For a community bank that quietly serves the heart of Wisconsin, PSB Holdings, Inc. (OTCQX: PSBQ) seems to be doing a lot of things right lately. The parent company of Peoples State Bank, based in Wausau with locations across northcentral and southeastern Wisconsin, just closed out its second quarter with not only record profits, but also a snapshot of what happens when fundamentals work in your favor and you keep costs under a tight leash.
From April through the end of June this year, net income for PSB climbed sharply, up 48% compared to the first quarter. That works out to $3.8 million in profit, or $0.89 per diluted common share. Not only is that a leap from the previous quarter’s $2.6 million and $0.60 per share, it also marks a sizable improvement from last year’s $2.4 million, or $0.56 per share, for the same stretch.
This isn’t just noise in the numbers. A closer look at PSB’s recent performance and its management approach reveals a story about how even mid-sized community banks can still find levers for meaningful growth, even as the banking sector remains unpredictable.
One of the big drivers this quarter has been the net interest margin, which bumped up again as loans repriced at higher yields and more new customers brought deposits. Net interest income rose to $10.7 million, a gain of $470,000 compared to the previous quarter, an increase that was helped along by slightly higher loan yields and even the lucky timing of an extra day in the quarter.
It was not just interest income that grew. The bank’s noninterest income, primarily from mortgage banking activity, jumped $230,000 to $2.1 million. People kept buying homes, and the corresponding mortgage activity filled out the revenue side for PSB quite nicely.
However, what might be most telling is how the company managed costs over the past three months. Noninterest expenses dropped by $776,000 to $8.2 million. This was not due to any one-time cuts or drastic measures, but rather lower salary and benefits expenses, along with small cost savings in things like occupancy and data processing. It’s a rare quarter when you can say that a company grew income while spending less to do it, but that’s exactly what happened at PSB.
Of course, growth isn’t just measured in quarterly profits. Over the past year, PSB has increased its tangible book value per share by 13.1%, up to $27.77, and paid out $0.64 per share in dividends. The return on average tangible common equity came in at 13.11% this last quarter, which is a nice uptick from the previous quarter’s 9.21% and noticeably higher than the 9.34% recorded a year ago.
The company has also been expanding its balance sheet. Total assets grew to $1.51 billion as of June 30, up by $46.8 million in just three months. This was bolstered by a sizable increase in deposits, which swelled by $47.5 million to $1.18 billion. Cash and cash equivalents more than doubled over the quarter, as the bank replenished reserves following brisk lending activity.
On the lending side, gross loans receivable moved up to $1.15 billion, with the lion’s share of growth coming from commercial and industrial lending. While commercial real estate construction and development loans shrank a bit, residential real estate loans and agricultural lending both edged higher, underscoring that PSB’s loan book remains broad and diversified.
Not everything was smooth sailing, though. Non-performing assets grew by $2.6 million to $15.6 million, or 1.04% of total assets. PSB noted that the increase was partly due to one relationship that moved another loan into non-performing status, and a separate issue in the timber industry. Even so, management expressed confidence that these situations are special cases and expects resolution on at least some by year-end.
Book value and capital strength remained solid, with tangible stockholder equity totaling 7.95% of tangible assets. Notably, deposit growth included both new core deposits and a decline in brokered deposits, which means the bank isn’t relying on less stable sources for its funding base.
PSB’s CEO, Scott Cattanach, summed up the period by emphasizing strong cost controls and improving margins, while acknowledging the uptick in problem assets but expressing optimism about resolving them soon. The takeaway is that PSB is showing how a community-focused bank can deliver growth and stability, without resorting to complex products or risky moves. Sometimes, it turns out, simple banking really does the trick.Â
