SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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OCTOBER 9, 1998
Date of Report (date of earliest event reported)
PSB HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 0-26480 39-1804877
(State of Incorporation) (Commission File (IRS Employer
Number) Identification
Number)
1905 W. STEWART AVENUE
WAUSAU, WISCONSIN 54403
(Address of principal executive offices, including Zip Code)
(715) 842-2191
Registrant's telephone number, including area code
NOT APPLICABLE
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
YEAR 2000 DISCLOSURE*
YEAR 2000 POLICIES
PSB Holdings, Inc. ("PSB"), like virtually all other financial
institutions in the United States, depends on computer technology to
process its various deposit, loan and investment transactions on a daily
basis. Management has initiated a plan to review and address the
potential for failure of computer applications as a result of the
failure of a software program to properly recognize the year 2000 (the
"Year 2000 problem" or "Year 2000 issues"). PSB's assessment of the
possible consequences of Year 2000 issues on PSB's business, results of
operations, or financial condition is referred to herein as its "Year
2000 Project."
The Year 2000 Project was initiated in July, 1997 and is headed by a
committee of employees of PSB's wholly-owned subsidiary, Peoples State
Bank (the "Bank"). PSB is a one-bank holding company and the Bank is
its sole operating subsidiary. Members of the Committee are responsible
for day-to-day computer and internal operations at the Bank, as well as
various lending and deposit functions. The Year 2000 Project Committee
(the "Committee") reports on a regular basis to the PSB Board of
Directors as to the status of Year 2000 issues and PSB's progress in
addressing and/or resolving identified Year 2000 problems. The
Committee has relied upon its own analysis of PSB's exposure to Year
2000 issues and has reviewed and been guided by its primary bank
regulators and various FFIEC Interagency statements, reports, and
guidance concerning Year 2000 awareness, testing, implementation, and
contingency planning.
PSB's assessment of the possible consequences of Year 2000 issues on
PSB's business, results of operations, or financial condition is not
complete, but is continuing in accordance with the Year 2000 Project
and a Year 2000 Compliance Policy adopted by the Committee. The Year
2000 Project includes the following procedures:
1. Identify all computer software and hardware and other equipment
or systems using embedded chips that could possibly fail due to
Year 2000 problems or issues. All such computer hardware and
other equipment or systems using embedded chips is referred to
herein as "equipment."
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* Matters discussed in this report with respect to the expectations of
PSB or its management are forward-looking statements that involve risks
and uncertainties. A more comprehensive discussion of the risks and
uncertainties which could cause actual results to be materially
different from such expectations are set forth in Part I of PSB's Annual
Report of Form 10-K for the year ended December 31, 1997 under the
heading "Cautionary Statement Regarding Forward Looking Information."
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2. Determine status of software and equipment Year 2000
certification by manufacturers or vendors and the extent to
which such manufacturers or vendors anticipate Year 2000
compliance as it relates to services or equipment provided to
PSB, with emphasis on software and equipment which is essential
to processing banking transactions and the Bank's day-to-day
record keeping operations.
In connection with the survey of manufacturers and vendors,
test critical software and equipment for Year 2000 compliance
in accordance with bank regulatory guidelines and the
Committee's internal criteria.
Determine if software and equipment should be upgraded,
replaced, or discarded based on surveys and testing.
3. Identify and survey correspondent banks and other service
providers whose services or products are deemed critical to the
Bank's day-to-day operations to assess their Year 2000
compliance.
4. Develop criteria to identify customers of the Bank whose loan,
deposit or other business is considered significant (as
determined by the Committee's internal evaluation standards),
the loss or disruption of which may, on a combined basis, have
a material adverse effect on the Bank's business, results of
operations, or financial condition. Collectively, these
customers are referred to herein as "selected bank customers."
5. Survey selected bank customers to educate such customers as to
the existence and scope of the Year 2000 problem on customers'
business and accounts and to identify possible risks to PSB of
those customers' own noncompliance with Year 2000 issues.
Additional education of all Bank customers will also be
undertaken.
Preliminary assessment of software and equipment was begun during
the first quarter of 1998 to determine which major computer
components will need to be updated or replaced. A risk assessment
was also done at this time for any systems that were not tested.
Testing will be conducted periodically as required to monitor
previously failed systems or untested systems in coordination with
manufacturer or vendor certification. Testing will continue through
the year 2000 to check software and equipment upgrades and
modifications.
All vendors of software or equipment deemed critical to the Bank's
operations will be contacted on or before July, 1998 to determine if
their products are or will be Year 2000 compliant. PSB will continue to
monitor vendor certifications as to Year 2000 compliance and to take
appropriate steps to modify or replace systems which are not expected to
attain compliance status by July, 1999. Certain upgrading has already
been accomplished. A Year 2000 capability upgrade of hardware on the
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bank's mainframe computer was installed in April, 1998. A second
mainframe, upgraded in April, 1998 will be utilized to do Year 2000
network testing.
In addition to surveying selected bank customers with respect to
their Year 2000 compliance readiness, a letter outlining Year 2000
issues, along with a Year 2000 Credit Risk Assessment Worksheet, has been
sent to all commercial loan customers in order to assist the Committee
in determining the level of risk to the Bank which might be expected as
a result of Year 2000 noncompliance among the loan customer base.
Commercial loan application procedures have been amended to include a
questionnaire regarding Year 2000 compliance. Seminars have been held,
and will continue to be held, for commercial customers and the general
public regarding Year 2000 issues and all business checking accounts
have received a brochure regarding the importance of Year 2000
compliance. The Bank's loan committee has been charged with identifying
major employers in the Bank's primary market area and evaluating
potential loss to the Bank's business if those employers operations
would be curtailed or cease due to Year 2000 problems.
Inquiries to the Bank's investment subsidiary service provider and
correspondent banks have been undertaken to determine the effect of such
entities' compliance with Year 2000 issues.
The Committee has determined that PSB does not have non-information
technology systems, such as embedded controllers, which are material to
the operations of PSB and that all security and building operations
systems can be operated manually or with alternative controls should a
Year 2000 problem occur.
COSTS
Replacement of hardware and software which was identified as
non-Year 2000 compliant began January, 1998. A prerequisite to the
purchase of new or replacement software or equipment is a certification
by the manufacturer or vendor of Year 2000 compliance.
Costs of new software or equipment will be capitalized over their
useful life. All other costs associated with Year 2000 issues are
expensed as incurred. The estimated total cost of evaluation and
compliance with Year 2000 issues is not expected to exceed $150,000 and,
in any event, is not expected to be material to PSB.
RISKS
PSB does not believe that Year 2000 issues will have a material
adverse effect on its business, results of operations, or financial
condition. There are, however, many risks associated with Year 2000
that are beyond the control of PSB or which may not be adequately
addressed by others before material problems are encountered. PSB, like
other financial institutions, depends upon the Federal Reserve System
and other financial institutions to process a wide variety of financial
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transactions for itself and its customers and as a source of credit.
PSB must rely upon various federal bank regulatory agencies to make
certain that the U.S. banking and payments system, as a whole, is Year
2000 compliant. While PSB believes that the banking system as a whole
will be Year 2000 compliant, and it has inquired into the readiness of
its principal correspondents and service providers, there can be no
assurance of that fact or that one or more will not encounter
significant Year 2000 problems and thereby adversely affect PSB.
The Bank has a diverse customer base. Based on this diversity and
the information received by the Bank to date in response to its customer
surveys and other inquiries, PSB believes that its customers as a whole
will not incur material adverse results from Year 2000 related issues to
the extent the Bank will, in turn, incur material defaults in its loan
portfolio. Nevertheless, there is a risk which cannot be wholly
discounted that Year 2000 problems encountered by its customers may
result in significant losses to PSB as a result of the inability to
repay loans or as a result of reducing the nonloan portion of its
customers' banking business.
PSB's and the Bank's insurer has indicated that it will not provide
coverages for losses related to Year 2000 issues. This position is
similar to that taken by many insurance carriers. If this coverage
limitation is successfully imposed by insurance companies, insurance
coverage for any claims of business interruption on the part of PSB or
its customers or vendors, or claims by or against PSB for failure to
perform various contracts or business agreements as a result of Year
2000 related problems may not be available or may be available only at
premiums that are prohibitive. Losses to PSB are possible as a result of
disruptions in the nationwide banking system and one or more individual
customers or sectors may default on loan obligations or reduce their
level of demand for other services or products offered by the Bank as a
result of Year 2000 related problems. PSB does not expect that such
events, if they occur, will have a material adverse affect on the
business, results of operations, or financial condition of the Bank or
PSB.
CONTINGENCY PLANS
The Committee has prepared a risk analysis of Year 2000 issues in
conjunction with the Bank's disaster recovery plan to help identify what
risks should be addressed and to develop contingency plans for continued
operations in the event of failure of one or more of the Bank's major
systems. These contingency plans are similar, and in some cases,
identical, to those in place for the Bank's overall business recovery
plans that are or would be used in the event of any type of disaster.
SHAREHOLDER PROPOSALS AND DISCRETIONARY VOTING
If any shareholder desires to submit a proposal for inclusion in the
proxy statement to be used in connection with the annual meeting of
shareholders to be held in 1999 (the "1999 Annual Meeting"), the
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proposal must be in proper form and received by PSB no later than
November 25, 1998.
The proxy solicited by the Board of Directors of PSB will provide
that the proxy will confer discretionary voting authority as to any
matter proposed by a shareholder at the 1999 Annual Meeting if PSB does
not receive notice of such proposal on or before February 8, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PSB HOLDINGS, INC.
Date: October 9, 1998 By: TODD R TOPPEN
Todd R. Toppen
Vice President
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