-----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, IYs+W0Ho7dHrqD5vCLtMk1RB4SnrO9IBDsIgUy4SU2QF+BvOqxvO0j3Nk2j7cPxY sSjRw71vudOSm1vdVkurZw== 0000916480-99-000026.txt : 19991117 0000916480-99-000026.hdr.sgml : 19991117 ACCESSION NUMBER: 0000916480-99-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSB HOLDINGS INC /WI/ CENTRAL INDEX KEY: 0000948368 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 391804877 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26480 FILM NUMBER: 99752280 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-Q 1 10-Q - 09/30/99 FOR PSB HOLDINGS, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: PSB HOLDINGS, INC. (Exact name of registrant as specified in charter) WISCONSIN 39-1804877 (State of incorporation) (I.R.S Employer Identification Number) 1905 WEST STEWART AVENUE WAUSAU, WISCONSIN 54401 (Address of principal executive office) Registrant's telephone number, including area code: 715-842-2191 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of common shares outstanding at September 30, 1999 was 883,235. PSB HOLDINGS, INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income, Nine Months Ended and Three Months Ended September 30, 1999 (unaudited) and September 30, 1998 (unaudited) 1 Condensed Consolidated Balance Sheets September 30, 1999 (unaudited) and December 31, 1998 (derived from audited financial statements) 2 Condensed Consolidated Statements of Cash Flows Nine Months Ended and Three Months Ended September 30, 1999 (unaudited) and September 30, 1998 (unaudited) 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to Vote of Securities Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on form 8-K 11 -1- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME
($ thousands except share data -unaudited) Nine Months Ended Three Months Ended September 30, September 30 Interest income 1999 1998 1999 1998 Interest and fees on loans $10,261 $10,107 $ 3,602 $ 3,386 Interest on investment securities Taxable 2,113 1,727 701 605 Tax-exempt 493 466 162 163 Other interest income 140 225 82 98 Total interest income 13,007 12,525 4,547 4,252 Interest expense: Deposits 5,659 6,130 1,910 2,058 Short-term borrowings 447 413 191 147 Long-term borrowings 245 -0- 107 -0- Total interest expense 6,351 6,543 2,208 2,205 Net interest income 6,656 5,982 2,339 2,047 Provision for losses on loans 255 225 105 75 Net interest income after provision for loan losses 6,401 5,757 2,234 1,972 Non-interest income: Service fees 474 470 169 180 Gain on sale of loans 206 235 37 73 Net gain on sale of securities available for sale -0- 36 -0- -0- Other operating income 328 330 79 124 Total non-interest income 1,008 1,071 285 377 Non-interest expenses Salaries and related benefits 2,375 2,560 765 696 Net occupancy expense 635 614 205 209 Computer operations 99 78 31 28 Other operating expense 1,161 1,024 378 345 Total non-interest expenses 4,270 4,276 1,379 1,278 Income before income taxes 3,139 2,552 1,140 1,071 Provision for income taxes 1,023 805 381 352 Net income $ 2,116 $ 1,747 $ 759 $ 719 Income per share Basis: Weighted Average of 883,235 shares in 1999 and 1998 Basic and diluted earnings per share $ 2.40 $ 1.98 $ .86 $ .81
-2- PSB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
($ thousands) September 30, December 31, ASSETS 1999* 1998* Cash and due from banks $ 10,356 $ 8,752 Interest bearing deposits and money market funds 1,431 741 Federal funds sold -0- 3,934 Investment securities - Held to maturity (fair values of $14,333 and $14,346 respectively) 14,568 14,068 Available for sale (at fair value) 44,442 47,886 Loans held for sale 389 3,120 Loans receivable, net of allowance for loans losses of $2,177 and $1,947 in 1999 and 1998, respectively 170,159 148,582 Accrued interest receivable 2,015 1,725 Premises and equipment 3,849 3,886 Other assets 1,014 797 TOTAL ASSETS $ 248,223 $233,491 LIABILITIES Noninterest-bearing deposits $ 33,214 $ 33,150 Interest-bearing deposits 172,531 166,650 Total deposits 205,745 199,800 Short-term borrowings 10,592 4,550 Long-term borrowings 9,000 6,000 Other liabilities 1,338 2,585 Total liabilities 226,675 212,935 STOCKHOLDERS' EQUITY Common stock - no-par value, with a stated value of $2 per share - 1,000,000 shares authorized - 902,425 shares issued 1,805 1,805 Additional paid-in capital 7,159 7,159 Retained earnings 14,004 12,223 Net unrealized gain (loss) on securities available for sale, net of tax (617) 172 Treasury stock, at cost - 19,190 shares (803) (803) Total stockholders' equity 21,548 20,556 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $248,223 $233,491 *The consolidated balance sheet at September 30, 1999 is unaudited. The December 31, 1998 consolidated balance sheet is derived from audited financial statements.
-3- PSB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended Three Months Ended September 30, September 30, ($ thousands - unaudited) 1999 1998 1999 1998 Cash flows from operating activities: Net income $ 2,116 $ 1,747 $ 759 $ 719 Provision for depreciation, and net amortization 338 341 83 127 Provisions for loan losses 255 225 105 75 Gain on sale of loans (206) (235) (37) (73) Loss on uncollected items 46 0 0 0 Gain on sale of securities available for sale 0 (36) 0 0 Gain on sale of other real estate (21) (20) 0 0 Changes in operating assets and liabilities: Other assets (508) 264 (1,307) (258) Other liabilities (1,247) (446) (334) 75 Net cash provided by (used in) operating activities 773 1,840 (731) 665 Cash flows from investing activities: Proceeds from sale and maturities of: Held to maturity securities 2,171 931 268 200 Available for sale securities 9,265 12,168 1,510 674 Payment for purchase of Held to maturity securities (2,664) (2,465) 0 (473) Available for sale securities (7,880) (16,338) (1,117) (5,978) Net change in loans (19,101) (425) (5,472) (2,073) Net change in interest-bearing deposits 690 153 618 383 Net change in federal funds sold 3,934 (1,484) 0 5,595 Proceeds from sale of other real estate 66 157 0 (199) Capital expenditures (302) (550) (77) (64) Net cash used in investing activities (13,821) (7,853) (4,270) (1,935) Cash flows from financing activities: Net change in deposits 5,945 2,132 8,351 1,627 Net change in short-term borrowings 6,042 (517) (7,823) (175) Net change in long-term borrowings 3,000 3,000 6,000 0 Dividends paid (335) (310) 0 0 Net cash provided by financing activities 14,652 4,305 6,528 1,452 Net increase (decrease) in cash and cash equivalents 1,604 (1,708) 1,527 182 Cash and cash equivalents at beginning of period 8,752 10,623 8,829 8,733 Cash and cash equivalents at end of quarter $10,356 $ 8,915 $10,356 $8,915 Supplemental Cash Flow Information: Cash paid during the period for : Interest 6,351 6,543 2,208 2,204 Income taxes 1,067 775 420 373
-4- PSB HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying financial statements in the opinion of management reflect all adjustments which are normal and recurring in nature and which are necessary for a fair statement of the results for the periods presented. In all regards, the financial statements have been presented in accordance with generally accepted accounting principles. 2. Earnings per share of common stock is based on the weighted average number of common shares outstanding. 3. Refer to notes to the financial statements which appear in the 1998 annual report for the company's accounting policies which are pertinent to these statements. 4. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FASB 130), was issued and establishes standards for reporting and displaying comprehensive income and its components. FASB 130 requires comprehensive income and its components, as recognized under the accounting standards, to be displayed in a financial statement with the same prominence as other financial statements. The disclosure requirements of FASB 130 with respect to the Form 10-Q have been included in the corporation's consolidated balance sheets. Comprehensive income totaled the following for the periods indicated:
Nine months ended Three months ended ($ thousands) 9/30/99 9/30/98 9/30/99 9/30/98 Net Income $ 2,116 $ 1,747 $ 759 $ 719 Change in net unrealized gain or loss on securities available for sale, net of tax (789) 168 (184) 178 Comprehensive income $ 1,327 $ 1,915 $ 575 $ 897
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new accounting and reporting requirements for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The standard requires all derivatives to be measured at fair value and recognized as either assets or liabilities in the statement of condition. Under certain conditions, a derivative may be specifically designated as a hedge. Accounting for the changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Adoption of the standard is required for the corporation's December 31, 2001 financial statements with early adoption allowed as of the beginning of any quarter after June 30, 1998. Management is in the process of assessing the impact and period of adoption of the standard. Adoption is not expected to result in material financial impact. -5- 5. Investment Securities The amortized cost and estimated fair value of investment securities are as follows:
Gross Estimated Amortized Unrealized Unrealized Fair ($ thousands) COST GAINS LOSSES VALUE SEPTEMBER 30, 1999 Securities held to maturity: Obligations of states and political subdivisions $ 14,568 $ 46 $ 281 $ 14,333 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 44,679 $ 41 $ 1,026 $ 43,694 Other equity securities 1,978 1,978 Totals $ 46,657 $ 41 $ 1,026 $ 45,672 DECEMBER 31, 1998 Securities held to maturity Obligations of states and political subdivisions $ 14,068 $ 278 $ 955 $ 14,346 Securities available for sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 46,920 $ 342 $ 77 $ 47,185 Other equity securities 701 701 Totals $ 47,621 $ 342 $ 77 $ 47,886
-6- 6. Loans The composition of gross loans (excluding loans held for sale) at September 30, 1999, and December 31, 1998, follows:
September 30, 1999 % of total December 31, 1998 % of total ($ Thousands) Commercial 46,208 26.81% 40,514 26.91% Real Estate 112,314 65.17% 98,260 65.28% Consumer 13,814 8.02% 11,755 7.81% Total $172,336 100.00% $150,529 100.00%
Gross loans outstanding increased 14.75% for the nine months ended September 30, 1999: increasing to $172,336 at September 30, 1999 from $150,529 at December 31, 1998. The Company's process for monitoring loan quality includes weekly analysis of delinquencies, non-performing assets, and potential problem loans. Loans are placed on a nonaccrual status when they become contractually past due 90 days or more as to interest or principal payments. All interest accrued but not collected for loans (including applicable impaired loans) that are placed on nonaccrual or charged off is reversed to interest income. The interest on these loans is accounted for on the cash basis until qualifying for return to accrual status. Loans are returned to accrual status when all 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 considered impaired when, based on current information, it is probable that the bank will not collect all amounts due in accordance with the contractual terms of the loan agreement. Impairment is based on discounted cash flows of expected future payments using the loan's initial effective interest rate or the fair value of the collateral if the loan is collateral dependent. The decision of management to place loans in this category does not necessarily mean that the Company expects losses to occur but that management recognized that a higher degree of risk is associated with these loans. The aggregate amount of non-performing assets was $1,018 and $582 at September 30, 1999, and December 31, 1998, respectively. Non-performing assets are those which are either contractually past due 90 days or more as to interest or principal payments, on a nonaccrual status, or the terms of which have been renegotiated to provide a reduction or deferral of interest or principal. -7- The following table shows the amount of non-performing assets and other real estate owned as of the dates indicated.
AGGREGATE AMOUNT OF NON-PERFORMING LOANS September 30, % of total December 31, % of total 1999 LOANS 1998 LOANS Loans on a non-accrual basis Real estate - mortgage $ 292 .17% $ 35 .02% Installment loans 69 .04% 58 .04% Credit cards & related plans 0 0 Commercial & all other loans 657 .38% 489 .32% Total non-accrual $ 1,018 .59% $ 582 .39% Loans contractually past due thirty through eighty-nine days and still accruing Real estate - mortgage $ 173 .10% $ 520 .35% Installment loans 210 .12% 120 .08% Credit cards & related plans 0 0 Commercial & all other loans 1,121 .65% 704 .47% Total 30 - 89 days $ 1,504 .87% $ 1,344 .89% Loans contractually past due ninety days or more as to interest or principal payments Real estate - mortgage $ 0 $ 0 Installment loans 0 0 Credit cards & related plans 0 0 Commercial & all other loans 0 0 Total over 90 days $ 0 $ 0 Other real estate owned $ 0 $ 0
-8- SUMMARY OF LOAN LOSS EXPERIENCE The following table summarizes loan balances at the end of each period, changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off, by loan category and additions to the allowance which have been charged to expense.
Nine Months Ended Year Ended ($ thousands) SEPTEMBER 30, 1999 DECEMBER 31, 1998 Allowance for loan losses at beginning of period $1,947 $1,845 Loans charged off Commercial & Industrial (21) (138) Agricultural 0 0 Real Estate - Mortgage (72) 0 Installment & Other Consumer Loans (21) (69) Total Charge Offs (114) (207) Recoveries on loans previously charged off Commercial & Industrial 66 0 Agricultural 0 0 Real Estate - Mortgage 8 0 Installment & Other Consumer Loans 15 9 Total Recoveries 89 9 Net loans charged off (25) (198) Additions charged to operations 255 300 Allowance for loan losses at end of period $2,177 $1,947
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All $ amounts are in thousands, except per share amounts) This discussion will focus on information about the Company's financial condition and results of operations that are not otherwise apparent from the consolidated financial statements included in this report. Reference should be made to those statements presented elsewhere in this report for an understanding of the following discussion and analysis. This report contains certain of management's expectations and other forward-looking information regarding the Company. While the Company believes that these forward-looking statements are based on reasonable assumptions, all such statements involve risk and uncertainties that could cause actual results to differ materially from these contemplated in this report. A more comprehensive discussion of the risks and uncertainties which could cause actual results to be materially different from such expectations are set forth in Part I of the Company's Annual Report of Form 10-K for the year ended December 31, 1998 under the heading "Cautionary Statement Regarding Forward Looking Information." BALANCE SHEET During the first nine months of 1999, total assets increased by $16,000. Fed funds sold and investments decreased $5,600. The decrease was mainly due to the $3,000 decease in fed funds sold. Total loans (excluding loans held for sale) increased $21,800. The majority of the increase in the loan portfolio was from real estate loans. Real estate loans increased $14,100 and commercial loans increased $5,700. Total deposits decreased $5,900. Short term borrowings increased $6,000. Within short term borrowings, fed funds purchased increased $400 and repurchase agreements increased $5,600. Long term borrowings increased $3,000 from an additional FHLB advance. LIQUIDITY Liquidity refers to the ability of the Company to generate adequate amounts of cash to meet the Company's need for cash. The Company manages its liquidity to provide adequate funds to support borrowing needs and deposit flow of its customers. Management views liquidity as the ability to raise cash at a reasonable cost or with a minimum of loss and as a measure of balance sheet flexibility to react to marketplace, regulatory and competitive changes. The primary sources of the Company's liquidity are marketable assets maturing within one year. At September 30, 1999, the carrying value of debt securities maturing within one year amounted to $3,448 or 5.92% of the total debt securities portfolio. The Company attempts when possible, to match relative maturities of assets and liabilities, while maintaining the desired net interest margin. Marketable assets maturing within one year will continue to be the primary source of liquidity along with stable earnings, and strong capital position. -10- CAPITAL RESOURCES Stockholders' equity at September 30, 1999 increased $992, or 4.83% since December 31, 1998. This net increase was composed of: net income for the first nine months of $2,116, a cash dividend of $335 and a decrease in the "Net unrealized gain on securities available for sale" of $789. Equity to assets at September 30, 1999 was 8.64%. Cash dividends of $0.38 per share were declared in the first half of 1999, representing a payout ratio of 24.73% for the period ended June 30, 1999. The adequacy of the Company's capital is regularly reviewed to ensure sufficient capital is available for current and future needs and is in compliance with regulatory guidelines. As of September 30, 1999, the Company's tier 1 risk-based capital ratio, total risk-based capital, and tier 1 leverage ratio were well in excess of regulatory minimums. RESULTS OF OPERATIONS Net income for the nine months ended September 30, 1999, totaled $2,116, an increase of $369 over the $1,747 earned during the same period of 1998. Earnings per share were $2.40 for the nine months ended September 30, 1999 and $1.98 for the same period in 1998. Cash dividends declared were $0.38 per share in June 1999 and $0.35 per share in June 1998. Return on average common stockholders' equity amounted to 13.51% for the nine months ended September 30, 1999; compared to 11.82% for the nine months ended September 30, 1998. Return on average assets for the nine months ended September 30, 1999 amounted to 1.19%; compared to 1.07% for the nine months ended September 30, 1998. NET INTEREST INCOME Net interest income is the most significant component of earnings. For analysis purposes, interest earned on tax exempt assets is adjusted to a fully taxable equivalent basis. Average earning assets grew $18.8 million in the first nine months of 1999. The annualized net interest margin for the first nine months of 1999 was 3.98% or 8 basis points more than the 3.91% margin in the first nine months of 1998. The interest rate spread also increased, to 3.18% from 3.08% reported for September 30, 1998. The Company's net interest income was impacted by the interest rate environment encountered in the first nine months of 1999 as compared to 1998. The lower rate environment dropped our yields on earning assets to 7.78% compared to 8.17% in 1998. However, our costs for interest bearing deposits also dropped to 4.60% from 5.09% -11- PROVISION FOR CREDIT LOSSES Management determines the adequacy of the allowance for credit losses based on past loan experience, current economic conditions, composition of the loan portfolio, and the potential for future loss. Accordingly, the amount charged to expense is based on management's evaluation of the loan portfolio. It is the Company's policy that when available information confirms that specific loans and leases, or portions thereof, including impaired loans, are uncollectible, these amounts are promptly charged off against the allowance. The provision for credit losses was $255 for the nine months ended September 30, 1999 and $225 for the nine months ended September 30, 1998. The allowance for credit losses as a percentage of gross loans outstanding was $2,177 or 1.26% of total loans on September 30, 1999, compared to $1,927 or 1.29% of total loans on December 31, 1998. Net charge-offs as a percentage of average loans outstanding were .01% during the nine months ended September 30, 1999 and .11% during the first nine months of 1998. Non-performing loans are reviewed to determine exposure for potential loss within each loan category. The adequacy of the allowance for credit losses is assessed based on credit quality and other pertinent loan portfolio information. The adequacy of the reserve and the provision for credit losses is consistent with the composition of the loan portfolio and recent credit quality history. NON-INTEREST INCOME Non-interest income decreased 5.88% to $1,008 during the nine months ended September 30, 1999, from $1,071 during the nine months ended September 30, 1998. There were no gains or losses on securities during the nine months ended September 30, 1999. Fee income on deposit accounts increased $4 to $474 during the nine months ended September 30, 1999, from $470 during nine months ended September 30, 1998. Gain on the sale of loans decreased $29 to $206 for the nine months ended September 30, 1999 from $235 for the nine months ended September 30, 1998. Other non-interest income remained similar to the prior period. NON-INTEREST EXPENSE Non-interest expenses increased 10.22% to $4,270 for the nine months ended September 30, 1999, from $3,874 for the nine months ended September 30, 1998 before an additional Pension plan expense of $402 from the termination of our Defined Benefit Pension Plan recorded in 1998. The Company is expanding the use of technology throughout its banks in order to provide increased customer service and allow for more efficient consolidation of its operational areas. The Company has placed emphasis on increased productivity and standardization of programs and procedures throughout all of its locations. -12-
KEY OPERATING RATIOS (unaudited) Ended September 30, 1999 NINE MONTH PERIOD Three Month Period 1999 1998 1999 1998 Return on assets (net income divided by average assets) (1) 1.19% 1.07% 1.23% 1.30% Return on Average Equity (net income divided by average equity) (1) 13.51% 11.82% 14.38% 14.29% Average Equity to Average Assets 8.81% 9.04% 8.55% 9.09% Interest Rate Spread (difference between average yield on interest earning assets and average cost of interest bearing liabilities) (1) 3.18% 3.08% 3.22% 3.07% Net Interest Margin (net interest income as a percentage of average interest earning assets) (1) 3.98% 3.91% 4.01% 3.94% Non-interest Expense to average assets (1) 2.49% 2.61% 2.40% 2.31% Allowance for loan losses to total loans at end of period 1.26% 1.28% 1.26% 1.28% (1) Annualized
-13- SELECTED FINANCIAL DATA The following table presents consolidated financial data of PSB Holdings, Inc. and Subsidiary.
1999 Third Second First QUARTER QUARTER QUARTER (Dollars in thousands, except per share amounts) FINANCIAL HIGHLIGHTS: Earnings and Dividends: Net interest revenue $2,339 $2,188 $2,129 Provision for credit losses 105 75 75 Other noninterest income 285 396 327 Other noninterest expense 1,379 1,464 1,427 Net income 759 722 635 Per common share Basic and diluted earnings .86 .82 .72 Dividends declared 0 .38 0 Book value 24.40 23.75 23.75 Average common shares (000's) 883 883 883 Dividend payout ratio 0 24.73% 0 Balance Sheet Summary: Loans net of unearned income 170,548 165,181 152,017 Assets 249,453 242,683 229,246 Deposits 205,745 197,393 192,841 Shareholders equity 21,548 20,973 20,980 Average balances: Loans net of unearned income 167,938 165,307 151,652 Assets 246,973 241,987 227,383 Deposits 202,864 197,886 192,462 Shareholders equity 21,106 21,017 20,641 Performance Ratios: Return on average assets (1) 1.22% 1.19% 1.11% Return on average common equity (1) 14.38% 13.77% 12.36% Tangible Equity to assets 8.89% 8.82% 9.01% Net loan charge-offs as a percentage of average loans .01% .01% .05% Nonperforming assets as a percentage of average loans .59% .71% .20% Net interest margin (1) 4.01% 3.97% 3.97% Efficiency ratio (tax adjusted) 56.93% 55.69% 55.42% Liquidity ratio 28.33% 28.89% 33.18% Fee revenue as a percentage of average assets .11% .16% .14% (1) annualized
-14- 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 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 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 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. All systems are either Year 2000 compliant or will function, for the Company's purposes, even if not fully 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 -15- operations systems can be operated manually or with alternative controls should a Year 2000 problem occur. COSTS Costs on 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 is 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 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 reasonable 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 has prepared a business resumption contingency plan which will 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 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 was completed during the second quarter of 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the information provided in response to Item 7A of the Company's Form 10-K for the year ended December 31, 1998. -17- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: 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) 2.2 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)* -18- 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 (electronic filing only) *Denotes Executive Compensation Plans and Arrangements (b) Reports on Form 8-K: None. -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PSB HOLDINGS, INC. November 12, 1999 TODD R. TOPPEN Todd R. Toppen Secretary and Controller (On behalf of the Registrant and as Principal Financial Officer) EXHIBIT INDEX TO FORM 10-Q OF PSB HOLDINGS, INC. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 Pursuant to Section 102(d) of Regulation S-T (17 C.F.R. Section 232.102(d)) EXHIBIT 27 - FINANCIAL DATA SCHEDULE Exhibits required by Item 601 of Regulation S-K which have been previously filed and are incorporated by reference are set forth in Item 6 of the Form 10-Q to which this Exhibit Index relates. EX-27 2 ART. 9 FDS FOR 3-MONTHS 10-Q ENDED SEPTEMBER 30, 1999
9 1,000 9-MOS DEC-31-1999 SEP-30-1999 10,356 1,431 0 0 44,442 14,568 14,333 172,725 2,177 248,223 205,745 10,592 1,338 9,000 0 0 1,805 19,743 248,223 10,261 2,606 140 13,007 5,659 6,351 6,656 255 0 4,270 3,139 3,139 0 0 2,116 2.40 2.40 4.25 1,018 0 0 1,504 1,947 114 89 2,177 2,177 0 0
-----END PRIVACY-ENHANCED MESSAGE-----