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PSB HOLDINGS INC /WI/ (PSBQ)·Q4 2014 Earnings Summary

Executive Summary

  • Q4 2014 delivered record earnings per share: diluted EPS $1.10 on net income of $1.81M, up from $0.95 on $1.56M in Q4 2013; full-year 2014 EPS $3.90 vs. $2.87 in 2013, with pro‑forma FY14 EPS $4.04 excluding special items .
  • Net interest margin expanded to 3.43% (vs. 3.32% in Q4 2013) on lower wholesale funding costs; tax‑adjusted NII rose modestly Q/Q and Y/Y; mortgage banking rebounded into year‑end, lifting noninterest income 19.6% Y/Y .
  • Asset quality saw a notable headwind: nonperforming assets rose to $14.4M (1.96% of assets) driven by restructuring of a $2.78M municipal loan; credit costs remained low with $155K net charge‑offs in the quarter .
  • Capital return remained steady: $0.40 semi‑annual dividend declared (up 2.6%) and ongoing buybacks; tangible book rose to $37.52; management flagged Basel III impacts but no need for equity issuance .
  • No Street consensus available via S&P Global for PSBQ; headline results cannot be benchmarked to estimates. Consensus unavailable via S&P Global.

What Went Well and What Went Wrong

What Went Well

  • “A strong December 2014 quarter closed a year of record earnings as quarterly net interest margin rose to 3.43%… December 2014 quarterly earnings of $1.10 per share were a record” — CEO Peter W. Knitt .
  • Tax‑adjusted NII increased with margin stability at 3.43%; reduced FHLB advance expense accounted for 60% of the Q4 Y/Y NII increase and 87% for FY14 vs. FY13 .
  • Noninterest income grew 19.6% Y/Y, led by a 61.3% jump in mortgage banking in Q4; card interchange and service fees supported full‑year resilience despite weaker refis .

What Went Wrong

  • Nonperforming assets climbed 23.8% Q/Q and 38.8% Y/Y to $14.4M; the restructuring of a $2.78M municipal credit was the primary driver (now accruing TDR), elevating NPA ratios .
  • Management warned 2015 NIM tailwinds from wholesale funding roll‑down will fade; continued declines in loan yields could pressure NIM/NII if loan growth doesn’t materialize .
  • Credit trends mixed: while charge‑offs remained low, specific reserves on large problem loans increased and allowance coverage of NPLs fell vs. prior year (50% vs. 79%) .

Financial Results

Core P&L, EPS, and Margin (dollars in thousands, except per share; periods oldest → newest)

MetricQ4 2013Q2 2014Q3 2014Q4 2014
Total interest and dividend income ($)6,728 6,618 6,833 6,762
Net interest income ($)5,365 5,450 5,734 5,774
Noninterest income ($)1,274 1,369 1,481 1,524
Net income ($)1,561 1,403 1,782 1,805
Diluted EPS ($)0.95 0.85 1.08 1.10
Net interest margin (%)3.32% 3.34% 3.43% 3.43%
Efficiency ratio (%)63.87% 66.19% 59.61% 59.82%
ROA (annualized, %)0.88% 0.79% 0.97% 0.98%
ROE (annualized, %)10.82% 9.47% 11.77% 11.52%

Asset Quality and Capital KPIs

KPIQ4 2013Q2 2014Q3 2014Q4 2014
Nonperforming loans / gross loans (%)1.67% 2.06% 1.84% 2.40%
Allowance for loan losses / gross loans (%)1.31% 1.31% 1.19% 1.20%
Nonperforming assets / total assets (%)1.46% 1.68% 1.60% 1.96%
Tangible book value per share ($)34.36 35.56 36.59 37.52
Stockholders’ equity / assets (%)7.98% 8.16% 8.30% 8.37%

Fee and Mortgage Banking Detail

MetricQ4 2013Q2 2014Q3 2014Q4 2014
Mortgage banking revenue ($)253 274 375 408
Service fees ($)410 419 448 433
Noninterest income as % of gross revenue (%)15.92% 17.14% 17.81% 18.39%

Segment breakdown: Not applicable; PSB operates as a community bank franchise (Peoples State Bank) without reported operating segments .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total loans receivableQ1 2015Q4 outlook: loans expected stable due to low demand Expected to remain stable in March 2015 quarter; seasonal tax deposits to decline Maintained
Funding mix/wholesaleQ1 2015Anticipated paydown of high‑cost wholesale with seasonal deposits Wholesale funding to replace withdrawn tax deposits in March 2015 Maintained
Net interest margin/NIIFY 2015Q4 NII expected similar to Q3 due to limited loan growth 2015 savings from maturing wholesale funding will decline; falling loan yields may pressure NIM/NII if loan growth lags Cautious
Credit costsQ1 2015Credit costs expected similar in Q4 vs. Q3 Credit costs expected to remain in a similar range in March 2015 vs. Q4 Maintained
Regulatory capitalFY 2015New rules effective 1/1/2015; no issuance expected Expect ratios negatively impacted, but no equity issuance needed; “well capitalized” status maintained Maintained
DividendQ4 2014 (paid 1/30/15)$0.39 semi‑annual (prior) $0.40 semi‑annual declared (up 2.6%) Raised
Share repurchaseQ1 2015Continue plan initiated in 2014 Intend to continue quarterly buybacks in March 2015 quarter Maintained

Earnings Call Themes & Trends

Note: No Q4 2014 earnings call transcript was filed or found.

TopicPrevious Mentions (Q2 and Q3 2014)Current Period (Q4 2014)Trend
Net interest margin and fundingNIM improved to 3.34% in Q2; 3.43% in Q3; roll‑off of high‑cost FHLB advances drove majority of NII increase; more high‑cost wholesale maturing in Q4 NIM 3.43%; reduced FHLB expense drove 60% of Q4 Y/Y tax‑adjusted NII increase; savings to diminish in 2015, leaving NIM vulnerable if loan yields fall Improvement realized; tailwind fading
Loan growth/branch acquisitionNorthwoods branch added loans/deposits; modest organic loan growth expected; Q3 saw line usage lift Organic loan growth remained challenging; branch acquisition boosted assets; liquidity ready for future growth Integration done; organic growth still soft
Mortgage bankingDeclined sharply in 1H14 on weaker refis; expected 25–30% FY14 decline Q4 mortgage banking up 61% Y/Y; seasonal decline expected in Q1 Short‑term rebound; seasonal dip ahead
Credit qualityElevated NPA in Q2; potential $2.8M municipal issue flagged in Q3 NPA rose to 1.96% of assets as municipal loan was restructured; net charge‑offs low Headline NPA up; losses contained
Capital/RegulatoryBasel III effective 1/1/2015; no issuance anticipated Expect ratio impact but no issuance; TBV up 9.2% Y/Y; “well capitalized” Stable capital

Management Commentary

  • “A strong December 2014 quarter closed a year of record earnings as quarterly net interest margin rose to 3.43%… December 2014 quarterly earnings of $1.10 per share were a record compared to prior quarterly results when non‑recurring items… are excluded.” — Peter W. Knitt, President & CEO .
  • “Reduced FHLB advance interest expense contributed to 60% of the quarterly increase in tax adjusted net interest income… Interest expense savings… will decline significantly during 2015… continued declines in loan yields may decrease net interest margin or reduce net interest income… if loan growth does not materialize.” .
  • On branch acquisition and funding: asset growth due to Northwoods branch; deposit growth used to repay high‑cost wholesale, positioning liquidity for higher loan demand as the local economy improves .

Q&A Highlights

  • No Q4 2014 earnings call transcript or Q&A was filed; no management Q&A available to analyze.

Estimates Context

  • S&P Global consensus (EPS, revenue) for PSBQ Q4 2014 was unavailable; therefore, we cannot quantify beats/misses versus Street expectations. Consensus unavailable via S&P Global.
  • Implication: Model updates should focus on sustained NIM at ~3.4%, fading wholesale funding tailwinds in 2015, stable near‑term credit costs, and seasonal noninterest income patterns highlighted by management .

Key Takeaways for Investors

  • Record EPS with stable 3.43% NIM and stronger mortgage banking drove a clean Q4 print; operating leverage evident in sub‑60% efficiency ratio vs. prior year .
  • Funding tailwind is set to moderate in 2015, raising sensitivity to loan growth and asset yields; watch for margin compression if demand remains tepid .
  • Asset quality headline deterioration stemmed from a single municipal restructuring; low charge‑offs suggest contained loss content, but elevated NPAs warrant monitoring .
  • Capital return remains supportive (2.6% dividend increase, ongoing buybacks) amid 9.2% Y/Y tangible book growth and “well capitalized” status under new rules .
  • Near‑term setup: Q1 likely shows seasonal deposit outflows and weaker mortgage banking; wholesale funding to backfill liquidity; credit costs guided to remain similar to Q4 .
  • Medium term: With wholesale funding benefit fading, earnings trajectory hinges on accelerating organic loan growth and fee diversification; management’s liquidity position and deposit mix improvements are positives .

Appendix: Additional Operating Metrics

Average Balance Sheet Highlights (dollars in thousands)

MetricQ4 2013Q2 2014Q3 2014Q4 2014
Avg. total assets704,559 716,477 727,738 732,118
Avg. loans (net)507,898 513,163 528,420 526,591
Avg. deposits557,639 592,377 598,845 602,371

Nonperforming Assets Detail (dollars in thousands)

ItemQ4 2013Q3 2014Q4 2014
Nonaccrual loans (ex‑restructured)3,704 4,192 3,983
Nonaccrual restructured loans3,636 4,343 4,388
Restructured, accruing1,299 1,390 4,391
Foreclosed assets1,750 1,724 1,661
Total nonperforming assets10,389 11,649 14,423

Capital Return

  • Dividend declared: $0.40 per share, payable Jan 30, 2015 (up 2.6%) .
  • Share repurchases: 17,244 shares in Q4 at $33.71 average; plan to continue in March 2015 quarter .

Pro‑forma Adjustments (select items)

MetricQ4 2014Q4 2013
Pro‑forma net income ($000)1,805 1,588
Pro‑forma diluted EPS ($)1.10 0.96