 22,168 0 22,583 Agricultural 0 0 0 0 0 Real Estate - Mortgage 18,582 0 0 11,810 0 Installment & Other Consumer Loans 4,500 3,499 4,341 9,890 8,096 Total Recoveries $40,620 $36,735 $26,509 $21,700 $30,679 Net loans charged off ($309,622) ($36,207) ($42,753) ($26,975) ($76,033) Additions charged to operations 230,000 180,000 180,000 300,000 350,000 Allowance for loan losses at end of period $1,845,064 $1,924,686 $1,780,893 $1,643,646 $1,370,621 Ratio of net charge offs during period to average loans outstanding 0.22% 0.03% 0.04% 0.03% 0.08%
LIQUIDITY AND INTEREST SENSITIVITY The Company's Asset Liability Management process provides an approach to management of liquidity, capital and interest rate risk, and to provide adequate funds to support the borrowing requirements and deposit flow of its customers. Management views liquidity as the ability to raise cash at a reasonable cost of with a minimum of loss and as a measure of balance sheet flexibility to react to market-place, regulatory, and competitive -17- changes. The primary sources of the Company's liquidity are marketable assets maturing within one year. The Company attempts, when possible to match relative maturities of assets and liabilities, while maintaining the desired net interest margin. Management believes liquidity is adequate. Management's overall strategy is to coordinate the volume of rate sensitive assets and liabilities to minimize the impact of interest rate movement on the net interest margin. From time to time, the Bank develops special term deposit products to attract present and potential customers. A significant portion of consumer deposits do not reprice or mature on a contractual basis. These deposit balances and rates are considered to be core deposits since these balances are generally not susceptible to significant interest rate changes. The Bank's Asset Liability Committee distributes these deposits over a number of periods to reflect those portions of such accounts that are expected to reprice fully with market rates over the simulation period. The assumptions are based on historical experience with the Bank's individual markets and customers and include projections for how management expects to continue to price in response to marketplace and market changes. However, markets and consumer behavior do change and adjustments are necessary as customer preferences, competitive market conditions, liquidity, loan growth rates, and mix change. Management considers that an acceptable ratio for the rate sensitive assets to rate sensitive liabilities during periods of extended and less volatile rate increases or decreases between .75 and 1.25. The Bank is to generally maintain a one-year ratio of 1.00 - i.e., balanced ratio. At December 31, 1997 the Company was within the ratio limits. -18- INVESTMENT PORTFOLIO The following table shows the relative maturities of the investment portfolio as of December 31, 1997. Weighted average yields on tax-exempt securities have been calculated on a tax equivalent basis using a tax rate of 34%
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 $1,984 5.04% $ -- -- $ -- -- $ -- -- $ -- -- U.S. Government agencies and corporations 4,500 6.40% 3,550 6.89% 18,354 6.33% 3,530 6.83% 5,014 6.41% State and political sub- divisions (domestic) 1,341 6.99% 2,020 6.91% 3,847 7.18% 5,341 7.09% -- -- Other bonds, notes, and debentures 647 5.75% -- -- -- -- -- -- -- -- Total $8,472 6.16% $5,570 6.89% $22,201 6.48% $8,871 6.99% $5,014 6.41%
On January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), which specifies the accounting for investments in securities that have readily determinable fair values. During 1995, the Bank reclassified all U.S. Treasury and other U.S. Government Agencies & Corporations as available-for-sale. State and Political subdivisions were classified as held-to maturity. At December 31, 1997 the net unrealized gain on securities available for sale, recorded as a separate component of stockholder's equity, was $100,543, net of deferred income taxes of $56,747. Securities with an approximate carrying value of $8,352,470 and $9,353,917, at December 31, 1997 and 1996 respectively, were pledged primarily to secure public deposits and for repurchase agreements. -19- The following table sets forth the distribution of investment securities as of the dates indicated.
($ in thousands) DECEMBER 31 1997 1996 1995 1994 1993 U.S. Treasury and other U.S. Government agencies and corporations $36,932 $ 39,224 $ 34,597 $ 35,573 $ 31,327 State and political subdivisions (domestic) 12,549 11,714 10,333 10,981 10,259 Other securities 647 647 45 94 358 Total $50,128 $ 51,585 $ 44,975 $ 46,648 $ 41,944
An investment subsidiary, PSB Investments, Inc., was formed in May 1992, and currently holds approximately $36,531,815 in securities. Income tax expense was approximately $112,000 lower as a result of holding these securities at the subsidiary. -20- LOAN PORTFOLIO The following table sets forth the approximate maturities of the loan portfolio, excluding non-accrual loans; and the sensitivity of loans to interest changes as of December 31, 1997.
MATURITY Over one ($ in thousands) One year year thru Over OR LESS FIVE YEARS FIVE YEARS Commercial, industrial, and financial $ 24,190 $ 8,882 $ 250 Agricultural 2,033 41 0 Real estate mortgage $ 46,200 $ 51,770 $ 2 ,928 Installment & other consumer loans $ 4,598 $ 7,474 $ 116 Total $ 77,021 $ 68,167 $ 3,294 INTEREST SENSITIVITY Amounts of loans due after one year with: Fixed Variable ($ IN THOUSANDS) RATE RATE Commercial, industrial, and financial $ 8,781 $ 798 Agriculture 41 0 Real estate mortgage 17,808 37,223 Installment & other consumer loans 6,622 1,023 Total $33,252 $ 39,044
Loan growth for the year ended December 31, 1997 was 8.19%; increasing from $138,011,133 at December 31, 1996 to $149,317,462 at December 31, 1997. The composition of loans outstanding as of the dates indicated are as follows:
DECEMBER 31 1997 1996 1995 1994 1993 ($ in thousands) Commercial, industrial and financial $ 31,314 $ 28,531 $ 27,291 $ 23,821 $ 24,432 Agricultural 2,488 1,820 2,356 2,899 2,566 Real estate: Mortgage 103,253 93,450 84,221 75,994 70,193 Installment and other consumer loans 12,262 14,210 11,457 9,960 8,489 Total $149,317 $138,011 $125,325 $112,674 $105,680
-21 The composition of loans in the loan portfolio shows a decrease in installment and other consumer loans. Competition in this market area is the main reason for this decline. All other loan categories have been steadily increasing every year. The Company's process for monitoring loan quality includes monthly analysis of delinquencies, risk element loans and potential problem loans. The Company's policy is to place loans on a non-accrual status when they become contractually past due 90 days or more as to interest or principal payments. All interest accrued (including applicable impaired loans) but not collected for loans that are placed on nonaccrual or charged off is reversed to interest income. The interest on these loans is accounted for on the cash basis until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due have been collected and there is reasonable assurance that repayment will continue within a reasonable time frame. A loan is impaired when, based on current information, it is probable that the Company will not collect all amounts due in accordance with the contractual terms of the loan agreement. Impairment is based on discounted cash flows of expected future payments using the loan's initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. The Company maintained generally high loan quality during 1997. The following table sets forth the amount of risk element loans as of the dates indicated.
($ in thousands) DECEMBER 31 1997 1996 1995 1994 1993 Loans on a non-accrual basis $ 835 $ 247 $ 376 $ 646 $1,374 Loans contractually past due ninety days or more as to interest or principal payments $ 7 $ 275 $ 0 $ 0 $ 0
-22- DEPOSITS The average balances of deposits and the average rate paid on these deposits during the years ended December 31, 1997, 1996, 1995, 1994, and 1993 are:
1997 1996 1995 1994 1993 ($ in thousands) BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE Non-interest bearing demand deposits $ 24,403 $ 24,729 $ 22,594 $ 21,950 $ 20,784 Interest bearing demand and savings deposits 52,265 3.57% 47,179 3.43% 44,708 3.54% 46,593 3.06% 41,588 3.14% Time deposits 102,566 5.85% 94,179 5.88% 83,518 5.78% 66,241 4.60% 62,953 4.86% Total $179,234 $166,087 $150,820 $134,784 $125,325
The amount of time certificates of deposit issued in amounts of $100,000 or more and outstanding as of December 31, 1997 is approximately $28,046,000. Their maturity distribution is as follows:
- three months or less $ 8,264,000 - over three months and through twelve months $16,750,000 - over one year through five years $ 3,032,000 - over five years $ -0-
The Bank does not have any deposits in foreign banking offices. YEAR 2000 The Company has conducted a comprehensive review of its computer system to identify the systems that could be affected by the "Year 2000 Issue" and is developing an implementation plan to resolve the issue. The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that, with modifications to existing software and conversions to new software, the Year 2000 problem will not pose significant operational problems and that the Company will experience no material adverse effect with respect to its operation, liquidity or consolidated financial condition. All costs incurred -23- which have been expensed and future costs to be incurred are not expected to materially impact the Company's results of operations and capital resources. FUTURE ACCOUNTING CHANGES The financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," in June 1997. SFAS No. 130 requires all items recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 will not have an impact on the Company's financial condition or results of operations once implemented. The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," in June 1997, SFAS No. 131 requires the Company report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocated resources to segments. The adoption of SFAS No. 131 will not have an impact on the Company's financial condition or results of operations once implemented. -24- SELECTED FINANCIAL DATA
Year Ended December 31 ($ IN THOUSANDS) 1997 1996 1995 1994 1993 Income Statement Data: Interest Income $15,744 $14,824 $13,654 $11,555 $11,103 Interest Expense 8,253 7,769 7,055 4,936 4,757 Net Income 2,103 2,157 2,020 1,951 2,100 Basic and Diluted Earnings Per Average Share of Common Stock 2.37 2.39 2.24 2.17 2.38 Dividends Per Share on Common Stock 0.90 0.85 0.82 0.80 0.75 ($ IN THOUSANDS) Balance Sheet Data: Total Assets $215,019 $204,158 $190,781 $171,470 $158,108 Total Deposits 186,603 178,129 160,445 140,476 133,769 Common Equity 1,805 1,805 1,805 1,805 1,795 Total Stockholders Equity 19,217 18,289 17,452 15,098 14,644 Book Value Per Share of Common Stock 21.76 20.42 19.34 16.73 16.32
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:
1997 1996 1995 1994 1993 Net income as a percentage of: Average total assets 1.02% 1.10% 1.13% 1.21% 1.41% Average shareholders' equity 11.15% 11.98% 12.15% 12.66% 15.08% Dividend payout ratio (dividends declared divided by net income) 37.85% 35.40% 36.63% 37.00% 31.78% Average shareholders' equity to average 9.15% 9.16% 9.27% 9.58% 9.36% total assets
-25- SUMMARY QUARTERLY FINANCIAL INFORMATION
The following is a summary of the quarterly results of operations for the years ended December 31, 1997, 1996 and 1995. Three months ended March 31 June 30 September 30 December 31 (in thousands, except per share data) 1997 Interest income $3,757 $3,898 $3,977 $4,112 Interest expense $1,978 $2,041 $2,088 $2,146 Net interest income $1,779 $1,857 $1,889 $1,966 Provision for loan losses $45 $45 $65 $75 Net income applicable to common stock $581 $561 $626 $335 Earnings per common share $0.65 $0.63 $0.70 $0.39 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest-rate risk inherent in its lending and deposit taking activities. Management actively monitors and manages its interest-rate risk exposure. The measurement of then market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments which reflect changes in market prices and rates, can be found in footnotes 15 and 18 on the Notes to The Financial Statements. -26- The Company's primary objective in managing interest-rate risk is to minimize the adverse impact of changes in interest rates on the Company's net interest income and capital, while adjusting the Company's asset-liability structure ot obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest- rate risk. However, a sudden and substantial increase in interest rates may adversely impact the Company's earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company does not engage in trading activities. Additional information required by this Item 7A is set forth in Item 6, "Selected Financial Data" and under subcaptions "Results of Operations", "Net Interest Income", "Provision for Loan Losses", "Liquidity and Interest Sensitivity", "Investment Portfolio", and "Deposits" under Item 7, Management's Discussion and Analysis of Financial Conditions. -27 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, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the three years ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for the three years ended December 31, 1997 in conformity with generally accepted accounting principles. WIPFLI ULLRICH BERTELSON LLP Wipfli Ullrich Bertelson LLP February 3, 1998 Wausau, Wisconsin -28- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996
1997 1996 ASSETS Cash and due from banks $ 10,622,727 $ 9,982,974 Interest-bearing deposits with banks 153,271 169,303 Investment securities: Held to maturity (fair values of $12,704,104 and $11,762,878, respectively) 12,549,359 11,713,698 Available for sale (at fair value) 37,579,114 39,871,099 Loans held for sale 300,500 279,675 Loans receivable, net of allowance for loan losses of $1,845,064 and $1,924,686 in 1997 and 1996, respectively 147,171,898 135,806,772 Accrued interest receivable 1,737,493 1,790,905 Premises and equipment 3,746,432 3,701,187 Other assets 1,158,255 842,799 TOTAL ASSETS $ 215,019,049 $ 204,158,412 LIABILITIES AND STOCKHOLDERS' EQUITY Noninterest-bearing deposits $ 27,564,502 $ 28,486,255 Interest-bearing deposits 159,038,203 149,642,648 Total deposits 186,602,705 178,128,903 Short-term borrowings 3,960,042 5,766,631 Long-term borrowings 3,000,000 Other liabilities 2,239,127 1,973,954 Total liabilities 195,801,874 185,869,488 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 7,158,505 Retained earnings 10,955,877 9,649,112 Unrealized gain (loss) on securities available for sale, net of tax 100,543 (8,543) Treasury stock, at cost - 19,190 shares in 1997 and 7,000 shares in 1996 (802,600) (315,000) Total stockholders' equity 19,217,175 18,288,924 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 215,019,049 $ 204,158,412 See accompanying notes to consolidated financial statements.
-29- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995 Interest income: Interest and fees on loans $ 12,688,023 $ 11,757,028 $ 10,783,294 Interest on investment securities: Taxable 2,370,859 2,330,456 2,129,632 Tax-exempt 580,323 552,324 564,702 Other interest and dividends 104,758 184,151 175,908 Total interest income 15,743,963 14,823,959 13,653,536 Interest expense: Deposits 7,871,730 7,156,077 6,408,608 Short-term borrowings 343,207 612,585 646,238 Long-term borrowings 37,981 Total interest expense 8,252,918 7,768,662 7,054,846 Net interest income 7,491,045 7,055,297 6,598,690 Provision for loan losses 230,000 180,000 180,000 Net interest income after provision for loan losses 7,261,045 6,875,297 6,418,690 Noninterest income: Service fees 483,756 518,271 468,219 Net realized gain on sale of securities available for sale 3,120 26,415 Gain on sale of other real estate 202,398 Other operating income 257,828 269,486 188,055 Total noninterest income 744,704 990,155 682,689 Noninterest expenses: Salaries and employee benefits 2,948,292 2,701,445 2,313,123 Occupancy 727,583 708,288 526,912 Federal deposit insurance premiums 21,442 2,000 160,621 Data processing 74,701 195,261 190,864 Director expense 179,800 163,923 138,730 Other operating 980,222 943,938 859,959 Total noninterest expenses 4,932,040 4,714,855 4,190,209 Income before income taxes 3,073,709 3,150,597 2,911,170 Provision for income taxes 971,000 994,000 891,000 Net income $ 2,102,709 $ 2,156,597 $ 2,020,170 Basic and diluted earnings per share $ 2.37 $ 2.39 $ 2.24 Weighted average shares outstanding 887,988 900,641 902,425 See accompanying notes to consolidated financial statements.
-30- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 1997, 1996, and 1995
Unrealized Gain (Loss) on Securi- Additional ties Avail- Common Paid-In Retained able For Treasury Stock Capital Earnings For Sale Stock Balance, January 1, 1995 $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) Net income 2,102,709 Cash dividend (at $.90 per share) (795,944) Purchase of treasury stock (487,600) Unrealized gain on securities available for sale - Net of tax 109,086 Balance, December 31, 1997 $1,804,850 $7,158,505 $10,955,877 $ 100,543 $ (802,600) See accompanying notes to consolidated financial statements.
-31- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995 Cash flows from operating activities: Net income $ 2,102,709 $ 2,156,597 $ 2,020,170 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and net amortization 482,664 448,472 315,897 Benefit from deferred income taxes (108,900) (52,300) (41,300) Provision for loan losses 230,000 180,000 180,000 Proceeds from sales of loans held for sale 4,369,580 1,058,993 656,519 Originations of loans held for sale (4,344,817) (1,325,480) (650,000) Gain on sale of loans (45,588) (13,188) (6,519) Net gain on sale of other real estate (202,398) Net gain on sale of securities available for sale (3,120) (26,415) Changes in operating assets and liabilities: Accrued interest receivable 53,412 (248,004) (111,307) Other assets (285,484) (118,169) 40,681 Other liabilities 265,173 188,535 101,168 Net cash provided by operating activities 2,715,629 2,073,058 2,478,894 Cash flows from investing activities: Proceeds from sale and maturities of: Held to maturity securities 2,366,913 2,565,079 2,130,000 Available for sale securities 10,953,084 13,109,137 10,309,545 Payment for purchase of: Held to maturity securities (3,221,710) (3,963,240) (1,492,188) Available for sale securities (8,496,561) (18,583,686) (7,821,452) Net increase in loans (11,595,126) (12,227,971) (12,693,393) Net (increase) decrease in interest- bearing deposits with banks 16,032 1,448,830 (1,608,331) Net decrease (increase) in federal funds sold 5,683,000 (5,683,000) Capital expenditures (482,177) (659,051) (1,494,890) Proceeds from sale of other real estate 14,500 Net cash used in investing activities (10,459,545) (12,613,402) (18,353,709) Cash flows from financing activities: Net increase (decrease) in noninterest- bearing deposits (921,753) 1,926,820 1,539,190 Net increase in interest-bearing deposits 9,395,555 15,757,491 18,429,033 Net decrease in short-term borrowings (1,806,589) (5,332,867) (3,111,159) Proceeds from issuance of long-term borrowings 3,000,000 Dividends paid (795,944) (763,421) (739,989) Purchase of treasury stock (487,600) (315,000) Net cash provided by financing activities 8,383,669 11,273,023 16,117,075 Net increase in cash and due from banks 639,753 732,679 242,260 Cash and due from banks at beginning 9,982,974 9,250,295 9,008,035 Cash and due from banks at end $ 10,622,727 $ 9,982,974 $ 9,250,295
-32- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1996, and 1995 (Continued)
1997 1996 1995 Supplemental cash flow information: Cash paid during the year for: Interest $ 8,101,757 $ 7,738,779 $ 6,873,206 Income taxes 1,008,124 960,348 935,424 Noncash investing and financing activities: Loans charged off 350,242 72,942 69,262 Loans refinanced from other real estate (215,000) Loans transferred to other real estate 300,989 See accompanying notes to consolidated financial statements.
-33- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPAL BUSINESS ACTIVITY PSB Holdings, Inc. and Subsidiary (the "Company"), operates Peoples State Bank (the "Bank"), 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 All significant intercompany balances and transactions have been eliminated. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to the general practices within the banking industry. 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. CASH EQUIVALENTS For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "cash and due from banks." 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. -34- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. LOANS HELD FOR SALE Mortgage loans originated and intended for sale in the secondary market are carried at the lower cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. 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. FORECLOSED REAL ESTATE Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in any valuation allowance are included in loss on foreclosed real estate. RETIREMENT PLANS The Company had a noncontributory defined benefit pension plan which covered substantially all full-time employees. The Company also maintains a defined contribution 401(k) profit-sharing plan which covers substantially all full- time employees. -35- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Deferred income taxes have been provided under the liability method. 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. EARNINGS PER SHARE Earnings per share are based upon the weighted average number of shares outstanding. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to current year presentation. NOTE 2 - FORMATION OF THE HOLDING COMPANY The Company was formed in 1995. The Bank shareholders received the Company's common stock in exchange for all the outstanding shares of the Bank. This business combination has been accounted for as a pooling of interests and accordingly, the operations of the Bank are included for all years presented. NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLES Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." In part, this SFAS changed the method of accounting for serviced loans and superseded SFAS No. 122, "Accounting for Mortgage Servicing Rights," which was adopted by the Company during 1996. The adoption had no effect on the financial statements during the year of adoption. Effective January 1, 1997, the Company adopted SFAS No. 128, "Earnings Per Share." There is no impact on net income as a result of the adoption of SFAS No. 128. This statement requires the reporting of both basic and diluted earnings per share. Effective January 1, 1996, the Company adopted 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, 1995, the Company adopted SFAS 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. NOTE 4 - RESTRICTIONS ON CASH AND DUE FROM BANKS Cash and due from banks in the amount of $742,000 was restricted at December 31, 1997 to meet the reserve requirements of the Federal Reserve System. -36- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair COST GAINS LOSSES VALUE DECEMBER 31, 1997 Securities held to maturity: Obligations of states and political subdivisions $ 12,549,359 $ 156,452 $ 1,707 $ 12,704,104 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 36,774,446 $ 219,733 $ 62,443 $ 36,931,736 Other equity securities 647,378 647,378 Totals $ 37,421,824 $ 219,733 $ 62,443 $ 37,579,114 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
-37- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - INVESTMENT SECURITIES (CONTINUED) The amortized cost and estimated fair value of debt securities held to maturity and securities available for sale at December 31, 1997, 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 Cost Value SECURITIES HELD TO MATURITY Due in one year or less $ 1,341,161 $ 1,345,274 Due after one year through five years 5,868,525 5,939,060 Due after five years through ten years 5,339,673 5,419,770 Totals $ 12,549,359 $ 12,704,104 SECURITIES AVAILABLE FOR SALE Due in one year or less $ 6,487,915 $ 6,484,650 Due after one year through five years 21,284,693 21,402,327 Due after five years through ten years 2,998,447 3,001,046 Totals 30,771,055 30,888,023 Mortgage-backed securities 6,003,391 6,043,713 Totals $ 36,774,446 $ 36,931,736
Securities with an approximate carrying value of $8,352,470 and $9,353,917 at December 31, 1997 and 1996, respectively, were pledged to secure public deposits, short-term borrowings, and for other purposes required by law. During 1997, proceeds from security sales were $2,351,230. Gross gains and losses on those sales were $17,656 and $14,536, respectively. 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. As a member of the Federal Home Loan Bank (FHLB) system, the Bank 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, 1997 and 1996. -38- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - LOANS The composition of loans is as follows:
1997 1996 Commercial $ 33,801,290 $ 30,350,578 Real estate 102,953,287 93,170,562 Consumer 12,262,385 14,210,318 Subtotals 149,016,962 137,731,458 Allowance for loan losses (1,845,064) (1,924,686) Net loans $ 147,171,898 $ 135,806,772
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. All loans to executive officers and directors are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and, in the opinion of management, did not involve more than the normal risk of collectibility or present other unfavorable features. Activity in such loans is summarized below:
1997 1996 Loans outstanding, January 1 $ 2,594,547 $ 2,757,077 New loans 10,308,486 474,182 Repayment (5,110,047) (636,712) Loans outstanding, December 31 $ 7,792,986 $ 2,594,547
The allowance for loan losses includes 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. -39- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - LOANS (CONTINUED) An analysis of impaired loans follows:
AT DECEMBER 31, 1997 1996 Nonaccrual $ 484,290 $ 42,769 Accruing income 639,827 269,537 Total impaired loans 1,124,117 312,306 Less - Allowance for loan losses 178,000 20,000 Net investment in impaired loans $ 946,117 $ 292,306 YEARS ENDED DECEMBER 31, 1997 1996 1995 Average recorded investment, net of allowance for loan losses $1,191,098 $ 304,400 $ 590,000 Interest income recognized $ 83,195 $ 23,001 $ 63,481
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:
1997 1996 1995 Balance, January 1 $ 1,924,686 $ 1,780,893 $ 1,643,646 Provision charged to operating expense 230,000 180,000 180,000 Recoveries on loans 40,620 36,735 26,509 Loans charged off (350,242) (72,942) (69,262) Balance, December 31 $ 1,845,064 $ 1,924,686 $ 1,780,893
-40- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - PREMISES AND EQUIPMENT An analysis of premises and equipment follows:
1997 1996 Land $ 627,345 $ 570,946 Buildings and improvements 3,163,710 2,949,856 Furniture and equipment 2,623,199 2,414,111 Construction in progress 2,836 Totals 6,417,090 5,934,913 Accumulated depreciation and amortization 2,670,658 (2,233,726) Net book value $ 3,746,432 $ 3,701,187
Depreciation and amortization charged to operating expenses amounted to $436,933 in 1997, $402,589 in 1996, and $253,596 in 1995. NOTE 8 - DEPOSITS At December 31, 1997, certificate and IRA accounts have scheduled maturity dates as follows:
1998 $ 86,682,202 1999 14,150,354 2000 2,981,157 2001 319,901 Total $ 104,133,614
Certificate of deposit accounts with individual balances greater than $100,000 totaled $23,045,981 and $10,916,231 at December 31, 1997 and 1996, respectively. Deposits from Company directors, officers, and related parties at December 31, 1997 and 1996 totaled $7,866,698 and $5,608,102, respectively. NOTE 9 - SHORT-TERM BORROWINGS The composition of short-term borrowings at December 31, follows:
1997 1996 Securities sold under repurchase agreements $ 3,960,042 $ 3,569,631 Federal funds purchased 2,197,000 Total short-term borrowings $ 3,960,042 $ 5,766,631
-41- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - SHORT-TERM BORROWINGS (CONTINUED) As a member of the FHLB system, the Company may draw on a line of credit totaling $12,040,000. At December 31, 1997, the Company had drawn $3,000,000 as detailed in Note 10. The following information relates to federal funds purchased and securities sold under repurchase agreements for the years ended December 31:
1997 1996 1995 As of end of year: Weighted average rate 6.14% 5.53% 6.18% For the year: Highest month-end balance $ 11,983,134 $ 15,503,184 $ 13,410,236 Daily average balance 5,555,857 10,168,909 10,732,363 Weighted average rate 6.18% 6.03% 6.00%
NOTE 10 - LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1997, consist of the following: Note payable to the FHLB, monthly interest payments only at 5.70%, due April 5, 1999 $ 2,000,000 Note payable to the FHLB, monthly interest payments only at 5.90%, due April 30, 1999 1,000,000 Totals $ 3,000,000
The FHLB advances are secured by a blanket lien consisting principally of one- to-four family real estate loans totaling in excess of $5,000,000 at December 31, 1997. -42- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - RETIREMENT PLANS Effective January 1, 1997, the Company terminated its defined benefit pension plan. Monthly benefits currently paid to retirees were not affected by the plan's termination. The Company received regulatory approval to distribute participants' vested defined benefit pension plan balances to participants or into the Company's 401(k) profit-sharing plan. All assets were distributed in January 1998. The benefits were based on years of service and the employee's highest consecutive five-year average earnings. Contributions were 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 was to annually contribute the maximum amount deductible for federal income tax purposes. The plan assets were invested primarily in U.S. Treasury and Agency issues, with approximately $250,000 and $375,000 invested in certificates of deposit of the Bank at December 31, 1997 and 1996, respectively. Under the provisions of 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
-43- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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:
1997 1996 Actuarial present value of benefit obligations: Vested benefit obligation $(1,666,759) $(1,544,424) Nonvested benefit obligation (50,786) Accumulated benefit obligation (1,666,759) (1,595,210) Effect of projected future compensation levels Projected benefit obligation (1,666,759) (1,595,210) Plan assets at fair value 1,855,500 1,643,439 Plan assets in excess of projected benefit obligation 188,741 48,229 Unrecognized net loss 78,411 62,129 Unrecognized net transition asset (55,343) (62,129) Prepaid pension cost recognized in the balance sheet $ 211,809 $ 48,229 Net pension cost for December 31 included the following components: 1997 1996 1995 Service cost - Benefits earned during the period $ $ 108,080 $ 93,390 Interest cost on projected benefit obligation 110,308 141,725 131,350 Actual return on plan assets (87,256) (79,499) (133,375) Net amortization and deferral (23,068) (9,345) 47,661 Net periodic pension cost $ (16) $ 160,961 $ 139,026 The following assumptions were used in determining the projected benefit obligation: 1997 1996 1995 Discount rate 7.00% 7.00% 7.00% Rates of increase in future compensation levels 0.00% 0.00% 5.00% Expected long-term rate of return on assets 5.79% 7.00% 7.00%
-44- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - RETIREMENT PLANS (CONTINUED) On January 30, 1998, the Company settled the defined benefit pension plan obligation by transferring existing plan assets to the 401(k) profit-sharing plan. However, the benefit plan obligation exceeded existing plan assets by $202,738. This shortfall was eliminated by the Company via a final cash payment to the plan. Under the provisions of SFAS No. 88, this transaction constitutes a settlement, which results in the recognition of a loss to the Company to be recorded during 1998, determined as follows:
Excess of plan benefit obligations over plan assets at settlement of plan $ 202,738 Prepaid pension cost at settlement date 203,153 Loss on pension settlement $ 405,891
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. During 1997, the Company also declared a discretionary profit-sharing contribution. The expense of the plan for the years ended December 31, 1997, 1996, and 1995 was $143,940, $30,442, and $26,846, 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 five years as a director. Currently five directors are eligible for benefits. The plan expense totaled $46,000 and $40,000 for the years ended December 31, 1997 and 1996, respectively. There was no plan expense in 1995. The liability in the financial statements for this plan was $156,285 and $130,488 at December 31, 1997 and 1996, respectively. 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. -45- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - POST-RETIREMENT HEALTH CARE BENEFITS (CONTINUED) The following table sets forth the plan's funded status and the amounts reflected in the accompanying balance sheets at December 31:
1997 1996 Accumulated post-retirement benefit obligation (APBO): Retirees $ (46,596) $ (47,212) Fully eligible actives (35,330) (31,299) Other actives (127,853) (113,264) Total APBO $ (209,779) $ (191,775) Funded status $ (209,779) $ (191,775) Unrecognized: Prior service cost 88,009 95,405 Net gain (14,409) (14,409) Accumulated post-retirement benefit cost $ (136,179) $ (110,779)
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:
1997 1996 1995 Service cost $ 7,778 $ 7,235 $ 5,889 Interest cost 14,233 13,001 11,840 Amortization of: Prior service cost 7,396 7,396 7,396 Net gain (1,109) Net periodic benefit cost $29,407 $27,632 $24,016
The following assumptions were used to determine the accumulated benefit obligation at December 31:
1997 1996 Discount rate 7.50% 7.50% Health care cost trend rate 7.25% 7.50%
-46- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - POST-RETIREMENT HEALTH CARE BENEFITS (CONTINUED) 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.
1997 1996 1995 Impact of 1 percent increase in medical trend rate: On service cost and interest cost $ 847 $ 778 $ 684 On APBO, December 31 8,362 7,644 6,981
NOTE 13 - INCOME TAXES The components of the income tax provision are as follows:
1997 1996 1995 Current income tax provision: Federal $ 965,900 $ 902,300 $ 819,000 State 114,000 144,000 113,300 Total current 1,079,900 1,046,300 932,300 Deferred income tax benefit: Federal (85,900) (41,300) (32,600) State (23,000) (11,000) (8,700) Total deferred (108,900) (52,300) (41,300) Total provision for income taxes $ 971,000 $ 994,000 $ 891,000
-47- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - INCOME TAXES (CONTINUED) 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:
1997 1996 Deferred tax assets: Allowance for loan losses $ 613,600 $ 645,000 Deferred compensation 69,300 59,100 Post-retirement health care benefits 56,500 47,400 Unrealized loss on securities available for sale 663 Gross deferred tax assets 739,400 752,163 Deferred tax liabilities: Unrealized gain on securities available for sale 56,747 Premises and equipment 151,300 115,600 Employee pension plan 80,200 19,100 Gross deferred tax liabilities 288,247 134,700 Net deferred tax assets $ 451,153 $ 617,463
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:
1997 1996 1995 Percent of Percent of Percent of Pretax Pretax Pretax AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME Tax expense at statutory rate $1,045,000 34.0% $1,071,200 34.0% $ 989,800 34.0% Increase (decrease) in taxes resulting from: Tax-exempt interest (174,500) (5.7%) (169,200) (5.4%) (173,400) (6.0%) State income tax 60,000 2.0% 88,000 2.8% 69,000 2.4% Other 40,500 1.3% 4,000 .1% 5,600 .2% Provision for income taxes $ 971,000 31.6% $ 994,000 31.5% $ 891,000 30.6%
-48- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - LEASES The Company leases various pieces of equipment under cancelable leases and space for a branch location under a noncancelable lease. All leases are classified as operating. Future minimum payments under the noncancelable lease are as follows:
1998 $ 22,000 1999 24,726 2000 25,540 2001 26,389 2002 27,252 Thereafter 2,277 Total $ 128,184
Rental expense for all operating leases was $12,735, $10,926, and $10,363 for the years ended December 31, 1997, 1996, and 1995, respectively. 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:
1997 1996 Commitments to extend credit $ 17,678,590 $ 14,162,116 Letters of credit 924,841 1,341,142 Credit card commitments 2,388,240 1,837,542 Totals $ 20,991,671 $ 17,340,800
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 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. -49- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED) 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 commitments are structured to allow for 100 percent collateralization on all letters of credit. 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, 1997, none of the approximately $841,873 of variable rate loans had reached the interest rate cap. NOTE 16 - CAPITAL REQUIREMENTS The Company and the Bank are 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 Company'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, 1997, that the Bank meets all capital adequacy requirements to which it is subject. -50- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - CAPITAL REQUIREMENTS (CONTINUED) As of December 31, 1997 and 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 that notification that management believes have changed the Bank's category. The Company's and the Bank's actual capital amounts and ratios are also presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO As of December 31, 1997: Total capital (to risk weighted assets): Consolidated $ 20,964,000 14.2% $ 11,818,000 8.0% N/A Subsidiary bank $ 20,830,000 14.1% $ 11,818,000 8.0% $ 14,772,000 10.0% Tier I capital (to risk weighted assets): Consolidated $ 19,117,000 12.9% $ 5,909,000 4.0% N/A Subsidiary bank $ 18,983,000 12.8% $ 5,909,000 4.0% $ 8,863,000 6.0% Tier I capital (to average assets): Consolidated $ 19,117,000 9.0% $ 8,492,000 4.0% N/A Subsidiary bank $ 18,983,000 8.9% $ 8,492,000 4.0% $ 10,615,000 5.0% As of December 31, 1996: Total capital (to risk weighted assets): Consolidated $ 19,878,000 15.7% $ 10,118,000 8.0% N/A Subsidiary bank $ 19,729,000 15.6% $ 10,118,000 8.0% $ 12,647,000 10.0% Tier I capital (to risk weighted assets): Consolidated $ 18,297,000 14.5% $ 5,059,000 4.0% N/A Subsidiary bank $ 18,148,000 14.4% $ 5,059,000 4.0% $ 7,588,000 6.0% Tier I capital (to average assets): Consolidated $ 18,297,000 9.1% $ 8,061,000 4.0% N/A Subsidiary bank $ 18,148,000 9.0% $ 8,061,000 4.0% $10,076,000 5.0%
-51- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - RESTRICTIONS ON RETAINED EARNINGS The Bank is restricted by banking regulations from making dividend distributions above prescribed amounts and is limited in making loans and advances to the Company. At December 31, 1997, the retained earnings of the subsidiary available for distribution as dividends without regulatory approval was approximately $7,819,000. NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS 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. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial statements: CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the balance sheets for cash and due from banks, interest-bearing deposits in other financial institutions, and federal funds sold approximate the fair value of these assets. 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 value for other loans is 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 value for fixed rate certificates of deposit is 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 approximates their fair value. LONG-TERM BORROWINGS: The fair value of the Company's long-term borrowings (other than deposits) is estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. 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. -52- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying amounts and fair values of the Company's financial instruments consisted of the following at December 31:
1997 1996 Carrying Estimated Carrying Estimated AMOUNT FAIR VALUE AMOUNT FAIR VALUE Financial assets: Cash and short-term investments $ 10,775,998 $ 10,775,998 $ 10,152,277 $ 10,152,277 Investment securities 50,128,473 50,283,218 51,584,797 51,633,977 Net loans 147,437,398 147,309,558 136,086,447 136,038,108 Financial liabilities: Deposits 186,602,705 186,951,870 178,128,903 178,548,854 Short-term borrowings 3,960,042 3,960,042 5,766,631 5,766,631 Long-term borrowings 3,000,000 2,960,274
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. -53- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed balance sheets as of December 31, 1997 and 1996, and condensed statements of income and cash flows for the years ended December 31, 1997, 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, 1997 and 1996
ASSETS 1997 1996 Cash and due from banks $ 535,485 $ 529,371 Investment in subsidiary 19,082,913 18,139,868 Other assets 97,001 98,516 Total assets $ 19,715,399 $ 18,767,755 LIABILITIES AND STOCKHOLDERS' EQUITY Accrued dividends payable $ 498,224 $ 478,831 Total stockholders' equity 19,217,175 18,288,924 Total liabilities and stockholders' equity $ 19,715,399 $ 18,767,755
-54- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF INCOME Years Ended December 31, 1997 and 1996, and Seven-Month Period Ended December 31, 1995
1997 1996 1995 Income: Dividends from subsidiary $ 1,311,000 $ 1,157,800 $ 1,238,047 Interest 2,893 11 Total income 1,313,893 1,157,811 1,238,047 Expenses: Interest 6,782 5,919 Other 58,360 59,923 12,552 Total expenses 65,142 65,842 12,552 Income before income taxes and equity in undistributed net income of subsidiary 1,248,751 1,091,969 1,225,495 Income tax benefit 20,000 21,000 4,000 Net income before equity in undistributed net income of subsidiary 1,268,751 1,112,969 1,229,495 Equity in undistributed net income of subsidiary 833,958 1,043,628 790,675 Net income $ 2,102,709 $ 2,156,597 $ 2,020,170
-55- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1996, and Seven-Month Period Ended December 31, 1995
1997 1996 1995 Cash flows from operating activities: Net income $ 2,102,709 $ 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 subsidiary (2,144,958) (2,201,428) (2,028,722) Net amortization 21,517 21,518 12,552 Increase in other assets (20,003) (21,000) (111,584) Increase in other liabilities 19,393 8,020 470,811 Net cash provided by (used in) operating activities (21,342) (36,293) 363,227 Cash flows from investing activities - Dividends received from subsidiary 1,311,000 1,157,800 863,047 Cash flows from financing activities: Dividends paid (795,944) (763,421) (739,989) Purchase of treasury stock (487,600) (315,000) Net cash used in financing activities (1,283,544) (1,078,421) (739,989) Net increase in cash and due from banks 6,114 43,086 486,285 Cash and due from banks at beginning 529,371 486,285 Cash and due from banks at end $ 535,485 $ 529,371 $ 486,285
-56- ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. -57- 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 31, 1998 (the "1998 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 1998 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 subcaption "Committee's and Board's Report on Compensation Policies", pages 6 through 7, in the 1998 Proxy Statement and (2) the material set forth under the subcaption "Compensation Committee and Board Interlocks and Insider Participation", page 8, in the 1998 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 5 and 6, in the 1998 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", page 8, in the 1998 Proxy Statement. -58- 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 28 herein. (b) No reports on Form 8-K were filed by the Company during the fourth quarter of 1997. (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. EXHIBIT (3) - ARTICLES OF INCORPORATION AND BYLAWS PAGE OR INCORPORATED EXHIBIT (i) Restated Articles of Incorporation, as amended . . . 4(a)(1) (ii) 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) EXHIBIT (27) - FINANCIAL DATA SCHEDULE *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 -59- (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 -60- 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, 1998 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 31st day of March, 1998. 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 Director (Chief Financial and Principal Accounting Officer) DIRECTORS: LEONARD C. BRITTEN Leonard C. Britten Gordon P. Connor PATRICK L. CROOKS WILLIAM J. FISH Patrick L. Crooks William J. Fish CHARLES A. GHIDORZI GEORGE L. GEISLER Charles A. Ghidorzi George L. Geisler LAWRENCE HANZ, JR. THOMAS R. POLZER Lawrence Hanz, Jr. Thomas R. Polzer THOMAS A. RIISER Thomas A. Riiser William M. Reif EUGENE WITTER Eugene Witter EXHIBIT INDEX TO FORM 10-K OF PSB HOLDINGS, INC. FOR THE PERIOD ENDED DECEMBER 31, 1997 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-31-1997 DEC-31-1997 10,623 153 0 0 37,579 12,549 12,704 149,317 1,845 215,019 186,603 3,960 2,239 3,000 0 8 1,805 17,413 215,019 12,688 2,951 105 15,744 7,872 8,253 7,491 230 3 4,932 3,074 3,074 0 0 2,103 2.37 2.37 4.07 835 7 0 372 1,925 350 41 1,845 1,845 0 0
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