SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004 Commission File No.: 000-50301
PSB GROUP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 42-1591104
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1800 EAST TWELVE MILE ROAD, MADISON HEIGHTS, MICHIGAN 48071
(Address of principal executive offices)
Registrant's telephone number: (248) 548-2900
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 reports):
Yes [X] No [ ]
(2) has been subject to such filing requirements for past 90 days:
Yes [X] No [ ]
(3) is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):
Yes [ ] No [X]
The Registrant had 2,885,073 shares of Common Stock outstanding as of June
30, 2004.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION................................................................... 3
ITEM 1. FINANCIAL STATEMENTS................................................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION................................................................... 12
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 16
ITEM 4: CONTROLS AND PROCEDURES................................................................ 16
PART II. -- OTHER INFORMATION.................................................................... 17
Item 1. Legal Proceedings...................................................................... 17
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities....... 17
Item 3. Defaults Upon Senior Securities........................................................ 17
Item 4. Submission of Matters to a Vote of Security Holders.................................... 17
Item 5. Other Information...................................................................... 18
Item 6. Exhibits and Reports on Form 8-K....................................................... 18
SIGNATURES..................................................................................... 19
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-Q which are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements involve important known and unknown risks, uncertainties and other
factors and can be identified by phrases using "estimate," "anticipate,"
"believe," "project," "expect," "intend," "predict," "potential," "future,"
"may," "should" and similar expressions or words. Such forward-looking
statements are subject to risk and uncertainties which could cause actual
results to differ materially from those projected. Such risks and uncertainties
include potential changes in interest rates, competitive factors in the
financial services industry, general economic conditions, the effect of new
legislation and other risks detailed in documents filed by the Company with the
Securities and Exchange Commission from time to time.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSB GROUP. INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(in thousands, except share data)
JUNE 30, DECEMBER 31,
2004 2003
------------ ------------
ASSETS
Cash and cash equivalents $ 13,984 $ 14,308
Securities available for sale 55,133 47,619
Loans 346,014 326,262
Less allowance for possible loan loss (3,574) (3,887)
------------ ------------
Net loans 342,440 322,375
Loans held for sale 1,651 627
Bank premises and equipment 9,234 9,213
Accrued interest receivable 1,699 1,525
Other assets 5,431 5,844
------------ ------------
Total assets $ 429,572 $ 401,511
============ ============
LIABILITIES
Deposits:
Non-interest bearing $ 63,598 $ 53,412
Interest bearing 302,893 297,576
------------ ------------
Total deposits 366,491 350,988
Federal funds purchased 14,880 2,420
FHLB borrowings 5,000 5,000
Accrued taxes, interest and other liabilities 1,786 2,092
------------ ------------
Total liabilities 388,157 360,500
SHAREHOLDERS' EQUITY
Common stock - no par value - 5,000,000 authorized -
2,885,073 shares issued and outstanding at June 30, 2004 and
December 31, 2003 17,560 17,560
Retained earnings 23,940 23,104
Accumulated other comprehensive (loss)/ income (85) 347
------------ ------------
Total shareholders' equity 41,415 41,011
------------ ------------
Total liabilities and stockholders' equity $ 429,572 $ 401,511
============ ============
3
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(in thousands, except share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -----------------
2004 2003 2004 2003
--------- --------- -------- -------
INTEREST INCOME:
Interest and fees on loans $ 5,143 $ 5,003 $ 10,159 $ 9,914
SECURITIES:
Taxable 223 385 427 864
Tax-exempt 137 238 257 489
Federal funds sold - 15 2 19
--------- --------- -------- -------
TOTAL INTEREST INCOME 5,503 5,641 10,845 11,286
INTEREST EXPENSE:
Deposits 1,270 1,312 2,563 2,633
FHLB & Short-term borrowings 91 56 153 121
--------- --------- -------- -------
TOTAL INTEREST EXPENSE 1,361 1,368 2,716 2,754
--------- --------- -------- -------
NET INTEREST INCOME 4,142 4,273 8,129 8,532
Provision for loan loss 380 - 470 -
--------- --------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,762 4,273 7,659 8,532
OTHER OPERATING INCOME:
Service charges on deposit accounts 601 577 1,152 1,149
Other income 725 942 1,598 1,714
--------- --------- -------- -------
TOTAL OTHER INCOME 1,326 1,519 2,750 2,863
OTHER OPERATING EXPENSE:
Salaries and employee benefits 1,866 2,492 4,120 4,921
Occupancy costs 750 652 1,524 1,375
Legal and professional 259 390 585 684
Other operating expense 855 937 1,613 1,646
--------- --------- -------- -------
TOTAL OTHER OPERATING EXPENSES 3,730 4,471 7,842 8,626
--------- --------- -------- -------
INCOME - BEFORE FEDERAL INCOME TAXES 1,358 1,321 2,567 2,769
Federal income taxes 399 358 750 754
--------- --------- -------- -------
NET INCOME $ 959 $ 963 $ 1,817 $ 2,015
========= ========= ======== =======
BASIC EARNINGS PER WEIGHTED AVERAGE OUTSTANDING SHARE OF COMMON
STOCK $ .33 $ .31 $ .63 $ .64
========= ========= ======== =======
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ .33 $ .31 $ .63 $ .64
========= ========= ======== =======
CASH DIVIDENDS PER SHARE $ .17 $ .15 $ .34 $ .30
========= ========= ======== =======
4
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except share data)
SIX MONTHS ENDED
JUNE 30,
--------------------
2004 2003
--------- --------
Net income $ 1,817 $ 2,015
Other comprehensive income (loss):
Change in unrealized gain on securities
available for sale, net of tax (432) (117)
--------- --------
Comprehensive income $ 1,385 $ 1,898
========= ========
5
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2004
(in thousands, except share data)
Total
Common Retained Accumulated Shareholders'
Stock Earnings OCI Equity
------------ ----------- ----------- -------------
Balance - December 31, 2003 $ 17,560 $ 23,104 $ 347 $ 41,011
Net income - 1,817 - 1,817
Change in unrealized gain on securities
available for sale, net of tax - - (432) (432)
Cash dividends - (981) - (981)
------------ ----------- ----------- -------------
Balance - June 30, 2004 $ 17,560 $ 23,940 $ (85) $ 41,415
============ =========== =========== =============
6
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands, except share data)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2004 2003
------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ 2,297 $ (520)
CASH FLOW FROM INVESTING ACTIVITIES:
Net (increase) decrease in securities (8,168) 23,443
Net increase in loans (20,155) (15,742)
Net increase in loans held for sale (1,024) (2,947)
Capital expenditures (256) (493)
------------ -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (29,603) 4,261
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase in deposits 15,503 22,518
Net increase (decrease) in federal funds purchased 12,460 (9,210)
Cash dividends (981) (944)
------------ -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 26,982 12,364
------------ -----------
NET (DECREASE) INCREASE IN CASH (324) 16,105
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 14,308 14,158
------------ -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,984 $ 30,263
============ ===========
7
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. We have condensed or omitted certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles. You should read these condensed
financial statements in conjunction with our audited financial statements for
the year ended December 31, 2003 and notes thereto included in PSB Group, Inc.'s
Form 10-K filed with the Securities and Exchange Commission on March 30, 2004.
In the opinion of management, all adjustments necessary to present fairly the
financial position, results of operations, and cash flows of PSB Group, Inc. as
of June 30, 2004 and for the periods then ended have been made. Those
adjustments consist only of normal and recurring adjustments. The results of
operations for the six-month period ended June 30, 2004 are not necessarily
indicative of the results to be expected for the full year.
PSB Group, Inc. was formed as a holding company for Peoples State Bank on
February 28, 2003 pursuant to a plan of reorganization adopted by Peoples State
Bank and its shareholders. Pursuant to the reorganization, each share of the
Bank's stock was exchanged for three shares of stock in the holding company. The
reorganization had no material financial impact and is reflected for all prior
periods presented. Per share amounts have been retroactively restated to reflect
the three-for-one exchange of stock.
NOTE 2 - SECURITIES
The amortized cost and estimated market value of securities are as follows (000s
omitted):
June 30, 2004
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Available - for-sale securities:
U.S. treasury securities and obligations
of U.S. government corporations
and agencies $ 33,861 $ 54 $ 268 $ 33,647
Obligations of state and political
subdivisions 18,738 225 147 18,816
Corporate debt securities 1,000 8 - 1,008
Other 1,662 - - 1,662
--------- ---------- ---------- ---------
Total available-for-sale securities $ 55,261 $ 287 $ 415 $ 55,133
========= ========== ========== =========
8
NOTE 2 - SECURITIES (CONTINUED)
December 31, 2003
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
Available-for-sale securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 27,195 $ 178 $ 14 $ 27,359
Obligations of state and political
subdivisions 17,274 362 9 17,627
Corporate debt securities 1,000 9 - 1,009
Other 1,624 - - 1,624
--------- ---------- ---------- ---------
Total available-for-sale securities $ 47,093 $ 549 $ 23 $ 47,619
========= ========== ========== =========
The amortized cost and estimated market value of securities at June 30, 2004, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. As of June 30, 2004,
all securities are available for sale (000s omitted).
Available for Sale
-----------------------
Amortized Market
Cost Value
--------- ------------
Due in one year or less $ 12,154 $ 12,100
Due in one year through five years 24,856 25,009
Due after five years through ten years 3,182 3,160
Due after ten years 4,138 4,059
--------- ------------
44,330 44,328
Federal agency pools 9,269 9,143
Other 1,662 1,662
--------- ------------
Total $ 55,261 $ 55,133
========= ============
Securities having a carrying value of $2,101,808 (market value of $2,096,250)
were pledged at June 30, 2004 to secure public deposits, repurchase agreements,
and for other purposes required by law.
9
NOTE 3 - LOANS
Major categories of loans included in the portfolio at June 30, 2004 and
December 31, 2003 are as follows (dollars in thousands):
JUNE 30, DECEMBER 31,
2004 2003
---------- ------------
Mortgages on Real Estate $ 272,128 $ 245,520
Commercial 50,502 53,725
Consumer 23,384 27,017
---------- ------------
Total $ 346,014 $ 326,262
========== ============
The Company places loans in non-accrual status when, in the opinion of
management, uncertainty exists as to the ultimate collection of principal and
interest. Management knows of no loans (other than those that are immaterial in
amount) which have not been disclosed below which cause it to have doubts as to
the ability of the borrowers to comply with the contractual loan terms, or which
may have a material effect on the Company's balance sheet or results from
operations. Non-performing assets consists of non-accrual loans, loans past due
90 or more days, restructured loans and real estate that has been acquired in
full or partial satisfaction of loan obligations or upon foreclosure. As of June
30, 2004, other real estate owned consisted of three properties. Management does
not anticipate any material loss as the result of the disposal of these
properties. The following table summarizes non-performing assets (dollars in
thousands):
June 30, December 31,
2004 2003
------------ ---------------
Non-accrual loans $ 3,082 $ 1,496
Loans past due 90 or more days 608 1,189
Renegotiated loans 658 808
------------ ---------------
Total non-performing loans 4,348 3,493
Other real estate owned 329 969
------------ ---------------
Total non-performing assets $ 4,677 $ 4,462
============ ===============
Total non-performing loans to total loans 1.26% 1.07%
Total non-performing assets to total assets 1.09% 1.11%
10
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is as follows (dollars in
thousands):
JUNE 30, DECEMBER 31,
2004 2003
------------ -------------
Loan loss balance - Beginning of period $ 3,887 $ 4,632
Provision 470 -
Loan losses (1,095) (1,553)
Loan recoveries 312 808
------------ -------------
Loan loss balance - End of period $ 3,574 $ 3,887
============ =============
The allowance for possible loan losses is maintained at a level believed
adequate by management to absorb potential losses from impaired loans as well as
the remainder of the loan portfolio. The allowance for loan losses is based upon
periodic analysis of the portfolio, economic conditions and trends, historical
credit loss experience, borrowers' ability to repay and collateral values.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
PSB Group, Inc. (the "Company") was formed on February 28, 2003 as a bank
holding company for the purpose of owning Peoples State Bank, Inc. (the "Bank")
pursuant to a plan of reorganization adopted by the Bank and its shareholders.
Pursuant to the reorganization, each share of Peoples State Bank, Inc. stock
held by existing shareholders of the Bank was exchanged for three shares of
common stock of PSB Group, Inc. The reorganization had no consolidated financial
statement impact. Share amounts for all prior periods presented have been
restated to reflect the reorganization.
The Bank was incorporated and chartered under the laws of the state of Michigan
in 1909. We operated as a unit bank until July 20, 1992, when we opened our
first branch office in Sterling Heights, Michigan. In May 1998, the Bank
acquired Madison National Bank, Madison Heights, Michigan ("Madison"). On May 1,
2000, the Bank acquired 100% of the common stock of Universal Mortgage
Corporation, a southeast Michigan based mortgage lender. Today we operate 10
banking offices, 4 mortgage offices and two shared loan production offices.
We provide customary retail and commercial banking services to our customers,
including checking and savings accounts, time deposits, safe deposit facilities,
commercial loans, real estate mortgage loans, installment loans, IRAs and night
depository facilities. Our deposits are insured by the FDIC to applicable legal
limits and we are supervised and regulated by the FDIC and Michigan Office of
Financial and Insurance Services.
We provide a full range of retail and commercial banking services designed to
meet the borrowing and depository needs of small and medium-sized businesses and
consumers in local areas. Substantially all of our loans are to customers
located within our service area. We have no foreign loans or highly leveraged
transaction loans, as defined by the Federal Reserve Board ("FRB"). We conduct
our lending activities pursuant to the loan policies adopted by our Board of
Directors. These loan policies grant individual loan officers authority to make
secured and unsecured loans in specific dollar amounts; senior officers or
various loan committees must approve larger loans. Our management information
systems and loan review policies are designed to monitor lending sufficiently to
ensure adherence to our loan policies.
We also offer a full range of deposit and personal banking services insured by
the Federal Deposit Insurance Corporation ("FDIC"), including (i) commercial
checking and small business checking products, (ii) retirement accounts such as
Individual Retirement Accounts ("IRA"), (iii) retail deposit services such as
certificates of deposits, money market accounts, savings accounts, checking
account products and Automated Teller Machines ("ATMs"), Point of Sale and other
electronic services, and (iv) other personal miscellaneous services such as safe
deposit boxes, foreign draft, foreign currency exchanges, night depository
services, travelers checks, merchant credit cards, direct deposit of payroll,
U.S. savings bonds, official bank checks and money orders. We also offer credit
cards and internet banking. Full estate and trust services, insurance and
investment advice are offered through a partnership with The Private Bank,
Bloomfield Hills, Michigan. Substantially all of our deposits are from local
market areas surrounding each of our offices.
12
The consolidated financial statements include the accounts of PSB Group, Inc.
and its wholly owned subsidiary, Peoples State Bank, Inc. PSB Insurance Agency,
Inc. and Universal Mortgage Company are wholly owned subsidiaries of Peoples
State Bank. All significant inter-company transactions are eliminated in
consolidation.
Net income is derived primarily from net interest income, which is the
difference between interest earned on the Bank's loan and investment portfolios
and its cost of funds, primarily interest paid on deposits and borrowings. The
volume of and yields earned on loans and investments and the volume of and rates
paid on deposits determine net interest income.
FINANCIAL CONDITION
Company assets consist of customer loans, investment securities, bank premises
and equipment, cash and other operating assets. Total assets increased
approximately $28 million, or 7% to $430 million at June 30, 2004 from $402
million at December 31, 2003. The balance of our investment securities increased
by approximately $7.5 million to $55.1 million at June 30, 2004 as compared to
$47.6 million at December 31, 2003. Our loan portfolio increased approximately
$19.8 million to $346 million at June 30, 2004. This was the result of a $26.6
million increase in loans secured by real estate, partially offset by a $3.2
million decrease in other commercial loans and a $3.6 million decrease in other
consumer loans. Loans held for sale increased by over $1 million to $1.7 million
at June 30, 2004. Other assets decreased approximately $413 thousand at June 30,
2004. This was primarily the result of a $640 thousand decrease in other real
estate.
The allowance for loan losses decreased $313 thousand during the first six
months of 2004. As a percentage of total loans, the allowance decreased to 1.03%
at June 30, 2004 from 1.19% at December 31, 2003. Management believes this
reserve is sufficient to meet anticipated future loan losses.
Total liabilities increased $27.7 million to $388 million at June 30, 2004 from
$361 million at December 31, 2003. This was mainly due to a $15.5 million, or
4.4% increase in total deposits to $366.5 million at June 30, 2004 from $351
million at December 31, 2003. Approximately $10.2 million of this increase was
in non-interest bearing demand deposits. The increase in deposits was
supplemented with a $12.5 million increase in our Federal Funds borrowings in
funding our $28 million increase in assets.
FINANCIAL RESULTS
Three Months Ended June 30, 2004
Net income for the three months ended June 30, 2004 was $959 thousand compared
to $963 thousand for the same period in 2003. Total interest income decreased
$138 thousand in the second quarter 2004 compared to the second quarter 2003.
Interest and fees on loans increased $140 thousand in the second quarter 2004
over the same period in 2003. The increase in interest and fees on loans was
more than offset by a $278 thousand decrease in interest on securities and
federal funds sold. This decrease in interest on securities and federal funds
sold was the result of a $30.6 million decrease in average investment
securities, as some funds were re-deployed to the loan portfolio, as well as a
19 basis point drop in yield, as higher yielding securities matured and were
replaced by
13
lower yielding securities. Average loan balances in the second quarter 2004 were
approximately $53 million higher than the second quarter 2003. However, the
positive impact of the higher balances was largely offset by the negative impact
of lower interest rates, as higher yielding loans matured and were replaced by
lower yielding loans.
Interest expense remained relatively flat in the second quarter 2004 as compared
to the same period in 2003. Average interest bearing deposits increased by about
$7 million but lower rates resulted in a $42 thousand decrease in interest
expense on deposits. An $11 million increase in average federal funds borrowings
resulted in a $35 thousand increase in interest expense on short-term borrowings
over the second quarter 2003.
During the second quarter 2004 there was a $380 thousand provision for loan
losses recorded. This compares to no provision recorded in the first quarter
2003.
Total other income was about $193 thousand lower in the second quarter 2004 than
the second quarter 2003. Gains on the sale of mortgages and mortgage servicing
rights, included in other income, decreased $214 thousand in the second quarter
2004 as compared to the second quarter 2003. This was partially offset by a $24
thousand increase in service charges on deposit accounts.
Total other operating expenses decreased $741 thousand in the second quarter
2004 over the same period in 2003. Salaries and benefits decreased about $626
thousand. Approximately $355 thousand of this decrease was due to a bonus
accrual adjustment and $216 thousand was due to lower salaries and benefits
expenses, most of which is attributable to our workforce reduction in the third
quarter of 2003. Occupancy expenses increased $98 thousand in the second quarter
of 2004 over the same period in 2003. This included increased depreciation on
equipment upgrades and expenses related to the two new loan production offices
that were opened in 2003. Legal and professional fees were $131 thousand lower
in the second quarter 2004 than the second quarter 2003, including a $72
thousand drop in consulting fees and a $45 thousand drop in legal fees. Other
operating expenses in the second quarter 2004 were $82 thousand less than the
second quarter 2003.
Six Months Ended June 30, 2004
Net income for the six months ended June 30, 2004 was $1.817 million compared to
$2.015 million for the same period in 2003. Total interest income decreased $441
thousand in the first six months of 2004 compared to the first six months of
2003. Interest and fees on loans increased $245 thousand. Year to date average
loan balances increased $48.7 million over the 2003 averages, however, the
positive impact of the higher average loan balances was largely offset by lower
loan yields, as higher yielding loans matured and were replaced by lower
yielding loans. The increased interest income on loans was more than offset by a
$686 thousand decrease in interest income on investment securities. This
decrease was primarily due to the fact that our average investment in securities
and fed funds was $35 million lower in the first six months of 2004 than the
first six months of 2003, as funds were re-deployed to the higher yielding loan
portfolio.
Total interest expense decreased $38 thousand in the first six months of 2004
compared to the first six months of 2003. Average interest bearing deposits
increased approximately $6 million over the 2003 average balances, but this was
more than offset by lower interest rates, as total interest on deposits dropped
$70 thousand below the 2003 level. Interest expense on FHLB and short-term
14
borrowings increased $32 thousand over the 2003 level due to a $5 million
increase in average fed funds borrowings.
During the first six months of 2004 we recorded a $470 thousand provision for
loan losses compared to no provision in the first six months of 2003.
Total other income was about $113 thousand lower in the first half of 2004 than
the first half of 2003. Deposit service charges remained relatively consistent
between the two periods. Other non-interest income dropped $116 thousand,
comparing the first half of 2004 to the first half of 2003. This included a $107
thousand drop in the gain on the sale of mortgages and mortgage servicing
rights. Also included in the drop in other non-interest income is a $48 thousand
decrease in earnings from PSB Title Agency, offset by a $59 thousand increase in
the gain on the sale of other real estate.
Total operating expenses decreased $784 thousand in the first six months of 2004
compared to the first six months of 2003. Total salary and benefits expense
dropped $801 thousand. This includes a $382 thousand reduction in accrued
bonuses and a $386 thousand reduction salaries and benefits, most of which is
the result of our workforce reduction in the third quarter of 2003. Occupancy
costs increased $149 thousand over the 2003 level. This includes additional
depreciation and amortization expenses related to equipment and software
upgrades, as well as additional rent and other expenses related to the two new
loan production offices that were opened in 2003. Year-to-date legal and
professional fees expense is $99 thousand below the 2003 level, including a $120
thousand drop in professional consulting fees, partially offset by a slight
increase in legal fees. Other operation expenses were reduced $33 thousand from
period to period.
LIQUIDITY
The Company manages its liquidity position with the objective of maintaining
sufficient funds to respond to the needs of depositors and borrowers and to take
advantage of earnings enhancement opportunities. In addition to the normal
inflow of funds from core-deposit growth, together with repayments and
maturities of loans and investments, the Company utilizes other short-term
funding sources such as Federal Home Loan Bank advances and overnight federal
funds purchases from correspondent banks.
During the six months ended June 30, 2004, $2.3 million in cash was provided by
operations. This, plus $15.5 million in cash provided through increased deposits
and $12.3 million from increased fed funds borrowings, was used to increase our
loan portfolio and loans held for sale by $20.8 million and our securities
portfolio by $7.5 million. In addition, we had a net outflow of $256 thousand
for capital expenditures and paid $981 thousand in cash dividends during the
period. During the six months ended June 30, 2004, we experienced a net decrease
of $324 thousand in cash and cash equivalents.
OFF BALANCE SHEET OBLIGATIONS
The only material off balance sheet obligations incurred routinely by the
Company are its commitments to extend credit and its stand-by letters of credit.
At June 30, 2004, the Company had commitments to extend credit of $32.8 million
and stand-by letters of credit of $2.2 million.
15
CAPITAL RESOURCES
Banks are expected to meet a minimum risk-based capital to risk-weighted assets
ratio of 8%, of which at least one-half (4%) must be in the form of Tier 1
(core) capital. The remaining one-half may be in the form of Tier 1 or Tier 2
(supplemental) capital. The amount of loan loss allowance that may be included
in capital is limited to 1.25% of risk-weighted assets. The Bank is currently,
and expects to continue to be, in compliance with these guidelines. The
following table shows the capital totals and ratios for the Bank as of June 30,
2004:
Tier 1 capital $36,651
Total capital $40,225
Tier 1 capital to risk-weighted assets 11.29%
Total capital to risk-weighted assets 12.39%
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest rate and market risk profile has not materially
changed from the year ended December 31, 2003. Please refer to the Company's
Form 10-K filed on March 30, 2004 for further discussion of our market and
interest rate risk.
ITEM 4: CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. We evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as of June
30, 2004. Our disclosure controls and procedures are the controls and other
procedures that we designed to ensure that we record, process, summarize and
report in a timely manner, the information we must disclose in reports that we
file with, or submit to the SEC. Robert L. Cole, our President and Chief
Executive Officer, and David A. Wilson, our Senior Vice President and Chief
Financial Officer, reviewed and participated in this evaluation. Based on this
evaluation, Messrs. Cole and Wilson concluded that, as of the date of their
evaluation, our disclosure controls were effective.
(b) Internal controls. There have not been any significant changes in our
internal accounting controls or in other factors that could significantly affect
those controls during the quarter ended June 30, 2004.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may from time-to-time be involved in legal proceedings
occurring in the ordinary course of business which, in the aggregate, involve
amounts which are believed by management to be immaterial to the financial
condition of the Company. The Company is not currently involved in any legal
proceedings which management believes are of a material nature.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Annual Meeting of Shareholders was held on April 27, 2004.
b. At that meeting, the shareholders approved the following matters:
PROPOSAL 1: ELECTION OF DIRECTORS
That David L. Wood be elected as Director of PSB Group, Inc. for a
term expiring at the annual meeting of shareholders in 2007.
For - 2,198,505
Withheld - 319,101
PROPOSAL 2: RATIFY THE SELECTION OF INDEPENDENT AUDITORS
To ratify the selection of Plante & Moran, PLLC as the independent
auditors of PSB Group, Inc. for the year 2004.
For - 2,382,958
Against - 93,190
Abstain - 41,458
PROPOSAL 3: APPROVAL OF THE PSB GROUP, INC. 2004 STOCK COMPENSATION
PLAN
That the PSB Group, Inc. 2004 Stock Compensation Plan as adopted by
the Board of Directors on February 26, 2004 hereby is adopted and
approved.
For - 1,876,513
Against - 117,734
Abstain - 312,879
17
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 31.1 Certification of Robert L. Cole required by Rule
13a - 14(a)
Exhibit 31.2 Certification of David A. Wilson required by Rule
13a - 14(a)
Exhibit 32.1 Certification of Robert L. Cole required by Rule
13a - 14(b) and Section 906 of the Sarbanes -
Oxley Act of 2002, 18 U.S.C. Section 1350
Exhibit 32.2 Certification of David A. Wilson required by Rule
13a - 14(b) and Section 906 of the Sarbanes -
Oxley Act of 2002, 18 U.S.C. Section 1350
Exhibit 99.1 PSB Group, Inc. 2004 Stock Compensation Plan
(Incorporated by reference from Proxy Statement
for 2004 annual meeting of shareholders)
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on April 12,
2004, to announce its earnings for the quarter ended March 31,
2004.
18
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 GROUP, INC.
Date: August 16, 2004 /s/ Robert L. Cole
--------------------------------------------
ROBERT L. COLE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: August 16, 2004 /s/ David A. Wilson
--------------------------------------------
DAVID A. WILSON
CHIEF FINANCIAL OFFICER
19
EXHIBIT INDEX
Exhibit 31.1 Certification of Robert L. Cole required by Rule 13a - 14(a)
Exhibit 31.2 Certification of David A. Wilson required by Rule 13a - 14(a)
Exhibit 32.1 Certification of Robert L. Cole required by Rule 13a - 14(b) and
Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section
1350
Exhibit 32.2 Certification of David A. Wilson required by Rule 13a - 14(b) and
Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section
1350
Exhibit 99.1 PSB Group, Inc. 2004 Stock Compensation Plan (Incorporated by
reference from Proxy Statement for 2004 annual meeting of
shareholders)