Exhibit 99.1
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, 2001 and 2000, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the three years ended December 31, 2001. 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 auditing standards generally
accepted in the United States. 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, 2001 and 2000, and the results
of their operations and their cash flows for the three years ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States.
Wipfli Ullrich Bertelson LLP
January 25, 2002
Wausau, Wisconsin
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CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
ASSETS 2001 2000
Cash and due from banks $ 16,736,080 $ 9,225,645
Interest-bearing deposits and money market funds 3,539,125 88,494
Federal funds sold 5,275,000 53,000
Securities:
Held to maturity (fair values of $20,354,518 and
$14,005,308 in 2001 and 2000 respectively) 20,287,480 13,974,600
Available for sale (at fair value) 50,156,904 48,122,039
Federal Home Loan Bank Stock 2,150,600 2,008,700
Loans held for sale 1,403,400 114,000
Loans receivable, net of allowance for loan
losses of $2,968,574 and $2,407,439 in 2001
and 2000, respectively 236,573,861 224,701,647
Accrued interest receivable 1,872,631 2,101,513
Foreclosed assets, net 421,269 17,352
Premises and equipment 4,754,906 4,750,856
OTHER ASSETS 1,124,751 1,080,976
TOTAL ASSETS $344,296,007 $306,238,822
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing deposits $ 41,507,579 $ 35,192,386
INTEREST-BEARING DEPOSITS 232,127,810 206,341,892
Total deposits 273,635,389 241,534,278
Short-term borrowings 4,326,850 11,514,743
Long-term borrowings 38,000,000 28,000,000
ACCRUED EXPENSES AND OTHER LIABILITIES 2,984,577 2,915,427
TOTAL LIABILITIES 318,946,816 283,964,448
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 18,185,664 15,726,996
Unrealized gain (loss) on securities
available for sale, net of tax 491,335 (124,814)
TREASURY STOCK, AT COST - 62,720 SHARES (2,291,163) (2,291,163)
TOTAL STOCKHOLDERS' EQUITY 25,349,191 22,274,374
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $344,296,007 $306,238,822
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2001, 2000 and 1999
2001 2000 1999
Interest income:
Interest and fees on loans $19,262,801 $18,259,930 $14,065,041
Interest on securities:
Taxable 2,866,350 2,888,251 2,821,551
Tax-exempt 774,769 597,000 649,901
OTHER INTEREST AND DIVIDENDS 523,563 194,503 134,512
TOTAL INTEREST INCOME 23,427,483 21,939,684 17,671,005
Interest expense:
Deposits 9,770,432 10,105,320 7,584,588
Short-term borrowings 431,842 1,140,346 639,760
LONG-TERM BORROWINGS 2,265,842 1,294,350 373,416
TOTAL INTEREST EXPENSE 12,468,116 12,540,016 8,597,764
Net interest income 10,959,367 9,399,668 9,073,241
PROVISION FOR LOAN LOSSES 890,000 600,000 460,000
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 10,069,367 8,799,668 8,613,241
Noninterest income:
Service fees 1,010,352 855,069 708,794
Gain on sale of loans 683,278 66,440 223,002
Investment sales commissions 183,156 195,212 137,621
OTHER OPERATING INCOME 188,294 329,548 195,230
TOTAL NONINTEREST INCOME 2,065,080 1,446,269 1,264,647
Noninterest expense:
Salaries and employee benefits 4,419,402 3,841,735 3,621,239
Occupancy 917,048 937,071 858,719
Data processing and other office operations 522,970 459,746 440,588
Advertising and promotion 306,793 211,073 222,435
OTHER OPERATING 1,149,684 1,024,693 1,078,425
TOTAL NONINTEREST EXPENSE 7,315,897 6,474,318 6,221,406
Income before income taxes 4,818,550 3,771,619 3,656,482
PROVISION FOR INCOME TAXES 1,453,000 1,102,000 1,067,500
NET INCOME $3,365,550 $2,669,619 $2,588,982
BASIC AND DILUTED EARNINGS PER SHARE $ 4.01 $ 3.11 $ 2.93
WEIGHTED AVERAGE SHARES OUTSTANDING 839,705 858,286 883,235
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
COMMON PAID-IN RETAINED AVAILABLE TREASURY
STOCK CAPITAL EARNINGS FOR SALE STOCK TOTALS
Balance, January 1, 1999 $ 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 gains 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
Comprehensive income:
Net income 3,365,550 3,365,550
Unrealized gain on securities
available for sale, net of tax
of $259,841 616,149 616,149
Total comprehensive income 3,981,699
Cash dividends declared $1.08
PER SHARE (906,882) (906,882)
BALANCE, DECEMBER 31, 2001 $ 1,804,850 $ 7,158,505 $18,185,664 $ 491,335 $(2,291,163) $25,349,191
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000, and 1999
2001 2000 1999
Cash flows from operating activities:
Net income $ 3,365,550 $ 2,669,619 $ 2,588,982
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net
amortization 582,698 570,555 554,059
Benefit from deferred income taxes (54,000) (81,000) (70,000)
Provision for loan losses 890,000 600,000 460,000
Proceeds from sales of loans held for
sale 60,435,412 4,722,650 21,214,462
Originations of loans held for sale (61,041,534) (4,770,210) (17,871,010)
Gain on sale of loans (683,278) (66,440) (223,002)
Gain on sale of premises and equipment (48,332) (69,000)
Net gain (loss) on sale of
foreclosed assets 10,383 (21,461)
FHLB stock dividends (141,900) (129,800)
Changes in operating assets and
liabilities:
Accrued interest receivable 228,882 (355,475) (20,695)
Other assets (328,883) 75,956 (109,686)
ACCRUED EXPENSES AND OTHER LIABILITIES 69,150 540,486 (276,212)
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,284,148 3,707,341 6,225,437
Cash flows from investing activities:
Net (increase) decrease in
interest-bearing deposits and
money market funds (3,450,631) (26,715) 679,214
Net decrease (increase) in federal
funds sold (5,222,000) (53,000) 3,934,000
Proceeds from sale and maturities of:
Held to maturity securities 1,184,789 1,290,001 2,865,000
Available for sale securities 26,571,357 6,393,719 13,262,495
Payment for purchase of:
Held to maturity securities (7,523,254) (1,439,927) (2,664,188)
Available for sale securities (27,694,871) (7,439,798) (13,609,089)
Purchase FHLB stock (1,179,300) (44,300)
Net increase in loans (13,523,970) (44,777,534) (32,402,322)
Capital expenditures (758,143) (1,442,917) (522,284)
Proceeds from sale of premises and
equipment 289,218 119,568
PROCEEDS FROM SALE OF FORECLOSED ASSETS 347,456 24,196 76,722
NET CASH USED IN INVESTING ACTIVITIES (29,780,049) (48,531,707) (28,424,752)
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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
Cash flows from financing activities:
Net increase in non-interest-bearing deposits $ 6,315,193 $ 1,534,788 $ 507,689
Net increase in interest-bearing deposits 25,785,918 37,645,249 2,046,655
Net increase (decrease) in short-term borrowings (7,187,893) (9,700,147) 16,665,382
Proceeds from issuance of long-term borrowings 10,000,000 25,000,000 10,000,000
Repayments of long-term borrowings (10,000,000) (3,000,000)
Dividends paid (906,882) (867,301) (846,189)
PURCHASE OF TREASURY STOCK (1,488,563)
NET CASH PROVIDED BY FINANCING ACTIVITIES 34,006,336 42,124,026 25,373,537
Net increase (decrease) in cash and due from banks 7,510,435 (2,700,340) 3,174,222
CASH AND DUE FROM BANKS AT BEGINNING 9,225,645 11,925,985 8,751,763
CASH AND DUE FROM BANKS AT END $16,736,080 $ 9,225,645 $11,925,985
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $12,817,043 $12,071,704 $ 8,738,300
Income taxes 1,541,872 983,000 1,416,524
NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans charged off 331,200 314,876 432,444
Loans transferred to other real estate 894,397 17,352 79,457
Loans originated on sale of other real estate 132,641
See accompanying notes to consolidated financial statements.
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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, Marathon, Oneida, and Vilas Counties,
Wisconsin. It provides a variety of banking products including uninsured
investment product sales and long-term fixed rate residential mortgages.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PSB Holdings,
Inc. and its subsidiary Peoples State Bank. 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
Securities are assigned an appropriate classification at the time of purchase
in accordance with management's intent. Securities held to maturity represent
those securities for which the Company has the positive intent and ability to
hold to maturity. Accordingly, these securities are carried at cost adjusted
for amortization of premium and accretion of discount calculated using the
effective yield method. Unrealized gains and losses on securities held to
maturity are not recognized in the financial statements.
Trading securities include those securities bought and held principally for
the purpose of selling them in the near future. The Company has no trading
securities.
Securities not classified as either securities held to maturity or trading
securities are considered available for sale and reported at fair value
determined from estimates of brokers or other sources. Unrealized gains and
losses are excluded from earnings but are reported as other comprehensive
income, net of income tax effects, in a separate component of stockholders'
equity.
Any gains and losses on sales of securities are recognized at the time of sale
using the specific identification method.
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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.
Loan origination fees and certain direct loan origination costs are deferred
and amortized to income over the contractual life of the underlying loan.
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.
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
Mortgage servicing rights are recognized as separate assets at the time of
sale of the related loan. The cost of mortgage servicing rights is amortized
in proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows based on
a current market interest rate and the anticipated repayment term of the
serviced loans. For purposes of measuring impairment, the rights are
stratified by interest rate in the year in which the related mortgage loans
were sold. Permanent write-down of the value of the servicing right due to
prepayments is recorded in the year principal is prepaid.
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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.
ADVERTISING AND PROMOTIONAL COSTS
Costs relating to Company advertising and promotion are generally expensed
when paid.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average number of shares
outstanding. Diluted earnings per share includes the potential common stock
shares issuable under the stock options granted.
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 Statements of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and 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 an impact on the Company's
financial condition or results of operations.
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In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires the use of the purchase method of accounting
for business combinations initiated after June 30, 2001.
SFAS No. 142 addresses how intangible assets acquired outside of a business
combination should be accounted for upon acquisition and how goodwill and
other intangible assets should be accounted for after they have been initially
recognized. SFAS No. 142 eliminates the amortization for goodwill and other
intangible assets with indefinite lives. Other intangible assets with a
finite life will be amortized over their useful life. Goodwill and other
intangible assets with indefinite useful lives shall be tested for impairment
annually or more frequently if events or changes in circumstances indicate
that the asset may be impaired. SFAS No. 142 is effective for the Company
during 2002.
The adoption of SFAS No. 141 and No. 142 did not have an impact on the
Company's financial condition or results of operations.
NOTE 3 CASH AND DUE FROM BANKS
Cash and due from banks in the amount of $1,287,000 was restricted at
December 31, 2001 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. Uninsured balances at December
31, 2001 totaled $1,623,814.
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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, 2001
Securities held to maturity -
Obligations of states and
political SUBDIVISIONS $ 20,287,480 $ 231,584 $ 164,546 $20,354,518
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 9,516,292 $ 173,455 $ 17,094 $ 9,672,653
Mortgage-backed securities 39,716,764 695,095 100,281 40,311,578
OTHER EQUITY SECURITIES 172,673 172,673
TOTALS $49,405,729 $ 868,550 $117,375 $50,156,904
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 $24,572,122 $ 194,876 $356,670 $24,410,328
Mortgage-backed securities 23,706,326 42,287 23,664,039
OTHER EQUITY SECURITIES 47,672 47,672
TOTALS $48,326,120 $ 194,876 $398,957 $48,122,039
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The amortized cost and estimated fair value of debt securities held to
maturity and securities available for sale at December 31, 2001 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 $ 886,339 $ 896,302
Due after one year through five years 5,514,648 5,655,995
DUE AFTER FIVE YEARS THROUGH TEN YEARS 13,886,493 13,802,221
TOTALS $ 20,287,480 $20,354,518
SECURITIES AVAILABLE FOR SALE
Due in one year or less $ 2,003,080 $ 2,016,453
Due after one year through five years 5,975,656 6,102,150
Due after five years through ten years 1,537,556 1,554,050
MORTGAGE-BACKED SECURITIES 39,716,764 40,311,578
TOTALS $ 49,233,056 $49,984,231
Securities with an approximate carrying value of $9,224,963 and $12,554,863 at
December 31, 2001 and 2000, respectively, were pledged to secure public
deposits and short-term borrowings and for other purposes required by law.
No securities were sold in 2001, 2000, or 1999.
NOTE 5 FEDERAL HOME LOAN BANK STOCK
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
$2,150,600 and $2,008,700 of FHLB stock at December 31, 2001 and 2000,
respectively.
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NOTE 6 LOANS
The composition of loans is as follows:
2001 2000
Commercial and industrial $ 55,362,878 $ 53,420,913
Real estate mortgage (commercial and residential) 158,848,733 149,859,334
Real estate construction 15,608,734 11,231,393
CONSUMER AND INDIVIDUAL 13,326,858 15,784,138
Subtotals 243,147,203 230,295,778
Net deferred loan costs 132,312
Loans in process of disbursement (3,737,080) (3,186,692)
ALLOWANCE FOR LOAN LOSSES (2,968,574) (2,407,439)
NET LOANS $ 236,573,861 $ 224,701,647
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:
2001 2000
Loans outstanding, January 1 $ 3,998,278 $ 4,344,679
New loans 2,680,944 2,045,266
REPAYMENTS (1,643,973) (2,391,667)
Loans outstanding, December 31 $ 5,035,249 $ 3,998,278
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.
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An analysis of impaired loans follows:
AT DECEMBER 31, 2001 2000
Nonaccrual $ 1,235,248 $ 802,907
ACCRUING INCOME 876,947 1,097,938
Total impaired loans 2,112,195 1,900,845
LESS - ALLOWANCE FOR LOAN LOSSES 550,810 322,104
NET INVESTMENT IN IMPAIRED LOANS $ 1,561,385 $1,578,741
YEARS ENDED DECEMBER 31, 2001 2000 1999
Average recorded investment, net of allowance
FOR LOAN LOSSES $ 2,177,185 $ 1,947,806 $ 1,874,008
INTEREST INCOME RECOGNIZED $ 190,998 $ 174,963 $ 118,162
Interest income recognized on a cash basis
ON IMPAIRED LOANS $ 88,197 $ 101,618 $ 6,366
An analysis of the allowance for loan losses for the three years ended
December 31, follows:
2001 2000 1999
Balance, January 1 $ 2,407,439 $ 2,099,241 $ 1,946,864
Provision charged to operating expense 890,000 600,000 460,000
Recoveries on loans 2,335 23,074 124,821
LOANS CHARGED OFF (331,200) (314,876) (432,444)
BALANCE, DECEMBER 31 $ 2,968,574 $ 2,407,439 $ 2,099,241
Under a secondary market loan servicing program, the Company has provided a
credit enhancement guarantee to reimburse the FHLB for foreclosure losses in
excess of 1% of original loan principal sold to the FHLB. At December 31,
2001, the maximum Company obligation for such guarantees would be
approximately $131,000 if total foreclosure losses on the entire pool of loans
exceed $510,000.
NOTE 7 MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of mortgage loans serviced for others was $35,929,282 and $855,088 at
December 31, 2001 and 2000, respectively.
Mortgage servicing rights of $320,993 were capitalized in 2001. Mortgage
servicing rights are stated at amortized cost of $283,750 at December 31,
2001, as fair value exceeded cost. No mortgage servicing rights were recorded
at December 31, 2000. Amortization of mortgage servicing rights was $37,243 in
2001.
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NOTE 8 PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
2001 2000
Land $ 1,381,617 $ 1,605,349
Buildings and improvements 4,024,338 3,793,211
Furniture and equipment 3,835,783 3,526,351
CONSTRUCTION IN PROGRESS 198,020 8,470
Total cost 9,439,758 8,933,381
LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION 4,684,852 4,182,525
TOTALS $ 4,754,906 $ 4,750,856
Depreciation and amortization charged to operating expenses amounted to
$513,207 in 2001 and $544,366 in 2000, and $511,047 in 1999.
The Company has committed to capital additions in 2002 totaling approximately
$1.2 million.
NOTE 9 Deposits
At December 31, 2001, certificate of deposit and IRA accounts have scheduled
maturity dates as follows:
2002 $ 83,620,826
2003 26,798,987
2004 4,636,716
2005 1,014,631
2006 5,391,596
TOTAL $ 121,462,756
Certificate of deposit and IRA accounts with individual balances greater than
$100,000 totaled $51,631,238 and $47,228,159 at December 31, 2001 and 2000,
respectively.
Deposits from Company directors, officers, and related parties at December 31,
2001 and 2000 totaled $6,587,405 and $5,513,988, respectively.
-15-
NOTE 10 SHORT-TERM BORROWINGS
Short-term borrowings consist of the following at December 31:
2001 2000
Securities sold under repurchase agreement $ 4,326,850 $ 7,661,743
FHLB OPEN LINE OF CREDIT 3,853,000
TOTALS $ 4,326,850 $ 11,514,743
The Company pledges U.S. Treasury and agency securities available for sale as
collateral for repurchase agreements. The fair value of securities pledged
for short-term borrowings totaled $6,885,173 and $8,108,140 at December 31,
2001 and 2000, respectively.
Repurchase agreements with Company directors, officers, and related parties at
December 31, 2000 totaled $4,500,000. There were no related party repurchase
agreements at December 31, 2001.
The following information relates to federal funds purchased and securities
sold under repurchase agreements for the years ended December 31:
2001 2000 1999
As of end of year:
Weighted average rate 5.01% 6.83% 5.90%
For the year:
Highest month-end balance $ 9,046,563 $ 26,862,797 $ 21,214,890
Daily average balance $ 6,414,054 $ 17,232,498 $ 11,660,602
Weighted average rate 6.73% 6.62% 5.49%
-16-
NOTE 11 LONG-TERM BORROWINGS
Long-term borrowings at December 31, consist of the following:
2001 2000
Note payable to the FHLB, monthly interest payments
only at 5.45%, due January 2003 $ 10,000,000 $
Note payable to the FHLB, monthly interest payments
only at 6.50%, due November 2003 6,000,000 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 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 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 6,000,000
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
TOTALS $ 38,000,000 $ 28,000,000
The scheduled principal maturities are:
2003 $ 16,000,000
2005 19,000,000
THEREAFTER 3,000,000
TOTAL $ 38,000,000
The FHLB advances are secured by a blanket lien consisting principally of one-
to-four family real estate loans totaling in excess of $63,000,000 and
$47,000,000 at December 31, 2001 and 2000, respectively.
As a member of the FHLB system, the Company may draw on a line of credit
totaling approximately $50,000,000. At December 31, 2001, the Company's
available and unused portion of this line of credit totaled approximately
$12,000,000.
-17-
NOTE 12 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 6% 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, 2001, 2000, and 1999 was $262,940,
$160,166, and $173,858, respectively.
The Company also maintained an unfunded retirement plan for its directors.
Under the terms of the plan, directors who had at least 15 years of service
were eligible for benefits of between 25% and 50% of the fees earned in the
last five years of service. Effective December 31, 2000, the plan was
terminated and benefits frozen. In 2001, termination vesting was provided to
all directors on a pro-rata basis.
The liability recognized in the financial statements for this plan was
approximately $124,000 and $131,000 at December 31, 2001 and 2000,
respectively. The expense recognized in 2001 associated with the plan
termination was approximately $104,000. Income of approximately $25,000 was
recognized on this plan in 2000. There was no provision for plan expense in
1999.
The Company 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.
The following tables provide a reconciliation of changes in the postretirement
health care benefit plan for the years ended December 31, 2001 and 2000:
2001 2000
Reconciliation of benefit obligations:
Obligation at January 1 $ 237,057 $ 201,637
Service cost 17,140 15,466
Interest cost 22,045 21,771
Benefit payments (8,309) (9,213)
NET AMORTIZATION OF PRIOR SERVICE COSTS 7,396 7,396
OBLIGATION AT DECEMBER 31 $ 275,329 $ 237,057
-18-
The following table provides the components of net periodic benefit cost of
the plans for the years ended December 31, 2001, 2000, and 1999:
POSTRETIREMENT
HEALTH CARE
BENEFIT PLAN
2001 2000 1999
Service cost $ 17,140 $ 15,466 $ 13,134
Interest cost 22,045 21,771 19,314
Net amortization transition and
PRIOR SERVICE COSTS 7,396 7,396 7,396
NET PERIODIC PENSION COST $ 46,581 $ 44,633 $ 39,844
The assumptions used in the measurement of the Company's benefit
obligation are shown in the following table:
POSTRETIREMENT
HEALTH CARE
BENEFIT PLAN
2001 2000 1999
Discount rate 7.50% 7.50% 7.50%
Health care cost trend rate 7.00% 7.25% 7.50%
The health care cost trend rate is anticipated to be 6.75% in 2002, 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:
2001 2000 1999
Effect on service and interest cost $ 9,330 $ 8,813 $ 8,011
Effect on accumulated benefit obligation at December 31 66,875 65,014 59,971
NOTE 13 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. Coverages will increase in 2002
to $20,000 per individual and $508,218 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 was $54,103 and $60,824 as of
December 31, 2001 and 2000, respectively. Health insurance expense recorded
in 2001, 2000, and 1999 was $272,735, $278,639, and $168,564, respectively.
-19-
NOTE 14 INCOME TAXES
The components of the income tax provision are as follows:
2001 2000 1999
Current income tax provision:
Federal $1,414,000 $1,101,000 $1,016,000
STATE 93,000 82,000 121,500
TOTAL CURRENT 1,507,000 1,183,000 1,137,500
Deferred income tax benefit:
Federal (43,000) (60,000) (60,000)
State (11,000) (21,000) (10,000)
TOTAL DEFERRED (54,000) (81,000) (70,000)
TOTAL PROVISION FOR INCOME TAXES $1,453,000 $1,102,000 $1,067,500
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:
2001 2000
Deferred tax assets:
Allowance for loan losses $ 1,047,400 $ 833,600
Deferred compensation 48,500 51,600
State net operating loss 23,600 16,800
Post-retirement health care benefits 105,100 89,300
Employee pension plan 25,300 29,500
Unrealized loss on securities available for sale 79,267
Other 16,200
LESS - VALUATION ALLOWANCES (23,600) (16,800)
GROSS DEFERRED TAX ASSETS 1,242,500 1,083,267
Deferred tax liabilities:
Premises and equipment 103,600 117,700
Mortgage servicing rights 111,000
FHLB stock 91,100 51,100
Deferred loan costs 52,000
Unrealized gain on securities available for sale 259,841
OTHER 1,999 6,400
-20-
GROSS DEFERRED TAX LIABILITIES 619,540 175,200
NET DEFERRED TAX ASSETS $ 622,960 $ 908,067
The Company and its subsidiary Bank pay state income taxes on individual,
unconsolidated net earnings. At December 31, 2001, net operating loss
carryforwards at the parent company of approximately $440,000 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. If realized, the tax benefit for this item will reduce
current tax expense for that period.
-21-
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:
2001 2000 1999
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
Tax expense at
statutory rate $ 1,638,000 34.0 $ 1,282,000 34.0 $ 1,243,000 34.0
Increase (decrease)
in taxes resulting
from:
Tax-exempt
interest (284,000) (5.9) (215,000) (5.7) (221,900) (6.1)
State income tax 54,000 1.1 40,300 1.1 73,600 2.0
OTHER 45,000 1.0 (5,300) (0.2) (27,200) (0.7)
Provision for income
TAXES $ 1,453,000 30.2 $ 1,102,000 29.2 $ 1,067,500 29.2
NOTE 15 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 additional
term upon expiration. All leases are classified as operating. Future minimum
payments under the noncancelable leases are as follows:
2002 $ 80,456
2003 63,360
2004 69,228
2005 74,217
2006 46,656
THEREAFTER 35,480
TOTAL $ 369,397
Rental expense for all operating leases was $57,361, $43,468, and $39,104 for
the years ended December 31, 2001, 2000, and 1999, respectively.
-22-
NOTE 16 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:
2001 2000
Commitments to extend credit:
Fixed rate $ 11,748,258 $ 10,122,861
Variable rate 22,302,084 18,085,926
Letters of credit - Variable rate 536,842 651,167
CREDIT CARD COMMITMENTS - FIXED RATE 3,223,471 2,970,366
TOTALS $ 37,810,655 $ 31,830,320
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 generally 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 Marathon, Oneida, and Vilas Counties, Wisconsin. There are
no significant concentrations of credit to any one debtor or industry group.
Management believes that the diversity of the local economy will prevent
significant losses in the event of an economic downturn.
-23-
CONTINGENCIES
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
INTEREST RATE RISK
The Company originates and holds adjustable rate mortgage loans with variable
rates of interest. The rate of interest on these loans is capped over the
life of the loan. At December 31, 2001, none of the approximately $18,210,000
of variable rate loans had reached the interest rate cap.
NOTE 17 STOCK OPTION PLAN
Under the terms of an incentive stock option plan adopted during 2001, shares
of unissued common stock are reserved for options to officers and key
employees of the Company at prices not less than the fair market value of the
shares at the date of the grant. Options may be exercised anytime after the
option grant's first anniversary. These options expire ten years after the
grant date.
During 2001, 12,693 options were granted with an exercise price of $33.25.
None of the granted options are yet available to be exercised.
As of December 31, 2001, 2,307 additional shares of common stock remain
reserved for future grants to officers and key employees under the option plan
approved by the shareholders.
The Company follows the provisions of Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and uses the
"intrinsic value method" of recording stock-based compensation cost. Because
stock options are granted with an exercise price equal to fair value at the
date or grant, no compensation expense is recorded. However, had compensation
cost for the Company's stock-based plan been determined in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation" based on the fair
value of the stock options, net income would have decreased $61,307 in 2001.
Earnings per share, assuming dilution, would have been $3.94 in 2001.
NOTE 18 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, 2001,
that the Bank meets all capital adequacy requirements to which it is subject.
-24-
As of December 31, 2001, 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.
-25-
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, 2001:
Total capital (to risk
weighted assets):
Consolidated $27,799,000 11.2% $19,900,000 8.0% N/A
Subsidiary bank $27,644,000 11.1% $19,900,000 8.0% $24,875,000 10.0%
Tier I capital (to risk
weighted assets):
Consolidated $24,830,000 10.0% $9,950,000 4.0% N/A
Subsidiary bank $24,675,000 9.9% $9,950,000 4.0% $14,925,000 6.0%
Tier I capital (to
average assets):
Consolidated $24,830,000 7.4% $13,370,000 4.0% N/A
Subsidiary bank $24,675,000 7.4% $13,370,000 4.0% 16,713,000 5.0%
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%
-26-
NOTE 19 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, 2001, the retained earnings of the
subsidiary available for distribution as dividends without regulatory approval
was approximately $6,800,000.
NOTE 20 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.
Mortgage Servicing Rights: Fair values are based on estimated discounted cash
flows based on current market rates and anticipated repayment term of the
serviced loans.
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 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.
-27-
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:
2001 2000
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
Financial assets:
Cash and short-term
investments $ 25,550,205 $ 25,550,205 $ 9,367,139 $ 9,367,139
Securities 72,594,984 72,662,022 64,105,339 64,136,047
Net loans 237,977,621 239,303,704 224,815,647 227,772,909
Mortgage servicing
rights 283,750 283,750
Financial liabilities:
Deposits 273,635,389 275,787,818 241,534,278 241,970,455
Short-term borrowings 4,326,850 4,389,910 11,514,743 11,564,152
Long-term borrowings 38,000,000 39,354,608 28,000,000 28,052,483
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 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.
-28-
NOTE 21 CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets as of December 31, 2001 and 2000, and
condensed statements of income and cash flows for the years ended December 31,
2001, 2000, and 1999, for PSB Holdings, Inc. should be read in conjunction
with the consolidated financial statements and footnotes.
BALANCE SHEETS
December 31, 2001 and 2000
ASSETS 2001 2000
Cash and due from banks $ 669,204 $ 627,714
Investment in subsidiary 25,195,181 22,189,893
OTHER ASSETS 72,599 26,306
TOTAL ASSETS $ 25,936,984 $ 22,843,913
Liabilities and Stockholders' Equity
Accrued dividends payable $ 587,793 $ 569,539
TOTAL STOCKHOLDERS' EQUITY 25,349,191 22,274,374
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 25,936,984 $ 22,843,913
-29-
STATEMENTS OF INCOME
Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
Income:
Dividends from subsidiary $ 1,063,000 $ 2,269,000 $ 909,000
INTEREST 4,317 5,235 8,148
TOTAL INCOME 1,067,317 2,274,235 917,148
Expenses:
Interest 8,577
OTHER 134,905 66,342 77,589
TOTAL EXPENSES 134,905 74,919 77,589
Income before income taxes and equity in
undistributed net income of subsidiary 932,412 2,199,316 839,559
PROVISION FOR INCOME TAX BENEFIT (44,000) (22,000) (22,000)
Net income before equity in undistributed
net income of subsidiary 976,412 2,221,316 861,559
Equity in undistributed net income of
SUBSIDIARY 2,389,138 448,303 1,727,423
NET INCOME $ 3,365,550 $ 2,669,619 $2,588,982
-30-
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
Increase (decrease) in cash and due from
banks:
Cash flows from operating activities:
Net income $ 3,365,550 $ 2,669,619 $ 2,588,982
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Equity in undistributed net income of
subsidiary (2,389,138) (448,303) (1,727,423)
Net amortization 8,965 21,517
(Increase) decrease in other assets (46,293) 302 (9,607)
INCREASE IN DIVIDENDS PAYABLE 18,253
NET CASH PROVIDED BY OPERATING ACTIVITIES 948,372 2,230,583 873,469
Cash flows from financing activities:
Dividends paid (906,882) (867,301) (846,189)
PURCHASE OF TREASURY STOCK (1,488,563)
NET CASH USED IN FINANCING ACTIVITIES (906,882) (2,355,864) (846,189)
Net increase (decrease) in cash and due
from bank 41,490 (125,281) 27,280
CASH AND DUE FROM BANKS AT BEGINNING 627,714 752,995 725,715
CASH AND DUE FROM BANKS AT END $ 669,204 $ 627,714 $ 752,995
-31-