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 March 31, 2003
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: 02-6480
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 March 31, 2003 was 1,664,302.
PSB HOLDINGS, INC.
FORM 10-Q
Quarter Ended March 31, 2003
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2003 (unaudited) and December 31,
2002 (derived from audited financial statements) 1
Consolidated Statements of Income
Three Months Ended March 31, 2003 and 2002 (unaudited) 2
Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 2003 (unaudited) 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002 (unaudited) 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 24
Item 4. Internal Controls and Procedures 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 25
Item 6. Exhibits and Reports on Form 8-K 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSB HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2003 unaudited, December 31, 2002 derived from audit financial statements)
March 31, December 31,
(dollars in thousands, except per share data) 2003 2002
ASSETS
Cash and due from banks $13,452 $15,890
Interest-bearing deposits and money market funds 7,763 5,490
Federal funds sold 2,771 172
Cash and cash equivalents 23,986 21,552
Securities available for sale (at fair value) 75,895 81,056
Federal Home Loan Bank stock (at cost) 2,327 2,264
Loans held for sale - 949
Loans receivable, net of allowance for loan losses of
$3,315 and $3,158, respectively 255,949 256,015
Accrued interest receivable 1,878 1,732
Foreclosed assets, net 505 573
Premises and equipment 6,133 6,158
Mortgage servicing rights, net 936 697
Other assets 193 472
TOTAL ASSETS $367,802 $371,468
LIABILITIES
Non-interest-bearing deposits $46,050 $45,458
Interest-bearing deposits 246,530 252,373
Total deposits 292,580 297,831
Federal Home Loan Bank advances 38,000 38,000
Other borrowings 4,701 3,302
Accrued expenses and other liabilities 2,151 3,033
Total liabilities 337,432 342,166
STOCKHOLDERS' EQUITY
Common stock - no par value with a stated value of $1
per share:
Authorized - 3,000,000 shares
Issued - 1,804,850 shares 1,805 1,805
Additional paid-in capital 7,150 7,150
Retained earnings 22,831 21,607
Unrealized gain on securities available for sale, net of tax 1,198 1,306
Treasury stock, at cost - 140,548 and 138,748 shares,
respectively (2,614) (2,566)
Total stockholders' equity 30,370 29,302
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $367,802 $371,468
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PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(dollars in thousands, March 31,
except per share data - unaudited) 2003 2002
Interest income:
Interest and fees on loans $ 4,396 $ 4,391
Interest on securities:
Taxable 615 690
Tax-exempt 223 224
Other interest and dividends 59 65
Total interest income 5,293 5,370
Interest expense:
Deposits 1,512 1,766
FHLB advances 508 564
Other borrowings 41 46
Total interest expense 2,061 2,376
Net interest income 3,232 2,376
Provision for loan losses 225 180
Net interest income after provision for loan losses 3,007 2,814
Noninterest income:
Service fees 303 235
Gain on sale of loans 701 198
Provision for servicing right
valuation allowance
Investment and insurance (95) -
sales commissions 99 45
Other noninterest income 114 87
Total noninterest income 1,122 565
Noninterest expense:
Salaries and employee benefits 1,448 1,245
Occupancy 288 240
Data processing and other office operations 139 132
Advertising and promotion 37 76
Other noninterest expenses 405 319
Total noninterest expense 2,317 2,012
Income before provision for income taxes 1,812 1,367
Provision for income taxes 588 409
Net income $1,224 $ 958
Basic earnings per share $ 0.73 $0.57
Diluted earnings per share $ 0.73 $0.57
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PSB HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended March 31, 2003 - 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, 2003 $1,805 $7,150 $21,607 $1,306 $(2,566) $29,302
Comprehensive income:
Net income 1,224 1,224
Unrealized gain (loss) on securities
available for sale, net of tax
(108) (108)
Total comprehensive income 1,116
Purchase of treasury stock (48) (48)
Balance March 31, 2003 $1,805 $7,150 $22,831 $1,198 $(2,614) $30,370
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PSB HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2003 and 2002 - unaudited
2003 2002
Cash flows from operating activities:
Net income $1,224 $ 958
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and net amortization 317 179
Provision for loan losses 225 180
Gain on sale of loans (701) (198)
Provision for mortgage servicing right valuation allowance 95 -
FHLB stock dividends (63) (31)
Changes in operating assets and liabilities:
Accrued interest receivable (146) (92)
Other assets 363 (70)
Other liabilities (882) (1,151)
Net cash provided by (used in) operating activities 432 (225)
Cash flows from investing activities:
Proceeds from sale and maturities of:
Securities held to maturity - -
Securities available for sale 12,687 4,350
Payment for purchase of:
Securities held to maturity - (618)
Securities available for sale (7,848) (2,496)
Net (increase) decrease in loans 1,158 88
Capital expenditures (100) (251)
Proceeds from sale of foreclosed assets 5 171
Net cash provided by investing activities 5,902 1,244
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CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
2003 2002
Cash flows from financing activities:
Net increase (decrease) in non-interest-bearing deposits 592 (8,183)
Net decrease in interest-bearing deposits (5,843) (1,426)
Net increase (decrease) in other borrowings 1,399 (1,241)
Purchase of treasury stock (48) (70)
Net cash used in financing activities (3,900) (10,920)
Net increase (decrease) in cash and cash equivalents 2,434 (9,901)
Cash and cash equivalents at beginning 21,552 25,550
Cash and cash equivalents at end $23,986 $15,649
Supplemental cash flow information:
Cash paid during the period for:
Interest $2,124 $2,527
Income taxes 45 317
Noncash investing and financing activities:
Loans charged off $68 $23
Loans transferred to foreclosed assets 4 94
Loans originated on sale of foreclosed assets 67 136
Distribution of treasury stock in settlement of liability
to Company directors - 60
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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 2002 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
valuation of investment securities.
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.
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NOTE 3 - STOCK-BASED COMPENSATION
The Company records expense relative to stock-based compensation using the
"intrinsic value method". Since the exercise price is equal to the fair value
of the Company's common stock on the date of the award, the intrinsic value of
the Company's stock options is "zero" at the time of the award and no expense
is recorded.
As permitted by generally accepted accounting principles, the Company has not
adopted the "fair value method" of expense recognition for stock-based
compensation awards. Rather, the effects of the fair value method on the
Company's earnings are presented on a pro forma basis. Because no grants of
stock options were made during the quarters ended March 31, 2003 and 2002,
there was no pro forma impact to net income or earnings per share for these
periods.
Under the terms of an incentive stock option plan adopted during 2001, shares
of unissued common stock are reserved for options to officers and key employees
at prices not less than the fair market value of the shares at the date of the
grant. These options expire 10 years after the grant date. As of March 31,
2003, 26,892 options outstanding were eligible to be exercised at a weighted
average exercise price of $16.80 per share. No additional shares of common
stock remain reserved for future grants under the option plan approved by the
shareholders.
NOTE 4 - 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
(dollars in thousands, except per share data) March 31,
2003 2002
Net income $ 1,224 $ 958
Weighted average shares outstanding 1,665,729 1,679,230
Effect of dilutive stock options outstanding 9,216 1,602
Diluted weighted average shares outstanding 1,674,945 1,680,832
Basic earnings per share $ 0.73 $ 0.57
Diluted earnings per share $ 0.73 $ 0.57
-7-
NOTE 5 - 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
March 31,
2003 2002
Net income $1,224 $958
Change in net unrealized gain or loss on
securities available for sale, net of tax (108) (122)
Comprehensive income $1,116 $836
NOTE 6 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable are stated at unpaid principal balances plus net deferred loan
origination costs less loans in process and the allowance for loan losses.
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest is
doubtful or those loans which are past due 90 days or more as to principal or
interest payments. When a loan is placed on nonaccrual status, previously
accrued but unpaid interest deemed uncollectible is reversed and charged
against current income. After being placed on nonaccrual status, additional
income is recorded only to the extent that payments are received or the
collection of principal becomes reasonably assured. Interest income
recognition on loans considered to be impaired under current accounting
standards is consistent with the recognition on all other loans.
Loan origination fees and certain direct loan origination costs are deferred
and amortized to income over the contractual life of the underlying loan.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. Management believes the allowance for loan losses is adequate to
cover probable credit losses relating to specifically identified loans, as well
as probable credit losses inherent in the balance of the loan portfolio. In
accordance with current accounting standards, the allowance is provided for
losses that have been incurred as of the balance sheet date. The allowance is
based on past events and current economic conditions, and does not include the
effects of expected losses on specific loans or groups of loans that are
related to future events or expected changes in economic conditions. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions.
-8-
The allowance for loan losses includes specific allowances related to
commercial loans which have been judged to be impaired as defined by current
accounting standards. A loan is impaired when, based on current information,
it is probable that the Company will not collect all amounts due in accordance
with the contractual terms of the loan agreement. Management has determined
that commercial, financial, agricultural, and commercial real estate loans that
have a nonaccrual status or have had their terms restructured meet this
definition. Large groups of homogenous loans, such as residential mortgage and
consumer loans, are collectively evaluated for impairment. Specific allowances
are based on discounted cash flows of expected future payments using the loans'
initial effective interest rate or the fair value of collateral if the loan is
collateral dependent.
In addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require the subsidiary Bank to make additions
to the allowance for loan losses based on their judgments of collectibility
based on information available to them at the time of their examination.
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate and are
carried as "Loans held for sale" on the balance sheet. Net unrealized losses
are recognized through a valuation allowance by charges to income. Gains and
losses on the sale of loans held for sale are determined using the specific
identification method using quoted market prices.
NOTE 7 - FORECLOSED REAL ESTATE
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value (after deducting estimated
costs to sell) at the date of foreclosure, establishing a new cost basis.
Costs related to development and improvement of property are capitalized,
whereas costs related to holding property are expensed. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less estimated costs to
sell. Revenue and expenses from operations and changes in any valuation
allowance are included in loss on foreclosed real estate.
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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, 2002 and, from time to time, in the Company's other filings
with the Securities and Exchange Commission.
BALANCE SHEET
At March 31, 2003, total assets were $367,802, an increase of $34,741, or
10.4%, over March 31, 2002. However, assets declined $3,666, or 1.0% from
December 31, 2002. Gross loans (including loans held for sale and unamortized
direct loan origination costs) were $259,264 at March 31, 2003, growing $18,288
over first quarter 2002 but declining $858 from December 31, 2002. Book value
of investment securities was $75,895 at March 31, 2003, an increase of $6,907
or 10.0% over March 31, 2002, but declined $5,161 from December 31, 2002. The
decline in securities during the current quarter was due primarily to
prepayments of principal on mortgage-backed securities. The majority of this
cash flow was used to pay depositor withdrawals. Interest-bearing deposits
declined $5,843, or 2.3% from December 31, 2002 to March 31, 2003.
Table 1: Period-End Loan Composition
March 31, March 31, December 31, 2002
Dollars Dollars Percentage of total Percentage
(dollars in thousands) 2003 2002 2003 2002 Dollars of total
Commercial, industrial and agricultural $65,537 $65,617 25.3% 27.2% $64,529 24.8%
Commercial real estate mortgage 118,424 97,647 45.7% 40.5% 114,982 44.2%
Residential real estate mortgage 57,802 60,669 22.3% 25.2% 61,948 23.8%
Residential real estate loans held for sale - 634 0.0% 0.3% 949 0.4%
Consumer home equity 7,364 5,028 2.8% 2.1% 7,274 2.8%
Consumer and installment 10,137 11,381 3.9% 4.7% 10,440 4.0%
Totals $259,264 $240,976 100.0% 100.0% 260,122 100.0%
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The current level of low long-term residential mortgage interest rates
continues to contribute to a reallocation of the Company'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
generally sold to investors in the secondary market, and commercial real estate
and industrial loans were increased to continue asset growth.
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 first quarter
2003, the Company refocused efforts to increase retail installment and home
equity loans by expanding consumer loan origination authority to deposit
customer service personnel. Home equity loans are actively promoted to high
quality individual borrowers with 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 aggregate amount of nonperforming assets decreased $723 to $3,424 at March
31, 2003 from $4,147 at March 31, 2002, primarily because of fewer nonaccrual
status loans. However, nonperforming assets have increased $418 from $3,006 at
December 31, 2002. Total nonperforming assets as a percentage of total assets
continues to be favorable with .93% and .81% at March 31, 2003 and December 31,
2002, respectively.
Table 2: Allowance for Loan Losses
Three months ended
March 31,
(dollars in thousands) 2003 2002
Allowance for loan losses at beginning $3,158 $2,969
Provision for loan losses 225 180
Recoveries on loans previously charged-off - 29
Loans charged off (68) (23)
Allowance for loan losses at end $3,315 $3,155
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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.
Table 3: Nonperforming Assets
March 31, December 31,
(dollars in thousands) 2003 2002 2002
Nonaccrual loans $ 2,036 $ 2,870 $ 1,786
Accruing loans past due 90 days or more - 34 -
Restructured loans 883 993 647
Total nonperforming loans 2,919 3,897 2,433
Foreclosed assets 505 250 573
Total nonperforming assets $ 3,424 $ 4,147 $ 3,006
Nonperforming loans as a % of gross
loans receivable 1.13% 1.62% 0.94%
Total nonperforming assets as a % of total
assets 0.93% 1.25% 0.81%
LIQUIDITY
Liquidity refers to the ability of the Company to generate adequate amounts of
cash to meet the Company's need for cash at a reasonable cost. 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 core and
time deposits as a percentage of total funding sources were 75.1% at March 31,
2003, and 76.7% at March 31, 2002. Wholesale funding and broker and national
certificates of deposit represent the balance of the Company's total funding
needs.
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Table 4: Period-end Deposit Composition
March 31,
2003 2002
(dollars in thousands) $ % $ %
Non-interest bearing demand $46,050 15.74% $33,324 12.62%
Interest-bearing demand and savings 38,236 13.07% 28,735 10.88%
Money market deposits 67,107 22.94% 74,101 28.08%
Retail time deposits less than $100 61,805 21.12% 60,283 22.83%
Retail time deposits $100 and over 38,542 13.17% 37,634 14.25%
Broker & national time deposits
less than $100 12,055 4.12% 9,404 3.56%
Broker & national time deposits $100
and over 28,785 9.84% 20,545 7.78%
Totals $292,580 100.00% $264,026 100.00%
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 2002 and
2003, the yield on this account has declined substantially. Deposits due to
investors as part of the Company's secondary market loan servicing activities
contributed to the increase in total non-interest bearing deposits over the
prior March 31, 2002. As a source of low cost long-term deposits and in
connection with a new full service retail location in Rhinelander, Wisconsin,
the Company is aggressively seeking commercial non-interest bearing deposits as
well as consumer core deposits.
Table 5: Summary of Changes by Significant Deposit Source
March 31, Change from prior year
(dollars in thousands) 2003 2002 $ %
Total time deposits $100 and over $67,327 $58,179 $9,148 15.72%
Total broker and national time deposits 40,840 29,949 10,891 36.37%
Total retail time deposits 100,347 97,917 2,430 2.48%
Core deposits, including money market
deposits 151,393 136,160 15,233 11.19%
The Company's retail deposit offices are in locations that demand consumer
retail deposit rates generally greater than national rates for equivalent
certificate of deposit terms. To fund larger commercial loan originations or
acquire other large blocks of funding, the Company actively purchases broker
and other national time deposits. The Company actively manages such deposits
to control the potential volatility of such funds while lowering overall
deposit borrowing costs. Consequently, broker and national deposits increased
substantially over the prior year, while local retail deposits have shown
modest growth in comparison.
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Unused credit advances from the Federal Home Loan Bank of Chicago available to
the Company at March 31, 2003 totaled approximately $43.6 million. In
addition, the Company had unused commitments from other correspondent banks for
federal funds purchased up to $22.5 million. The primary alternative 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 March 31, 2003.
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.
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Table 6: Interest Rate Sensitivity Gap Analysis
March 31, 2003
(dollars in thousands) 0-90 days 91-180 days 181-365 days 1-2 yrs Beyond 2-5 yrs Beyond 5 yrs Total
Earning assets:
Loans $91,489 $24,286 $35,187 $56,258 $46,072 $5,972 $259,264
Securities 11,075 6,430 11,407 13,357 18,767 14,859 75,895
FHLB stock 2,327 2,327
Other earning assets 10,534 10,534
Total $115,425 $30,716 $46,594 $69,615 $64,839 $20,831 $348,020
Cumulative rate
sensitive assets $115,425 $146,141 $192,735 $262,350 $327,189 $348,020
Interest-bearing liabilities
Interest-bearing deposits $96,419 $25,379 $31,220 $21,287 $31,596 $40,629 $246,530
FHLB advances 5,000 6,000 13,000 14,000 38,000
Other borrowings 925 400 208 1,828 300 1,040 4,701
Total $102,344 $25,779 $37,428 $36,115 $45,896 $41,669 $289,231
Cumulative interest
sensitive liabilities $102,344 $128,123 $165,551 $201,666 $247,562 $289,231
Interest sensitivity gap for
the individual period $13,081 $4,937 $9,166 $33,500 $18,943 $(20,838)
Ratio of rate sensitive assets
to rate sensitive liabilities
for the individual period 112.8% 119.2% 124.5% 192.8% 141.3% 50.0%
Cumulative interest
sensitivity gap $13,081 $18,018 $27,184 $60,684 $79,627 $58,789
Cumulative ratio of rate
sensitive assets to rate
sensitive liabilities 112.8% 114.1% 116.4% 130.1% 132.2% 120.3%
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
Company'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 March 31, 2003, the Company's basic surplus, including
available FHLB advances not yet utilized was above the 5% minimum required by
policy.
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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 March 31, 2003, 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 March 31, 2003, the Company's core fund utilization ratio was
within policy requirements.
CAPITAL RESOURCES
Stockholders' equity at March 31, 2003 increased $4,194 to $30,370, or 16.0%
from $26,176 at March 31, 2002. Stockholders' equity included unrealized gains
on securities available for sale, net of their tax effect, of $1,198 at March
31, 2003 compared to unrealized gains of $369 at March 31, 2002. The primary
reason for the increase in unrealized gains on securities is the continued
decline in long-term reinvestment rates in the overall financial markets. This
rate decline increases the value of existing securities purchased at previously
higher rates. The Company intends to continue to hold securities carrying an
unrealized gain as a support to net interest margin rather than sell such
securities at a gain due to currently unfavorable reinvestment rates.
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 March 31, 2003, 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.
The Company maintains an annual, ongoing share repurchase program of up to 1%
of outstanding shares per year. During the quarter ended March 31, 2003, the
Company repurchased 1,800 shares at an average price of $26.73 per share. The
Company expects to purchase an additional 14,900 shares during the remainder of
2003. During the quarter ended March 31, 2002 the Company repurchased 4,000
shares at an average price of $17.50 per share. Management anticipates, with
the new Rhinelander location, needing existing capital to
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significantly increase loans held for investment in 2003. Although the Company
is currently purchasing treasury shares under the buyback program described
above, large scale stock buybacks or significant increases in dividend payments
are not anticipated.
Table 7: Capital Ratios - Consolidated Holding Company
March 31, Dec. 31,
2003 2002 2002
Tier 1 capital to period end tangible assets (leverage ratio) 7.93% 7.75% 7.55%
Tier 1 capital to adjusted risk-weighted assets 10.53% 10.37% 10.25%
Total capital to adjusted risk-weighted assets 11.73% 11.62% 11.41%
On November 19, 2002, the Company's shareholders approved an increase in
authorized shares from 1,000,000 to 3,000,000, allowing the Board of Directors
to effect a 2 for 1 stock split paid on December 2, 2002. All references in
the accompanying financial statements and statistical analysis to the number of
common shares and per share amounts for 2002 have been restated to reflect the
split.
RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 2003 totaled $1,224, or $.73 per
basic and diluted basic earnings per share. Comparatively, net income for the
quarter ended March 31, 2002 was $958, or $.57 per share for basic and diluted
earnings per share. Operating results for the first quarter 2003 generated an
annualized return on average assets of 1.36% and an annualized return on
average equity of 16.63%, compared to 1.14% and 14.78% for the comparable
period in 2002. The net interest margin for the first quarter 2003 was 3.89%
compared to 3.87% for the comparable quarter in 2002.
The following Table 8 presents consolidated quarterly summary financial data of
PSB Holdings, Inc. and Subsidiary.
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Table 8: Financial Summary
(dollars in thousands, except per share data)Quarter ended
March 31, Dec. 31, Sept. 30, June 30, March 31,
EARNINGS AND DIVIDENDS: 2003 2002 2002 2002 2002
Net interest income $3,232 $3,288 $3,256 $3,104 $2,994
Provision for loan losses $225 $300 $450 $180 $180
Other noninterest income $1,122 $1,040 $841 $602 $565
Other noninterest expense $2,317 $2,072 $2,097 $2,046 $2,012
Net income $1,224 $1,332 $1,051 $1,024 $958
Basic earnings per share $0.73 $0.80 $0.63 $0.61 $0.57
Diluted earnings per share $0.73 $0.80 $0.63 $0.61 $0.57
Dividends declared per share $- $0.38 $- $0.19 $-
Net book value per share $18.24 $17.59 $16.83 $16.34 $15.59
Dividend payout ratio 0.00% 46.88% 0.00% 1.15% 0.00%
Average common shares outstanding 1,665,729 1,667,341 1,672,836 1,678,832 1,679,230
BALANCE SHEET - AVERAGE BALANCES:
Loans receivable, net of allowances for loss $256,715 $255,591 $249,691 $240,602 $238,284
Assets $365,906 $363,507 $355,224 $336,125 $336,879
Deposits $289,635 $291,049 $283,889 $265,931 $267,050
Stockholders' equity $29,848 $28,677 $27,792 $26,972 $25,924
PERFORMANCE RATIOS:
Return on average assets (1) 1.36% 1.45% 1.17% 1.22% 1.14%
Return on average stockholders' equity (1) 16.63% 18.43% 15.00 %15.23% 14.78%
Average tangible stockholders' equity to
average assets 7.84% 7.71% 7.61% 7.87% 7.59%
Net loan charge-offs to average loans 0.03% 0.21% 0.12% 0.03% 0.00%
Nonperforming loans to gross loans 1.13% 0.94% 1.74% 1.23% 1.62%
Allowance for loan losses to gross loans1 .28% 1.22% 1.33% 1.30% 1.31%
Net interest rate margin (1)(2) 3.89% 3.89% 3.95% 4.04% 3.87%
Net interest rate spread (1)(2) 3.42% 3.36% 3.43% 3.53% 3.35%
Service fee revenue as a percent of
average demand deposits (1) 2.99% 2.98% 3.41% 3.76% 2.65%
Noninterest income as a percent
of gross revenue 17.49% 15.81% 13.05% 10.02% 9.52%
Efficiency ratio 51.67% 46.42% 49.52% 53.23% 54.54%
Noninterest expenses to average assets (1) 2.57% 2.26 %2.34% 2.44% 2.39%
STOCK PRICE INFORMATION:
High $27.25 $25.00 $21.05 $19.63 $18.00
Low $23.75 $20.55 $19.18 $17.50 $16.63
Market value at quarter-end $27.25 $25.00 $20.58 $19.25 $17.75
(1)Annualized
(2)The yield on tax-exempt loans and securities is computed on a tax-equivalent
basis using a tax rate of 34%.
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NET INTEREST INCOME
Net interest income is the most significant component of earnings. Tax
adjusted net interest income increased $238 from $3,124 for the quarter ended
March 31, 2002 to $3,362 for the current quarter ended March 31, 2003.
Compared to the prior year quarter, net interest income increased $268 from
additional asset volume, but decreased $30 due to changes in interest rates.
Tax-adjusted net interest margin as a percent of average interest earning
assets increased slightly from 3.87 percent in March 2002 to 3.89 percent in
March 2003. Net interest margin was 3.95 percent for the year ended December
31, 2002.
However, tax adjusted net interest income of $3,362 in the quarter ended March
2003 declined compared to the most recent quarters ended December 2002 ($3,424)
and September 2002 ($3,394). During 2002, 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,
the prolonged low interest rate environment has put more pressure on loan and
asset yields than on already low cost of funds. In addition, the Company has
positioned itself for an eventual increase in interest rates by extending
maturities of certain liabilities at a higher cost. The Company continues to
be asset sensitive as seen in Table 6 with a cumulative ratio of rate sensitive
assets to rate sensitive liabilities of 116.4%. In the near term, the Company
expects continued net interest margin compression due to assets repricing if
stable interest rates are assumed. Some primary strategies currently utilized
by the Company to increase 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. Leverage existing capital and the new market location in Rhinelander,
Wisconsin to originated lower margin asset growth and increase net
interest income dollars although net interest margin percentage would
likely decline.
Yield on earning assets decreased 54 basis points to 6.28% compared to 6.82% at
March 31, 2002. Similarly, the costs for interest-bearing liabilities
decreased 61 basis points to 2.86% from 3.47% at March 31, 2002. Due to both
national and global factors, both economic and social, it is difficult to
predict whether short-term rates are at the bottom of the rate cycle.
Management believes it is well positioned for any future rate increases, as
well as continued or lower rate environments relative to competitors. Refer to
the previous discussion on management of net interest margin and the liquidity
for the Company's strategies and positions in this area.
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Table 9: Net Interest Income Analysis
(dollars in thousands) Quarter ended March 31, 2003 Quarter ended March 31, 2002
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Assets
Interest-earning assets:
Loans (1)(2) $259,927 $4,411 6.88% $241,320 $4,406 7.30%
Taxable securities 58,212 615 4.28% 49,826 690 5.54%
Tax-exempt securities (2) 21,583 338 6.35% 20,043 339 6.77%
FHLB stock 2,304 36 6.34% 2,177 26 4.78%
Other 8,069 23 1.16% 9,151 39 1.70%
Total (2) 350,095 5,423 6.28% 322,517 5,500 6.82%
Non-interest-earning assets:
Cash and due from banks 9,625 9,158
Premises and equipment,
net 6,161 4,849
Other assets 3,237 3,391
Allowance for loan
losses (3,212) (3,036)
Total $365,906 $336,879
Liabilities & stockholders' equity
Interest-bearing liabilities:
Savings and demand
deposits $37,728 $62 0.67% $31,501 $93 1.18%
Money market deposits 69,963 184 1.07% 75,738 284 1.50%
Time deposits 140,878 1,266 3.64% 124,383 1,389 4.47%
FHLB advances 38,000 508 5.42% 38,000 564 5.94%
Other borrowings 6,056 41 2.75% 3,883 46 4.74%
Total 292,625 2,061 2.86% 273,505 2,376 3.47%
Non-interest-bearing liabilities:
Demand deposits 41,066 35,428
Other liabilities 2,367 2,022
Stockholders' equity 29,848 25,924
Total $365,906 $336,879
Net interest income 3,362 3,124
Rate spread 3.42% 3.35%
Net yield on interest-earning assets 3.89% 3.87%
(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%.
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Table 10: Interest Expense and Expense Volume and Rate Analysis
Quarter ended March 31, 2003
2003 compared to 2002
increase (decrease) due to (1)
(dollars in thousands) Volume Rate Net
Interest earned on:
Loans (2) $335 $(330) $5
Taxable securities 115 (190) (75)
Tax-exempt securities (2) 26 (27) (1)
FHLB stock 1 9 10
Other interest income (5) (11) (16)
Total 472 (549) (77)
Interest paid on:
Savings and demand deposits 18 (49) (31)
Money market deposits (21) (79) (100)
Time deposits 182 (305) (123)
FHLB advances - (56) (56)
Other borrowings 25 (30) (5)
Total 204 (519) (315)
Net interest earnings $268 $(30) $238
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) The yield on tax-exempt loans and investment securities has been adjusted
to its fully taxable equivalent using a 34% tax rate.
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 $225 for the three months ended March 31,
2003, and $180 for the three months ended March 31, 2002. Net charge-offs as a
percentage of average loans outstanding were .03% and .00% during the three
months ended March 31, 2003 and 2002, respectively.
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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 $557 to $1,122 during the three months ended March
31, 2003, from $565 in the comparable first quarter of 2002. The majority of
this growth ($408) was from an increase of income from the sale of long-term
fixed rate mortgage loans. Gain on sale of such loans during the quarter was
$606 in March 2003 (net of provision for mortgage servicing right valuation
allowance) compared to $198 during March 2002. There were no gains or losses
on securities during the three months ended March 31, 2003 and 2002. Service
fees on deposit accounts increased $68, or 28.9%, for the three months ended
March 31, 2003, from the three months ended March 31, 2002. Service fees as a
percentage (annualized) of average demand deposits increased from 2.65% during
March 2002 to 2.99% during March 2003. In addition to increased customer
overdraft fees collected, 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 Company
generally does not retain such fixed rate loans as part of its asset liability
management strategy. Gain on sale of such loans was $701 in March 2003 (before
provision for mortgage servicing right valuation allowance of $95) compared to
$198 during March 2002, for an increase of $503 (an increase of $408 after
provision for valuation allowances). The majority of loans sold to outside
investors continue to be serviced by the Company directly with the customer.
At March 31, 2003, the Company serviced $118,459 of loans for outside investors
compared to $44,486 serviced at March 31, 2002. The Company has seen customer
demand for fixed rate mortgages remain high as long-term fixed interest rates
in the overall market continue to be low and even decreasing slightly. The
gain on sale of loans was increased $396 and $86 from capitalization of
originated mortgage servicing rights during the quarters ended March 31, 2003
and 2002, respectively. At March 31, 2003, mortgage servicing rights totaled
$936 (after a valuation allowance of $115), which were carried at fair value
(the lower of amortized cost or fair value). The valuation allowance was
recorded to recognize impairment of the mortgage servicing right asset due to
declines in interest rates that may cause borrowers to prepay mortgage
principal much faster than estimated at the time the mortgage was originated.
Mortgage servicing rights at March 31, 2002 totaled $352 and were carried at
amortized cost.
As a FHLB Mortgage Partnership Finance loan servicer, the Company has provided
a credit enhancement guarantee to reimburse the FHLB for foreclosure losses in
excess of 1% of the original loan principal sold to the FHLB. At March 31,
2003, the maximum Company obligation on the entire servicing portfolio for such
guarantees would be approximately $335. Due historical strength of mortgage
borrowers in our markets and current economic conditions, management believes
the possibility of losses under guarantees to the FHLB to be remote.
-22-
The Company continues to promote annuity investment products for customers
looking for a higher yield than available on traditional certificates of
deposit. The product generated an additional $36 of commission income during
the first quarter 2003 compared to last year. The Company recently expanded
its investment sales product staff to generate noninterest income to support
earnings in the long-term after mortgage refinancing and related loan sales
decline. Commissions from the sale of investment products increased $17 from
$41 in March 2002 to $58 in March 2003.
NONINTEREST EXPENSE
Noninterest operating expenses increased $305, or 15.2% to $2,317 in March 2003
compared to $2,012 during March 2002. In addition, operating costs as a
percentage of average assets increased from 2.39 percent in March 2002 to 2.57
percent in the current quarter. Increases in employee salaries and benefits
made up $203 of the total increase, as Company employees were granted
inflationary and merit increases effective January 1, 2003 averaging 6.1%. In
addition, the Company hired additional lenders and investment sales
representatives during 2003 who are expected to make a significant impact in
the new Rhinelander, Wisconsin full service office and other Company locations.
Other expenses contributing to the increase were additional Rhinelander new
building and equipment depreciation, an increase in Company director fees as
disclosed in the March 4, 2003 annual meeting proxy statement, and collection
expenses associated with problem loans. During 2003, the Company implemented
new expenditure review and approval procedures by location or cost/revenue
center which have focused employees on cost control and achieving budgeted net
income results. The additional operating costs have been offset by increased
revenue, as the expense efficiency ratio has improved from 54.54% in March 2002
to 51.67% in the current quarter.
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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, 2002.
ITEM 4. INTERNAL CONTROLS AND PROCEDURES
An evaluation of the Company's disclosure controls and procedures (as defined
in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the "Act") was
carried out under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer within the 90-day period
preceding the filing date of this quarterly report on Form 10-Q. The Company's
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Company in the reports it files or submits under the Act is (i) accumulated and
communicated to the Company's management (including the Chief Executive Officer
and Chief Financial Officer) in a timely manner, and (ii) recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules
and forms. In the quarter ended March 31, 2003, the Company did not make any
significant changes in, nor take any corrective actions regarding, its internal
controls or other factors that could significantly affect these controls.
-24-
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 1, 2003, the Company distributed 1,594 shares of its common
stock (valued for this purpose at $27.25 per share) to its directors in lieu of
cash payments under the director's incentive compensation plan. This
distribution was exempt from registation under Sections 4(2) and 3(9)(11)
of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits.
Exhibits required by Item 601 of Regulation S-K.
Exhibit
Number Description
10.1* PSB Holdings, Inc. Directors Deferred Compensation Plan
10.2* Employment and Change of Control Agreement with Scott M. Cattanach
99.1 Certifications under Section 906 of Sarbanes-Oxley Act of 2002
*Denotes Executive Compensation Plans and Arrangements.
(b) Reports on Form 8-K:
Form 8-K dated January 24, 2003. The Company filed a current report on
Form 8-K on January 24, 2003, reporting earnings for the fourth quarter
and fiscal year ended December 31, 2002, under Item 5 and additional
related disclosure under Item 9, Regulation FD Disclosure.
-26-
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.
May 12, 2003 SCOTT M. CATTANACH
Scott M. Cattanach
Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
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
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: May 12, 2003
DAVID K. KOPPERUD
David K. Kopperud
President and Chief Executive
Officer
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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
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: May 12, 2003
SCOTT M. CATTANACH
Scott M. Cattanach
Treasurer (Principal Financial
Officer)
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EXHIBIT INDEX
to
FORM 10-Q
of
PSB HOLDINGS, INC.
for the quarterly period ended March 31, 2003
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:
10.1 PSB Holdings, Inc. Directors Deferred Compensation Plan
10.2 Employment and Change of Control Agreement with Scott M. Cattanach
99.1 Certification under Section 906 of Sarbanes-Oxley Act of 2002.
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