[Letterhead of PSB Holdings, Inc.]
May 29, 2009
Via EDGAR
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John P. Nolan, CPA
Senior Assistant Chief Accountant
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: PSB Holdings, Inc.
Form 10-K for the Fiscal Year Ended June 30, 2008
Form 10-Q for the Quarter Ended September 30, 2008
Form 10-Q for the Quarter Ended December 31, 2008
File No. 000-50-970
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Dear Mr. Nolan:
I am responding to the letter from the Securities and Exchange Commission
(the "SEC") addressed to PSB Holdings, Inc. (the "Company") dated May 14, 2009
relating to the above-referenced annual report. The Company's responses are
named and numbered to correspond with the names and numbers of the comments
contained in the letter from the SEC. For your convenience, we have included a
copy of the text of your comment above each of the responses.
Form 10-K for the fiscal year ended June 30, 2008
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Balance Sheet, page 42
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1. We note that you classify your investment in FHLB stock as equity
securities available for sale which is carried at cost. We note
that paragraph 12.26 of the AICPA Audit Guide for Depository
Lending Institutions states that investments in FHLB stock
generally should not be shown with securities accounted for under
SFAS 115. Please tell us why you believe your classification of
FHLB stock is appropriate considering the above guidance or
revise future filing to present your investment in FHLB stock
outside of securities available for sale. Please provide any
supporting accounting guidance for your position.
John P. Nolan, CPA
May 29, 2009
Page 2
The Company will revise its future filings to separate FHLB
stock, as requested by the comment.
Investment Activities, pg. 16
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2. We note your portfolio consists of $7.9 million of Federal Home
Loan Bank (FHLB) of Boston stock. Given the fact that FHLB Boston
has not paid dividends since the third quarter in 2008 and had a
net loss in 2008, please revise your future filings beginning
with your next Form 10-Q to disclose the results of your
impairment analysis of your investment in FHLB Boston stock. In
addition, how you considered the positive and negative factors in
making this conclusion.
The Company will revise its future filings as requested by the
comment.
3. We note you held auction rate preferred stock totaling $19.0
million at June 30, 2008. Please tell us and in future filings
more specifically describe the terms and provisions of the
auction rate preferred stock. Please disclose and provide to us
maturity dates of the long-term instruments, dividend rates,
dividend payment provisions, the nature of any collateral and any
other guarantees. Clarify whether you are receiving default
dividend rates, disclose the rates, and disclose whether
dividends are being collected on a current basis. In addition,
please tell us and include in future filings if any of the
auctions failed during the fiscal year and explain how any
changes to these facts and circumstances impacted your accounting
from June 30, 2008 to the current date. We may have additional
questions upon receipt and review of your response.
A table providing the requested information is attached as
Appendix A to this letter.
As noted in the attachment, all auctions that have been held
during the year have failed. However, the only auction rate
preferred investments that the Company has written down have been
the Federal Home Loan Mortgage Corporation ("Freddie Mac")
securities. During the quarter ended September 30, 2008, the U.S.
Treasury announced a plan to place the Federal National Mortgage
Association ("Fannie Mae") and Freddie Mac under conservatorship
under the authority of Federal Housing Finance Agency. The
Company owns $4.0 million of Freddie Mac auction rate preferred
securities. The Company has recorded an other-than-temporary
impairment charge of $3.95 million and the current carrying value
is $46,000. Except for the Freddie Mac Auction Rate Preferred
securities, which are not currently paying dividends, the Company
John P. Nolan, CPA
May 29, 2009
Page 3
receives a default rate at each reset date. All of these
securities are classified as available-for-sale and any
unrealized loss is included in Other Comprehensive Income.
Note 2 - Investment Securities, pg. 57
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4. We note there were unrealized losses as of June 30, 2008,
September 30, 2008, and December 31, 2008 related to your
corporate-bonds and other obligations and mortgage-backed
securities. Based on the disclosure on page 55, it would appear
that these securities fair values were below the amortized cost.
We note you determined the unrealized losses as of June 30, 2008
were temporary and a result of interest rate conditions. Please
revise future filings to disclose the following:
a) Your ability and intent to hold these securities for the
time necessary to collect the expected cash flows along with
the factors you considered in this conclusion; and
b) Please consider disclosing a table in your Form 10-Q
summarizing the estimated fair value and related unrealized
losses aggregated by investment category and length of time
that individual securities have been in a continuous
unrealized loss position as included in the Form 10-K on
page 57.
The Company will revise its future filings as requested by the
comment.
Form 10-Q for the quarters ended December 31, 2008
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Note 11 - Fair Value of Assets and Liabilities, pg. 15
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5. We note you include the fair value measurements and level within
the fair value hierarchy at the reporting date for assets
measured at fair value on a recurring basis in Note 11 at
September 30, 2008 and December 31, 2008. In future filings,
please present each major category of securities available for
sale separately, like U.S. government and agency obligations and
mortgage-backed securities, in the table included on page 15.
The Company will revise its future filings as requested by the
comment.
6. You state that your Level 2 valuations for assets and liabilities
were obtained from third party pricing services. Please revise
future filings to explain the extent to which, and how, the
John P. Nolan, CPA
May 29, 2009
Page 4
information is obtained from pricing services/independent dealers
and used in developing the fair value measurements in the
consolidated financial statement. In addition, please revise your
disclosures to address the following:
a) Disclose whether the valuation models used have changed from
prior periods and to the extent possible, disclose the
quantitative effect of such changes;
b) Quantify the effect on operations and financial position of
reasonably likely changes in the assumptions used, if
material, and;
c) The specific procedures management uses to validate the
pricing received from third parties.
The Company will revise its future filings as requested by the
comment.
7. With respect to Level 3 securities, we note you list
methodologies you considered in reaching conclusions about fair
value like option pricing models and discounted cash flow models
on page 14. In future filings please disclose more specific
detail about which models, methods and significant assumptions
were used in the valuations. If you relied on more than one
source of information or applied more than one technique, clarify
how you evaluated and weighted the information considered and the
techniques applied. Additionally, please consider disclosing how
you have reflected instruments in your Level 3 rollforward (i.e.
beginning of the period or the end of the period) in future
filings.
The Company will revise its future filings as requested by the
comment.
8. We note you have impaired loans at September 30, 2008 and
December 31, 2008 of $2,426,000 and $1,561,000. We note on page
59 of the Form 10-K at June 30, 2008 there were no impaired
loans. Please provide us with a rollforward of your impaired
loans from June 30, 2008 to December 31, 2008, explain why you
apparently have had highly variable impaired loans in a
relatively short timeframe and reconcile any discrepancies that
may have existed in prior filings.
The Company notes that, while the dollar change in impaired loans
between balance sheet dates may seem material, such changes have
resulted from a very small number of loan relationships, the
majority of which are commercial real estate loans. Because these
John P. Nolan, CPA
May 29, 2009
Page 5
loans tend to have a larger balance compared to one- to
four-family residential real estate loans, an increase of only a
few impaired loans can significantly affect the total dollar
amount of impaired loans.
The Company's balance of impaired loans as of September 30, 2008
consisted of only two commercial real estate relationships (with
balances of $1,895,000 and $531,000).
The Company's balance of loans as of December 31, 2008 consisted
of only two loans (one residential mortgage loan for $83,000 and
one commercial and industrial loan for $60,000) and one loan
relationship totaling $1,418,000 (consisting of primarily
commercial real estate loans). We would like to acknowledge that
the four loan relationships described in the December 31, 2008
Form 10-Q have now been found to be three. One company was
mistakenly listed as a separate loan relationship when it should
have been included in one of the other relationships. This error
had no effect on the dollar amount of the reported loans. We will
revise this disclosure in future SEC filings.
Critical Accounting Policies - Other-than-Temporary Impairment of Securities,
page 20
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9. We note you disclose that management determined that $6 million
of investments were other-than-temporarily impaired as of
September 30, 2008. You wrote down $5.5 million as of the quarter
ended September 30, 2008 and an additional $304,000 in the
quarter ended December 31, 2008, respectively. Please tell us why
you did not write-down the entire $6.0 million in the quarter
ended September 30, 2008 if the entire balance was impaired.
Please explain all the relevant facts and circumstances which
supported your prior and current accounting in this area.
The Company recorded write-downs on two securities that were
deemed to be other-than-temporarily impaired ("OTTI") as of
September 30, 2008. The amortized cost basis and the fair value
of these OTTI securities as of September 30, 2008 were $6.0
million and $0.5 million, respectively. As required by paragraph
16 of SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," FASB Staff Position ("FSP") FAS 115-1 and
FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments," and SEC Staff Accounting
Bulletin ("SAB") 59, the Company wrote down these OTTI securities
by $5.5 million to fair value as of the September 30, 2008
balance sheet date. Subsequent to September 30, 2008, during the
quarter ended December 31, 2008, the fair value of these
securities decreased by an additional $304,000. The Company
updated its impairment analysis of these securities and deemed
John P. Nolan, CPA
May 29, 2009
Page 6
the additional decline in fair value to be other-than-temporary.
Based on this determination, the Company recorded a write-down in
the quarter ended December 31, 2008 in the amount of $304,000.
* * * *
The Company acknowledges that:
(i) the Company is responsible for the adequacy and accuracy of the
disclosure in the filing,
(ii) Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action
with respect to the filing, and
(iii) the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
We trust that the above information is responsive to the staff's comments.
Please direct any additional comments or questions to the undersigned.
Sincerely,
/s/ Robert J. Halloran, Jr.
Robert J. Halloran, Jr.
President and Treasurer
cc: Thomas Borner, Chairman and Chief Executive Officer
Ned Quint, Esq.
Appendix A
Purchase Roll
Issuer Cusip Par Amount Book Value Date Frequency
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Goldman Sachs Auc PA 2006-8 05069M207 $ 3,000,000 $ 3,000,000 12-12-07 Quarterly
Pitney Bowes Inl - Pvt A 724481502 $ 5,000,000 $ 5,000,000 11-06-06 3 Years
Merrill Lynch Auc Pass Thru 07-3A 05070C206 $ 5,000,000 $ 5,000,000 09-05-07 Quarterly
Bank of America Pass Thru 07-5 050695204 $ 2,000,000 $ 2,000,000 11-20-07 Quarterly
FHLMC Auc Pass Thru Series 2007-6A 050698109 $ 2,000,000 $ 23,000 01-03-08 Quarterly
FHLMC Auc Pass Thru Series 2007-8A 05070M105 $ 2,000,000 $ 23,000 11-09-07 Quarterly
Receiving Current Dividends Failed
Issuer Default rates Rate Current? Auctions
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Goldman Sachs Auc PA 2006-8 Yes 4.713% Yes Yes
Ownership interest in: Floating Rate Non-Cumulative Preferred Stock, Series A, C and D
Minimum Rate: The rate per annum equal to 65% of the "AA" Non-Financial Composite Commercial
Paper Rate on such date.
Pitney Bowes Inl - Pvt A No 4.872% Yes No (1)
Ownership interest in: Variable Term Voting Preferred Stock
(1) First roll is not until 10-30-09.
Merrill Lynch Auc Pass Thru 07-3A Yes 4.799% Yes Yes
Ownership interest in: Floating Rate Non-Cumulative Preferred Stock, Series 5
Bank of America Pass Thru 07-5 Yes 4.850% Yes Yes
Ownership interest in: Floating Rate Non-Cumulative Preferred Stock, Series E
Minimum Rate: The rate per annum equal to 65% of the Three-month LIBOR rate on such date.
FHLMC Auc Pass Thru Series 2007-6A No None No Yes
FHLMC Auc Pass Thru Series 2007-8A No None No Yes