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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission File No. : 000-50301
PSB GROUP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 42-1591104
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(State of Organization) (IRS Employer Identification No.)
1800 EAST TWELVE MILE ROAD, MADISON HEIGHTS, MICHIGAN 48071
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(Address of Principal Executive Offices) (Zip Code)
(248) 548-2900
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(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES [ ] NO [X]
As of June 30, 2004, the last business day of the registrant's most
recently completed second quarter, the aggregate market value of the voting
stock held by non-affiliates of the registrant, computed by reference to the
last per share sales price of which the registrant is aware ($18.25 per share),
was approximately $50,968,472 (for purposes of this calculation, directors,
executive officers and beneficial owners of more than 10% of the registrant's
outstanding voting stock are treated as affiliates).
As of March 1, 2005, there were issued and outstanding 2,885,073 shares of
the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the Fiscal Year Ended December
31, 2004 (the "Annual Report") (Part II).
2. Portions of Proxy Statement for the 2005 Annual Meeting of Shareholders (the
"Proxy Statement") (Part III).
INDEX
PAGE
PART I........................................................................................................... 3
Item 1. Business............................................................................................. 3
Item 2. Properties........................................................................................... 14
Item 3. Legal Proceedings.................................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 16
SUPPLEMENTAL INFORMATION - EXECUTIVE OFFICERS OF THE REGISTRANT............................................... 16
PART II.......................................................................................................... 16
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.................................................................................... 16
Item 6. Selected Financial Data.............................................................................. 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................................... 17
Item 8. Financial Statements and Supplementary Data.......................................................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 17
Item 9A Controls and Procedures.............................................................................. 17
Item 9B Other Information.................................................................................... 17
PART III......................................................................................................... 17
Item 10. Directors and Executive Officers of the Registrant................................................... 17
Item 11. Executive Compensation............................................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters....... 18
Item 13. Certain Relationships and Related Transactions....................................................... 18
Item 14. Principal Accountant Fees and Services............................................................... 18
Item 15. Exhibits and Financial Statement Schedules........................................................... 19
SIGNATURES.................................................................................................... 21
2
PART I
ITEM 1. BUSINESS
PSB Group, Inc. (the "Company") was formed on February 28, 2003 as a bank
holding company for the purpose of owning Peoples State Bank (the "Bank")
pursuant to a plan of reorganization adopted by the Bank and its stockholders.
Pursuant to the reorganization, each share of Peoples State Bank stock held by
existing stockholders of the Bank was exchanged for three shares of common stock
of PSB Group, Inc. The reorganization had no consolidated financial statement
impact. Share amounts for all prior periods presented have been restated to
reflect the reorganization. In October, 2004, the Company formed a new
subsidiary, PSB Capital, Inc. Through December 31, 2004, there had been no
business conducted by PSB Capital, Inc.
The Bank was incorporated and chartered as Peoples State Bank under the
laws of the state of Michigan in 1909. In 1916, the Bank moved to the southeast
corner of Jos. Campau and Holbrook in Hamtramck, where the main office at 9252
Jos. Campau remains today. Following several name changes and a merger with four
small local banks in 1930, a plan of reorganization was accepted by the
shareholders, and the name was changed to "Peoples State Bank" in November 1934.
Effective May 15, 1998, the Bank acquired Madison National Bank, Madison
Heights, Michigan ("Madison"). Effective May 1, 2000, the Bank acquired 100% of
the common stock of Universal Mortgage Corporation, a southeast Michigan based
mortgage lender with 2 offices, one in Southfield, Michigan and one in Warren,
Michigan.
The Bank operated as a unit bank until July 20, 1992, when it opened its
first branch office at 3747 Fifteen Mile Road, Sterling Heights, Michigan. It
then continued its Macomb County expansion by opening the following branch
offices: (1) 25901 Harper Avenue, St. Clair Shores, Michigan - December 5, 1994;
(2) 14801 Twelve Mile Road, Warren, Michigan - March 13, 1995; and, (3) 31130
Ryan Road, Warren, Michigan - April 10, 1995. Subsequently, the Sterling Heights
office was closed on June 30, 1995 and consolidated into the new facility on
Ryan Road in Warren. During 1997, the Bank opened a supermarket branch at 40832
Ryan Road in Sterling Heights. On May 15, 1998, the Bank acquired Madison
pursuant to a Merger Agreement in which Madison was merged with and into the
Bank (the "Merger"). In connection with the Merger, the Bank acquired the former
offices of Madison which include Madison's former main office at 1800 E. Twelve
Mile Road in Madison Heights, Michigan, a branch office in Madison Heights, two
branches in Farmington Hills and one branch in each of Southfield and Fraser.
Effective March 15, 2001, the Bank closed on a branch sale and assumption
agreement with a newly formed bank holding company. Pursuant to that agreement,
the Bank sold certain assets and transferred certain liabilities to the newly
formed holding company, effectively closing the Plymouth, Michigan branch. In
June 2001, the Bank closed one of the Farmington Hills, Michigan branches. The
cash, furniture, fixtures, equipment and deposits were transferred to another
branch. On March 4, 2002 the Bank opened a branch in Grosse Pointe Woods,
Michigan. In September, 2003, the Fraser branch was closed with the deposit
relationships transferred to another branch. As of December 31, 2004, the newest
branch, in Sterling Heights, was completed with a scheduled opening in January
2005.
As of December 31, 2004, the Company had approximately $461.3 million in
total assets, $338.7 million in total loans, $411.1 million in total deposits
and $43 million in total shareholder equity.
PRODUCTS AND SERVICES
The Company provides customary retail and commercial banking services to
its customers, including checking and savings accounts, time deposits, safe
deposit facilities, commercial loans, real estate mortgage loans, installment
loans, IRAs and night depository facilities. The Bank's deposits are insured by
the FDIC to applicable legal limits and the Bank is supervised and regulated by
the FDIC and Michigan Office of Financial and Insurance Services, Division of
Financial Institutions.
Lending Activities
The Company provides a full range of retail and commercial banking
services designed to meet the borrowing and depository needs of small and medium
sized businesses and consumers in local areas. Substantially all of the
Company's loans are to customers located within its service area. The Company
has no foreign loans or
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highly leveraged transaction loans, as defined by the Federal Reserve Board
("FRB"). The Company conducts its lending activities pursuant to the loan
policies adopted by its Board of Directors. These loan policies grant individual
loan officers authority to make secured and unsecured loans in specific dollar
amounts; senior officers or various loan committees must approve larger loans.
The Company's management information systems and loan review policies are
designed to monitor lending sufficiently to ensure adherence to the Company's
loan policies.
The commercial loans offered by the Company include (i) commercial real
estate loans, (ii) operating lines of credit and other commercial term loans,
(iii) construction loans, and (iv) SBA-guaranteed loans. The Company's
commercial real estate loans are used to provide permanent financing for
owner-occupied, retail and office buildings, multiple-family buildings and
churches. Commercial real estate secured loans are generally written on a three
to five year term, with amortizing periods ranging up to 25 years. Personal
guarantees are obtained on nearly all commercial loans. Credit analyses, loan
review and an effective collections process are also used to minimize any
potential losses. The interest rates charged on loans vary with the degree of
risk and loan amount and are further subject to competitive pressures, money
market rates, the availability of funds and government regulations.
Approximately 55% of the Company's portfolio has interest rates that float with
a reference rate.
Real estate loans include residential mortgages for which the Company
holds first and second collateral positions in real property. Real estate loans
include adjustable and fixed-rate loans secured by first priority liens on
one-to four-family residential properties. Residential mortgage products include
fixed rate loans, fixed rate balloon loans and adjustable rate mortgages. Terms
vary from a seven-year ARM to a one year adjustable with a 30 year amortization.
The longest term allowed on a fixed rate loan is 30 years. The Company does not
purchase loans but is active in secondary market lending and is also a member of
the Federal Home Loan Bank of Indianapolis.
Construction loans are typically made to individuals and contractors to
construct single-family residences and commercial buildings. These loans
generally have maturities of three to 18 months. These loans are variable rate
and it is typical for "take out" commitments to be in place as a part of the
transaction. All construction loans are funded at the lower of 80% of appraised
value or cost of construction.
Consumer loans offered by the Company include (i) personal unsecured lines
of credit, (ii) personal installment loans, (iii) credit card, and (iv) home
equity loans (fixed-rate term and open ended revolving lines of credits).
Consumer loans are primarily automobile, home equity or unsecured loans.
Consumer loans generally have maturities of five years or less and have fixed
interest rates. Other loans consist of personal lines of credit and bank card
advances. Personal lines of credit and home equity lines generally have
maturities from one to ten years and variable interest rates. Bank card payments
are generally due monthly and bear interest rates that vary from time-to-time.
Personal unsecured loans are available to creditworthy bank customers with
limits determined on a loan by loan basis. The largest segment of the Company's
installment loan portfolio is fixed rate loans secured by motor vehicles.
"Indirect dealer paper" accounts for most of the loans, although direct auto
loans are also available with terms of 24 to 72 months for both new and used
vehicles. The Company no longer originates indirect dealer paper. Credit reports
and industry standard debt-to-income ratios of 40% or less are used to qualify
borrowers. Home equity products include both a fixed-rate term product and an
open-end revolving line of credit.
Loan Approval
Individual loan authorities are established by the Company's Board of
Directors upon recommendation by the Company's senior lender. In establishing
individual authority the experience of the lender is taken into consideration,
as well as the type of lending in which the officer is involved. The Officers
Loan Committee consists of the President of the Company, the senior lender,
other lending officers and credit officers as recommended by the senior lender
and approved by the Directors Loan Committee. The Officers Loan Committee has
the authority to approve and consummate loans up to $1,000,000. The Directors
Loan Committee of the Board of Directors has the authority to approve loans up
to $2,000,000. These loans come to the Committee with a review, analysis and
recommendation by the lender and the Officers Loan Committee. Loans exceeding
$2,000,000 come to the full Board of Directors after review by the Directors
Loan Committee with their recommendation and that of the lender. The full Board
of Directors reviews, on a monthly basis, all loans approved by the Officers
Loan Committee.
4
The Company generally requires that loans secured by first mortgages on
real estate have loan to value ratios within specified limits, up to 90% for
improved property, with the exception of secondary market programs and loans
secured by private mortgage insurance which allow loan to value ratios as high
as 100%. The Company also makes loans secured by second mortgages on real
estate. The Company also offers non-conforming loans with certain restrictions
for those customers having a lack of credit history. This product has a maximum
portfolio balance of $70,000,000 and is targeted at the market of relocated
persons from abroad.
Under applicable federal and state law, the Bank's permissible loans to
one borrower are also limited. The Company utilizes internal limits that may be
less than or equal to the prevailing legal limits.
NON-PERFORMING ASSETS
ASSET QUALITY. Asset quality is an important factor in the successful
operation of a financial institution. The loss of interest income and principal
that may result from non-performing assets has an adverse affect on earnings,
while the resolution of those assets requires the use of capital and managerial
resources. The Company maintains a conservative philosophy regarding its
underwriting guidelines. It also maintains loan monitoring policies and systems
that require detailed monthly and quarterly analysis of delinquencies,
non-performing loans, non-accrual loans, repossessed and other assets. Reports
of such categories are reviewed by management and the Board of Directors.
Deposit Activities
The Company also offers a full range of deposit and personal banking
services insured by the Federal Deposit Insurance Corporation ("FDIC"),
including (i) commercial checking and small business checking products, (ii)
retirement accounts such as Individual Retirement Accounts ("IRA"), retail
deposit services such as certificates of deposits, money market accounts,
savings accounts, checking account products and Automated Teller Machines
("ATMs"), Point of Sale and other electronic services, and (iv) other personal
miscellaneous services such as safe deposit boxes, foreign drafts, foreign
currency exchanges, night depository services, travelers checks, merchant credit
cards, direct deposit of payroll, U.S. savings bonds, official bank checks and
money orders. The Company also offers credit cards and internet banking. Full
estate and trust services, insurance and investment advice are offered through a
partnership with The Private Bank, Bloomfield Hills, Michigan.
The principal sources of funds for the Company are core deposits (demand
deposits, interest-bearing transaction accounts, money market accounts, savings
deposits, and certificates of deposit). The Company solicits these deposits from
individuals, businesses, foundations and governmental authorities. Substantially
all of the Company's deposits are from local market areas surrounding each of
its offices. The Company traditionally has not sought brokered deposits and does
not intend to do so in the foreseeable future.
Investment Portfolio and Activities
The Company's investment portfolio has several objectives. A key objective
is to provide a balance in the Company's asset mix of loans and investments
consistent with its liability structure, and to assist in management of interest
rate risk. The investments augment the Company's capital position in the risk
based capital formula, providing necessary liquidity to meet fluctuations in
credit demands of the community and fluctuations in deposit levels. In addition,
the portfolio provides collateral for pledging against public funds, and a
reasonable allowance for control of tax liabilities. Finally, the investment
portfolio is designed to provide income for the Company. In view of the above
objectives, the portfolio is treated conservatively by management, and only
securities that pass conservative investment criteria are purchased. The Company
does not engage in any derivatives trading. The portfolio will commonly
fluctuate between 10% and 30% of the Company's assets. All of the Company's
investment securities are classified as available for sale.
5
Borrowings
From time to time, the Company obtains advances from the FHLB of
Indianapolis. Each borrowing is at separate terms including interest rate and
month until repayment. The Company can vary these terms depending on the
specific liquidity and rate mix objective that management is trying to meet at
the time of the borrowing. Objectives can change at various points in time
depending on market conditions and loan funding needs.
The Company also purchases federal funds from various other financial
institutions in order to satisfy overnight liquidity needs. Federal funds
purchases are renewable on a daily basis and are generally subject to interest
rates established by the Federal Reserve Bank.
Additional Activities
The Company provides its commercial and public fund accounts with money
market sweep accounts through Federated Investments, a third party vendor. The
Private Bank, Bloomfield Hills, Michigan provides estate and trust services,
investments, insurance and advice to our customers through a partnership with
the Company.
MARKET AREA AND COMPETITION
The primary service area of the Company consists of southern Oakland
County, southern Macomb County and those portions of Wayne County that include
the city of Detroit and its northern suburbs.
The Company operates in a highly competitive industry. The Company's main
competition comes from other commercial banks, savings and loan associations,
credit unions, brokerage firms, insurance companies, finance companies, mortgage
companies and a host of other financial service providers.
The Company generally competes with other financial institutions through
the banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal manner in which these services are delivered. The
Company encounters strong competition from most of the financial institutions in
the Company's extended market area.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions and
general economic conditions, but also by the requirements of applicable state
and federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Division of Financial Institutions (the
"DFI") of the Michigan Office of Financial and Insurance Services, the Board of
Governors of the Federal Reserve System (the "Federal Reserve"), the Federal
Deposit Insurance Corporation (the "FDIC"), the Internal Revenue Service and
state taxing authorities and the Securities and Exchange Commission (the "SEC").
The effect of applicable statutes, regulations and regulatory policies can be
significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Bank, regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Company and the Bank establishes a
comprehensive framework for their respective operations and is intended
primarily for the protection of the FDIC's deposit insurance funds and the
depositors, rather than the shareholders, of financial institutions.
6
The following is a summary of the material elements of the regulatory
framework that applies to the Company and the Bank. It does not describe all of
the statutes, regulations and regulatory policies that apply to the Company and
the Bank, nor does it restate all of the requirements of the statutes,
regulations and regulatory policies that are described. As such, the following
is qualified in its entirety by reference to the applicable statutes,
regulations and regulatory policies. Any change in applicable law, regulations
or regulatory policies may have a material effect on the business of the Company
and the Bank.
The Company participates in various community development programs in an
effort to meet its responsibilities under the Community Reinvestment Act
("CRA"). The Bank has been consistently rated "Satisfactory" in meeting its
obligations under the CRA.
THE COMPANY
GENERAL. The Company, as the sole stockholder of the Bank is a bank
holding company. As a bank holding company, the Company, is registered with, and
is subject to regulation by, the Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the
Company is expected to act as a source of financial strength to its bank
subsidiaries and to commit resources to support its bank subsidiary in
circumstances where the Company might not do so absent such policy. Under the
BHCA, the Company is subject to periodic examination by the Federal Reserve and
is required to file with the Federal Reserve periodic reports of its operations
and such additional information as the Federal Reserve may require.
A bank holding company is a legal entity separate and distinct from its
subsidiary banks. Normally, the major source of a holding company's revenue is
dividends it receives from its subsidiary banks. The right of a bank holding
company to participate as a stockholder in any distribution of assets of its
subsidiary banks upon their liquidation or reorganization or otherwise is
subject to the prior claims of creditors of such subsidiary banks. The
subsidiary banks are subject to claims by creditors for long-term and short-term
debt obligations, including obligations for Federal funds purchased and
securities sold under repurchase agreements, as well as deposit liabilities.
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989,
in the event of a loss suffered by the FDIC in connection with a banking
subsidiary of a bank holding company (whether due to a default or the provision
of FDIC assistance), other banking subsidiaries of the holding company could be
assessed for such loss.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain Federal Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after the acquisition, it would own or control more than 5% of the
shares of the other bank or bank holding company (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially all
of the assets of another bank; or (iii) merging or consolidating with another
bank holding company. Subject to certain conditions (including certain deposit
concentration limits established by the BHCA), the Federal Reserve may allow a
bank holding company to acquire banks located in any state of the United States
without regard to whether the acquisition is prohibited by the law of the state
in which the target bank is located. In approving interstate acquisitions,
however, the Federal Reserve is required to give effect to applicable state law
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution affiliates
in the state in which the target bank is located (provided that those limits do
not discriminate against out-of-state depository institutions or their holding
companies) and state laws which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.
The BHCA also generally prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company which is not a bank and from engaging in any business other than that of
banking, managing and controlling banks or furnishing services to banks and
their subsidiaries. This general prohibition is subject to a number of
exceptions. The principal exception allows bank holding companies to engage in,
and to own shares of companies engaged in, certain businesses found by the
Federal Reserve to be "so closely related to banking ... as to be a proper
incident thereto." Under current regulations of the Federal Reserve, the Company
and its non-bank subsidiaries are permitted to engage in a variety of
banking-related businesses, including the operation of a thrift, consumer
finance, equipment leasing, the operation of a computer service bureau
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(including software development), and mortgage banking and brokerage. The BHCA
generally does not place territorial restrictions on the domestic activities of
non-bank subsidiaries of bank holding companies.
In 1999, the Gramm-Leach-Bliley Act ("GLB Act") was signed into law. Under
the GLB Act, bank holding companies that meet certain standards and elect to
become "financial holding companies" are permitted to engage in a wider range of
activities than those permitted to bank holding companies, including securities
and insurance activities. Specifically, a bank holding company that elects to
become a financial holding company may engage in any activity that the Federal
Reserve Board, in consultation with the Secretary of the Treasury, determines is
(i) financial in nature or incidental thereto, or (ii) complementary to any such
financial-in-nature activity, provided that such complementary activity does not
pose a substantial risk to the safety and soundness of depository institutions
or the financial system generally. A bank holding company may elect to become a
financial holding company only if each of its depository institution
subsidiaries is well-capitalized, well-managed, and has a Community Reinvestment
Act rating of "satisfactory" or better at their most recent examination.
The GLB Act specifies many activities that are financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance; providing
financial, investment or economic advisory services; underwriting, dealing in,
or making a market in securities; and those activities currently permitted for
bank holding companies that are so closely related to banking or managing or
controlling banks, as to be a proper incident thereto.
The GLB Act changed federal laws to facilitate affiliation between banks
and entities engaged in securities and insurance activities. The law also
established a system of functional regulation under which banking activities,
securities activities, and insurance activities conducted by financial holding
companies and their subsidiaries and affiliates will be separately regulated by
banking, securities, and insurance regulators, respectively.
Federal law also prohibits any person or company from acquiring "control"
of a bank or bank holding company without prior notice to the appropriate
federal bank regulator. "Control" is defined in certain cases as the acquisition
of 10% of the outstanding shares of a bank or bank holding company.
REGULATORY CAPITAL REQUIREMENTS. Bank holding companies are required to
maintain minimum levels of capital in accordance with Federal Reserve capital
adequacy guidelines, which are substantially similar to those of the FDIC for
the Bank. See "Supervision and Regulation - The Bank - Regulatory Capital
Requirements" for a discussion of the risk-based framework for the assessment of
capital adequacy and components of Tier 1 and Tier 2 capital. If capital falls
below minimum guideline levels, a bank holding company, among other things, may
be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with a minimum requirement of 4% for all
others.
The risk-based and leverage standards described above are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the Federal Reserve's capital guidelines contemplate that
additional capital may be required to take adequate account of, among other
things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any banking
organization experiencing or anticipating significant growth would be expected
to maintain capital ratios well above the minimum levels.
As of December 31, 2004, the Company had regulatory capital in excess of
the Federal Reserve's minimum requirements with a ratio of Tier 1 capital to
risk-weighted assets of 11.54%, a ratio of total capital to risk-weighted assets
of 12.54%, and a leverage ratio of 8.62%.
8
DIVIDENDS. The Michigan Business Corporation Act prohibits the Company
from paying dividends or making other distributions to shareholders, if after
giving effect to the dividend or other distribution, the Company would not be
able to pay its debts as they become due in the usual course of business or if
the Company's assets would be less than the sum of its total liabilities plus
the amount that would be needed upon dissolution of the Company to satisfy
preferential rights of shareholders whose preferential rights are superior to
those receiving the dividend or other distribution.
Additionally, the Federal Reserve has issued a policy statement with
regard to the payment of cash dividends by bank holding companies. The policy
statement provides that a bank holding company should not pay cash dividends
which exceed its net income or which can only be funded in ways that weaken the
bank holding company's financial health, such as by borrowing. The Federal
Reserve also possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company
is subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. Peoples State Bank, as a state chartered banking institution, is
subject to primary supervision, examination, and regulation by the DFI, and the
FDIC. The Bank's activities are governed primarily by Michigan's Banking Code of
1999 (the "Banking Code") and the Federal Deposit Insurance Act ("FDI Act"). The
FDI Act, among other things, requires that federal banking regulators intervene
promptly when a depository institution experiences financial difficulties;
mandates the establishment of a risk-based deposit insurance assessment system;
and requires imposition of numerous additional safety and soundness operational
standards and restrictions. The FDI Act and other federal laws contain
provisions affecting numerous aspects of the operation and regulation of
federally insured banks and empower the FDIC, among other agencies, to
promulgate regulations implementing their provisions.
BRANCHING. State chartered banks have the authority under Michigan law to
establish branches throughout Michigan and in any state, the District of
Columbia, any U.S. territory or protectorate, and foreign countries, unless the
DFI objects in writing within 30 days after it receives notice of a bank's
intent to establish a branch.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
allows the FDIC and other federal bank regulators to approve applications for
mergers of banks across state lines without regard to whether such activity is
contrary to state law. However, each state can determine if it will permit out
of state banks to acquire only branches of a bank in that state or to establish
de novo branches.
LOANS TO ONE BORROWER. Under Michigan law, the Bank's total loans and
extensions of credit and leases to one person is limited to 15% of the Bank's
capital and surplus, subject to several exceptions. This limit may be increased
to 25% of the Bank's capital and surplus upon approval by a 2/3 vote of its
board of directors. Certain loans, including loans secured by bonds or other
instruments of the United States and fully guaranteed by the United States as to
principal and interest, are not subject to the limit just referenced. In
addition, certain loans, including loans arising from the discount of consumer
paper which carries a full recourse endorsement or unconditional guaranty of the
person transferring the paper, are subject to a higher limit of 30% of capital
and surplus.
BROKERED DEPOSITS. Under Michigan law, the Bank may advertise, broker, and
conduct other activities to procure and retain deposits. The FDI Act, however,
provides for certain restrictions on brokered deposits. In general,
well-capitalized banks are not subject to restrictions on accepting, renewing,
or rolling over brokered deposits. Adequately-capitalized banks are able to
accept, renew or roll over brokered deposits but only (i) if granted a waiver
from the FDIC, and (ii) subject to the limitation that they do not pay an
effective yield on any such deposit that exceeds by more than 75 basis points
(a) the effective yield paid on deposits of comparable size and maturity in such
bank's normal market area for deposits accepted in its normal market area, or
(b) the national rate paid on deposits of
9
comparable size and maturity for deposits accepted outside the bank's normal
market area. Undercapitalized banks are not permitted to accept brokered
deposits and may not solicit deposits by offering an effective yield that
exceeds by more than 75 basis points the prevailing effective yields on insured
deposits of comparable maturity in the bank's normal market area or in the
market area in which such deposits are being solicited.
ENFORCEMENT. The DFI and FDIC each have enforcement authority with respect
to the Bank. The Commissioner of the DFI has the authority to issue cease and
desist orders to address unsafe and unsound practices and actual or immanent
violations of law and to remove from office bank directors and officers who
engage in unsafe and unsound banking practices and who violate applicable laws,
orders, or rules. The Commissioner also has authority in certain cases to take
steps for the appointment of a receiver or conservator of a bank.
The FDIC has similar broad authority, including authority to bring
enforcement actions against all "institution-affiliated parties" (including
stockholders, directors, officers, employees, attorneys, consultants, appraisers
and accountants) who knowingly or recklessly participate in any violation of law
or regulation or any breach of fiduciary duty, or other unsafe or unsound
practice likely to cause financial loss to, or otherwise have an adverse effect
on, an insured institution. Civil penalties under federal law cover a wide range
of violations and actions. Criminal penalties for most financial institution
crimes include monetary fines and imprisonment. In addition, the FDIC has
substantial discretion to impose enforcement action on banks that fail to comply
with its regulatory requirements, particularly with respect to capital levels.
Possible enforcement actions range from requiring the preparation of a capital
plan or imposition of a capital directive, to receivership, conservatorship, or
the termination of deposit insurance.
ASSESSMENTS AND FEES. The Bank pays a supervisory fee to the DFI of not
less than $3,000 and not more than 25 cents for each $1,000 of total assets.
This fee is invoiced prior to July 1 each year and is due no later than August
15. The DFI imposes additional fees, in addition to those charged for normal
supervision, for applications, special evaluations and analyses, and
examinations.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the Federal Home
Loan Bank System, which consists of 12 regional FHLBs. The FHLBs provide a
credit reserve for their member institutions. The Bank, as a member of the
FHLB-Indianapolis, holds shares of capital stock in that FHLB in an amount at
least equal to 1% of the aggregate unpaid principal of its home mortgage loans,
home-purchase contracts, and similar obligations, based on the Bank's calendar
year-end financial data.
REGULATORY CAPITAL REQUIREMENTS. The Bank is required to comply with
capital adequacy standards set by the FDIC. The FDIC may establish higher
minimum requirements if, for example, a bank has previously received special
attention or has a high susceptibility to interest rate risk. Banks with capital
ratios below the required minimum are subject to certain administrative actions.
More than one capital adequacy standard applies, and all applicable standards
must be satisfied for an institution to be considered to be in compliance. There
are three basic measures of capital adequacy: a total risk-based capital ratio,
a Tier 1 risk-based capital ratio; and a leverage ratio.
The risk-based framework was adopted to assist in the assessment of
capital adequacy of financial institutions by, (i) making regulatory capital
requirements more sensitive to differences in risk profiles among organizations;
(ii) introducing off-balance-sheet items into the assessment of capital
adequacy; (iii) reducing the disincentive to holding liquid, low-risk assets;
and (iv) achieving greater consistency in evaluation of capital adequacy of
major banking organizations throughout the world. The risk-based guidelines
include both a definition of capital and a framework for calculating
risk-weighted assets by assigning assets and off-balance sheet items to
different risk categories. An institution's risk-based capital ratios are
calculated by dividing its qualifying capital by its risk-weighted assets.
Qualifying capital consists of two types of capital components: "core
capital elements" (or Tier 1 capital) and "supplementary capital elements" (or
Tier 2 capital). Tier 1 capital is generally defined as the sum of core capital
elements less goodwill and other intangibles. Core capital elements consist of
(i) common shareholders' equity, (ii) noncumulative perpetual preferred stock
(subject to certain limitations), and (iii) minority interests in the equity
capital accounts of consolidated subsidiaries. Tier 2 capital consists of (i)
allowance for loan and lease losses (subject to certain limitations); (ii)
perpetual preferred stock which does not qualify as Tier 1 capital (subject to
10
certain conditions); (iii) hybrid capital instruments and mandatory convertible
debt securities; (iv) term subordinated debt and intermediate term preferred
stock (subject to limitations); and (v) net unrealized holding gains on equity
securities.
Under current capital adequacy standards, the Bank must meet a minimum
ratio of qualifying total capital to risk-weighted assets of 8%. Of that ratio,
at least half, or 4%, must be in the form of Tier 1 capital.
The Bank must also meet a leverage capital requirement. In general, the
minimum leverage capital requirement is not less than 3% Tier 1 capital to total
assets if the bank has the highest regulatory rating and is not anticipating or
experiencing any significant growth. All other banks should have a minimum of
100 to 200 basis points higher resulting in a minimum leverage capital ratio of
not less than 4% for most banks.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC provide that additional capital may be required to take adequate account
of, among other things, interest rate risk or the risks posed by concentrations
of credit, nontraditional activities or securities trading activities.
The following table shows the capital totals and ratios for the Bank as of
December 31, 2004 (000s omitted in dollar amounts):
Tier 1 capital $ 38,065
Total capital $ 41,459
Tier 1 capital to risk weighted assets 11.32%
Total capital to risk weighted assets 12.33%
Leverage ratio 8.46%
PROMPT CORRECTIVE REGULATORY ACTION. The FDIC is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a bank
is considered "well capitalized" if its risk-based capital ratio is at least
10%, its Tier 1 risk-based capital ratio is at least 6%, its leverage ratio is
at least 5%, and the bank is not subject to any written agreement, order, or
directive by the FDIC.
A bank generally is considered "adequately capitalized" if it does not
meet each of the standards for well-capitalized institutions, and its risk-based
capital ratio is at least 8%, its Tier 1 risk-based capital ratio is at least
4%, and its leverage ratio is at least 4% (or 3% if the institution receives the
highest rating under the Uniform Financial Institution Rating System). A bank
that has a risk-based capital ratio less than 8%, or a Tier 1 risk-based capital
ratio less than 4%, or a leverage ratio less than 4% (3% or less for
institutions with the highest rating under the Uniform Financial Institution
Rating System) is considered to be "undercapitalized." A bank that has a
risk-based capital ratio less than 6%, or a Tier 1 capital ratio less than 3%,
or a leverage ratio less than 3% is considered to be "significantly
undercapitalized," and a bank is considered "critically undercapitalized" if its
ratio of tangible equity to total assets is equal to or less than 2%.
Subject to a narrow exception, the FDIC is required to appoint a receiver
or conservator for a bank that is "critically undercapitalized." The regulation
also provides that a capital restoration plan must be filed with the FDIC within
45 days of the date a bank receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by each company that controls a bank that
submits such a plan, up to an amount equal to 5% of the bank's assets at the
time it was notified regarding its deficient capital status. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions, and
expansion. The FDIC could also take any one of a number of discretionary
11
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
DEPOSIT INSURANCE. The Bank's deposits are insured by the FDIC through the
Bank Insurance Fund ("BIF"). As an insured institution, the Bank pays deposit
insurance premiums to the FDIC, which are determined in accordance with a
risk-based assessment system. Under this system, all insured depository
institutions are placed into one of nine categories, and insurance premiums are
based upon their capital level and supervisory evaluation. BIF-insured
institutions classified as well-capitalized and considered healthy pay the
lowest premium (currently 0% of deposits), while BIF-insured institutions that
are undercapitalized and of substantial supervisory concern pay the highest
premium (currently 0.27% of deposits).
PAYMENT OF DIVIDENDS BY THE BANK. There are state and federal requirements
limiting the amount of dividends which the Bank may pay. Generally, a bank's
payment of cash dividends must be consistent with its capital needs, asset
quality, and overall financial condition. The FDIC has the authority to prohibit
the Bank from engaging in any business practice (including the payment of
dividends) which it considers to be unsafe or unsound.
Under Michigan law, the payment of dividends is subject to several
restrictions. The Bank cannot declare or pay a cash dividend or dividend in kind
unless the Bank will have a surplus amounting to not less than 20% of its
capital after payment of the dividend. The Bank is required to transfer 10% of
net income to surplus until its surplus is equal to its capital before the
declaration of any cash dividend or dividend in kind. In addition, the Bank may
pay dividends only out of net income then on hand, after deducting its losses
and bad debts. These limitations can affect the Bank's ability to pay dividends.
INSIDER TRANSACTIONS. Federal laws limit certain transactions between the
Bank and its affiliates, including the Company and any non-bank subsidiaries of
the Company. Such transactions include loans or extensions of credit by the Bank
to the Company, the purchase of assets or securities of the Company, the
acceptance of the Company's securities as collateral for loans, and the issuance
of a guaranty, acceptance or letter of credit on behalf of the Company.
Transactions of this kind are limited to 10% of the Bank's capital and surplus
for transactions with one affiliate, and 20% of the Bank's capital and surplus
for transactions with all affiliates. Such transactions are also subject to
certain collateral requirements. These transactions, as well as other
transactions between the Bank and the Company, must also be on terms
substantially the same as, or at least as favorable as, those prevailing at the
time for comparable transactions with nonaffiliated companies or, in the absence
of comparable transactions, on terms, or under circumstances, including credit
standards, that would be offered to, or would apply to, nonaffiliated companies.
Under FDIC regulations, the Bank's authority to extend credit to executive
officers, directors, and principal shareholders of the Bank and the Company is
subject to the same restrictions set forth in Federal Reserve Regulation O.
Among other things, Regulation O (i) requires that any such loans be made on
terms substantially similar to those offered to nonaffiliated individuals, (ii)
places limits on the amount of loans the Bank may make to such persons based, in
part, on the Bank's capital position, and (iii) requires that certain approval
procedures be followed in connection with such loans.
Under Michigan law, the Bank may purchase securities or other property
from a director, or from an entity of which the director is an officer, manager,
director, owner, employee, or agent, only if such purchase (i) is made in the
ordinary course of business, (ii) is on terms not less favorable to the Bank
than terms offered by others, and (iii) the purchase is authorized by a majority
of the board of directors not interested in the sale. The Bank may also sell
securities or other property to its directors, subject to the same restrictions
(except in the case of a sale by the Bank, the terms may not be more favorable
to the director than those offered to others).
STANDARDS FOR SAFETY AND SOUNDNESS. The FDIC has established safety and
soundness standards applicable to the Bank regarding such matters as internal
controls, loan documentation, credit underwriting, interest-rate risk exposure,
asset growth, compensation and other benefits, and asset quality and earnings.
If the Bank were to fail to meet these standards, the FDIC could require it to
submit a written compliance plan describing the steps the Bank will take to
correct the situation and the time within which such steps will be taken. The
FDIC has authority to issue orders to secure adherence to the safety and
soundness standards.
12
REAL ESTATE LENDING STANDARDS. The FDIC and the other federal banking
agencies have issued uniform regulations prescribing real estate lending
standards. The FDIC regulations require the Bank to establish and maintain
written internal real estate lending standards consistent with safe and sound
banking practices, appropriate to the Bank's size and the nature and scope of
its real estate lending activities. The internal real estate lending standards
must also be consistent with FDIC guidelines, which include maximum
loan-to-value ratios for the following types of real estate loans: raw land (65
percent), land development (75 percent), commercial, multi-family, and
nonresidential construction (80 percent), improved property (85 percent) and one
to four-family residential construction (85 percent). Maximum loan-to-value
ratio limits have not been established for owner-occupied one- to-four-family
mortgage loans and home equity loans, but such loans with a loan-to-value ratio
at origination of 90 percent or greater are to be backed by private mortgage
insurance or readily marketable collateral. The Bank is permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations as long as such exceptions are appropriately reviewed and justified.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standard are justified.
FINANCIAL MANAGEMENT REQUIREMENTS. FDIC regulations require banks with
$500 million or more in total assets to undergo an annual independent audit, to
establish an audit committee comprised solely of outside directors, and to hire
outside auditors to evaluate the institution's internal control structure and
procedures for compliance with laws and regulations relating to safety and
soundness. For banks that are subsidiaries of holding companies, the independent
audit requirement may be satisfied by an independent audit of the consolidated
holding company. The FDIC guidelines and interpretations regarding financial
management reiterate the FDIC's belief that every depository institution,
regardless of size, should have an annual independent audit and an independent
audit committee.
RESERVE REQUIREMENT. Under a regulation promulgated by the Federal Reserve
Board, depository institutions, including the Bank, currently are required to
maintain non-interest earning reserves against a stated percentage of their
transaction accounts, as follows:
- for transaction accounts totaling $7 million or less, a reserve of
0%; and
- for transaction accounts in excess of $7 million up to and including
$47.6 million, a reserve of 3%; and
- for transaction accounts totaling in excess of $47.6 million, a
reserve requirement of $1.218 million plus 10% against that portion
of the total transaction accounts greater than $47.6 million.
The dollar amounts and percentages stated above are all subject to
adjustment by the Federal Reserve. The effect of maintaining the required
non-interest earning reserve is to reduce the Bank's interest-earning assets.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC
insured state banks are prohibited, subject to certain exceptions, from making
or retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member.
The GLB Act also authorizes insured state banks to engage in financial
activities, through subsidiaries, similar to the activities permitted for
financial holding companies. If a state bank wants to establish a subsidiary
engaged in financial activities, it must meet certain criteria, including that
it and all of its affiliated insured depository institutions are
well-capitalized and have a Community Reinvestment Act rating of at least
"satisfactory" and that it is well-managed. There are capital deduction and
financial statement requirements and financial and operational safeguards that
apply to subsidiaries engaged in financial activities. Such a subsidiary is
considered to be an affiliate of the bank and there are limitations on certain
transactions between a bank and a subsidiary engaged in financial activities of
the same type that apply to transactions with a bank's holding company and its
subsidiaries.
13
EMPLOYEES
As of December 31, 2004, the Company had 158 full-time employees and 28
part-time employees. The Company provides a number of benefits for its full-time
employees, including health and life insurance, workers' compensation, social
security, paid vacations, numerous bank services and a retirement plan.
INCORPORATION OF ADDITIONAL INFORMATION BY REFERENCE
The following information appearing in the 2004 Annual Report to
Shareholders is also incorporated into this Item 1:
"Loan Portfolio Composition" table - discloses distribution of loans of the
Bank.
"Loan Maturity" table - discloses maturities of loans.
"Non-Performing Assets" table - discloses the breakdown of non-performing assets
by category.
"Allowance for Loan Loss" and "Charge-off/Recovery" tables disclose the
allocation of loan loss allowance by category and the breakdown of charge-offs
and recoveries.
"Securities Portfolio" table - discloses the distribution of the securities
portfolio including book versus fair value comparison.
"Securities Maturity" table - discloses maturities of securities.
"Deposits" and "Time Deposits over $100,000" tables - disclose the distribution
of deposits of the Bank and maturities of time deposits over $100,000.
"Borrowings" table - discloses the distribution and maturities of borrowings.
"Consolidated Average Balances/Interest Earned-Paid/Rates 2002-2004" table -
presents average balance sheet amounts, interest earned or paid and related
average yields earned and rates paid.
"Rate/Volume Analysis" table - presents changes in the interest income and
expense for each major category of interest earning assets and interest bearing
liabilities.
Note 1, "Summary of Significant Accounting Policies" of the "Notes to
Consolidated Financial Statements" - discloses information on non-accrual and
past-due loans, the Bank's policy on placing loans on non-accrual, and other
important accounting policies.
ITEM 2. PROPERTIES
The Company owns and operates its main office at 9252 Jos. Campau Avenue,
Hamtramck, Michigan 48212-3794. In addition the Company operates the following
branches, listed in the order in which they were purchased or opened. Whether
the branch is owned or leased is also noted.
COMMON NAME OF OFFICE ADDRESS OWNED OR LEASED
St. Clair Shores Office 25901 Harper Ave. Leased
St. Clair Shores, MI 48081
Warren Office 14801 12 Mile Road at Gloede Owned
Warren, MI 48093
Warren Office & Loan Center 31130 Ryan Road at 13 Mile Road Owned
Warren, MI 48092
14
Sterling Heights/Ryan Road 40832 Ryan Road Leased
Sterling Heights, MI 48310
Madison Hgts/12 Dequindre 1800 E. 12 Mile Road Owned
Madison Heights, MI 48071-0485
Madison Hgts/14 John R. 600 E. 14 Mile Road Owned
Madison Heights, MI 48071
Southfield/Evergreen 25250 Evergreen Road Owned
Southfield, MI 48075
Farmington Hills/Halsted 37386 12 Mile Road Owned
Farmington Hills, MI 48331
Grosse Pointe Woods 21110 Mack Avenue Leased
Grosse Pointe Woods, MI 48236
Sterling Heights/ 3801 Metropolitan Parkway Land - Leased
Metropolitan Parkway Sterling Heights, MI 48310 Building - Owned
Universal Mortgage Corporation operates the following offices:
Southfield 24901 Northwestern Hwy. Leased
Suite 214
Southfield, MI 48075
Warren 12434 12 Mile Road Leased
Suite 101
Warren, MI 48093
Clinton Township 16950 19 Mile Road Leased
Suite 5B
Clinton Township, MI 48038
Troy 100 W. Big Beaver Leased
Suite 525
Troy, MI 48084
The following are loan production offices of Peoples State
Bank/Universal Mortgage Company:
Fenton 2801 Silver Lake Road Leased
Fenton, MI 48430
Macomb Township 51170 Romeo Plank Road Leased
Macomb Twp., MI 48042
15
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a party to routine litigation incidental
to its business. The Company is not currently a party to any material
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2004.
SUPPLEMENTAL INFORMATION-EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the Company are
listed below:
PRINCIPAL OCCUPATION
NAME AND AGE POSITION WITH THE COMPANY DURING PAST FIVE YEARS
- ----------------------- ------------------------------------- ----------------------------------
Robert L. Cole, 63 President and Chief Executive Officer President and Chief Executive
Officer since 1996.
David A. Wilson, 44 Senior Vice President and Chief Senior Vice President and Chief
Financial Officer Financial Officer since 1991.
Theodore G. Bangert, 50 Senior Vice President and Senior Senior Vice President and Senior
Lending Officer Lending Officer since 2001; SVP and
Chief Lending Officer at Commercial
and Savings Bank, Millersburg, Ohio
from 2000 to 2001; SVP and Chief
Lending Officer at Cortland Savings
and Banking Company, Cortland, Ohio
from 1989 to 1999.
James E. Kujawski, 50 Senior Vice President Senior Vice President - Retail
Banking since April 2004; Vice
President - Retail Banking from 1998
- 2004.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Information relating to the market for registrant's common equity,
dividends paid and related shareholder matters appears on pages 31 and 44 of the
registrant's 2004 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
table captioned "Selected Financial Information" on page 32 of the 2004 Annual
Report to Shareholders.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to the
section captioned "Management's Discussion and Analysis" on pages 33 through 43
of the 2004 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference to the
section captioned "Quantitative and Qualitative Disclosures about Market Risk"
on pages 42 and 43 of the 2004 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Audited Consolidated Financial Report contained on pages 1 through 28
of the 2004 Annual Report to Shareholders, together with the related notes and
independent auditor's report and the Quarterly Results of Operation on page 31
of the 2004 Annual Report to Shareholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. We evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as of
December 31, 2004. Our disclosure controls and procedures are the controls and
other procedures that we designed to ensure that we record, process, summarize
and report in a timely manner, the information we must disclose in reports that
we file with, or submit to the SEC. Robert L. Cole, our President and Chief
Executive Officer, and David A. Wilson, our Senior Vice President and Chief
Financial Officer, reviewed and participated in this evaluation. Based on this
evaluation, Messrs. Cole and Wilson concluded that, as of the date of their
evaluation, our disclosure controls were effective.
(b) Internal controls. During the quarter ended December 31, 2004, there
have not been any significant changes in our internal accounting controls or in
other factors that could significantly affect those controls.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this item is incorporated by reference to
the registrant's 2005 Proxy Statement furnished to its shareholders in
connection with an Annual Meeting of Shareholders to be held April 26, 2005 (the
"2004 Proxy Statement"), under the captions "Election of Directors", "Audit
Committee Financial Expert", "Code of Ethics", and "Compliance with Section 16",
which Proxy Statement has been filed with the SEC. The information required
under this item relating to the executive officers is set forth in Part I,
"Supplemental Information - Executive Officers of the Registrant" of this Annual
Report on Form 10-K.
17
ITEM 11. EXECUTIVE COMPENSATION
The information relating to directors' and executive compensation is
incorporated herein by reference to the registrant's 2005 Proxy Statement for
the Annual Meeting of Shareholders to be held on April 26, 2005 on page 11 under
the caption "Executive Compensation," page 12 under the caption "Director
Compensation," page 12 under the caption " Compensation Committee Interlocks and
Insider Participation," and page 12 under the caption "Employment Agreements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required under this item is incorporated by reference to
pages 9 and 10 of the registrant's 2005 Proxy Statement under the captions
"Security Ownership of Directors, Nominees for Director, Most Highly Compensated
Executive Officers and All Directors and Executive Officers as a Group" and
"Security Ownership of Shareholders Holding 5% or More."
The following table shows the Company's shareholder approved and
non-shareholder approved equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
Number of securities to be Weighted-average future issuance under
issued upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities in
Plan category warrants and rights warrants and rights column (a))
- ----------------------------- -------------------------- ------------------- -------------------------
Equity compensation plans
approved by security holders None None 450,000
Equity compensation plans
not approved by security None None None
holders
Total None None 450,000
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
is incorporated herein by reference to the registrant's 2005 Proxy Statement at
page 12 under the caption "Transactions with Certain Related Persons."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information on pages 8 and 9 of the 2005 Proxy Statement under the
caption "Item 2. Approval of Auditors" is incorporated by reference.
18
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
(a)(1) The following financial statements are included in the Annual
Report to Shareholders for the fiscal year ended December 31, 2004. The
remaining information appearing in the Annual Report is not deemed to be filed
as part of this report, except as expressly provided herein.
1. Independent Auditor's Report
2. Consolidated Balance Sheets as of December 31, 2004 and 2003
3. Consolidated Statements of Income for each of the years in the
Three-Year Period Ended December 31, 2004
4. Consolidated Statements of Stockholders' Equity for each of the
years in the Three-Year Period Ended December 31, 2004
5. Consolidated Statements of Cash Flows for each of the years in the
Three-Year Period Ended December 31, 2004
6. Notes to Consolidated Financial Statements
(a)(2) All financial statement schedules have been omitted as the required
information is either inapplicable or included in the Consolidated Financial
Statements or related notes.
(a)(3) The following exhibits are either filed as part of this report or
are incorporated herein by reference:
NO. DESCRIPTION
- ---- ------------------------------------------------------------------
3.1 Articles of Incorporation of PSB Group, Inc.*
3.2 Bylaws of PSB Group, Inc.*
4.1 Specimen Certificate of Common Stock*
10.1 Management Continuity Agreement with Robert L. Cole*
10.2 Management Continuity Agreement with Theodore G. Bangert*
10.3 Management Continuity Agreement with David A. Wilson*
10.4 2004 Stock Compensation Plan**
11 Computation of Earnings Per Share (filed herewith on page 3 of the
2004 Annual Report to Shareholders including Note 1 thereto)
13 Portions of 2004 Annual Report to Shareholders (filed herewith)
14 Code of Ethics (filed herewith)
21.1 Subsidiaries of Registrant (filed herewith)
23. Consent of Plante & Moran, PLLC
31.1 Certification of Robert L. Cole required by Rule 13a - 14(a)
- --------------
* Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003.
** Incorporated by reference to Registrant's Proxy Statement for the 2004 annual
meeting of shareholders.
19
31.2 Certification of David A. Wilson required by Rule 13a - 14(a)
32.1 Certification of Robert L. Cole required by Rule 13a - 14(b) and Section
906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350
32.2 Certification of David A. Wilson required by Rule 13a - 14(b) and Section
906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350
20
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
PEOPLES STATE BANK
Date: March 31, 2005 By: /s/Robert L. Cole
-------------------------------------
Robert L. Cole
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/Robert L. Cole Date: March 31, 2005
-------------------------------------------------
Robert L. Cole
President and Chief Executive Officer
(Principal Executive Officer and Director)
By: /s/David A. Wilson Date: March 31, 2005
-------------------------------------------------
David A. Wilson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/Dr. James Jacobs Date: March 31, 2005
-------------------------------------------------
Dr. James Jacobs
(Director)
By: /s/Michael J. Kowalski Date: March 31, 2005
-------------------------------------------------
Michael J. Kowalski
(Director)
By: /s/Longine V. Morawski Date: March 31, 2005
-------------------------------------------------
Longine V. Morawski
(Director)
By: /s/Sydney L. Ross Date: March 31, 2005
-------------------------------------------------
Sydney L. Ross
(Director)
By: /s/Edward H. Turner Date: March 31, 2005
-------------------------------------------------
Edward H. Turner
(Director)
By: /s/David L. Wood Date: March 31, 2005
-------------------------------------------------
David L. Wood
(Director)
21
INDEX TO EXHIBITS
No. Exhibit
- ---- -----------------------------------------------------------------------
13 Portions of 2004 Annual Report to Shareholders (filed herewith)
14 Code of Ethics (filed herewith)
21.1 Subsidiaries of Registrant (filed herewith)
23. Consent of Plante & Moran, PLLC
31.1 Certification of Robert L. Cole required by Rule 13a - 14(a)
31.2 Certification of David A. Wilson required by Rule 13a - 14(a)
32.1 Certification of Robert L. Cole required by Rule 13a - 14(b) and
Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350
32.2 Certification of David A. Wilson required by Rule 13a - 14(b) and
Section 906 of the Sarbanes - Oxley Act of 2002, 18 U.S.C. Section 1350