PSB Holdings, Inc. Reports 3rd Quarter Earnings of $3.6 Million, or $0.82 Per Share; Robust Loan Origination Activity During the Quarter

WAUSAU, Wis., Oct. 27, 2021 (GLOBE NEWSWIRE) -- PSB Holdings, Inc. (“PSB”) (OTCQX: PSBQ), the holding company for Peoples State Bank serving Northcentral and Southeastern Wisconsin, reported third quarter earnings ending September 30, 2021 of $0.82 per share on net income of $3.6 million, compared to earnings of $0.48 per share on net income of $2.1 million, during the June 30, 2021 quarter, and $0.59 per share on net income of $2.6 million, during the third quarter a year ago. June 30, 2021 quarterly earnings would have been $4.2 million, or $0.93 per share before merger related expenses associated with the purchase of Waukesha Bankshares, Inc.

“Loan demand has increased across the bank’s footprint led primarily by commercial real estate growth as commercial bankers have been busy originating loans for new and existing borrowers. In addition, quarterly deposit growth and SBA PPP loan paydowns continue to elevate cash and overnight investments. Income was driven by earning asset growth and lower operating ratios despite lower net interest margin as loan yields continue to decline in this low rate environment. The bank recently invested in a new residential mortgage origination system with capacity for growth and operating efficiencies to support non-interest income moving ahead,” stated Scott Cattanach, President and CEO.

Net Interest Margin Impact: PSB’s net interest margin decreased to 3.15% for the quarter ended September 30, 2021 from 3.48% the prior quarter. During the quarter, net interest margin was impacted by lower accretion of net PPP origination fee income totaling $559,000 for the current quarter versus $1.0 million during the prior quarter. Loan yield and net interest margin excluding PPP loan origination fee income would have been 3.98% and 2.97%, respectively during the September 2021 quarter compared to 3.95% and 3.12% in the June 2021 quarter. “We continue to see pressure on net interest margin due to larger balances of lower yielding liquid investments, existing loans repricing downward and competition for new loans at rates below our current weighted average yield,” said Mark Oldenberg, Chief Financial Officer.

Capital Management: At September 30, 2021, PSB’s tangible equity to tangible asset ratio was 8.27% compared to 8.38% at June 30, 2021. Peoples State Bank capital was well in-excess of all regulatory requirements. Tangible net book value per share increased $0.54 during the quarter to $24.07 per share at September 30, 2021 from $23.53 per share at June 30, 2021. PSB repurchased 7,896 shares during the quarter ending September 30, 2021.

Loan Loss Reserves: PSB did not add to its provisions for loan losses during the third quarter of 2021 or during the second quarter of 2021. This compared to a $1.3 million provision in the third quarter of 2020. Allowance for loan losses increased by $179,000 to $12.0 million at September 30, 2021 due to net recoveries during the quarter. At September 30, 2021, allowance for loan losses totaled 1.35% of gross loans, but rises to 1.42% of adjusted gross loans excluding $24.3 million of PPP loans and $14.9 million of purchased USDA guaranteed loans. Loan loss provisions for the remainder of 2021 are expected to continue to be lower than provisions recorded during 2020 due to an improved economic outlook and expected favorable resolution to several large problem loans.

Loan Accommodations: Loan modifications related to COVID-19 increased from $1.4 million at June 30, 2021 to $5.9 million, or 0.67% of gross loans, at September 30, 2021. One hotel operator with a loan balance of $4.9 million was granted a three-month deferral in July 2021 in connection with closing of a SBA 504 program loan and is scheduled to return to regular payments in October 2021.

As shown in the table below during the September 2021 quarter, “impaired loans” increased $1.3 million and “substandard risk” loans increased $3.8 million, while “watch risk” loans decreased $6.3 million. The primary increase in “substandard risk” loans relates to financing provided for a new grocery operation that has yet to stabilize after opening during 2020.

Commercial, Commercial Real Estate, Construction & Development, Agricultural and Government Loans
($000)
Risk Rating			12/2019			03/2020			06/2020			09/2020			12/2020			03/2021			06/2021			09/2021
Rating 1		"High Quality"		$	-		$	71		$	55		$	-		$	-		$	-		$	-		$	77
Rating 2		"Minimal Risk"			57,904			59,101			72,601			56,337			61,223			62,626			60,155			71,304
Rating 3		"Average Risk"			349,002			324,378			374,709			391,195			390,191			348,102			345,929			347,735
Rating 4		"Acceptable Risk"			128,932			123,296			154,302			155,738			175,400			209,407			209,728			226,501
Rating 5		"Watch Risk"			15,933			33,999			54,522			46,603			36,379			30,891			39,577			33,284
Rating 6		"Substandard Risk"			2,568			2,732			4,545			2,162			7,617			18,134			6,377			10,148
Rating 7		"Impaired Loans"			5,518			7,811			6,130			10,164			13,153			16,162			15,522			16,790
				$	559,857		$	551,388		$	666,864		$	662,199		$	683,963		$	685,322		$	677,288		$	705,839
Includes undisbursed Construction & Development lines of credit. PPP loan balances are assigned a risk-weighting of "3".

Balance Sheet and Asset Quality Review

Total assets increased to $1.30 billion at September 30, 2021 from $1.25 billion at June 30, 2021 due primarily to securities and loan growth funded by $51.4 million in deposit growth. Securities available for sale increased $40.2 million to $301.9 million at September 30, 2021 from $261.7 million one quarter earlier. Total loans receivable increased by $11.2 million to $874.5 million at September 30, 2021 from $863.3 million as of June 30, 2021. Organic loan origination of $28.2 million, up 3.3% during the quarter, was offset by a $17.0 million reduction in SBA Paycheck Protection Program (PPP) loans as loans were forgiven and repaid by the SBA. At September 30, 2021, $24.3 million of PPP loan principal remained outstanding and unrealized net PPP origination fee income totaled $650,000.

The allowance for loan losses remained at 1.35% of gross loans at September 30, 2021 relative to the prior quarter (1.42% of gross loans net of PPP guaranteed loans and USDA guaranteed loans) and compared to 1.31% of gross loans one year earlier. Annualized net charge-offs to average loans reflected a net recovery at 0.08% for the quarter ended September 30, 2021. Non-performing assets were 1.16% of total assets at September 30, 2021, compared to 1.07% at June 30, 2021, and 0.85% at September 30, 2020. At September 30, 2021, non-performing assets consisted of $6.0 million in non-accrual loans, $1.5 million in non-accrual restructured loans, $5.2 million in restructured loans not on non-accrual and $2.4 million in other real estate owned.

At September 30, 2021, cash and cash equivalents remained elevated following the merger related addition of cash and securities held by Waukesha Bankshares, Inc. (“WBI”) and repayment of forgiveness received on SBA PPP loans and totaled $65.5 million at September 30, 2021 compared to $72.1 million at June 30, 2021, and $38.5 million at December 31, 2020. Investment securities totaled $301.9 million at September 30, 2021, compared to $261.7 million at June 30, 2021, and $228.3 million as of December 31, 2020 as cash was deployed to purchase securities with a higher yield than available on overnight cash. All investment securities are considered available for sale and carried at estimated market value.

Foreclosed assets increased to $2.4 million at September 30, 2021, from $2.0 million at June 30, 2021, as a closed branch office related to the acquisition of WBI was moved to foreclosed assets. Foreclosed assets were $1.6 million at the beginning of the fiscal year.

Total deposits increased to $1.08 billion at September 30, 2021, compared to $1.03 billion at June 30, 2021. At September 30, 2021, interest-bearing demand and savings deposits accounted for 35.9% of total deposits, followed by noninterest-bearing demand deposits at 26.9%, money market deposits at 19.9%, and retail and local time deposits at 15.5%. Broker and national time deposits accounted for 1.8% of total deposits at September 30, 2021, versus 1.5% at December 31, 2020. The bank has continued to experience larger average deposit balances, increased mobile banking enrollment and product usage as customers continue to adapt new banking habits accelerated by the pandemic.

FHLB advances decreased to $62.0 million at September 30, 2021 from $67.0 million at June 30, 2021 and were unchanged compared to December 31, 2020, while other borrowings decreased to $17.1 million compared to $21.8 million the prior period and $12.2 million at December 31, 2020.

Operations Review

Net interest income totaled $9.6 million (on a net margin of 3.15%) for the third quarter of 2021, compared to $10.2 million (on net margin of 3.48%) for the second quarter of 2021 and $7.9 million (on a net margin of 3.03%) for the third quarter of 2020. Earning asset yields decreased 37 basis points from 3.78% to 3.41% during the third quarter of 2021, while deposit and borrowing costs declined 5 basis points to 0.37% from 0.42% over the same period. The decrease in earning asset yields was partially due to lower net accretion of loan fees of $559,000 related to PPP loans that were repaid compared to net accretion of $1.0 million during the June 30, 2021 quarter. Additionally, a larger balance of lower yielding investment securities contributed to the decrease in earning asset yields. Taxable security yields decreased from 1.44% in the quarter ended June 30, 2021 to 1.18% for the quarter ended September 30, 2021. Loan yields decreased to 4.23% during the quarter from 4.42% during the second quarter of 2021. Loan yields excluding the impacts of PPP loan origination fee income, were 3.98% and 3.95% during the September 2021 and June 2021 quarters respectively. Net interest margin excluding the impacts of PPP loan origination fee income, was 2.97% and 3.12% in the September 30, 2021 and June 30, 2021 quarters, respectively. Recognition of PPP loan fee income is expected to decline for fourth quarter 2021 as fewer PPP loans remain outstanding.

The cost of interest-bearing liabilities decreased during the quarter, largely reflecting lower rates associated with time deposits. The cost of deposits decreased to 0.15% for the quarter ended September 30, 2021 from 0.19% the prior quarter. “As a commercial bank with significant noninterest-bearing account balances, our ability to continue reducing the overall cost of deposits will likely be limited in the current interest rate environment,” continued Oldenberg. Deposit costs decreased $81,000 to $404,000 for the third quarter of 2021, from $485,000 the previous quarter. Interest costs on borrowings remained at $422,000, for the third quarter of 2021.

Total noninterest income for the third quarter of 2021 decreased to $2.1 million from $2.3 million for the second quarter of 2021, due in part to lower gains on the sale of mortgage loans and lower gains on sale of securities. Gains on sale of mortgage loans decreased to $494,000 for the third quarter from $663,000 in the second quarter of 2021, due to lower refinancing and mortgage origination activity and the decision to hold more first lien residential mortgage loans onto the balance sheet to utilize low yielding overnight funds.

Deposit and service fee income in the third quarter increased to $379,000 for the three months ended September 30, 2021, compared to $347,000 for the prior three-month period. Net gains on the sale of securities were zero for the third quarter of 2021, compared to $113,000 for the second quarter of 2021, and $38,000 for the quarter one year earlier. Commissions on customer investment and insurance sales decreased to $426,000, from $465,000 the prior quarter. At September 30, 2021, the bank had wealth assets under management totaling $301.6 million compared to $300.0 million at June 30, 2021, and $244.5 million at September 30, 2020. For the third quarter ended September 30, 2021, other noninterest income was $563,000 compared to $554,000 the prior quarter.

Noninterest expense declined to $6.9 million for the third quarter of 2021, compared to $9.6 million for the second quarter of 2021. The second quarter of 2021 included $2.7 million of non-recurring merger related expenses. Salary and employee benefit expenses were $4.1 million for the third quarter of 2021 compared to $3.9 million in the second quarter of 2021.

Data processing and other office operations costs decreased to $828,000 for the quarter ended September 30, 2021 from $1.5 million the previous quarter which included contract termination and data conversion expenses of approximately $700,000. Advertising and promotion expenses were $199,000 for the most recent quarter compared to $322,000 last quarter which included a local multi-year sponsorship commitment and merger related communication. Other noninterest expenses decreased to $1.1 million for the third quarter ended September 30, 2021 from $3.1 million the previous quarter which included approximately $1.9 million in non-recurring professional fees and other merger related expenses.

About PSB Holdings, Inc.

PSB Holdings, Inc. is the parent company of Peoples State Bank. Peoples is a community bank headquartered in Wausau, Wisconsin, serving northcentral and southeastern Wisconsin from ten full-service banking locations in Marathon, Oneida, Vilas, Milwaukee and Waukesha counties and a loan production office in Stevens Point, Wisconsin. Peoples also provides investment and insurance products, along with retirement planning services, through Peoples Wealth Management, a division of Peoples. PSB Holdings, Inc. is traded under the stock symbol PSBQ on the OTCQX Market. More information about PSB, its management, and its financial performance may be found at www.psbholdingsinc.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates and projections about PSB Holdings’ business based, in part, on assumptions made by management and include, without limitation, statements with respect to the potential growth of PSB Holdings, its future profits, expected stock repurchase levels, future dividend rates, future interest rates, and the adequacy of its capital position. Forward-looking statements can be affected by known and unknown risks, uncertainties, and other factors, including, but not limited to, strength of the economy, the effects of government policies, including interest rate policies, risks associated with the execution of PSB Holdings’ vision and growth strategy, including with respect to current and future M&A activity, and risks associated with global economic instability relating to the COVID-19 pandemic and its effect on PSB Holdings, and Peoples, and their customers, and other risks. The forward-looking statements in this press release speak only as of the date on which they are made and PSB Holdings does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release.

PSB Holdings, Inc.
Quarterly Financial Summary
(dollars in thousands, except per share data)		Quarter ended
		Sep. 30,			Jun. 30,			Mar. 31,			Dec. 31,			Sep. 30,
Earnings and dividends:			2021			2021			2021			2020			2020
Interest income		$	10,449		$	11,070		$	10,482		$	9,442		$	9,155
Interest expense		$	826		$	907		$	886		$	1,011		$	1,261
Net interest income		$	9,623		$	10,163		$	9,596		$	8,431		$	7,894
Provision for loan losses		$	-		$	-		$	1,000		$	675		$	1,300
Other noninterest income		$	2,126		$	2,299		$	2,749		$	2,991		$	2,929
Other noninterest expense		$	6,946		$	9,607		$	6,200		$	6,461		$	6,074
Net income		$	3,638		$	2,137		$	3,896		$	3,252		$	2,637
Basic earnings per share (3)		$	0.82		$	0.48		$	0.88		$	0.73		$	0.59
Diluted earnings per share (3)		$	0.82		$	0.48		$	0.87		$	0.73		$	0.59
Dividends declared per share (3)		$	-		$	0.23		$	-		$	0.21		$	-
Tangible net book value per share (4)		$	24.07		$	23.53		$	23.69		$	23.43		$	22.73
Semi-annual dividend payout ratio		n/a				17.04	%	n/a				15.88	%	n/a
Average common shares outstanding			4,450,755			4,454,922			4,454,334			4,452,287			4,452,287
Balance sheet - average balances:
Loans receivable, net of allowances for loss		$	862,555		$	891,886		$	827,595		$	807,182		$	800,611
Assets		$	1,292,369		$	1,251,738		$	1,132,905		$	1,100,064		$	1,099,402
Deposits		$	1,064,553		$	1,023,229		$	925,689		$	896,427		$	882,682
Stockholders' equity		$	110,388		$	105,932		$	105,868		$	102,790		$	100,436
Performance ratios:
Return on average assets (1)			1.12	%		0.68	%		1.39	%		1.18	%		0.95	%
Return on average stockholders' equity (1)			13.08	%		8.09	%		14.92	%		12.59	%		10.45	%
Average stockholders' equity less accumulated
other comprehensive income (loss) to
average assets			8.39	%		8.27	%		9.10	%		9.00	%		8.85	%
Net loan charge-offs to average loans (1)			-0.08	%		0.00	%		0.01	%		0.16	%		0.00	%
Nonperforming loans to gross loans			1.43	%		1.31	%		1.39	%		1.03	%		0.98	%
Nonperforming assets to total assets			1.16	%		1.07	%		1.13	%		0.90	%		0.85	%
Allowance for loan losses to gross loans			1.35	%		1.35	%		1.40	%		1.30	%		1.31	%
Nonperforming assets to tangible equity
plus the allowance for loan losses (4)			12.87	%		11.71	%		11.06	%		8.96	%		8.50	%
Net interest rate margin (1)(2)			3.15	%		3.48	%		3.62	%		3.22	%		3.03	%
Net interest rate spread (1)(2)			3.04	%		3.37	%		3.49	%		3.07	%		2.84	%
Service fee revenue as a percent of
average demand deposits (1)			0.53	%		0.51	%		0.57	%		0.59	%		0.59	%
Noninterest income as a percent
of gross revenue			16.91	%		17.20	%		20.78	%		24.06	%		24.24	%
Efficiency ratio (2)			58.40	%		76.20	%		49.64	%		55.87	%		55.41	%
Noninterest expenses to average assets (1)			2.13	%		3.08	%		2.22	%		2.34	%		2.20	%
Tangible equity to tangible assets			8.27	%		8.38	%		9.32	%		9.22	%		9.17	%
Stock price information:
High		$	26.50		$	26.50		$	25.94		$	23.00		$	18.80
Low		$	24.52		$	25.00		$	20.45		$	17.20		$	17.36
Last trade value at quarter-end		$	24.95		$	26.25		$	25.25		$	20.57		$	18.00
(1) Annualized
(2) The yield on tax-exempt loans and securities is computed on a tax-equivalent basis using a federal tax rate of 21%.
(3) Due to rounding, cumulative quarterly per share performance may not equal annual per share totals.
(4) Tangible stockholders' equity excludes intangible assets.

PSB Holdings, Inc.
Consolidated Statements of Income
				Quarter Ended
(dollars in thousands,				Sep. 30,			Jun. 30,			Mar. 31,			Dec. 31,			Sep. 30,
except per share data - unaudited)					2021			2021			2021			2020			2020
Interest and dividend income:
Loans, including fees				$	9,323		$	9,972		$	9,442		$	8,371		$	8,068
Securities:
Taxable					581			553			507			542			564
Tax-exempt					500			505			502			489			474
Other interest and dividends					45			40			31			40			49
Total interest and dividend income					10,449			11,070			10,482			9,442			9,155
Interest expense:
Deposits					404			485			547			657			833
FHLB advances					220			221			215			228			304
Other borrowings					9			8			7			6			5
Senior subordinated notes					28			28			28			29			28
Junior subordinated debentures					165			165			89			91			91
Total interest expense					826			907			886			1,011			1,261
Net interest income					9,623			10,163			9,596			8,431			7,894
Provision for loan losses					-			-			1,000			675			1,300
Net interest income after provision for loan losses					9,623			10,163			8,596			7,756			6,594
Noninterest income:
Service fees					379			347			332			352			344
Gain on sale of mortgage loans					494			663			1,152			1,401			1,752
Mortgage loan servicing, net					111			9			79			104			(79	)
Investment and insurance sales commissions					426			465			595			391			301
Net gain on sale of securities					-			113			21			149			38
Increase in cash surrender value of life insurance					153			148			108			106			108
Other noninterest income					563			554			462			488			465
Total noninterest income					2,126			2,299			2,749			2,991			2,929
Noninterest expense:
Salaries and employee benefits					4,099			3,915			3,460			4,084			3,526
Occupancy and facilities					614			647			569			511			566
Loss (gain) on foreclosed assets					28			23			130			(218	)		36
Data processing and other office operations					828			1,499			694			568			743
Advertising and promotion					199			322			79			172			77
FDIC insurance premiums					121			58			83			82			87
Other noninterest expenses					1,057			3,143			1,185			1,262			1,039
Total noninterest expense					6,946			9,607			6,200			6,461			6,074
Income before provision for income taxes					4,803			2,855			5,145			4,286			3,449
Provision for income taxes					1,165			718			1,249			1,034			812
Net income				$	3,638		$	2,137		$	3,896		$	3,252		$	2,637
Basic earnings per share				$	0.82		$	0.48		$	0.88		$	0.73		$	0.59
Diluted earnings per share				$	0.82		$	0.48		$	0.87		$	0.73		$	0.59

PSB Holdings, Inc.
Consolidated Statements of Income
				Three Months Ended							Nine Months Ended
(dollars in thousands,				September							September
except per share data - unaudited)					2021			2020				2021			2020
Interest and dividend income:
Loans, including fees				$	9,323		$	8,068			$	28,737		$	24,688
Securities:
Taxable					581			564				1,641			1,919
Tax-exempt					500			474				1,507			1,351
Other interest and dividends					45			49				116			214
Total interest and dividend income					10,449			9,155				32,001			28,172
Interest expense:
Deposits					404			833				1,436			3,395
FHLB advances					220			304				656			947
Other borrowings					9			5				24			25
Senior subordinated notes					28			28				84			84
Junior subordinated debentures					165			91				419			273
Total interest expense					826			1,261				2,619			4,724
Net interest income					9,623			7,894				29,382			23,448
Provision for loan losses					-			1,300				1,000			4,900
Net interest income after provision for loan losses					9,623			6,594				28,382			18,548
Noninterest income:
Service fees					379			344				1,058			1,013
Gain on sale of mortgage loans					494			1,752				2,309			4,486
Mortgage loan servicing, net					111			(79	)			199			(267	)
Investment and insurance sales commissions					426			301				1,486			909
Net gain on sale of securities					-			38				134			355
Increase in cash surrender value of life insurance					153			108				409			316
Other noninterest income					563			465				1,579			1,610
Total noninterest income					2,126			2,929				7,174			8,422
Noninterest expense:
Salaries and employee benefits					4,099			3,526				11,474			9,928
Occupancy and facilities					614			566				1,830			1,618
Loss (gain) on foreclosed assets					28			36				181			130
Data processing and other office operations					828			743				3,021			2,062
Advertising and promotion					199			77				600			312
FDIC insurance premiums					121			87				262			110
Other noninterest expenses					1,057			1,039				5,385			3,123
Total noninterest expense					6,946			6,074				22,753			17,283
Income before provision for income taxes					4,803			3,449				12,803			9,687
Provision for income taxes					1,165			812				3,132			2,250
Net income				$	3,638		$	2,637			$	9,671		$	7,437
Basic earnings per share				$	0.82		$	0.59			$	2.17		$	1.67
Diluted earnings per share				$	0.82		$	0.59			$	2.17		$	1.67

PSB Holdings, Inc.
Consolidated Balance Sheets
September 30, June 30, and March 31, 2021, and September 30, 2020, unaudited, December 31, 2020 derived from audited financial statements
	Sep. 30,			Jun. 30,			Mar. 31,			Dec. 31,			Sep. 30,
(dollars in thousands, except per share data)		2021			2021			2021			2020			2020
Assets
Cash and due from banks	$	20,813		$	18,589		$	12,921		$	15,723		$	13,652
Interest-bearing deposits		1,044			906			985			1,056			1,750
Federal funds sold		43,637			52,643			16,027			21,749			61,383
Cash and cash equivalents		65,494			72,138			29,933			38,528			76,785
Securities available for sale (at fair value)		301,853			261,685			227,824			228,296			193,179
Bank certificates of deposit (at cost)		245			245			1,231			1,231			496
Loans held for sale		214			1,756			622			954			903
Loans receivable, net		874,524			863,254			829,964			820,956			791,951
Accrued interest receivable		3,273			3,299			3,335			3,527			3,629
Foreclosed assets		2,398			1,984			1,105			1,619			1,485
Premises and equipment, net		12,725			13,241			11,077			10,920			11,061
Mortgage servicing rights, net		1,702			1,696			1,732			1,657			1,638
Federal Home Loan Bank stock (at cost)		2,646			2,646			2,283			2,283			2,283
Cash surrender value of bank-owned life insurance		24,154			24,001			17,902			17,795			17,089
Core deposit intangible		581			629			-			2			4
Goodwill		2,541			2,541			113			113			113
Other assets		5,313			5,523			5,102			4,074			3,667
TOTAL ASSETS	$	1,297,663		$	1,254,638		$	1,132,223		$	1,131,955		$	1,104,283
Liabilities
Non-interest-bearing deposits	$	291,440		$	273,181		$	242,974		$	236,981		$	241,947
Interest-bearing deposits		791,601			758,445			682,877			695,156			658,667
Total deposits		1,083,041			1,031,626			925,851			932,137			900,614
Federal Home Loan Bank advances		62,000			67,000			62,000			62,000			67,000
Other borrowings		17,129			21,757			18,582			12,239			16,216
Senior subordinated notes		2,500			2,500			2,500			2,500			2,500
Junior subordinated debentures		12,691			12,666			7,732			7,732			7,732
Accrued expenses and other liabilities		10,143			11,103			9,918			10,920			8,871
Total liabilities		1,187,504			1,146,652			1,026,583			1,027,528