FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number:
PSB HOLDINGS, INC.
(Exact name of registrant as specified in charter)
WISCONSIN 39-1804877
(State of incorporation) (I.R.S Employer Identification
Number)
1905 West Stewart Avenue
Wausau, Wisconsin 54401
(Address of principal executive office)
Registrant's telephone number, including area code: 715-842-2191
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
The number of common shares outstanding at September 30, 2002 was 834,551.
PSB HOLDINGS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 (unaudited) and December 31,
2001 (derived from audited financial statements) 1
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 2002
and 2001 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity Nine Months Ended September 30, 2002 (unaudited) 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 (unaudited) 4
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Item 4. Controls and Procedures 21
(i)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2002 unaudited, December 31, 2001 derived from audited financial
statements)
September 30, December 31,
(dollars in thousands, except per share data) 2002 2001
ASSETS
Cash and due from banks $10,826 $16,736
Interest-bearing deposits and money market funds 5,056 3,539
Federal funds sold 4,743 5,275
Securities:
Held to maturity (fair values of $22,379 and $20,355, respectively) 21,130 20,287
Available for sale (at fair value) 54,543 50,157
Federal Home Loan Bank stock (at cost) 2,236 2,151
Loans held for sale - 1,403
Loans receivable, net of allowance for loan losses of $3,394
and $2,969, respectively 252,286 236,574
Accrued interest receivable 1,906 1,873
Foreclosed assets, net 296 421
Premises and equipment 5,943 4,755
Mortgage servicing rights 534 284
Other assets 806 841
TOTAL ASSETS $ 360,305 $ 344,296
LIABILITIES
Non-interest-bearing deposits $ 43,316 $ 41,507
Interest-bearing deposits 245,276 232,128
Total deposits 288,592 273,635
Short-term borrowings 3,514 4,327
Long-term Federal Home Loan Bank advances 38,000 38,000
Accrued expenses and other liabilities 2,109 2,984
Total liabilities 332,215 318,946
STOCKHOLDERS' EQUITY
Common stock - no par value with a stated value of $2 per share:
Authorized - 1,000,000 shares
Issued - 902,425 shares 1,805 1,805
Additional paid-in capital 7,150 7,159
Retained earnings 20,899 18,186
Unrealized gain on securities available for sale, net of tax 735 491
Treasury stock, at cost - 67,874 and 62,720 shares, respectively
(2,499) (2,291)
Total stockholders' equity 28,090 25,350
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 360,305 $ 344,296
-1-
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
(dollars in thousands, SEPTEMBER 30, SEPTEMBER 30,
except per share data - unaudited) 2002 2001 2002 2001
Interest income:
Interest and fees on loans $ 4,627 $ 4,808 $ 13,466 $ 14,739
Interest on securities:
Taxable 665 685 2,033 2,143
Tax-exempt 223 207 674 558
Other interest and dividends 86 133 203 418
Total interest income 5,601 5,833 16,376 17,858
Interest expense:
Deposits 1,733 2,273 5,195 7,763
Short-term borrowings 35 74 115 379
Long-term FHLB advances 577 577 1,712 1,689
Total interest expense 2,345 2,924 7,022 9,831
Net interest income 3,256 2,909 9,354 8,027
Provision for loan losses 450 150 810 450
Net interest income after provision
for loan losses 2,806 2,759 8,544 7,577
Noninterest income:
Service fees 334 246 890 743
Gain on sale of loans 310 34 642 146
Investment and insurance
sales commissions 93 31 189 150
Other noninterest income 104 46 287 226
Total noninterest income 841 357 2,008 1,265
Noninterest expense:
Salaries and employee benefits 1,320 1,082 3,735 3,110
Occupancy 267 240 832 703
Data processing and other office operations 153 137 413 378
Advertising and promotion 63 83 254 252
Other noninterest expenses 294 326 921 866
Total noninterest expense 2,097 1,868 6,155 5,309
Income before provision for income taxes 1,550 1,248 4,397 3,533
Provision for income taxes 499 363 1,364 1,040
Net income $ 1,051 $ 885 $ 3,033 $ 2,493
Basic earnings per share $ 1.26 $ 1.05 $ 3.62 $ 2.97
Diluted earnings per share $ 1.25 $ 1.05 $ 3.61 $ 2.97
-2-
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 2002 - unaudited
Unrealized
Gain (Loss)
Additional on Securities
Common Paid-in Retained Available Treasury
(dollars in thousands) STOCK CAPITAL EARNINGS FOR SALE STOCK TOTALS
Balance January 1, 2002 $ 1,805 $7,159 $ 18,186 $ 491 $ (2,291) $ 25,350
Comprehensive income:
Net income 3,033 3,033
Unrealized gain on securities
available for sale, net of tax 244 244
Total comprehensive income 3,277
Purchase of treasury stock (329) (329)
Proceeds from stock options issued out
of treasury (9) 61 52
Distribution of treasury stock in settlement
of liability to Company directors 60 60
Cash dividends declared $.38 per share (320) (320)
Balance September 30, 2002 $ 1,805 $ 7,150 $20,899 $ 735 $(2,499) $28,090
-3-
PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2002 and 2001 - unaudited
2002 2001
Cash flows from operating activities:
Net income $ 3,033 $ 2,493
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and net amortization 500 462
Provision for loan losses 810 450
Gain on sale of loans held for sale (642) (146)
(Gain) loss on sale of premises and equipment 30 (46)
Gain on sale of foreclosed assets (27) -
FHLB stock dividends (85) (110)
Changes in operating assets and liabilities:
Accrued interest receivable (33) (17)
Other assets (129) (376)
Other liabilities (815) (1,024)
Net cash provided by operating activities 2,642 1,686
Cash flows from investing activities:
Net increase in interest-bearing deposits
and money market funds (1,517) (1,737)
Net (increase) decrease in federal funds sold 532 (7,755)
Proceeds from sale and maturities of:
Securities held to maturity 682 1,010
Securities available for sale 8,848 24,148
Payment for purchase of:
Securities held to maturity (1,537) (5,805)
Securities available for sale (12,857) (23,698)
Net (increase) decrease in loans (14,919) 2,749
Capital expenditures (1,638) (431)
Proceeds from sale of premises and equipment 29 41
Proceeds from sale of foreclosed assets 278 -
Net cash used in investing activities (22,099) (11,478)
-4-
Consolidated Statements of Cash Flows, continued
Cash flows from financing activities:
Net increase (decrease) in non-interest-bearing deposits 1,809 (3,392)
Net increase in interest-bearing deposits 13,148 11,335
Net decrease in short-term borrowings (813) (7,823)
Proceeds from long-term FHLB advances - 10,000
Dividends paid (320) (319)
Proceeds from issuance of stock options 52 -
Purchase of treasury stock (329) -
Net cash provided by financing activities 13,547 9,801
Net increase (decrease) in cash and due from banks (5,910) 9
Cash and due from banks at beginning 16,736 9,226
Cash and due from banks at end $ 10,826 $ 9,235
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 7,330 $ 10,250
Income taxes 1,300 1,152
Noncash investing and financing activities:
Loans charged off $ 444 $ 81
Loans transferred to foreclosed assets 397 642
Loans originated on sale of foreclosed assets 331 -
Distribution of treasury stock in settlement of liability
to Company directors 60 -
-5-
PSB Holdings, Inc.
Notes to Consolidated Financial Statements
NOTE 1 - GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
PSB Holdings, Inc.'s ("Company") financial position, results of its
operations, and cash flows for the periods presented, and all such
adjustments are of a normal recurring nature. The consolidated financial
statements include the accounts of all subsidiaries. All material
intercompany transactions and balances are eliminated. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
These interim consolidated financial statements have been prepared
according to the rules and regulations of the Securities and Exchange
Commission and, therefore, certain information and footnote disclosures
normally presented in accordance with generally accepted accounting
principles have been omitted or abbreviated. The information contained in
the consolidated financial statements and footnotes in the Company's 2001
annual report on Form 10-K, should be referred to in connection with the
reading of these unaudited interim financial statements.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ significantly
from those estimates. Estimates that are susceptible to significant
change include the determination of the allowance for loan losses,
mortgage servicing right asset, and the valuations of investments.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLE
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires the use of the purchase method
of accounting for business combinations initiated after June 30, 2001.
SFAS No. 142 addresses how intangible assets acquired outside of a
business combination should be accounted for upon acquisition and how
goodwill and other intangible assets should be accounted for after they
have been initially recognized. SFAS No. 142 eliminates the amortization
for goodwill and other intangible assets with indefinite lives. Other
intangible assets with a finite life will be amortized over their useful
life. Goodwill and other intangible assets with indefinite useful lives
shall be tested for impairment annually or more frequently if events or
changes in circumstances indicate that the asset may be impaired. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001.
The Corporation's adoption of SFAS No. 142 on January 1, 2002 had no
impact on the consolidated financial statements as of the date of
adoption.
-6-
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share of common stock are based on the weighted average
number of common shares outstanding during the period. Diluted earnings
per share is calculated by dividing net income by the weighted average
number of shares adjusted for the dilutive effect of outstanding stock
options. Presented below are the calculations for basic and diluted
earnings per share:
Three months ended Nine months ended
(dollars in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
Net income available to common stockholders $1,051 $ 885 $3,033 $2,493
Weighted average shares outstanding 836,418 839,705 838,471 839,705
Effect of dilutive stock options outstanding 2,356 - 1,554 -
Diluted weighted average shares outstanding 838,774 839,705 840,025 839,705
Basic earnings per share $ 1.26 $ 1.05 $ 3.62 $ 2.97
Diluted earnings per share $ 1.25 $ 1.05 $ 3.61 $ 2.97
NOTE 4 - COMPREHENSIVE INCOME
Generally accepted accounting principles require comprehensive income and
its components, as recognized under the accounting standards, to be
displayed in a financial statement with the same prominence as other
financial statements. The disclosure requirements with respect to the
Form 10-Q have been included in the Company's consolidated statement of
changes in stockholders' equity. Comprehensive income totaled the
following for the periods indicated:
(dollars in thousands - unaudited) Three months ended Nine months ended
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
Net income $1,051 $ 885 $3,033 $2,493
Change in net unrealized gain or loss on
securities available for sale, net of tax (187) 453 244 957
Comprehensive income $ 864 $1,338 $3,277 $3,450
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is presented to assist in the
understanding and evaluation of the Company's financial condition and
results of operations. It is intended to complement the unaudited
financial statements, footnotes, and supplemental financial data appearing
elsewhere in this Form 10-Q and should be read in conjunction therewith.
Dollar amounts are in thousands, except per share amounts.
Forward-looking statements have been made in this document that are
subject to risks and uncertainties. While the Company believes these
forward-looking statements are based on reasonable assumptions, all such
statements involve risk and uncertainties that could cause actual results
to differ materially from those contemplated in this report. The
assumptions, risks, and uncertainties relating to the forward-looking
statements in this report include those described under the caption
"Cautionary Statements Regarding Forward-Looking Information" in Part I of
the Company's Form 10-K for the year ended December 31, 2001 and, from
time to time, in the Company's other filings with the Securities and
Exchange Commission.
BALANCE SHEET
At September 30, 2002, total assets were $360,305, an increase of $41,839,
or 13.1%, over September 30, 2001. Assets increased $16,009, or 4.6% from
December 31, 2001. Gross loans (including loans held for sale and
unamortized direct loan origination costs) were $255,680 at September 30,
2002, growing $30,892 over third quarter 2001 and increasing $14,734 over
fourth quarter 2001. Loan growth through September 30, 2002 was funded by
a reallocation of short-term investments, cash holdings, and overnight
funds held at December 31, 2001 and deposit growth primarily by
acquisition of broker and national certificates of deposit.
Table 1: Period-End Loan Composition
September 30, September 30 December 31, 2001
DOLLARS DOLLARS PERCENTAGE OF TOTAL Percentage
(dollars in thousands) 2002 2001 2002 2001 DOLLARS OF TOTAL
Commercial, industrial and agricultural $ 66,463 $ 66,630 26.0% 29.6% $55,363 23.0%
Commercial real estate mortgage 106,902 67,290 41.7% 29.9% 98,554 40.9%
Residential real estate mortgage 64,823 72,845 25.4% 32.4% 67,723 28.1%
Residential real estate loans held for sale - 203 0.0% 0.1% 1,403 0.6%
Consumer home equity 6,601 4,419 2.6% 2.0% 4,576 1.9%
Consumer and installment 10,891 13,401 4.3% 6.0% 13,327 5.5%
Totals $255,680 $224,788 100.0% 100.0% $240,946 100.0%
The decline in overall long-term real estate loan interest rates during
2001 and again during 2002 contributed to a reallocation of the Bank's
loans held for investment. As part of the Company's strategic and asset
liability management plan, long-term residential real estate customer
refinancing loans were subsequently sold to investors in the secondary
market, and commercial
-8-
real estate and industrial loans were increased to continue asset growth.
During the past quarter, the Company has also aggressively sought high quality
adjustable rate commercial and industrial loans to match short-term
liabilities during anticipated future increases in short-term interest rates.
As the Company reallocated resources to handle demand for residential real
estate loans, it experienced substantial repayments of consumer retail
installment loans that were not replaced. In its markets, the Company
faces substantial competition from credit unions and other financial
institutions for retail installment lending such as for auto loans.
During the fourth quarter 2002, the Company refocused efforts to increase
retail installment loans by competitively seeking high quality individual
borrowers and offering low interest rates as compared to local
competitors.
The loan portfolio is the Company's primary asset subject to credit risk.
The Company's process for monitoring credit risks includes weekly analysis
of loan quality, delinquencies, non-performing assets, and potential
problem loans. Loans are placed on a nonaccrual status when they become
contractually past due 90 days or more as to interest or principal
payments. All interest accrued but not collected for loans (including
applicable impaired loans) that are placed on nonaccrual or charged off is
reversed to interest income. The interest on these loans is accounted for
on the cash basis until qualifying for return to accrual status. Loans
are returned to accrual status when all the principal and interest amounts
contractually due have been collected and there is reasonable assurance
that repayment according to the contractual terms will continue.
The term "impaired loan" refers to certain commercial loans with respect
to which, based on current information, it is probable that the Company
will not be able to collect all amounts due in accordance with the
contractual terms of the loan agreement. Impairment is based on
discounted cash flows of expected future payments using the loan's
effective interest rate or the fair value of the collateral if repayment
of the loan is collateral-dependent.
The aggregate amount of nonperforming assets increased $2,232 to $4,735 at
September 30, 2002 from $2,503 at September 30, 2001, primarily because of
additional loans going on nonaccrual status. Nonperforming assets have
also increased $279 from $4,456 at December 31, 2001.
Table 2: Allowance for Loan Losses
Three months ended Nine months ended
SEPTEMBER 30, SEPTEMBER 30,
(dollars in thousands) 2002 2001 2002 2001
Allowance for loan losses at beginning $ 3,254 $ 2,682 $ 2,969 $ 2,407
Provision for loan losses 450 150 810 450
Recoveries on loans previously charged-off 11 - 59 1
Loans charged off (321) (55) (444) (81)
Allowance for loan losses at end $ 3,394 $ 2,777 $ 3,394 $ 2,777
-9-
Nonperforming assets include: 1) loans that are either contractually past
due 90 days or more as to interest or principal payments, on a nonaccrual
status, or the terms of which have been renegotiated to provide a
reduction or deferral of interest or principal (restructured loans) and 2)
foreclosed assets.
At September 30, 2002 nonaccrual loans included $587 of loan principal to
a borrower secured by non real-estate commercial collateral. During
September 2002, the Company was notified of the borrower's bankruptcy.
The Bank was not the lead lender in the commercial relationship, and due
to inadequate collateral protection, an additional $270 of loan loss
provisions were recorded to cover estimated principal losses not
specifically identified and reserved previously. During October 2002, a
charge-off of $376 was authorized and recorded. The remaining principal
balance on this relationship of approximately $211 is fully reserved in
the allowance for loan losses as of September 30, 2002 from provisions
made prior to September 30, 2002.
The increase in loans charged off during 2002 (both through September 30,
2002, and in October, 2002) is primarily due to the Company coming to
terms with problem loan relationships that have existed and been on the
balance sheet for many years. During 2002, the Company changed internal
policy making it more difficult for borrowers to qualify to be removed
from nonaccrual status. In general, borrowers placed on nonaccrual status
must bring all past due amounts current, and make six monthly contractual
payments on time before qualifying for removal from nonaccrual. At
September 30, 2002, $712 of nonaccrual principal was less than 30 days
past due, but had not yet made six consecutive months of regular
contractual payments. Therefore, the change in policy has accounted for
some of the increase in nonaccrual loans. Management believes it has
identified and is proactively dealing with significant problem loan
relationships. The increase in nonaccrual loans is not believed to be due
primarily to the general economic recession or Bank loan concentrations in
volatile economic sectors. Management expects the level of nonaccrual
loans held at December 31, 2002 to be substantially reduced.
Table 3: Nonperforming Assets
SEPTEMBER 30, DECEMBER 31,
(dollars in thousands) 2002 2001 2001
Nonaccrual loans $ 3,784 $ 1,395 $ 3,036
Accruing loans past due 90 days or more - 333 -
Restructured loans 655 428 999
Total nonperforming loans 4,439 2,156 4,035
Foreclosed assets 296 347 421
Total nonperforming assets $ 4,735 $ 2,503 $ 4,456
Nonperforming loans as a % of gross
loans receivable 1.74% 1.11% 1.68%
Total nonperforming assets as a % of total
assets 1.31% 0.79% 1.29%
-10-
LIQUIDITY
Liquidity refers to the ability of the Company to generate adequate
amounts of cash to meet the Company's need for cash. The Company manages
its liquidity to provide adequate funds to support borrowing needs and
deposit flow of its customers. Management views liquidity as the ability
to raise cash at a reasonable cost or with a minimum of loss and as a
measure of balance sheet flexibility to react to marketplace, regulatory,
and competitive changes. Deposit growth is the primary source of funding.
Retail consumer deposits as a percentage of total funding sources were
75.2% at September 30, 2002, and 78.5% at September 30, 2001. Wholesale
funding and broker and national certificates of deposit represent the
balance of the Company's total funding needs.
Table 4: Period-end Deposit Composition
September 30, September 30, December 31, 2001
DOLLARS DOLLARS PERCENTAGE OF TOTAL Percentage
(dollars in thousands) 2002 2001 2002 2001 DOLLARS OF TOTAL
Non-interest-bearing demand $ 43,316 $ 31,465 15.0% 12.6% $ 41,508 15.2%
Interest-bearing demand and savings 32,848 28,192 11.4% 11.3% 33,691 12.3%
Money market deposits 74,119 73,950 25.7% 29.6% 76,973 28.1%
Retail time deposits less than $100 60,656 60,178 20.9% 24.2% 58,829 21.6%
Retail time deposits $100 and over 37,424 34,889 13.0% 14.0% 37,033 13.5%
Broker & national time deposits
less than $100 12,946 9,503 4.5% 3.8% 9,404 3.4%
Broker & national time deposits
$100 & over 27,283 11,300 9.5% 4.5% 16,197 5.9%
Totals $288,592 $249,477 100.0% 100.0% $273,635 100.0%
The interest rate paid on money market deposits is adjustable based on the
Company's discretion but generally tracks the movements of national money
market funds. As short-term interest rates have decreased during 2001 and
2002, the yield on this account has declined substantially. At the same
time, the Company has offered long term (three years or longer)
certificate of deposit rates to stabilize deposit funding cost if market
interest rates increase. Some customers appear to have moved money market
funds into time deposits to secure a higher yield.
Table 5: Summary of Changes by Significant Deposit Source
September 30, Change from prior year
2002 2001 $ %
Total time deposits $100 and over $ 64,707 $ 46,189 $ 18,518 40.1%
Total broker and national time deposits 40,229 20,803 19,426 93.4%
Total retail time deposits 98,080 95,067 3,013 3.2%
Core deposits, including money market
deposits 150,283 133,607 16,676 12.5%
Total retail deposits including core deposits 248,363 228,674 19,689 8.6%
-11-
The Company's retail deposit offices are in locations that during the past
year have demanded consumer retail deposit rates generally greater than
national rates for equivalent certificate of deposit terms. For example,
late in October, 2002, the average offering rate for a 12 month
certificate of deposit as published by Ratewatch Premium Report for the
three community banks with the highest rates in the Company's largest
market area was 55 basis points higher than available brokered deposits
for a 12-month term.
To lower deposit funding costs, the Company does use brokers to accumulate
national funds generally in excess of $100 per account. In addition,
lower rate long-term broker certificates have been used in limited cases
to fund "match" longer term loan commitments desired by customers that are
held on the balance sheet as loans held for investment. Consequently,
broker and national deposits increased substantially over the prior year,
while local retail deposits have shown moderate growth in comparison.
During September 2002, the Company opened a new full service retail and
commercial branch location in Rhinelander, Wisconsin. Formerly, the Bank
operated only a grocery store branch location. The Bank believes the
retail markets in which they operate can provide retail deposit growth
needed for asset growth in the long-term as local retail certificate of
deposit rates begin to approximate national rates for similar funds.
As of September 30, 2002, federal funds sold and short-term investments,
loan principal, and investment securities maturing within one year totaled
$131,890, while certificates of deposit, short-term borrowings and long-
term borrowings maturing within one year totaled $96,731. Unused credit
advances from the Federal Home Loan Bank of Chicago available to the
Company at September 30, 2002 totaled approximately $26,559. In addition,
the Bank had commitments from other correspondent banks for federal funds
purchased up to $22,500. The primary funding sources utilized are Federal
Home Loan Bank advances, federal funds purchased, repurchase agreements
from a base of individuals, businesses and public entities, and brokered
time deposits. The Company believes its current liquidity position and
sources of funds for liquidity management is adequate.
Table 6 below presents maturity repricing information as of September 30,
2002. The following repricing methodologies should be noted:
1. Money market deposit accounts are considered fully repriced within 90
days. NOW and savings accounts are considered "core" deposits as they are
generally insensitive to interest rate changes. These deposits are
considered to reprice beyond 5 years.
2. Nonaccrual loans are considered to reprice beyond 5 years.
3. Assets and liabilities with contractual calls or prepayment options are
repriced according to the likelihood of the call or prepayment being
exercised in the current interest rate environment.
-12-
Table 6: Interest Rate Sensitivity Gap Analysis
September 30, 2002
(dollars in thousands) 0-90 DAYS 91-180 DAYS 181-365 DAYS 1-2 YRS. BYND 2-5 YRS. BEYOND 5 YRS. TOTAL
Earning assets:
Loans $ 92,113 $ 19,007 $ 35,999 $ 57,922 $ 45,488 $ 5,151 $255,680
Securities 8,043 7,389 13,154 19,316 12,709 15,062 75,673
FHLB stock 2,236 2,236
Other earning assets 9,799 9,799
Total $112,191 $ 26,396 $ 49,153 $ 77,238 $ 58,197 $ 20,213 $343,388
Cumulative rate
sensitive assets $112,191 $138,587 $187,740 $264,978 $323,175 $343,388
Interest-bearing liabilities
Interest-bearing deposits $ 92,836 $ 19,744 $ 46,185 $ 22,602 $ 29,416 $ 34,493 $245,276
Short-term borrowings 653 351 1,439 300 771 3,514
Long-term FHLB advances 10,000 6,000 19,000 3,000 38,000
Total $ 93,489 $ 30,095 $ 47,624 $ 28,902 $ 49,187 $ 37,493 $286,790
Cumulative interest
sensitive liabilities $ 93,489 $123,584 $171,208 $200,110 $249,297 $286,790
Interest sensitivity gap
for the individual period $ 18,702 $ (3,699) $ 1,529 $ 48,336 $ 9,010 $ (17,280)
Ratio of rate sensitive
assets to rate sensitive
liabilities for the
individual period 120% 88% 103% 267% 118% 54%
Cumulative interest
sensitivity gap $ 18,702 $ 15,003 $ 16,532 $ 64,868 $ 73,878 $ 56,598
Cumulative ratio of rate
sensitive assets to rate
sensitive liabilities 120% 112% 110% 132% 130% 120%
The Asset/Liability Committee uses financial modeling techniques that
measure the interest rate risk. Policies established by the Bank's
Asset/Liability Committee are intended to limit exposure of earnings at
risk. A formal liquidity contingency plan exists that directs management
to the least expensive liquidity sources to fund sudden and unanticipated
liquidity needs. The Company also uses various policy measures to assess
adequacy of the Bank's liquidity and interest rate risk as described
below.
BASIC SURPLUS
The Company measures basic surplus as the amount of existing net liquid
assets (after deducting short-term liabilities and coverage for
anticipated deposit funding outflows during the next 30 days) divided by
total assets. The basic surplus calculation does not consider unused but
available correspondent bank federal funds purchased, as those funds are
subject to availability based on the correspondent bank's own liquidity
needs and therefore are not guaranteed contractual funds. At September
30, 2002, the Company's basic surplus, including available FHLB advances
not yet utilized was above the 5% minimum required by policy.
-13-
INTEREST RATE RISK LIMITS
The Company balances the need for liquidity with the opportunity for
increased net interest income available from longer term loans held for
investment and securities. To measure the impact on net interest income
from interest rate changes, the Company models interest rate simulations
on a quarterly basis. Company policy is that projected net interest
income over the next 12 months will not be reduced by more than 15% given
a change in interest rates of up to 200 basis points. At September 30,
2002, projected net income for the next 12 months changed less than the
15% required by policy and was considered acceptable by management.
CORE FUNDING UTILIZATION
To assess whether interest rate sensitivity beyond one year helps mitigate
or exacerbate the short-term rate sensitive position, a quarterly measure
of core funding utilization is made. Core funding is defined as
liabilities with a maturity in excess of 60 months and capital. "Core"
deposits including DDA, NOW and non-maturity savings accounts (except
money market accounts) are also considered core long-term funding sources.
The core funding utilization ratio is defined as assets with a maturity in
excess of 60 months divided by core funding. The Company's target for the
core funding utilization ratio is to remain at 80% or below given the same
200 basis point changes in rates that apply to the guidelines for interest
rate risk limits exposure described previously. At September 30, 2002,
the Company's core fund utilization ratio was within policy requirements.
CAPITAL RESOURCES
Stockholders' equity at September 30, 2002 increased $2,684, or 10.6% from
September 2001 to $28,090. Stockholders' equity included unrealized gains
on securities available for sale, net of their tax effect, of $735 at
September 30, 2002 compared to unrealized gains of $832 at September 30,
2001.
The adequacy of the Company's capital is regularly reviewed to ensure
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. As of September 30, 2002, the
Subsidiary Bank's Tier 1 risk-based capital ratio, total risk-based
capital, and Tier 1 leverage ratio were well in excess of regulatory
minimums.
On July 12, 2002, the Company announced an ongoing share repurchase
program of up to 1% of outstanding shares per year to recur on an annual
basis. The Company anticipates purchasing on the open market and holding
as treasury approximately 8,400 shares during 2002. At September 30, 2002
approximately 6,400 of the 8,400 shares for 2002 had been purchased by the
Company. Through September 30, 2002, the average price paid by the
Company for treasury shares acquired during 2002 was $40.21 per share.
Current monthly net income allows the Company to increase assets by
approximately $5 million per month and maintain a leverage capital ratio
above 7.0%. Although the Company is currently purchasing treasury shares
under the buyback program described above, management is pursuing a growth
strategy which requires significant capital to be maintained to support
asset growth.
-14-
Therefore, large scale stock buybacks or dividend payments
in excess of past periods are not anticipated. Recently, the Bank hired
two additional commercial lenders, and opened a new brick and mortar full
service branch in Rhinelander, Wisconsin. Previously, the Bank had a
grocery store location in Rhinelander which generated significant loan
growth even in that limited facility. With the new Rhinelander location
and additional lenders, the Bank needs existing capital to significantly
increase loans held for investment in the near term.
Table 7: Capital Ratios - Consolidated Holding Company
Tier 1 Total Risk-
Leverage Based
CAPITAL CAPITAL
September 30, 2002 7.6% 11.6%
December 31, 2001 7.2% 11.2%
September 30, 2001 7.7% 12.0%
Regulatory minimum for capital adequacy 4.0% 8.0%
On October 4, 2002, the Company announced approval of a 2-for-1 stock
split payable December 2, 2002, to shareholders of record on November 19,
2002, subject to shareholder approval of an increase in authorized shares.
This special meeting to vote on the increase in authorized shares is
scheduled for November 19, 2002. The stock split will increase the number
of issued shares in circulation to approximately 1.7 million shares, and
place the "post split" value per share in the low $20's per share. The
split is anticipated to increase interest in institutional investors in
the Company's stock while making it easier for smaller investors to
purchase shares, both of which are expected to increase stock liquidity.
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 2002 totaled $1,051, or
$1.25 per share on a diluted basis ($1.26 per basic earnings per share).
Comparatively, net income for the quarter ended September 30, 2001 was
$885, or $1.05 per share for basic and diluted earnings per share.
Operating results for the third quarter 2002 generated an annualized
return on average assets of 1.17% and an annualized return on average
equity of 15.00%, compared to 1.12% and 14.31% for the comparable period
in 2001. The net interest margin for the third quarter 2002 was 3.95%
compared to 4.03% for the comparable quarter in 2001.
The following Table 8 presents consolidated quarterly summary financial
data of PSB Holdings, Inc. and Subsidiary.
-15-
Table 8: Financial Summary
(dollars in thousands, except per share data)
QUARTER ENDED
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
EARNINGS AND DIVIDENDS: 2002 2002 2002 2001 2001
Net interest income $ 3,256 $ 3,104 $ 2,994 $ 2,934 $ 2,909
Provision for loan losses $ 450 $ 180 $ 180 $ 440 150
Other noninterest income $ 841 $ 602 $ 565 $ 798 357
Other noninterest expense $ 2,097 $ 2,046 $ 2,012 $ 2,006 1,868
Net income $ 1,051 $ 1,024 $ 958 $ 873 885
Basic earnings per share $ 1.26 $ 1.22 $ 1.14 $ 1.04 $ 1.05
Diluted earnings per share $ 1.25 $ 1.22 $ 1.14 $ 1.04 $ 1.05
Dividends declared per share $ - $ 0.38 $ - $ 0.70 $ -
Net book value per share $ 33.66 $ 32.68 $ 31.18 $ 30.19 $ 30.25
Dividend payout ratio 0.00% 31.15% 0.00% 67.31% 0.00%
Average common shares outstanding 836,418 839,416 839,615 839,705 839,705
BALANCE SHEET - AVERAGE BALANCES:
Loans receivable, net $249,691 $240,602 $238,284 $ 229,994 $219,793
Assets $355,224 $336,125 $336,879 $ 331,381 $316,592
Deposits $283,889 $265,931 $267,050 $ 261,556 $245,177
Stockholders' equity $ 27,792 $ 26,972 $ 25,924 $ 25,671 $ 24,737
PERFORMANCE RATIOS:
Return on average assets (1) 1.17% 1.22% 1.14% 1.05% 1.12%
Return on average stockholders' equity (1) 15.00% 15.23% 14.78% 13.60% 14.31%
Average tangible stockholders' equity to
average assets 7.61% 7.87% 7.59% 7.61% 7.57%
Net loan charge-offs to average loans 0.12% 0.03% 0.00% 0.11% 0.02%
Nonperforming loans to gross loans 1.74% 1.23% 1.62% 1.68% 0.96%
Allowance for loan losses to gross loans 1.33% 1.30% 1.31% 1.24% 1.24%
Net interest rate margin (1)(2) 3.95% 4.04% 3.87% 3.89% 4.03%
Net interest rate spread (1)(2) 3.43% 3.53% 3.35% 3.38% 3.41%
Service fee revenue as a percent of
average demand deposits (1) 3.41% 3.76% 2.65% 2.91% 3.21%
Noninterest income as a percent
of gross revenue 13.05% 10.02% 9.52% 12.56% 5.77%
Efficiency ratio 49.52% 53.23% 54.54% 52.20% 55.38%
Noninterest expenses to average assets (1) 2.34% 2.44% 2.39% 2.42% 2.36%
STOCK PRICE INFORMATION:
High $ 42.10 $ 39.25 $ 36.00 $ 33.40 $ 31.75
Low $ 38.35 $ 35.00 $ 33.25 $ 30.75 $ 29.00
Market value at quarter-end $ 41.15 $ 38.50 $ 35.50 $ 33.40 $ 31.75
(1) Annualized
(2) The yield on tax-exempt loans and securities is computed on a tax-equivalent basis using a tax
rate of 34%.
-16-
NET INTEREST INCOME
Net interest income is the most significant component of earnings. Net
interest income increased $347 from $2,909 for the quarter ended September
30, 2001 to $3,256 for the current quarter ended September 30, 2002. Tax-
adjusted net interest margin as a percent of average interest earning
assets declined from 4.03 percent in September 2001 to 3.95 percent in
September 2002. Net interest margin was 3.73 percent for the year ended
December 31, 2001.
Since early 2001, the Company benefited from a falling interest rate
environment as deposits and short-term borrowings have repriced faster at
lower rates than loans with longer terms and maturities. However, during
the third quarter 2002, it appears that short-term deposits have been
significantly repriced to current levels, but that loans are renewed and
originated at continually lower rates. This situation was anticipated and
is not unusual in the banking industry. The Company considers the current
short-term interest rate environment to be temporary. The primary
strategies currently utilized by the Company to manage net interest margin
include:
1. Consider national and broker certificate of deposit offering rates when
determining local retail certificate pricing. Ensure core deposits are
priced appropriately considering existing rates and changes in short-term
interest rates in the national markets.
2. Increase interest rate pricing on commercial loans that provide option
features to the borrower, such as prepayment without penalty.
3. Originate adjustable rate commercial loans to allow the bank to benefit
from anticipated increases in short-term interest rates on which many
commercial loans are based. Management recognizes that in the short-term
such a strategy would reduce net interest income in the event of a
decrease in the prime rate or other short-term rate indexes.
In addition to the change in tax-adjusted net interest margin percentage,
net interest income increased from income earned from additional loans
originated since September 30, 2001. Since September 2001, average loans
receivable (net of allowances for loan loss) increased $29,898, or 13.6%.
Yield on earning assets decreased 125 basis points to 6.68% compared to
7.93% at September 30, 2001. Similarly, the costs for interest-bearing
liabilities decreased 127 basis points to 3.25% from 4.52%. Decreased
national market short-term term interest rates have impacted all types of
earning assets and paying liabilities and the Company believes current
short-term rates represent the approximate bottom of the rate cycle.
Refer to the previous discussion on management of net interest margin for
the Company's strategy in this area.
-17-
Table 9: Net Interest Income Analysis
(dollars in thousands) Quarter ended Sept. 30, 2002 Nine months ended Sept. 30, 2002
Average Yield/ Average Yield/
BALANCE INTEREST RATE BALANCE INTEREST RATE
Assets
Interest-earning assets:
Loans (1)(2) $ 252,879 $ 4,650 7.30% $ 246,040 $ 13,525 7.35%
Taxable securities 50,678 665 5.21% 49,901 2,033 5.45%
Tax-exempt securities (2) 20,431 338 6.56% 20,400 1,021 6.69%
FHLB stock 2,234 27 4.79% 2,204 81 4.91%
Other 14,698 59 1.59% 9,893 122 1.65%
Total (2) 340,920 5,739 6.68% 328,438 16,782 6.83%
Non-interest-earning assets:
Cash and due from banks 8,529 9,023
Premises and equipment, net 5,692 5,226
Other assets 3,271 3,231
Allowance for loan losses (3,188) (3,140)
Total $ 355,224 $ 342,778
Liabilities & stockholders'
equity
Interest-bearing liabilities:
Savings and demand
deposits $ 34,110 $ 88 1.02% $ 32,018 $ 267 1.11%
Money market deposits 72,555 267 1.46% 73,312 818 1.49%
Time deposits 138,413 1,378 3.95% 130,834 4,110 4.20%
Short-term borrowings 3,363 35 4.13% 3,521 115 4.37%
Long-term borrowings 38,000 577 6.02% 38,000 1,712 6.02%
Total 286,441 2,345 3.25% 277,685 7,022 3.38%
Non-interest-bearing
liabilities:
Demand deposits 38,811 36,178
Other liabilities 2,180 2,009
Stockholders' equity 27,792 26,906
Total $ 355,224 $ 342,778
Net interest income 3,394 9,760
Rate spread 3.43% 3.45%
Net yield on interest-earning assets 3.95% 3.97%
(1) Nonaccrual loans are included in the daily average loan balances
outstanding.
(2) The yield on tax-exempt loans and securities is computed on a tax-
equivalent basis using a tax rate of 34%.
-18-
PROVISION FOR LOAN LOSSES
Management determines the adequacy of the provision for loan losses based
on past loan experience, current economic conditions, composition of the
loan portfolio, and the potential for future loss. Accordingly, the
amount charged to expense is based on management's evaluation of the loan
portfolio. It is the Company's policy that when available information
confirms that specific loans and leases, or portions thereof, including
impaired loans, are uncollectible, these amounts are promptly charged off
against the allowance. The provision for loan losses was $450 for the
three months ended September 30, 2002, and $150 for the three months ended
September 30, 2001. Net charge-offs as a percentage of average loans
outstanding were .12% and .02% during the three months ended September 30,
2002 and 2001, respectively.
At September 30, 2002 nonaccrual loans included $587 of loan principal to
a borrower secured by non real-estate commercial collateral. During
September 2002, the Company was notified of the borrower's bankruptcy.
The Bank was not the lead lender in the commercial relationship, and due
to inadequate collateral protection, an additional $270 of loan loss
provisions were recorded to cover estimated principal losses not
specifically identified and reserved previously. During October 2002, a
charge-off of $376 was authorized and recorded. The remaining principal
balance on this relationship of approximately $211 is fully reserved in
the allowance for loan losses as of September 30, 2002 from provisions
made prior to September 30, 2002.
Nonperforming loans are reviewed to determine exposure for potential loss
within each loan category. The adequacy of the allowance for loan losses
is assessed based on credit quality and other pertinent loan portfolio
information. The adequacy of the allowance and the provision for loan
losses is consistent with the composition of the loan portfolio and recent
credit quality history.
NONINTEREST INCOME
Noninterest income increased $484 to $841 during the three months ended
September 30, 2002, from $357 in the comparable third quarter of 2001.
There were no gains or losses on securities during the three months ended
September 30, 2002 and 2001. Service fees on deposit accounts increased
$88, or 35.8%, for the three months ended September 30, 2002 from the
three months ended September 30, 2001. During the first quarter 2002, the
Bank began to offer a new overdraft protection product that increased the
level of collected service fees. In addition, commercial deposit account
service charges have increased due to reduced customer "earnings credits"
which are based on the declining short-term deposit interest rates
experienced by the market as whole.
The Company continued to earn a significant amount of income from the sale
of long-term fixed rate mortgage loans to outside investors. The Bank
does not retain such fixed rate loans as part of its asset liability
management strategy. Gain on sale of such loans was $310 in September
2002 compared to $34 during September 2001 for an increase of $276. The
majority of loans sold to outside investors continue to be serviced by the
Bank directly with the customer. At September 30, 2002, the Bank serviced
$64,780 of loans for outside investors compared to $18,848 serviced at
September 30, 2001. The Bank has seen customer demand for fixed rate
-19-
mortgages increase as long-term fixed interest rates in the overall market
reached historical low levels. The gain on sale of loans during the
quarter ended September 30, 2002 was increased $167 from capitalization of
originated mortgage servicing rights. At September 30, 2002, mortgage
servicing rights totaled $534, which were carried at amortized cost.
There were no mortgage servicing rights recorded at September 30, 2001.
Growth in loan sale income has come primarily from new customers and not
refinancing of loans already serviced by the Bank for others. As of
September 30, 2002, approximately 86% of the $36 million of sold loans
originated during calendar 2001 with servicing rights retained are still
outstanding and serviced by the bank.
During the past quarter, the Bank introduced a new annuity investment
product for customers looking for a higher yield than available on
traditional certificates of deposit. The product generated an additional
$47 of commission income during the third quarter 2002. Total investment
and insurance product commissions increased $62 to $93 in the quarter
ended September 30, 2002 compared to $31 for September 2001.
The remaining increase in noninterest income came primarily from an
increase in debit card interchange income and mortgage servicing fees,
accounting for approximately $44 of the increase of $58 in other
noninterest income during the quarter ended September 30, 2002 compared to
the third quarter of 2001.
NONINTEREST EXPENSE
Noninterest operating expenses increased $229, or 12.3% to $2,097 in
September 2002 compared to $1,868 during September 2001. However,
operating costs as a percentage of average assets decreased from 2.36
percent in September 2001 to 2.34 percent in the current quarter. The
majority of the increase in operating expenses was from additional
salaries, wages, and benefits paid to employees. Average wages and
benefits before year-end incentive compensation dependant upon overall
Company profitability was $45,138 per full time equivalent employee (FTE)
during the quarter ended September 30, 2002 compared to $43,578 per FTE in
the third quarter 2001 for an increase of 3.6% during the past 12 months.
Separate from salaries and wages, noninterest expenses decreased $9, or
1.1%. Additional wage and other operating costs have been offset by
increased revenue, as the expense efficiency ratio has improved from 55.4%
in September 2001, to 49.5% in the current quarter.
-20-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the information provided in response
to Item 7A of the Company's Form 10-K for the year ended December 31,
2001.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains controls and other procedures that are designed to
ensure that information required to be disclosed in the Company's reports
under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized, and reported in accordance with
Securities and Exchange Commission rules, and that such information is
accumulated and communicated to the Company's management, including the
President and Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Management necessarily applied its judgment in assessing the costs and
benefits of such controls and procedures which, by their nature, can
provide only reasonable assurance regarding management's control
objectives.
Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Company's management, including the President and Chief Executive Officer
along with the Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant
to Exchange Act Rule 13a-14. Based upon the foregoing, the President and
Chief Executive Officer along with the Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Company's Exchange Act reports. There have been no significant changes in
the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
-21-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
The following exhibits have been filed with the Securities and Exchange
Commission. Exhibits filed as part of this report, and listed below, are
set forth on the Exhibit Index which follows the signature page.
Exhibit
NUMBER DESCRIPTION
3.1 Restated Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
2000)
4.1 Articles of Incorporation and Bylaws (see Exhibits 3.1 and 3.2)
10.1 Bonus Plan of Directors of the Bank (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000)
10.2 Non-Qualified Retirement Plan for Directors of the Bank
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2000)
10.3 Senior Management Incentive Compensation Plan (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2000)*
10.4 Consulting Agreement with Chairman of the Board (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000)*
10.5 2001 Stock Option Plan (incorporated by reference to Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001)*
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000)
99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002.
*Denotes Executive Compensation Plans and Arrangements.
-22-
(b) Reports on Form 8-K:
FORM 8-K DATED JULY 18, 2002. The Company filed a current report on Form
8-K on July 18, 2002, reporting earnings for the quarter ended June 30,
2002 under Item 5 and additional related disclosure under Item 9,
Regulation FD Disclosure.
-23-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSB HOLDINGS, INC.
November 14, 2002 SCOTT M. CATTANACH
Scott M. Cattanach
Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
-24-
CERTIFICATIONS
I, David K. Kopperud, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PSB
Holdings, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
-25-
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
DAVID K. KOPPERUD
David K. Kopperud
President and Chief Executive Officer
-26-
CERTIFICATIONS
I, Scott M. Cattanach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PSB
Holdings, Inc. (the "registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
-27-
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
SCOTT M. CATTANACH
Scott M. Cattanach
Treasurer
(Principal Financial Officer)
-28-
EXHIBIT INDEX
to
FORM 10-Q
of
PSB HOLDINGS, INC.
for the quarterly period ended September 30, 2002
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. section 232.102(d))
The following exhibits are filed as part this report:
99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002.
-29-