-----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, SdJJD4T3x39VOLupOLNgkeVEyNh0AFrGCg+ZE88/G4TKv6iHNUIU4qmQx0BfDPNS 3J7A9+hoTLfSfG6z+XoMDQ== 0000916480-99-000006.txt : 19990331 0000916480-99-000006.hdr.sgml : 19990331 ACCESSION NUMBER: 0000916480-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 99577820 BUSINESS ADDRESS: STREET 1: 1905 WEST STEWART AVE CITY: WAUSAU STATE: WI ZIP: 54401 BUSINESS PHONE: 7158422191 MAIL ADDRESS: STREET 1: 1905 WEST STEWART AVE CITY: WAUSAU STATE: WI ZIP: 54401 FORMER COMPANY: FORMER CONFORMED NAME: PSB HOLDINGS INC /WI/ DATE OF NAME CHANGE: 19950721 FORMER COMPANY: FORMER CONFORMED NAME: PEOPLES STATE BANK /WI/ DATE OF NAME CHANGE: 19950721 10-K 1 PSB HOLDINGS, INC. 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ COMMISSION FILE NO. 0-26480 PSB HOLDINGS, INC. (Exact name of registrant as specified in charter) 1905 W. STEWART AVENUE WISCONSIN WAUSAU, WI 54401 (State of incorporation) 39-1804877 (Address of principal executive office) (I.R.S. Employer Identification Number) Registrant's telephone number, including area code: 715-842-2191 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of each class) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. There is no established trading market for the common stock. As of March 15, 1999, 883,235 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE PROXY STATEMENT DATED MARCH 31, 1999 (TO THE EXTENT NOTED HEREIN): PART III -1- TABLE OF CONTENTS PAGE PART I ........................................................3 Item 1.Business ...............................................3 Item 2.Properties .............................................7 Item 3.Legal Proceedings ......................................7 Item 4.Submission of Matters to a Vote of Security Holders ....7 PART II .......................................................8 Item 5.Market for Registrant's Common Equity and Related Stockholder Matters.................................................8 Item 6.Selected Financial Data ................................9 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations..................................10 Item 7A.Quantitative and Qualitative Disclosures About Market Risk. 27 Item 8.Financial Statements and Supplementary Data ...........28 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...................................56 PART III .....................................................57 Item 10.Directors and Executive Officers of Registrant .......57 Item 11.Executive Compensation ...............................57 Item 12.Security Ownership of Certain Beneficial Owners and Management .......................................... 57 Item 13.Certain Relationships and Related Transactions .......57 PART IV ......................................................58 Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K ..........................................58 -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 "FRB") 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, Marathon City, and the city of Rhinelander, 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. 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, Marathon County, and Rhinelander, Wisconsin in Oneida County. There is a mix of retail, manufacturing, agricultural and service businesses in the areas served by the Bank. Commercial and retail banking in the state of Wisconsin, and in the Wausau area in particular, is highly competitive with respect to price and services. "Price" includes interest rates paid on deposits, interest rates charged on borrowings and fees charged for fiduciary services, while "services" includes the types of loan, deposit and other products offered, convenience of banking locations and the quality of service rendered to customers. -3- 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 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 FRB (see "Regulation and Supervision - Monetary Policy"). EMPLOYEES The Company has no employees. Officers of the Company serve as full time employees of the Bank. As of December 31, 1998, the Bank had 105 employees, including 27 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 REGULATION The Company and the Bank are subject to regulation under both federal and state law. The Company is a registered bank holding company and is subject to regulation and examination by FRB pursuant to the BHCA. The Bank is subject to regulation and examination by the Federal Deposit Insurance Corporation ("FDIC") and, as a Wisconsin chartered bank, by the Wisconsin Department of Financial Institutions. The FRB expects a bank holding company to be a source of strength for its subsidiary banks. As such, the Company may be required to take certain actions or commit certain resources to the Bank when it might otherwise choose not to do so. Under federal and state banking laws, -4- the Company and the Bank are also subject to regulations which govern the Company's and the Bank's capital adequacy, loans and loan policies (including the extension of credit to affiliates), deposits, payment of dividends, establishment of branch offices, mergers and other acquisitions, investments in or the conduct of other lines of business, management personnel, interlocking directors and other aspects of the operation of the Company and the Bank. Bank regulators having jurisdiction over the Company and the Bank generally have the authority to impose civil fines or penalties and to impose regulatory control for noncompliance with applicable banking regulations and policies. In particular, the FDIC has broad authority to take corrective action if the Bank fails to maintain required capital. Information concerning the Company's compliance with applicable capital requirements is set forth in Note 16 of the Notes to Consolidated Financial Statements. Banking laws and regulations have undergone periodic revisions that often have a direct effect on the Bank's operations and its competitive environment. From time to time various formal or informal proposals, including new legislation, relating to, among other things, 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 such changes may have a significant impact on the Company's competitive circumstances and that such changes may have a material adverse effect on the Company's consolidated financial condition, liquidity or results of operations. 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 FRB 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 FRB 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. EXECUTIVE OFFICERS The executive officers of the Company as of March 18, 1999, their ages and principal occupations during the last five years are set forth below. Gordon C. Gullickson, 70 President of the Company and the Bank. -5- Kenneth M. Selner, 52 Vice President & Secretary of the Company; Executive Vice President of the Bank. David K. Kopperud, 53 Executive Vice President of the Bank. Todd R. Toppen, 40 Treasurer of the Company; Vice President of the Bank since 1994 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 in the markets served by the Bank; (ii) the effects of and changes in government policies, including interest rate policies of the FRB; (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 -6- regulations, (x) the effect of changes 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 five office locations. The Bank owns four of the buildings in which it conducts operations and each building is occupied solely by the Bank. All four 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. One location occupies leased space within a supermarket. The leased space is designed for commercial banking operations containing teller and loan facilities. ITEM 3. LEGAL PROCEEDINGS. As of December 31, 1998, the Company was not involved in any legal proceedings, nor was it aware of any threatened litigation. 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 1998. -7- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 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, 1998 there were approximately 975 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 1998 Second Quarter $.35 $.35 Fourth Quarter $.55 $.58
The Company's source of funds for the payment of dividends is dividends paid by the Bank. The payment of future dividends to shareholders of the Company is within the discretion of the Company's Board of Directors and will depend on various factors, including the Company's earnings, capital requirements, and the financial condition of the Company. -8- ITEM 6. SELECTED FINANCIAL DATA. The following table presents consolidated financial data of the Company and its subsidiary. This information and the following discussion and analysis should be read in conjunction with other financial information presented elsewhere in this report. FINANCIAL SUMMARY AT PERIOD END
($ in thousands, except per share amounts) Year Ended December 31 ($ IN THOUSANDS) 1998 1997 1996 1995 1994 Income Statement Data: Interest Income $ 16,746 $ 15,744 $ 14,824 $ 13,654 $ 11,555 Interest Expense 8,722 8,253 7,769 7,055 4,936 Net Income 2,089 2,103 2,157 2,020 1,951 Basic and Diluted Earnings Per Share 2.36 2.37 2.39 2.24 2.17 Dividends Per Share on Common Stock 0.93 0.90 0.85 0.82 0.80 ($ IN THOUSANDS) Balance Sheet Data: Total Assets $233,491 $215,019 $204,158 $190,781 $171,470 Total Deposits 199,800 186,603 178,129 160,445 140,476 Common Equity 1,805 1,805 1,805 1,805 1,805 Total Stockholders Equity 20,556 19,217 18,289 17,452 15,098 Book Value Per Share of Common Stock 23.27 21.76 20.42 19.34 16.73
-9- 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. 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 1998 was $2,088,577 compared with $2,102,709 in 1997, and $2,156,597 in 1996. Net income decreased .7% in 1998 from 1997 and decreased 2.5% in 1997 from 1996. The main factor contributing to the decrease in earnings in 1998 is expense from the termination of our defined benefit pension plan in 1998. 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. Operations consolidation and standardization continued throughout 1998, eliminating duplication of procedures in all areas of the Company. The Company installed local and wide area networks in 1996 in addition to an in-house data processing system, to enable all offices to communicate and share information. This has enhanced customer service by providing accurate and timely information as well as increased productivity. The bank's Voice Response Unit provides the customer with twenty-four hour, seven-days-a-week access to their account information. An 800 telephone number has been provided for customers living outside the local phone area. Return on average common stockholders' equity amounted to 10.62% in 1998 compared to 11.15% in 1997, and 11.98% in 1996. Return on average assets for 1998 amounted to .96% compared to 1.02% for 1997 and 1.10% in 1996. Net income per share amounted to $2.36 in 1998, compared to $2.37 in 1997 and $2.39 in 1996. Cash dividends declared in 1998 were $.93 per share, compared to $.90 in 1997 and $.85 in 1996. The per share ratio of dividends to shareholders to net income was 39.33% in 1998, compared to 37.85% in 1997 and 35.40% in 1996. -10- NET INTEREST INCOME The following table shows how net interest income is impacted by the change in volume and interest rates. 1998 and 1997 data shows a favorable spread due to increased volume. Growth in net interest income will continue to be moderate and interest margins will need to be managed carefully during 1999. INTEREST INCOME & EXPENSE VOLUME & RATE CHANGE
1998 compared to 1997 1997 compared to 1996 1996 compared to 1995 1995 compared to 1994 increase (decrease) increase (decrease) increase (decrease) increase (decrease) due to (1) due to (1) due to (1) due to (1) ($ in thousands) VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET Interest earned on: Loans (2) $ 706 10 716 $ 916 15 931 $ 994 (30) 964 $ 1,244 608 1,852 Taxable investment securities 110 (86) 24 (22) 62 40 227 (14) 213 72 47 119 Non-taxable investment securities (2) 88 (20) 68 74 (32) 42 31 (51) (20) 29 (16) 13 Other interest income 436 (217) 219 (118) 39 (79) (1) (2) (3) 74 51 125 Total 1,340 (313) 1,027 850 84 934 1,251 (97) 1,154 1,419 690 2,109 Interest paid on: Savings and demand deposits 335 179 514 175 72 247 101 (64) 37 (58) 213 155 Time deposits (108) (102) (210) 493 (24) 469 616 94 710 795 984 1,779 Other borrowings 194 (29) 165 (235) 2 (233) (29) (4) (33) 55 130 185 Total 421 48 469 433 50 483 688 26 714 792 1,327 2,119 Net interest earnings $ 919 (361) 558 $ 417 34 451 $ 563 (123) 440 $ 627 (637) (10) (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.
-11- 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, 1998.
Year Ended December 31, 1998 1997 1996 Yield Change Yield Change Yield Change Yield on earning assets 8.27% - .09% 8.36% .09% 8.27% - .03% Effective rate on all liabilities as a % of earning assets 4.23 - .06 4.29 .04 4.25 .08 Net yield on earning assets 4.04 - .03 4.07 .05 4.02 - .11
The 1998 figures as a percent of average earning assets reflects a decrease in interest rates during 1998. The Company will focus on increasing net interest income in 1999 through continued control of interest expense, maintaining the level of interest rates on loans, and managing rates on the investment portfolio. Average earning assets increased 7.58% to $206,480 in 1998, from $191,926 in 1997. Included in this increase was a 5.56% increase in average loans to $148,806 in 1998, up from $140,962 in 1997, and a 4.63% increase in average taxable investments to $39,631 in 1998, up from $37,877 in 1997. Federal funds sold increased an average of 419.10% in 1998 from 1997. The following table sets forth average consolidated balance sheet data and average rate data on a tax equivalent basis for the periods, indicated. -12- DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND DIFFERENTIALS
1998 1997 1996 Average Yield/ Average Yield/ Average Yield/ ($ in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Interest earning assets Loans (1)(2)(3) $148,806 $ 13,404 9.01% $140,962 $ 12,692 9.00% $130,783 $ 11,766 9.00% Taxable investment securities 39,631 2,470 6.23% 37,877 2,427 6.41% 38,239 2,376 6.21% Nontaxable investment securities(2) 13,423 947 7.06% 12,197 879 7.21% 11,202 836 7.46% Federal funds sold 4,620 248 5.37% 890 48 5.39% 2,494 139 5.57% Total (2) 206,480 17,069 8.27% 191,926 16,046 8.36% 182,718 15,117 8.27% Non-interesting earning assets Cash and due from banks 8,497 8,347 8,790 Premises & equip. - net 3,949 3,660 3,742 Other assets 3,578 3,981 3,046 Less: Allow. loan loss (1,929) (1,846) (1,875) Total 220,575 206,068 196,421 Liabilities & Stockholders' Equity Interest Bearing liabilities Savings and demand deposits 61,657 2,381 3.86% 52,265 1,867 3.57% 47,179 1,620 3.43% Time deposits 100,713 5,795 5.75% 102,566 6,005 5.85% 94,179 5,536 5.88% Short-term borrowings 3,803 237 6.23% 5,556 343 6.18% 10,169 613 6.03% Long-term Borrowings 5,724 309 5.40% 638 38 5.96% Total 171,897 8,722 5.07% 161,025 8,253 5.13% 151,527 7,769 5.13% Non-interest bearing liabilities Demand deposits 26,827 24,403 24,729 Other liabilities 1,875 1,788 2,169 Stockholders' equity 19,976 18,852 17,996 Total 220,575 206,068 196,421 Net interest income 8,347 7,793 7,348 Rate Spread 3.20% 3.23% 3.14% Net yield on interest earnings assets 4.04% 4.07% 4.02% (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: 1998-$155, 1997-$164, 1996-$80, 1995-$55, 1994-$77.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY - INTEREST RATES AND DIFFERENTIALS (continued)
1995 1994 ($ in thousands) Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Assets Interest earning assets Loans (1)(2)(3) $119,657 $ 10,802 9.03% $105,209 $ 8,950 8.51% Taxable investment securities 35,428 2,163 6.11% 34,045 2,029 5.96% Nontaxable investment securities(2) 10,698 856 8.00% 10,242 843 8.19% Federal funds sold 2,515 142 5.65% 757 32 4.23% Total (2) 168,298 13,963 8.30% 150,253 11,854 7.89% Non-interesting earning assets Cash and due from banks 7,958 7,946 Premises & equip. - net 2,637 2,040 Other assets 2,212 2,004 Less: Allow. loan loss (1,751) (1,506) Total 179,354 160,737 Liabilities & Stockholders' Equity Interest Bearing liabilities Savings and demand deposits 44,708 1,583 3.54% 46,594 1,428 3.06% Time deposits 83,518 4,826 5.78% 66,241 3,047 4.60% Short-term borrowings 10,732 646 6.02% 9,597 461 4.80% Long-term Borrowings Total 138,958 7,055 5.08% 122,432 4,936 4.03% Non-interest bearing liabilities Demand deposits 22,594 21,950 Other liabilities 1,176 951 Stockholders' equity 16,626 15,404 Total 179,354 160,737 Net interest income 6,908 6,918 Rate Spread 3.22% 3.86% Net yield on interest earnings assets 4.13% 4.60% (1) For purposes of these computations, non-accruing loans are included in the daily average loan amounts outstanding. (2) The amount of interest income on non-taxable investment securities and loans has been adjusted to its fully taxable equivalent. (3) Loan fees are included in total interest income as follows: 1998-$155, 1997-$164, 1996-$80, 1995-$55, 1994-$77.
The preceding table shows a 1998 decrease of .03% on net yield on interest earning assets. The average rate on taxable investment securities decreased .18% in 1998 to 6.23%, down from 6.41% in 1997. Time deposits decreased by .10% while funds shifted into the more liquid Money Market deposit accounts, which the Company offered throughout 1998 in an effort to retain deposits to support loan demand. Total deposits at December 31, 1998 showed an increase of $13,197,192 increasing to $199,799,897 from $186,602,705 at December 31, 1997. Average borrowing increased $3,333,352 increasing from $6,194,145 in 1997 to $9,527,497 in 1998. The average rate on all interest bearing liabilities decreased by .06% in 1998 to 5.07% down from 5.13% in 1997. Loan growth is expected to increase in 1999 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, 1998 1997 1996 1995 1994 Item of income Interest and fees on loans and short-term borrowings 73.8% 76.9% 74.3% 75.2% 73.2% Interest on securities 16.6% 17.9% 18.2% 18.8% 21.0% Total operating income 18,153 16,489 15,814 14,336 12,218 (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.
1998 1997 1996 Noninterest income: Service fees $699,144 $483,756 $518,271 Net realized gain on sale of securities available for sale 35,867 3,120 Gain on sale of loans 332,027 45,588 13,188 Gain on sale of other real estate 4,134 202,398 Other operating income 335,525 212,240 256,298 Total noninterest income 1,406,697 744,704 990,155
Service fees increased to $699,144 in 1998, compared to $483,756 in 1997 primarily due to profit improvement initiative implemented in 1998. -14- NON-INTEREST EXPENSE The following table shows the major components of non-interest expense.
1998 1997 1996 Salaries and employee benefits $3,330,964 $2,948,292 $2,701,445 Occupancy 827,558 727,583 708,288 Loss on settlement on pension plan 405,891 Data processing 109,602 74,701 195,261 Director expense 141,671 179,800 163,923 Other operating 1,299,282 1,001,664 945,938 Total noninterest expense $6,114,968 $4,932,040 $4,714,855
Salaries increased $382,672 primarily due to the increased number of employees. The number of full-time equivalent employees at the end of 1998 was 87 compared to 78 at the end of 1997. Occupancy expense increased in 1998 due to the acquisition of an additional branch and various remodeling projects increasing office space. Data processing costs increased by 46.7% in 1998 compared to 1997 as a result of additional computer systems added to the in-house system and Y2K costs. Other operating expense increased in 1998 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 $300,000 in 1998; compared to $230,000 in 1997 and $180,000 in 1996. The allowance for loan losses as a percentage of gross loans outstanding was 1.29% at December 31, 1998; 1.24% at December 31, 1997; and 1.39% at December 31, 1996. The increased provision in 1998 is intended to provide adequate reserves for potential losses. Charge-offs as a percentage of average loans outstanding were .14% in 1998; .22% in 1997; and .03% in 1996. Charge-offs have not been concentrated in any industry or business segment as reflected in the schedule below. Management feels the allowance for loan losses is adequate as of December 31, 1998. -15- The allowance for loan losses shown in the following table represents a general allowance available to absorb future losses within the entire portfolio.
YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 Average balance of loans for period ($ in thousands) $148,806 $140,823 $130,783 $119,657 $105,027 Allowance for loan losses at beginning of period 1,845,064 1,924,686 1,780,893 1,643,646 1,370,621 Loans charged off Commercial & Industrial (138,296) (155,650) (47,809) (54,088) (27,864) Agriculture 0 0 0 0 0 Real Estate - Mortgage 0 (136,011) 0 0 (10,711) Installment & Other Consumer Loans ( 69,154) ( 58,581) ( 25,133) ( 15,174) ( 10,100) Total Charge Offs (207,450) (350,242) ( 72,942) (69,262) (48,675) Recoveries on loans previously charged off Commercial & Industrial 316 17,538 33,236 22,168 0 Agricultural 0 0 0 0 0 Real Estate - Mortgage 0 18,582 0 0 11,810 Installment & Other Consumer Loans 8,934 4,500 3,499 4,341 9,890 Total Recoveries $9,250 $40,620 $36,735 $26,509 $21,700 Net loans charged off ($198,200) ($309,622) ($36,207) ($42,753) ($26,975) Additions charged to operations 300,000 230,000 180,000 180,000 300,000 Allowance for loan losses at end of period $1,946,864 $1,845,064 $1,924,686 $1,780,893 $1,643,646 Ratio of net charge offs during period to average loans outstanding 0.14% 0.22% 0.03% 0.04% 0.03% Ratio of allowance for loan losses to total loans receivable at end of period 1.29% 1.24% 1.39% 1.42% 1.46%
-16- 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 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 that will 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 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, 1998 and 1997 the Company was within the ratio limits. -17- INVESTMENT PORTFOLIO The following table shows the relative maturities of the investment portfolio as of December 31, 1998. 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 $-- -- $-- -- $517 4.60% $-- -- $-- -- U.S. Government agencies and corporations 2,017 6.61% 3,398 5.94% 13,643 6.13% 17,821 6.19% 9,789 6.16% State and political subdivisions (domestic) 2,016 6.91% 1,594 7.39% 3,484 6.93% 6,672 6.98% 302 6.33% Other bonds, notes, and debentures 701 6.51% -- -- -- -- -- -- -- -- Total $4,734 6.76% $ 4,992 6.41% $17,644 6.24% $24,493 6.40% $10,091 6.16%
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. The Bank classifies 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, 1998 the net unrealized gain on securities available for sale, recorded as a separate component of stockholder's equity, was $172,417, net of deferred income taxes of $92,992. Securities with an approximate carrying value of $9,168,461 and $8,352,470, at December 31, 1998 and 1997 respectively, were pledged primarily to secure public deposits and for repurchase agreements. -18- The following table sets forth the distribution of investment securities as of the dates indicated.
($ in thousands) December 31 1998 1997 1996 1995 1994 U.S. Treasury and other U.S. Government agencies and corporations $47,185 $ 36,932 $ 39,224 $ 34,597 $ 35,573 State and political subdivisions (domestic) 14,068 12,549 11,714 10,333 10,981 Other securities 701 647 647 45 94 Total $61,954 $ 50,128 $ 51,585 $ 44,975 $ 46,648
An investment subsidiary, PSB Investments, Inc. currently holds approximately $39,885,776 in securities. Income tax expense was approximately $113,000 lower as a result of holding these securities at the subsidiary. -19- LOAN PORTFOLIO The following table sets forth the approximate maturities of the loan portfolio, excluding non-accrual loans; and the sensitivity of loans to interest changes as of December 31, 1998.
Maturity Over one ($ in thousands) One year year thru Over OR LESS FIVE YEARS FIVE YEARS Commercial, industrial, and financial $ 26,075 $ 11,310 $ 1,307 Agricultural 1,119 214 0 Real estate mortgage 43,764 56,730 851 Installment & other consumer loans 4,791 6,742 164 Total $ 75,749 $ 74,996 $ 2,322 INTEREST SENSITIVITY Amounts of loans due after one year with: Fixed Variable ($ IN THOUSANDS) RATE RATE Commercial, industrial, and financial $ 6,816 $ 6,290 Agriculture 74 140 Real estate mortgage 14,522 43,094 Installment & other consumer loans 6,012 952 Total $27,424 $50,476
Loan growth for the year ended December 31, 1998 was 2.90%; increasing from $149,317,462 at December 31, 1997 to $153,649,015 at December 31, 1998. The composition of loans outstanding as of the dates indicated are as follows:
DECEMBER 31 1998 1997 1996 1995 1994 ($ in thousands) Commercial, industrial and financial $ 38,852 $ 31,314 $ 28,531 $ 27,291 $ 23,821 Agricultural 1,662 2,488 1,820 2,356 2,899 Real estate: Mortgage 101,380 103,253 93,450 84,221 75,994 Installment and other consumer loans 11,755 12,262 14,210 11,457 9,960 Total $153,649 $149,317 $138,011 $125,325 $112,674
-20- Loans held for sale as of December 31, 1998 were $3,120,450 compared to $300,500 on December 31, 1997. This increase is a result of market interest rates being lower in 1998, thereby increasing the number of loans being refinanced in the secondary market. 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 has no foreign loans outstanding. 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. An analysis of impaired loans follows:
AT DECEMBER 31, 1998 1997 Nonaccrual $ 564,414 $ 484,290 Accruing income 406,000 639,827 Total impaired loans 970,414 1,124,117 Less - Allowance for loan losses 328,511 178,000 Net investment in impaired loans $ 641,903 $ 946,117 YEARS ENDED DECEMBER 31, 1998 1997 1996 Average recorded investment, net of allowance for loan losses $ 819,630 $ 1,191,098 $ 304,400 Interest income recognized $ 39,569 $ 83,195 $ 23,001
-21- The Company maintained generally high loan quality during 1998. The following table sets forth the amount of risk element loans as of the dates indicated.
($ in thousands) DECEMBER 31 1998 1997 1996 1995 1994 Loans on a non-accrual basis $ 582 $ 835 $ 247 $ 376 $ 646 Loans contractually past due ninety days or more as to interest or principal payments $ 0 $ 7 $ 275 $ 0 $ 0
DEPOSITS The average balances of deposits and the average rate paid on these deposits during the years ended December 31, 1998, 1997, 1996, 1995, and 1994 are:
1998 1997 1996 1995 1994 ($ in thousands) BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE Non-interest bearing demand deposits $ 26,827 $ 24,403 $ 24,729 $ 22,594 $ 21,950 Interest bearing demand and savings deposits 61,657 3.86% 52,265 3.57% 47,179 3.43% 44,708 3.54% 46,593 3.06% Time deposits 100,713 5.75% 102,566 5.85% 94,179 5.88% 83,518 5.78% 66,241 4.60% Total $189,197 $179,234 $166,087 $150,820 $134,784
The amount of time certificates of deposit issued in amounts of $100,000 or more and outstanding as of December 31, 1998 is approximately $28,888,000. Their maturity distribution is as follows:
- three months or less $11,420,000 - over three months and through twelve months $15,805,000 - over one year through five years $ 1,663,000 - over five years $ -0-
The Bank does not have any deposits in foreign banking offices. -22- SELECTED FINANCIAL DATA 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, 1998, 1997, 1996, 1995, and 1994.
1998 1997 1996 1995 1994 Net income as a percentage of: Average total assets .96% 1.02% 1.10% 1.13% 1.21% Average shareholders' equity 10.62% 11.15% 11.98% 12.15% 12.66% Dividend payout ratio (dividends declared divided by net income) 39.33% 37.85% 35.40% 36.63% 37.00% Average shareholders' equity to average 9.06% 9.15% 9.16% 9.27% 9.58% total assets
-23- SUMMARY QUARTERLY FINANCIAL INFORMATION The following is a summary of the quarterly results of operations for the years ended December 31, 1998, 1997 and 1996.
Three months ended March 31 June 30 September 30 December 31 (in thousands, except per share data) 1998 Interest income $4,146 $4,288 $4,252 $4,060 Interest expense $2,164 $2,174 $2,205 $2,179 Net interest income $1,982 $2,114 $2,047 $1,882 Provision for loan losses $75 $75 $75 $75 Net income applicable to common stock $390 $638 $719 $342 Earnings per common share $0.44 $0.72 $0.81 $0.39 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
-24- YEAR 2000 DISCLOSURE YEAR 2000 The Company, like virtually all other financial institutions in the United States, depends on computer technology to process its various deposit, loan and investment transactions on a daily basis. Management has initiated a plan to review and address the potential for failure of computer applications as a result of the failure of a software program to properly recognize the year 2000 (the "Year 2000 problem" or "Year 2000 issues"). The term "Year 2000 readiness", or terms of similar import, mean that the particular software or equipment referred to has been modified or replaced and the Company believes that such modified or replaced equipment or processes will operate as designed after 1999 without Year 2000 problems. The Company assessment of, and corrective actions with respect to, the possible consequences of Year 2000 issues on its consolidated financial condition, liquidity or results of operations is referred to herein as its "Year 2000 Project." The Year 2000 Project is being undertaken under the supervision of the Year 2000 Project Committee (the "Committee"), composed of employees of the Company's wholly-owned subsidiary, Peoples State Bank (the "Bank"). The Committee reports on a regular basis to the Board of Directors as to the status of Year 2000 issues and the Company's progress in addressing and/or resolving identified Year 2000 problems. In accordance with the Year 2000 Project and a Year 2000 Compliance Policy adopted by the Committee, an assessment of software and equipment to determine which major computer components will need to be updated or replaced has been completed. The Company has undertaken software and equipment upgrades, including the bank's mainframe computer, and will continue to monitor vendor certifications as to Year 2000 compliance and to take appropriate steps by July, 1999 to modify or replace systems which are not Year 2000 compliant. Testing has been conducted on all major mission critical systems and all such systems appear to be Year 2000 ready. Testing will continue through the year 2000 on software and equipment upgrades and modifications. The Year 2000 Project also involves gathering data from Bank customers to assist the Committee in determining the level of risk to the Bank which might be expected as a result of Year 2000 noncompliance. Bank operations, such as commercial loan application procedures, have been modified to address the Year 2000 issue. The Bank has also attempted to educate its customer base about the Year 2000 issue and has attempted to identify major employers in the Bank's primary market area to evaluate potential loss to the Bank's business if those employers' operations would be curtailed or cease due to Year 2000 problems. Inquiries have also been made to the Bank's investment subsidiary service provider and correspondent banks to determine the effect of such entities' compliance with Year 2000 issues. The Committee has determined that it does not have non-information technology systems, such as embedded controllers, which are material to the operations of the Company and that all security and building operations systems can be operated manually or with alternative controls should a Year 2000 problem occur. -25- COSTS Costs of new software or equipment will be capitalized over the useful life. All other costs associated with Year 2000 issues are expensed as incurred. Internal costs of Year 2000 readiness are not being tracked, but principally relate to payroll costs of Company personnel. The estimated total cost of evaluation and compliance with Year 2000 issues in not expected to exceed $150,000 and, in any event, is not expected to be material to the Company. RISKS The Company does not believe that Year 2000 issues will have a material adverse effect on its consolidated financial condition, liquidity or results of operations. There are, however, many risks associated with Year 2000 that are beyond the control of the Company or which may not be adequately addressed by others before material problems are encountered. The Company, like other financial institutions, depends upon the Federal Reserve System and other financial institutions to process a wide variety of financial transactions for itself and its customers and as a source of credit. The Company must rely upon various federal bank regulatory agencies to make certain that the U.S. banking and payments system, as a whole, is Year 2000 compliant. While the Company believes that the banking system as a whole will be Year 2000 compliant, and it has inquired into the readiness of its principal correspondents and service providers, there can be no assurance of that fact or that one or more of them will not encounter significant Year 2000 problems and thereby adversely affect the Company. Similarly, while the Company faces potential disruptions in its operations from Year 2000 problems as a result of the failure of the power grid, telecommunications, or other utilities, it is not aware that any material disruption in these infrastructures is reasonably likely to occur. The Bank has a diverse customer base. Based on this diversity and the information received by the Bank to date in response to its customer surveys and other inquiries, the Company believes that its customers as a whole will not incur material adverse results from Year 2000 related issues to the extent that the Bank would, in turn, incur material defaults in its loan portfolio. Nevertheless, there is a risk which cannot be wholly discounted that Year 2000 problems encountered by its customers may result in significant losses to the Company as a result of the inability of certain customers to repay loans or as a result of reducing the nonloan portion of its customers' banking business. To the extent the Company incurs losses arising from Year 2000 issues, it may also have insurance coverage. The scope and amount of reimbursement for such losses will depend upon the nature of any claims which arise. CONTINGENCY PLAN The Committee is preparing a business resumption contingency plan which would be implemented, in part, in conjunction with the Bank's disaster recovery plan in the event of failure of one or more of the Bank's major systems. The business resumption contingency plan involves the identification -26- by the Committee of core business processes, establishment of event time lines, and preparation of a risk analysis of mission critical systems. Work on the business contingency readiness plan continues and is expected to be completed during the second quarter of 1999. 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 the 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 footnote 18 of the Notes to Consolidated Financial Statements. 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 to 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, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the three years ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for the three years ended December 31, 1998 in conformity with generally accepted accounting principles. WIPFLI ULLRICH BERTELSON LLP Wipfli Ullrich Bertelson LLP January 22, 1999 Wausau, Wisconsin -28- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
1998 1997 ASSETS Cash and due from banks $ 8,751,763 $ 10,622,727 Interest-bearing deposits with banks 740,993 153,271 Federal funds sold 3,934,000 Investment securities: Held to maturity (fair values of $14,345,897 and $12,704,104, respectively) 14,068,362 12,549,359 Available for sale (at fair value) 47,886,132 37,579,114 Loans held for sale 3,120,450 300,500 Loans receivable, net of allowance for loan losses of $1,946,864 and $1,845,064 in 1998 and 1997, respectively 148,581,791 147,171,898 Accrued interest receivable 1,725,343 1,737,493 Premises and equipment 3,885,986 3,746,432 Other assets 796,671 1,158,255 TOTAL ASSETS $ 233,491,491 $ 215,019,049 LIABILITIES AND STOCKHOLDERS' EQUITY Noninterest-bearing deposits $ 33,149,909 $ 27,564,502 Interest-bearing deposits 166,649,988 159,038,203 Total deposits 199,799,897 186,602,705 Short-term borrowings 4,549,508 3,960,042 Long-term borrowings 6,000,000 3,000,000 Other liabilities 2,585,871 2,239,127 Total liabilities 212,935,276 195,801,874 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 12,223,043 10,955,877 Unrealized gain (loss) on securities available for sale, net of tax 172,417 100,543 Treasury stock, at cost - 19,190 shares (802,600) (802,600) Total stockholders' equity 20,556,215 19,217,175 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 233,491,491 $ 215,019,049 See accompanying notes to consolidated financial statements.
-29-
PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1998, 1997, and 1996 1998 1997 1996 Interest income: Interest and fees on loans $ 13,403,646 $ 12,688,023 $ 11,757,028 Interest on investment securities: Taxable 2,394,816 2,370,859 2,330,456 Tax-exempt 625,428 580,323 552,324 Other interest and dividends 322,546 104,758 184,151 Total interest income 16,746,436 15,743,963 14,823,959 Interest expense: Deposits 8,175,617 7,871,730 7,156,077 Short-term borrowings 237,058 343,207 612,585 Long-term borrowings 308,913 37,981 Total interest expense 8,721,588 8,252,918 7,768,662 Net interest income 8,024,848 7,491,045 7,055,297 Provision for loan losses 300,000 230,000 180,000 Net interest income after provision for loan losses 7,724,848 7,261,045 6,875,297 Noninterest income: Service fees 699,144 483,756 518,271 Net realized gain on sale of securities available for sale 35,867 3,120 Gain on sale of other real estate 4,134 202,398 Gain of sale of loans 332,027 45,588 13,188 Investment sales commissions 146,756 73,873 78,595 Other operating income 188,769 138,367 177,703 Total noninterest income 1,406,697 744,704 990,155 Noninterest expenses: Salaries and employee benefits 3,330,964 2,948,292 2,701,445 Loss on settlement of pension plan 405,891 Occupancy 827,558 727,583 708,288 Telephone, supplies and postage 311,887 244,752 268,379 Advertising and promotion 201,754 166,415 140,751 Data processing 109,602 74,701 195,261 Director expense 141,671 179,800 163,923 Other operating 785,641 590,497 536,808 Total noninterest expenses 6,114,968 4,932,040 4,714,855 Income before income taxes 3,016,577 3,073,709 3,150,597 Provision for income taxes 928,000 971,000 994,000 Net income $ 2,088,577 $ 2,102,709 $ 2,156,597 Basic and diluted earnings per share $ 2.36 $ 2.37 $ 2.39 Weighted average shares outstanding 883,235 887,988 900,641 See accompanying notes to consolidated financial statements.
-30- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 1998, 1997, and 1996
Accumulated Other Additional Comprehensive Common Paid-In Retained Income Treasury STOCK CAPITAL EARNINGS (LOSS) STOCK TOTALS Balance, January 1, 1996 $ 1,804,850 $ 5,926,505 $ 9,487,936 $ 232,273 $ $ 17,451,564 Comprehensive income: Net income 2,156,597 2,156,597 Unrealized loss on securities available for sale, net of tax (240,816) (240,816) Total comprehensive income 1,915,781 Transfer from retained earnings 1,232,000 (1,232,000) Purchase of treasury stock (315,000) (315,000) Cash dividends declared $.85 per share (763,421) (763,421) Balance, December 31, 1996 1,804,850 7,158,505 9,649,112 (8,543) (315,000) 18,288,924 Comprehensive income: Net income 2,102,709 2,102,709 Unrealized gain on securities available for sale, net of tax 109,086 109,086 Total comprehensive income 2,211,795 Purchase of treasury stock (487,600) (487,600) Cash dividends declared $.90 per share (795,944) (795,944) Balance, December 31, 1997 1,804,850 7,158,505 10,955,877 100,543 (802,600) 19,217,175 Comprehensive income: Net income 2,088,577 2,088,577 Unrealized gain on securities available for sale, net of tax 71,874 71,874 Total comprehensive income 2,160,451 Cash dividends declared $.93 per share ( 821,411) (821,411) Balance, December 31, 1998 $ 1,804,850 $ 7,158,505 $12,223,043 $ 172,417 $(802,600) $20,556,215 See accompanying notes to consolidated financial statements.
-31- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996 Cash flows from operating activities: Net income $ 2,088,577 $ 2,102,709 $ 2,156,597 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and net amortization 520,981 482,664 448,472 Benefit from deferred income taxes (169,900) (108,900) (52,300) Provision for loan losses 300,000 230,000 180,000 Proceeds from sales of loans held for sale 26,186,442 4,369,580 1,058,993 Originations of loans held for sale (28,674,365) (4,344,817) (1,325,480) Gain on sale of loans (332,027) (45,588) (13,188) Net gain on sale of other real estate (4,134) (202,398) Net gain on sale of securities available for sale (35,867) (3,120) Changes in operating assets and liabilities: Accrued interest receivable 12,150 53,412 (248,004) Other assets (25,811) (285,484) (118,169) Other liabilities 346,744 265,173 188,535 Net cash provided by operating activities 212,790 2,715,629 2,073,058 Cash flows from investing activities: Proceeds from sale and maturities of: Held to maturity securities 1,340,000 2,366,913 2,565,079 Available for sale securities 17,470,126 10,953,084 13,109,137 Payment for purchase of: Held to maturity securities (2,881,464) (3,221,710) (3,963,240) Available for sale securities (27,616,227) (8,496,561) (18,583,686) Net increase in loans (1,709,893) (11,595,126) (12,227,971) Net (increase) decrease in interest-bearing deposits and money market funds (587,722) 16,032 1,448,830 Net decrease (increase) in federal funds sold (3,934,000) 5,683,000 Capital expenditures (633,488) (482,177) (659,051) Proceeds from sale of other real estate 503,667 14,500 Net cash used in investing activities (18,049,001) (10,459,545) (12,613,402) Cash flows from financing activities: Net increase (decrease) in noninterest-bearing deposits 5,585,407 (921,753) 1,926,820 Net increase in interest-bearing deposits 7,611,785 9,395,555 15,757,491 Net decrease in short-term borrowings 589,466 (1,806,589) (5,332,867) Proceeds from issuance of long-term borrowings 3,000,000 3,000,000 Dividends paid (821,411) (795,944) (763,421) Purchase of treasury stock (487,600) (315,000) Net cash provided by financing activities 15,965,247 8,383,669 11,273,023 Net increase (decrease) in cash and due from banks (1,870,964) 639,753 732,679 Cash and due from banks at beginning 10,622,727 9,982,974 9,250,295 Cash and due from banks at end $ 8,751,763 $ 10,622,727 $ 9,982,974
-32- PSB HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1997, and 1996 (Continued)
1998 1997 1996 Supplemental cash flow information: Cash paid during the year for: Interest $ 8,734,905 $ 8,101,757 $ 7,738,779 Income taxes 877,563 1,008,124 960,348 Noncash investing and financing activities: Loans charged off 207,450 350,242 72,942 Loans refinanced from other real estate (215,000) Loans transferred to other real estate 198,544 300,989 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, and Rhinelander, Wisconsin in Oneida County. It provides a variety of banking products including investment product sales. 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." Cash and due from banks includes cash on hand and non-interest-bearing deposits at correspondent banks. 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 other comprehensive income, net of income tax effects, in a separate component of stockholders' equity. Any gains and losses on sales of securities are recognized at the time of sale using the specific identification method. -34- 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. After being placed on nonaccrued status, additional income is recorded only to the extent that payments are received or the collection of principal becomes reasonably assured. Interest income recognition on impaired loans is consistent with the recognition on all other loans (as detailed above). 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. Gains and losses on the sale of loans held for sale are determined using the specific identification method using quoted market prices. Mortgage servicing rights are not retained. 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. Costs related to development and improvement of property are capitalized, whereas costs related to holding property are expensed. 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 maintains a defined contribution 401(k) profit-sharing plan which covers substantially all full-time employees. -35- 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 - CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." Under this SFAS, the Company reports those items defined as comprehensive income in the statement of changes in stockholders' equity. The adoption of SFAS No. 130 did not have an impact on the Company's financial condition or results of operations. Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which was issued in June 1997. This statement establishes new standards for reporting information about operating segments in annual and interim financial statements. The standard also required descriptive information about the way operating segments are determined, the products and services provided by the segments and the nature of differences between reportable segment measurements and those used for the consolidated enterprise. The disclosure requirements had no impact on the Company's financial position or results or operations. Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which was issued in February 1998. This statement revises employers' disclosures about pension and other postretirement benefit plans. It did not change the measurement or recognition of those plans. It standardized the disclosure requirement and required additional information on changes in benefit obligations and fair value of plan assets, and eliminated certain disclosures which were no longer considered useful. The disclosure requirements had no impact on the Company's financial position or results of operations. In March, 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statements of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP provides guidance as to when it is or is not appropriate to capitalize the cost of software developed or obtained for internal use. The Company elected early adoption of SOP 98-1. The effect of the adoption was not material. -36- NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED) 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. NOTE 3 - CASH AND DUE FROM BANKS Cash and due from banks in the amount of $754,000 was restricted at December 31, 1998 to meet the reserve requirements of the Federal Reserve System. In the normal course of business, the Company and its subsidiary maintain cash and due from bank balances with correspondent banks. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company and its subsidiary also maintain cash balances in money market funds. Such balances are not insured. Total uninsured balances at December 31, 1998 were $7,695,129. -37- NOTE 4 - 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, 1998 Securities held to maturity: Obligations of states and political subdivisions $ 14,068,362 $ 278,490 $ 955 $ 14,345,897 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 46,920,044 $ 342,097 $ 76,687 $ 47,185,454 Other equity securities 700,678 700,678 Totals $ 47,620,722 $ 342,097 $ 76,687 $ 47,886,132 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
-38- NOTE 4 - SECURITIES (CONTINUED) The amortized cost and estimated fair value of debt securities held to maturity and securities available for sale at December 31, 1998, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Fair SECURITIES HELD TO MATURITY COST VALUE Due in one year or less $ 2,016,365 $ 2,029,325 Due after one year through five years 5,078,132 5,167,710 Due after five years through ten years 6,973,865 7,148,862 Totals $ 14,068,362 $14,345,897 SECURITIES AVAILABLE FOR SALE Due in one year or less $ 1,998,234 $ 2,017,400 Due after one year through five years 16,910,216 17,055,070 Due after five years through ten years 12,998,154 13,031,900 Mortgage-backed securities 15,013,440 15,081,084 Totals $ 46,920,044 $47,185,454
Securities with an approximate carrying value of $9,168,461 and $8,352,470 at December 31, 1998 and 1997, respectively, were pledged to secure public deposits, short-term borrowings, and for other purposes required by law. Proceeds from securities sales in 1998 were $1,533,300. Gross gains of $35,867 were realized on those sales. 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. 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 $655,300 and $602,000 of FHLB stock at December 31, 1998 and 1997. -39- NOTE 5 - LOANS The composition of loans is as follows:
1998 1997 Commercial $ 40,513,628 $ 33,801,290 Real estate 98,259,990 102,953,287 Consumer 11,755,037 12,262,385 Subtotals 150,528,655 149,016,962 Allowance for loan losses (1,946,864) (1,845,064) Net loans $ 148,581,791 $147,171,898
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:
1998 1997 Loans outstanding, January 1 $ 7,792,986 $ 2,594,547 New loans 6,612,687 10,308,486 Repayment (9,367,162) (5,110,047) Loans outstanding, December 31 $ 5,038,511 $ 7,792,986
The allowance for loan losses includes specific allowances related to commercial loans which have been judged to be impaired as defined by current accounting standards. 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. -40- NOTE 5 - LOANS (CONTINUED) An analysis of impaired loans follows:
AT DECEMBER 31, 1998 1997 Nonaccrual $ 564,414 $ 484,290 Accruing income 406,000 639,827 Total impaired loans 970,414 1,124,117 Less - Allowance for loan losses 328,511 178,000 Net investment in impaired loans $ 641,903 $ 946,117 YEARS ENDED DECEMBER 31, 1998 1997 1996 Average recorded investment, net of allowance for loan losses $ 819,630 $ 1,191,098 $ 304,400 Interest income recognized $ 39,569 $ 83,195 $ 23,001
The allowance for loan losses (including impaired loans) 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:
1998 1997 1996 Balance, January 1 $ 1,845,064 $ 1,924,686 $ 1,780,893 Provision charged to operating expense 300,000 230,000 180,000 Recoveries on loans 9,250 40,620 36,735 Loans charged off (207,450) (350,242) (72,942) Balance, December 31 $ 1,946,864 $ 1,845,064 $ 1,924,686
-41- NOTE 6 - PREMISES AND EQUIPMENT An analysis of premises and equipment follows:
1998 1997 Land $ 627,345 $ 627,345 Buildings and improvements 3,455,946 3,163,710 Furniture and equipment 2,947,739 2,626,035 Total cost 7,031,030 6,417,090 Accumulated depreciation and amortization 3,145,044 2,670,658 Net book value $ 3,885,986 $ 3,746,432
Depreciation and amortization charged to operating expenses amounted to $493,934 in 1998, $436,933 in 1997, and $402,589 in 1996. NOTE 7 - DEPOSITS At December 31, 1998, certificate and IRA accounts have scheduled maturity dates as follows:
1999 $ 87,320,600 2000 9,475,101 2001 1,443,230 2002 287,886 Thereafter 99,000 Total $ 98,625,817
Certificate of deposit accounts with individual balances greater than $100,000 totaled $24,688,356 and $23,045,981 at December 31, 1998 and 1997, respectively. Deposits from Company directors, officers, and related parties at December 31, 1998 and 1997 totaled $8,483,980 and $7,866,698, respectively. NOTE 8 - SHORT-TERM BORROWINGS Short-term borrowings consist of securities sold under repurchase agreements totaling $4,549,508 and $3,960,042 at December 31, 1998 and 1997, respectively. The book value of securities pledged under these agreements totaled $4,801,348 and $6,297,038 at December 31, 1998 and 1997, respectively. As a member of the FHLB system, the Company may draw on a line of credit totaling $13,106,000. At December 31, 1998, the Company's available and unused portion of this line of credit totaled $7,106,000. -42- PSB HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - SHORT-TERM BORROWINGS (CONTINUED) The following information relates to federal funds purchased and securities sold under repurchase agreements for the years ended December 31:
1998 1997 1996 As of end of year: Weighted average rate 5.63% 6.14% 5.53% For the year: Highest month-end balance $ 5,220,455 $ 11,983,134 $ 15,503,184 Daily average balance 3,803,415 5,555,857 10,168,909 Weighted average rate 6.23% 6.18% 6.03%
NOTE 9 - LONG-TERM BORROWINGS Long-term borrowings at December 31, consist of the following:
1998 1997 Note payable to the FHLB, monthly interest payments only at 5.70%, due April 5, 1999 $ 2,000,000 $ 2,000,000 Note payable to the FHLB, monthly interest payments only at 5.90%, due April 30, 1999 1,000,000 1,000,000 Note payable to FHLB, monthly interest payments only at 5.07%, due February 19, 2008 3,000,000 Totals $ 6,000,000 $ 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 $10,000,000 at December 31, 1998. NOTE 10 - RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS The Company has established a 401(k) profit-sharing contribution pension plan for its employees. The Company matches 50% of employees ' salary deferrals up to the first 4% of pay deferred. The Company also may declare a discretionary profit-sharing contribution. The expense recognized for contributions to the plan for the years ended December 31, 1998, 1997, and 1996 was $159,014, $143,940, and $30,442, 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% of the fees received during their final five years as a director. Currently, five directors are eligible for benefits. Details regarding the actuarial benefit obligation and related disclosures are not available. The liability recognized in the financial statements for this plan was $156,285 at December 31, 1998 and 1997. There was no provision for plan expense during 1998. The plan expense totaled $46,000 and $40,000 for the years ended December 31, 1997 and 1996 respectively. -43- NOTE 10 - RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The Company also maintains an unfunded postretirement health care benefit plan which covers the officers of the Company. After retirement, the Company will pay between 25% and 50% of the health insurance premiums for former Company officers. To qualify, an officer must have at least 15 years of service, be employed by the Company at retirement, and must be 62 years of age at retirement. The actual amount paid is based upon years of service to the Company. Effective January 1, 1997, the Company terminated its defined benefit pension plan. 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. During January 1998, the Company settled the defined benefit pension plan obligation by transferring existing plan assets of $1,857,740, plus an additional cash payment of $202,738 to qualified retirement plans or directly to the plan participants. The following tables provide a reconciliation of changes in the postretirement health care benefit plan and the defined benefit pension plan obligations and the fair value of assets for the years ended December 31, 1998 and 1997: Postretirement Health Defined Benefit CARE BENEFIT PLAN PENSION PLAN
1998 1997 1998 1997 Reconciliation of benefit obligations: Obligations at January 1 $ 136,179 $ 110,779 $ 1,666,759 $ 1,595,210 Service cost 11,176 7,778 Interest cost 16,658 14,233 9,723 110,308 Benefit payments (3,479) (4,007) (5,820) (15,691) Net amortization of prior service costs 7,396 7,396 (16,075) (23,068) Loss on settlement of plan due to applicable benefit payout interest rates at time of settlement 405,891 Liquidating distributions to qualified retirement plans (2,042,103) Liquidating distributions to plan participants (18,375) Obligation at December 31 $ 167,930 $ 136,179 $ $ 1,666,759 Reconciliation of fair value of plan assets: Fair value of plan assets at January 1 $ 1,855,500 $ 1,643,439 Return on plan assets, net of administrative expenses 8,060 87,256 Employer contributions 140,496 Benefit payments (5,820) (15,691) Liquidating distributions to plan participations (1,857,740) Fair value of plan assets at December 31 $ $ 1,855,500
-44- NOTE 10 - RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The following table provides the components of net periodic benefit cost (income) of the plans for the years ended December 31, 1998, 1997, and 1996:
Postretirement Health Defined Benefit CARE BENEFIT PLAN PENSION PLAN 1998 1997 1996 1998 1997 1996 Service cost $ 11,176 $ 7,778 $ 7,235 $ $ $ 108,080 Interest cost 16,658 14,233 13,001 9,723 110,308 141,725 Return on plan assets (8,060) (87,256) (79,499) Net amortization transition and prior service costs 7,396 7,396 7,396 (16,075) (23,068) (9,345) Net periodic pension cost (income) 35,230 29,407 27,632 (14,412) (16) 160,961 Curtailment gain (1,332) Settlement loss 405,891 Net periodic benefit cost after curtailment and settlement $ 35,230 $ 29,407 $ 27,632 $ 391,479 $ (16) $ 159,629
The assumptions used in the measurement of the Company's benefit obligations are shown in the following table: Postretirement Health Defined Benefit CARE BENEFIT PLAN PENSION PLAN
1998 1997 1996 1998 1997 1996 Discount rate 7.50% 7.50% 7.50% N/A 7.00% 7.00% Expected return on plan assets N/A N/A N/A N/A 5.79% 7.00% Health care cost trend rate 7.25% 7.50% 7.50% N/A N/A N/A Rate of compensation increases N/A N/A N/A N/A 0.00% 0.00%
The health care cost trend rate is anticipated to be 7.5% in 1999, grading down 0.25% per year to 5.0%. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care benefit plan. A 1% increase in assumed health care cost trend rates would have the following effects:
1998 1997 1996 Effect on service and interest cost $ 5,681 $ 847 $ 778 Effect on accumulated benefit obligation at December 31 43,082 8,362 7,644
-45- NOTE 11 -SELF-FUNDED HEALTH INSURANCE PLAN The Company has established an employee medical benefit plan to self-insure claims up to $10,000 per year for each individual with a $129,730 stop-loss per year for participants in the aggregate. The Company and its covered employees contribute to the fund to pay the claims and stop-loss premiums. Medical benefit plan costs are expensed as incurred. As of December 31, 1998, management believes claims incurred but not yet reported that are not covered by the stop-loss are insignificant. Health insurance expense recorded in 1998, 1997, and 1996 was $143,969. $126,237, and $105,114, respectively. NOTE 12 - INCOME TAXES The components of the income tax provision are as follows:
1998 1997 1996 Current income tax provision: Federal $ 991,400 $ 965,900 $ 902,300 State 106,500 114,000 144,000 Total current 1,097,900 1,079,900 1,046,300 Deferred income tax benefit: Federal (142,400) (85,900) (41,300) State (27,500) (23,000) (11,000) Total deferred (169,900) (108,900) (52,300) Total provision for income taxes $ 928,000 $ 971,000 $ 994,000
-46- 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:
1998 1997 Deferred tax assets: Allowance for loan losses $ 653,800 $ 613,600 Deferred compensation 69,300 69,300 State net operating loss 9,500 6,900 Post-retirement health care benefits 64,300 56,500 Employee pension plan 42,800 Other 2,600 Less - Valuation allowance (9,500) (6,900) Gross deferred tax assets 832,800 739,400 Deferred tax liabilities: Unrealized gain on securities available for sale 92,992 56,747 Premises and equipment 155,000 151,300 Employee pension plan 80,200 Gross deferred tax liabilities 247,992 288,247 Net deferred tax assets $ 584,808 $ 451,153
The Company, and its subsidiary, pay state taxes on individual, unconsolidated net earnings. At December 31, 1998, tax net operating losses at the parent company of approximately $181,000 existed to offset future state taxable income. These net operating losses will begin to expire in 2012. The valuation allowance has been recognized to adjust deferred tax assets to the amount of tax net operating losses expected to be realized. If realized, the tax benefit for this item will reduce current tax expense for that period. 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:
1998 1997 1996 Percent of Percent of Percent of Pretax Pretax Pretax AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME Tax expense at statutory rate $ 1,026,000 34.0% $ 1,045,000 34.0% $ 1,071,200 34.0% Increase (decrease) in taxes resulting from: Tax-exempt interest (194,000) (6.4) (174,500) (5.7) (169,200) (5.4) State income tax 52,000 1.7 60,000 2.0 88,000 2.8 Other 44,000 1.5 40,500 1.3 4,000 .1 Provision for income taxes $ 928,000 30.8% $ 971,000 31.6% $ 994,000 31.5%
-47- 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:
1999 $ 24,726 2000 25,540 2001 26,389 2002 27,252 2003 2,277 Total $ 106,184
Rental expense for all operating leases was $32,462, $12,735, and $10,926 for the years ended December 31, 1998, 1997, and 1996, 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:
1998 1997 Commitments to extend credit $ 18,775,078 $ 17,678,590 Letters of credit 1,470,887 924,841 Credit card commitments 2,278,144 2,388,240 Totals $ 22,524,109 $ 20,991,671
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 creditworthiness 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. -48- 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% 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, Marathon County, and Rhinelander, Wisconsin in Oneida 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, 1998, none of the approximately $474,000 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, 1998, that the Bank meets all capital adequacy requirements to which it is subject. -49- NOTE 16 - CAPITAL REQUIREMENTS (CONTINUED) As of December 31, 1998 and 1997, 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, 1998: Total capital (to risk weighted assets): Consolidated $ 22,304,000 14.5% $ 12,303,000 8.0% N/A Subsidiary bank $ 22,059,000 14.4% $ 12,284,000 8.0% $ 15,355,000 10.0% Tier I capital (to risk weighted assets): Consolidated $ 20,384,000 13.3% $ 6,152,000 4.0% N/A Subsidiary bank $ 20,139,000 13.1% $ 6,142,000 4.0% $ 9,213,000 6.0% Tier I capital (to average assets): Consolidated $ 20,384,000 8.9% $ 9,126,000 4.0% N/A Subsidiary bank $ 20,139,000 8.8% $ 9,117,000 4.0% $ 11,396,000 5.0% 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%
-50- 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, 1998, the retained earnings of the subsidiary available for distribution as dividends without regulatory approval was approximately $7,919,000. 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. The fair value estimates, methods, and assumptions regarding the Company's financial instruments are shown below. 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 and money market funds, 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. -51- 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:
1998 1997 Carrying Estimated Carrying Estimated AMOUNT FAIR VALUE AMOUNT FAIR VALUE Financial assets: Cash and short-term investments $ 13,426,756 $ 13,426,756 $ 10,775,998 $ 10,775,998 Investment securities 61,954,494 62,232,029 50,128,473 50,283,218 Net loans 151,702,241 152,613,525 147,437,398 147,309,558 Financial liabilities: Deposits 199,799,897 200,190,127 186,602,705 186,951,870 Short-term borrowings 4,549,508 4,549,508 3,960,042 3,960,042 Long-term borrowings 6,000,000 6,008,439 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. -52- NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed balance sheets as of December 31, 1998 and 1997, and condensed statements of income and cash flows for the years ended December 31, 1998, 1997, and 1996 for PSB Holdings, Inc. should be read in conjunction with the consolidated financial statements and footnotes. BALANCE SHEETS December 31, 1998 and 1997
ASSETS 1998 1997 Cash and due from banks $ 725,715 $ 535,485 Investment in subsidiary 20,311,399 19,082,913 Other assets 47,482 97,001 Total assets $ 21,084,596 $ 19,715,399 LIABILITIES AND STOCKHOLDERS' EQUITY Accrued dividends payable $ 528,381 $ 498,224 Total stockholders' equity 20,556,215 19,217,175 Total liabilities and stockholders' equity $ 21,084,596 $ 19,715,399
-53- NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF INCOME Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996 Income: Dividends from subsidiary $ 967,000 $ 1,311,000 $ 1,157,800 Interest 2,383 2,893 11 Total income 969,383 1,313,893 1,157,811 Expenses: Interest 6,782 5,919 Other 54,418 58,360 59,923 Total expenses 54,418 65,142 65,842 Income before income taxes and equity in undistributed net income of subsidiary 914,965 1,248,751 1,091,969 Income tax benefit 17,000 20,000 21,000 Net income before equity in undistributed net income of subsidiary 931,965 1,268,751 1,112,969 Equity in undistributed net income of subsidiary 1,156,612 833,958 1,043,628 Net income $ 2,088,577 $ 2,102,709 $ 2,156,597
-54- NOTE 19 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996 Cash flows from operating activities: Net income $ 2,088,577 $ 2,102,709 $ 2,156,597 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in net income of subsidiary (2,123,612) (2,144,958) (2,201,428) Net amortization 21,517 21,517 21,518 (Increase) decrease in other assets 28,002 (20,003) (21,000) Increase in other liabilities 30,157 19,393 8,020 Net cash provided by (used in) operating activities 44,641 (21,342) (36,293) Cash flows from investing activities - Dividends received from subsidiary 967,000 1,311,000 1,157,800 Cash flows from financing activities: Dividends paid (821,411) (795,944) (763,421) Purchase of treasury stock (487,600) (315,000) Net cash used in financing activities (821,411) (1,283,544) (1,078,421) Net increase in cash and due from banks 190,230 6,114 43,086 Cash and due from banks at beginning 535,485 529,371 486,285 Cash and due from banks at end $ 725,715 $ 535,485 $ 529,371
-55- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. -56- 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 through 4, of the Company's proxy statement dated March 31, 1999 (the "1999 Proxy Statement"). Information relating to executive officers is found in Part I of this Form 10-K, page 5. Information required under Rule 405 of Regulation S-K is incorporated into this Form 10-K by this reference to the material set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 6 of the 1999 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. Information relating to director compensation is incorporated into this Form 10-K by this reference to the 1999 Proxy Statement under the subcaption "Compensation of Directors," page 5. Information relating to the compensation of executive officers is incorporated into this Form 10-K by this reference to 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 7 and 8, in the 1998 Proxy Statement, including the material set forth under the subcaption "Compensation Committee and Board Interlocks and Insider Participation," page 8. 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. -57- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of this report. (1) The financial statements filed as part of this report are set forth on pages 28-55 herein. (2) No financial statement schedules are required by Item 14(d). (3) 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 NUMBER DESCRIPTION 3.1 Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4(a) to the Company's Current Report on Form 8-K dated May 30, 1995) 3.2 Bylaws (incorporated by reference to Exhibit 4(b) to the Company's Current Report on Form 8-K dated May 30, 1995) 4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and 3.2) 10.1 Bonus Plan of Directors of the Bank (incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995)* 10.2 Bonus Plan of Officers and Employees of the Bank* (incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995)* 10.3 Non-Qualified Retirement Plan for Directors of the Bank (incorporated by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995)* 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995) 27.1 Financial Data Schedule *Denotes Executive Compensation Plans and Arrangements. -58- (b) Reports on Form 8-K. One Form 8-K dated October 9, 1998 was filed by the Company during the fourth quarter of 1998 for the purpose of providing Year 2000 disclosure. No financial statements were filed in connection with the report. -59- 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, 1999 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, 1999. 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 GORDON P. CONNOR 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 WILLIAM M. REIF Thomas A. Riiser William M. Reif EUGENE WITTER Eugene Witter -60- EXHIBIT INDEX TO FORM 10-K OF PSB HOLDINGS, INC. FOR THE PERIOD ENDED DECEMBER 31, 1998 Pursuant to Section 102(d) of Regulation S-T (17 C.F.R.
232.102(d)) EXHIBIT 27.1 - 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-27.1 2 ART. 9 FDS FOR 12-MONTHS 10-K
9 1,000 YEAR DEC-31-1998 DEC-31-1998 8,752 741 3,934 0 47,886 14,068 14,346 153,649 1,947 233,491 199,800 4,550 2,586 6,000 0 0 1,805 18,751 233,491 13,404 3,020 323 16,746 8,176 8,722 8,025 300 36 6,115 3,017 3,017 0 0 2,089 2.36 2.36 4.21 582 0 0 1,345 1,845 207 9 1,947 1,947 0 0
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