FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
COMMISSION FILE NO. 0-26480
PSB HOLDINGS, INC.
(Exact name of registrant as specified in charter)
1905 W. STEWART AVENUE WISCONSIN
WAUSAU, WI 54401 (State of
incorporation)
39-1804877
(Address of principal executive office) (I.R.S. Employer
Identification
Number)
Registrant's telephone number, including area code: 715-842-2191
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of each class)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. <checked-box>
As of March 15, 2001, the aggregate market value of the common stock held by
non-affiliates was $21,224,051.
As of March 15, 2001, 839,705 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT DATED MARCH 30, 2001 (TO THE EXTENT NOTED HEREIN): PART III
TABLE OF CONTENTS
PAGE
PART 1
Item 1. Business .............................................1
Item 2. Properties ...........................................6
Item 3. Legal Proceedings ....................................6
Item 4. Submission of Matters to a Vote of Security Holders ..6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................7
Item 6. Selected Financial Data ..............................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................9
Item 7A. Quantitative and Qualitative Disclosure About Market
Risk ................................................28
Item 8. Financial Statements and Supplementary Data .........29
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure .................60
PART III
Item 10. Directors and Executive Offers of Registrant ........61
Item 11. Executive Compensation ..............................61
Item 12. Security Ownership of Certain Beneficial Owners
and Management ......................................61
Item 13. Certain Relationships and Related Transactions ......61
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................ 62
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PART I
ITEM 1. BUSINESS.
PSB HOLDINGS, INC.
PSB Holdings, Inc., a Wisconsin corporation (the "Company"), was
formed in 1995. 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
Peoples State Bank (the "Bank"). Except as may otherwise be noted, this
Annual Report on Form 10-K describes the business of the Company and the
Bank as in effect on December 31, 2000.
The Company intends to pursue opportunities to acquire additional bank
subsidiaries or banking offices so that, at any time, it may be engaged in
some tentative or preliminary discussions for such purposes with officers,
directors or principal shareholders of other holding companies or banks.
There are no plans, understandings, or arrangements, written or oral,
regarding other acquisitions as of the date hereof.
THE BANK
GENERAL
The Bank was organized as a state banking corporation under the laws
of the state of Wisconsin in August, 1962. The Bank's principal office is
located at 1905 West Stewart Avenue, Wausau, Wisconsin, 54401. The Bank's
principal branch offices are located in the city of Wausau, Rib Mountain
Township, Marathon City, and the city of Rhinelander, Wisconsin. The Bank
provides various commercial and consumer banking services for customers
located principally in Marathon County and portions of Lincoln and Oneida
Counties, Wisconsin.
The Bank is engaged in general commercial and retail banking. The
Bank serves individuals, businesses, and governmental units and offers
most forms of commercial and consumer lending, including lines of credit,
secured and unsecured term loans, real estate financing and mortgage
lending. In addition, the Bank provides a full range of personal banking
services, including checking accounts, savings and time accounts,
installment and other personal loans, as well as mortgage loans. The Bank
offers automated teller machines and online computer banking to its
customers to expand its services to customers on a 24-hour basis. New
services are frequently added to the Bank's retail banking departments.
The Bank offers discount brokerage services at its Wausau branch
locations, 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,
securities, and loans.
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PRINCIPAL SOURCES OF REVENUE
The table below shows the amount and percentages of the Bank's total
consolidated operating revenues resulting from interest on loans and
leases and interest on investment securities for each of the last three
years:
($ in thousands)
Interest on loans and Interest on Investment
LEASES SECURITIES
Percent Percent
of Total of Total
Year Ended Operating Operating
DECEMBER 31, AMOUNT REVENUES AMOUNT REVENUES
2000 $18,260 78.1 $3,485 14.9
1999 14,065 74.3 3,471 18.3
1998 13,404 73.8 3.020 16.6
BANK MARKET AREA AND COMPETITION
There is a mix of retail, manufacturing, agricultural and service
businesses in the area served by the Bank. The Bank has substantial
competition in its market area. Much of this competition comes from
companies which are larger and have greater resources than the Company.
The Bank competes for deposits and other sources of funds with other
banks, savings associations, credit unions, finance companies, mutual
funds, life insurance companies and other financial and non-financial
companies. Many of these nonbank competitors offer products and services
which are functionally equivalent to the products and services offered by
the Bank.
Recent changes in banking laws have had a significant effect on the
competitive environment in which the Bank operates and are likely to
continue to increase competition for the Bank. For example, current
federal law permits adequately capitalized and managed bank holding
companies to engage in interstate banking on a much broader scale than in
the past. Banks are also permitted to create interstate branching
networks in states which do not "opt out" of the new laws. The Gramm-
Leach-Bliley Act of 1999 has also increased the competitive environment
for the Bank. Under this act, financial holding companies are now
permitted to conduct a broad range of banking, insurance and securities
activities. The Company believes that the combined effects of more
interstate banking and the development of greater "one-stop" availability
for banking, insurance and securities services will both increase the
overall level of competition and attract competitors with which the Bank
may not now compete for its customers.
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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 March 15, 2001, the Bank had 111 employees, including 29
employed on a part-time basis. Officers and certain supervisors are
salaried, and other full and 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.
EXECUTIVE OFFICERS
The executive officers of the Company as of March 15, 2001, their ages
and principal occupations during the last five years are set forth below.
David K. Kopperud, 55 President of the Company and the Bank since
July, 1999; previously Executive Vice President
of the Bank (1994-1999) and
Vice President of the Bank (1991-1994).
Kenneth M. Selner, 54 Vice President & Secretary of the Company;
Executive Vice President of the Bank.
Todd R. Toppen, 42 Treasurer of the Company; Vice President of the
Bank since 1994, Assistant Vice President 1988 to
1993.
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 the 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, the
Company and the Bank are also subject to regulations which govern the
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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 directorates 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 sanctions 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 minimum capital. Information concerning
the Company's compliance with applicable capital requirements is set forth
in Note 15 of the Notes to Consolidated Financial Statements.
Banking laws and regulations have undergone periodic revisions that
often have a direct or indirect 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. The Gramm-Leach-Bliley Act of 1999, which eliminated
many of the barriers to affiliation among banks, insurance companies and
other securities or financial services companies, is an example of
legislation which may, and often does, materially affect the operation of
the Company's business. Depending on the scope and timing of future
regulatory changes, it is likely they will affect the competitive
environment in which the Company operates or increase costs of regulatory
compliance and, accordingly, 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 a direct and indirect influence on the
costs of funds used by the Bank for lending and its actions have a
substantial effect on interest rates, the general availability of credit
and the economy as a whole. These policies therefore affect the growth of
bank loans and deposits and the rates charged for loans and paid for
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. The Company is not able to anticipate
the future impact of such policies and practices on the growth or
profitability of the Company.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of
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, reports to shareholders, press
releases, and in other 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.
-4-
Examples of forward-looking statements include, but are not limited
to: (1) expectations concerning financial performance of the Company, (2)
expectations concerning the payment of dividends, (3) statements of plans
and objectives of the Company, (4) statements of future economic
performance and (5) 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:
(1) the strength of the U.S. economy in general and the strength of the
local economies in the markets served by the Bank;
(2) the effects of and changes in government policies, including interest
rate policies of the FRB;
(3) inflation, interest rate, market and monetary fluctuations;
(4) the timely development of and acceptance of new products and services;
(5) changes in consumer spending, borrowing and saving habits;
(6) increased competition in the Company's principal market area;
(7) technological changes;
(8) acquisitions and the inability to successfully integrate acquired
institutions or branches into current operations;
(9) the effect of changes in laws and regulations which increase operating
costs or increase competition;
(10)the effect of changes in accounting policies and practices; and
(11)the costs and effects of litigation and of unexpected or adverse
outcomes in such litigation.
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ITEM 2. PROPERTIES.
The Company's operations are carried out at the Bank's administrative
office facility at 1905 West Stewart Avenue, Wausau, Wisconsin. The
Company does not maintain any separate offices.
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.
One location occupies leased space within a supermarket which is designed
for commercial banking operations.
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 2000, 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 or may be 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 Company management, would have a
material adverse effect on the operations, liquidity or consolidated
financial condition of the Company.
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 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET
There is no active established public trading market in the Company
common stock. Bid and ask prices are quoted on the OTC Bulletin Board
under the symbol "PSBQ.OB." Transactions in the Company common stock are
limited and sporadic. During 2000, 27 transactions with a total volume of
86,000 shares were reported on the OTC Bulletin Board. Of those, 14 were
transactions in which the Company purchased a total of 40,690 shares of
stock. At December 31, 2000, the quoted bid price for the stock was
$28.00.
On January 10, 2000, the Board of Directors authorized the Company to
repurchase up to 45,000 shares of its issued and outstanding common stock.
As of December 31, 2000, the Company had repurchased 43,530 shares under
that authorization. The shares purchased represented approximately 4.93%
of the shares outstanding at January 10, 2000. As of December 31, 2000,
and as of March 15, 2001, 839,705 shares of the Company's common stock
were outstanding.
HOLDERS
As of December 31, 2000 there were approximately 980 holders of record
of the Company's common stock. Some of the Company's shares are held in
"street" name and the number of beneficial owners of such shares is not
known nor included in the foregoing number.
DIVIDENDS
The Company's bylaws provide that, subject to the provisions of
applicable law, the Board of Directors may declare dividends from
unreserved and unrestricted earned surplus, at such times and in such
amounts as the board shall deem advisable.
The Company's ability to pay dividends depends upon the receipt of
dividends from the Bank. Payment of Bank dividends is subject to various
limitations under banking laws and regulations. The declaration of
dividends by the Company is discretionary and will depend upon operating
results and financial condition, regulatory limitations, tax
considerations and other factors. The Company has paid regular dividends
since its inception in 1995.
Per share dividends declared by the Company in its two most recent
fiscal years were:
1999 2000
Second Quarter $.38 $.38
Fourth Quarter $.62 $.65
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ITEM 6. SELECTED FINANCIAL DATA.
The following table presents consolidated financial data of the
Company and its subsidiary. This information and the following discussion
and analysis should be read in conjunction with other financial
information presented elsewhere in this report.
YEARS ENDED DECEMBER 31
($ in thousands, except per share amounts)
2000 1999 1998 1997 1996
CONSOLIDATED SUMMARY OF EARNINGS:
Total interest income $ 21,940 $ 17,671 $ 16,746 $ 15,744 $ 14,824
Total interest expense 12,540 8,598 8,722 8,253 7,769
Provision for loan and lease losses 600 460 300 230 180
Net interest income after provision for
loan and lease losses 8,800 8,613 7,724 7,261 6,875
Total other income 1,446 1,265 1,408 745 990
Total other expense (except income taxes) 6,474 6,221 6,115 4,932 4,715
Net income $ 2,670 $ 2,589 $ 2,089 $ 2,103 $ 2,156
Per Share:
Basic and diluted
Earnings per share $ 3.11 $ 2.93 $ 2.36 $ 2.37 $ 2.39
Common dividends declared 1.03 1.00 .93 .90 .85
Other significant data:
Return on average shareholders
equity 12.33% 12.31% 10.62% 11.15% 11.98%
Return on average assets .94% 1.08% .96% 1.02% 1.10%
Dividend payout ratio 32.64% 34.12% 39.33% 37.85% 35.40%
Average equity to average assets
ratio 7.63% 8.75% 9.06% 9.15% 9.16%
2000 1999 1998 1997 1996
CONSOLIDATED SUMMARY BALANCE SHEETS
Total assets $306,239 $259,889 $233,491 $215,019 $204,158
Total deposits 241,534 202,354 199,800 186,603 178,129
Short-term borrowings 11,515 21,215 4,549 3,960 5,766
Long-term borrowings 28,000 13,000 6,000 3000 0
Stockholders' equity 22,274 21,046 20,556 19,217 18,289
Other significant data:
Book value per share at year end $ 26.53 $ 23.83 $ 23.27 $ 21.76 $ 20.42
Average common shares outstanding 858,286 883,235 883,235 887,988 900,641
Shareholders of record at year end 980 990 975 974 974
Employees at year end (FTE) 86 91 87 78 70
Historically reported credit quality ratios:
Net loan and lease charge-offs to average
loans and leases .14% .19% .14% .22% .03%
Allowance for loan and lease losses to
End of period loans and leases 1.06% 1.15% 1.27% 1.24% 1.39%
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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following management's discussion and analysis reviews significant
factors with respect to the Company's financial condition and results of
operations at and for the three-year period ended December 31, 2000. This
discussion should be read in conjunction with the consolidated financial
statements, notes, tables, and the selected financial data presented
elsewhere in this report.
The Company is not aware of any current recommendations by any
regulatory authority, which, if they were implemented, would have a
material effect on liquidity, capital resources, or operations.
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, in this Annual Report on Form 10-K for the year ended
December 31, 2000.
RESULTS OF OPERATIONS
The Company's consolidated net income for 2000 was $2,669,619 compared
with $2,588,982 in 1999, and $2,088,577 in 1998. Net income increased
3.11% in 2000 from 1999 and 23.96% in 1999 from 1998. Results for 1998
included a pre-tax expense of $405,891 relating to the termination of our
defined benefit pension plan.
Return on average common stockholders' equity amounted to 12.33% in
2000 compared to 12.31% in 1999, and 10.62% in 1998.
Return on average assets for 2000 amounted to .94% compared to 1.08%
for 1999 and .96% in 1998.
Net income per share amounted to $3.11 in 2000, compared to $2.93 in
1999 and $2.36 in 1998. Cash dividends declared in 2000 was $1.03 per
share, compared to $1.00 in 1999 and $.93 in 1998. The per share ratio of
dividends to shareholders to net income was 32.64% in 2000, compared to
34.12% in 1999 and 39.33% in 1998.
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
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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
that reflect changes in market prices and rates, can be found in footnote
17 on the Notes to the 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. Whereas, a sudden and substantial
decrease in interest rates will positively impact the Company's earnings.
The Company does not engage in trading activities.
NET INTEREST INCOME
Net interest income represents the difference between interest earned
on loans, securities and other interest-earning assets, and the interest
expense associated with the deposits and borrowings that fund them.
Interest rate fluctuations together with changes in volume and types of
earning assets and interest-bearing liabilities combine to affect total
net interest income.
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INTEREST INCOME & EXPENSE VOLUME & RATE CHANGE
2000 compared to 1999 1999 compared to 1998
increase (decrease) increase (decrease)
due to (1) due to (1)
($ in thousands) VOLUME RATE NET VOLUME RATE NET
Interest earned on:
Loans (2) $3,741 487 4,228 $1,362 (696) 666
Taxable investment securities 29 38 67 445 (18) 427
Non-taxable investment
securities (2) (81) 1 (80) 58 (21) 37
Other interest income 40 20 60 (183) (5) (188)
Total 3,729 546 4,275 1,682 (740) 942
Interest paid on:
Savings and demand deposits 438 822 1,260 509 (178) 331
Time deposits 573 688 1,261 (440) (482) (922)
Short-term borrowings 306 195 501 465 (62) 403
Long-term borrowings 758 163 921 87 (23) 64
Total 2,075 1,868 3,943 621 (745) (124)
Net interest earnings $ 1,654 (1,322) 332 $1,061 5 1,066
<FN>
(1)The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of change in each.
(2)The amount of interest income on non-taxable loans and investment
securities has been adjusted to its fully taxable equivalent using a 34%
tax rate.
The following table demonstrates how the changing interest rate
environment affected the net yield on earning assets (on fully tax
equivalent basis) for the three-year period ending December 31, 2000.
Year Ended December 31, 2000 1999 1998
Yield Change Yield Change Yield Change
Yield on earning assets 8.28% + .32% 7.96% - .31% 8.27% -.09%
Effective rate on all liabilities
as a % of earning assets 4.66 + .86% 3.80 - .43% 4.23 -.06%
Net yield on earning assets 3.62 - .54% 4.16 +.12% 4.04 -.03%
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The 2000 figures as a percent of average earning assets reflects an
increase in interest rates during 2000. The Company will focus on
increasing net interest income in 2001 through continued control of
interest expense, maintaining the level of interest rates on loans, and
managing rates on the investment portfolio.
Loans are the largest component of earning assets. On average, loans
grew $44 million to $208 million for 2000, and represented 77.1% of
earning assets. A change in the total yield on the loan portfolio
generally has the largest impact on net interest income. The yield on
total loans increased 22 basis points to 8.8% in 2000. The yield was
strongly impacted by the loans tied to the prime lending rate repricing
immediately with a change in the rate, and competitive pricing on loans.
Deposits are the largest component of interest bearing liabilities.
Deposit growth has not kept pace with asset growth, in part because of a
low rate of personal savings by households and competition for depositor
funds from higher-yielding investments. On average, total deposits grew
$23 million for 2000, and represented 83.1% of interest bearing
liabilities, compared to 90.0% for 1999. As a result, the Bank had
greater dependence on wholesale funds to fund the asset growth. On
average, borrowed funds increased 106.9% to $39 million in 2000.
The following table sets forth average consolidated balance sheet data
and average rate data on a tax equivalent basis for the periods,
indicated.
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DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND DIFFERENTIALS
2000 1999 1998
Average Yield/ Average Yield/ Average Yield/
($ IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
Assets
Interest earning assets:
Loans (1)(2)(3) $207,527 $18,283 8.81% $163,929 $14,065 8.58% $148,806 $13,404 9.01%
Taxable investment
securities 48,290 3,072 6.36% 47,091 2,912 6.18% 39,631 2,470 6.23%
Nontaxable investment
securities(2) 13,074 905 6.92% 14,251 985 6.91% 13,423 947 7.06%
Federal funds sold 179 12 6.70% 811 44 5.43% 4,620 248 5.37%
Total (2) 269,070 22,272 8.28% 226,082 18,006 7.96% 206,480 17,069 8.27%
Non-interesting earning
assets:
Cash and due from
banks 8,467 8,694 8,497
Premises & equip. - net 4,352 3,892 3,949
Other assets 4,178 3,843 3,578
Less: allow. loan loss (2,280) (2,085) (1,929)
Total 283,787 240,426 220,575
Liabilities & Stockholders' Equity
Interest bearing liabilities:
Savings and demand
deposits 86,926 3,972 4.57% 74,835 2,712 3.62% 61,657 2,381 3.86%
Time deposits 104,021 6,134 5.90% 93,069 4,873 5.24% 100,713 5,795 5.75%
Short-term borrowings 17,233 1,140 6.62% 11,661 640 5.49% 3,803 237 6.23%
Long-term borrowings 21,733 1,294 5.95% 7,168 373 5.20% 5,724 309 5.40%
Total 229,913 12,540 5.45% 186,733 8,598 4.60% 171,897 8,722 5.07%
Non-interest bearing
Liabilities:
Demand deposits 30,209 30,616 26,827
Other liabilities 2,025 2,039 1,875
Stockholders' equity 21,660 21,038 19,976
Total 283,787 240,426 220,575
Net interest income 9,732 9,408 8,347
Rate spread 2.83% 3.36% 3.20%
Net yield on interest
earning assets 3.62% 4.16% 4.04%
<FN>
(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, using a federal tax
rate of 34%.
(3) Loan fees are included in total interest income as follows: 2000-$240,
1999-$172, 1998-$155.
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The preceding table shows a 2000 increase of 32 basis points in gross
yield on interest earning assets. The average rate on taxable investment
securities increased 18 basis points in 2000 to 6.36%, up from 6.18% in
1999. Time deposits rates increased by 66 basis points while funds
shifted into the more liquid Money Market deposit accounts, which the
Company continued to promote throughout 2000 in an effort to retain
deposits to support loan demand. Average deposits for 2000 showed an
increase of $22,636 increasing to $221,156 from 198,520 in 1999. Average
borrowing increased $20,137 increasing from $18,829 in 1999 to $38,966 in
2000. The average rate on all interest bearing liabilities increased by 85
basis points in 2000 to 5.45% up from 4.60% in 1999.
As the largest component of operating income, improvements in the
growth of net interest income are important to the Company's earnings
performance. The Company uses modeling and analysis techniques to its
asset-liability structure to manage net interest income and the related
interest rate risk position. The Company seeks to meet the needs of its
customers, yet provide for stability in net interest income in the event
of significant interest rate changes.
MIX OF AVERAGE INTEREST-EARNING ASSETS AND AVERAGE INTEREST-BEARING
LIABILITIES
Year Ended December 31 2000 1999 1998
Loans 77.13% 72.51% 72.07%
Taxable Investments 17.95% 20.83% 19.19%
Non-taxable 4.86% 6.30% 6.50%
Other .06% .36% 2.24%
100.00% 100.00% 100.00%
Savings and demand
deposits 37.81% 40.08% 35.87%
Time deposits 45.24% 49.84% 58.59%
Short term borrowing 7.50% 6.24% 2.21%
Long term borrowing 9.45% 3.84% 3.33%
100.00% 100.00% 100.00%
-14-
NON-INTEREST INCOME
The following table shows the major components of non-interest income.
($ in thousands)
Year Ended December 31, 2000 1999 1998
Non-interest income:
Service fees $855 $709 $699
Net realized gain on sale of
securities available for sale 36
Gain on sale of loans 66 223 332
Investment sales commissions 195 138 147
Other operating income 330 195 193
Total non-interest income 1,446 1,265 1,407
Total 2000 operating non-interest income, excluding gains from sales of
loans, increased by $338 or 32.44%, over 1999, compared to a decrease of
$33, or 3.07% in 1999 over 1998.
NON-INTEREST EXPENSE
The following table shows the major components of non-interest
expense.
($ in thousands)
2000 1999 1998
Salaries and employee benefits $3,842 $3,621 $3,331
Loss on settlement on pension plan 406
Occupancy 937 859 828
Data processing and other office operations 460 441 421
Advertising and promotion 211 222 202
Director compensation and benefits 158 170 142
Other operating 866 908 785
Total non-interest expense $6,474 $6,221 $6,115
Total non-interest expense increased $253 in 2000 or 4.07% in 2000.
Personnel expense accounts for 87.35% of this increase, up $221 over 1999.
Occupancy expenses in 2000 increased $78 over 1999.
Salaries and employee benefits increased $221 or 6.10% compared to
1999. This category continues to be the largest component of non-interest
expense, representing 59.35% of operating expenses in 2000 and 58.21% and
-15-
54.47% in 1999 and 1998, respectively. The increase in 2000 was attributable
to base merit pay increases, incentive pay and new positions added.
Occupancy expense increased $78 or 9.08% in 2000. Data processing
costs increased by $19 or 4.31% in 2000 compared to 1999. Other operating
expense decreased by $42 or 4.63% in 2000.
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 uncollectable, these amounts are promptly charged off against
the allowance. The provision for loan losses was $600,000 in 2000;
compared to $460,000 in 1999 and $300,000 in 1998. The allowance for loan
losses as a percentage of gross loans outstanding was 1.06% at December
31, 2000; 1.15% at December 31, 1999; and 1.27% at December 31, 1998. The
increased provision in 2000 is intended to provide adequate reserves for
potential losses. Charge-offs as a percentage of average loans
outstanding were .14% in 2000; .19% in 1999; and .13% in 1998. Charge-
offs have not been concentrated in any industry or business segment as
reflected in the schedule below.
The loan portfolio is the primary asset subject to credit risk.
Credit risk is controlled through the use of credit standards, review of
potential borrowers, and loan payment performance. As of December 31,
2000, the allowance for loan losses grew by 14.67% to $2,407,439 compared
to $2,099,241 at the end of 1999.
The allowance for loan losses shown in the following table represents
a general allowance available to absorb future losses within the entire
portfolio.
-16-
ALLOWANCE FOR LOAN LOSS
($ in thousands)
YEAR ENDED
DECEMBER 31
2000 1999 1998 1997 1996
Average balance of loans
for period $207,527 $163,929 $148,806 $140,962 $130,783
Allowance for loan losses at
beginning of period $ 2,099 $ 1,947 $ 1,845 $ 1,925 $ 1,781
Loans charged off
Commercial & Industrial (250) (322) (138) (156) (48)
Real Estate - Mortgage (14) (72) 0 (136) 0
Installment & Other
Consumer Loans (51) (38) (69) (59) (25)
Total Charge Offs (315) (432) (207) (351) (73)
Recoveries on loans previously
charged off
Commercial & Industrial 16 67 0 17 33
Real Estate - Mortgage 3 7 0 19 0
Installment & Other
Consumer Loans 4 50 9 5 4
Total Recoveries $23 $124 $9 $41 $37
Net loans charged off ($292) ($308) ($198) ($310) ($36)
Additions charged to
operations 600 460 300 230 180
Allowance for loan losses
at end of period $ 2,407 $ 2,099 $ 1,947 $ 1,845 $ 1,925
Ratio of net charge offs
during period to average
loans outstanding 0.14% 0.19% 0.13% 0.22% 0.03%
Ratio of allowance for loan
losses to total loans
receivable at end of period 1.06% 1.15% 1.27% 1.24% 1.39%
-17-
The allowance for loan losses represents management's estimate of an
amount adequate to provide for potential losses in the loan portfolio.
Adequacy of the allowance for loan losses is based on management's ongoing
review and grading of the loan portfolio, past loan loss experience,
trends in past due and nonperforming loans, current economic conditions,
and collateral.
In the opinion of management, the allowance for loan losses is
adequate as of December 31, 2000. While management uses available
information to recognize losses on loans, future adjustments may be
necessary based on changes in economic conditions.
The allocation of the year-end allowance for loan losses for each of
the past three years based on management's estimates of loss exposure by
category of loans is shown in the following table. Management believes
this allocation is appropriate in light of current and expected economic
conditions, the geographic and industry mix of the loan portfolio and
other risk related factors. Commercial loans secured by real estate are
included in this table under the category of real estate and the allowance
for loan losses is allocated to cover expectations of loss.
($ in thousands)
YEAR ENDED DECEMBER 31
2000 1999 1998
as a % as a % as a %
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
Commercial, financial and
agriculture $1,467 22.70% $1,263 26.74% $1,120 25.74%
Real Estate $ 249 69.53% $ 217 64.73% $ 201 65.98%
Installment and
Other loans to
Individuals $ 369 6.94% $ 322 7.32% $ 298 7.65%
Impaired Loans $ 322 .83% $ 297 1.21% $ 328 .63%
Unallocated $ 0 n/a $ 0 n/a $ 0 n/a
Total $2,407 100.00% $2,099 100.00% $1,947 100.00%
Factors that are critical to managing overall credit quality are sound
loan underwriting and administration, and monitoring existing loans. The
Company's process for monitoring loan quality includes weekly analysis of
delinquencies, non-performing assets 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
-18-
payments. All interest accrued (including applicable impaired loans) but
not collected for loans that are placed on non-accrual 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. The total
reduction in interest income as a result of discontinuing the accrual of
interest on loans that are delinquent for over 90 days was $135,000 during
2000.
The term "impaired loan" refers to certain commercial loans with respect
to which, based on current information, it is probable that the Company will
not be able to collect all amounts due in accordance with the contractual
terms of the loan agreement. Impairment is based on discounted cash flows of
expected future payments using the loans effective interest rate or the fair
value of the collateral if the loan is collateral dependent.
An analysis of impaired loans follows:
($ in thousands)
AT DECEMBER 31, 2000 1999 1998 1997 1996
Non-accrual $ 803 $ 510 $ 564 $ 484 $ 43
Accruing income 1,098 1,696 406 640 270
Total impaired loans 1,901 2,206 970 1,124 313
Less - Allowance for loan losses 322 297 328 178 20
Net investment in impaired loans $1,579 $1,909 $ 642 $ 946 $ 293
($ in thousands)
YEARS ENDED DECEMBER 31, 2000 1999 1998 1997 1996
Average recorded investment,
net of allowance for loan losses $1,948 $1,874 $ 820 $1,191 $ 304
Interest income recognized $ 175 $ 118 $ 40 $ 83 $ 23
-19-
The Company maintained generally high loan quality during 2000. The
following table sets forth the amount of risk element loans as of the
dates indicated.
($ in thousands)
DECEMBER 31
2000 1999 1998 1997 1996
Loans on a non-accrual basis $1,123 $ 620 $ 582 $ 835 $ 247
Loans contractually past due
ninety days or more as to
interest or principal payments
and still accruing interest $ 0 $ 0 $ 0 $ 7 $ 275
Restructured loans $1,348 $ 278 $ 296 $ 618 $ 0
Total non-performing loans $2,471 $ 898 $ 878 $1,460 $ 522
Other real estate owned $ 17 $ 24 $ 0 $ 336 $ 0
Total non-performing assets $2,488 $ 922 $ 878 $1,796 $ 522
The reserve for loan losses continues to provide substantial non-
performing loan coverage, at 96.74% at December 31, 2000. This compares
to non-performing loan coverage of 227.66% at December 31, 1999, and
221.75% at December 31, 1998.
INCOME TAXES
The effective tax rate was 29.22% in 2000, 29.19% in 1999, and 30.76%
in 1998.
LIQUIDITY AND INTEREST SENSITIVITY
The Bank's Asset Liability Management process provides a unified
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 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. 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. The following table represents the
Company's earning sensitivity to changes in interest rates at December 31,
2000.
-20-
The following table reflects a negative gap position in all categories
one year or less; the cumulative one-year gap ratio is negative at 65.62%.
The Bank is attempting to change this trend in the gap ratio by offering
more time deposit products maturing over one year and shortening final
loan maturities and offering more variable rate loan products. A
significant portion of consumer deposits do not re-price 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 re-price fully with market
rates over the simulation period. The assumptions are based on historical
experience with the Bank's individual markets and customers and include
projections for how management expects to continue to price in response to
marketplace and market changes. The Asset Liability Committee uses
financial modeling techniques that measure the interest rate risk.
Policies established by the Bank's Asset liability Committee limit
exposure of earnings at risk. Management considers that an acceptable
range for the rate sensitivity ratio is 70-130%.
INTEREST RATE RISK EXPOSURE
DECEMBER 31, 2000
90 DAY 91-180 DAYS 181-365 DAYS 1-5 YEARS BEYOND 5 YEARS TOTAL
Loans $ 48,623 $ 17,723 $ 29,671 $128,486 $ 2,720 $227,223
Securities 3,274 500 1,995 22,435 35,902 64,106
Fed Funds & Other 53 53
$ 51,950 $ 18,223 $ 31,666 $150,924 $ 38,622 $291,382
Cumulative Rate
Sensitive Assets $ 51,950 $ 70,173 $101,839 $ 252,760 $ 291,382
<$100M CDs &
Other Time Deposits $ 11,801 $ 16,942 $ 21,287 $ 11,116 $ $ 61,146
Money Market Accounts 20,326 13,550 13,550 20,326 67,752
Regular Savings 1,660 2,490 2,490 9,962 16,602
Now Accounts 2,408 1,605 1,605 2,408 8,026
>$100M & Over CDs 9,300 19,645 18,823 5,048 52,816
or equal to FF Purch, Repo,
& Other
Borrowed Funds 8,219 542 6,606 21,148 3,000 39,515
$ 53,714 $ 37,129 $ 64,361 $ 54,957 $ 35,696 $245,857
Cumulative Rate
Sensitive Liabilities $ 53,714 $ 90,843 $155,204 $210,161 $ 245,857
Rate Sensitive Gap $(1,764) $(18,906) $(32,695) $ 95,964 $ 2,926
Cumulative Rate
Sensitivity Gap $(1,764) $(20,670) $(53,365) $ 42,599 $ 45,525
Cumulative Gap Ratio 96.72% 77.25% 65.62% 120.27% 118.52%
-21-
INVESTMENT PORTFOLIO
The investment securities portfolio is intended to provide liquidity,
flexible asset/liability management and a source of stable income.
The following table shows the relative maturities of the investment
portfolio as of December 31, 2000 using amortized cost. Weighted average
yields on tax-exempt securities have been calculated on a tax equivalent
basis using a tax rate of 34%. Yields on securities available for sale
are calculated based on amortized cost.
After one After two After five
Within but within but within but within Over
ONE YEAR TWO YEARS FIVE YEARS TEN YEARS TEN YEARS
($ in thousands)
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
U.S. Treasury $ 500 4.60% -- $ -- -- $ -- -- $ -- -- __
U.S. Government
agencies and
corporations 4,100 5.99% 1,501 5.84% 14,395 6.11% 11,348 6.15% 16,434 6.33%
State and political
subdivisions
(domestic) 855 6.93% 1,127 7.10% 3,456 7.02% 8,537 6.78% -- --
Other equity
securities 2,056 8.00% - - -- -- -- -- -- --
Total $ 7,511 6.53% $ 2,628 6.39% $17,851 6.29% $19,885 6.42% $16,434 6.33%
The Company follows 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.
Securities with an approximate carrying value of $12,554,863 and
$20,207,957, at December 31, 2000 and 1999 respectively, were pledged
primarily to secure public deposits and for repurchase agreements.
-22-
The following table sets forth the distribution of investment
securities as of the dates indicated.
($ in thousands)
DECEMBER 31
2000 1999 1998
Amount % of Total Amount % of Total Amount % of Total
U.S. Treasury and
other U.S. Government
agencies and corporations $ 48,075 74.99% $ 45,742 75.82% $ 47,185 76.16%
State and political
subdivisions (domestic) 13,975 21.80% 13,843 22.94% 14,068 22.71%
Other equity securities 2,056 3.21% 747 1.24% 701 1.13%
Total $ 64,106 100.00% $ 60,332 100.00% $ 61,954 100.00%
During 2000, the interest rates beyond one year decreased. The market
value of the fixed income portion on the investment portfolio as a
percentage of book value has increased due to the decrease in interest
rates. At December 31, 2000, market value was 99.73% of book value. The
net unrealized loss on securities available for sale, recorded as a
separate component of stockholders' equity, was $124,815, net of deferred
income taxes of $79,267 compared to a loss of $1,043,128, net of deferred
taxes of $460,773 at December 31, 1999.
The Bank's investment subsidiary, PSB Investments, Inc., was formed in
May, 1992, and currently holds approximately $62,800,000 in investments
and loans at book value. Income tax expense for 2000 was approximately
$165,000 lower as a result of holding these investments and loans at the
subsidiary.
AMORTIZED COST VALUE AND MARKET VALUE OF INVESTMENT SECURITIES
December 31, 2000 December 31, 1999
Amortized Cost Amortized Cost
Value Market Value Value Market Value
U.S. treasury securities and obligations
Of other U.S. Govt agencies & Corp $48,278,448 $48,074,367 $47,245,814 $45,741,912
Obligations to states & political
Subdivisions $13,974,600 $14,005,308 $13,843,068 $13,472,511
Other securities $ 2,056,372 $ 2,056,372 $ 747,274 $ 747,274
Totals $64,309,420 $64,136,047 $61,836,156 $59,961,697
-23-
LOAN PORTFOLIO
The following table sets forth the approximate maturities of the loan
portfolios and the sensitivity of loans to interest changes as of
December 31, 2000.
MATURITY
Over one
($ in thousands) One year year thru Over
OR LESS FIVE YEARS FIVE YEARS
Commercial, industrial, and financial $25,410 $ 23,811 $ 895
Agricultural 980 2,321 4
Real estate mortgage 68,756 88,570 578
Installment & other consumer loans 2,904 10,735 2,145
Total $98,050 $125,437 $3,622
INTEREST SENSITIVITY
Amounts of loans due after one year with: Fixed Variable
($ in thousands) RATE RATE
Commercial, industrial, and financial $ 10,497 $ 14,209
Agriculture 1,488 837
Real estate mortgage 53,314 35,834
Installment & other consumer loans 12,465 415
Total $ 77,764 $ 51,295
Loan growth for the year ended December 31, 2000 was 24.36%;
increasing from $182,623,354 at December 31, 1999 to $227,109,086 at
December 31, 2000. The composition of loans outstanding as of the dates
indicated are as follows:
($ in thousands)
Dec 31 % of Dec 31 % of Dec 31 % of Dec 31 % of Dec 31 % of
2000 total 1999 total 1998 total 1997 total 1996 total
Commercial, industrial
and financial $ 53,421 23.53% $ 51,053 27.95% $ 40,415 25.29% $ 33,801 22.69% $ 30,351 22.04%
Real estate mortgage 157,904 69.53% 118,195 64.73% 101,380 65.98% 102,953 69.09% 93,171 67.65%
Installment and other
consumer loans 15,784 6.94% 13,375 7.32% 11,755 7.65% 12,262 8.23% 14,210 10.32%
Total $227,109 100.00% $182,623 100.00% $153,649 100.00% $149,016 100.00% $137,732 100.00%
Loans held for sale as of December 31, 2000 totaled $114. There
were no loans held for sale as of December 31, 1999.
Real estate mortgage loans totaled $157,904 at the end of 2000 and
$118,195 at the end of 1999. Loans in this classification in 2000 include
$83,726 of loans secured by 1-to-4 family residential properties.
-24-
Residential real estate loans consist of home mortgages, home equity
lines, and second mortgages. At the end of 2000, real estate loans
comprise 69.53% of the total loans outstanding, up from 64.73% at the end
of 1999. The commercial and industrial loan classification primarily
consists of commercial loans to small businesses. Loans of this type are
in a broad range of industries.
Installment loans to individuals totaled $15,784 at the end of 2000,
up from $13,375 at the end of 1999. Installment loans include short-term
installment loans, automobile loans, recreational vehicle loans, credit
card loans, and other personal loans.
DEPOSITS
The average balances of deposits and the average rate paid on these
deposits during the years ended December 31, 2000, 1999, and 1998 are:
($ in thousands)
2000 1999 1998
BALANCE RATE BALANCE RATE BALANCE RATE
Non-interest bearing
demand deposits $ 30,209 $ 30,616 $ 26,827
Interest bearing demand
and savings deposits 86,926 4.57% 74,835 3.62% 61,657 3.86%
Time deposits 104,021 5.90% 93,069 5.24% 100,713 5.75%
Total $221,156 $198,520 $189,197
Average total deposits in 2000 were $221 million, an increase of 11.4%
or $23 million over 1999. Average non-interest-bearing demand deposits as
a percentage of total average deposits decreased to 13.66% of total
deposits compared to 15.42% in 1999 and 14.18% in 1998. The total average
noninterest-bearing and interest-bearing demand, savings, and money
market deposits increased to $117 million for 2000 from $105 million in
1999. These deposits as percentage of total average assets were 41.28%
for 2000, 43.86% for 1999, and 40.12% for 1998.
-25-
The amount of time certificates of deposit issued in amounts of
$100,000 or more and outstanding as of December 31, 2000 is approximately
$52,816,000. Their maturity distribution as of December 31, 2000 and 1999
is as follows:
(in thousands)
2000 1999
- three months or less $ 9,300 $ 10,346
- over three months through six months $ 19,645 $ 12,324
- over six months through twelve months $ 18,823 $ 5,381
- over one year through five years $ 5,048 $ 1,076
- over five years $ 0 $ 0
Total $ 52,816 $ 29,127
The Bank does not have any deposits in foreign banking offices.
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under repurchase
agreements, an open line of credit from Federal Home Loan Bank, and
federal funds purchased. The repurchase agreements are payable on demand.
Average total short-term borrowings were $17.2 million in 2000 compared
with $11.7 million in 1999. Information related to the Bank's funds
purchased and security repurchase agreements for the last three years is
as follows:
($ in thousands)
2000 1999 1998
Securities sold under repurchase agreements $ 7,662 $10,738 $ 4,550
Federal Home Loan Bank open line of credit 3,853 0 0
Federal funds purchased 0 10,477 0
Totals $11,515 $21,215 $ 4,550
Average amount outstanding during the year $17,232 $11,661 $ 3,803
Maximum amount outstanding at any month's end 26,863 21,215 5,220
Weighted average interest rate at year end 6.83% 5.90% 5.63%
Weighted average interest rate during the year 6.62% 5.49% 6.23%
-26-
SUMMARY QUARTERLY FINANCIAL INFORMATION
The following is a summary of the quarterly results of operations for
the years ended December 31, 2000, 1999 and 1998.
THREE MONTHS ENDED
March 31 June 30 September 30 December 31
($ in thousands, except per share data)
2000
Interest income $4,907 $5,305 $5,666 $6,062
Interest expense $2,576 $2,991 $3,414 $3,559
Net interest income $2,331 $2,314 $2,252 $2,503
Provision for loan losses $150 $150 $150 $150
Net income applicable to common stock $573 $680 $545 $872
Earnings per common share $0.64 $0.78 $0.65 $1.04
1999
Interest income $4,179 $4,281 $4,547 $4,664
Interest expense $2,050 $2,093 $2,208 $2,247
Net interest income $2,129 $2,188 $2,339 $2,417
Provision for loan losses $75 $75 $105 $205
Net income applicable to common stock $635 $722 $759 $473
Earnings per common share $0.72 $0.82 $0.86 $0.53
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
CAPITAL ADEQUACY
Stockholders' equity at December 31, 2000, increased to $22,274,374 or
$26.53 per share compared with $21,046,417 or $23.83 per share at the end
of 1999. Included in capital at year-end 2000 is a $(124,814) equity
component compared to $(1,043,128) at December 31, 1999, related to
unrealized losses on securities AFS, net of their tax effect. Cash
dividend paid in 2000 were $1.03 per share compared to $1.00 per share in
1999.
The adequacy of the Company's capital is regularly reviewed to ensure
that sufficient capital is available for current and future needs and is
in compliance with regulatory guidelines. As of December 31, 2000, 1999,
1998, the Company's Tier 1 risk-based capital ratios, total risk-based
-27-
capital ratios and Tier 1 leverage ratios were well in excess of
regulatory requirements, (see Item 8, Note 15 of the Notes to Consolidated
Financial Statements). Management feels the capital structure of the
Company is adequate.
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 at
December 31, 2000, which reflect changes in market prices and rates, can
be found in Item 8, Note 17 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. The Company believes that
it does not have a material exposure to interest-rate risk.
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.
-28-
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, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders'
equity, and cash flows for the three years ended December 31, 2000. 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, 2000 and 1999, and the
results of their operations and their cash flows for the three years ended
December 31, 2000 in conformity with generally accepted accounting
principles.
WIPFLI ULLRICH BERTELSON LLP
Wipfli Ullrich Bertelson LLP
January 26, 2001
Wausau, Wisconsin
-29-
PSB HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
ASSETS
Cash and due from banks $ 9,225,645 $11,925,985
Interest-bearing deposits and money market funds 88,494 61,779
Federal funds sold 53,000
Securities:
Held to maturity (fair values of $14,005,308
and $13,472,511, in 2000 and 1999, respectively) 13,974,600 13,843,068
Available for sale (at fair value) 50,130,739 46,489,186
Loans held for sale 114,000
Loans receivable, net of allowance for loan losses
of $2,407,439 and $2,099,241 in 2000 and 1999,
respectively 224,701,647 180,524,113
Accrued interest receivable 2,101,513 1,746,038
Premises and equipment 4,750,856 3,897,223
Other assets 1,098,328 1,401,641
TOTAL ASSETS $306,238,822 $259,889,033
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing deposits $ 35,192,386 $ 33,657,598
Interest-bearing deposits 206,341,892 168,696,643
Total deposits 241,534,278 202,354,241
Short-term borrowings 11,514,743 21,214,890
Long-term borrowings 28,000,000 13,000,000
Accrued expenses and other liabilities 2,915,427 2,273,485
Total liabilities 283,964,448 238,842,616
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 15,726,996 13,928,790
Accumulated other comprehensive loss, net of tax (124,814) (1,043,128)
Treasury stock, at cost - 62,720 shares and
19,190 shares in 2000 and 1999, respectively (2,291,163) (802,600)
Total stockholders' equity 22,274,374 21,046,417
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $306,238,822 $259,889,033
See accompanying notes to consolidated financial statements.
-30-
PSB HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
Interest income:
Interest and fees on loans $18,259,930 $14,065,041 $13,403,646
Interest on securities:
Taxable 2,888,251 2,821,551 2,394,816
Tax-exempt 597,000 649,901 625,427
Other interest and dividends 194,503 134,512 322,546
Total interest income 21,939,684 17,671,005 16,746,435
Interest expense:
Deposits 10,105,320 7,584,588 8,175,617
Short-term borrowings 1,140,346 639,760 237,059
Long-term borrowings 1,294,350 373,416 308,913
Total interest expense 12,540,016 8,597,764 8,721,589
Net interest income 9,399,668 9,073,241 8,024,846
Provision for loan losses 600,000 460,000 300,000
Net interest income after
provision for loan losses 8,799,668 8,613,241 7,724,846
Noninterest income:
Service fees 855,069 708,794 699,145
Net realized gain on sale of
securities available for sale 35,867
Gain on sale of loans 66,440 223,002 332,027
Investment sales commissions 195,212 137,621 146,756
Other operating income 329,548 195,230 192,903
Total noninterest income 1,446,269 1,264,647 1,406,698
Noninterest expense:
Salaries and employee benefits 3,841,735 3,621,239 3,330,964
Loss on settlement of pension plan 405,891
Occupancy 937,071 858,719 827,558
Data processing and other office
operations 459,746 440,588 421,488
Advertising and promotion 211,073 222,435 201,754
Other operating 1,024,693 1,078,425 927,312
Total noninterest expense 6,474,318 6,221,406 6,114,967
Income before income taxes 3,771,619 3,656,482 3,016,577
Provision for income taxes 1,102,000 1,067,500 928,000
Net income $2,669,619 $2,588,982 $2,088,577
Basic and diluted earnings per share $ 3.11 $ 2.93 $ 2.36
Weighted average shares outstanding 858,286 883,235 883,235
See accompanying notes to consolidated financial statements.
-31-
PSB HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK TOTALS
Balance, January 1, 1998 $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
of $36,245 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
Comprehensive income:
Net income 2,588,982 2,588,982
Unrealized loss on securities
available for sale, net of tax
of $553,766 (1,215,545) (1,215,545)
Total comprehensive income 1,373,437
Cash dividends declared $1.00
per share (883,235) (883,235)
Balance, December 31, 1999 1,804,850 7,158,505 13,928,790 (1,043,128) (802,600) 21,046,417
Comprehensive income:
Net income 2,669,619 2,669,619
Unrealized gain on securities
available for sale, net of tax
of $381,507 918,314 918,314
Total comprehensive income 3,587,933
Purchase of treasury stock (1,488,563) (1,488,563)
Cash dividends declared $1.03
per share (871,413) (871,413)
Balance, December 31, 2000 $1,804,850 $7,158,505 $15,726,996 $ (124,814) $(2,291,163) $ 22,274,374
See accompanying notes to consolidated financial statements.
-32-
PSB HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
Cash flows from operating activities:
Net income $ 2,669,619 $ 2,588,982 $ 2,088,577
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and net amortization 570,555 554,059 520,981
Benefit from deferred income taxes (81,000) (70,000) (169,900)
Provision for loan losses 600,000 460,000 300,000
Proceeds from sales of loans held for sale 4,722,650 21,214,462 26,186,442
Originations of loans held for sale (4,770,210) (17,871,010) (28,674,365)
Gain on sale of loans (66,440) (223,002) (332,027)
Gain on sale of premises and equipment (69,000)
Net gain on sale of other real estate (21,461) (4,134)
Net gain on sale of securities available for sale (35,867)
FHLB stock dividends 129,800
Changes in operating assets and liabilities:
Accrued interest receivable (355,475) (20,695) 12,150
Other assets 75,956 (109,686) (25,811)
Accrued expenses and other liabilities 540,486 (276,212) 316,587
Net cash provided by operating activities 3,966,941 6,225,437 182,633
Cash flows from investing activities:
Proceeds from sale and maturities of:
Held to maturity securities 1,290,001 2,865,000 1,340,000
Available for sale securities 6,393,719 13,262,495 17,470,126
Payment for purchase of:
Held to maturity securities (1,439,927) (2,664,188) (2,881,464)
Available for sale securities (8,878,698) (13,653,389) (27,616,227)
Net increase in loans (44,777,534) (32,402,322) (1,709,893)
Net (increase) decrease in interest-bearing
deposits and money market funds (26,715) 679,214 (587,722)
Net decrease (increase) in federal funds sold (53,000) 3,934,000 (3,934,000)
Capital expenditures (1,442,917) (522,284) (633,488)
Proceeds from sale of premises and equipment 119,568
Proceeds from sale of other real estate 24,196 76,722 503,667
Net cash used in investing activities (48,791,307) (28,424,752) (18,049,001)
-33-
PSB HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(Continued)
2000 1999 1998
Cash flows from operating activities:
Net increase in non-interest-bearing deposits $ 1,534,788 $ 507,689 $ 5,585,407
Net increase in interest-bearing deposits 37,645,249 2,046,655 7,611,785
Net increase (decrease) in short-term
borrowings (9,700,147) 16,665,382 589,466
Proceeds from issuance of long-term
borrowings 25,000,000 10,000,000 3,000,000
Repayments of long-term borrowings (10,000,000) (3,000,000)
Dividends paid (867,301) (846,189) (791,254)
Purchase of treasury stock (1,488,563)
Net cash provided by financing activities 42,124,026 25,373,537 15,995,404
Net increase (decrease) in cash and due from banks (2,700,340) 3,174,222 (1,870,964)
Cash and due from banks at beginning 11,925,985 8,751,763 10,622,727
Cash and due from banks at end $ 9,225,645 $11,925,985 $ 8,751,763
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 12,071,704 $ 8,738,300 $ 8,734,905
Income taxes 983,000 1,416,524 877,563
Noncash investing and financing activities:
Loans charged off 314,876 432,444 207,450
Loans transferred to other real estate 17,352 79,457 198,544
See accompanying notes to consolidated financial statements.
-34-
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 in Marathon County, and Rhinelander, Wisconsin in Oneida
County. It provides a variety of banking products including uninsured
investment product sales and long-term fixed rate residential mortgages.
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 certain
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.
-35-
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES (Continued)
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.
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. After being placed on nonaccrual 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). Fees received on
loans are credited to income when received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the
principal is unlikely. Management believes the allowance for loan losses
is adequate to cover probable credit losses relating to specifically
identified loans, as well as probable credit losses inherent in the
balance of the loan portfolio. In accordance with current accounting
standards, the allowance is provided for losses that have been incurred as
of the balance sheet date. The allowance is based on past events and
current economic conditions, and does not include the effects of expected
losses on specific loans or groups of loans that are related to future
events or expected changes in economic conditions. While management uses
the best information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant changes in
economic conditions.
In addition, various regulatory agencies periodically review the allowance
for loan losses. These agencies may require the subsidiary Bank to make
additions to the allowance for loan losses based on their judgments of
collectibility based on information available to them at the time of their
examination.
-36-
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of 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 estimated costs 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.
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.
-37-
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ADVERTISING AND PROMOTIONAL COSTS
Costs relating to Company advertising and promotion are generally expensed
when paid.
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, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS No. 138, " Accounting for
Certain Derivative Instruments and Certain Hedging Activities." Under
these SFAS, the Company must recognize all material derivatives as either
assets or liabilities in the balance sheet and measure those instruments
at fair value. Changes in fair value are generally recognized in earnings
in the period of the change. The adoption of SFAS No. 133 and No. 138 did
not have a material impact on the Company's financial condition or results
of operations.
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. 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.
-38-
NOTE 3 CASH AND DUE FROM BANKS
Cash and due from banks in the amount of $875,000 was restricted at
December 31, 2000 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, 2000 totaled $6,348,019.
-39-
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, 2000
Securities held to maturity -
Obligations of states and political
SUBDIVISIONS $ 13,974,600 $ 101,316 $ 70,608 $ 14,005,308
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 48,278,448 $ 194,876 $ 398,957 $ 48,074,367
OTHER EQUITY SECURITIES 2,056,372 2,056,372
TOTALS $ 50,334,820 $ 194,876 $ 398,957 $ 50,130,739
DECEMBER 31, 1999
Securities held to maturity -
Obligations of states and political
SUBDIVISIONS $ 13,843,068 $ 17,904 $ 388,461 $ 13,472,511
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 47,245,814 $ 13,398 $ 1,517,300 $ 45,741,912
OTHER EQUITY SECURITIES 747,274 747,274
TOTALS $ 47,993,088 $ 13,398 $ 1,517,300 $ 46,489,186
-40-
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, 2000, by
contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
ESTIMATED
AMORTIZED FAIR
COST VALUE
SECURITIES HELD TO MATURITY
Due in one year or less $ 855,392 $ 856,165
Due after one year through five years 4,582,808 4,616,128
DUE AFTER FIVE YEARS THROUGH TEN YEARS 8,536,400 8,533,015
TOTALS $13,974,600 $14,005,308
SECURITIES AVAILABLE FOR SALE
Due in one year or less $ 4,599,564 $ 4,588,552
Due after one year through five years 15,994,892 15,892,650
Due after five years through ten years 3,977,666 3,929,126
MORTGAGE-BACKED SECURITIES 23,706,326 23,664,039
TOTALS $48,278,448 $48,074,367
Securities with an approximate carrying value of $12,554,863 and
$20,207,957 at December 31, 2000 and 1999, respectively, were pledged to
secure public deposits and short-term borrowings and for other purposes
required by law.
No securities were sold in 2000 or 1999. Proceeds from securities sales
in 1998 were $1,533,300. Gross gains of $35,867 were realized on those
sales.
As a member of the Federal Home Loan Bank (FHLB) system, the Bank is
required to hold stock in the FHLB based on the anticipated level of
borrowings to be advanced. This stock is recorded at cost which
approximates fair value. Transfer of the stock is substantially
restricted. Equity securities include $2,008,700 and $699,600 of FHLB
stock at December 31, 2000 and 1999, respectively.
-41-
NOTE 5 LOANS
The composition of loans is as follows:
2000 1999
Commercial and industrial $ 53,420,913 $ 51,053,737
Real estate mortgage
(commercial and residential) 149,859,334 111,923,276
Real estate construction 11,231,393 9,653,803
CONSUMER AND INDIVIDUAL 15,784,138 13,374,588
Subtotals 230,295,778 186,005,404
Less:
Loans in process of disbursement 3,186,692 3,382,050
ALLOWANCE FOR LOAN LOSSES 2,407,439 2,099,241
NET LOANS $224,701,647 $180,524,113
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:
2000 1999
Loans outstanding, January 1 $ 4,344,679 $ 5,038,511
New loans 2,045,266 3,411,051
REPAYMENTS (2,391,667) (4,104,883)
LOANS OUTSTANDING, DECEMBER 31 $ 3,998,278 $ 4,344,679
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.
-42-
NOTE 5 LOANS (Continued)
An analysis of impaired loans follows:
AT DECEMBER 31, 2000 1999
Nonaccrual $ 802,907 $ 509,971
ACCRUING INCOME 1,097,938 1,696,412
Total impaired loans 1,900,845 2,206,383
LESS - ALLOWANCE FOR LOAN LOSSES 322,104 297,009
NET INVESTMENT IN IMPAIRED LOANS $ 1,578,741 $ 1,909,374
YEARS ENDED DECEMBER 31, 2000 1999 1998
Average recorded investment, net
OF ALLOWANCE FOR LOAN LOSSES $ 1,947,806 $ 1,874,008 $ 819,630
INTEREST INCOME RECOGNIZED $ 174,963 $ 118,162 $ 39,569
Interest income recognized on a
CASH BASIS ON IMPAIRED LOANS $ 101,618 $ 6,366 $ 2,769
An analysis of the allowance for loan losses for the three years ended
December 31, follows:
2000 1999 1998
Balance, January 1 $ 2,099,241 $ 1,946,864 $ 1,845,064
Provision charged to
operating expense 600,000 460,000 300,000
Recoveries on loans 23,074 124,821 9,250
LOANS CHARGED OFF (314,876) (432,444) (207,450)
BALANCE, DECEMBER 31 $ 2,407,439 $ 2,099,241 $ 1,946,864
-43-
NOTE 6 PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
2000 1999
Land $ 1,605,349 $ 709,117
Buildings and improvements 3,793,211 3,466,588
Furniture and equipment 3,526,351 3,196,731
CONSTRUCTION IN PROGRESS 8,470 162,947
Total cost 8,933,381 7,535,383
LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION 4,182,525 3,638,160
TOTAL $ 4,750,856 $3,897,223
Depreciation and amortization charged to operating expenses amounted to
$544,366 in 2000, $511,047 in 1999 and $493,934 in 1998.
NOTE 7 DEPOSITS
At December 31, 2000, certificate of deposit and IRA accounts have
scheduled maturity dates as follows:
2001 $ 93,183,149
2002 15,148,347
2003 3,457,409
2004 1,968,304
2005 204,790
TOTAL $ 113,961,999
Certificate of deposit and IRA accounts with individual balances greater
than $100,000 totaled $47,228,159 and $24,760,217 at December 31, 2000 and
1999, respectively.
Deposits from Company directors, officers, and related parties at
December 31, 2000 and 1999 totaled $5,513,988 and $5,772,331,
respectively.
-44-
NOTE 8 SHORT-TERM BORROWINGS
Short-term borrowings consist of the following at December 31:
2000 1999
Securities sold under repurchase agreement $ 7,661,743 $10,737,890
FHLB open line of credit 3,853,000
FEDERAL FUNDS PURCHASED 10,477,000
TOTALS $11,514,743 $21,214,890
As a member of the FHLB system, the Company may draw on a line of credit
totaling approximately $50,000,000. At December 31, 2000, the Company's
available and unused portion of this line of credit totaled approximately
$18,000,000.
The Company pledges U.S. Treasury and agency securities available for sale
as collateral for repurchase agreements. The fair value of pledged
securities totaled $8,108,140 and $15,378,207 at December 31, 2000 and
1999, respectively.
Repurchase agreements with Company directors, officers, and related
parties at December 31, 2000 and 1999 totaled $4,500,000 and $6,122,705,
respectively.
The following information relates to federal funds purchased and
securities sold under repurchase agreements for the years ended December
31:
2000 1999 1998
As of end of year:
Weighted average rate 6.83% 5.90% 5.63%
For the year:
Highest month-end balance $26,862,797 $21,214,890 $ 5,220,455
Daily average balance $17,232,498 $11,660,602 $ 3,803,415
Weighted average rate 6.62% 5.49% 6.23%
-45-
NOTE 9 LONG-TERM BORROWINGS
Long-term borrowings at December 31, consist of the following:
2000 1999
Note payable to the FHLB, monthly interest payments
only at 5.07%, due February 2008, callable beginning
February 2001 $ 3,000,000 $ 3,000,000
Note payable to the FHLB, monthly interest payments
only at 6.50%, due November 2003 6,000,000
Note payable to the FHLB, monthly interest payments
only at 6.21%, due February 2005, callable beginning
February 2001 5,000,000
Note payable to the FHLB, monthly interest payments
only at 6.17%, due March 2005, callable beginning
March 2001 8,000,000
Note payable to the FHLB, monthly interest payments
only at 6.10%, due April 2005, callable beginning
January 2001 6,000,000
4.97% to 5.15% notes payable to the FHLB, monthly
INTEREST PAYMENTS ONLY, REPAID VIA CALL DURING 2000 10,000,000
TOTALS $28,000,000 $13,000,000
The scheduled principal maturities are:
2001 $
2002
2003 6,000,000
2004
2005 19,000,000
THEREAFTER 3,000,000
TOTAL $28,000,000
The FHLB advances are secured by a blanket lien consisting principally of
one-to-four family real estate loans totaling in excess of $47,000,000 and
$22,000,000 at December 31, 2000 and 1999, respectively.
-46-
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,
2000, 1999, and 1998 was $160,166, $173,858, and $159,014, respectively.
The Company approved formation of an employee stock ownership plan (ESOP)
during 2000. The plan is still in development and no activity has
occurred within the plan.
The Company also maintained an unfunded retirement plan for its directors
which terminated effective December 31, 2000. Benefits were frozen at
that date. The plan will pay retired directors who have at least 15 years
of service as of December 31, 2000, 50% of the fees received from 1996
through 2000. Five directors are eligible for these benefits. Details
regarding the actuarial benefit obligation and related disclosures are not
available. The liability recognized in the financial statements for this
plan was $130,981 and $156,285 at December 31, 2000 and 1999,
respectively. There was no provision for plan expense during 1999 or
1998. The reduction of the liability resulted in the reversal of expense
totaling $25,304 for the year ended December 31, 2000.
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 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.
-47
NOTE 10 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
The following tables provide a reconciliation of changes in the
postretirement health care benefit plan for the years ended December 31,
2000 and 1999:
2000 1999
Reconciliation of benefit obligations:
Obligation at January 1 $ 201,637 $ 167,930
Service cost 15,466 13,134
Interest cost 21,771 19,314
Benefit payments (9,213) (6,137)
NET AMORTIZATION OF PRIOR SERVICE COSTS 7,396 7,396
OBLIGATION AT DECEMBER 31 $ 237,057 $ 201,637
The following table provides the components of net periodic benefit cost
(income) of the plans for the years ended December 31, 2000, 1999, and
1998:
DEFINED
POSTRETIREMENT BENEFIT
HEALTH CARE PENSION
BENEFIT PLAN Plan
2000 1999 1998 1998
Service cost $ 15,466 $ 13,134 $ 11,176 $
Interest cost 21,771 19,314 16,658 9,723
Return on plan assets (8,060)
Net amortization
transition and prior
SERVICE COSTS (INCOME) 7,396 7,396 7,396 (16,075)
Net periodic pension
cost (income) 44,633 39,844 35,230 (14,412)
SETTLEMENT LOSS 405,891
Net periodic benefit cost
AFTER SETTLEMENT $ 44,633 $ 39,844 $ 35,230 $391,479
-48-
NOTE 10 RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS (Continued)
The assumptions used in the measurement of the Company's benefit
obligation are shown in the following table:
POSTRETIREMENT
HEALTH CARE
BENEFIT PLAN
2000 1999 1998
Discount rate 7.50% 7.50% 7.50%
Health care cost trend rate 7.25% 7.50% 7.25%
The health care cost trend rate is anticipated to be 7.00% in 2001,
grading down .25% per year to 5.00%.
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:
2000 1999 1998
Effect on service and interest cost $ 8,813 $ 8,011 $ 5,681
Effect on accumulated benefit
obligation at December 31 65,014 59,971 43,082
NOTE 11 SELF-FUNDED HEALTH INSURANCE PLAN
The Company has established an employee medical benefit plan to self-
insure claims up to $15,000 per year for each individual with a $286,690
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. The
liability recognized for claims incurred but not yet paid as of
December 31, 2000 was $60,824. No liability was recorded as of December
31, 1999. Health insurance expense recorded in 2000, 1999, and 1998 was
$278,639, $168,564, and $143,969, respectively.
-49-
NOTE 12 INCOME TAXES
The components of the income tax provision are as follows:
2000 1999 1998
Current income tax provision:
Federal $ 1,101,000 $ 1,016,000 $ 991,400
STATE 82,000 121,500 106,500
TOTAL CURRENT 1,183,000 1,137,500 1,097,900
Deferred income tax benefit:
Federal (60,000) (60,000) (142,400)
STATE (21,000) (10,000) (27,500)
TOTAL DEFERRED (81,000) (70,000) (169,900)
TOTAL PROVISION FOR INCOME TAXES $ 1,102,000 $ 1,067,500 $ 928,000
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of the Company's assets
and liabilities. The major components of the net deferred tax assets are
as follows:
2000 1999
Deferred tax assets:
Allowance for loan losses $ 833,600 $ 708,800
Deferred compensation 51,600 68,800
State net operating loss 16,800 13,000
Post-retirement health care benefits 89,300 73,500
Employee pension plan 29,500 41,000
Unrealized loss on securities available for sale 79,267 560,774
LESS - VALUATION ALLOWANCES (16,800) (113,000)
GROSS DEFERRED TAX ASSETS 1,083,267 1,352,874
Deferred tax liabilities:
Premises and equipment 117,700 138,500
FHLB stock 51,100
OTHER 6,400 5,800
GROSS DEFERRED TAX LIABILITIES 175,200 144,300
NET DEFERRED TAX ASSETS $ 908,067 $ 1,208,574
-50-
NOTE 12 INCOME TAXES (Continued)
The Company and its subsidiary pay state income taxes on individual,
unconsolidated net earnings. At December 31, 2000, net operating loss
carryforwards at the parent company of approximately $313,000 existed to
offset future state taxable income. These net operating losses will begin
to expire in 2012. A valuation allowance has been recognized to adjust
deferred tax assets to the amount of net operating losses expected to be
utilized to offset future income. At December 31, 1999, a valuation
allowance of $100,000 was also recognized to offset deferred tax assets
related to unrealized capital losses of approximately $295,000.
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:
2000 1999 1998
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
Tax expense at
statutory rate $ 1,282,000 34.0 $ 1,243,000 34.0 $ 1,026,000 34.0
Increase (decrease)
in taxes resulting
from:
Tax-exempt (215,000) (5.7) (221,900) (6.1) (194,000) (6.4)
interest
State income tax 40,300 1.1 73,600 2.0 52,000 1.7
OTHER (5,300) (0.2) (27,200) (0.7) 44,000 1.5
Provision for
INCOME TAXES $ 1,102,000 29.2 $ 1,067,500 29.2 $ 928,000 30.8
NOTE 13 LEASES
The Company leases various pieces of equipment under cancelable leases and
space for two branch locations under noncancelable leases. The Company
has the option to renew the noncancelable branch location leases for an
-51-
additional term upon expiration. All leases are classified as operating.
Future minimum payments under the noncancelable leases are as follows:
2001 $ 49,722
2002 62,252
2003 38,677
2004 39,574
2005 43,531
THEREAFTER 14,964
TOTAL $ 248,720
Rental expense for all operating leases was $43,468, $39,104, and $32,462
for the years ended December 31, 2000, 1999, and 1998, respectively.
NOTE 14 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:
2000 1999
Commitments to extend credit:
Fixed rate $ 10,122,861 $ 10,525,503
Variable rate 18,085,926 15,915,386
Letters of credit - Variable rate 651,167 845,952
CREDIT CARD COMMITMENTS - FIXED RATE 2,970,366 2,667,512
TOTALS $ 31,830,320 $ 29,954,353
-52-
NOTE 14 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
CREDIT RISK (Continued)
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.
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, Wisconsin area in 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.
Under the most recent provisions approved by the Company's Board of
Directors, up to 45,000 shares may be repurchased from shareholders from
time to time at the prevailing market price. As of December 31, 2000,
43,530 shares have already been repurchased from shareholders.
-53-
NOTE 14 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
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, 2000, none of the
approximately $19,816,000 of variable rate loans had reached the interest
rate cap.
NOTE 15 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,
2000, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 2000, 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.
-54-
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, 2000:
Total capital (to risk
weighted assets):
Consolidated $24,806,000 12.1% $16,392,000 8.0% N/A
Subsidiary bank $24,722,000 12.1% $16,392,000 8.0 $20,491,000 10.0%
Tier I capital (to risk
weighted assets):
Consolidated $22,399,000 10.9% $8,196,000 4.0% N/A
Subsidiary bank $22,315,000 10.9% $8,196,000 4.0% $12,294,000 6.0%
Tier I capital (to
average assets):
Consolidated $22,399,000 7.4% $12,122,000 4.0% N/A
Subsidiary bank $22,315,000 7.4% $12,122,000 4.0% $15,153,000 5.0%
As of December 31, 1999:
Total capital (to risk
weighted assets):
Consolidated $24,189,000 13.4% $14,402,000 8.0% N/A
Subsidiary bank $23,965,000 13.3% $14,401,000 8.0% $18,001,000 10.0%
Tier I capital (to risk
weighted assets):
Consolidated $22,090,000 12.3% $ 7,201,000 4.0% N/A
Subsidiary bank $21,866,000 12.1% $ 7,200,000 4.0% $10,800,000 6.0%
Tier I capital (to
average assets):
Consolidated $22,090,000 8.7% $10,128,000 4.0% N/A
Subsidiary bank $21,866,000 8.6% $10,128,000 4.0% $12,660,000 5.0%
-55-
NOTE 16 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, 2000, the retained earnings of
the subsidiary available for distribution as dividends without regulatory
approval was approximately $6,100,000.
NOTE 17 FAIR VALUE OF FINANCIAL INSTRUMENTS
Current accounting standards require that the Company disclose estimated
fair values for its financial instruments. Fair value estimates, methods,
and assumptions are set forth below for the Company's financial
instruments.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial statements:
Cash and Short-Term Investments: The carrying amounts reported in the
balance sheets for cash and due from banks, interest-bearing deposits and
money market funds, and federal funds sold approximate the fair value of
these assets.
Securities: Fair values are based on quoted market prices, where
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans: Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, residential mortgage, and other consumer. The fair value of
loans is calculated by discounting scheduled cash flows through the
estimated maturity using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Company's repayment schedules for each loan
classification. In addition, for impaired loans, marketability and
appraisal values for collateral 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 non-interest-bearing demand deposits, savings, NOW accounts, and
money market accounts, is equal to the amount payable on demand at the
reporting date. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate reflects
the credit quality and operating expense factors of the Company.
Short-Term Borrowings: The fair value of short-term borrowings with no
stated maturity, such as federal funds purchased, is equal to the amount
payable on demand at the reporting
-56-
NOTE 17 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
date. Fair value for fixed rate repurchase agreements is estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on repurchase agreements to a schedule of aggregated expected
maturities on the existing agreements.
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 creditworthiness of the counter
parties. Since this amount is immaterial, no amounts for fair value are
presented.
The carrying amounts and fair values of the Company's financial
instruments consisted of the following at December 31:
2000 1999
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
Financial assets:
Cash and short-term
investments $ 9,367,139 $ 9,367,139 $ 11,987,763 $ 11,987,763
Securities 64,105,339 64,136,047 60,332,254 59,961,697
Net loans 224,815,647 227,772,909 180,524,112 180,032,781
Financial liabilities:
Deposits 241,534,278 241,970,455 202,354,241 202,400,590
Short-term borrowings 11,514,743 11,564,152 21,214,890 21,200,651
Long-term borrowings 28,000,000 28,052,483 13,000,000 12,907,246
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 judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates. Fair value estimates are based
-57-
on existing on- and off-balance-sheet financial instruments without
attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial
instruments. Significant assets and liabilities that are not considered
financial assets or liabilities include premises and equipment, other
assets, and other liabilities. In addition, the tax ramifications related
to the realization of the unrealized gains or losses can have a
significant effect on fair value estimates and have not been considered in
the estimates.
NOTE 18 SUBSEQUENT EVENT
Subsequent to year-end, the Company authorized formation of an incentive
stock option plan subject to stockholders' approval. The plan calls for
up to 15,000 options to purchase common shares to be issued during 2001
and 2002.
NOTE 19 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets as of December 31, 2000 and 1999,
and condensed statements of income and cash flows for the years ended
December 31, 2000, 1999, and 1998, for PSB Holdings, Inc. should be read
in conjunction with the consolidated financial statements and footnotes.
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS 2000 1999
Cash and due from banks $ 627,714 $ 752,995
Investment in subsidiary 22,189,893 20,823,276
OTHER ASSETS 26,306 35,573
TOTAL ASSETS $ 22,843,913 $ 21,611,844
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued dividends payable $ 569,539 $ 565,427
TOTAL STOCKHOLDERS' EQUITY 22,274,374 21,046,417
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 22,843,913 $ 21,611,844
-58-
NOTE 19 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
Income:
Dividends from subsidiary $ 2,269,000 $ 909,000 $ 967,000
INTEREST 5,235 8,148 2,383
TOTAL INCOME 2,274,235 917,148 969,383
Expenses:
Interest 8,577
OTHER 66,342 77,589 54,418
TOTAL EXPENSES 74,919 77,589 54,418
Income before income taxes and equity in
undistributed net income of subsidiary 2,199,316 839,559 914,965
PROVISION FOR INCOME TAX BENEFIT (22,000) (22,000) (17,000)
Net income before equity in undistributed
net income of subsidiary 2,221,316 861,559 931,965
Equity in undistributed net income of
SUBSIDIARY 448,303 1,727,423 1,156,612
NET INCOME $ 2,669,619 $ 2,588,982 $ 2,088,577
-59-
NOTE 19 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
Increase (decrease) in cash and due from
banks:
Cash flows from operating activities:
Net income $ 2,669,619 $ 2,588,982 $ 2,088,577
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Equity in net income of subsidiary (2,717,303) (2,636,423) (2,123,612)
Net amortization 8,965 21,517 21,517
(INCREASE) DECREASE IN OTHER ASSETS 302 (9,607) 28,002
Net cash provided by (used in) operating
ACTIVITIES (38,417) (35,531) 14,484
Cash flows from investing activities -
DIVIDENDS RECEIVED FROM SUBSIDIARY 2,269,000 909,000 967,000
Cash flows from financing activities:
Dividends paid (867,301) (846,189) (791,254)
PURCHASE OF TREASURY STOCK (1,488,563)
NET CASH USED IN FINANCING ACTIVITIES (2,355,864) (846,189) (791,254)
Net increase in cash and due from banks (125,281) 27,280 190,230
CASH AND DUE FROM BANKS AT BEGINNING 752,995 725,715 535,485
CASH AND DUE FROM BANKS AT END $ 627,714 $ 752,995 $ 725,715
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-60-
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 "Proposal No. 1 - Election of Directors," pages 3
through 4, of the Company's proxy statement dated March 31, 2001 (the
"2001 Proxy Statement"). Information relating to executive officers is
found in Part I of this Form 10-K, page 3. 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 9 of the 2001 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to director compensation is incorporated into
this Form 10-K by this reference to the material under the subcaption
"Compensation of Directors," pages 5 and 6 of the 2001 Proxy Statement.
Information relating to the compensation of executive officers is
incorporated into this Form 10-K by this reference to (1) the material set
forth under the subcaption "Summary Compensation Table," page 9, and (2)
the material set forth under the subcaption "Compensation Committee and
Board Interlocks and Insider Participation," page 10, in the 2001 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial
owners and management is incorporated into this Form 10-K by this
reference to the material set forth under the caption "Beneficial
Ownership of Common Stock," pages 7 and 8, in the 2001 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
subcaption "Certain Relationships and Related Transactions," page 11, in
the 2001 Proxy Statement.
-61-
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 30-61 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
3.2 Bylaws
4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and 3.2)
10.1 Bonus Plan of Directors of the Bank
10.2 Non-Qualified Retirement Plan for Directors of the Bank
10.4 Consulting Agreement with Chairman of the Board
21.1 Subsidiaries of the Company
(b) Reports on Form 8-K.
None.
-62-
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 DAVID K. KOPPERUD March 29, 2001
David K. Kopperud, President
and Chief Executive Officer
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 29th day of March,
2001.
SIGNATURE AND TITLE SIGNATURE AND TITLE
DAVID K. KOPPERUD TODD R. TOPPEN
David K. Kopperud, President Todd R. Toppen, Treasurer
Chief Executive Officer (Chief Financial and
Principal Accounting Officer)
DIRECTORS:
GORDON P. CONNOR PATRICK L. CROOKS
Gordon P. Connor Patrick L. Crooks
WILLIAM J. FISH CHARLES A. GHIDORZI
William J. Fish Charles A. Ghidorzi
GORDON P. GULLICKSON LAWRENCE HANZ, JR.
Gordon P. Gullickson Lawrence Hanz, Jr.
THOMAS R. POLZER THOMAS A. RIISER
Thomas A. Polzer Thomas A. Riiser
WILLIAM M. REIF EUGENE WITTER
William M. Reif Eugene Witter
-63-
EXHIBIT INDEX
TO
FORM 10-K
OF
PSB HOLDINGS, INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. 232.102(d)
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended
3.2 Bylaws
4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and 3.2)
10.1 Bonus Plan of Directors of the Bank
10.2 Non-Qualified Retirement Plan for Directors of the Bank
10.4 Consulting Agreement with Chairman of the Board
21.1 Subsidiaries of the Company
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