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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(x) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended June 30, 2002 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from _______________.
No. 000-24601
------------------------
(Commission File Number)
PSB BANCORP, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2930740
------------------------ ------------------------
(State of Incorporation) (IRS Employer ID Number)
11 Penn Center, Suite 2601
1835 Market Street, Philadelphia, PA 19103
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(215) 979-7900
-------------------------------
(Registrant's Telephone Number)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Number of shares outstanding as of August 7, 2002
Common Stock (no par value) 4,534,611
--------------------------- --------------------
(Title of Class) (Outstanding Shares)
PSB Bancorp, Inc.
FORM 10-Q
For the Quarter Ended June 30, 2002
Contents
Page
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of June 30, 2002 (unaudited) and December 31,
2001 3
Consolidated Statements of Income (unaudited)
for the Three and Six Month Periods Ended June 30,
2002 and 2001 5
Consolidated Statements of Cash Flows (unaudited)
for the Six Month Periods Ended June 30, 2002
and 2001 9
Consolidated Statements of Comprehensive Income
(unaudited) for the Three and Six Month Periods
Ended June 30, 2002 and 2001 11
Notes to Consolidated Financial Statements 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. Other Information 28
Exhibits and Reports on Form 8-K
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PSB BANCORP, INC.
STATEMENTS OF FINANCIAL CONDITION
(in thousands)
June 30, December 31,
2002 2001
----------- ------------
(unaudited) (audited)
Assets
Cash and due from banks $ 3,932 $ 3,825
Interest earning deposits with banks 56,773 3,293
Federal funds sold 15,375 47,638
-------- --------
Total cash and cash equivalents 76,080 54,756
-------- --------
Loans held-for-sale 12,028 17,142
Investment securities available-for-
sale, at fair value 63,624 69,934
Investment securities held-to-
maturity (fair value $6,954 and
$ 2,346) 6,847 2,310
Federal Home Loan Bank stock - at
cost 2,121 1,093
Federal Reserve Bank stock - at
cost 320 320
Loans 310,441 300,051
Less allowance for possible loan
losses (2,811) (2,871)
-------- --------
Net loans 307,630 297,180
-------- --------
Accrued interest receivable 2,006 1,884
Premises and equipment, net 2,635 2,508
Bank owned life insurance 11,446 11,161
Other assets 5,787 9,356
-------- --------
21,874 24,909
-------- --------
Total assets 490,524 467,644
======== ========
Liabilities
Deposits
Non-interest bearing $ 28,837 $ 25,983
Interest bearing 398,307 378,577
-------- --------
Total deposits 427,144 404,560
======== ========
Securities sold under agreements to
repurchase 13,312 13,298
Advances from borrowers for taxes and
insurance 2,971 3,111
Accrued interest payable 32 42
Goodwill, net 0 1,679
Other liabilities 2,229 3,539
-------- --------
18,544 21,669
-------- --------
Total liabilities 445,688 426,229
======== ========
Shareholders' equity
Common stock authorized,
15,000,000 shares, no par value,
4,534,611 shares issued and
outstanding on June 30, 2002,
and December 31, 2001 41,914 40,994
Retained earnings 4,217 1,768
Accumulated other comprehensive
income 842 167
Employee stock ownership plan (1,759) (1,136)
Treasury stock, at cost, 72,325
on June 30, 2002, and December 31,
2001 (378) (378)
-------- --------
Total shareholders' equity 44,836 41,415
-------- --------
Total liabilities and
shareholders' equity 490,524 467,644
======== ========
The accompanying notes are an integral part of these financial
statements.
PSB BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Six Months Ended
June 30,
-------------------
2002 2001
-------- --------
(unaudited)
Interest income
Loans, including fees $13,064 $ 7,577
Investment securities 2,272 2,143
Deposits in banks 486 314
------- -------
Total interest income 15,822 10,034
Interest expense
Deposits 6,736 5,191
Borrowings 174 352
------- -------
Total interest expense 6,910 5,543
Net interest income 8,912 4,491
Provision for loan losses 462 0
------- -------
Net interest income after provision
for loan losses 8,450 4,491
Non-interest income 1,740 450
Non-interest expenses
Salaries and employee benefits 4,191 1,886
Occupancy and equipment 803 615
Other operating 3,470 1,314
------- -------
Total non-interest expenses 8,464 3,815
------- -------
Income before income taxes and
extraordinary gain 1,726 1,126
Income taxes (606) (136)
------- -------
Income before extraordinary gain 1,120 990
Extraordinary gain 1,329 0
------- -------
Net income $ 2,449 $ 990
======= =======
Net income per common share
Basic:
Income before extraordinary gain $ .27 $ .25
Extraordinary gain .32 .00
------- -------
Net Income: $ .59 $ .25
======= =======
Diluted:
Income before extraordinary gain $ .26 $ .25
Extraordinary gain .32 .00
------- -------
Net income: $ .58 $ .25
======= =======
The accompanying notes are an integral part of these financial
statements.
PSB BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended
June 30,
------------------
2002 2001
------- -------
(unaudited)
Interest income
Loans, including fees $6,761 $3,778
Investment securities 1,115 1,062
Deposits in banks 290 105
------ ------
Total interest income 8,166 4,945
------ ------
Interest expense
Deposits 3,353 2,617
Borrowings 93 162
------ ------
Total interest expense 3,446 2,779
------ ------
Net interest income 4,720 2,166
Provision for loan losses 158 0
Net interest income after provision for
loan losses 4,562 2,166
Non-interest income 638 268
Non-interest expenses
Salaries and employee benefits 2,008 907
Occupancy and equipment 406 301
Other operating 1731 728
------ ------
Total non-interest expenses 4,145 1,936
------ ------
Income before income taxes and
extraordinary gain 1,055 498
Income taxes (280) (61)
------ ------
Income before extraordinary gain 775 437
Extraordinary gain 0 0
------ ------
Net income $ 775 $ 437
====== ======
Net income per common share
Basic: $ .19 $ .11
Diluted: .18 .11
The accompanying notes are an integral part of these financial
statements.
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
---------------------
2002 2001
--------- ---------
(unaudited)
Cash flows from operating activities:
Net income $ 2,449 $ 990
-------- --------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for possible loan losses 462 0
Depreciation and amortization 289 203
Amortization of discounts and accretion
of premiums on investment securities 91 139
Extraordinary gain (1,329) 0
Write-down of real estate owned 0 192
(Write-up) write-down of equity
investment (18) 131
Loans held-for-sale 5,114 (3,791)
Deferred income taxes 666 121
Employee stock ownership plan (credit)
expense 297 42
Change in assets and liabilities:
(Increase) decrease in accrued
interest receivable (122) 148
(Increase) in other assets (337) (787)
(Decrease) increase in accrued
interest payable (10) 12
(Decrease) increase in accrued
expenses (1,310) 823
------- --------
Net cash provided by (used in) operating
activities 6,242 (1,777)
------- --------
Cash flows from investing activities:
Purchase of investment securities,
available-for-sale (5,000) (11,659)
Proceeds, maturities, and calls of
investment securities 9,666 14,943
Purchase of Federal Home Loan Bank stock (1,028) 1,157
Net(increase) in loans (10,772) (26,359)
Proceeds from sale of real estate owned 202 600
Purchase of premises and equipment (416) (169)
Net cash provided by (used in) by
investing activities (7,348) 19,034
-------- --------
Cash Flows from financing activities:
Net increase in deposits 22,584 19,040
Change in securities purchased under
agreements to repurchase (14) 68
Change in advances for borrowers' taxes
and insurance (140) (177)
Net increase (decrease) in borrowed
funds 0 4,000
-------- --------
Net cash provided by
financing activities 22,430 22,931
-------- --------
Net Increase in cash and cash equivalents 21,324 40,188
Cash and cash equivalents, beginning of
period 54,756 17,906
-------- --------
Cash and cash equivalents, end of period $ 76,080 $ 58,094
======== ========
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------ ------
(unaudited) (unaudited)
Net income $ 775 $ 437 $2,449 $ 990
Other comprehensive
income, net of tax:
Accumulated compre-
hensive gain (loss),
investments avail-
able-for-sale 807 (100) 675 412
------ ----- ------ ------
Other comprehensive
income (loss) 807 (100) 675 412
------ ----- ------ ------
Comprehensive income $1,582 $ 337 $3,124 $1,402
====== ===== ====== ======
PSB BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(UNAUDITED)
1. Basis of Presentation
This quarterly report presents the consolidated financial
statements of PSB Bancorp, Inc.("PSB") and its subsidiaries.
The Company's financial statements reflect all adjustments
and disclosures which management believes are necessary for
a fair presentation of interim results. The result of
operations for the quarter presented does not necessarily
indicate the results that PSB will achieve for all of 2002.
You should read these interim financial statements in
conjunction with the consolidated financial statements and
accompanying notes that are presented in the PSB Bancorp,
Inc. Annual Report on Form 10-K for the year ended
December 31, 2001.
The financial information in this quarterly report has been
prepared in accordance with PSB's customary accounting
practices; these financial statements have not been audited.
Certain information and footnote disclosures required under
generally accepted accounting principles have been condensed
or omitted, as permitted by rules and regulations of the
Securities and Exchange Commission.
2. Business Combinations
On July 20, 2001, SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Intangible Assets" were issued.
SFAS No. 141 is effective for all business combinations
completed after June 30, 2001. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001; however,
certain provisions of this Statement apply to goodwill and
other intangible assets acquired between July 1, 2001 and
the effective date of SFAS No. 142. PSB has adopted the
provisions of SFAS 142. On January 1, 2002, after the
revaluation of certain deferred assets relating to the
acquisition of Jade Financial Corp., PSB recognized an
extraordinary gain of $1.3 million which represented the
remaining unamortized portion of negative goodwill.
NOTE A - EARNINGS PER SHARE
The following table illustrates the required disclosure of
the reconciliation of the numerators and denominators of the
basic and diluted EPS computation. The computation of
diluted earnings per share for all periods excludes
1,371,200 options issued in connection with the 1999 First
Bank of Philadelphia acquisition, which have been deemed
invalid.
Six months ended June 30, 2002
----------------------------------------
Weighted
Income average shares Per share
(numerator) (denominator) amount
----------- -------------- ---------
(In thousands, except per share data)
Basic earnings per share
Income before extraordinary
gain $1,120 4,165 $0.27
Extraordinary gain
$1,329 - $0.32
------ ----- -----
Income available to common
stockholders $2,449 4,165 $0.59
Effect of dilutive securities
Stock options - 80 (.01)
------ ----- -----
Diluted earnings per share
Income available to common
stockholders plus effect of
dilutive securities $2,449 4,245 $0.58
====== ===== =====
No options were anti-dilutive at June 30, 2002.
Six months ended June 30, 2001
----------------------------------------
Weighted
Income average shares Per share
(numerator) (denominator) amount
----------- -------------- ---------
(in thousands, except per share data)
Basic earnings per share
Income available to common
stockholders $990 3,973 $0.25
Effect of dilutive securities
Stock options - 5 -
----- ----- -----
Diluted earnings per share
Income available to common
stockholders plus
effect of dilutive securities $990 3,978 $0.25
At June 30, 2001, there were 166,592 options to purchase
shares of common stock with exercise prices ranging from
$5.35 to $5.375 per share that were not included in the
computation of diluted EPS for the six month period ended
June 30, 2001 because the exercise price was greater than
the average market price of the common stock.
Three months ended June 30, 2002
----------------------------------------
Weighted
Income average shares Per share
(numerator) (denominator) amount
----------- -------------- ---------
(In thousands, except per share data)
Basic earnings per share
Income before extraordinary
gain $775 4,159 $0.19
Extraordinary gains ---- --- ---
Income available to common
stockholders $775 4,159 $0.19
Effect of dilutive securities
Stock options -- 93 (.01)
Diluted earnings per share
Income available to common
stockholders plus effect of
dilutive securities $775 4,252 $0.18
No options were anti-dilutive at June 30, 2002
Three months ended June 30, 2001
----------------------------------------
Weighted
Income average shares Per share
(numerator) (denominator) amount
----------- -------------- ---------
(In thousands, except per share data)
Basic earnings per share
Income available to common
stockholders $437 3,973 $0.11
Effect of dilutive securities
Stock options - 5 -
Diluted earnings per share
Income available to common
stockholders plus
effect of dilutive securities $437 3,978 $0.11
At June 30, 2001, there were 166,592 options to purchase
shares of common stock with exercise prices ranging from
$5.35 to $5.375 per share that were not included in the
computation of diluted EPS for the three month period ended
June 30, 2001 because the exercise price was greater than
the average market price of the common stock.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES
The accounting and reporting policies of PSB Bancorp, Inc.
("PSB") conform to accounting principles generally accepted in
the United States of America (US GAAP) and predominant practices
within banking industry. The accompanying consolidated financial
statements include the accounts of PSB Bancorp, Inc. and all its
wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
In preparing the consolidated financial statements,
management is required to make estimates and assumptions that
affect the reported amounts of asset and liabilities and
disclosure of contingent assets and liabilities at the date of
the balance sheets and the reported amounts of revenues and
expenses during the reporting periods. Therefore, actual results
could differ significantly from those estimates.
The allowance for possible loan losses is established
through a provision for possible loan losses charged to expenses.
Loans are charged against the allowance for possible loan losses
when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes
will be adequate to absorb loan losses on existing loans that may
become uncollectible based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review
of specific problem loans and current economic conditions that
may affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when principal
and interest become 90 days or more past due or when management
believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is
such that collection of interest is doubtful. Once a loan is
placed on non-accrual status, interest previously accrued and
uncollected is charged to operations and interest is included in
income thereafter only to the extent actually received in cash.
PSB measures impairment based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, except that as a practical expedient, a creditor
may measure impairment based on a loan's observable market price,
or the fair value of the collateral if the loan is collateral
dependent. Regardless of the measurement method, PSB must
measure impairment based on the fair value of the collateral when
PSB determines that foreclosure is probable.
PSB recognizes deferred tax assets and liabilities for the
future tax effects of temporary differences, net operating loss
carryforwards and tax credits. Deferred tax assets are subject
to management's judgment based upon available evidence that
future realization is more likely than not. In the event
management determines the inability to realize all or part of net
deferred tax assets in the future, a direct charge to income tax
expense may be required to reduce the recorded value of the net
deferred tax asset to the expected realizable amount.
RESULTS OF OPERATIONS
General
PSB's results of operations depend primarily on its net
interest income, which is the difference between interest income
on its interest-earning assets, and interest expense on its
interest-bearing liabilities. Its interest-earning assets
consist primarily of loans receivable and investment securities,
while its interest-bearing liabilities consist primarily of
deposits and borrowings. PSB's net income is also affected by
its provision for loan losses and its level of non-interest
income as well as its non-interest expense, such as salary and
employee benefits, occupancy costs and charges relating to non-
performing and other classified assets. On June 29, 2001 PSB
acquired Jade Financial Corp. Therefore, the results of
operations for the three and six month periods ended June 30,
2002 do not include the results of operations of Jade Financial
Corp.
Net Income
PSB's net income totaled $775,000 and $437,000 for the three
months ended June 30, 2002 and 2001, respectively. The period
ended June 30, 2002, includes an extraordinary gain of $1.3
million related to the adoption of SFAS No. 142 (See Note 2).
PSB's basic and diluted earnings per share for the three months
ended June 30, 2002 and 2001 were $0.19 and $.0.18 respectively,
compared to $0.11 and $0.11 per share for the three months ended
June 30, 2001, respectively.
PSB's net income totaled $2.5 million and $990,000 for the
six months ended June 30, 2002 and 2001, respectively. PSB's
basic and diluted earnings per share for the six months ended
June 30, 2002 were $0.59 and $.0.58 respectively inclusive of a
basic and diluted extraordinary adjustment to earnings per share
of $0.32, compared to $0.25 and $0.25 per share for the six
months ended June 30, 2001, respectively.
The increase in earnings per share for both the three and
six month periods ended June 30, 2002 and 2001 resulted from
PSB's ability to minimize a decline in the yield on its interest-
earning assets while reducing the rate paid on its interest
bearing liabilities. The major factor in controlling this
decline in the yield on its interest-earning assets was PSB's
strategic decision to shift its focus from underwriting lower
yielding one-to four-family mortgage loans to higher yielding
commercial, construction, and commercial real estate loans.
Net Interest Income and Average Balances
Net interest income is a key component of PSB's
profitability and is managed in coordination with PSB's interest
rate sensitivity position. Net interest income for the second
quarter of 2002 was $4.7 million compared to $2.2 million, or
117.91% more than the second quarter of 2001. Net interest
income for the six month period ended June 30, 2002 was $8.9
million compared to $4.5 million, or 98.44% more than the same
period in 2001. The increase in net interest income reflects an
increase in the volume of PSB's overall loan portfolio.
Overall, average total interest-earning assets provided a
yield of 7.09% for the three months ended June 30, 2002, compared
to 7.62% for the same period in 2001. The average yield for the
three months ended June 30, 2002 decreased slightly primarily due
to a decline in the average yield on our loan portfolio and our
interest-earning deposits offset by an increase in the yield on
investment securities. Additionally, because of market
uncertainty, some of our investment assets were liquidated and
held in lower yielding deposit accounts. Average total loans of
$317.3 million for the three months ended June 30, 2002, provided
a yield of 8.52% for the period, compared to average total loans
of $171.5 million for the three months ended June 30, 2001, which
provided a yield of 8.81% for the period. The increase in total
loans generally reflects an increase in commercial, construction,
and commercial real estate loans.
Average total interest-bearing liabilities increased from
$217.9 million to $413.8 million or 89.90% for the three months
ended June 30, 2001 compared to the three-month period ended
June 30, 2002. The average rate on total interest-bearing
liabilities decreased 177 basis points from 5.10% for the three
months ended June 30, 2001 to 3.33% for the three months ended
June 30, 2002. The increase in interest-bearing liabilities
resulted from increases in money market accounts, savings
deposits and certificate of deposits. The decrease in the
overall rate paid on interest-bearing liabilities was due to
PSB's ability to decrease the rate paid on these accounts in
concert with the nationwide decline in interest rates associated
with a decline in the general economic health of the economy.
Additionally, PSB did not have to offer higher than average
interest rates on deposit accounts to attract new depositors
because of a continuing shift of moneys from equity based
investments to deposit based investments due to the continuing
instability of the stock market.
Overall, average total interest-earning assets provided a
yield of 7.00% for the six months ended June 30, 2002, compared
to 7.82% for the same period in 2001. The decrease in the yield
for PSB's interest-bearing assets affected the majority of the
interest-bearing asset accounts but was moderated by a 203 basis
point increase in the yield on PSB' return on investment
securities. Average total loans of $319.1 million for the six
months ended June 30, 2002, provided a yield of 8.19% for the
period, compared to average total loans of $165.6 million for the
six months ended June 30, 2001, that provided a yield of 9.15%
for the period. The increase in average total loans was
primarily due to an increase in the average volume of PSB's
commercial, commercial real estate, and construction loan
portfolios.
Average total interest-bearing liabilities increased from
$207.2 million to $412.8 million or 99.23% for the six months
ended June 30, 2001 compared to the six months ended June, 30,
2002. The primary reason for the change in total interest-
bearing liabilities was an increase in money market, savings, and
certificate of deposit accounts. The average rate on interest-
bearing liabilities for the six month period ending June 30,
2002, decreased 200 basis points from 5.35% for the six months
ended June 30, 2001, to 3.35% for the six months ended June 30,
2002.
Average Balance Sheets and Rate/Yield Analysis
Net interest income is affected by changes in both average
interest rates and average volumes of interest-earning assets and
interest-bearing liabilities. The following tables present the
average daily balances of assets, liabilities, and shareholders'
equity and the respective interest earned or paid on interest-
earning assets and interest-bearing liabilities, as well as
average rates for the period indicated:
Three Months Ended June 30,
-----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
(dollars in thousands)
ASSETS
Interest-earning assets:
Interest-earning deposits $ 73,871 $ 290 1.57% $ 17,780 $ 105 2.36%
Investment securities 11,280 205 7.27 20,169 264 5.24
Mortgage-backed securities 57,981 910 6.28 50,276 798 6.35
Net loans 317,322 6,761 8.52 171,497 3,778 8.81
-------- ------ ---- -------- ------ ----
Total interest-earning assets 460,454 $8,166 7.09% 259,722 $4,945 7.62%
-------- ------ -------- ------
Noninterest-earning assets 27,267 9,340
Total assets $487,721 $269,062
======== ========
LIABILITIES
Interest-bearing liabilities:
Now checking accounts $ 15,701 $ 62 1.58% $ 15,051 $ 53 1.41%
Money market accounts 55,075 505 3.67 13,391 108 3.23
Savings deposits 101,764 431 1.69 29,106 211 2.90
Certificates 227,983 2,355 4.13 145,985 2,245 6.15
-------- ------ ---- -------- ------ ----
Total deposits 400,523 3,353 3.35 203,533 2,617 5.14
Borrowed money 13,310 93 2.79 14,331 162 4.52
------ ---- ------ ----
Total interest-bearing
liabilities 413,833 3,446 3.33% 217,864 2,779 5.10%
-------- --------
Non-interest-bearing liabilities 29,898 13,928
Total liabilities 443,731 231,792
Retained earnings or shareholders'
equity 43,990 37,270
Total liabilities and retained
earnings or shareholders'
equity $487,721 $269,062
======== ========
Net interest income $4,720 $2,166
====== ======
Interest rate spread 3.76% 2.52%
Net yield on interest-earning assets 4.10% 3.34%
Ratio of interest-earning assets to
interest-bearing liabilities 1.11x 1.19x
Six Months Ended June 30,
-----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
(dollars in thousands)
ASSETS
Interest-earning assets:
Interest-earning deposits $ 62,227 $ 486 1.56% $ 20,027 $ 314 3.14%
Investment securities 10,911 385 7.06 23,317 650 5.58
Mortgage-backed securities 59,940 1,887 6.30 47,730 1,493 6.26
Net loans 319,113 13,064 8.19 165,552 7,577 9.15
-------- ------- ---- -------- ------- ----
Total interest-earning assets 452,191 $15,822 7.00% 256,626 $10,034 7.82%
-------- ------- -------- -------
Noninterest-earning assets 29,810 7,576
Total assets $482,001 $264,202
======== ========
LIABILITIES
Interest-bearing liabilities:
Now checking accounts $ 13,726 $ 110 1.60% $ 15,337 $ 106 1.38%
Money market accounts 49,839 827 3.32 12,156 206 3.39
Savings deposits 108,300 932 1.72 28,987 416 2.87
Certificates 227,579 4,867 4.28 136,788 4,463 6.53
-------- ------- ---- -------- ------- ----
Total deposits 399,444 6,736 3.37 193,268 5,191 5.37
Borrowed money 13,307 174 2.62 13,895 352 5.07
------- ---- ------- ----
Total interest-bearing
liabilities 412,751 6,910 3.35% 207,163 5,543 5.35%
-------- --------
Non-interest-bearing liabilities 26,115 20,198
Total liabilities 438,866 227,361
Retained earnings or shareholders'
equity 43,135 36,841
Total liabilities and retained
earnings or shareholders'
equity $482,001 $264,202
======== ========
Net interest income $ 8,912 $ 4,491
======= =======
Interest rate spread 3.65% 2.47%
Net yield on interest-earning assets 3.94% 3.50%
Ratio of interest-earning assets to
interest-bearing liabilities 1.10x 1.24x
Provision for Loan Losses
The provision for loan losses represents the charge against
earnings that is required to fund the allowance for loan losses.
PSB determines the level of the allowance for loan losses through
a regular review of the loan portfolio. Management's evaluation
of the adequacy of the allowance for loan losses is based upon an
examination of the portfolio as well as such factors as declining
trends, the volume of loan concentrations, adverse situations
that may affect the borrower's ability to pay, prior loss
experience within the portfolio, current economic conditions and
the results of the most recent regulatory examinations. PSB had
no provision for loan losses during the three and six months
ended June 30, 2001 compared to $158,000 and $462,000 for the
three and six months ended June 30, 2002. Additionally, PSB had
charge-offs against the allowance for loan losses of $347,000
and $599,000 during the three and six month periods ended
June 30, 2002, respectively and recoveries against the allowance
for loan losses of $48,000 and $77,000 during the three and six
month periods ended June 30, 2002, respectively.
Non-interest Income
Non-interest income consists of gain on sale of loans, loan
fees, service charges, rental income and other income. Non-
interest income increased by $370,000, or 138.06%, to $638,000
for the three months ended June 30, 2002, from $268,000 for the
three months ended June 30, 2001, and by $1.3 million or 286.67%
for the six months ended June 30, 2002, to $1.7 million from
$450,000 for the six months ended June 30, 2002. The increase
for both the three and six month periods ended June 30, 2002 was
a result of increases in service fees, return check fees, and the
sale of loans.
Non-interest Expense
Non-interest expense principally consists of employees'
compensation and benefits, deposit insurance premiums, and
premises and occupancy costs. Non-interest expense increased by
115.79%, from $1.9 million for the three months ended June 30,
2001 to $4.1 million for the three months ended June 30, 2002 and
for the six months ended June 30, 2002 non-interest expense
increased by 123.68%, to $8.5 million from $3.8 million. The
principal reason for the increase in non-interest expense was an
increase in salary and employee benefits primarily due to the
addition of the Jade Financial Corp. employee costs assumed as a
result of the merger.
Provision for Income Taxes
Income tax provisions for the three and six month periods
ended June 30, 2002 were $280,000 and $606,000, respectively,
compared to $61,000 and $136,000, respectively, for the same
periods in 2001.
Liquidity and Interest Rate Sensitivity
The maintenance of adequate liquidity and the mitigation of
interest rate risk is integral to the management of PSB's balance
sheet. Liquidity represents the ability to meet potential cash
outflows resulting from deposit customers who need to withdraw
funds or borrowers who need available credit. Interest rate
sensitivity focuses on the impact of fluctuating interest rates
and the re-pricing characteristics of rate sensitive assets and
liabilities on net interest income.
PSB's asset/liability management committee monitors the
level of short-term assets and liabilities to maintain an
appropriate balance between liquidity, risk and return.
Liquidity is derived from various sources which includes
increases in core deposits, sales of certificates of deposits,
the amortization and prepayment of loans and mortgage-backed
securities, and maturities of investment securities and other
short-term investments. The liquidity position of PSB is also
strengthened by a $187 million credit facility with the Federal
Home Loan Bank ("FHLB"). Advances are secured by all FHLB stock
and qualifying mortgage loans. PSB had no outstanding borrowings
from the FHLB as of June 30, 2002.
Maximizing cash flow over time is crucial to the maintenance
of adequate liquidity. PSB's total cash flow is a product of its
operating activities, investing activities and financing
activities. During the six months ended June 30, 2002, net cash
provided by operating activities was $6.2 million, compared to
net cash used by operating activities of $1.8 million for the
same period of 2001. During the six months ended June 30, 2002,
net cash used by investing activities was $7.3 million, compared
to net cash provided by investing activities of $19.0 million for
the same period of 2001. Financing activities provided net cash
of $22.4 million during the six months ended June 30, 2002,
compared to $22.9 million in net cash provided by financing
activities for the same period of 2001. The net result of these
items was a $21.3 million increase in cash and cash equivalents
for the six months ended June 30, 2002, compared to a
$40.2 million increase in cash and cash equivalents for the same
period of 2001.
Interest rate sensitivity is closely related to liquidity
since each is directly affected by the maturity of assets and
liabilities. Rate sensitivity also deals with exposure to
fluctuations in interest rates and its effect on net interest
income. The primary function of PSB's interest rate sensitivity
management is to reduce exposure to interest rate risk through an
appropriate balance between interest-earning assets and interest-
bearing liabilities. The goal is to minimize fluctuations in the
net interest margin of PSB due to general changes in interest
rates.
The blending of fixed and floating-rate loans and
investments to match the re-pricing and maturity characteristics
of the various funding sources is a continuous process in an
attempt to minimize any fluctuations in net interest income. The
composition of the balance sheet is designed to minimize any
significant fluctuation in net interest income and to maximize
liquidity. Management believes that the accessibility to FHLB
borrowings will provide the flexibility to assist in keeping
fluctuations in net interest income under control and to maintain
an adequate liquidity position.
Capital Adequacy
PSB is required to maintain minimum ratios of Tier I and
total capital to total "risk weighted" assets and a minimum Tier
I leverage ratio, as defined by Banking regulators. PSB's
liquidity is quantified through the use of a standard liquidity
ratio of liquid assets (cash and cash equivalents, investment
securities available-for-sale, mortgage-backed securities
available-for-sale and Federal Home Loan Bank stock) to short-
term borrowings plus deposits. At June 30, 2002, PSB was required
to have a minimum Tier I and total capital ratios of 4.0% and
8.0%, respectively, and a minimum Tier I leverage ratio of 4.0%.
PSB's actual Tier I and total capital ratios at June 30, 2002,
were 10.80% and 11.68%, respectively, and PSB's Tier I leverage
ratio was 7.26%. These ratios exceed the requirements for
classification as a "well capitalized" institution, the
industry's highest capital category.
On June 30, 2002, PSB was in compliance with regulatory
capital requirements as shown in the following table:
Well
Capitalized At June 30, At December 31,
Ratios 2002 2001
----------- --------------------- ---------------------
PSB Bank PSB Bank
--------- --------- --------- ---------
Tier I Capital $ 43,517 $ 34,689 $ 41,212 $ 32,574
Tier II Capital 2,813 2,813 2,871 2,871
-------- -------- -------- --------
Total Qualifying Capital $ 46,330 $ 37,502 $ 44,083 $ 35,445
Risk Adjusted Total Assets $324,528 $321,209 $304,977 $303,527
Tier I Risk Based Capital Ratio 6.00% 13.41% 10.80% 13.51% 10.73%
Total Risk Based Capital Ratio 10.00% 14.28% 11.68% 14.45% 11.68%
Leverage Ratio 5.00% 8.92% 7.26% 8.86% 7.03%
Average Assets 487,690 478,013 465,071 463,469
FINANCIAL CONDITION
General
PSB's total assets increased $22.9 million or 4.89% from
$467.6 million at December 31, 2001, to $490.5 million at
June 30, 2002. The increase in PSB's assets was primarily
attributable to an increase in net loans and cash and cash
equivalents due to an increase in deposits.
At June 30, 2002, PSB's net loan portfolio totaled
$307.6 million compared to $297.2 million at December 31, 2001.
The increase is primarily attributable to an increase in the
volume of commercial, construction, and commercial real estate
loans as indicated in the tables below.
The following tables summarize the loan portfolios of PSB by
loan category and amount at June 30, 2002, compared to
December 31, 2001, respectively. From time to time,
TransNational Mortgage Corp., a subsidiary of PSB, has originated
and sold mortgage loans to third party investors within PSB's
financial reporting periods. Similarly, student loans are
frequently originated and sold within PSB's financial reporting
periods. Such mortgage and student loans are not reflected in
the financial tables and financial statements pertaining to a
particular period to the extent that such loans were sold prior
to any period end. The loan categories correspond to PSB's
general classifications (in thousands, except for percentage):
At June 30, At December 31,
2002 2001
------------------ ------------------
Amount Percent Amount Percent Variance % Change
-------- ------- -------- ------- --------- --------
Real Estate Loans:
One-to four-family* $111,847 35.97% $126,484 42.08% $(14,637) -11.57%
Construction loans 35,674 11.47% 24,501 8.15% 11,173 45.60%
Five or more family residence 2,088 0.67% 2,201 0.73% (113) -5.13%
Nonresidential 74,687 24.02% 58,601 19.49% 16,086 27.45%
Commercial loans 28,219 9.08% 23,908 7.95% 4,311 18.03%
SBA loans 9,597 3.09% 9,934 3.31% (337) -3.39%
Consumer & student loans 48,819 15.70% 54,974 18.29% (6,155) -11.20%
-------- ------ -------- ------ -------- ------
Total loans $310,931 100.00% $300,603 100.00% $ 10,328 3.44%
======== ====== ======== ====== ======== ======
Less:
Unearned fees and discounts $ 490 $ 552
Undisbursed loan proceeds - -
Allowance for loan losses 2,811 2,871
-------- --------
Net Loans $307,630 $297,180
======== ========
* Does not include loans held for sale
Total investment securities (including mortgage-backed
securities) decreased $1.77 million, or 2.35%, to $70.5 million
at June 30, 2002, from $72.2 million at December 31, 2001.
Cash and cash equivalents, including interest-earning
deposits with banks, increased $21.3 million or 38.87% to
$76.1 million at June 30, 2002, from $54.8 million at
December 31, 2001.
Total liabilities increased $19.5 million or 4.58% to
$445.7 million at June 30, 2002 from $426.2 million at
December 31, 2001. This increase primarily reflects an increase
in PSB's deposit accounts due to the recent trend of investors
moving their equity based investments to more conservative
deposit accounts due to the turmoil in the stock market.
Asset Quality
Delinquent Loans
When a borrower fails to make a required payment on a loan,
PSB attempts to cure the deficiency by contacting the borrower
and seeking payment. Contacts are generally made on the 15th day
after a payment is due. In most cases, deficiencies are cured
promptly. If a delinquency extends beyond 30 days, the loan and
payment history is carefully reviewed, additional notices are
sent to the borrower and efforts are made to collect the loan.
While PSB generally prefers to work with borrowers to resolve
such problems, when the account becomes 90 days delinquent, PSB
does institute foreclosure or other proceedings, as necessary, to
minimize any potential loss.
Non-Performing Assets
PSB's level of non-performing assets decreased $567,000, or
12.76% to $4.1 million at June 30, 2002, from $4.7 million at
December 31, 2001. As a matter of policy, the accrual of loan
interest is discontinued if management believes that, after
considering economic and business conditions and collection
efforts, the borrower's financial condition is such that
collection of interest becomes doubtful. This is normally done
when a loan reaches 90 days delinquent. At this time, all
accrued but unpaid interest is reversed. There are occasional
exceptions if the loans are in the process of collection and the
loan is fully secured.
The following table sets forth non-performing assets as of
June 30, 2002 and December 31, 2001:
At June 30, At December 31,
2002 2001
----------- ---------------
(dollars in thousands)
Loans past due 90 days or more as
to interest or principal and
accruing interest $ - $ -
Nonaccrual loans 3,614 4,130
------ ------
Total nonperforming loans 3,614 4,130
Real estate owned (REO) 497 548
------ ------
Total nonperforming assets $4,111 $4,678
====== ======
Nonperforming loans to total loans 1.12% 1.30%
Nonperforming assets to total
assets 0.84% 1.00%
Allowance for loan losses to total
loans 0.92% 0.91%
Allowance for loan losses to
nonperforming loans 77.78% 69.52%
Allowance for loan losses to
nonperforming assets 68.38% 61.37%
Net charge-offs as a percentage of
total loans 0.19% 0.25%
Allowance for Loan Losses
The allowance for possible loan losses is established
through a provision for possible loan losses charged to expense.
Loans are charged against the allowance for possible loan losses
when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes
will be adequate to absorb loan losses on existing loans that may
become uncollectible based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review
of specific problem loans and current economic conditions that
may affect the borrower's ability to pay. These estimates are
particularly susceptible to changes that may result in a material
adjustment to the allowance for loan losses. As adjustments
become identified, they are reported in earnings for the period
in which they become known. Management believes that it makes an
informed judgment based upon available information.
It is the objective of PSB's evaluation process to establish
the following components of the allowance for loan losses: a
specific allocation for certain identified loans, a general
allocation for pools of loans based on risk rating, and a general
allocation for inherent loan portfolio losses. Management
performs current evaluations of its criticized and classified
loan portfolios and assigns specific reserves that reflects the
current risk to PSB. As a general rule, special mention assets
will have a minimum reserve of 5%, substandard assets will have a
minimum reserve of 20%, and doubtful assets will have a minimum
reserve of 50%. A general reserve allocation is applied for
pools of loans based on risk rating for all loans not
specifically reserved for as described previously.
Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in PSB's assessment of its
sensitivity to market risk since its presentation in the 2001
Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
Part II. OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information.
None
Item 6 Exhibits and Reports on Form 8-K
Exhibit No. Document
2.1 Agreement and Plan of Reorganization,
dated as of March 19, 1999, between
PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by
reference to Exhibit 2.1 of the S-4
Registration Statement of PSB Bancorp,
Inc. filed June 25, 1999).
2.2 Agreement and Plan of Reorganization,
dated as of November 2, 2000, between
PSB Bancorp, Inc., PSB Merger Sub,
Inc. and Jade Financial Corp.
(incorporated herein by reference to
Registration Statement of PSB Bancorp,
Inc. filed on January 16, 2001.)
3.1 Articles of Incorporation of PSB
Bancorp, Inc. (incorporated herein by
reference to Exhibit 3.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed October 9, 1997).
3.2 Bylaws of PSB Bancorp, Inc.
(incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.1* First Penn Bank's Retirement Plan
(incorporated herein by reference to
Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.2* First Penn Bank's Cash or Deferred
Profit Sharing Plan (incorporated
herein by reference to Exhibit 10.2
of the SB-2 Registration Statement of
PSB Bancorp, Inc. filed October 9,
1997).
10.3* First Penn Bank's Profit Sharing Plan
(incorporated herein by reference to
Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed
October 9, 1997).
10.4* Employment Agreement with Vincent J.
Fumo (incorporated herein by reference
to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.5* Employment Agreement with Anthony
DiSandro (incorporated herein by
reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.6* First Penn Bank's Employee Stock
Ownership Plan (incorporated herein by
reference to Exhibit 10.4 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed on October 9, 1997).
10.7 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 10, 1995 (incorporated herein
by reference to Exhibit 10.7 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed May 5, 1998).
10.8 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 12, 1995 (incorporated herein
by reference to Exhibit 10.8 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed on May 5, 1998).
10.9* First Penn Bank's Stock Option Plan
(incorporated herein by reference to
Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed
June 25, 1999).
10.10* First Penn Bank's Management
Recognition Plan (incorporated herein
by reference to Exhibit 10.10 of the
S-4 Registration Statement of PSB
Bancorp, Inc. filed June 25, 1999).
10.11* Employment Agreement for John J
O'Connell. (incorporated herein by
reference to Exhibit 10.11 of PSB's
Annual Report on Form 10-K filed
on April 1, 2002).
10.12* Employment Agreement for Mario L.
Incollingo (incorporated herein by
reference to Exhibit 10.12 of PSB's
Annual Report on Form 10-K filed
on April 1, 2002).
10.13* PSB Bancorp, Inc. 2001 Stock
Incentive Plan (incorporated herein by
reference to Exhibit 10.13 of PSB's
Annual Report on Form 10-K filed
on April 1, 2002).
21 Schedule of Subsidiaries (incorporated
herein by reference to Exhibit 21 of
PSB's Annual Report on Form 10-K filed
on April 1, 2002).
99.1 Certification of Report by Co-Chief
Executive Officer. (filed herewith)
99.2 Certification of Report by Co-Chief
Executive Officer. (filed herewith)
99.3 Certification of Report by Chief
Financial Officer. (filed herewith)
____________
* Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
(1) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto dully authorized.
PSB BANCORP, INC
By:/s/Anthony DiSandro
--------------------------------
Anthony DiSandro,
President and Director
By:/s/John Carrozza
--------------------------------
John Carrozza,
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
August 14, 2002
Exhibit Index.
Exhibit No. Document
2.1 Agreement and Plan of Reorganization,
dated as of March 19, 1999, between
PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by
reference to Exhibit 2.1 of the S-4
Registration Statement of PSB Bancorp,
Inc. filed June 25, 1999).
2.2 Agreement and Plan of Reorganization,
dated as of November 2, 2000, between
PSB Bancorp, Inc., PSB Merger Sub,
Inc. and Jade Financial Corp.
(incorporated herein by reference to
Registration Statement of PSB Bancorp,
Inc. filed on January 16, 2001.)
3.1 Articles of Incorporation of PSB
Bancorp, Inc. (incorporated herein by
reference to Exhibit 3.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed October 9, 1997).
3.2 Bylaws of PSB Bancorp, Inc.
(incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.1* First Penn Bank's Retirement Plan
(incorporated herein by reference to
Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.2* First Penn Bank's Cash or Deferred
Profit Sharing Plan (incorporated
herein by reference to Exhibit 10.2
of the SB-2 Registration Statement of
PSB Bancorp, Inc. filed October 9,
1997).
10.3* First Penn Bank's Profit Sharing Plan
(incorporated herein by reference to
Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed
October 9, 1997).
10.4* Employment Agreement with Vincent J.
Fumo (incorporated herein by reference
to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.5* Employment Agreement with Anthony
DiSandro (incorporated herein by
reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.6* First Penn Bank's Employee Stock
Ownership Plan (incorporated herein by
reference to Exhibit 10.4 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed on October 9, 1997).
10.7 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 10, 1995 (incorporated herein
by reference to Exhibit 10.7 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed May 5, 1998).
10.8 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 12, 1995 (incorporated herein
by reference to Exhibit 10.8 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed on May 5, 1998).
10.9* First Penn Bank's Stock Option Plan
(incorporated herein by reference to
Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed
June 25, 1999).
10.10* First Penn Bank's Management
Recognition Plan (incorporated herein
by reference to Exhibit 10.10 of the
S-4 Registration Statement of PSB
Bancorp, Inc. filed June 25, 1999).
10.11* Employment Agreement for John J
O'Connell. (incorporated herein by
reference to Exhibit 10.11 of PSB's
Annual Report on Form 10-K filed
on April 1, 2002).
10.12* Employment Agreement for Mario L.
Incollingo (incorporated herein by
reference to Exhibit 10.12 of PSB's
Annual Report on Form 10-K filed
on April 1, 2002).
10.13* PSB Bancorp, Inc. 2001 Stock
Incentive Plan (incorporated herein by
reference to Exhibit 10.13 of PSB's
Annual Report on Form 10-K filed
on April 1, 2002).
21 Schedule of Subsidiaries (incorporated
herein by reference to Exhibit 21 of
PSB's Annual Report on Form 10-K filed
on April 1, 2002).
99.1 Certification of Report by Co-Chief
Executive Officer. (filed herewith)
99.2 Certification of Report by Co-Chief
Executive Officer. (filed herewith)
99.3 Certification of Report by Chief
Financial Officer. (filed herewith)
____________
* Denotes a management contract or compensatory plan or
arrangement.