Loans

12 Months Ended

Dec. 31, 2014

Loans [Abstract]

Loans

NOTE 5          Loans

The composition of loans at December 31 categorized by the type of the loan is as follows:

	2014			2013
Commercial, industrial, and municipal	$	134,768		$	130,220
Commercial real estate mortgage		203,501			212,850
Commercial construction and development		31,364			13,672
Residential real estate mortgage		128,347			123,980
Residential construction and development		13,711			18,277
Residential real estate home equity		23,517			20,677
Consumer and individual		3,627			3,567
Subtotals – Gross loans		538,835			523,243
Loans in process of disbursement		(7,145	)		(6,895	)
Subtotals – Disbursed loans		531,690			516,348
Net deferred loan costs		302			315
Allowance for loan losses		(6,409	)		(6,783	)
Net loans receivable	$	525,583		$	509,880

PSB, 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 collectability or present other unfavorable features. Activity in such loans is summarized below:

	2014			2013
Loans outstanding at beginning	$	6,663		$	7,371
New loans		1,500			3,519
Repayments		(1,183	)		(4,227	)
Loans outstanding at end	$	6,980		$	6,663

At December 31, 2014 and 2013, PSB had total loans receivable of approximately $5,723 and $4,595, respectively, from one related party.

Allowance for loan losses activity for the years ended December 31, 2014, 2013, and 2012, follows:

	2014
				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,828		$	2,653		$	1,223		$	79			–	$	6,783
Provision (credit)		(716	)		(321	)		1,564			33			–		560
Recoveries		4			3			19			9			–		35
Charge-offs		(215	)		(41	)		(694	)		(19	)		–		(969	)
Ending balance	$	1,901		$	2,294		$	2,112		$	102			–	$	6,409
Individually evaluated for impairment	$	976		$	511		$	746		$	25			–	$	2,258
Collectively evaluated for impairment	$	925		$	1,783		$	1,366		$	77			–	$	4,151
Loans receivable (gross):
Individually evaluated for impairment	$	10,542		$	5,378		$	3,203		$	25			–	$	19,148
Collectively evaluated for impairment	$	124,226		$	229,487		$	162,372		$	3,602			–	$	519,687

	2013
				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	3,014		$	2,803		$	1,511		$	103		$	0	$	7,431
Provision (credit)		3,435			(9	)		556			33			0		4,015
Recoveries		29			33			6			12			0		80
Charge-offs		(3,650	)		(174	)		(850	)		(69	)		0		(4,743	)
Ending balance	$	2,828		$	2,653		$	1,223		$	79		$	0	$	6,783
Individually evaluated for impairment	$	1,167		$	695		$	228		$	18		$	0	$	2,108
Collectively evaluated for impairment	$	1,661		$	1,958		$	995		$	61		$	0	$	4,675
Loans receivable (gross):
Individually evaluated for impairment	$	8,102		$	5,527		$	2,129		$	17		$	0	$	15,775
Collectively evaluated for impairment	$	122,118		$	220,995		$	160,805		$	3,550		$	0	$	507,468

	2012
				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	3,406		$	3,175		$	1,242		$	118		$	0	$	7,941
Provision (credit)		(270	)		142			877			36			0		785
Recoveries		6			4			21			6			0		37
Charge-offs		(128	)		(518	)		(629	)		(57	)		0		(1,332	)
Ending balance	$	3,014		$	2,803		$	1,511		$	103		$	0	$	7,431
Individually evaluated for impairment	$	1,327		$	674		$	407		$	26		$	0	$	2,434
Collectively evaluated for impairment	$	1,687		$	2,129		$	1,104		$	77		$	0	$	4,997
Loans receivable (gross):
Individually evaluated for impairment	$	5,263		$	4,204		$	2,946		$	26		$	0	$	12,439
Collectively evaluated for impairment	$	127,370		$	208,096		$	139,636		$	4,689		$	0	$	479,791

PSB maintains an independent credit administration staff that continually monitors aggregate commercial loan portfolio and individual borrower credit quality trends. All commercial purpose loans are assigned a credit grade upon origination, and credit grades for nonproblem borrowers with aggregate credit in excess of $500 are reviewed annually. In addition, all past due, restructured, or identified problem loans, both commercial and consumer purpose, are reviewed and assigned an up-to-date credit grade quarterly.

PSB uses a seven point grading scale to estimate credit risk with risk rating 1, representing the high credit quality, and risk rating 7, representing the lowest credit quality. The assigned credit grade takes into account several credit quality components which are assigned a weight and blended into the composite grade. The factors considered and their assigned weight for the final composite grade is as follows:

Cash flow (30% weight) – Considers earnings trends and debt service coverage levels.

Collateral (25% weight) – Considers loan-to-value and other measures of collateral coverage.

Leverage (15% weight) – Considers balance sheet debt and capital ratios compared to Robert Morris & Associates (RMA) industry medians.

Liquidity (10% weight) – Considers balance sheet current, quick, and other working capital ratios compared to RMA industry medians.

Management (5% weight) – Considers the past performance, character, and depth of borrower management.

Guarantor (5% weight) – Considers the existence of a guarantor along with a bank’s past experience with the guarantor and his related liquidity and credit score.

Financial reporting (5% weight) – Considers the relative level of independent financial review obtained by the borrower on its financial statements, from audited financial statements down to existence of only tax returns or potentially unreliable financial information.

Industry (5% weight) – Considers the borrower’s industry and whether it is stable or subject to cyclical or seasonal factors.

Nonclassified loans are assigned a risk rating of 1 to 4 and have credit quality that ranges from well above average to some inherent industry weaknesses that may present higher than average risk due to conditions affecting the borrower, the borrower’s industry, or economic development.

Special mention and watch loans are assigned a risk rating of 5 when potential weaknesses exist that deserve management’s close attention. If left uncorrected, the potential weaknesses may result in deterioration of repayment prospects or in credit position at some future date. Substandard loans are assigned a risk rating of 6 and are inadequately protected by the current worth and borrowing capacity of the borrower. Well-defined weaknesses exist that may jeopardize the liquidation of the debt. There is a possibility of some loss if the deficiencies are not corrected. At this point, the loan may still be performing and accruing.

Impaired and other doubtful loans assigned a risk rating of 7 have all of the weaknesses of a substandard credit plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of current facts, conditions, and collateral values highly questionable and improbable. Impaired loans include all nonaccrual loans and all restructured loans including restructured loans performing according to the restructured terms. In special situations, an impaired loan with a risk rating of 7 could still be maintained on accrual status such as in the case of restructured loans performing according to restructured terms.

The commercial credit exposure based on internally assigned credit grade at December 31, 2014 and 2013, follows:

	2014
	Commercial		Commercial Real Estate		Construction & Development		Agricultural		Government		Total
High quality (risk rating 1)	$	147	$	0	$	0	$	0	$	0	$	147
Minimal risk (2)		26,159		19,062		785		1,937		60		48,003
Average risk (3)		49,996		122,875		23,672		2,628		6,980		206,151
Acceptable risk (4)		32,908		50,863		4,725		477		291		89,264
Watch risk (5)		2,259		5,025		2,050		0		0		9,334
Substandard risk (6)		384		430		0		0		0		814
Impaired loans (7)		7,645		5,246		132		122		2,775		15,920
Totals	$	119,498	$	203,501	$	31,364	$	5,164	$	10,106	$	369,633

	2013
	Commercial		Commercial Real Estate		Construction & Development		Agricultural		Government		Total
High quality (risk rating 1)	$	44	$	0	$	0	$	0	$	0	$	44
Minimal risk (2)		24,085		19,249		120		1,115		78		44,647
Average risk (3)		51,745		145,673		8,863		2,563		6,512		215,356
Acceptable risk (4)		26,395		34,154		2,917		424		357		64,247
Watch risk (5)		8,146		7,572		1,632		0		0		17,350
Substandard risk (6)		654		815		0		0		0		1,469
Impaired loans (7)		4,860		5,387		140		152		3,090		13,629
Totals	$	115,929	$	212,850	$	13,672	$	4,254	$	10,037	$	356,742

The consumer credit exposure based on payment activity at December 31, 2014 and 2013, follows:

	2014
	Residential-		Residential-		Construction and
	Prime		HELOC		Development		Consumer		Total
Performing	$	126,035	$	23,117	$	13,220	$	3,602	$	165,974
Impaired loans		2,312		400		491		25		3,228
Totals	$	128,347	$	23,517	$	13,711	$	3,627	$	169,202

	2013
	Residential-		Residential-		Construction and
	Prime		HELOC		Development		Consumer		Total
Performing	$	122,408	$	20,167	$	18,230	$	3,550	$	164,355
Impaired loans		1,572		510		47		17		2,146
Totals	$	123,980	$	20,677	$	18,277	$	3,567	$	166,501

The payment age analysis of loans receivable disbursed at December 31, 2014 and 2013, follows:

	2014
	30-59		60-89		90+		Total				Total		90+ and
Loan Class	Days		Days		Days		Past Due		Current		Loans		Accruing
Commercial:
Commercial and industrial	$	532	$	49	$	470	$	1,051	$	118,448	$	119,498	$	0
Agricultural		0		0		122		122		5,042		5,164		0
Government		0		0		0		0		10,106		10,106		0
Commercial real estate:
Commercial real estate		331		0		793		1,124		202,376		203,501		0
Construction and development		81		0		0		81		26,044		26,125		0
Residential real estate:
Residential – Prime		361		321		1,184		1,866		126,481		128,347		0
Residential – HELOC		79		102		171		352		23,165		23,517		0
Construction and development		111		0		145		256		11,549		11,805		0
Consumer		11		4		0		15		3,612		3,627		0
Totals	$	1,506	$	476	$	2,885	$	4,867	$	526,823	$	531,690	$	0

	2013
	30-59		60-89		90+		Total				Total		90+ and
Loan Class	Days		Days		Days		Past Due		Current		Loans		Accruing
Commercial:
Commercial and industrial	$	284	$	57	$	610	$	951	$	114,978	$	115,929	$	0
Agricultural		0		0		152		152		4,102		4,254		0
Government		0		0		0		0		10,037		10,037		0
Commercial real estate:
Commercial real estate		376		547		1,276		2,199		210,651		212,850		0
Construction  and development		0		0		0		0		11,434		11,434		0
Residential real estate:
Residential – Prime		369		87		335		791		123,189		123,980		0
Residential – HELOC		45		14		314		373		20,304		20,677		0
Construction and development		37		0		0		37		13,583		13,620		0
Consumer		15		10		9		34		3,533		3,567		0
Totals	$	1,126	$	715	$	2,696	$	4,537	$	511,811	$	516,348	$	0

The following is a summary of information pertaining to impaired loans and nonperforming loans:

	December 31,
	2014		2013		2012
Impaired loans without a valuation allowance	$	9,021	$	9,303	$	3,410
Impaired loans with a valuation allowance		10,127		6,472		9,029
Total impaired loans before valuation allowances		19,148		15,775		12,439
Valuation allowance related to impaired loans		2,258		2,108		2,434
Net impaired loans	$	16,890	$	13,667	$	10,005

	Years Ended December 31,
	2014		2013		2012
Average recorded investment, net of allowance for loan losses	$	17,465	$	14,109	$	12,026
Interest income recognized	$	586	$	534	$	569
Interest income recognized on a cash basis on impaired loans	$	0	$	0	$	0

At December 31, 2014, $204 of funds were committed to be advanced on remaining available lines of credit in connection with impaired loans, while $201 of funds were committed to be advanced on remaining available lines of credit in connection with impaired loans at December 31, 2013.

Total loans receivable (including nonaccrual impaired loans) maintained on nonaccrual status as of December 31, 2014 and 2013 were $8,371 and $7,340, respectively. There were no loans past due 90 days or more but still accruing income at December 31, 2014 and 2013.

Detailed information on impaired loans by loan class at December 31, 2014 and 2013, and during the years then ended, follows:

	2014
	Unpaid						Average		Interest
	Principal		Related		Recorded		Recorded		Income
	Balance		Allowance		Investment		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	2,285	$	0	$	2,235	$	2,549	$	195
Commercial real estate		2,836		0		2,577		2,476		86
Commercial construction and development		0		0		0		0		0
Agricultural		0		0		0		0		0
Government		2,775		0		2,775		2,933		72
Residential – Prime		1,377		0		1,281		1,074		34
Residential – HELOC		153		0		153		132		5
Residential construction and development		0		0		0		0		0
Consumer		0		0		0		0		0
With an allowance recorded:
Commercial and industrial	$	5,697	$	940	$	5,410	$	3,705	$	162
Commercial real estate		3,041		488		2,669		2,840		7
Commercial construction and development		135		23		132		136		6
Agricultural		127		36		122		137		0
Residential – Prime		1,538		390		1,031		869		18
Residential – HELOC		273		186		247		324		0
Residential construction and development		503		170		491		269		1
Consumer		26		25		25		21		0
Totals:
Commercial and industrial	$	7,982	$	940	$	7,645	$	6,254	$	357
Commercial real estate		5,877		488		5,246		5,316		93
Commercial construction and development		135		23		132		136		6
Agricultural		127		36		122		137		0
Government		2,775		0		2,775		2,933		72
Residential – Prime		2,915		390		2,312		1,943		52
Residential – HELOC		426		186		400		456		5
Residential construction and development		503		170		491		269		1
Consumer		26		25		25		21		0

	2013
	Unpaid						Average		Interest
	Principal		Related		Recorded		Recorded		Income
	Balance		Allowance		Investment		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	2,906	$	0	$	2,861	$	2,172	$	135
Commercial real estate		2,555		0		2,376		1,740		85
Commercial construction and development		1		0		0		0		0
Agricultural		0		0		0		0		0
Government		3,090		0		3,090		1,545		150
Residential – Prime		979		0		866		845		14
Residential – HELOC		110		0		110		55		3
Residential construction and development		0		0		0		0		0
Consumer		0		0		0		0		0
With an allowance recorded:
Commercial and industrial	$	2,231	$	1,112	$	1,999	$	2,813	$	43
Commercial real estate		3,143		621		3,011		2,955		81
Commercial construction and development		142		74		140		171		8
Agricultural		152		55		152		153		0
Residential – Prime		749		101		706		1,085		9
Residential – HELOC		412		119		400		453		5
Residential construction and development		49		8		47		106		1
Consumer		19		18		17		22		0
Totals:
Commercial and industrial	$	5,137	$	1,112	$	4,860	$	4,985	$	178
Commercial real estate		5,698		621		5,387		4,695		166
Commercial construction and development		143		74		140		171		8
Agricultural		152		55		152		153		0
Government		3,090		0		3,090		1,545		150
Residential – Prime		1,728		101		1,572		1,930		23
Residential – HELOC		522		119		510		508		8
Residential construction and development		49		8		47		106		1
Consumer		19		18		17		22		0

The loans on nonaccrual status at December 31, follows:

	2014		2013
Commercial:
Commercial and industrial	$	2,519	$	1,575
Agricultural		122		152
Commercial real estate:
Commercial real estate		3,505		4,103
Construction and development		18		17
Residential real estate:
Residential – Prime		1,426		1,059
Residential – HELOC		280		387
Construction and development		476		30
Consumer		25		17
Totals	$	8,371	$	7,340

The following table presents information concerning modifications of troubled debt made during 2014 and 2013:

					Postmodification
			Premodification		Outstanding
			Outstanding		Recorded
	Number of		Recorded		Investment
As of December 31, 2014	contracts		Investment		at Period-End
Commercial and industrial		5	$	1,252	$	1,152
Commercial and real estate		7		1,469		1,374
Government		1		2,775		2,775
Residential real estate - Prime		3		401		275

During the year ended December 31, 2014, approximately $1,445, or 25%, of the modified loan principal was restructured to capitalize unpaid property taxes, and $4,452, or 75%, was modified to extend amortization periods or to lower the existing interest rate. No loan principal was charged off or forgiven in connection with the modifications. At December 31, 2014, specific loan loss reserves maintained on loans modified or restructured during 2014 totaled $591.

The following table outlines past troubled debt restructurings that subsequently defaulted during 2014 when the default occurred within 12 months of the last restructuring date. For purposes of this table, default is defined as 90 days or more past due on restructured payments.

	Number of Contracts		Recorded Investment at Period-End
Commercial and industrial		4	$	323
Commercial real estate		3		337
Residential real estate - Prime		2		0

The contracts noted above were originally restructured primarily to lower the interest rate and convert payments to interest only. Collateral supporting the modified loans was in the process of foreclosure at period-end. No specific loan loss reserves were maintained on these impaired loans at December 31, 2014. 

					Postmodification
			Premodification		Outstanding
			Outstanding		Recorded
	Number of		Recorded		Investment
As of December 31, 2013	contracts		Investment		at Period-End
Commercial and industrial		7	$	1,012	$	642
Commercial and real estate		5		587		564
Residential real estate - Prime		5		867		852

During the year ended December 31, 2013, approximately $1,272, or 52%, of the modified loan principal was restructured to capitalize unpaid property taxes, and $1,194, or 48%, was modified to extend amortization periods or to lower the existing interest rate. No loan principal was charged off or forgiven in connection with the modifications. At December 31, 2013, specific loan loss reserves maintained on loans modified or restructured during 2013 totaled $258.

The following table outlines past troubled debt restructurings that subsequently defaulted during 2013 when the default occurred within 12 months of the last restructuring date. For purposes of this table, default is defined as 90 days or more past due on restructured payments.

	Number of Contracts		Recorded Investment at Period-End
Commercial and industrial		1	$	0
Commercial real estate		1		80
Residential real estate - Prime		1		87

The contracts noted above were originally restructured primarily to lower the interest rate and convert payments to interest only. Collateral supporting the modified loans was in the process of foreclosure at period-end. No specific loan loss reserves were maintained on these impaired loans at December 31, 2013.

Under a secondary market loan servicing program with the FHLB, in exchange for a monthly fee, PSB provides a credit enhancement guarantee to reimburse the FHLB for foreclosure losses in excess of 1% of original loan principal sold to the FHLB. At December 31, 2014, PSB serviced payments on $18,834 of first lien residential loan principal under these terms for the FHLB. At December 31, 2014, the maximum PSB obligation for such guarantees would be approximately $949 if total foreclosure losses on the entire pool of loans exceed approximately $1,412. Management believes the likelihood of reimbursement for credit loss payable to the FHLB on loans underwritten according to program requirements beyond the monthly credit enhancement fee is remote. PSB recognizes the credit enhancement fee as mortgage banking income when received in cash and does not maintain any recourse liability for possible credit enhancement losses.

PSB had originated and sold $3,137 and $5,202 of commercial and commercial real estate loans to other participating financial institutions at December 31, 2014 and 2013, respectively, to accommodate customer credit needs and maintain compliance with internal and external large borrower limits. Likewise, PSB had purchased $22,404 and $27,404 of commercial and commercial real estate loans originated by other Wisconsin-based financial institutions at December 31, 2014 and 2013, respectively, as part of informal reciprocal relationships that allow the originating bank to meet the needs of their large credit customers. PSB does not charge servicing fees to the participating institutions on these traditional loan participations sold by PSB, and no servicing right asset or liability has been recognized on these relationships. Any credit losses incurred on purchased or sold participation loans upon liquidation are shared pro-rata among the participants based on principal owned.