Executive Summary

Reported EPS $0.85 and net income $1.40M; pro-forma EPS (ex merger/conversion) $0.93, essentially flat YoY versus $0.95 in Q2 2013 as lower mortgage banking was offset by sharply lower credit costs .
Sequential loan growth returned (+$34M; +$21M from the Northwoods branch purchase), while net interest margin ticked up to 3.34% from 3.31% in Q1; noninterest income fell 10% YoY on mortgage banking weakness .
Nonperforming assets rose to $12.17M and may increase by ~$2.8M next quarter due to a municipal TID restructuring; nevertheless, credit costs fell 64% YoY, supporting earnings resilience .
Dividend raised to $0.40 (payable Jul 31) and quarterly buyback program renewed (up to 10,000 shares), reinforcing capital return while integrating the Northwoods acquisition .
Wall Street consensus (S&P Global) was unavailable for PSBQ; therefore, no beat/miss analysis versus estimates can be provided (S&P Global data unavailable for PSBQ mapping).

What Went Well and What Went Wrong

What Went Well

Loan growth returned: “Loan growth returned during the June 2014 quarter, up $34 million, including $21 million in loans purchased with the Northwoods branch” .
Margin and core NII firmed sequentially: tax-adjusted NIM rose to 3.34% (Q2) from 3.31% (Q1), and tax-adjusted net interest income increased to $5.68M from $5.41M on higher earning assets .
Credit costs materially lower YoY: total credit costs were $178k vs $496k in Q2 2013 (-64%), helping offset mortgage banking declines; YTD credit costs fell 57% YoY .

What Went Wrong

Mortgage banking slump: noninterest income fell 10% YoY; mortgage banking declined $284k (-50.9%) on higher long-term rates and weaker refi activity .
Efficiency deteriorated: the efficiency ratio worsened to 66.19% from 59.52% a year ago as revenue mix shifted and merger/conversion costs hit Opex .
Asset quality pressure: nonperforming assets rose to $12.17M; two loans moved to nonaccrual increased ALLL needs by $547k; NPL ratio rose to 2.06% from 1.75% in Q1 .

Financial Results

Metric	Q2 2013	Q1 2014	Q2 2014
EPS (Diluted) ($)	$0.95	$0.87	$0.85
Net Income ($USD Millions)	$1.561	$1.450	$1.403
Net Interest Income ($USD Millions)	$5.317	$5.174	$5.450
Noninterest Income ($USD Millions)	$1.523	$1.320	$1.369
Total Net Revenue ($USD Millions)	$6.840 (NII+Noninterest)	$6.494 (NII+Noninterest)	$6.819 (NII+Noninterest)
Net Interest Margin (%)	3.41%	3.31%	3.34%
Efficiency Ratio (%)	59.52%	63.75%	66.19%
ROA (%) (annualized)	0.91%	0.84%	0.79%
ROE (%) (annualized)	10.94%	10.19%	9.47%

Segment/Noninterest Income Breakdown:

Metric	Q2 2013	Q1 2014	Q2 2014
Service Fees ($USD Thousands)	$387	$356	$419
Mortgage Banking ($USD Thousands)	$558	$316	$274
Investment & Insurance Commissions ($USD Thousands)	$204	$244	$249
Other Noninterest Income ($USD Thousands)	$274	$305	$327

Credit and Balance Sheet KPIs:

KPI	Q2 2013	Q1 2014	Q2 2014
Avg Loans ($USD Millions)	$499.425	$498.957	$513.163
Avg Assets ($USD Millions)	$688.353	$698.127	$716.152
Avg Deposits ($USD Millions)	$525.158	$567.500	$592.377
NPLs / Gross Loans (%)	1.89%	1.75%	2.06%
NPAs / Total Assets (%)	1.59%	1.49%	1.68%
Allowance / Gross Loans (%)	1.49%	1.39%	1.31%
Net Charge-offs / Avg Loans (annualized)	0.12%	0.03%	0.07%

Operating Expenses and Provision:

Metric	Q2 2013	Q1 2014	Q2 2014
Noninterest Expense ($USD Millions)	$4.216	$4.289	$4.666
Provision for Loan Losses ($USD Thousands)	$352	$140	$140
Loss on Foreclosed Assets ($USD Thousands)	$144	$36	$38

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Interest Margin	Q2 2014 / near-term	Could decline slightly as loan yields fall faster than funding costs	Likely under pressure but expected to be similar to YTD; NII expected to increase with loan growth	Tone improved; “maintained to slightly better”
Net Interest Income	Next quarter	Expected to increase slightly over March quarter on Northwoods loans	Expected to increase during coming quarter	Maintained
Loans	Q3 2014	Assets to rise from Northwoods purchase and organic loan growth	Total loans expected to increase modestly (residential retained + commercial)	Maintained
Mortgage Banking Revenue	FY 2014	Decline to 20–30% of 2013 levels	Decline 25–30% of 2013; Q3 to continue YTD pace	Narrowed/worse within range
Nonperforming Loans	Q3 2014	Expected +$3.1M from municipal TID restructuring	May increase +$2.8M upon restructuring	Slightly lower expected increase
Merger/Conversion Costs	Q2 2014	$380–$400k before tax in Q2	Actual Q2 nonrecurring Northwoods costs $243k; YTD $371k	Lower than guided
Dividend	Q3 2014	—	Declared $0.40 per share, payable Jul 31, 2014	Introduced/increased (2.6% YoY)
Stock Repurchase	Q3 2014	Could buy up to 10,000 shares (Q2 at up to $31.50)	Renewed program for up to 10,000 shares in Q3	Maintained

Earnings Call Themes & Trends

Note: No Q2 2014 earnings call transcript was found for PSBQ; themes are drawn from earnings and other press releases.

Topic	Previous Mentions (Q4 2013 & Q1 2014)	Current Period (Q2 2014)	Trend
Loan growth	Q4: warned of large customer prepayment; Q1: net loans down $22M; acquisition expected to help	Loan growth returned (+$34M; +$21M acquired)	Improving
Margin outlook	Q4: NIM under pressure; could decline slightly in Q1	NIM likely under pressure; similar to YTD; NII to rise with loan growth	Stabilizing
Mortgage banking	Q4: mortgage banking down sharply; expected to stabilize Q1 ; Q1: expected 20–30% of 2013 for FY	Q2: down 51% YoY; FY decline 25–30% reiterated	Weakening
Credit quality/costs	Q4: large grain fraud charge-off earlier; credit costs fell in Q4	Q2: NPAs up; potential +$2.8M NPL; credit costs down YoY	Mixed (lower costs, higher NPAs)
Capital & liquidity	Q4/Q1: well-capitalized; strong wholesale funding access; Basel III impact expected	Equity/asset ratio up; unused wholesale funding ~$323M (45% of assets)	Stable
M&A/integration	Q1: Northwoods agreement and completion; accretive in 2015	Q2: integration proceeding; branch costs and CDI amortization recognized	On track
Shareholder returns	Q4: buyback plans; dividends	Dividend increased; buyback renewed	Positive

Management Commentary

“Loan growth returned during the June 2014 quarter, up $34 million, including $21 million in loans purchased with the Northwoods branch… we expect both loans and net income to increase during the coming quarter after completing the integration” — Peter W. Knitt, President & CEO .
“While continuing PSB’s impressive history of increased cash dividends, a renewed commitment to a consistent quarterly stock repurchase program supports our desire to enhance shareholder value while carefully managing capital levels as we pursue further growth through acquisitions” — Peter W. Knitt .
On Northwoods acquisition: “Bringing Peoples to the second highest deposit market share in Oneida County… expected to be accretive to earnings during 2015” — Peter W. Knitt .

Q&A Highlights

No public Q2 2014 earnings call transcript was available for PSBQ; therefore, analyst Q&A highlights and any clarifications typically provided during the call are unavailable for this period (no transcript found).

Estimates Context

Attempts to retrieve S&P Global consensus estimates (EPS, Revenue) for PSBQ failed due to missing CIQ mapping; consensus is unavailable for this OTC-listed community bank. As a result, beat/miss analysis versus Wall Street estimates cannot be provided for Q2 2014 (S&P Global data unavailable for PSBQ).
Given the absence of published consensus, investors should anchor evaluation on sequential and YoY trends and management guidance updates .

Key Takeaways for Investors

Sequential improvement in core earnings drivers: NIM up to 3.34% and tax-adjusted NII rose on higher average earning assets, aided by the Northwoods acquisition .
Growth returns: loans increased $34M (including $21M acquired), reversing Q1’s decline; management expects further loan and net income growth post-integration .
Watch asset quality: NPAs rose to $12.17M and NPL ratio to 2.06%; potential +$2.8M NPL in Q3 from a municipal TID restructuring warrants monitoring .
Mortgage banking headwinds persist: Q2 mortgage banking revenue fell 51% YoY; FY 2014 expected down 25–30% vs 2013, pressuring noninterest income .
Cost discipline vs. integration spend: Q2 included $243k nonrecurring merger/conversion costs and higher fraud losses, pushing efficiency ratio to 66.19%; merger costs were below prior guidance .
Capital return intact: dividend increased to $0.40 (payable Jul 31) and buyback renewed (up to 10,000 shares), signaling confidence amid regulatory capital transitions .
Near-term setup: With stable-to-slightly pressured NIM, expected modest loan growth, and rising NPAs, near-term stock drivers likely hinge on credit developments (municipal TID loan) and delivery of sequential NII improvement .

PSB HOLDINGS INC /WI/ (PSBQ)·Q2 2014 Earnings Summary