EXHIBIT 13
PORTIONS OF PSB GROUP, INC.
ANNUAL REPORT TO SHAREHOLDERS
PSB GROUP, INC.
-------------------------------------
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2004
PSB GROUP, INC.
CONTENTS
REPORT LETTER 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-28
PLANTE & MORAN, PLLC
Suite 500
2601 Cambridge Court
[PLANTE MORAN LOGO] Auburn Hills, MI 48326
Tel: 248.375.7100
Fax: 248.375.7101
plantemoran.com
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
PSB Group, Inc.
We have audited the accompanying consolidated balance sheet of PSB Group, Inc.
as of December 31, 2004 and 2003 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each year in the three-year
period ended December 31, 2004. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PSB
Group, Inc. as of December 31, 2004 and 2003 and the consolidated results of
their operations and cash flows for each year in the three-year period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America.
PLANTE & MORAN, PLLC
Auburn Hills, Michigan
February 21, 2005
A member of
[MRI LOGO]
A worldwide association of Independent accounting firms
PSB GROUP, INC.
CONSOLIDATED BALANCE SHEET
(000s OMITTED, EXCEPT PER SHARE DATA)
December 31
------------------------
2004 2003
--------- ---------
ASSETS
Cash and due from banks $ 14,253 $ 14,308
Securities - Available for sale (Note 3) 91,125 47,619
Loans (Note 4) 338,674 326,262
Less allowance for possible loan losses (Note 4) (3,394) (3,887)
--------- ---------
Net loans 335,280 322,375
Loans held for sale 2,388 627
Bank premises and equipment (Note 5) 10,618 9,213
Accrued interest receivable 2,144 1,525
Goodwill (Note 1) 4,100 4,100
Other assets (Note 9) 1,434 1,744
--------- ---------
Total assets $ 461,342 $ 401,511
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 57,479 $ 53,412
Interest-bearing (Note 6) 353,653 297,576
--------- ---------
Total deposits 411,132 350,988
Federal funds purchased - 2,420
FHLB borrowings (Note 7) 5,000 5,000
Accrued taxes, interest, and other liabilities (Note 9) 2,229 2,092
--------- ---------
Total liabilities 418,361 360,500
STOCKHOLDERS' EQUITY (Notes 10, 14, And 17)
Common stock:
Authorized - 5,000,000 shares, no par value
Issued and outstanding - 2,885,073 shares 17,560 17,560
Retained earnings 25,331 23,104
Accumulated other comprehensive income (Note 1) 90 347
--------- ---------
Total stockholders' equity 42,981 41,011
--------- ---------
Total liabilities and stockholders' equity $ 461,342 $ 401,511
========= =========
See Notes to Consolidated PSB Group, Inc. / 2004 Annual Report
Financial Statements.
2
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(000s OMITTED, EXCEPT PER SHARE DATA)
Year Ended December 31
--------------------------------------
2004 2003 2002
---------- ---------- ----------
INTEREST INCOME
Loans, including fees $ 20,780 $ 19,762 $ 20,688
Securities:
Taxable 1,183 1,433 2,404
Tax-exempt 619 873 1,109
Federal funds sold 51 28 220
---------- ---------- ----------
Total interest income 22,633 22,096 24,421
INTEREST EXPENSE
Deposits 5,546 5,214 6,588
Short-term borrowings 285 249 228
---------- ---------- ----------
Total interest expense 5,831 5,463 6,816
---------- ---------- ----------
NET INTEREST INCOME - Before provision (benefit) for loan losses 16,802 16,633 17,605
PROVISION (BENEFIT) FOR LOAN LOSSES (Note 4) 1,200 - (800)
---------- ---------- ----------
NET INTEREST INCOME - After provision (benefit) for loan losses 15,602 16,633 18,405
OTHER OPERATING INCOME
Service charges on deposit accounts 2,477 2,356 1,597
Gain on sale of mortgages 1,216 1,463 1,125
Gain on sale of available-for-sale securities 9 163 76
Other income 2,124 2,053 1,870
---------- ---------- ----------
Total other operating income 5,826 6,035 4,668
OTHER OPERATING EXPENSES
Salaries and employee benefits (Note 8) 8,267 9,550 9,173
Occupancy costs (Note 5) 3,065 2,769 2,433
Legal and professional 1,145 1,428 1,158
Other operating expenses 3,170 3,251 2,970
---------- ---------- ----------
Total other operating expenses 15,647 16,998 15,734
---------- ---------- ----------
INCOME - Before federal income taxes 5,781 5,670 7,339
FEDERAL INCOME TAXES (Note 9) 1,563 1,457 2,050
---------- ---------- ----------
NET INCOME $ 4,218 $ 4,213 $ 5,289
========== ========== ==========
PER SHARE DATA
Weighted average shares outstanding 2,885,073 3,103,497 3,148,191
Basic earnings $ 1.46 $ 1.36 $ 1.68
See Notes to Consolidated PSB PSB Group, Inc. / 2004 Annual Report
Financial Statements.
3
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(000s OMITTED, EXCEPT PER SHARE DATA)
Accumulated
Other Total
Number of Common Retained Comprehensive Stockholders'
Shares Stock Earnings Income (Loss) Equity
--------- --------- --------- ------------- -------------
BALANCE - January 1, 2002 2,862,204 $ 19,786 $ 21,645 $ 791 $ 42,222
Comprehensive income (Note 1):
Net income - - 5,289 - 5,289
Change in unrealized gain on securities
available for sale - - - 127 127
---------
Total comprehensive income 5,416
Cash dividends - $0.70 per share - - (2,165) - (2,165)
Common stock dividend (Note 12) 285,987 3,908 (3,908) - -
--------- --------- --------- --------- ---------
BALANCE - December 31, 2002 3,148,191 23,694 20,861 918 45,473
Comprehensive income (Note 1):
Net income - - 4,213 - 4,213
Change in unrealized gain on securities
available for sale - - - (571) (571)
---------
Total comprehensive income 3,642
Repurchase of common stock (Note 10) (263,118) (6,134) - - (6,134)
Cash dividends - $0.64 per share - - (1,970) - (1,970)
--------- --------- --------- --------- ---------
BALANCE - December 31, 2003 2,885,073 17,560 23,104 347 41,011
Comprehensive income (Note 1):
Net income - - 4,218 - 4,218
Change in unrealized gain on securities
available for sale - - - (257) (257)
---------
Total comprehensive income 3,961
Cash dividends - $0.69 per share - - (1,991) - (1,991)
--------- --------- --------- --------- ---------
BALANCE - December 31, 2004 2,885,073 $ 17,560 $ 25,331 $ 90 $ 42,981
========= ========= ========= ========= =========
Book value per share is $14.90, $14.22, and $14.44 at December 31, 2004, 2003,
and 2002, respectively.
See Notes to Consolidated PSB Group, Inc. / 2004 Annual Report
Financial Statements.
4
PSB GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(000s OMITTED)
Year Ended December 31
---------------------------------------
2004 2003 2002
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,218 $ 4,213 $ 5,289
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 1,238 1,136 1,014
Provision for loan loss 1,200 - (800)
Accretion and amortization of securities 116 802 683
Deferred income taxes - 75 500
Gain on sale of available-for-sale securities (9) (163) (76)
Loss on sale of assets - - 2
Origination and purchase of loans held for sale (67,721) (70,357) (54,161)
Sale of loans held for sale 65,960 73,356 56,254
(Increase) decrease in accrued interest receivable (619) 536 139
(Increase) decrease in other assets 442 (776) (321)
Increase (decrease) in accrued interest payable and other liabilities 137 (34) (92)
--------- --------- ---------
Net cash provided by operating activities 4,962 8,788 8,431
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (73,555) (15,558) (63,021)
Proceeds from maturities of securities available for sale 29,107 41,705 37,807
Proceeds from sale of securities available for sale 446 12,228 6,563
Net increase in loans (14,105) (41,405) (14,556)
Capital expenditures (2,643) (956) (1,391)
Proceeds from sale of fixed assets - 34 79
--------- --------- ---------
Net cash used in investing activities (60,750) (3,952) (34,519)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in time deposits 3,854 1,141 (15,596)
Net increase in other deposits 56,290 9,067 10,821
Net increase (decrease) in federal funds purchased (2,420) (6,790) 9,210
Purchase of common stock - (6,134) -
Cash dividends (1,991) (1,970) (2,165)
--------- --------- ---------
Net cash provided by (used in) financing activities 55,733 (4,686) 2,270
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (55) 150 (23,818)
CASH AND CASH EQUIVALENTS - Beginning of year 14,308 14,158 37,976
--------- --------- ---------
CASH AND CASH EQUIVALENTS - End of year $ 14,253 $ 14,308 $ 14,158
========= ========= =========
SUPPLEMENTAL INFORMATION - Cash paid for
Interest $ 5,809 $ 5,297 $ 6,952
Income taxes 1,190 1,393 1,548
See Notes to Consolidated PSB Group, Inc. / 2004 Annual Report
Financial Statements.
5
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION - The consolidated financial
statements include the accounts of PSB Group, Inc. (the
"Corporation") and its wholly owned subsidiaries, Peoples State Bank
(the "Bank") and PSB Capital, Inc. (Capital). PSB Title Insurance
Agency, Inc. (PSB) and Universal Mortgage Company (UMC) are wholly
owned subsidiaries of Peoples State Bank, Inc. All significant
intercompany transactions are eliminated in consolidation.
PSB Group, Inc. was formed on February 28, 2003 as a bank holding
company for the purpose of owning Peoples State Bank pursuant to a
plan of reorganization adopted by the Bank and its stockholders.
Pursuant to the reorganization, each share of Peoples State Bank
stock held by existing stockholders 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.
USE OF ESTIMATES - The accounting and reporting policies of PSB
Group, Inc. conform to accounting principles generally accepted in
the United States of America. Management is required to make
significant estimates (such as the allowance for possible loan
losses, deferred taxes, foreclosed assets, valuation of intangible
assets, and goodwill) and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from these estimates and
assumptions.
NATURE OF OPERATIONS - The Corporation provides full-service banking
through 10 branch offices and five loan origination offices to the
Michigan communities of Wayne, Oakland, Macomb, and Genesee
counties.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the
Corporation's activities are with customers located within Michigan.
Note 3 discusses the types of securities in which the Corporation
invests. Note 4 discusses the types of lending in which the
Corporation engages. The Corporation does not have any significant
concentrations to any one customer, but does have a significant
concentration of lending to non-residential commercial real estate
entities.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated
statement of cash flows, cash and cash equivalents include cash and
balances due from banks, federal funds sold, and securities
purchased under agreements to resell, all of which had original
maturities of 90 days or less.
PSB Group, Inc. / 2004 Annual Report
6
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES - Debt securities that management has the positive intent
and the ability to hold to maturity are classified as "held to
maturity" and recorded at amortized cost. Securities not classified
as held to maturity or trading, including equity securities with
readily determinable fair values, are classified as "available for
sale" and are recorded at fair value, with unrealized gains and
losses, net of related deferred income taxes, excluded from earnings
and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income
using the interest method over the terms of the securities. Declines
in the fair values of held-to-maturity and available-for-sale
securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses. Gains and
losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
LOANS - The Corporation grants mortgage, commercial, and consumer
loans to customers. Loans are reported at their outstanding unpaid
principal balances, adjusted for charge offs, the allowance for loan
losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Loan origination
fees, net of certain direct origination costs, are recognized as an
adjustment of the related loan yield using the interest method.
The accrual of interest on loans is discontinued at the time the
loan is 90 days delinquent unless the credit is well-secured and in
the process of collection. In all cases, loans are placed on
nonaccrual or charged off at an earlier date if principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The
interest on these loans is accounted for on the cash basis or cost
recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments
are reasonably assured.
LOANS HELD FOR SALE - Loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated fair
value in the aggregate. Net unrealized losses, if any, are
recognized in a valuation allowance by charges to income.
PSB Group, Inc. / 2004 Annual Report
7
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are
charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based on management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral, and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes
available.
The allowance consists of specific, general, and unallocated
components. The specific components relate to loans that are
classified as either doubtful, substandard, or special mention. For
such loans that are also classified as impaired, an allowance is
established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the
carrying value of that loan. The general component covers
nonclassified loans and is based on historical loss experience
adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management's
estimate of probable losses. The unallocated component of the
allowance reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and
events, it is probable that the Corporation will be unable to
collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment
status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a
loan-by-loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's obtainable market price,
or the fair value of the collateral if the loan is collateral
dependent.
PSB Group, Inc. / 2004 Annual Report
8
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Large groups of homogenous loans are collectively evaluated for
impairment. Accordingly, the Corporation does not separately identify
individual consumer and residential loans for impairment disclosures.
OFF-BALANCE-SHEET INSTRUMENTS - In the ordinary course of business, the
Corporation has entered into commitments to extend credit, including
commitments under credit card arrangements, commercial letters of
credit, and standby letters of credit.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, which
elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing
the guarantee. The initial recognition and measurement provisions of
this Interpretation have been applied on a prospective basis to
guarantees issued or modified after December 31, 2002. However, the
value of such guarantees is immaterial and the adoption of this
Standard did not have a material effect on the Corporation's
consolidated financial statements.
FORECLOSED ASSETS - Assets acquired through, or in lieu of, loan
foreclosure are held for sale and are initially recorded at fair value
at the date of the foreclosure, establishing a new cost basis.
Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount
or fair value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in net expenses
from foreclosed assets.
BANK PREMISES AND EQUIPMENT - Land is carried at cost. Premises and
equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation, computed on the straight-line method, is
charged to operations over the estimated useful lives of the
properties. Leasehold improvements are amortized over the terms of
their respective leases or the estimated useful lives of the
improvements, whichever is shorter.
INCOME TAXES - Deferred income tax assets and liabilities are
determined using the liability (or balance sheet) method. Under this
method, the net deferred tax asset or liability is determined based on
the tax effects of the various temporary differences between the book
and tax bases of the various balance sheet assets and liabilities and
gives current recognition to changes in tax rates and laws.
PSB Group, Inc. / 2004 Annual Report
9
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE - Basic earnings per share represents income
available to common stockholders divided by the weighted-average number
of common shares outstanding during the period.
COMPREHENSIVE INCOME - Accounting principles generally require that
revenue, expenses, gains, and losses be included in net income. Certain
changes in assets and liabilities, however, such as unrealized gains
and losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet. Such items, along
with net income, are components of comprehensive income.
The components of accumulated other comprehensive income and related
tax effects are as follows (000s omitted):
2004 2003 2002
------ ------ ------
Unrealized holding gains on
available-for-sale securities $ 137 $ 526 $1,391
Tax effect 47 179 473
------ ------ ------
Accumulated other comprehensive
income $ 90 $ 347 $ 918
====== ====== ======
DERIVATIVE FINANCIAL INSTRUMENTS - In April 2003, the FASB issued SFAS
No. 149 (SFAS 149), Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This statement amends and clarifies
financial accounting and reporting for derivative instruments,
including certain embedded derivatives, and for hedging activities
under SFAS 133. SFAS 149, as with SFAS 133, requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and,
if it is, the type of hedge transaction. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. Adoption of this standard
did not have a material effect on the Corporation's consolidated
financial statements.
PSB Group, Inc. / 2004 Annual Report
10
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL - Goodwill results from prior business acquisitions and
represents the excess of the purchase price over the fair value of
acquired tangible assets and liabilities and identifiable intangible
assets. Goodwill is not amortized but it is assessed at least annually
for impairment, and any such impairment will be recognized in the
period identified.
STOCK-BASED COMPENSATION - In December 2004, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payment (SFAS 123R), which requires
entities to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). The cost is recognized as an
expense over the period during which the employee is required to
provide service in exchange for the award, which is usually the vesting
period. The scope of SFAS 123R will include the PSB Group, Inc. 2004
Stock Compensation Plan. As required by SFAS 123R, the Corporation will
estimate the fair value of all stock options on each grant date, using
an appropriate valuation approach such as the Black-Scholes option
pricing model. The provisions of this statement will be effective for
the Corporation beginning with its fiscal year ending 2005. The
Corporation is currently evaluating the impact this new standard will
have on its financial position, results of operations, or cash flows.
NOTE 2 - RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS
The Corporation is required to maintain average balances on hand or
with the Federal Reserve Bank. At December 31, 2004 and 2003, these
reserve balances amounted to $3,433,000 and $5,036,000, respectively.
PSB Group, Inc. / 2004 Annual Report
11
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 3 - SECURITIES
The amortized cost and estimated market value of securities are as
follows (000s omitted):
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 $68,619 $ 54 $ (185) $68,488
Obligations of state and political
subdivisions 19,670 261 (1) 19,930
Corporate debt securities 1,000 8 - 1,008
Other 1,699 - - 1,699
------- ------- ------- -------
Total available-for-sale securities $90,988 $ 323 $ (186) $91,125
======= ======= ======= =======
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
======= ====== ====== =======
PSB Group, Inc. / 2004 Annual Report
12
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 3 - SECURITIES (CONTINUED)
The amortized cost and estimated market value of securities at December
31, 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 (000s omitted):
Available for Sale
------------------------
Amortized
Cost Market Value
--------- ------------
Due in one year or less $20,247 $20,227
Due in one through five years 53,804 53,865
Due after five years through ten years 3,107 3,149
Due after ten years 4,136 4,185
------- -------
Total 81,294 81,426
Federal agency pools 7,995 8,000
Other 1,699 1,699
------- -------
Total $90,988 $91,125
======= =======
Proceeds from the sale of available-for-sale securities during 2004,
2003, and 2002 were $446,000, $12,228,000, and $6,563,000,
respectively.
PSB Group, Inc. / 2004 Annual Report
13
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 3 - SECURITIES (CONTINUED)
Information pertaining to securities with gross unrealized losses at
December 31, 2004 and 2003, aggregated by investment category and
length of time that individual securities have been in a continuous
loss position, follows (000s omitted):
2004
-------------------------------------------------
Less Than Twelve Months Over Twelve Months
----------------------- -----------------------
Gross Gross
Unrealized Unrealized
Losses Fair Value Losses Fair Value
---------- ---------- ---------- ----------
Available-for-sale securities:
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 185 $52,301 $ - $ -
Obligations of state and political
subdivisions 1 1,288 - -
Corporate debt securities - - - -
Other - - - -
------- ------- ---- -----
Total available-for-sale
securities $ 186 $53,589 $ - $ -
======= ======= ==== =====
2003
-------------------------------------------------
Less Than Twelve Months Over Twelve Months
----------------------- -----------------------
Gross Gross
Unrealized Unrealized
Losses Fair Value Losses Fair Value
---------- ---------- ---------- ----------
Available-for-sale securities:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 8 $2,765 $ 6 $4,994
Obligations of state and political
subdivisions 9 4,991 - -
Corporate debt securities - - - -
Other - - - -
------ ------ ------ ------
Total available-for-sale
securities $ 17 $7,756 $ 6 $4,994
====== ====== ====== ======
PSB Group, Inc. / 2004 Annual Report
14
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 3 - SECURITIES (CONTINUED)
At December 31, 2004 and 2003, securities having a carrying value of
$2,067,913 and $2,009,844 (market value of $2,058,125 and $2,027,500),
respectively, were pledged to secure public deposits, repurchase
agreements, and for other purposes required by law.
NOTE 4 - LOANS
A summary of the balances of loans at December 31, 2004 and 2003 is as
follows (000s omitted):
2004 2003
---------- ---------
Mortgage loans on real estate:
Residential 1-4 family $ 94,898 $ 103,864
Commercial 141,845 114,167
Construction 17,573 15,496
Second mortgages 7,666 3,440
Equity lines of credit 11,011 8,887
--------- ---------
Total mortgage loans 272,993 245,854
Commercial loans 48,046 54,203
Consumer installment loans 18,312 27,024
--------- ---------
Subtotal 339,351 327,081
Less allowances for loan losses (3,394) (3,887)
Net deferred loan fees (677) (819)
--------- ---------
Loans - Net $ 335,280 $ 322,375
========= =========
PSB Group, Inc. / 2004 Annual Report
15
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 4 - LOANS (CONTINUED)
An analysis of the allowance for loan losses is as follows (000s
omitted):
2004 2003 2002
-------- -------- --------
Balance - Beginning of year $ 3,887 $ 4,632 $ 5,585
Loan loss provision (reduction credited
to operations) 1,200 - (800)
Loan losses (2,318) (1,553) (2,162)
Loan loss recoveries 625 808 2,009
------- ------- -------
Balance - End of year $ 3,394 $ 3,887 $ 4,632
======= ======= =======
As a percentage of total loans 1.00 1.19 1.60
======= ======= =======
The following is a summary of information pertaining to impaired loans
(000s omitted):
2004 2003
------ ------
Impaired loans without a valuation allowance $ 901 $ 693
Impaired loans with a valuation allowance 1,396 803
------ ------
Total impaired loans $2,297 $1,496
====== ======
Valuation allowance related to impaired loans $ 632 $ 446
====== ======
Total non-accrual loans $2,297 $1,496
====== ======
Total loans past due 90 days or more and still accruing $ 376 $1,189
====== ======
2004 2003 2002
------ ------ ------
Average investment in impaired loans $1,363 $1,300 $2,202
====== ====== ======
Interest income recognized on impaired loans $ 11 $ 16 $ 83
====== ====== ======
Interest income recognized on a cash basis on
impaired loans $ 13 $ 15 $ 75
====== ====== ======
No additional funds are committed to be advanced in connection with
impaired loans.
PSB Group, Inc. / 2004 Annual Report
16
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 2004 and 2003 consisted of
the following (000s omitted):
2004 2003
-------- --------
Land $ 2,323 $ 1,874
Buildings and improvements 8,265 8,187
Construction in process 1,307 -
Furniture, fixtures, and equipment 9,343 8,611
-------- --------
Total bank premises and equipment 21,238 18,672
Less accumulated depreciation and amortization 10,620 9,459
-------- --------
Net carrying amount $ 10,618 $ 9,213
======== ========
Depreciation expense totaled $1,238,000, $1,136,000, and $1,014,000
during 2004, 2003, and 2002, respectively.
Pursuant to the terms of noncancelable lease agreements in effect at
December 31, 2004 pertaining to banking premises and equipment, future
minimum rent commitments under various operating leases are as follows
(000s omitted):
2005 $ 453
2006 309
2007 169
2008 124
2009 124
Thereafter 378
-------
Total $ 1,557
=======
Total rent expense for the years ended December 31, 2004, 2003, and
2002 amounted to $450,000, $348,000, and $269,000, respectively.
As of December 31, 2004, the Corporation had commitments totaling
approximately $398,000 for the construction of a new branch location.
PSB Group, Inc. / 2004 Annual Report
17
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 6 - DEPOSITS
Interest-bearing deposits at December 31, 2004 and 2003 consisted of
the following (000s omitted):
2004 2003
--------- ----------
NOW accounts $ 34,868 $ 32,736
Savings 122,947 62,443
Money market demand 56,898 67,312
Time:
$100,000 and over 63,859 62,030
Under $100,000 75,081 73,055
--------- ----------
Total interest-bearing deposits $ 353,653 $ 297,576
========= ==========
The remaining maturities of certificates of deposit outstanding at
December 31, 2004 are as follows (000s omitted):
Under $100,000
$100,000 and Over
-------- ---------
2005 $ 36,692 $ 38,376
2006 22,437 12,559
2007 10,359 6,962
2008 2,786 3,528
2009 1,780 1,641
Thereafter 1,027 793
-------- ---------
Total $ 75,081 $ 63,859
======== =========
NOTE 7 - BORROWING ARRANGEMENTS
The Corporation has an agreement with the Federal Home Loan Bank of
Indianapolis under which the Corporation may obtain advances up to an
aggregate amount of $26,000,000. The Corporation has provided a blanket
pledge of all of the Corporation's residential mortgage loans as
collateral on advances under this agreement. Borrowings outstanding
under this agreement totaled $5,000,000 at December 31, 2004 and 2003.
The advance matures on January 22, 2011 with principal due at that
time. Interest-only payments are due monthly at a rate of 4.43 percent
at December 31, 2004.
PSB Group, Inc. / 2004 Annual Report
18
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 8 - RETIREMENT PLANS
The Corporation has a defined contribution 401(k), employee
profit-sharing, and Employee Stock Ownership (ESOP) plan covering
substantially all employees. Employer matching contributions are
discretionary. The Corporation typically matches 100 percent of the
first 3 percent of employee contributions and 50 percent of the next 3
percent of employee contributions. Employer profit-sharing
contributions are at the discretion of the Corporation's Board of
Directors. Employer matching contributions to the plan were
approximately $224,000, $245,000, and $229,000 during 2004, 2003, and
2002, respectively. Employer profit-sharing contributions to the plan
were approximately $100,000, $181,000, and $289,000 during 2004, 2003,
and 2002, respectively.
NOTE 9 - FEDERAL INCOME TAXES
The provision for federal income taxes reflected in the consolidated
statement of operations for the years ended December 31, 2004, 2003,
and 2002 consisted of the following (000s omitted):
2004 2003 2002
--------- --------- --------
Current expense $ 1,563 $ 1,382 $ 1,550
Deferred expense - 75 500
--------- --------- --------
Total income tax expense $ 1,563 $ 1,457 $ 2,050
========= ========= ========
A reconciliation of the difference between total federal income tax
expense and the amount computed by applying the statutory tax rates to
income before income taxes follows:
Percent of Pretax Income
------------------------------
2004 2003 2002
---- ---- ----
Amount computed at statutory rates 34 34 34
Decrease resulting from:
Tax-exempt municipal interest (9) (5) (5)
Other 2 (3) (1)
-- -- --
Reported tax expense 27 26 28
== == ==
PSB Group, Inc. / 2004 Annual Report
19
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 9 - FEDERAL INCOME TAXES (CONTINUED)
The details of the net deferred tax asset (liability) at December 31,
2004 and 2003 are as follows (000s omitted):
2004 2003
-------- ---------
Deferred tax assets:
Provision for loan losses $ 768 $ 663
Net deferred loan fees 225 277
Accrued employee benefits 42 55
Deferred compensation 164 151
Other 6 98
-------- ---------
Total deferred tax assets 1,205 1,244
Deferred tax liabilities:
Property and equipment 741 715
Original issue discount 199 311
Unrealized gains on investment securities
available for sale 47 179
Other 131 84
-------- ---------
Total deferred tax liabilities 1,118 1,289
-------- ---------
Net deferred tax asset (liability) $ 87 $ (45)
======== =========
NOTE 10 - STOCK TRANSACTIONS
On April 23, 2002, the stockholders approved a 10 percent stock
dividend to holders of record of common stock of the Bank on April 30,
2002. Earnings per share and cash dividends per share for all years
provided have been adjusted in the accompanying consolidated financial
statements to reflect the stock dividend.
On October 31, 2003, the Corporation repurchased and retired 263,118
shares of common stock for $6,134,000 from a director of the
Corporation.
PSB Group, Inc. / 2004 Annual Report
20
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 11 - STOCK-BASED COMPENSATION
During 2004, the Corporation adopted the PSB Group, Inc. 2004 Stock
Compensation Plan and has reserved 450,000 shares of common stock for
issuance under the plan. Vesting is to be specified at the time of
grant and options will expire 10 years after the grant date. The
exercise price of each option granted is equal to the fair market
value of the Corporation's common stock on the date of the grant.
In December 2004, the Corporation's Board of Directors approved 11,100
stock option awards to be granted to various directors and officers.
As of December 31, 2004, however, the Corporation has not issued any
awards nor has a strike price been determined for the previously
approved options.
NOTE 12 - OFF-BALANCE-SHEET ACTIVITIES
CREDIT-RELATED FINANCIAL INSTRUMENTS - The Corporation is a party to
credit-related financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit, and commercial letters of credit.
Such commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
consolidated balance sheet.
The Corporation's exposure to credit loss is represented by the
contractual amount of these commitments. The Corporation follows the
same credit policies in making commitments as it does for
on-balance-sheet instruments.
At December 31, 2004 and 2003, the following financial instruments
were outstanding whose contract amounts represent credit risk (000s
omitted):
2004 2003
---------- ----------
Commitments to grant loans $ 16,583 $ 19,392
Unfunded commitments under lines of credit 18,538 15,281
Commercial and standby letters of credit 4,801 2,073
At December 31, 2004, the Corporation had issued approximately
$4,801,000 of financial standby letters of credit to guarantee the
performance of various customers to third parties. The maximum amount
of credit risk in the event of nonperformance by these parties is
equivalent to the contract amount and totals $4,801,000.
PSB Group, Inc. / 2004 Annual Report
21
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 12 - OFF-BALANCE-SHEET ACTIVITIES (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The commitments
for equity lines of credit may expire without being drawn upon.
Therefore, the total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if it is
deemed necessary by the Corporation, is based on management's credit
evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving
credit lines, and overdraft protection agreements are commitments for
possible future extensions of credit to existing customers. These
lines of credit are generally collateralized and usually do not
contain a specified maturity date and may not be drawn upon to the
total extent to which the Corporation is committed.
Commercial and standby letters of credit are conditional commitments
issued by the Corporation to guarantee the performance of a customer
to a third party. These letters of credit are primarily used to
support public and private borrowing arrangements. Essentially all
letters of credit issued have expiration dates within one year.
At December 31, 2004, the Corporation maintained a credit loss reserve
of approximately $64,000 relating to these standby letters of credit.
Almost all of the standby letters of credit are secured and, in the
event of nonperformance by the customers, the Corporation has rights
to the underlying collateral provided including commercial real
estate, physical plant and property, inventory, receivables, cash, and
marketable securities.
COLLATERAL REQUIREMENTS - To reduce credit risk related to the use of
credit-related financial instruments, the Corporation might deem it
necessary to obtain collateral. The amount and nature of the
collateral obtained are based on the Bank's credit evaluation of the
customer. Collateral held varies, but may include cash, securities,
accounts receivable, inventory, property, plant, and equipment, and
real estate.
NOTE 13 - LEGAL CONTINGENCIES
Various legal claims also arise from time to time in the normal course
of business which, in the opinion of management, will have no material
effect on the Corporation's consolidated financial statements.
PSB Group, Inc. / 2004 Annual Report
22
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 14 - RESTRICTIONS ON DIVIDENDS, LOANS, AND ADVANCES
Federal and state banking regulations place certain restrictions on
dividends paid and loans or advances made by the Bank. The total
amount of dividends that may be paid at any date is generally limited
to the retained earnings of the Bank, and loans or advances are
limited to 10 percent of the Bank's capital stock and surplus on a
secured basis.
At December 31, 2004, the Bank's retained earnings available for the
payment of dividends was $18,471,000. Accordingly, $23,785,000 of the
Corporation's equity in the net assets of the Bank was restricted at
December 31, 2004. Funds available for loans or advances by the Bank
to the Corporation amounted to $4,146,000.
In addition, dividends paid by the Bank would be prohibited if the
effect thereof would cause the Bank's capital to be reduced below
applicable minimum capital requirements.
NOTE 15 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Corporation has granted loans
to principal officers and directors and their affiliates amounting to
$1,397,000 at December 31, 2004 and $1,028,000 at December 31, 2003.
During the year ended December 31, 2004, total principal additions
were $460,000 and total principal payments were $91,000.
Deposits from related parties held by the Corporation at December 31,
2004 and 2003 amounted to $1,969,000 and $924,000, respectively.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that
would be exchanged between willing parties, other than in a forced
liquidation. Fair value is best determined based on quoted market
prices. However, in many instances, there are no quoted market prices
for the Corporation's various financial instruments. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of
the Corporation.
PSB Group, Inc. / 2004 Annual Report
23
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Corporation in
estimating fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amounts of cash and
short-term instruments approximate fair values.
SECURITIES - Fair values for securities are based on quoted market
prices.
LOANS HELD FOR SALE - Fair values for loans held for sale are based on
commitments on hand from investors or prevailing market prices.
LOANS RECEIVABLE - For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (e.g., one- to
four-family residential), credit card loans, and other consumer loans
are based on quoted market prices of similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan
characteristics. Fair values for other loans (e.g., commercial real
estate and investment property mortgage loans, commercial, and
industrial loans) are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for
nonperforming loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable.
DEPOSIT LIABILITIES - The fair values disclosed for demand deposits
(e.g., interest and noninterest checking, passbook savings, and
certain types of money market accounts) are, by definition, equal to
the amount payable on demand at the reporting date (i.e., their
carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate their
fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities
on time deposits.
LONG-TERM BORROWINGS - The fair values of the Corporation's long-term
borrowings are estimated using discounted cash flow analyses based on
the Bank's current incremental borrowing rates for similar types of
borrowing arrangements.
SHORT-TERM BORROWINGS - The carrying amounts of federal funds
purchased, borrowings under repurchase agreements, and other
short-term borrowings maturing within 90 days approximate their fair
values. Fair values of other short-term borrowings are estimated using
discounted cash flow analyses based on the Corporation's current
incremental borrowing rates for similar types of borrowing
arrangements.
PSB Group, Inc. / 2004 Annual Report
24
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ACCRUED INTEREST - The carrying amounts of accrued interest
approximate fair value.
OTHER INSTRUMENTS - The fair values of other financial instruments,
including loan commitments and unfunded letters of credit, based on a
discounted cash flow analyses, are not material.
The estimated fair values and related carrying or notional amounts of
the Corporation's financial instruments are as follows (000s omitted):
2004 2003
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- ---------- ----------
Assets:
Cash and short-term investments $ 14,253 $ 14,253 $ 14,308 $ 14,308
Securities 91,125 91,125 47,619 47,619
Loans 335,280 334,793 322,375 324,867
Loans held for sale 2,388 2,388 627 627
Accrued interest receivable 2,144 2,144 1,525 1,525
Liabilities:
Noninterest-bearing deposits 57,479 57,479 53,412 53,412
Interest-bearing deposits 353,653 354,235 297,576 298,088
Federal funds purchased - - 2,420 2,420
FHLB borrowings 5,000 4,998 5,000 5,000
Accrued interest payable 220 220 217 217
NOTE 17 - REGULATORY MATTERS
The Corporation (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements administered by federal
banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and discretionary actions by regulators
that could have a direct material effect on the Corporation's and the
Bank's consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Bank must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
PSB Group, Inc. / 2004 Annual Report
25
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 17 - REGULATORY MATTERS (CONTINUED)
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain minimum
amounts and ratios (set forth in the following table) of total Tier
I capital (as defined in the regulations) to risk-weighted assets
(as defined) and Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 2004 and 2003,
that the Corporation and the Bank met all capital adequacy
requirements to which they are subject.
As of December 31, 2004, the most recent notification from the
Bank's primary regulator categorized the Bank as well-capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well-capitalized, an institution must maintain
minimum total risk-based, Tier I risked-based, and Tier I leverage
ratios as set forth in the following tables. There are no conditions
or events since the notification that management believes have
changed the Bank's category. The Corporation's and the Bank's actual
capital amounts and ratios as of December 31, 2004 and 2003 are also
presented in the table.
For Capital To Be Well-
Actual Adequacy Purposes capitalized
---------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ----- -------- ----- -------- -----
As of December 31, 2004:
Total capital
(to risk-weighted assets)
PSB Group, Inc. $ 42,184 12.54% $ 26,900 > or = 8.0% $ 33,600 > or = 10.0%
Peoples State Bank $ 41,459 12.33% $ 26,900 > or = 8.0% $ 33,600 > or = 10.0%
Tier I capital
(to risk-weighted assets)
PSB Group, Inc. $ 38,790 11.54% $ 13,500 > or = 4.0% $ 20,200 > or = 6.0%
Peoples State Bank $ 38,065 11.32% $ 13,500 > or = 4.0% $ 20,200 > or = 6.0%
Tier I capital
(to average assets)
PSB Group, Inc. $ 35,790 8.62% $ 18,000 > or = 4.0% $ 22,500 > or = 5.0%
Peoples State Bank $ 38,065 8.46% $ 18,000 > or = 4.0% $ 22,500 > or = 5.0%
As of December 31, 2003:
Total capital
(to risk-weighted assets)
PSB Group, Inc. $ 40,367 13.27% $ 24,300 > or = 8.0% $ 30,400 > or = 10.0%
Peoples State Bank $ 38,540 12.67% $ 24,300 > or = 8.0% $ 30,400 > or = 10.0%
Tier I capital
(to risk-weighted assets)
PSB Group, Inc. $ 36,564 12.02% $ 12,200 > or = 4.0% $ 18,200 > or = 6.0%
Peoples State Bank $ 34,743 11.42% $ 12,200 > or = 4.0% $ 18,200 > or = 6.0%
Tier I capital
(to average assets)
PSB Group, Inc. $ 36,564 9.13% $ 16,000 > or = 4.0% $ 20,000 > or = 5.0%
Peoples State Bank $ 34,743 8.67% $ 16,000 > or = 4.0% $ 20,000 > or = 5.0%
PSB Group, Inc. / 2004 Annual Report
26
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The following represents the condensed financial statements of PSB
Group, Inc. (the "Parent") only. The Parent-only financial information
should be read in conjunction with the Corporation's consolidated
financial statements.
The condensed balance sheet at December 31 is as follows (000s
omitted):
2004 2003
---------- ----------
ASSETS
Cash at subsidiary bank $ 580 $ 1,754
Investment in subsidiary 42,256 39,190
Other 145 67
---------- ----------
Total assets $ 42,981 $ 41,011
========== ==========
STOCKHOLDERS' EQUITY $ 42,981 $ 41,011
========== ==========
The condensed statement of operations for the years ended December 31, 2004
and 2003 is as follows (000s omitted):
2004 2003
---------- ----------
Operating income $ - $ -
Operating expense (234) (181)
---------- ----------
Loss - Before income taxes and equity in
income of subsidiaries (234) (181)
Income tax benefit 80 62
---------- ----------
Loss - Before equity in income of subsidiaries (154) (119)
Equity in income of subsidiaries 4,372 4,332
---------- ----------
Net income $ 4,218 $ 4,213
========== ==========
PSB Group, Inc. / 2004 Annual Report
27
PSB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003, AND 2002
NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (CONTINUED)
The condensed statement of cash flows for the years ended December 31,
2004 and 2003 is as follows (000s omitted):
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,218 $ 4,213
Adjustments to reconcile net income to net cash from
operating activities:
Equity in income of subsidiary (4,373) (4,332)
Net change in other assets (78) (67)
---------- ----------
Net cash used in operating activities (233) (186)
CASH FLOWS FROM INVESTING ACTIVITIES - Dividend from subsidiary 1,050 10,044
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock - (6,134)
Cash dividends (1,991) (1,970)
---------- ----------
Net cash used in financing activities (1,991) (8,104)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,174) 1,754
CASH AND CASH EQUIVALENTS - Beginning of year 1,754 -
---------- ----------
CASH AND CASH EQUIVALENTS - End of year $ 580 $ 1,754
========== ==========
PSB Group, Inc. / 2004 Annual Report
28
PSB GROUP, INC.
MANAGEMENT FINANCIAL REPORT
DECEMBER 31, 2004
PSB Group, Inc. / 2004 Annual Report
29
Table of Contents
Quarterly Results of Operations ................................... 31
Selected Financial Information .................................... 32
Management's Discussion and Analysis .............................. 33-43
Market Information ................................................ 44
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Statements contained in this report 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.
PSB Group, Inc. / 2004 Annual Report
30
PSB GROUP, INC.
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
The following table sets forth certain unaudited income and expense and
per share data on a quarterly basis for the three-month periods indicated:
YEAR ENDED DECEMBER 31, 2004
------------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- -------- -------- --------
Interest income $ 5,342 $ 5,503 $ 5,735 $ 6,053
Interest expense 1,355 1,361 1,425 1,690
-------- ------- -------- --------
Net interest income 3,987 4,142 4,310 4,363
Provision for loan losses 90 380 350 380
-------- ------- -------- --------
Net interest income after
provision for loan losses 3,897 3,762 3,960 3,983
Non-interest income 1,424 1,326 1,492 1,584
Non-interest expense 4,112 3,730 3,727 4,078
-------- ------- -------- --------
Income before income taxes 1,209 1,358 1,725 1,489
Income Tax 351 399 509 304
-------- ------- -------- --------
Net Income $ 858 $ 959 $ 1,216 $ 1,185
======== ======= ======== ========
Earnings per share:
Basic $ 0.30 $ 0.33 $ 0.42 $ 0.41
Diluted $ 0.30 $ 0.33 $ 0.42 $ 0.41
Cash dividends declared per share $ 0.17 $ 0.17 $ 0.17 $ 0.18
YEAR ENDED DECEMBER 31, 2003
------------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
-------- ------- -------- --------
Interest income $ 5,645 $ 5,641 $ 5,439 $ 5,371
Interest expense 1,386 1,368 1,340 1,369
-------- ------- -------- --------
Net interest income 4,259 4,273 4,099 4,002
Provision for loan losses - - - -
-------- ------- -------- --------
Net interest income after
provision for loan losses 4,259 4,273 4,099 4,002
Non-interest income 1,344 1,519 1,669 1,503
Non-interest expense 4,155 4,471 4,322 4,050
-------- ------- -------- --------
Income before income taxes 1,448 1,321 1,446 1,455
Income Tax 396 358 407 296
-------- ------- -------- --------
Net Income $ 1,052 $ 963 $ 1,039 $ 1,159
======== ======= ======== ========
Earnings per share:
Basic $ 0.33 $ 0.31 $ 0.33 $ 0.39
Diluted $ 0.33 $ 0.31 $ 0.33 $ 0.39
Cash dividends declared per share $ 0.15 $ 0.15 $ 0.17 $ 0.17
PSB Group, Inc. / 2004 Annual Report
31
PSB GROUP, INC.
SELECTED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------
(Dollars in Thousands)
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
SUMMARY OF INCOME
Interest income 22,633 22,096 24,421 28,649 30,847
Interest expense 5,831 5,463 6,816 11,592 14,427
--------- --------- --------- --------- ---------
Net Interest income 16,802 16,633 17,605 17,057 16,420
Provision (credit) for possible loan losses 1,200 - (800) (1,500) (1,600)
--------- --------- --------- --------- ---------
Net interest income after provision for
possible loan losses 15,602 16,633 18,405 18,557 18,020
Non-interest income 5,826 6,035 4,668 5,705 3,582
Non-interest expense 15,647 16,998 15,734 16,190 15,897
--------- --------- --------- --------- ---------
Income before income tax expense 5,781 5,670 7,339 8,072 5,705
Income tax expense 1,563 1,457 2,050 2,252 1,584
--------- --------- --------- --------- ---------
Net income 4,218 4,213 5,289 5,820 4,121
========= ========= ========= ========= =========
PER SHARE DATA
Basic earnings per common share 1.46 1.36 1.68 1.85 1.45
Diluted earnings per common share 1.46 1.36 1.68 1.85 1.31
Cash dividends 0.69 0.64 0.70 0.68 1.54
Period end book value per common share 14.90 14.22 14.44 13.41 12.23
Weighted average number of common
shares outstanding 2,885,073 3,103,497 3,148,191 3,148,191 2,848,191
SELECTED BALANCES (AT PERIOD END)
Securities 91,125 47,619 87,498 69,262 67,749
Loans, net 335,280 322,375 280,970 265,614 298,456
Total assets 461,342 401,511 402,589 394,995 406,618
Total deposits 411,132 350,988 340,780 345,555 368,711
Borrowings 5,000 7,420 14,210 5,000 -
Total stockholders' equity 42,981 41,011 45,473 42,222 34,845
SELECTED RATIOS
Return on average assets 0.99% 1.04% 1.33% 1.45% 1.03%
Return on average total stockholders' equity 10.08% 9.30% 12.06% 14.80% 12.53%
Avereage equity to average assets 9.79% 11.23% 11.05% 9.79% 8.18%
Net interest margin (1) 4.19% 4.41% 4.74% 4.50% 4.32%
Efficiency ratio (2) 69.15% 74.99% 70.64% 71.13% 79.48%
Dividend payout ratio (3) 47% 47% 41% 37% 37%
ASSET QUALITY RATIOS
Allowance for possible loan losses to:
Ending total loans 1.00% 1.19% 1.62% 2.06% 3.51%
Non-performing assets 84.62% 87.11% 110.73% 226.30% 139.04%
Non-performing assets to ending total loans 1.18% 1.37% 1.46% 0.91% 1.79%
Net loan charge-offs to average loans 0.49% 0.24% 0.06% 1.38% 0.35%
CAPITAL RATIOS
Total capital to risk-weighted assets 12.54% 13.27% 15.58% 14.93% 12.69%
Tier 1 capital to risk-weighted assets 11.54% 12.02% 14.32% 13.67% 11.43%
Tier 1 capital to average assets 8.62% 9.13% 10.20% 9.31% 8.28%
(1) Net interest margin is net interest income divided by average earning
assets.
(2) Efficiency ratio is calculated by dividing non-interest expense by the sum
of net interest income plus non-interest income.
(3) Dividend payout ratio is calculated by dividing dividends paid during the
period by net income for the period.
PSB Group, Inc. / 2004 Annual Report
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW. PSB Group, Inc. (the "Corporation") was formed on February 28,
2003 as a bank holding company for the purpose of owning Peoples State Bank (the
"Bank") pursuant to a plan of reorganization adopted by the Bank and its
stockholders. Pursuant to the reorganization, each share of Peoples State Bank
stock held by existing stockholders 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 consolidated financial statements include the accounts of PSB Group,
Inc. and its wholly owned subsidiaries, Peoples State Bank and PSB Capital, Inc.
PSB Insurance Agency, Inc. and Universal Mortgage Company are wholly owned
subsidiaries of Peoples State Bank. PSB Capital, Inc. was formed in October,
2004. Through December 31, 2004, there had been no business transacted by PSB
Capital, Inc. 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. Assets consist of loans, investment securities, bank
premises and equipment, cash and other operating assets. At December 31, 2004,
the Corporation had assets totaling $461 million compared to $402 million at
December 31, 2003. Total assets increased $59 million, or 14.7% during 2004.
Investment securities increased by $43.5 million and net loans increased by
$12.9 million. In addition, loans held for sale increased $1.8 million and bank
premises and equipment increased $1.4 million. The increase in premises and
equipment reflected the construction of a new branch office that opened in
January 2005. The increase in assets was funded primarily by a $60.1 million
increase in deposits. The introduction of a new savings product, our Prime
Savings Plus accounts, allowed us to increase total savings balances by $60.5
million. Our certificates of deposit balances increased $3.9 million and our NOW
balances increased $2.1 million. The increases were partially offset by a $10.4
million decrease in our money market balances. Total assets remained relatively
flat between 2002 and 2003 although there was a significant shift in the mix.
During 2003, approximately $40 million was shifted from investment securities to
loans.
Loans - Loans consist of commercial, residential mortgage, and consumer
products offered in the communities served by the Bank. Total loans, net of the
allowance for loan losses, at December 31, 2004, increased to $335.3 million, up
$12.9 million, or 4% for the year. Loans, net of allowance for loan losses,
increased $41.4 million, or 14.7% from $281.0 million to $322.4 million at
December 31, 2002 and 2003, respectively.
Commercial loans increased from $168.4 million to $189.9 million, an
increase of $21.5 million or 12.8% during 2004. During 2003, commercial loans
increased $22.8 million or 15.7% from $145.6 million at December 31, 2002. The
continued increase in 2004 was primarily the result of aggressive marketing, the
continued presence of the Bank in its market areas and the desire of customers
to deal with a community bank.
1-4 family residential mortgage loan balances totaled $94.9 and $103.9
million as of December 31, 2004 and 2003, respectively. Residential mortgage
loan balances decreased $9 million or 8.7% during 2004. 1-4 family residential
loans increased $3.5 million or 3.5% during 2003. The decrease in 2004 was
primarily
PSB Group, Inc. / 2004 Annual Report
33
the result of management's decision to allow fixed rate mortgages to run-off and
replace them with adjustable rate loans. The volume of the new adjustable rate
loans only partially offset the run-off of the fixed rate loans. The increase in
2003 was due to management's decision to keep more loans in the Bank's
portfolio. Three and five year ARMs that were previously sold, were kept in the
Bank's portfolio in 2003.
Consumer loans decreased $8.7 million or 32.2% in 2004 from $27.0 million
to $18.3 million. Consumer loans increased $2.3 million or 9.3% in 2003 from
$24.7 million to $27.0 million at December 31, 2003.
The following table shows the details of the Bank's loan portfolio as of
the dates indicated. Mortgages on real estate include 1-4 family residential,
commercial real estate, construction loans, second mortgages and equity lines of
credit (see Note 4 to the financial statements). Loan balances are shown net of
unearned income.
December 31,
------------------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
(in thousands)
Mortgages on real estate $ 272,756 $ 245,520 $ 197,540 $ 159,022 $ 170,585
Commercial 47,608 53,725 63,330 81,020 110,139
Consumer 18,310 27,017 24,732 31,157 26,622
--------- --------- --------- --------- ---------
Total Loans $ 338,674 $ 326,262 $ 285,602 $ 271,199 $ 307,346
========= ========= ========= ========= =========
The following table shows the loans by category as of December 31, 2004
and the period in which they mature. Loan balances are shown net of unearned
income.
Loans maturing
One year More than one year
One year to five After five ---------------------
or less years years Total Fixed Variable
-------- --------- -------- --------- --------- ---------
(in thousands)
Mortgages on real estate $ 28,169 $ 156,906 $ 87,681 $ 272,756 $ 117,718 $ 126,869
Commercial 15,604 27,723 4,281 47,608 11,214 20,790
Consumer 622 12,682 5,006 18,310 16,397 1,291
-------- --------- -------- --------- --------- ---------
Total Loans $ 44,395 $ 197,311 $ 96,968 $ 338,674 $ 145,329 $ 148,950
======== ========= ======== ========= ========= =========
In 2002, Management concluded that reserves provided for in the allowance
for possible loan loss balance had exceeded the estimated reserves required. A
negative loan loss provision of $800 thousand was recorded in 2002 to reduce the
balance to an appropriate level. In 2003, Management believed the allowance for
loan losses to be at an appropriate level with no loan loss provision, positive
or negative. In 2004, as a result of a $12.4 million increase in total loans and
an increase in net charge-offs, management recorded a $1.2 million loan loss
provision in order to keep the allowance at an appropriate level. The Bank's
investment in impaired loans was $2.3 million at December 31, 2004 compared to
$1.5 million at December 31, 2003 and $2.7 million at December 31, 2002. The
Bank recorded net charge offs of $1.7 million in 2004 compared to $745 thousand
in 2003 and $153 thousand in 2002. The Bank's allowance for possible loan losses
to impaired loans was at a ratio of 148%, 260% and 183% as of December 31, 2004,
2003, and 2002, respectively. At December 31, 2004 the allowance for possible
loan losses totaled $3.4 million, or 1.0% of total outstanding loans.
PSB Group, Inc. / 2004 Annual Report
34
The following table shows the detail of non-performing loans as of the dates
indicated.
December 31,
--------------------------------------------------
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
(in thousands)
Nonaccrual loans $2,297 $1,496 $2,746 $ 281 $1,835
Loans past due 90 or more days 717 1,189 306 602 845
Renegotiated loans 586 808 907 1,585 2,663
------ ------ ------ ------ ------
Total non-performing loans 3,600 3,493 3,959 2,468 5,343
Other real estate owned 411 969 224 - 154
------ ------ ------ ------ ------
Total non-performing assets $4,011 $4,462 $4,183 $2,468 $5,497
====== ====== ====== ====== ======
Total non-performing loans to total loans 1.06% 1.07% 1.39% 0.91% 1.72%
Total non-performing assets to total assets 0.87% 1.11% 1.03% 0.62% 1.35%
The Bank places loans in non-accrual status when, in the opinion of
management, uncertainty exists as to the ultimate collection of principal and
interest. The Bank has no foreign loans. Management knows of no loans which have
not been disclosed above which cause it to have doubts as to the ability of such
borrowers to comply with the contractual loan terms, or which may have a
material effect on the Bank's balance sheet or results from operations. Total
non-performing loans increased $107 thousand in 2004 to $3.6 million. Other real
estate decreased $558 thousand in 2004. As of December 31, 2004, other real
estate consists of seven properties. Other real estate is carried on the books
at the lower of, fair value less the estimated cost to sell, or, the carrying
amount of the loan at the date of foreclosure.
The following table shows the allocation of the allowance for loan losses
by specific category as of the dates indicated.
December 31,
-------------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------- --------------------- --------------------- -------------------- ---------------------
(in thousands)
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
Allocated to Total Allocated to Total Allocated to Total Allocated to Total Allocated to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
--------- ---------- --------- ---------- --------- ---------- ---------- --------- --------- ----------
Mortgages $ 839 80.50% $ 121 75.30% $ 396 69.60% $ 270 59.50% $ 656 55.90%
Commercial 1,478 14.10% 1,971 16.50% 2,476 21.90% 3,609 29.30% 7,873 35.50%
Consumer 551 5.40% 1,134 8.20% 1,345 8.50% 1,456 11.20% 1,623 8.60%
Unallocated 526 n/a 661 n/a 415 n/a 250 n/a 739 n/a
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $ 3,394 100.00% $ 3,887 100.00% $ 4,632 100.00% $ 5,585 100.00% $10,891 100.00%
Investment securities - Investment securities totaled $91.1 million as of
December 31, 2004 versus $47.6 million as of December 31, 2003, an increase of
$43.5 million. Each of these figures includes adjustments for fluctuations in
market values on available for sale securities (see Note 3 to the financial
statements). As interest rates began to rise, and increased funds became
available because of the success of our Prime Savings Plus product, our
investment portfolio was increased in 2004. Most of the 2004 purchases were in
relatively short-term securities that will provide liquidity and flexibility to
react to changing market conditions. Due to the low interest rate environment
and the lack of suitable replacement securities, the investment portfolio was
reduced during 2003. Proceeds from the securities that either matured or were
sold
PSB Group, Inc. / 2004 Annual Report
35
in 2003 were used to fund the increase in the loan portfolio. During 2004, the
Bank sold certain securities that generated $9 thousand in gains. This compares
to $163 thousand gained on the sale of securities in 2003.
The following table shows the amortized cost and the fair market value of
the Bank's security portfolio as of the dates indicated.
December 31,
-----------------------------------------------------------
2004 2003 2002
------------------- ------------------- -----------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- ------
(in thousands)
Available-for-sale securities:
U. S. treasury securities and
obligations of other U.S.
government agencies $ 68,619 $ 68,488 $ 27,195 $ 27,359 $ 45,148 45,727
Obligations of states and
political subdivisions 19,670 19,930 17,274 17,627 28,603 29,267
Mortgage-backed securities - - - - - -
Corporate debt securities 1,000 1,008 1,000 1,009 10,793 10,941
Equities 1,699 1,699 1,624 1,624 1,563 1,563
--------- -------- --------- -------- --------- ------
Total available-for-sale
securities 90,988 91,125 47,093 47,619 86,107 87,498
========= ======== ========= ======== ========= ======
Maturity of the investment securities (at par value) and the weighted
average yield for each range of maturities as of December 31, 2004 are shown in
the table below. The yields on municipal securities have not been adjusted for
tax equivalence.
From one to From five to After ten
One year or less five years ten years years Equity Total
---------------- --------------- --------------- --------------- -------------- ---------------
Dollar Yield Dollar Yield Dollar Yield Dollar Yield Dollar Yield Dollar Yield
-------- ----- -------- ----- ------- ----- -------- ----- ------- ----- -------- -----
(in thousands)
Obligations of U.S.
government agencies $ 10,076 2.42% $ 57,170 3.24% $ 676 5.35% $ - - $ - - $ 67,922 3.14%
Obligations of states and
political subdivisions 10,135 3.74% 3,240 7.44% 3,080 6.40% 3,080 5.82% - - 19,535 5.10%
Mortgage-backed securities - - - - - - - - - - - -
Corporate debt securities - - - - - - 1,000 5.29% - - 1,000 5.29%
Equity securities & others - - - - - - - - 1,699 4.38% 1,699 4.38%
-------- ----- -------- ----- ------- ----- -------- ----- ------- ----- -------- -----
Total $ 20,211 3.08% $ 60,410 3.47% $ 3,756 6.21% $ 4,080 5.69% $ 1,699 4.38% $ 90,156 3.61%
======== ===== ======== ===== ======= ===== ======== ===== ======= ===== ======== =====
Deposits - The Bank depends primarily upon customer deposits and
short-term borrowing for funds with which to conduct its business. Bank deposits
consist primarily of retail deposit products including checking and savings
accounts from individuals and businesses, NOW accounts, money market demand
accounts and time deposit accounts (CDs). Deposits totaled $411.1 million and
$351.0 million at December 31, 2004 and 2003, respectively, an increase of $60.1
million, or 17.1%. Savings deposits increased the most ($60.5 million) in 2004
followed by non-interest bearing demand ($4.1 million), certificates of deposit
($3.9 million) and NOW accounts ($2.1 million). These increases were partially
offset by a $10.4 million decrease in money market balances. During 2003,
deposits increased $10.2 million to $351.0 million at year end. Non-interest
bearing demand deposits saw the biggest increase ($5.9 million) in 2003 followed
by money market accounts ($3.8 million) certificates of deposit ($1.1 million)
and savings accounts ($790 thousand). NOW accounts decreased $1.4 million in
2003.
PSB Group, Inc. / 2004 Annual Report
36
Management relies on lower-interest bearing demand and savings deposit
accounts to fund significant portions of the Bank's operations. These accounts
greatly improve net interest margins because of the lower interest rates
expected by the customers. Non-interest bearing demand deposits plus savings
deposits increased $64.6 million in 2004.
The following table shows the details of the Bank's deposit balances as of
the dates indicated.
December 31,
------------------------------------
2004 2003 2002
---------- ---------- ----------
(in thousands)
Noninterest bearing
demand deposits $ 57,479 $ 53,412 $ 47,550
NOW accounts 34,868 32,736 34,088
Savings 122,947 62,443 61,653
Money market demand 56,898 67,312 63,545
Time under $100,000 75,081 73,055 74,485
Time over $100,000 63,859 62,030 59,459
---------- ---------- ----------
Total deposits $ 411,132 $ 350,988 $ 340,780
========== ========== ==========
The following table shows the maturity breakdown of the Bank's time
deposits over $100,000 as of December 31, 2004.
December 31, 2004
-----------------
(in thousands)
Time Deposits Over $100,000
Maturing in:
Less than three months $ 19,057
Three through six months 4,553
Six months through one year 14,766
Over one year 25,483
----------
Total deposits $ 63,859
==========
Borrowings - At December 31, 2004 and December 31, 2003 the Bank had
$5,000,000 in borrowings outstanding from the Federal Home Loan Bank of
Indianapolis (see Note 7 to the financial statements). This advance matures on
January 22, 2011. At December 31, 2004 the Bank had no short-term federal funds
purchased. This compares to $2,420,000 at the rate of 1.19% at December 31, 2003
and $9,210,000 at the rate of 1.38% at December 31, 2002.
The following table shows the balance, term and interest rate of the
Bank's borrowings from the Federal Home Loan Bank.
Outstanding as of
---------------------------------------------------------
12/31/2004 12/31/2003 12/31/2002
--------------- ---------------------- ---------------
Year (dollars in thousands)
Type Matures Dollar Yield Dollar Yield Dollar Yield
- --------------------- ------- -------- ----- -------- ----- -------- -----
FHLB Advances 2011 $ 5,000 4.43% $ 5,000 4.43% $ 5,000 4.43%
-------- ---- -------- ----- -------- -----
Total notes payable $ 5,000 4.43% $ 5,000 4.43% $ 5,000 4.43%
======== ==== ======== ===== ======== =====
PSB Group, Inc. / 2004 Annual Report
37
Contractual Obligations - The Corporation is party to certain contractual
financial obligations, including the repayment of debt and operating lease
payments. These future financial obligations are presented below:
Payments due - as of December 31, 2004
---------------------------------------------------------------
(in thousands)
0-12 Months 1-3 Years 4-5 Years After 5 Years Total
----------- --------- --------- ------------- --------
Operating Leases $ 453 $ 478 $ 248 $ 378 $ 1,557
FHLB Advances $ - $ - $ - $ 5,000 $ 5,000
----------- --------- --------- ------------- --------
Total $ 453 $ 478 $ 248 $ 5,378 $ 6,557
=========== ========= ========= ============= ========
Off Balance Sheet Obligations - At December 31, 2004, the Corporation also
had commitments to extend credit of $35.1 million and a $4.8 million obligation
under a stand-by letter of credit.
RESULTS OF OPERATIONS. Net income for the year ended December 31, 2004 was
$4.2 million, the same amount earned in 2003. Net interest income increased $169
thousand in 2004. The $1.2 million provision for loan losses compares to no
provision in 2003. In addition to the provision, 2004 net income was hurt by a
$209 thousand drop in non-interest income. These negatives, however, were mostly
offset by a $1.4 million reduction in non-interest expenses in 2004.
Interest and fee income on loans increased approximately $1 million in
2004. This increase was the result of a $37.9 million increase in average loans
in 2004, plus rising interest rates in the second half of the year.
Interest income on investments suffered in 2004, decreasing by $504
thousand. This decrease was due to a large extent to a $12.1 million decrease in
average investments in 2004. As interest rates began to rise and more funds were
being raised through our Prime Savings Plus accounts, more funds were invested
in securities. By year-end, our investment portfolio totaled $91.1 million
compared to $47.6 million at December 31, 2003.
Interest expense increased $368 thousand in 2004. Of this increase, $282
thousand is due to increased savings balances. The Prime Savings Plus product
resulted in an increase in interest expense of approximately $360 thousand. This
was partially offset by a $78 thousand decrease in interest expense on our
passbook and statement savings products due to lower average rates paid in 2004.
Interest on money market balances increased $52 thousand and interest on
certificates of deposit increased $44 thousand. The increases were partially
offset by a $47 thousand decrease in interest on NOW accounts. Also, because of
increased federal funds borrowings during the year, interest on short-term
borrowings increased $36 thousand.
PSB Group, Inc. / 2004 Annual Report
38
The following table presents the Bank's consolidated balance of earning
assets, interest bearing liabilities, the amount of interest income or interest
expense attributable to each category, the average yield or rate for each
category and the net interest margin for the periods indicated. Interest income
is stated on a non-tax equivalent basis. Non-accrual loan balances are included
in the loan totals.
Year ended December 31,
----------------------------------------------------------------------------------------
2004 2003 2002
---------------------------- ---------------------------- ---------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- --------- ----- ---------- ---------- ---- ---------- --------- ----
(dollars in thousands)
Federal funds sold $ 2,845 $ 51 1.79% $ 2,342 $ 28 1.20% $ 12,961 $ 220 1.70%
Investment securities - taxable $ 37,955 $ 1,183 3.12% $ 42,566 $ 1,433 3.37% $ 51,924 $ 2,404 4.63%
Investment securities - tax-exempt $ 17,866 $ 619 3.46% $ 25,366 $ 873 3.44% $ 25,935 $ 1,109 4.28%
Loans, net of unearned income $ 342,809 $ 20,780 6.06% $ 306,511 $ 19,762 6.45% $ 280,975 $ 20,688 7.36%
---------- --------- ---------- ---------- ---------- ---------
Total earning assets $ 401,475 $ 22,633 5.64% $ 376,785 $ 22,096 5.86% $ 371,795 $ 24,421 6.57%
========== ========= ========== ========== ========== =========
Interest bearing deposits $ 314,120 $ 5,546 1.77% $ 295,119 $ 5,214 1.77% $ 298,680 $ 6,588 2.21%
Funds borrowed $ 9,503 $ 285 3.00% $ 6,886 $ 249 3.62% $ 5,230 $ 228 4.36%
---------- --------- ---------- ---------- ---------- ---------
Total interest bearing liabilities $ 323,623 $ 5,831 1.80% $ 302,005 $ 5,463 1.81% $ 303,910 $ 6,816 2.24%
========== --------- ========== ---------- ========== ---------
Net interest income $ 16,802 $ 16,633 $ 17,605
========= ========== =========
Net interest spread 3.84% 4.05% 4.33%
Net interest margin 4.19% 4.41% 4.74%
The following table shows the dollar amount of changes in interest income
for each major category of interest earning asset, interest expense for each
major category of interest bearing liability and the amount of the change
attributable to changes in average balances (volume) or average interest rates
for the periods shown.
2004 compared to 2003 2003 compared to 2002
----------------------------------------- ------------------------------------------
Change Change Change Change Change Change
due to due to due to Total due to due to due to Total
Rate Volume Mix Change Rate Volume Mix Change
------- ------- ------ -------- ------- ------- ------- ---------
(in thousands)
--------------------
Federal funds sold $ 14 $ 6 $ 3 $ 23 $ (65) $ (181) $ 54 $ (192)
Investment securities - taxable $ (106) $ (155) $ 11 $ (250) $ (654) $ (433) $ 116 $ (971)
Investment securities - tax-exempt $ 5 $ (258) $ (1) $ (254) $ (218) $ (24) $ 6 $ (236)
Loans, net of unearned income $(1,195) $ 2,341 $ (128) $ 1,018 $(2,557) $ 1,879 $ (248) $ (926)
------- ------- ------ -------- ------- ------- ------- ---------
Total interest income $(1,282) $ 1,934 $ (115) $ 537 $(3,494) $ 1,241 $ (72) $ (2,325)
------- ------- ------ -------- ------- ------- ------- ---------
Interest bearing deposits $ - $ 336 $ (4) $ 332 $(1,314) $ (79) $ 19 $ (1,374)
Funds borrowed $ (43) $ 95 $ (16) $ 36 $ (39) $ 72 $ (12) $ 21
------- ------- ------ -------- ------- ------- ------- ---------
Total interest expense $ (43) $ 431 $ (20) $ 368 $(1,353) $ (7) $ 7 $ (1,353)
------- ------- ------ -------- ------- ------- ------- ---------
Net interest income $(1,239) $ 1,503 $ (95) $ 169 $(2,141) $ 1,248 $ (79) $ (972)
======= ======= ====== ======== ======= ======= ======= =========
Management expects market interest rates to continue to rise during 2005.
Rising interest rates should have a positive impact on the Bank's net interest
income. The Bank's Asset/Liability Committee meets regularly to, among other
things, monitor interest rate fluctuations and to change product mix and pricing
in an effort to provide steady growth in net interest income.
PSB Group, Inc. / 2004 Annual Report
39
The following table presents the changes in the allowance for loan losses
during the periods indicated.
2004 2003 2002 2001 2000
------- ------- ------- -------- --------
(in thousands)
Balance - Beginning of year $ 3,887 $ 4,632 $ 5,585 $ 10,891 $ 13,547
Loans charged off:
Mortgages on real estate (287) (175) (32) (4) (27)
Commercial (1,089) (145) (782) (3,863) (2,478)
Consumer (942) (1,233) (1,348) (1,104) (354)
------- ------- ------- -------- --------
Total Charge offs (2,318) (1,553) (2,162) (4,971) (2,859)
Recoveries on loans previously charged off:
Mortgages on real estate 1 5 - 1 14
Commercial 315 474 1,541 854 1,443
Consumer 309 329 468 310 346
------- ------- ------- -------- --------
Total Recoveries 625 808 2,009 1,165 1,803
Provision for loan losses 1,200 - (800) (1,500) (1,600)
------- ------- ------- -------- --------
Balance - End of year $ 3,394 $ 3,887 $ 4,632 $ 5,585 $ 10,891
------- ------- ------- -------- --------
Non-performing loans increased $107 thousand to $3.6 million at December
31, 2004 (see page 5). Net charge-offs increased $948 thousand in 2004 to $1.7
million. After analysis of the allowance for loan losses, management determined
that a $1.2 million provision was necessary to keep the allowance for loan
losses at an adequate level. This compares to no provision in 2003, and a
reversal from the allowance of $800 thousand into income through negative loan
loss provisions in 2002.
Non-interest income, which consists of service charges and other fees of
$5,826,000, $6,035,000, and $4,668,000 was recorded for the years ended December
31, 2004, 2003 and 2002, respectively. This represents a decrease of 3% in 2004
compared to an increase of 29% in 2003. The decrease in 2004 is due to a $247
thousand reduction in the gain on the sale of mortgage loans and a $154 thousand
decrease in the gain on the sale of securities. We did, however, realize a $121
thousand increase in deposit service charges as our service charges were
reviewed and revised in 2004. Also, we realized a $71 thousand increase in other
non-interest income in 2004. During 2003, the Bank realized a $1.4 million
increase in non-interest income due to a $759 thousand increase in deposit
service charges, most of which was related to our overdraft protection product
that was introduced late in 2002. In addition, during 2003 we realized a $338
thousand increase in the gain on the sale of mortgages over 2002 levels.
Non-interest expense, which includes salaries and benefits, occupancy and
other operating expenses, decreased to $15.6 million in 2004 from $17.0 million
in 2003, a decrease of $1.4 million or 8.2%. Salary and benefits expense
decreased $1.3 million or 13% in 2004. Salaries were reduced by $667 thousand,
bonus and profit sharing expense was reduced by $407 thousand, overtime was
reduced by $57 thousand and fringe benefits dropped by $177 thousand. Occupancy
expenses increased $296 thousand in 2004. Increased depreciation and
amortization on equipment and software accounted for $106 thousand of this
increase and increased rent expense accounted another $93 thousand of the
increase. Legal and professional fees decreased $283 thousand and other
operating expenses decreased $81 thousand.
LIQUIDITY AND CAPITAL RESOURCES. Liquidity is the measurement of the
Bank's ability to have adequate cash or access to cash to meet financial
obligations when due, as well as to fund corporate expansion or other
activities. The Bank expects to meet its liquidity requirements through a
combination of working capital provided by operating activities, attracting
customer deposits, advances under Federal Home
PSB Group, Inc. / 2004 Annual Report
40
Loan Bank credit facilities, and possible future periodic sales of mortgages
into secondary markets. Management believes that the Bank's cash flow will be
sufficient to support its existing operations for the foreseeable future.
Net income and depreciation and amortization continue to be the primary
sources of cash from operating activities. During 2004, net income provided $4.2
million of cash compared to $4.2 million during 2003 and $5.3 million during
2002. Depreciation and amortization was a non-cash expense totaling $1.2 million
for the year ended December 31, 2004, $1.1 million in 2003 and $1.0 million in
2002. These non-cash items had been included in net income for purposes of
calculating the results of operations during the respective years, and therefore
are added to or subtracted from net income in determining cash flow from
operating activities.
The primary uses of cash for the Bank are the funding of customer loans,
purchase of investment securities and the repayment of customer deposits. The
Bank's primary sources of cash are customer deposits, proceeds from the maturity
or sale of investment securities, repayment of loans, and advances on borrowings
from the Federal Home Loan Bank, of which the Bank cannot exceed $26 million.
During 2004, the Bank had a net cash outlay of $14.1 million from the increase
in the loan portfolio. This compares to a net cash outlay of $41.4 million in
2003 and $14.6 million in 2002.
The Bank purchased $74 million, $16 million and $63 million in securities
during 2004, 2003, and 2002, respectively. Securities sales or maturities
totaled $29.6 million, $53.9 million and $44.4 million respectively, for each of
those periods.
The Bank experienced a net increase in deposits of $60.1 million in 2004
compared to a net increase in customer deposits of $10.2 million in 2003 and a
net decrease of $4.8 million in 2002. The Bank used $2.4 million to pay down
borrowings in 2004 compared to $6.8 million in 2003, and $9.2 million that was
provided by increased borrowings in 2002.
The Corporation had capital of approximately $43 million at December 31,
2004, a $2 million increase over December 31, 2003. The change was the result of
$4.2 million in net income, offset by $2 million in dividends paid and a $257
thousand drop in the market value of securities available for sale. In 2003, the
capital level of the Corporation was reduced $4.5 million to $41 million. The
main reason for the reduction in capital was the repurchase of 263,118 shares of
common stock for $6,134,000 in October, 2003. At December 31, 2004, the ratio of
stockholders' equity to total assets was 9.3% compared to 10.2% at December 31,
2003. The capital levels of the Bank and the Corporation exceed the minimum
guidelines for being considered well capitalized (see note 17 to the financial
statements). Management believes the capital levels will be adequate to, among
other things, fund banking activities for the foreseeable future.
At December 31, 2004, the Bank held cash and cash equivalents of
approximately $14 million and the entire investment portfolio of $91.1 million
was classified as available-for-sale. The estimated market value of the
available-for-sale securities exceeded amortized cost by approximately $137
thousand at December 31, 2004.
The primary impact of inflation on the Corporation's operations is
increased asset yields, deposit costs and operating overhead. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than they would
on non-financial companies. Although interest rates do not necessarily move in
the same direction, or to the same extent, as the prices of goods and services,
increases in inflation generally have resulted in increased interest rates. The
effects of inflation can magnify the growth of assets and if significant,
require that equity capital increase at a faster rate than would otherwise be
necessary.
PSB Group, Inc. / 2004 Annual Report
41
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To a great extent, the Corporation's operating strategies focus on
asset/liability management. The purpose of its Asset/Liability Management Policy
is to provide stable net interest income growth while both maintaining adequate
liquidity and protecting the Bank's earnings from undue interest rate risk. The
Bank follows its Asset/Liability Management Policy for controlling exposure to
interest rate risk. The Asset/Liability Management Policy is established by
Management and is approved by the Board of Directors. In order to control risk
in a rising interest rate environment, Management's strategy is generally to
shorten the average maturity of the investment portfolio, thereby making the
portfolio more liability sensitive. Because of loan repayments, the investment
securities due to mature in 2005 and available lines of credit, management
believes the Bank is sufficiently liquid.
The Asset/Liability Management Policy also is designed to maintain an
appropriate balance between rate-sensitive assets and liabilities in order to
maximize interest rate spreads. The Bank monitors the sensitivity of its assets
and liabilities with respect to changes in interest rates and maturities and
directs the allocation of its funds accordingly. The strategy of the Bank has
been to maintain, to the extent possible, a balanced position between assets and
liabilities and to place appropriate emphasis on the sensitivity of its assets.
The following table sets forth the estimated maturity or re-pricing and
the resulting interest sensitivity gap, of the Bank's interest-earning assets
and interest-bearing liabilities at December 31, 2004 and the cumulative
interest sensitivity gap at December 31, 2004. The amounts in the table are
derived from internal data of the Bank and could be significantly affected by
external factors such as changes in prepayment assumptions, early withdrawals of
deposits and competition.
Less than three Three months to One to five Due after five
months less than one year years years Total
--------------- ------------------ ----------- ------------- ----------
Interest earning assets:
Securities (1) (2) $ 3,781 $ 16,714 $ 55,557 $ 15,073 $ 91,125
Loans 143,459 14,622 139,534 41,059 338,674
--------------- ------------------ ----------- -------------- ----------
Total interest earning assets $ 147,240 $ 31,336 $ 195,091 $ 56,132 $ 429,799
=============== ================== =========== ============== ==========
Interest bearing liabilities:
Savings and interest bearing
demand deposits $ 214,713 $ - $ - $ - $ 214,713
Time deposits 31,709 43,704 63,527 - 138,940
Short term borrowings - - - - -
Long term borrowings - - - 5,000 5,000
--------------- ------------------ ----------- ------------- ----------
Total interest bearing liabilities $ 246,422 $ 43,704 $ 63,527 $ 5,000 $ 358,653
=============== ================== =========== ============== ==========
Interest rate sensitivity gap - current $ (99,182) $ (12,368) $ 131,564 $ 51,132 $ 71,146
=============== ================== =========== ============== ==========
Interest rate sensitivity gap - cumulative $ (99,182) $ (111,550) $ 20,014 $ 71,146
=============== ================== =========== ==============
Cumulative interest rate sensitivity
gap as a percent of total assets -21.50% -24.18% 4.34% 15.42%
=============== ================== =========== ==============
(1) Equity investments have been placed in the 0-3 month category.
(2) Re-pricing is based on anticipated call dates, and may vary from contractual
maturities.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities and periods to re-pricing, they may react differently to
changes in market interest rates. Also, interest rates on assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other assets and liabilities may follow
PSB Group, Inc. / 2004 Annual Report
42
changes in market interest rates. Additionally, certain assets have features
that restrict changes in the interest rates of such assets, both on a short-term
basis and over the lives of such assets. The gap table presented above is based
on stated maturities and next re-pricing dates and does not take into account
prepayment or withdrawal assumptions. In the event of a change in market
interest rates, prepayments and early withdrawals could cause significant
deviation from the stated maturities and re-pricings.
According to the traditional banking industry static gap table set forth
above, the Bank was liability sensitive with a negative cumulative one-year gap
of $111.6 million or 24% of interest-earning assets at December 31, 2004. In
general, based upon this analysis, and the Bank's mix of deposits, loan and
investments, increases in interest rates would be expected to result in a
decrease in the Bank's net interest margin. However, a different tool, an
interest sensitivity model, is the primary tool used in assessing interest rate
risk, by estimating the effect that specific upward and downward changes in
interest rates would have on pre-tax net interest income. Key assumptions used
in the model include prepayment speeds on mortgage related assets; changes in
market conditions, loan volumes and pricing; and management's determination of
core deposit sensitivity. These assumptions are inherently uncertain and, as a
result, the model can not precisely predict the impact of higher or lower
interest rates on net interest income. Actual results will differ from simulated
results due to timing, magnitude and frequency of interest rate changes and
changes in other market conditions.
Based on the December 31, 2004 simulation, the Company is in a position to
benefit from the rising interest rates that are anticipated. Based on the
position of the balance sheet and management's assumptions concerning core
deposit sensitivity and other assumptions, net interest income is forecasted to
increase as interest rates rise.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is calculated
with the objective of maintaining a reserve sufficient to absorb estimated
probable loan losses. Loan losses are charged against the allowance when
management believes loan balances are uncollectible. Subsequent recoveries, if
any, are credited to the allowance. Management's determination of the adequacy
of the allowance is based on periodic evaluations of the loan portfolio and
other relevant factors. This evaluation is inherently subjective as it requires
an estimate of the loss content for each risk rating and for each impaired loan,
an estimate of the amounts and timing of expected future cash flows and an
estimate of the value of collateral.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the scheduled
payments of principal and interest when due, according to the contractual terms
of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value and the probability of
collecting principal and interest payments when due. Impairment is measured on a
loan-by-loan basis for commercial and construction loans by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent. Large groups of homogeneous loans are
collectively evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer and residential loans for impairment disclosures.
ACCOUNTING FOR GOODWILL - Effective January 1, 2002, the Corporation
adopted Statement of Financial Standard No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), which changes the Corporation's accounting for goodwill and
other intangible assets. Generally, intangible assets that meet certain criteria
are recognized and subsequently amortized over their estimated useful lives.
Goodwill and intangible assets with indefinite lives are not amortized. However,
such assets are tested for impairment at adoption of SFAS 142 and at least
annually thereafter. The adoption of SFAS 142 resulted in an increase in net
income for 2002 of approximately $164,000 due to a decrease in amortization
expense. No impairment loss was recorded upon the adoption of SFAS 142 in 2002,
nor was any impairment loss was recorded in 2003 or 2004.
PSB Group, Inc. / 2004 Annual Report
43
MARKET INFORMATION
The table below shows, for the periods indicated, the high and low prices for
common stock in the over-the-counter market of which PSB Group, Inc. is aware.
This information was obtained from a third-party reporting service and while we
believe the information is correct, we do not warrant its accuracy. These
quotations may represent inter-dealer prices without retail mark-ups, mark-downs
or commissions and do not necessarily represent actual stock transactions. There
is not an active market for the common stock of PSB Group, Inc.
2004 HIGH LOW DIVIDEND DECLARED
- -------------- -------- -------- -----------------
FIRST QUARTER $ 23.75 $ 20.85 $ 0.17
SECOND QUARTER $ 22.50 $ 18.10 $ 0.17
THIRD QUARTER $ 21.00 $ 17.65 $ 0.17
FOURTH QUARTER $ 22.50 $ 18.75 $ 0.18
2003 HIGH LOW DIVIDEND DECLARED
- -------------- --------- -------- -----------------
FIRST QUARTER $ 16.58 $ 15.25 $ 0.15
SECOND QUARTER $ 22.00 $ 15.38 $ 0.15
THIRD QUARTER $ 22.50 $ 20.00 $ 0.17
FOURTH QUARTER $ 23.75 $ 20.25 $ 0.17
On December 31, 2004, PSB Group, Inc. had 427 holders of record of its common
stock. The stock is quoted on the OTC Bulletin Board under the symbol "PSBG.OB".
Howe Barnes Investments, Inc. and Monroe Securities, Inc. are market makers in
the stock.
Contact Information:
Nick Bach, Vice President Russel Feltes
Howe Barnes Investments, Inc. Monroe Securities, Inc.
222 Riverside Plaza 343 West Erie Street, Suite 410
Chicago, IL 60606 Chicago, IL 60610
(800) 800-4693 (800) 766-5560
www.howebarnes.com www.monroesecurities.com
ANNUAL MEETING OF SHAREHOLDERS
THE ANNUAL MEETING OF THE SHAREHOLDERS OF PSB GROUP, INC. WILL BE HELD AT 2:00
PM, TUESDAY, APRIL 26, 2005 AT THE FOLLOWING LOCATION:
UKRAINIAN CULTURAL CENTER
26601 RYAN ROAD
WARREN, MI 48089
SHAREHOLDERS ARE INVITED TO ATTEND.
PSB Group, Inc. / 2004 Annual Report
44