FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number:
PSB HOLDINGS, INC.
(Exact name of registrant as specified in charter)
WISCONSIN 39-1804877
(State of incorporation) (I.R.S Employer Identification
Number)
1905 WEST STEWART AVENUE
WAUSAU, WISCONSIN 54401
(Address of principal executive office)
Registrant's telephone number, including area code: 715-842-2191
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
The number of common shares outstanding at March 31, 1999 was 883,235.
PSB HOLDINGS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of
Income, Three Months Ended
March 31, 1999 (unaudited) and
March 31, 1998 (unaudited) 1
Condensed Consolidated Balance
Sheets March 31, 1999 (unaudited)
and December 31, 1998 (derived from
audited financial statements) 2
Condensed Consolidated Statements
of Cash Flows Three Months
Ended March 31, 1999 (unaudited)
and March 31, 1998 (unaudited) 3
Notes to Condensed Consolidated
Financial Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to Vote of
Securities Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on form 8-K 13
-i-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ thousands except share data -unaudited) Three Months Ended
March 31,
Interest Income 1999 1998
Interest and fees on loans $3,267 $3,372
Interest on investment securities
Taxable 711 583
Tax-exempt 168 148
Other interest income 3 43
Total interest income 4,179 4,146
Interest Expenses:
Deposits 1,888 2,036
Short-term borrowings 81 67
Long-term borrowings 81 61
Total interest expense 2,050 2,164
Net interest income 2,129 1,982
Provisions for losses on loans 75 75
Net Interest Income After Provision for
Loan Losses 2,054 1,907
Non-interest income:
Service fees 153 131
Gain on sale of loans 91 55
Net gain on sale of securities available
for sale -0- 36
Other operating income 83 42
Total other income 327 264
Other Expenses
Salaries and related benefits 758 1,046
Net occupancy expense 113 194
Computer operations 35 24
Loss on uncollected items 46 -0-
Other operating expense 373 360
Total non-interest expenses 1,427 1,624
Income before income taxes 954 547
Provision for income taxes 319 157
Net income $ 635 $ 390
Income per share
Basis: Weighted Average of 883,235
shares in 1999 and 1998
Basic and diluted earnings per share $ .72 $ .44
-1-
PSB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
($ thousands) March 31, December 31,
ASSETS 1999* 1998*
Cash and due from banks $ 8,206 $ 8,752
Interest bearing deposits and money market funds 1,386 741
Federal funds sold -0- 3,934
Investment securities -
Held to maturity (fair values of $15,072
and $14,346 respectively) 14,830 14,068
Available for sale (at fair value) 46,016 47,886
Loans held for sale 1,074 3,120
Loans receivable, net of allowance for loan losses of
$2,002 and $1,947 in 1999 and 1998, respectively 150,943 148,582
Accrued interest receivable 2,000 1,725
Premises and equipment 3,885 3,886
Other assets 906 797
TOTAL ASSETS $ 229,246 $ 233,491
LIABILITIES
Noninterest-bearing deposits $ 27,497 $ 33,150
Interest-bearing deposits 165,344 166,650
Total deposits 192,841 199,800
Short-term borrowings 7,753 4,550
Long-term borrowings 6,000 6,000
Other liabilities 1,672 2,585
Total liabilities 208,266 212,935
STOCKHOLDERS' EQUITY
Common stock - no-par value, with a stated
value of $2 per share
- 1,000,000 shares authorized
- 902,425 shares issued 1,805 1,805
Additional paid-in capital 7,159 7,159
Retained earnings 12,858 12,223
Net unrealized gain (loss) on securities available
for sale, net of tax (39) 172
Treasury stock, at cost - 19,190 shares (803) (803)
Total stockholders' equity 20,980 20,556
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 229,246 $ 233,491
<FN>
*The consolidated balance sheet at March 31, 1999 is unaudited. The
December 31, 1998 consolidated balance sheet is derived from audited
financial statements.
-2-
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months Ended
March 31,
($ thousands - unaudited) 1999 1998
Cash flows from operating activities:
Net income $ 635 $ 390
Provision for depreciation, and
net amortization 125 96
Provisions for loan losses 75 75
Gain on sale of loans (91) (55)
Loss on uncollected items 46 -0-
Gain on sale of securities available for sale -0- (36)
Changes in operating assets and liabilities:
Other assets (155) 206
Other liabilities (913) (767)
Net cash used in operating activities (278) (91)
Cash flows from investing activities:
Proceeds from sale and maturities of:
Held to maturity securities 815 265
Available for sale securities 5,365 8,010
Payment for purchase of
Held to maturity securities (1,409) (415)
Available for sale securities (4,157) (5,399)
Net change in loans (298) (1,850)
Net change in interest-bearing deposits (645) (428)
Net change in federal funds sold 3,934 (3,705)
Capital expenditures (117) (300)
Net cash provided by (used in) investing activities 3,488 (3,822)
Cash flows from financing activities:
Net change in deposits (6,959) (260)
Net change in short-term borrowings 3,203 (329)
Net change in long-term borrowings -0- 3,000
Net cash provided by (used in) financing activities (3,756) 2,411
Net decrease in cash and cash equivalents (546) (1,502)
Cash and cash equivalents at beginning of year 8,752 10,623
Cash and cash equivalents at end of quarter $ 8,206 $ 9,121
Supplemental Cash Flow Information:
Cash paid during the period for : Interest 2,050 2,164
Income taxes 67 -0-
-3-
PSB HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying financial statements in the opinion of management
reflect all adjustments which are normal and recurring in nature and
which are necessary for a fair statement of the results for the
periods presented. In all regards, the financial statements have
been presented in accordance with generally accepted accounting
principles.
2. Earnings per share of common stock is based on the weighted average
number of common shares outstanding.
3. Refer to notes to the financial statements which appear in the 1998
annual report for the company's accounting policies which are
pertinent to these statements.
4. In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FASB 130), was issued and
establishes standards for reporting and displaying comprehensive
income and its components. FASB 130 requires comprehensive income
and its components, as recognized under the accounting standards, to
be displayed in a financial statement with the same prominence as
other financial statements. The disclosure requirements of FASB 130
with respect to the Form 10-Q have been included in the
corporation's consolidated balance sheets. Comprehensive income
totaled the following for the periods indicated:
Three months ended
($ thousands) 3/31/99 3/31/98
Net Income $635 $390
Change in net unrealized gain or
securities available for sale, net tax (211) (4)
Comprehensive income $424 $386
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, " Accounting
for Derivative Instruments and Hedging Activities" (FASB 133). FASB
133 establishes new accounting and reporting requirements for
derivative instruments, including certain derivative instruments
embedded in other contracts and hedging activities. The standard
requires all derivatives to be measured at fair value and recognized
as either assets or liabilities in the statement of condition.
Under certain conditions, a derivative may be specifically
designated as a hedge. Accounting for the changes in the fair value
of a derivative depends on the intended use of the derivative and
the resulting designation. Adoption of the standard is required for
the corporation's December 31, 2000 financial statements with early
adoption allowed as of the beginning of any quarter after June 20,
1998. Management is in the process of assessing the impact and
period of adoption of the standard. Adoption is not expected to
result in material financial impact.
-4-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS*
(All $ amounts are in thousands, except per share amounts)
RESULTS OF OPERATIONS
TOTAL ASSETS
Total assets have decreased by $4,245 from December 31, 1998 to March
31, 1999. This is a decrease of 1.82%. In 1998, first quarter assets
increased $2,030 or .94%. The decrease in 1999 is due to municipal tax
deposits at year-end 1998 which were withdrawn during January 1999.
LOANS
Net loans have increased by $315 from December 31, 1998 to March 31,
1999. This is an increase of .21%. In 1997, first quarter loans
increased $1,830 or 1.24%. In 1999, tougher competition negatively
affected loan growth.
CASH AND INVESTMENTS
Cash decreased by $546 as of March 31, 1999 compared to December 31,
1998. Efforts continue to be made at decreasing this non-earning asset.
Investments also decreased by $108. Because of the lower rate
environment in the investment area, maturities and calls have been
replaced but additional investment is being channeled to the loan
portfolio.
DEPOSITS
Deposits decreased by $6,959 from December 31, 1998 to March 31, 1999.
In 1997, first quarter deposits decreased by $260. Funding sources are
being directed away from deposits into alternative sources such as the
Federal Home Loan Bank of Chicago. Therefore, aggressive plans to
attract deposits are not in place. Historically, first quarter deposits
decline from prior year levels.
SHORT TERM BORROWINGS
The use of overnight Fed Funds purchased is reflected by a balance of
$2,878 as of March 31, 1999. Repurchase agreements increased by $325
during the first quarter of 1999 to a balance of $4,875.
LONG TERM BORROWINGS
The use of advances from the FHLB of Chicago is reflected in the $6,000
balance as of March 31, 1999. $3,000 of these advances matures in April,
1999.
______________________________
* Matters discussed in this report with respect to the expectations of
the Company 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
the company's Annual Report of Form 10-K for the year ended December 31,
1998 under the heading "Cautionary Statement Regarding Forward Looking
Information."
-5-
EQUITY
Equity grew by $423 or 2.06% due to the following: Net income for the
first three months of $635 and a decrease in the "Net unrealized gain on
securities available for sale" of $211. The decrease in the unrealized
gain is a result of the market prices of the investment portfolio
dropping as of March 31, 1999. In the first quarter of 1998 equity grew
by $386 or 2.01%.
OPERATING DATA SUMMARY
GENERAL
Net interest income for the first quarter of 1999 is $147 or 7.42%
greater than it was for the same period in 1998. In 1998 Net interest
income for the first quarter was $203 greater than the first quarter of
1997. The drop in deposit rates contributed to this increase in
interest margin. Savings Passbook rates were dropped .50% as of January
1, 1999.
NON-INTEREST INCOME
Non-interest income increased by $63 or 23.86% from the period ending
March 31, 1999 compared to the period ending March 31, 1998. Part of
this increase is attributable to the implementation of a profit
improvement project which in many areas increased our service charges
and fees for services. Gains on sale of loans to the secondary market
increased to $91 in 1999 from $55 in 1998.
NON-INTEREST EXPENSE
Non-interest expenses decreased 12.13% or $197 for the period ending
March 31, 1999 when compared to the period ending March 31, 1998. In
the first quarter of 1998 an additional expense of $403 was recognized
from the termination of the defined benefit pension plan. Restated,
non-interest expense for the first quarter of 1999 would be 16.87%
higher than the first quarter of 1998. Salaries and benefits would be
17.88% higher in the first quarter of 1999 compared to first quarter
1998. Also noted is another loss of $46 in the first quarter of 1999
from charge-off of unrecoverable items in collection.
NET INCOME
Net income for three months of 1999 is 62.82% higher than the same
period in 1998 and earnings per share increased from $.44 to $.72, or
63.64%. Again, the additional expense recorded in the first quarter of
1998 attributed to the comparative increases. Restated for the after
tax pension plan expense, 1999 net income was $635 compared to $632 in
1998.
-6-
KEY OPERATING RATIOS
(unaudited) Ended March 31, 1999
THREE MONTH PERIOD
1999 1998
Return on assets (net income divided
by average assets) (1) 1.11% .73%
Return on Average Equity (net income
divided by average equity) (1) 12.36% 8.10%
Average Equity to Average Assets 9.01% 8.96%
Interest Rate Spread (difference between
average yield on interest earning assets
and average cost of interest bearing
liabilities) (1) 3.32% 3.15%
Net Interest Margin (net interest income as a
percentage of average interest earning assets (1) 4.14% 3.96%
Non-interest Expense to average assets (1) 2.52% 3.00%
Allowance for loan losses to total loans
at end of period 1.32% 1.24%
<FN>
(1) Annualized
-7-
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at the end of each period,
changes in the allowance for loan losses arising from loans charged off
and recoveries on loans previously charged off, by loan category and
additions to the allowance which have been charged to expense.
Three Months Ended Year Ended
MARCH 31, 1999 DECEMBER 31, 1998
Allowance for loan losses at
beginning of period $1,946,864 $1,845,064
Loans charged off
Commercial & Industrial (21,089) (138,296)
Agricultural -0- -0-
Real Estate - Mortgage (51,638) -0-
Installment & Other
Consumer Loans (1,697) (69,154)
Total Charge Offs (74,424) (207,450)
Recoveries on loans previously
charged off
Commercial & Industrial 51,106 316
Agricultural -0- -0-
Real Estate - Mortgage -0- -0-
Installment & Other
Consumer Loans 3,797 8,934
Total Recoveries 54,903 9,250
Net loans charged off (19,521) (198,200)
Additions charged to operations 75,000 300,000
Allowance for loan losses
at end of period $2,002,343 $1,946,864
-8-
AGGREGATE AMOUNT OF NON-PERFORMING LOANS
March 31, December 31,
1999 1998
Loans on a non-accrual basis
Real estate - mortgage $ 93,081 $ 34,874
Installment loans 10,730 58,491
Credit cards & related plans -0- -0-
Commercial & all other loans 195,586 488,901
Total non-accrual $ 299,397 $ 582,266
Loans contractually past due
thirty through eighty-nine days
and still accruing
Real estate - mortgage $ 917,077 $ 519,967
Installment loans 1,706,905 119,850
Credit cards & related plans -0- -0-
Commercial & all other loans 1,412,037 704,624
Total 30 - 89 days $ 4,036,019 $1,344,441
Loans contractually past due
ninety days or more as to
interest or principal payments
and still accruing interest
Real estate - mortgage $ -0- $ -0-
Installment loans -0- -0-
Credit cards & related plans -0- -0-
Commercial & all other loans -0- -0-
Total over 90 days $ -0- $ -0-
-9-
YEAR 2000 DISCLOSURE
YEAR 2000
The Company, like virtually all other financial institutions in the
United States, depends on computer technology to process its various
deposit, loan and investment transactions on a daily basis. Management
has initiated a plan to review and address the potential for failure of
computer applications as a result of the failure of software program to
properly recognize the Year 2000 (the "Year 2000 problem" or "Year 2000
issues"). The term "Year 2000 readiness", or terms of similar import,
mean that the particular software or equipment referred to has been
modified or replaced and the Company believes that such modified or
replaced equipment or processes will operate as designed after 1999
without Year 2000 problems.
The Company assessment of, and corrective actions with respect to, the
possible consequences of Year 2000 issues on its consolidated financial
condition, liquidity or results of operations is referred to herein as
its "Year 2000 Project." The Year 2000 Project is being undertaken
under the supervision of the Year 2000 Project Committee (the
"Committee"), composed of employees of the Company's wholly-owned
subsidiary, Peoples State Bank (the "Bank"). The Committee reports on a
regular basis to the Board of Directors as to the status of Year 2000
issues and the Company's progress in addressing and/or resolving
identified Year 2000 problems.
In accordance with the Year 2000 Project and a Year 2000 Compliance
Policy adopted by the Committee, an assessment of software and equipment
to determine which major computer components will need to be updated or
replaced has been completed. The Company has undertaken software and
equipment upgrades, including the bank's mainframe computer, and will
continue to monitor vendor certifications as to Year 2000 compliance and
to take appropriate steps by July, 1999 to modify or replace systems
which are not Year 2000 compliant. Testing has been conducted on all
major mission critical systems and all such systems appear to be Year
2000 ready. Testing will continue through the year 2000 on software and
equipment upgrades and modifications.
The Year 2000 Project also involves gathering data from Bank customers
to assist the Committee in determining the level of risk to the Bank
which might be expected as a result of Year 2000 noncompliance. Bank
operations, such as commercial loan application procedures, have been
modified to address the Year 2000 issue. The Bank has also attempted
to educate its customer base about the Year 2000 issue and has attempted
to identify major employers in the Bank's primary market area to
evaluate potential loss to the Bank's business if those employers'
operations would be curtailed or cease due to Year 2000 problems.
Inquiries have also been made to the Bank's investment subsidiary
service provider and correspondent banks to determine the effect of
such entities' compliance with Year 2000 issues.
The Committee has determined that it does not have non-information
technology systems, such as embedded controllers, which are material to
the operations of the Company and that all security and building
-10-
operations systems can be operated manually or with alternative controls
should a Year 2000 problem occur.
COSTS
Costs on new software or equipment will be capitalized over the useful
life. All other costs associated with Year 2000 issues are expensed as
incurred. Internal costs of Year 2000 readiness are not being tracked,
but principally relate to payroll costs of Company personnel. The
estimated total cost of evaluation and compliance with Year 2000 issues
is not expected to exceed $150,000 and, in any event, is not expected to
be material to the Company.
RISKS
The Company does not believe that Year 2000 issues will have a material
adverse effect on its consolidated financial condition, liquidity or
results of operations. There are, however, many risks associated with
Year 2000 that are beyond the control of the Company or which may not be
adequately addressed by others before material problems are encountered.
The Company, like other financial institutions, depends upon the Federal
Reserve System and other financial institutions to process a wide
variety of financial transactions for itself and its customers and as a
source of credit. The Company must rely upon various federal bank
regulatory agencies to make certain the U.S. banking and payments
system, as a whole is Year 2000 compliant. While the Company believes
that the banking system as a whole will be Year 2000 compliant, and it
has required into the readiness of its principal correspondents and
service providers, there can be no assurance of that fact or that one or
more of them will not encounter significant Year 2000 problems and
thereby adversely affect the Company. Similarly, while the Company
faces potential disruptions in its operations from Year 2000 problems as
a result of the failure of the power grid, telecommunications, or other
utilities, it is not aware that any material disruption in these
infrastructures is reasonably likely to occur.
The Bank has a diverse customer base. Based on this diversity and the
information received by the Bank to date in response to its customer
surveys and other inquiries, the Company believes that is customers as a
whole will not incur material adverse results from Year 2000 related
issues to the extent that the Bank would, in turn, incur material
defaults in its loan portfolio. Nevertheless, there is a risk which
cannot be wholly discounted that Year 2000 problems encountered by its
customers may result in significant losses to the Company as a result of
the inability of certain customers to repay loans or as a result of
reducing the nonloan portion of its customers' banking business.
To the extent the Company incurs losses arising from Year 2000 issues,
it may also have insurance coverage. The scope and amount of
reimbursement for such losses will depend upon the nature of any claims
which arise.
-11-
CONTINGENCY PLAN
The Committee is preparing a business resumption contingency plan which
be implemented, in part, in conjunction with the Bank's disaster
recovery plan in the event of failure of one or more of the Bank's major
systems. The business resumption contingency plan involves the
identification by the Committee of core business processes,
establishment of event time lines, and preparation of a risk analysis of
mission critical systems. Work on the business contingency readiness
plan continues and is expected to be completed during the second quarter
of 1999.
-12-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
The following exhibits required by Item 601 of Regulation S-K are filed
with the Securities and Exchange Commission as part of this report.
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended
(incorporated by reference to Exhibit 4(a) to the
Company's Current Report on Form 8-K dated May 30,
1995)
3.2 Bylaws (incorporated by reference to Exhibit 4(b) to the
Company's Current Report on Form 8-K dated May 30, 1995)
4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and
3.2)
-13-
10.1 Bonus Plan of Directors of the Bank (incorporated by
reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)*
10.2 Bonus Plan of Officers and Employees of the Bank*
(incorporated by reference to Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)*
10.3 Non-Qualified Retirement Plan for Directors of the Bank
(incorporated by reference to Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)*
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 22 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995)
27.1 Financial Data Schedule (electronic filing only)
*Denotes Executive Compensation Plans and Arrangements.
(b) Reports on Form 8-K:
None.
-14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSB HOLDINGS, INC.
May 13, 1999 TODD R. TOPPEN
Todd R. Toppen
Secretary and Controller
(On behalf of the Registrant and as
Principal Financial Officer)
-15-
EXHIBIT INDEX<dagger>
TO
FORM 10-Q
OF
PSB HOLDINGS, INC.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. Section 232.102(d))
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<dagger> Exhibits required by Item 601 of Regulation S-K which have
been previously filed and are incorporated by reference are set
forth in Item 6 of the Form 10-Q to which this Exhibit Index
relates.
-16-