June 15, 2009
Via EDGAR
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 June 3, 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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Investment Activities, Page 16
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1. We note your response to comment three of our letter dated May 14,
2009. Please confirm that in future filings the Company will disclose
more specifically the terms and provisions of the auction rate
preferred stock including maturity dates of the long-term instruments,
status of dividend payments, and if receiving a default rate the rate
received. In addition, please include a discussion on the auction rate
failures during the fiscal year and the Company's ability and intent
to hold these securities until a successful auction or maturity.
The Company will revise its future filings as requested by the comment.
John P. Nolan, CPA
June 15, 2009
Page 2
Form 10-Q for the quarter ended March 31, 2009
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Note 8 - Allowance for Loan Losses, Page 13
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2. We note the continued deterioration in the credit quality of your loan
portfolio over the last three quarters of fiscal year 2009, which
resulted in your ratio of non-performing loans to gross loans
increasing in each period from 0.58% at June 30, 2008, as reported on
page 11 of your Form 10-K, to 1.74% at March 31, 2009. We note on page
13 of your Form 10-Q that there are 17 loans included in the total of
non-performing loans. In order to promote transparency, please
disclose in future filing, beginning with your June 30, 2009 Form
10-K, the following:
o A discussion regarding the reasons why management believes the
levels of non-performing loans have increased so significantly;
o Discuss changes in the balance of non-performing loans from prior
periods and specifically discuss how you have considered these
trends in your determination of the allowance for loan losses;
o The type of collateral securing your non-performing loans, giving
particular attention to commercial real estate and residential
mortgage loans since these represent the majority of the balance;
and
o The timing and frequency of your appraisal and valuation process
for non-performing loans and whether this process performed by a
third-party.
In addition, please provide us an example including a timeline of how
and when an appraisal would be ordered for various types of
nonperforming loans, the amount of time this normally takes and at
what point you would typically recognize any charge-off(s) resulting
from insufficient collateral.
Loans secured by real estate
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For all residential and commercial loans secured by real estate, we have the
property securing the loan reappraised when the loan becomes 180 days past due
and the original appraisal is more than one year old. The appraisal is
outsourced to a third party certified appraiser that is included on our internal
list of approved appraisers. The appraisal is normally received within three
weeks from the date it was ordered. The internal loan and appraisal review is
then completed within one week. If it is determined that there is a collateral
shortfall, an allocated reserve will be assigned against the loan for the amount
of the shortfall. If it is then determined that the loan is uncollectible, a
charge-off will be authorized based on the shortfall of the net realizable value
of the subject property compared to the loan balance.
John P. Nolan, CPA
June 15, 2009
Page 3
Commercial and industrial loans
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For commercial and industrial loans, if a loan becomes past due 60 days an
updated financial analysis is performed. If the loan becomes 90 days past due,
an internal review is generally completed within one week after the end of the
month the loan becomes 90 days delinquent. If required under SFAS No. 114
guidance, a specific allocation is assigned based on the updated internal
review. If it is then determined that the loan is uncollectible, a charge-off
will be authorized. The amount of the charge-off is based upon the present value
of the future expected cash flow discounted at the loan rate or the value of the
underlying collateral if the loan is collateral dependent.
In addition, the Company will revise its future filings as requested by the
comment.
Note 11 - Fair Value Measurements, Page 16
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3. We note on page 16 that approximately $18 million in securities were
transferred from Level 2 to Level 3. In addition, we note in your
December 31, 2008 Form 10-Q (page 16), that there were no securities
measured at fair value using significant unobservable inputs (Level
3). Please revise future filing, beginning with you June 30, 2009 Form
10-K, to disclose the following:
o The amount of assets you measured using significant unobservable
inputs (Level 3 assets) as a percentage of total assets you
measured at fair value;
o The amount and reason for any material increase or decrease in
Level 3 assets resulting from your transfer of assets from, or
into, Level 1 or Level 2;
o In determining the amount to present as transfers into and out of
Level 3, clarify whether you use the fair value at the beginning
or end of the period; and
o For a material amount of assets transferred into Level 3 during
the period, a discussion of the significant inputs that you no
longer consider to be observable and any material gain or loss
you recognized on those assets during the period.
The Company will revise its future filings as requested by the
comment.
* * * *
John P. Nolan, CPA
June 15, 2009
Page 4
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.